Is the capacity problem that private brand does not do well? It is influenced by seven factors. Product differentiation is the core of differentiation competition, the key to success or failure is private brand. It is wrong to attribute the effect of private brand to the lack of capacity, which leads to the lack of gross profit margin and marketing space.
Lack of capacity is the majority, so differentiation does not do? Differentiation of retail has been a must. In addition to production capacity, private brands also need to do well in six aspects: store association, category matrix, category role, brand presentation, brand benchmarking and partner.
The first is capacity. The large capacity of private brand can indeed reduce the production cost and improve the competitiveness, which is directly reflected in the higher gross profit margin compared with similar brands. However, it is difficult for non-chain business to carry out large-scale production without the private brand occupying the mind of customers and the unverified demand. Therefore, there are two conditions for the realization of capacity: chain scale and sales scale. The two are related but not the same thing. The former is the gene and the latter is the result. Productivity is also the basic element to build high cost performance.
In other words, non-chain stores need to sacrifice the cost performance of their own brands in the early stage due to the shortage of production capacity caused by insufficient sales. In this stage, we mainly analyze and excavate customer needs, test products and improve quality. Production capacity is only set as the goal and effect, or through the joint development of other retailers or supply chains, we can complete the implementation of private brand strategy. In this way, we can obtain certain cost performance temporarily, but in essence, it can only be half of the private brand.
The second is store correlation. Private labels are mostly initiated by retailers, but in recent years have also been driven by supply chains. Retailers extend upstream supply chains, such as Hema Foods and Sam’s Club, and supply chains move closer to consumers, such as Yuanchu Foods and Fudi Members, by reinventing the value chain to meet customer needs.
But the reputation of the store is important, can let consumers trust enough retailers, private brand growth will be twice the result with half the effort. Hema and Sam’s are like that, while Yuanchu and Fudi are high quality and create buzz, model innovation and lifestyle proposals that fit the current retail trend. Therefore, the association between private brands and stores requires endorsement by store brands. With the extension of business cycle, private brands can also feed stores and bring value to them.
The third is the category matrix. Most of the initial private brands are selected from the better-selling products in the category, and are identified to improve sales and gross margins, or to replace the manufacturer’s brand. In this stage, private brands are dominated by single products or few SKUs, for example, there are one or two SKUs in paper products, cereals or edible oil. The main focus is low price and sales volume, but the products are not rich enough, which is not suitable for the current life proposal business model. It is a method to influence customers with products in traditional times.
In the case of the decline of store traffic, to influence customers with SKU prices, beauty and activities, in fact, the help to the increase of people and demand, commodity and gross profit, order and experience is very limited. For example, in order to improve customer order, the display of private brands associated with other brands can create a scene, but it will be hampered by promotion policies, gross profit and sales targets, resulting in the decline of the contribution of private brands, and its strategic value will gradually lose in the long run. Therefore, private brands need to develop category matrix to create multiple series of product combinations. For example, Hema Fresh products matrix is very competitive.
The fourth is category role. Its essence is the matching degree of private brand demand of customers. It can also be regarded as the retail store after determining the business categories, to verify whether these categories can meet the demand. Is there room for improvement? Can you upgrade or iterate as requirements and competition change? When the category role is established, private brands will have a reasonable marketing strategy from analysis, development and production to the final sales, which is the critical period for the success of private brands.
The fifth is brand presentation. Simply put, if private brands are displayed there, can they be naturally attractive to customers? The level of packaging, taste, health, nutrition and freshness of ingredients, as well as the way it is displayed and the marketing theme, all need to make customers interested. The core is the attraction of the product itself rather than the external influence. Nowadays, customers pay more attention to the value of the product rather than the history of the brand, and their loyalty to the brand is declining. This change in consumption concept is also one of the driving forces to promote the development of private brands, and differentiation is only an option for competition.
The sixth is brand benchmarking. ALDI is a hard discount store with its own brands doing extremely well. Its products are very low in price and have the same quality as first-tier brands. It attracts customers from high, middle and low consumption levels, without the so-called consumption stratification. In fact, ALDI’s SKUs are minimalist, from 400 in the early days to no more than 2,000 today, which is not rich enough in terms of products and categories.
However, the annual sales volume of a single SKUs can reach 60 million euros, which is enough to show its strong production capacity, and a few SKUs can satisfy all levels of customers. It can be seen that private brands have a clear category role, and the products also have a good self-presentation ability, and the high quality price ratio and high cost performance generated by the brand standard are irresistible to customers. Together, it strengthens the relationship between private label and store.
Finally, good cooperation. Retailers will do what they do well, working with manufacturers and suppliers to develop their own brands. A good partner understands the needs of the market and customers, has a strong ability to control the cost and quality of the production link, and can guarantee the production capacity. There is no doubt about the importance of the production link, which is a sufficient and necessary condition for a good private brand.
It can be seen that private brands have strategic significance. Without strategic cognition, private brands will eventually become miscellaneous commodities and gradually lose consumers’ trust, which is the reason why private brands are not good. In short, to take the manufacturer’s brand as the reference standard, to create high quality and low price is fundamental, which is the premise of attracting customers. Private brands need to build a category system and become more efficient in the form of life programs. On this basis, mutual endorsement with stores is natural. Good partners do everything is important.