Private Labels

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Private Labels Meeting the Recession and Differentiation Challenges *Prof. Anuja Pandey

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Introduction

The twenty first century saw the growth of retailing in India. Retail emerged as a significant growth driver for Indian economy. Retail today is the largest private industry in terms of turn over. It contributes around 39% of our GDP (AT Kearney 2006) and is the second largest employment-generating sector after agriculture. With the growth of retailing in India, we can also saw the growth of private labels or store brands in markets, mainly in consumer non-durable like grocery and apparels. Most recent figures indicate that Private labels currently hold 23% of overall market share (2009). The private label industry as a whole is now estimated to be $85 billion, with much of this year’s gains led by grocery, drug and mass merchandiser sales increases ranging from 6-10%. In the foods category alone, 27% of new items introduced during 2009 have been private label offerings. That amounts to nearly 1,800 products, and indicates a volume for private label introductions which has more than doubled since 2005. The Indian FMCG market is strongly regulated by major giants like HUL, P&G, Dabur, Britannia, Colgate, ITC and Godrej. With the emergence of retailers in food and grocery category, we saw the emergency of in-store brands or private labels. We are today

witnessing the growth of these little known private labels in all retail stores, not only as cheap alternative but also as a well-defined strategy to Differentiate, Position and Develop strong consumer loyalty. Apart from providing higher retail margins in comparison to national brands (Ashley, 1998), private labels add diversity to the product line in retail category (Raju et.al.1995).

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Anuja Pandey is currently Assistant Professor & Programme Director PGCM at Centre for Management Education, All India Management Association, New Delhi, India.

Electronic copy available at: http://ssrn.com/abstract=1547512

Added benefits accrued to the terms of differentiating its offering from competing retailers as well as having greater leverage with manufacturers of national brand. A popular private label changes the status of the retailer from a customer to a competitor for a national brand marketer. When customers are competitors, standard predatory strategies and tactics may not be appropriate; instead, there is a premium on creating a successful basis for coexistence (Dhar and Hock, 1997, p. 209). This calls for redefining the marketing strategy on both retailer and national manufacturer. Though private labels have attracted attention of channel researchers about forty years ago (Stern, 1966; Boyd and Frank, 1966), in India, private brands have attracted attention primarily in the last decade. Reports based on European experience reveal that private labels grow faster than national brands, the former’s growth rate being estimated to be two to three times of the latter. And as per previous international experience, the stage is set in India for more competition between the national and private labels then between the national brands. A case in example is the Spencer, the grocery retail chain which stocks products under its own brand name, Smart Choice (products like noodles, sauces, bakery products) on its counters side by side of Kissan and Sil. It is easy to comprehend that when the retail store uses its own private label on an otherwise generic product, it commits to the customers its guarantee for the quality of the store’s brand. Such quality assurance will lead to greater trust among the store’s customers, resulting in greater store-loyalty. This enables the store to charge a premium on an otherwise generic product, thus making private labeling an attractive proposition to the large retailers. Even the margins on own-store brands are nearly two-and-half times higher than on FMCG brands and this is likely to attract more and more private labels in FMCG...
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