Question

Explain two reasons why private label products can be both lower priced than national brands in retailer stores but also more profitable for retailers to sell.

Answer 1

Private label products are those products which are produced and sold privately. The operations of production are privately managed and thus the owners are solely responsible for what and how production and sales need to be carried out.

The private label products can sometimes be both lower priced and highly profitable for retailers because:

1. The economies of production and incentive to produce more and earn more gives a cost advantage to private producers which leads to lower input costs, unlike national brands which are produced at the same cost and low incentive since long

2. The private manufacturers give discounts and other offers to retailers to sell their products so as to increase their sales in the market and also indulge in advertising to divert public attention from national brands to their own private brands so as to increase sales. Retailers are also sometimes offered commission on sales which incentivizes them to increase sales and thus increase profits.

These two reasons explain why private label products can be both lower priced than national brands and also more profitable.