Are private labels the saviours of trade?

Beliebtesten Eigenmarken in Deutschland
Graphic: the 10 most popular private labels in Germany (Source)

What stops manufacturers from selling directly? Less and less, as the numerous examples last year made clear. Even larger consumer goods labels like 3M now run online shops, even if some still have the hand brake on.

The pressure on traders is growing because they are spreading themselves across the value chain and are trying to control sales channels more strongly themselves, rather than leave this to their trading partners.

Private labels are currently being discussed as a way out of this – if traders become manufactures themselves, this could free them from a dependency on manufacturers, as well as logistics.

Traders aim to make themselves more independent and less vulnerable to copying by the competition through their own process chains, brands, and products. Even more than that, the private label offers numerous other opportunities.

Opportunities for traders with private labels

At the end of the day, traders with interchangeable third party products can only be told apart by price. This leads to a risky price war. Those who stock their own products can set the price themselves and cannot be compared as easily. Correspondingly, greater margins are made possible, which tends to make doing business with your own labels more lucrative.

Another reason for this is that the products can only be sold exclusively on your own platform and customers cannot change over to the competition when they want to buy that brand again. Repeat buyers are guaranteed to return to your own shop.

Private labels are also a strategy to combat the direct sales ambitions of well-known manufacturers. These manufacturers are increasingly interesting in selling their products themselves or through exclusive partners, and so lower the diversity of marketplaces and in shop which only sell third party products. Private labels offer the opportunity to round off your own range, even if other brands jump ship.

Popularizing your private label

On the other hand, there are the classic arguments against private labels – the dream of »just« bringing your own products to the streets can quickly burst. After all, it takes a lot of work to make a completely unknown brand palatable to the customers. For a start, customers look for well-known brands when doing a product search and only come across your range when they search for alternatives – assuming of course. that these are properly played in the shop.

Developing a private label which goes down well with customers and completes your range in a way that makes sense is an art in itself. It is also a completely different business model to the one traders follow. There is an adjustment to an ongoing learning process here. It takes stamina to find the right strategy and to build up the brand.

Will there be a market flood?

But even apart from these well-known risks, there is a reason why private label are a risky topic. The large brand manufacturers are currently feeling that the internet is triggering a change in the way customers think. This has to do with the fact that there is simply no longer a limited amount of shelf space on which only the strongest brands are displayed. At the same time, more and more new brands are emerging; even brands which were unheard to up to now are getting themselves attention via digital channels.

Umsatz mit Handelsmarken
The proportion of brand names in retail turnover is rising. Source:statista.com

This is why brands, which only appear to be in competition with each other, but actually stem from the same manufacturer, make sense less and less. The first trail blazers are currently questioning their brand portfolio and will only focus on the most successful brands in the future. Procter & Gamble for instance, have announced that they want to let more than half of their brands go.

So those who take on a private label strategy have to be aware that it will be a hard fight, as the competition increases constantly.

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