Own brands are used by large distributors in the commercialization of products throughout their network, they are useful to print their brand assets on these products and thus bring their image and prestige to their customers. They are also known as private labels, private label, or middleman brands.
Definition
A private brand can be defined as the distinctive sign, used by both a retailer and a wholesaler, which may or may not coincide with its commercial name, to distinguish products or services distributed under its control, through its commercial network. It should be noted that the owners of these brands, in no case, are manufacturers, they only distribute products manufactured by third parties distinguishing them with their own brand. In this way, distributors try to project, in their own brands, their commercial reputation, their prestige or good name, making it possible for the goodwill of these brands to grow relatively quickly without excessive financial investment. (Galán and Carbajo, p.272)
Origin
The first known indications of the use of their own brands indicate that Sainsbury's, the second largest supermarket chain in the United Kingdom, was the pioneer on the subject, implementing them towards the end of the 19th century when they began to buy some products in bulk and then package them and sell them directly in their stores at a lower price. It is said that currently, 50% of their sales are from products with their brand.
Classification
According to Galán and Carbajo (p.273), own brands or private brands can be classified into:
- Generic brands. They are used to market basic products for consumers with very low purchasing power, who determine their purchase solely based on price. They are packaged in simple, inexpensive packaging, unbranded or branded in a secondary position on the package. Establishment brands. Used in products bearing the distributor's trade name, they aim to convey a sense of quality through carefully crafted packaging and presentation, project the distributor's brand qualities or assets, and compete with the products of leading brands. Own brands. The distributor uses a distinctive sign different from its own on the products, but its distribution is exclusive to its network, so even though consumers do not associate them with the distributor's brand at the dawn of their launch, in the medium term (given the exclusivity) customers detect the relationship and associate the two brands, with the conveniences and synergies that this brings. Private or intermediary brands. The same product, marketed by several distributors, with different distinctive signs for each distributor, which facilitates rapid market penetration (benefit for the producer) with a unique image in the market (benefit for the distributor).
Factors that favor its appearance
- Concentration of distribution More demanding and rational consumers in their purchase Demand below supply Hard budget constraint Margins with a downward trend Accelerated development of large distributors Hard negotiation rules between distributors and manufacturers / suppliers that include, among other conditions, longer payment terms, demand for greater number of promotions and discounts and increase in the price of their services (spaces in the gondola, coding of new products, etc.)
Impact
It is assumed that the greatest benefit of private labels is for end consumers, but everyone in the chain, manufacturers / suppliers, distributors and consumers, is favored by this system.
- For consumers, the promise of their own brands lies in the fact that they will get products of similar quality to the traditional ones at a lower price. Distributors improve their profitability by reducing costs, that is, increasing margins, and they can also create a difference in positioning since They strengthen their image, build customer loyalty and improve their negotiating position with manufacturers / suppliers. Do suppliers lose? They will probably lose the bargaining power factor, but when you have underutilized installed capacity, what better way than to put more units for sale without investing in marketing or any other promotion (space in gondolas, location in the supermarket, merchants,…).
Bibliography
- Galán Corona, Eduardo and Carbajo Cascón, Fernando. Brands and commercial distribution. University of Salamanca, 2012. Painted Blanco, Teresa and Sánchez Herrera, Joaquín. Corporate image. ESIC Editorial, 2013
