Question

Why do you think Kimberley Clark manufactures private lebal diapers for safeway that complete head-on with its national Huggies label?

Assume that Huggies diapers carry a higher retail price.

Answer 1

Answer: Private label products are not only about making some extra bucks rather in most the cases it serves a definite strategic purpose for the companies who already own a big brand in that product category.

Similarly, Kimberley Clark is supplying the private label diaper for Safeway serves various advantages that outweigh the product cannibalization or loss of sales of Huggies label due to head-on competition.

Supply of private label helps in effective utilization of the manufacturing capacity as in most of the case the private label products are priced lower with respect to branded products and mostly supplied in bulk to the stores. This helps companies to achieve economies of scale in manufacturing and the money saved through economies of scale can be used for building the brand and fighting with the competition. Private label products also help to occupy the shelf space which might be captured by competing for the brand or private label products supplied by any other manufacturers.

Even though the branded products are retailed at a higher price but the demand is never unlimited or more than the production capacity of the company's manufacturing unit, therefore, it is a wise option to manufacture private label products even if it commands the lower retail price. The other major advantage of supplying the private label products is improved distribution reach of the product which otherwise could be missed and the opportunity to improve the production efficiency will be lost.

That is why Kimberly Clark makes the private label products even though it compete with its own branded product.