Private label brands are products sold under the retailer's name rather than the name of the company which produces them. Private label products cost 20 to 50 percent less than national brands, which makes them a powerful draw for consumers, especially during recessionary times. Private brands are not available on a widespread basis, and consumers who move from one part of the country to another are unlikely to find the private label brands they are used to. In most supermarkets, private brands compete directly with national brands, which probably include the company that actually produced the private goods. This research examines the issue of private labeling from the perspective of both the manufacturer and the retailer.
Private brands are not available for all types of products. Large-ticket items, such as cars, do not lend themselves to private labels. For private labeling to work, the goods must be substitutable and standardized. Consumers who purchase a box of cereal have an expectation as to what that cereal will look and taste like; so long as the private label is close to that expectation, the consumer will consider the private label a reasonable alternative. There is no question of warranties or having to deal directly with the manufacturer of the item after the purchase.
Food products in particular lend themselves to private labels. This is because consumers of food products are particularly price sensitive, especially during recessions, and because comparisons of various food products are easily made. A consumer can purchase a box of cereal or a package of cheese, try it, and decide whether or not it meets the consumer's needs without a significant monetary investment. Other products which are popular candidates for private labels include diapers, cigarettes and clothing.
Manufacturers of private brands are names that are generally recognizable as national brand leaders. Ralston Purina, which has only ...