Executive Briefings

What Are the Benefits of Private Label?

Analyst Insight: Exclusive in-house brands or comprehensive private-label ranges are increasingly being used to execute a differentiation strategy. Exclusive differentiation is one of the key elements to creating an exciting and productive retail environment. It is vital to explore the importance of exclusive and private-label brands as a key differentiator in apparel retailing today. – Nancy Marino, Senior Vice President, Tompkins International

What Are the Benefits of Private Label?

The drive behind exclusive and private-brand label product development is twofold: (1) increased profitability and (2) differentiation.

In an increasingly crowded market a well-crafted exclusive and private-label product proposition can form the basis of a range architecture that provides clear points of difference for the retailer and compelling reasons for discerning consumers to shop. The benefits to the bottom line for the entire business are compelling:

-Growing share of wallet: An exclusive or private-label product proposition, which is well constructed, can provide opportunities to extend the reach for retailers to a bigger market of new customers. Also, growing the share of wallet from current customers.

-Higher margins: Typically 10 percent to 20 percent better than established brands.

-Greater retailer brand equity and loyalty: Standing out in the marketplace is crucial: too much similar “stuff” provides no compelling reason for the consumer to visit your store. Send out the message that you have a great range of products that are different from your competition, what your customers want, and you reinforce the equity of your brand resulting in brand loyalty.

-Change the balance of power within the supply chain: Private-label assortments allow the retailer to leverage their negotiating power with their branded counterparts to improve overall contribution.

As with anything, there are upsides and downsides. Potentially there are significant margin, sales, and brand benefits in any well organized and executed exclusive and private-label brand product program.

There are risks. Key among these are the costs and investments required to develop exclusive and private-label brands, combined with the skills and capabilities of the teams necessary to create them. On top of this, the financial risks in controlling large and complex branded product inventories are high if not managed correctly.

Building a successful exclusive and private-label product development program requires skill, knowledge, and above all, commitment throughout the business. Developing new product ranges to compete with long established brands requires a different mindset, different organization of product development, buying, merchandising and quality assurance resources, and different expertise and capabilities. For example, in apparel, skills in design, product management, technical design, and color management will be needed to successfully develop new in-house private label ranges.

The Outlook

The traditional functional silo organization simply will not guarantee success; developing the capability to execute successfully is the acid test of success. Collaboration across teams internally and with external partners in distribution and manufacturing is critical for the process of building and developing ranges to be successful.

The drive behind exclusive and private-brand label product development is twofold: (1) increased profitability and (2) differentiation.

In an increasingly crowded market a well-crafted exclusive and private-label product proposition can form the basis of a range architecture that provides clear points of difference for the retailer and compelling reasons for discerning consumers to shop. The benefits to the bottom line for the entire business are compelling:

-Growing share of wallet: An exclusive or private-label product proposition, which is well constructed, can provide opportunities to extend the reach for retailers to a bigger market of new customers. Also, growing the share of wallet from current customers.

-Higher margins: Typically 10 percent to 20 percent better than established brands.

-Greater retailer brand equity and loyalty: Standing out in the marketplace is crucial: too much similar “stuff” provides no compelling reason for the consumer to visit your store. Send out the message that you have a great range of products that are different from your competition, what your customers want, and you reinforce the equity of your brand resulting in brand loyalty.

-Change the balance of power within the supply chain: Private-label assortments allow the retailer to leverage their negotiating power with their branded counterparts to improve overall contribution.

As with anything, there are upsides and downsides. Potentially there are significant margin, sales, and brand benefits in any well organized and executed exclusive and private-label brand product program.

There are risks. Key among these are the costs and investments required to develop exclusive and private-label brands, combined with the skills and capabilities of the teams necessary to create them. On top of this, the financial risks in controlling large and complex branded product inventories are high if not managed correctly.

Building a successful exclusive and private-label product development program requires skill, knowledge, and above all, commitment throughout the business. Developing new product ranges to compete with long established brands requires a different mindset, different organization of product development, buying, merchandising and quality assurance resources, and different expertise and capabilities. For example, in apparel, skills in design, product management, technical design, and color management will be needed to successfully develop new in-house private label ranges.

The Outlook

The traditional functional silo organization simply will not guarantee success; developing the capability to execute successfully is the acid test of success. Collaboration across teams internally and with external partners in distribution and manufacturing is critical for the process of building and developing ranges to be successful.

What Are the Benefits of Private Label?