Price now, Brand later?
Having moved over from the branded side of the tracks, the one issue that I felt plagued all private labels 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 placed on price as the ultimate driver of a company’s offering. Given the distribution landscape, which is heavily skewed towards hypermarkets and speciality stores, retailers take advantage of this competitive environment to offer the lowest possible prices to end-users. The analogy being, ‘lower the price, higher the footfall’.
When we factor in the cost of living and the reality of there being a substantial proportion of the population in the lower-middle and low income level brackets, this approach makes some sense.
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. It would seem that consumers and retailers are the ultimate beneficiaries of these price wars. But, are they?
Let’s think about this for a moment. 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 certain price requirements.
In the longer-run, quality suffers due to inferior component choices made by OEMs, retailers and private labels face higher return rates and consumers end up frustrated. Private label brands earn a bad reputation for distributing poor product and retailers must now sell a more to maintain revenue and margin targets. Nobody wins apparently.
What’s needed is a long term plan to build equity into private labels thereby encouraging them to retain high standards for quality and ultimately delivering better products to the market. Retailers in turn spend less time addressing returns and consumer complaints while concentrating on their growth, revenue and profitability targets.