Private label brands, also known as store brands or house brands, are products developed, manufactured, and marketed by retailers themselves. Over the years, private labels have evolved from being perceived as lower-quality alternatives to national brands to becoming key players in the retail ecosystem, becoming an integral part of the modern retail landscape.
Private labels’ origins can be traced back to the early 20th century, but it wasn’t until the latter part of the century that they began to gain traction. Retailers recognized the potential to provide customers with affordable yet quality products under their own branding. As economic factors and consumer preferences shifted, private labels expanded beyond basic goods to encompass a wide variety of product categories, including groceries, apparel, electronics, and cosmetics.
With post-pandemic inflation, consumers began shifting more and more to private labels to save money. Analyzing data from over 2,000 consumers, Attest discovered almost 86% of shoppers are likely to purchase private brands. Additionally, almost 74% say they plan to stick with those brands.
How inflation favors private label brands
Private label brands can sometimes perform better during inflation due to several factors that align with consumer behavior and market dynamics:
- Cost-Conscious Consumers
Inflation often leads consumers to become more price-conscious and value-oriented. Private brands are typically positioned as cost-effective alternatives to name-brand products, making them more attractive to consumers looking to save money during periods of inflation.
- Perceived Value
Private label brands may be perceived as providing better value for money. When inflation drives up the prices of national or name-brand products, the price gap between these products and private label offerings can widen, making the latter more appealing.
- Price Stability
Private brands might be more agile in adjusting their pricing strategies compared to national brands. National brands often have established pricing structures and brand equity to uphold, which might make it harder for them to respond quickly to inflation-driven cost increases.
- Retailer Incentives
Retailers often have a vested interest in promoting private label products during inflation. Private label products typically yield higher profit margins for retailers compared to national brands, and retailers may prioritize promoting products that contribute to their bottom line.
- Customization and Flexibility
Private brands may have more flexibility to adjust their product offerings to align with changing consumer preferences and market demands. This customization can allow them to respond more effectively to shifts in consumer behavior during inflation.
- Diverse Assortment
Private label brands often cover a wide range of product categories, which can be beneficial during inflation. Consumers may be more willing to explore private label options across various product categories to save money.
- Less Reliance on Marketing
Established national brands often invest heavily in marketing and advertising, which can be expensive. Private brands might have a leaner marketing approach, allowing them to allocate resources more efficiently during times of economic uncertainty.
- Strong Retailer Relationships
Private label brands typically have strong relationships with retailers, as they are a source of exclusive products for the retailers. During inflation, these relationships can translate into better placement and promotion within stores.
- Consumer Trust
If private label brands have built a reputation for quality and reliability, consumers might be more inclined to trust them even during inflation. This trust can contribute to sustained customer loyalty.
- Diverse Sourcing
Private label brands often have diverse sourcing options for their products. This flexibility in sourcing can help them manage supply chain disruptions caused by inflation-related challenges.
Benefits and challenges of private label brands
Private brands offer several benefits to both retailers and consumers. For retailers, these brands provide higher profit margins, greater control over branding and pricing, and increased customer loyalty. For consumers, private labels offer competitive pricing, value for money, and a range of product choices. Additionally, private labels often tailor their offerings to reflect local tastes and preferences.
Despite their growth, private labels face several challenges. Building trust and brand recognition in a market dominated by established national brands can be difficult. Overcoming the stigma of being generic or lower quality requires consistent quality and communication efforts. Additionally, private label brands must carefully navigate supply chain complexities, sourcing strategies, and competitive pressures.
Consumer perception and preferences
Consumer perception of private labels has evolved as the quality and variety of these products have improved. Today’s consumers view private labels as viable alternatives to national brands, particularly in times of economic uncertainty or inflation. The perceived value, coupled with positive experiences, has led to increased loyalty among private label consumers.
To succeed in a competitive market, private label brands must adopt effective strategies. Developing a strong brand identity, investing in quality assurance, and implementing innovative marketing techniques are key steps to build consumer trust. Collaborative relationships with manufacturers, retailers, and suppliers are essential to ensure product availability and cost-effectiveness.
Impact on retail landscape and future of private labels
The rise of private label brands has altered the retail landscape. Retailers now invest in creating unique private label portfolios that cater to different consumer segments and preferences. Private labels have forced national brands to enhance their value propositions and competitive pricing, leading to a more dynamic and consumer-focused retail environment.
The future of private label brands looks promising as consumer preferences continue to evolve. The rise of e-commerce, changing shopping behaviors, and sustainability concerns present opportunities for private labels to innovate and adapt. Private labels will likely play a significant role in shaping the retail industry’s future, influencing product offerings, pricing strategies, and customer experiences.
Whether you are a name-brand CPG or a private-label retailer, MarketDial can help you test your product against the competition. To learn more how in-store testing can support you, check out these resources:
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