Question

Marketing Class

With the growth of generic products and private labels, is product branding still an effective strategy for manufacturers?

Answer 1

First, the power of private labels usually differs with financial circumstances. That is, market share of the private label usually increases when the economy suffers and declines in better financial times. Private-label market share has averaged 14 percent of supermarket revenues in the U.S. dollar over the previous 20 years. It peaked at 17% of sales in the depths of the 1981–1982 recession; in 1994, when private labels received excellent media attention, it was smaller at 14.8% by more than two percentage points. Second, brand-name products companies can mitigate the challenge presented by private-label products. They can actually regulate it to a big extent:

Ten years ago, a separate quality gap existed between private label products and brand names. Today that gap has narrowed; the level of quality of private labels is much greater than ever before, and they are more compatible, particularly in categories that have historically been characterized by little product innovation. Distributors contracting for the manufacturing of private labels have enhanced their procurement procedures and are more attentive to quality surveillance.

Brand names occur because when customers do not have the time, chance or capacity to inspect options at the point of purchase, they still require quality assurance. Brand names simplify the selection process in cluttered product categories; brands are required more than ever in the time-consuming dual revenue homes of the 1990s

Simply put, there is a running start for brands. Over centuries of advertising and by delivering consistent performance, the strongest domestic brands have constructed their customer equities. There is little change in the rankings of customers of the best domestic products from year to year. As the U.S. emerged from the recession, domestic brand companies boosted advertising and won back some customers who switched to private labels. Premium quality sales of premium-priced products are on the increase

Retailers can not afford to discard domestic products that customers expect to discover commonly distributed; if a shop does not carry a famous brand, customers are discontinued and shops can be switched. Not only must retailers inventory but also encourage, often at a loss, those famous domestic brands — such as Miracle Whip, Heinz ketchup, and Campbell's soup— that customers use to gage total shop prices. Even if distributors can generate more profit per unit on private label products theoretically, those products simply do not have the traffic-building authority of brand-name goods.

Since the manufacturing and marketing of private labels and national brands are based on such distinct price systems, it is difficult for one organisation to do both well. Some firms attempt to handle both together to approach trade with a complete category solution, but this practice often leads to strategic schizophrenia, pressure from demanding distributors to prioritize less lucrative private label shipments, and unproductive use of management time in conflict reduction.