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Private Labels Providing Value

Private label products offer higher margins to retailers.
Consistently profitable companies create and sustain a strategic competitive advantage in the marketplace. This strategic advantage is the combination of things that makes them different than their competition.

We might view the competitive advantage as a moat that protects their castle of business success.

Three famous examples of sustainable competitive advantage are Coke, KFC, and Microsoft. For Coke, it’s their branding. For Microsoft, it’s their control of the personal computing operating system. KFC has several ingredients in its famous secret chicken recipe.

One mistake we see companies make time and time again is deciding that they will make price the only ingredient in their secret recipe. Choosing "price” as the company’s only sustainable, strategic, competitive advantage simply doesn’t work. Why? Because it's neither sustainable nor strategic.

Price is a tactic (short term solution) and not a strategy. All that has to happen to hurt your company is to have someone with lower business overhead enter the market and steal away all of your price sensitive customers.

Poof! You are out of money and out of business. The competition just jet skied right across your moat and took over your castle.

One reason true private labels are a growing part of many companies' sustainable competitive advantage is that they represent an important ingredient in the secret recipe. That ingredient is VALUE.

  • Price is something taken from the customer.
  • Value is something provided to the customer.

Product Features + Product Benefits – (Minus) Product Cost = Product Value

A word that best represents a “true” private label is “VALUE”. The company and its products offer special features and benefits to the customers that are not available elsewhere.

Private Label items can give customers new or extra reasons to choose one store over another that carries only the same selection of name brand products.

Private Label and Store Brand – Are They The Same?

The term Private Label has become such a business success buzz word, companies are now “borrowing” it. Store brands are not the same things as “true” private labels. Store brands are regular items offered at a slightly lower price than national brands. Store brands are usually not created to deliver unique product features and benefits not available elsewhere that marks a true private label. They are created to increase the profit margin to the store.

Store brands are most likely to be a standard item (e.g., clothing, food, fixtures) wearing the company’s store brand name. Store brands are easy to spot, they are usually available at a slightly lower price than a similar national brand.

The most descriptive word for a store brand is “Savings”.

The two most descriptive Private Label words are “Special” and “Value”.

© 2002-2005 Source: Making Business Work, Kamaron® Institute. All rights reserved. No reprints.


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