Page 213 - DMGT554_RETAIL_BUYING

Retail Buying

Notes think of is Kirkland. Kirkland is Costco’s private brand. They create the products themselves
and sell it right next to the national brands in Costco retail stores. Kirkland makes everything
from vitamin supplements to apple juice. Kirkland has become extremely popular and consumer
trust in private labels has grown and grown.
One of the biggest hurdles private labels had to jump was gaining consumer trust. Generally,
they have succeeded in this task. To save money, I have been buying private label brands for a
little while now. They are generally 10-20% less than national brands and are almost identical.
If you have your favorite item by a national brand that you absolutely love, by all means buy it.
However, most products there will be little to no difference in quality. Go ahead and try it out.
Buy your favorite national brand product and buy one of the private label products and test the
difference. I’m certain you will be pleasantly surprised. Saving 10-20% on half the products you
buy at stores will save you a ton of money by the end of the year.
Typically, private label brands are referred to the mass FMCG (Fast Moving Consumer Goods)
distributors’ labels, for example: Wal-Mart, Tesco, Aldi and Carrefour. However, the category
also includes the single-brand retailers, such as the internationally well known IKEA, Zara or
H&M. According to Kumar and Steenkamp (2007), there are four types of private labels: generics,
copycats, premium store brands and value innovators.
Generic private labels most often cover the basic functional (low involvement) product categories,
such as paper towels, soft drinks, pet food, everyday canned foods, etc. They do not carry the
name of the manufacturer or retailer and are mainly positioned at the lowest possible price.
Generic private labels are low quality, undifferentiated products, usually offered in one size and
one variant only, less visible on the shelves, and rarely promoted. Moreover, usually their
packaging is created of black letters on a white background. Copycats are of quality close to
branded manufacturers’ products and sold with a discount of usually 5-25% compared to the
brand leader. Very often copycat brands are produced intentionally to be as similar as possible
to their branded counterparts (even in their packaging), and that might confuse the customers.

The continued importance of so-called Private Label products to leading retailers is undeniable.
Based on the most recent reports, these products are continuing to generate more growth than
traditional national brands among major chains for nearly every category. Perhaps more
importantly, more than half of all consumers believe that retailer-sponsored products are “at
least as good as” nationally branded products and 48 percent say they actually prefer and seek
out private brands.
There are three basic reasons for the development and growth of store brands:

1. The shift of power from national brand marketers to national retailers: Prior to the days
of modern distribution capabilities and multi-market promotional capabilities, national
brand marketers had the border and the muscle to divide and conquer retailers who were
not able to amass large amounts of purchasing power to demand lower prices. In the U.S.,
Wal-Mart (in fact, following the Sears model) forever altered the landscape by leveraging
massive buying power through a single point of purchasing.
2. The ready availability of high quality, low priced private label production capacity: Most
of the early private label sales did not come at the outlay of nationally branded, highly
marketed products. Private Label fed on regional or under promoted price brands. As
“own brands” increasingly encroached upon these businesses, company owners quickly
offered up their manufacturing capacity for private label products (such as Royal Crown
Cola switching its capacity to President’s Choice). Once retailers found they could usurp
the placement of third, fourth and fifth brands – not to mention their production
capacity – they became more aggressive about seeking more of these opportunities. As
global logistics came to the fore, this added inexpensive and high quality capacity for
everything from food to automobiles.

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