Impact of Private Labeling on Category Management

by Christine Hronec


There is no doubt that when one hears the term, “private label” generic store brands typically come to mind. However, the term does not effectively capture the impact of how much private labeling has evolved over the years. Both retail and eCommerce marketers manage their proprietary brands with the same combination of care and strategy as manufacturers of national brands.

In recent years, retailers have been liberating themselves from the traditional definition of private label marketing as being the poor relative of national brand consumer goods. This paradigm shift has opened up huge opportunities for private label branding. With the adoption of a different set of marketing and branding practices, these opportunities can not only support but drive the retailer’s business and marketing ideals for its private label brands.

Longer term business strategies show that appropriate marketing mix of proprietary brands versus national brands in a retail or eCommerce environment can drive longer term profitability. Proprietary brands are no longer at the mercy of pre-set pricing structures set by nationally distributed brands and are able to have more flexibility and creativity in promotions, sales, and ultimately are able to selectively push higher margin products.

Effective category management also enables retailers to solidify and optimize supply-chain relationships. A retailer or eCommerce site doesn’t need to be as focused on the sales of individual products where supplier negotiations are focused on the turnover of each respective category as a whole as opposed to brand by brand sales. One key reason for the introduction of category management was the retailers’ desire for suppliers to add value to their (i.e. the retailer’s) business rather than just the supplier’s own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. By introducing private labeled brands in the mix, the retailer can ensure that all actions undertaken with respect to promotions, new products, advertising are directly beneficial to the retailer and end user to support re-ordering. A customer that purchases a onetime sale of a national brand that is highly distributed due to convenience has no other reason to shop at the same place again unless other value adding elements are integrated by the retailer.

Strategic brand management goes hand in hand with these endeavors to establish sustainable points of difference in each category and segment within the store (or website). It also spurs decisions about how to appropriately define the retailer’s “own” brand portfolio in order to galvanize consumers to connect and reconnect with its franchise in a compelling manner.

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