Private Label –1 Private Label Brands Professor Carl Mela BA 460 Product Management Fuqua School of Business Brand Management System On Building A Brand Managing Across Brands

Private Label –2 Agenda Extent of problem. How to combat private label threats.

Private Label –3 Private Labels Until 1950’s more common than national brands About 20% of grocery sales (Hoch paper) Problem exacerbated in weak economy More common in categories where risk is not a factor (as opposed to shampoo)

Private Label –4 Strategies for Combating Private Labels Quality 1/Price Provide More for the Money Innovate NATIONAL BRAND PRIVATE LABEL Reduce Price Gap Do Nothing Make Premium Private Label Introduce Value Flanker Source: Stephen Hoch

Private Label –5 Strategies for Combating Private Labels Do nothing –Wait for economy to improve –Retailers are sufficiently diffuse, their power is low –In small categories with little potential return, retailers not likely to invest in private label –However, share loss may occur

Private Label –6 Strategies for Combating Private Labels Differentiate –More for the money –New and improved –Advertise –Eliminate weak brands and focus on strong Better retail support

Private Label –7 Strategies for Combating Private Labels Reduce price gap –Lower costs –It is often not profitable for retailer to close price gap (mfr brand loses high margin, store brand loses volume) Me too strategy –Fighting brands (Kodak Funtime Film) –Protects brand (+) –Cannabalization (-); Revenues do not cover product introduction costs (e.g., advertising and slotting fees)

Private Label –8 Strategies for Combating Private Labels Make a private label (Dunne and Narasimhan) –Can test formulations as a P.L. –Can increase price on premium brand w/P.L. entry –Can formulate to target competitor, not self –Can obtain cooperation on shelf positions (P.L. to right hand side of competitor - as 90% right handed) –Key threat: retailer owns customer, threatens to drop you without price concessions

Private Label –9 Summary Solutions to the private label problem –Do nothing –Better retail support –Differentiate –Reduce price gap –Fighter brands –Can’t beat ‘em, join ‘em (source the private label)