Private brands, owned by retailers rather than manufacturers, have been around for decades and are used in various industries. Retailers benefit from reduced overheads and the ability to offer unique products without the need for extensive research and development. Manufacturers benefit from increased distribution outlets and production volume. Private labels are not limited to supermarkets and are used in various industries, including electronics, telecommunications, pharmaceuticals, and apparel.
Sometimes called house brands, private brands are product brands owned by the retailer rather than the entity producing the product. The private label concept is not new and is used in many different industries. Most people are used to seeing private or store brands displayed alongside national brands on the shelves of supermarkets, drugstores and many other retail chains.
The concept of private labels has been around for many decades. As early as the mid-nineteenth century, there is evidence of the first large department stores hiring suppliers to sell some of the products sold on store shelves under their own brand. The trend has continued to this day, with some of the better known retail companies sometimes attracting customers based on the quality of their home or store brands, as well as their selection of national brands.
Private label retailers benefit from the activity in several ways. First, there is no need to establish manufacturing facilities to produce the offered goods or services. The retailer does not need to hire additional staff, handle the procurement of raw materials, or provide storage space for finished products until they are sold to a customer. Because someone else is handling such details, the overhead for the retailer is significantly less than if the company were to try to produce the products themselves.
Another advantage of using private labels is that the retailer does not have to spend a lot of time and money researching and developing new product lines. Manufacturers who produce the products and organize private labeling engage in this type of activity and then offer the retailer the opportunity to uniquely brand any new products or services that the supplier decides to carry. Often, the retailer is informed of the results of the field tests and the identification of the niche market in which the good or service is likely to generate interest, and can determine whether it wants to go after that particular market sector.
For the manufacturer, private labels also provide another outlet for distributing their products or services. By producing the same products for the distribution of their national brands and labeling them with private labels for multiple customers, the production volume is many times greater than otherwise. This translates to more net profit for the manufacturer in the long run, helping the company remain stable even in tough economic times.
While many people automatically think of supermarket products when they hear about private labels, the fact is that many different industries routinely use private labels. Dealers of electronic equipment, telecommunications services, pharmaceuticals, and even apparel often contract to sell branded products under their own brand name.
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