Retail Strategy: 5 Benefits of Using Private Labels

Thomas Brownlees

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction

As a retailer, you are in a unique position of strength. Among the 4 Ps of the Marketing Mix (Product, Price, Place, and Promotion) the ‘P’ for Place – aka distributionis the most long-term asset you can build.  There are in fact three types of distribution you can pursue, which are called: intensive, selective, and exclusive distribution. 

  • Intensive. This approach means that you are going to distribute products in the highest number of outlets possible.

  • Selective. This is when a product is being distributed in specific locations.

  • Exclusive. In this case you are choosing to distribute a product only in one or a few locations. 

Either way, as a retailer you have a unique opportunity to foster a meaningful and memorable retail\shopping experience with your customer and maximize your profit potential.   There’s a challenge, however – How can you maximize your profit if you’re selling someone else’s products?

It’s true, most of the profit, when selling a product is made by the manufacturer, whereas as a retailer you can only add a margin – which depends on the product category and markup.  But what if you could find another way to make use of the products you’re distributing by selling them through your own distributor brand? That’s exactly what a private label is. 

A private label is a product being sold under the name of the distributor, instead of under the name of the manufacturer. This approach to sales is very profitable for distributors as it provides a series of benefits, which we are going to explore in this post.  To help you navigate the content we’re reporting below the topics, to help you navigate through the article. Enjoy!

  1. Create a Point of Difference towards your customers
  2. Broaden Your Product Range
  3. Create a loyalty bond with your customers
  4. Develop Brand Equity
  5. Increase Retail Profitability
  6. Conclusions

1. Create a Point of Difference towards your customers

As a retailer, you are challenged with competing on many fronts: your store needs to be exciting and plentiful while being easy to navigate, you need to provide smooth and seamless shopping experiences and have great customer service. 

However, if you are selling someone else’s products you are still working for someone else, as those positive retail experiences will be connected to someone else’s brand. As a retailer, your impact on your customers will be almost downplayed. 

If you set up your own distributor’s brand, you can potentially use your insight to market products that occupy interesting and profitable gaps that you know your customers are looking for. Moreover, your shop can find a way to connect your store’s values with specific products and product categories that will make your store’s mission and values much more tangible and ‘alive’ in your customer’s mind. 

Your choice to build relationships with manufacturers will not necessarily pose any conflict with the products you’re already selling, if anything it will allow you to expand on your product range, and that’s what we’re going to talk about next.

2. Broaden Your Product Range

Another important element to take into consideration is the opportunity to expand your product range. As you work with different organizations, each providing you with their products, you may be able to realize if there are any unexplored niches in the market that you may see fit for a product extension. Even if some of these niches are small, devising a private label strategy to complete your product offer will give you the chance of getting to a higher ticket sale as your shop assistants may be able to use your private label products to upsell your customers to a higher average ticket. 

Upselling your private label products is a great approach to making more profits because even if the products may be relatively inexpensive you can still profit from a higher brand markup.

Great! So far we’ve seen how private label products can contribute to differentiating your business and can expand your product range allowing you to upsell your merchandise and add a nice additional profit margin to each average ticket. Let’s now move on and look at another element: loyalty!

3. Create a loyalty bond with your customers

As discussed, the use of private label products to foster a relationship with your customers is one of the main goals of this strategy. In current business, products are never simply a goal, but they are a means to co-create value. Brands and customers work together to develop a type of ‘value’ that is not only economic but is social and environmental. 

By using private label products you can make sure that the values of your organization are well represented by your private label products. Customers who buy these products will therefore be in a position to establish a more profound and meaningful connection with your business, as the products themselves will be able to embody the values that connect you to your customer audience. And that’s not a small feat.

As a result, you will be able to develop a lot of brand equity, and in the next section of our post, we’re looking into what that means.

4. Develop Brand Equity

Brand equity is always an evasive concept in business as it may seem a very intangible concept. This is because it can be hard to understand where the value of a brand actually lies.

That’s not actually true, the value of a brand can be assessed financially and has a lot to do with your customer loyalty and the size and engagement of your audience

By developing your private label you are going to access a brand new platform to foster relationships and monetize your loyalty, providing you with a completely new acquisition channel that can’t be copied by your competitors.

These benefits come with some challenges and upfront costs, but in some cases, by delving into international marketing strategies we can identify opportunities to work with foreign manufacturers who can assist us in developing new distribution channels through export. In the next section of this post, we’ll look into a specific type of export strategy which we call: PiggyBack Exports.

5. Increase Retail Profitability with PiggyBack Exports

As we discussed throughout this post, all of our points revolve around making your store(s) more profitable, and capable of fostering a stronger bond with your customers. It’s important to take into account how rewarding this strategy can be, as the way to get there can actually be quite expensive. Identifying the right manufacturer, developing the contractual relationship, and building a brand takes time and money. 

If you’d like to explore this option further, in this post we talk about the PiggyBack export mode, which allows you to find a synergy with a manufacturer who is looking for an entry strategy into your own country and may be able to trade off the use of your established distribution channels with allowing you to put your own brand on their products

The decision to take on the development of a private label should not be taken lightly but in this post, we’ve tried to provide some ideas on how this approach could benefit your business. Of course, as for any decision of this magnitude research needs to be conducted in order to make sure this option is right for you. Let’s not move on and go into some conclusive remarks.

6. Conclusions

There you have it, these are 5 great benefits of developing a private label for your retail business. If you want to look this up, a relevant strategy is the backward integration strategy, where retailers move ‘backward’ in the supply line and move one step further. 

In backward integration not only retailers sell with their own brand, but bring their market knowledge to manufacturers and use their experience and insight to become manufacturers as well, so that products may be developed at their exact specification. 

Many US retailers pursued this approach, as by tapping into your market knowledge and on a strong reputation you can develop much higher margins and create a very profitable business, capable of managing many more stages of the supply chain by taking advantage of your unique exposure to customer’s needs and shopping behaviors. 

Here on 440 Industries, we have a wealth of content connected to this topic, take a look below to see if you can find any additional information that may be a good fit for your research.

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Retail Strategy: 5 Benefits of Using Private Labels In this post, we're going to look into a few reasons why a private label can be a profitable strategy for your retail business.
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Thomas Brownlees

Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!

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