Contents
- What is a private label?
- Companies using private labels
- Strategies for creating private labels
- Advantages and disadvantages of private labels
What is a private label?
A private label (PL), also known as Private Label or store brand, is a brand of goods owned by a retail company, marketplace, distributor, or wholesaler. It serves as an alternative to traditional brands, which typically have high costs due to significant advertising and marketing expenses. In contrast, PLs are usually offered at lower prices, making them attractive to consumers.
One example is the Global Village brand, owned by the retail chain X5 Group, which includes stores such as "Pyaterochka" and "Perekrestok." Under this brand, beverages and food products made from fruits, vegetables, and seeds are sold. PLs can have unique names, such as "365 days" at "Lenta," or be similar to the main brand, like "OK Selection" at the "OK" chain. Retailers can have one or multiple private labels, allowing them to expand their assortment and meet customer needs.
Companies using private labels
Private labels are actively adopted by various companies, including:
Retail Chains
According to "ACORT," in 2022, about 60% of retailers launched new brands and added more than 5,000 products to their assortments. With the departure of foreign brands from Russia, there has been a significant increase in PLs. For instance, companies such as "Sportmaster" and "Detsky Mir" launched their own brands of sportswear and children's products, allowing them to attract customers and fill gaps in their assortments.
Marketplaces
Companies like "Yandex.Market," OZON, and Wildberries are also developing their own private labels, offering products in high-demand categories: from clothing to home electronics. In particular, Wildberries introduced televisions under the private label RAZZ.
Wholesale and Distribution Companies
Although theoretically they can create PLs, in practice this occurs less frequently than in retail.
Strategies for creating private labels
There are three main strategies for developing private labels:
- Undercutting: This is the simplest way to enter the market, where a brand offers in-demand products at a reduced price. This attracts consumers looking to save on everyday expenses.
- Replacing a competitor: A more complex strategy that involves displacing leaders in a product niche, especially in categories where consumers are not attached to specific brands.
- Brand extension: This is the most complex method, where the main brand actively supports the PL, allowing it to develop and become a full-fledged brand.
Advantages and disadvantages of private labels
Private labels offer many benefits for both owners and consumers:
Pros for Owners
- Uniqueness of products, helping to stand out among competitors.
- Reduction in dependence on suppliers, which is particularly important in the context of sanctions.
- Price control and increased customer loyalty due to lower prices.
- Growth in sales and profits due to increased margins.
Pros for Consumers
- Affordable prices for similar products.
- A wide selection of products in various price categories.
Disadvantages of Private Labels
Despite the advantages, PLs also have their risks:
- Reputational risks for owners if a PL turns out to be of poor quality.
- Risk of market share loss for manufacturers due to low prices.
- For consumers, there is a danger of purchasing low-quality products.