Advantages And Disadvantages Of Private Labeling

Introduction
Nowadays, consumers are bombarded with a tremendous amount of products and options when they go grocery shopping. This variety could be quite confusing to the customer as eventually he does not really know which product suits his needs the best. On the one hand there are the widely advertised national brands and on the other hand the private labeled products. According to Baltas (1997), private label is a brand that it is owned by a retailer who does not produce its goods directly but the products are provided by a contract manufacturer under the retailer’s own name and are sold through his own shops(1). Private labels are an attractive alternative as they create a win win situation for both the retailer and the customer and the

There are two forms of private labeling. The most famous form is the one that the retailer is trying to imitate the products of national brand competitors and selling the goods at lower price(2). The second form is a more innovative one where the retailer is using the advantage of knowing the customers’ needs better than branded companies and based on that can develop products that fit to these attributes with an inexpensive

Thereafter, retailers can directly pass on the price benefits to the consumer and as there is no need for advertising these products the prices become more and more competitive. Moreover, despite the fact that the prices are lower, the margins are higher, as the middlemen are eliminated and since the margin of private labels goes to the retailer directly it is common price promotion to be applied(4). Another major advantage is the development of exclusivity and the creation of an easily recognized trade mark by the consumers. This fact enhances sales opportunities and helps in developing customer recognition and loyalty so as retailers can have significant advantages over its competitors.

As far as the disadvantages are concerned, this profitable strategy of the retailers to introduce private labels so as to increase profit puts them into direct competition against the national brands(2). From the customers’ perspective private labels are not easily detected who the manufacturer is and they have to rely completely to the retailer’s choices. Furthermore, as the customer tend to trust the certain retailer and its private label when a single product does not fulfill his expectations the brand value and the image of the retailer goes