The Viability of Major Brands Supplying Private Label Products - Essay Example

The viability of major brands supplying private label products BY YOU YOUR SCHOOL INFO HERE HERE The viability of major brands supplying privatelabel products Companies that produce major, recognised brands often adopt the if you can’t beat them, join them philosophy which underpins the production of private label products for distribution in conjunction with sale of their own name-brand products. There is considerable debate offered by marketing professionals that this strategy can produce negative outcomes and essentially erode the brand power of name brands produced by this dual-production company. This essay explores whether private label sales by companies offering major brands is viable. Tesco, one of the world’s largest supermarkets, witnessed a 100 percent increase in consumer demand for private label products between 1982 and 2004 (Coriolis Research, 2004). Hamstra (2009) asserts that growth in private label consumption is outpacing major brands by a factor of 300 percent. Furthermore, the post-recession consumer, today, has adopted behaviours related to frugality and thrift which is creating a situation where consumers are willing to trade major brands for lesser-cost private label alternatives (McDougall 2011; Flatters and Willmott 2009). Hence, the socio-economic environment appears to be viable for dual-producing companies wishing to supplement revenue growth by distributing private label products. Hormel Foods sells many successful private label products including desserts, salt substitutes, and canned meats (Ashley, 2014) that compete with its own Dinty Moore, SPAM and Jennie-O major brands. Dual-producing companies believe that because they utilise comparable production equipment in private label production, use similar quality ingredients, and abide by the same stringent regulations, their private label products can achieve consumer loyalty and profitability. However, when a major brand producer is making private label products, it potentially creates a situation where the producer is competing with itself. Private label brands usually carry a lower price tag, which makes them enticing and relevant for price-sensitive consumers with only moderate consumption resources. For a company with major brands, some with premium prices that are justified through decades of effective marketing promotion, having lower-cost alternatives available in an established market poses considerable potential risk. It is estimated that private labels are generally, on average, priced at a rate 21 percent less than comparable major brands (Batra and Indrajit 2000). Hence, marketing experts could be correct that this dual-producing strategy could be detrimental to achieving sales success for major brands. In an environment where the post-recession consumer is scaling back premium-priced purchases in favour of frugality, consumers might flock to the private label brands and consume less of the firm’s major brands. Whilst the firm would theoretically achieve greater sales of its private label products, the higher-priced name brand products would provide much greater revenues if the sale of the major brands outpaced private label sales. Does it make logical sense for a company to compete with itself by providing private label and major branded products? Hoch and Banerji (1993) appear to think so, believing that customers measure perceived high quality in greater proportion to price when making the decision to select private label or major brands. Private label products must adhere to quality assurance systems and government-imposed regulations (especially in terms of food-related safety), therefore these private label products are comparable to major brand product quality. Private label brands, today, are articulated in such a fashion to give consumers a quality-oriented brand proposition which serves as a predictor for future repurchases of the private label products. Steenkamp, van Heerde and Geyskens (2010) assert that many of today’s private label brands are being promoted at the higher stratum of total product quality. However, De Wulf, Odekerken-Schroder, Goedertier and Van Ossel (2005) conducted an empirical study and found that the majority of consumers believed that name brands were of higher quality than private label products. However, in this same study, it was discovered that private label quality was judged higher than comparable name brands in blind taste testing experiments (De Wulf, et al.). Therefore, perceived quality from a social perspective would seem to favour the name brand over that of the private label. However, since consumers favoured the quality of private label brands when it was uncertain what they were testing, private label brands’ legitimate quality may promote future repurchases when consumers are surprised by the high quality benefits they received by selecting a private label product. It seems, therefore, that there are potential drawbacks and potential advantages to a company seeking a dual-product distribution methodology. Retailers that carry private labels are highly attracted to these products as they give the retailer more bargaining power over major brand producers. Therefore, retailers attempt to build consumer confidence in private labels and have more control over advertising with these products as a means of boosting retailer profitability. This could be a problematic scenario for the firm’s major brands. With the retailer being more diligent about promoting private label products due to the benefits and control it brings the retailer, internal creative promotions of private label products could attract more consumers to the private label brand rather than the company’s comparable name brand offerings. If, indeed, the quality of these products is comparable to the major brand alternatives, now the consumer can theoretically perceive a price-quality advantage which influences future consumption of the private label over that of major brands. Another potential disadvantage with this strategy is related to product differentiation in an established sales market. Choi and Coughlan (2006) assert that the high quality aspects of today’s private label brands can ultimately force a national brand to lose its quality differentiation position. Because similar technologies, processes and ingredients go into the private label product, it is feasible that the reputation of the private label product can achieve similar standing to the national brand, thereby eroding brand equity for the name brand. This would pose long-term risks to the name brand distributed by the dual-producing firm. Additionally, the private label produced by the major brand marketer does not regularly attach the name of the producer to the private label product. For instance, such private label brands as Chef’s Choice or Western Family do not, anywhere on the label, create association with the producer. Many name brands have strong consumer loyalties and brand preference and it would theoretically be advantageous if private label sales were promoted as being synonymous with the producer of the trusted name brand. Research did not uncover any harmonisation between name brand and private label brand for a dual-producing company as part of private label best practice. Hence, there is a risk that consumers could choose the name brand over the firm’s comparable private label products which would be a detriment for the dual producing firm as the firm has invested considerable expenditures and labour into the private label production process. If these ingredients and operational expenditures had been incorporated into the major brand, rather than the private label, consumers that already trust in the major brand might have generated even higher sales volumes and eliminated substantial costs associated with a potential private label market failure. Consumers tend to believe that purchasing a product with simple packaging and that which carries a lesser-known name is a very risky decision and creates doubt about the private label (Sudhir and Talukdar, 2004). It might, therefore, mean that the name brand dual producer will have to invest even more capital and human resources into the promotional function simply to assure consumers that the private label is valuable and worthy of purchase. For an established name brand, these investments are often not substantial due to years or decades of effective marketing that has built strong brand recognition and, in a best case scenario, brand preference and loyalty. After having examined all available literature on the phenomenon of a dual production strategy for name brands and private label brands, it would appear that there are more potential negative consequences of this strategy. Private label brands usually are priced considerably lower than name brands and not all consumers will theoretically want to defect to private label products after having positive, historical experiences with their favourite name brand. Coupled with uncertainty and perceived risk for making private label purchases, a firm may not achieve the type of profitability anticipated by trying to exploit two different brands. The most prominent goal of any for-profit organisation is to achieve greater revenue growth and, by most measures, it would appear that a higher-priced product with strong brand recognition and equity would be much more favourable to produce and distribute over that of private labels with little reputation in the market. Furthermore, if high-quality private labels are able to potentially overshadow the name brand or, at least, achieve similar standing to the name brand, the dual-producing company has just created a new competitive force: itself. Whilst theoretically a private label brand can boost a firm’s revenue growth if it becomes attractive and deemed relevant to various consumer segments, there seems to be little rationality in this strategy in an environment where a firm can devote these resources and human efforts into producing more quantities of the name brand product. A business competing against itself appears somewhat obtuse and creates a new type of risk to the business that was not present when only distributing a single, major brand product. References Ashley, M.J., 2014 Private label (generic) vs. branded products: differences aren’t black and white anymore. AAM Insurance Investment Management. Available through: < http://www.aamcompany.com/private-label-generic-vs-branded-products-differences-arent-black-and-white-anymore/> [accessed 18 November 2014]. Batra, R. and Indrajit, S., 2000 Consumer-level factors moderating the success of private label brands. Journal of Retailing, 76(2), pp.175-191. Coriolis Research, 2004 Tesco: a case study in supermarket excellence. Available through: [accessed 16 November 2014]. De Wulf, K., Odekerken-Schroder, G., Goedertier, F. and Van Ossel, G., 2005 Consumer perceptions of store brands versus national brands. Journal of Consumer Marketing, 244, pp.223-232. Flatters, P. and Willmott, M., 2009 Understanding the post-recession consumer. Harvard Business Review, July. Available through: [accessed 29 October 2014]. Hamstra, M., 2009 Whole Foods improves image. Supermarket News, 57(20). Hoch, S.J. and Banerji, S., 1993 When do private labels succeed? Sloan Management Review, 34(4), pp.57-67. McDougall, A., 2011 Innovation vital to change post-recession consumer behaviour, Mintel, Cosmetics Design Europe. Available through: [accessed 7 November 2014]. Steenkamp, J., van Heerde, H. and Geyskens, I., 2010 What makes consumers willing to pay a price premium for national brands over private labels? Journal of Marketing Research, 47(6), pp.1011-1024. Sudhir, K. and Talukdar, D., 2004 Does store brand patronage improve store patronage? Review of Industry Organization, 24(2), pp.143-159. Read More