Monday, March 05, 2007

Everything you ever wanted to know about private labels: What I'm reading now #3

Unless you're a consumer-packaged-goods marketer or retailer, you probably have no idea how pervasive private labels have become in the stores you frequent. But the next time you go to the drugstore, see if you pick up a bottle of Aleve or the CVS naproxen sodium placed right next to it.

Professors Nirmalya Kumar of London Business School and Jan-Benedict Steenkamp of Duke University have satisfied the curiosity of everyone who ever wanted to know about private-label goods by writing Private Label Strategy: How to Meet the Store Brand Challenge.

According to the authors, the opportunities for private labels are vast, and the challenges to branded goods are daunting. Private label goods provide a point of differentiation for the retailer (such as Target or Tesco), and they create powerful leverage when negotiating terms with brand manufacturers.

Leading packaged-goods companies, like Procter and Gamble, Unilever and Nestle, are responding to the challenge. How? Four main ways:

  1. partnering with retailers to produce exclusive specialty offerings
  2. innovating like crazy to stay ahead of copycat private-label offerings
  3. divesting laggard brands
  4. increasing investment in advertising and marketing for the brands they retain
To point (4), the authors point out a most interesting development: as a result of the increasing size and scale of retailers, brand manufacturers' marketing dollars have been drawn away from advertising and other brand-building activities toward point-of-purchase and promotion investments. The latter help the retailer and sales (in the short term), but at the cost of the long-term value of the product--and as a side effect improving the prospects for private-label copycats.

The book is essential reading for any consumer-packaged goods companies or retailers, and for anyone else who wants to study up on a dimly-lit corner of the marketing world.

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