How Manufacturer And Private-Label Brands Differ

I am often asked, what are the pros and cons of having your own brand, versus supplying the product for someone else&#;s brand. As in anything, there are two sides of the coin, but deciding which way to go should never be a coin toss. More often than not, it is not an either/or proposition &#; it is both.

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The world of branding can be divided in roughly two ways: brands that are owned and marketed by the companies who actually produce the products or services, and brands that are owned and marketed by companies who sell these products or services. Because brands are fundamental to how products or services are marketed and sold, understanding the distinctions, implications, advantages and disadvantages for these two branding approaches becomes critical to business strategy&#;whether you are a manufacturer, a distributor, or a retailer.

Brands that are owned and marketed by producers are commonly referred to as &#;national brands&#; or &#;manufacturer brands.&#; Owners of these brands cultivate their targeted customer base primarily by means of advertising directly to them. When these brands are marketed correctly, customers will seek them out, thereby forcing their consideration and stocking by the appropriate distribution channels. Manufacturer brands serve the interest of the manufacturer first, and benefit the retailer who carries them, second.

Brands that are owned and marketed by sellers are referred to by various names, such as &#;private-label,&#; &#;store brands,&#; &#;proprietary brands,&#; &#;owned-brand&#; and others. Provided the sales volume is sufficient, a private-label strategy can provide the retailer with several advantages unavailable to them by carrying national or manufacturer brands only. In fact, the vast majority of chain retailers, regardless of the category, carry some mix of national brands versus private-label brands (some carry private-label brands exclusively). As you&#;d expect, private-label brands serve the interest of retailers first, and benefits the manufacturer who produces them, second.

In both cases of manufacturer brands and private-label brands, paid-media (advertising) has been considered the traditional means of generating awareness and demand, but that model is changing rapidly. Traditional advertising media (TV, Print, Radio) now shares that role with so-called non-traditional ad media (digital), as well as influencer and relationship building &#;owned&#; social media platforms. So regardless of the brand, be it manufacturer or private-label, it is not enough to be unique and add value versus the competitor. It must also be marketed effectively to succeed.

Any examination of these two variations of brand strategy would be remiss without acknowledging the evolving positive attitude and growing acceptance of private-label brands. Gone are the days when consumers strictly associated private-label brands as something akin to cheap, generic and low quality. For example, in England and Germany (according to the Private Label Manufacturers Association) private-label brands account for almost half of all products sold. Here in the U.S., more ceiling fans are sold under Home Depot&#;s Hampton Bay label than under the category legend Hunter. Private-label brands can even eclipse the strength of the retailer, as in the case of Kenmore, Craftsman (now sold at Lowe&#;s) and Die Hard brands brought to us by SEARS.

The changing consumer demographic appears to fuel the benefits of private-label branding, as well. Looking at the shift from Baby Boomers and Gen-X&#;s to Millennials, Harvard Business Review observed with regard to the &#;Millennial mindset&#; that 77% don&#;t want to buy the brands their parents did and 88% think private-label products are just as good. Let me add an important note here: This is true as long as the private-label brand (and its retail owner) aligns with the Millennial customer&#;s value system, especially when it comes to issues like sustainability, manufacturing transparency, and social responsibility. The next generation of consumer is just as brand-oriented as the previous, but how it is communicated and identified is the key.

Manufacturer Brand Advantages

Since the manufacturer is building its own brand and customer base, it does so in hopes of leveraging its customer demand into shelf space (or nowadays Amazon orders). As the saying goes, when it comes to market share, nothing succeeds like success. So the cultivated customer loyalty for its brand, stimulated by marketing and cemented by trial and repeat purchase, translates into power and control of  the producers own destiny.

Depending on the product category, the level of advertising support, and the relative popularity of the manufacturer&#;s brand, the retailer/e-retailer can reap greater credibility, prestige, variety, customer traffic and loyalty as advantages (&#;I shop there because they carry my favorite brands.&#;) by stocking and promoting the manufacturer brand themselves.

Private-Label Advantages

The manufacturer gains volume that it might otherwise lack. To operate at peak efficiency, manufacturers need to fill capacity. While margins may be slimmer, supplying product to a dedicated seller eliminates a lot of the headaches and expense that come with self-branding. Such private-labeling relationships may paradoxically spur the development and growth of the manufacturer&#;s own brand by providing much-needed critical mass of manufacturing capacity and capital.

The retailer, on the other hand, gains exclusivity. This over-arching advantage covers a multitude of competitive concerns. Private-labels are difficult if not impossible to comparison shop, they can be carefully prescribed to meet the retailer&#;s customer&#;s unique needs, they can be strategically placed in a brand category architecture to maximize the retailer&#;s profitability (whether as an entry price-point, or now and more common a super premium, or somewhere in between), and they promote the retailer as a shopping destination by creating their own customer brand loyalty. Other advantages include: differentiation for the retailer in the marketplace, more freedom and flexibility in pricing, greater control over product attributes and quality, the ability to fill gaps not filled by national brands, as well as keeping national brands competitively priced.

The Challenges For Each

Many B2b categories were once unsophisticated when it came to branding, especially when compared to packaged goods or categories like electronics. Not anymore. As these marketplaces became more fragmented and the lines between b2b and b2c continue to blur, the response by manufacturers has been an accelerated course in brand architecture.

As a result, today&#;s manufacturer must deliver brand strategies for multiple channels to compete and survive in the marketplace. This not only increases the opportunities for sales that keep plants competitive, it also ensures against a devastating loss of business in any one area. For example, a manufacturer may have its own brand sold through specialty retail and produce an OEM product line sold under another label (which may or may not be a direct competitor). It may also produce private label product lines for distributors, buying groups and large retailers, and produce commercial or multifamily brands sold through brokers, contractors or direct to national accounts, and developers, etc. Within each of these channels may also come multiple sub-brands and product variations, each targeted for a specific purpose that the manufacturer must orchestrate daily. In every case, to be successful each brand must have product specifications and design portfolios that are unique, well-defined, compelling and fill a gap in the marketplace.

The lesson is that it doesn&#;t matter to the consumer what the brand strategy happens to be &#; as long as it&#;s a good one.

Manufacturer Brand Checklist:

For The Manufacturer

&#;Independence
&#;Control own destiny
&#;Building own brand
&#;Higher margins

For The Retailer

&#;Credibility, prestige
&#;Customer loyalty
&#;Variety

Private-Label Checklist:

For The Manufacturer

&#;Volume
&#;Less support and expense

For The Retailer

&#;Exclusivity
&#;Customized to local needs
&#;More control, profitability
&#;Can&#;t be comparison-shopped
&#;Keeps manufacturer brands competitive

The Blake Project Can Help: Please us for more about our private label strategy workshops.

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education

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