Having moved over from the branded side of the tracks, the one issue that I felt plagued all private labels, at least in the electronics industry (I’m sure it’s as prevalent in others too), was a lack of attention placed on building long-term brand equity.
There is however an undue weightage on price as the ultimate driver of the offering. Given the sales landscape, which is heavily skewed towards hypermarkets and speciality stores, retailers take advantage of the competitive environment to offer the lowest possible prices to end-users.
Private labels in a bid to remain relevant and operational adhere to such demands. Their ‘strategic hope’ residing on staying above water long enough while the others drown. Retailers on the other hand are not concerned about who stays and who folds. It would seem that consumers and retailers are the ultimate beneficiaries of these price wars. But, are they?
Yes and No. In the short-run consumers benefit by securing more bang for their buck, but, in an effort to retain margins, private labels will seek lower production costs by forcing original equipment manufactures to meet their set purchase price.
In the longer-run, quality suffers due to poor component choice and consumers end up frustrated. Private labels earn a bad reputation for distributing poor product and retailers must now sell a lot more to maintain revenue and margin targets. Nobody wins.