Private labels:

Private labels:

 Pros: 

1. Low cost of production since no formal setup of a company 

2. Minimal distribution costs 

3. Product development possible in a better way since purchasing pattern easy to measure 

4. Price elasticity with regards to price conscious customers easy to measure 

5. Most effective for price conscious customers 

6. If the product is a Commodity, then it favours the private label 

7. No advertising expenses 

8. If Sales pitch is an influencer in purchase of a product, then private labels will succeed this is especially true of White goods and apparels although not incase of FMCG products 

9. Customization: customization is possible for a retail store more than it is for a branded product manufacturer. E.g. if in the North of India, housewives prefer thick oil in their food in the form of ground nut oil or Sunflower oil and South of India prefers thin oil in the from of coconut, then the retailer can keep more of that oil which is preferred in a particular area. The Branded product manufacturer too can do it but on a lesser scale since he would have to put both type of products. 

Cons: 

1. The perplexing question is what will make people try out the product which hasn’t been advertised and hence customers do not know about it 

2. Brand conscious customers will not be interested in the product. This is especially true of White goods. With FMCG products or Apparel it may be possible, but very difficult with White goods 

3. Difficult to convert users of competitors’ products to your products since there is no Pull effect 

E.g. If a house-wife likes Aashirwad Atta from ITC, she will not even like to buy Pillsbury or any other brand, let alone a private label, unless the price differential is too high. The private label retailer cannot persuade her to buy the product which a competitor like Pillsbury will be able to do, through advertising

4. Even more Difficult is to convert non-users to users.

E.g. A middle aged man using Shaving cream will not convert to Shaving foam unless he is made aware of the product features and benefits through advertising which obviously a private label will not be able to do 

5. The reach of the product is limited to the number of stores of the retail store.

E.g. Vijay Sales product has reach only in the places where Vijay Sales store is located. Unlike the branded products which normally have Intensive Distribution through its own Dealers and multi-car Showrooms. So the point here is that Private labels cannot be thought of as direct competitors although they would take away a share of market. But the manufacturer cannot do much except for Brand Building and using the Pull Strategy. 

6. After-Sales Service may be a problem if the product has been sold in far-off areas. The cost of personnel visiting there would be more for a retail shop than it would be for a manufacturer 

7. R&D department may not be there. So innovation in product should not be expected. 

8. Attracting talented individuals in the marketing department would be difficult since it will not be a company. 

9. Retaining them would be even more difficult 

10. There is no Brand loyalty, no brand recall and highly susceptible to competitors products 

11. Word-of-mouth publicity doesn’t happen since the customer does not tell his neighbour or his friend that he purchased a private label product from a particular retail store 

12. Early Adopters should have been the primary market for private labels since they look out for different types of products to try out. But it is exactly anti to them since private labels do not have anything new to offer to them and it is sold on price differential