What Is a Private Brand?
A private brand is a good that is manufactured for and sold under the name of a specific retailer, competing with brand-name products. Also referred to as "private label" or "store brand," prices for private brands tend to be less than those of nationally recognized name brand goods. Private brand items can provide retailers, such as supermarkets, with a better margin than the brand-name goods they also carry.
How a Private Brand Works
Private branded goods are usually made by third-party or contract manufacturer, often on the same production lines as other brands. They can differ only in labeling or be entirely unique. Private branding is a cost-effective way to produce a product without investment into large manufacturing facilities, designers, quality assurance personnel, or a specialized supply chain. By using outside manufacturing help a retailer can offer a wide range of private label goods that appeal to both cost-conscious shoppers as well as premium-product consumers.
Major private branding benefits include allowing retailers to offer a greater variety and reach a wider audience while keeping control over their marketing and image.
Advantages and Disadvantages of a Private Brand
Private brand goods offer several benefits to retailers. This includes an expanded product line, which allows retailers to be able to offer a greater variety of products, appealing to cost-conscious and premium consumers. Private brands also allow control over marketing, allowing the retailer to tailor a product to local needs and tastes. There’s also control over production and image that private branding allows. These brands can create a sense of loyalty as well and are generally more profitable than name-brand goods.
On the downside, a retailer can lose big if it makes a poor choice on what products to private brand. Some branded merchandise can be returned to a distributor or manufacturer, but many private brand goods cannot be and could wind up in clearance or as dead inventory. Also, some manufacturers may require minimum orders, so the loss can be significant if a private brand item does not sell. Also, there are risks associated with relying on an outside manufacturer.
Key Takeaways
- Private brands, also known as private label and store brands, are made and sold for a specific retailer and meant to compete with brand-name goods.
- Private brands tend to be cheaper than name brand goods and provide retailers with higher margins.
- Many retailers offer private brands, including supermarkets, which may offer organic-only premium goods or lower-cost generic brands.
- Private brands are generally made by third-party or contract manufacturers and can be the same as name brand goods, only differing in labeling, or be completely different.
Example of a Private Brand
Most retailers feature private brands. This is especially true of supermarkets, many of which have more than one private label. For example, some supermarkets offer low-cost private or generic brand goods and also feature premium private brands. Some even offer an organic-only private brand option. Often, these products share the same shelf space.
Fast Fact
Private brands make up 15% of U.S. supermarket sales.
Other examples of private brands include hardware stores that may offer private label paint or other items and hair salons that may offer their own shampoo or beauty products. Supermarket private brands are available in nearly every category, from personal care and beverages to condiments and frozen foods.
