Private label (PL) in retail is a store brand that is developed and promoted by retail chains. Private label is sold only in one chain and is its unique advantage.
STM allows you to get out of the competition between stores for the best prices. It is difficult for the buyer to compare it and understand that in one place a similar product is cheaper than in another.
At the same time, retail earns more on private labels than on the main assortment, forcing the supplier to give minimum prices. Due to the discount from the supplier, the buyer receives a product 20% - 30% cheaper than its counterpart.
Retail gets everything - minimal competition for its product, a loyal customer and maximum income.
What products are hidden behind a private label
Initially, the goal of the private label was a reasonable price-quality ratio. In an effort to get the best deals, chains set the characteristics that the product must meet. (Example of characteristics in “Dixie”). The supplier who offers the lowest price wins the tender and gets the opportunity to supply for a certain period. In an effort to win the tender, the supplier sets a ceiling price. As a result, the slightest unplanned increase in costs can be critical. And production is a risky process: either the packer broke down, or the refrigerator overheated.
As a result, the main share of private label is cheap goods on the borderline of quality. How do you feel about the “Red Price” in Pyaterochka or “Every Day” in Auchan? Do you put them in your shopping cart because it's the best offer, or because it doesn't matter what kind of product it is? Or don't put it in at all? The private label has established itself in the minds of customers as "cheap", but not always "high quality".
But for private label retail, there are a lot of advantages. Chains are interested in developing not only low, but also higher price segments. And so that the buyer does not associate them with a cheap assortment, they are promoted under other brands.
Auchan has 2,651 private label products, of which 72% are Every Day and 28% under other brands. We think that Pyaterochka's private label is Red Price, but if we look behind the scenes, we learn that the chain has great amount brands.
Very often, filling our cart, we do not even realize that we are taking private labels. We get a unique product, at a bargain price, which is not sold anywhere else.
Private label examples
Dixie Auchan Pyaterochka Azbuka Vkusa Magnet Tape Metro Okay Crossroads Carousel
Private label development strategies
Advantages and disadvantages of private label for retail
Advantages
- Private label forms distinctive advantage ahead of competitors, offering the consumer a unique set of products the best prices. The more private labels in the basket, the higher the loyalty.
- Reduced dependency on suppliers. Private label helps to reduce the influence of brands and fill the missing range with your own brand.
- Reducing consumer dependence on . The share of promo is growing every year. STM offers a profitable offer without a promotional price.
- At a low cost, private label returns are often above average. The average level of STM front margin is 35-40%.
- Formation of loyalty due to the advantage in the ratio "price - quality".
- Providing the population with socially significant products.
Flaws
- High costs for product quality control. Chains monitor compliance with standards at all stages - from the production of goods to its receipt in stores. This requires additional costs for personnel and organization of business processes.
- AT large networks suppliers cannot provide sufficient volume, as a result one position is carried by completely different suppliers. This leads to a complex organization of processes and an increase in operating costs.
- Positioning risk. The discrepancy between the positioning of private label and the brand of the store can lead to misunderstanding. If "Azbuka Vkusa" develops products of the low price segment with the "AB" logo, it may confuse the buyer. The premium perception of "Azbuka Vkusa" will be compared with the cheap "AV" product, which will lead to confusion.
- Loss of turnover due to loss in value. Replacing an expensive product with a cheap one leads to a loss in turnover. If earlier the buyer purchased cottage cheese for 100 rubles, and now he takes an analogue for 70 rubles, then sales will decrease by 30 rubles. Despite the fact that retail can withstand a higher margin (%) of its own brand, it can suffer losses in turnover (rubles) and even in gross income (rubles).
Advantages and disadvantages of private label for suppliers
Advantages
1. Formation of a loyal attitude of the network towards the supplier. The retailer is interested in its own brand, therefore, choosing between two suppliers, it will give preference to a company that, in addition to its own brand, will also produce private labels. This is an opportunity for closer cooperation with retailers.
2. Savings on logistics. Usually, manufacturers make almost no money on their own brand, but save money by reducing logistics costs.
For example, they produced 100 units of products under their own brand and delivered them by car for 5,000 rubles. This means that the delivery of a unit will cost 5000 rubles / 100 units = 50 rubles / product. If you supply another 400 units of your own brand that fits in the same machine, then the cost of delivery will be reduced to 5000 rubles / (100 + 400) = 10 rubles / product. So the cost of delivery will be reduced from 50 rubles. up to 10 rubles per unit of production.
Flaws
1.
If the supplier does not established business processes and the operational work in the company is not built, then participation in the production of its own brand is risky. Production must be debugged and run like clockwork.
2.
The network can replace the provider at any time.
When participating in the production of our own brand, we always remember that the chain is the owner of the brand. The supplier bears the risk that at any time the retailer will switch to another with more favorable conditions. The question is often not whether to replace it or not, but when it will be replaced. It is impossible to stay on the Olympus in a highly competitive market.
3. Low margin for the supplier.
High competition in the market forces suppliers to reduce the cost to a marginal level. Usually they do not earn on their own brand, but use it to form loyal cooperation with retailers. The supplier produces private labels for the network, and the network allows him to earn on a different assortment.
4. Risk of long-term planning.
In an effort to reduce costs, the supplier purchases raw materials and equipment with long-term payback. For example, in order to reduce the cost of packaging, the manufacturer will be forced to purchase it in volumes for years, rather than months of sales. And if you fail to win subsequent tenders, what will happen to this package? Frozen money for an indefinite period. Buying additional equipment and hiring staff carry no less risks.
5. The need for strict control over all stages of production.
Production must comply with all requirements and standards. Network employees check for compliance with production standards.
6. "Narrow links" in production are unacceptable.
For example, there is only one packaging machine and it breaks down. What will happen if by the end of the day it is necessary to deliver the goods to the distribution center of the store, and production has stopped? Lost goods and the highest fines for non-compliance with the terms of the contract. The manufacturer has to buy additional equipment for production.
7. Retail chains can phase out small and medium-sized brands in favor of their own brand.
As a rule, strong market players do not suffer. But as we said earlier, even Coca-Cola can lose its leading position.
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After weighing all the pros and cons, let's summarize. Private label provides chains with positioning and additional profit opportunities, but for suppliers it carries high risks. He must evaluate the readiness of his business for maximum loads and minimum profits. For him, his own trademark is the possibility of closer agreements with the network, the formation of trusting relationships.
Due to its own brand, retail ceases to be an intermediate link between the consumer and the manufacturer. It already resembles a vertically integrated holding, controlling production and sales - from raw materials to the buyer.
Stores strive to increase the share of private labels, go through all the stages of strategies. From cheap goods to profitable ones, from profitable ones to those that form loyalty, from a loyal group to a store in which private label occupies a leading position in sales. And maybe the day will come when the private label will push all brands out of the store. Say, "Not likely." Let's see what lies ahead of us.
Private labels, or Private Labels, of retail chains is a topic as interesting as it is little touched upon in our country. With significant prospects in this area, it is rare to find the effective use of all the possibilities of private labels. However, the reasons are clear and fairly standard. This is a lack of knowledge and a desire to think and learn, which is typical of marketers, general managers, and the owners themselves in particular. Otherwise, there would be no stupid experiments with private labels in areas where it is contraindicated. And, of course, the number of private labels in the "correct" categories would have to grow.
We have already written about private labels more than once. But since our concepts do not stand still, but develop, concretizing additions appear, which, as one would like to believe, will help those specialists who are still thinking about efficient use brand capital and the development of such a direction of brand monetization as the creation of private labels.
Strategies for creating private labels
1. Dumping strategy
This is the simplest solution that does not require special analytics. Any product can be replaced by a cheaper analogue, if the economy of the process allows. There will always be a consumer who wants everything the same, only cheaper. However, calling a private label of the cheapest products by the name that is associated with the distribution network itself makes sense only in the case of promotion of discounters. In other cases, this may not be worth doing. Especially if you intend to exploit the potential of other private label strategies that are not cheap. Well, as a "fool protection" the obvious should be said: the product itself should not be frankly of low quality. Cheapness is cheapness, but the consumer still has to eat, drink or use it in some other way. And if he is very dissatisfied with the product, then at least he will stop buying it.
2. Competitor replacement strategy.
This option also does not rest on the brand of the retail chain itself, but uses the features of consumer choice. There are such product categories where the consumer has developed a certain habit of specific products and brands. Different product categories have different strength of this habit and the degree of its influence on the choice. The essence of the substitution strategy is to physically replace the leading product in the category where this consumer habit is not an important choice. We can say that these are the categories in which the brand factor is not important in part or in full. In the case of such a category, the leading product is physically removed from the shelves or moved to a less successful shelf, and its place is taken by a completely similar product under a private label. At the same time, the entire “brand markup” falls into the pocket of the retailer – the product itself is no longer the cheapest in the category, but may well be even above average. At the same time, the cost of its advertising tends to zero. The option looks advantageous, but here the most difficult mechanism is the correct choice of a product category in which it is permissible to carry out such manipulations without a negative response from the mass consumer.
In order to understand this issue, you first need to understand which of the categories are branded (that is, those where you should not count on luck without a strong brand). In our opinion, the area of greatest branding relevance is:
A) goods with unique (and tangible) consumer properties;
B) conspicuous consumption goods;
C) goods of hedonic consumption.
The first category is products whose differences from analogues are seriously noticeable. This is primarily true for products of a rather narrow, niche purpose: kefir to strengthen immunity, washing powder for black clothes, medicinal products. mineral water and etc.
The second category is the so-called. image products that participate in the process of interaction with other people. In such cases, by the level of consumption, others can evaluate the consumer, which is extremely important for a person: in order not to lose his reputation, the consumer is ready to incur additional expenses. This category includes, for example, vodka and beer. In such categories, brand loyalty is very high, and the consumer may even refuse to consume if he does not have enough choice.
The third category is products consumed for one's own pleasure, not essential for daily activities. This is alcohol (except vodka), confectionery, delicacies. In the indicated categories, the factor of brand loyalty is also quite large, the consumer may feel serious dissatisfaction in the absence of favorite brands on sale. Therefore, the substitution strategy in these categories cannot work and is even harmful. But there remains one more category where the substitution strategy works with a bang. These are utility products.
Utility products are goods of a familiar and understandable purpose, consumed due to a conscious need. This is almost all groceries (except exotic), bakery products, freezing, preservation, etc. In this category, branding in the sense that we put into it (Tamberg & Badyin consulting bureau) is practically impossible. There is no need for a complex ideology of consumption and adjustment to secret motives. Consumer choice is quite primitive, and loyalty to existing brands is low. The consumer can quite easily switch to an analogue if the level of perceived quality seems similar to him, and even more so - higher. Therefore, the leaders in these product categories can either be removed from the assortment altogether, or “move” with the help of similar products. AT this case the chain's own brand name should already be used, as a recognizable name increases the level of perceived quality. However, do not forget that the “quality” bought by the consumer, although it is a very subjective concept, still implies the quality of workmanship as well. Therefore, if you are replacing a leading product with your own brand, the quality of the product should be at least as good.
3. Brand expansion strategy.
This is the most interesting option, as it implies a real synergy between the chain brand and the private label. The brand of the network will work for the sales of its own brand, and the private label will strengthen the brand of the network. Characteristically, over time, this private label can go beyond the retail network itself and become a real brand of the local or federal level, further promoting the brand of the retail chain. Sounds nice? However, this option is also the most complex, with its own rather confusing logic. Therefore, in order to successfully apply it, you will have to seriously delve into the motives of the consumer and in your own brand of the network.
The issue is complicated by the fact that the management of every self-respecting retail chain is convinced that they definitely have a brand. Alas, this is a standard error that we, as consultants, encounter very often. Every manager or marketer calls his brand a "brand", while no one can formulate what it is. Do not flatter yourself with hopes: if you do not know why the consumer chooses your network, then you do not know what your brand is and whether it exists at all. We will assume that if the network is still alive and successfully developing, then there is still some kind of brand. It is only necessary to formulate its ideology from the point of view of the consumer and already act further on the basis of it.
Brand ideology
Brand ideology is a clearly formalized idea of why a consumer needs a product under a particular brand (a supermarket or chain is also a market product), why this consumer should want to purchase this product and who this consumer is. Most likely, the brand of the network does not have such a fairly clear ideology, however, it is never too late to formulate it, which, in general, is not difficult to do. For our tasks of choosing categories for creating our own brand, such a block of brand ideology as needs is the most relevant.
According to our scheme, needs are a situational model, a role model and a cultural factor. A situational model is an integral, averaged model of the situation in the life of the consumer, for the successful solution of problems within which the brand is intended. In other words, "What is it for?" Each retail format also has its own situational models (we described this principle in more detail in the book "Branding in retail. A complete cycle of creation from scratch"). Let's say a convenience store relies on the situational "daily meals" model, and a hypermarket already relies on the "household" model. For some reason, the visitor chooses this network. This needs to be marked.
The next term is the role model. This is a reference image inherent in a person of a certain type and includes a set of behavioral characteristics. Every self-respecting brand must comply with a clear stereotype in the mind of the consumer “who is it for?” For what type of person? For a poor Housewife, a Mother with many children, or for a successful Careerist?
Trying to work with all consumers en masse is no longer just a mistake, but downright bad form in marketing. However, let's not talk about the obvious. In any case, a collective image, a portrait of the target consumer is necessary at least for the competent use of the relevant persons in advertising. So finding it is not a superfluous question.
The third term is the cultural factor, which consists in determining “what cultural group” the brand is intended for. What cultural group does the consumer belong to? This is probably the most difficult question. In this case, the cultural factor will have to be collected from various cubes - urban culture, territorial culture, ethnic culture, etc. (for more information on the topic, visit newbranding.ru). However, it is desirable to do so. When the cultures of the brand and the consumer coincide, the consumer begins to consider this brand as “their own”, which inevitably affects loyalty. If there is a department of kosher products in the trading network, then adherents of Judaism will consider this network “their own”, or if this network has a department of products from Japan, for example, then it will be “their own” for another cultural group. It must be understood that cultures can be antagonistic, and their adherents can be in direct confrontation with each other. Therefore, it is not possible to accommodate the specific needs of all cultural groups. It is necessary to formulate the cultural core of the brand and develop based on it, without making unnecessary gestures.
In any case, all these three terms are present in any brand. If the network has a target consumer, this three-level stereotype is present in his mind. It needs to be clarified, and then turn to three options for expanding the brand of the retail network, each of which can be used independently of each other with the help of sub-brands. At the level of the situational model, you need to find out the difference between the situational model of your brand and competitors. Let's say your supermarket is more for the household, and the competitor has a bias towards the economy of a country house. In this case, you need to focus on the differences in housekeeping in urban environments and build your sub-brand in the categories of related products.
The level of the role model sets a certain average consumer, a personality type. A role model always has some stereotypical activities (and no others). This is not a living person, but only an average template of a certain type of person. And the role model also has a certain set of situational models that reveal what this model does. For example, the Mother's role model focuses on caring for children (and feeding them naturally), while the Careerist does not feed anyone but herself, but feeds herself on strictly dietary or hedonistic foods. The retail chain brand can expand into these categories, which are, as it were, intended for a role model, take a place on the shelves and in the mind of the consumer, strengthening the position of the retail chain.
The third option is the cultural factor. Every culture has its own consumer lifestyle. And a sub-brand, a supermarket private label, can become part of that lifestyle. If the cultural factor of the trade network brand includes a component of ethnic Russian culture, then vodka, kvass, and a number of other traditional products of Russian cuisine can be represented here. If it's more of a cosmopolitan, westernized culture, then the sub-brand can spread into the "European" product segment. In general, brand expansion can be very strong, and these sub-brands must have a connection with the parent brand of the retail chain. In fact, they will be its advertisement, convey its ideology.
Perhaps, using the expansion strategy is not very simple. Indeed, in this case, one has to face such delicate matter as the psychological reality of the consumer. In addition, you will have to consider in detail what few people think about - the retail chain's own brand. Yes. This is hard. But if it were easy, a lot of stupid books would be written about it and it would become commonplace. In the meantime, those wishing to successfully expand the retail business have some head start. However, the strategies of substitution and dumping, I would like to believe, are much simpler and do not require such a deep understanding of the behavior of the consumer. However, they also allow you to earn on private labels. Possibly making a lot of money. The main thing is to start thinking and asking the right questions. And there will be answers.
Ilyukha Sergey Guild of Marketers
Article first published in PROD&PROD Food Promotion magazine No. 2, 2014
Private label (PTM) is a brand owned by the entity that sells it. They can be created both by individual retailers and by cooperatives and purchasing unions of chains, regional associations of wholesale and distribution companies, large importers.
Abroad, own brands appeared as a result of the struggle of large retailers and manufacturers famous brands. In the case when the market positions of both parties became approximately equal, the chains had to sell "promoted" products, overpaying the manufacturer for a big name and actually shifting advertising costs onto the shoulders of buyers. In the markets different countries In Europe, private labels account for a different share of trade turnover, but the trend towards its increase is observed everywhere.
Pricing and popularity among the consumer audience of these products are largely determined by national characteristics, quality of life, consumer culture, the development of national brands and many other reasons. In Europe, the most high level penetration of private labels is noted in Switzerland, Great Britain, Germany, Spain and the Netherlands, where the market share of such products in value terms exceeds 30% (Fig. 1). At the same time, in volume terms, their share is even higher, since the difference in price between private labels and analogues of well-known brands in the Western market is 30-40%.
Despite the fact that Russian retail chains from year to year declare the development of private labels as one of their priority tasks, today, as can be seen from Figure 1, the share of these goods in the revenue of domestic retailers is an order of magnitude lower than in European countries. There are many reasons for this: from solving such a difficult task as the production of high-quality products at a low price, and ending with the no less complexity of its promotion. In addition, minimum lot restrictions make such products available mainly to federal chains, purchasing unions, or regional associations of small retail chain stores.
According to the InfoLine agency, in Metro C&C the share of private labels in the turnover is 11.2%, in Dixy - 10%, in Magnit for 9 months of 2013 the sale of goods under its own brand amounted to 13.1% of the company's retail revenue .
Partially, the low penetration of such products in Russia is due to the fact that private labels here are cheaper than branded goods by only 10-20% on average, while in Europe the advantage of private labels in price is on average 25-30%, and in the non-food category the difference can reach 40-50%. This fact significantly reduces their attractiveness for the retailer.
Benefits of working with STM
When deciding to bring goods under its own brand to the market, the retail network pursues the following goals:
1. Increasing loyalty to the network.
In this case, a private label product is designed to better meet the needs of price-sensitive buyers. All economy class brands are focused on this. Image products are designed to fill niches in the assortment and maintain the loyalty of regular customers. As a rule, the name of such brands is consonant with the name of the chain store. Innovative products are produced in accordance with the latest market trends and trends and are intended for those who like to experiment, try the unusual.
2. Growth of profitability.
As mentioned above, most of the goods produced under their own brands, regardless of the price segment, positioning and tasks, allow the network to increase profits. This goal is achieved through high sales volume and optimization of the production process and logistics on the way from the factory to the end user.
3. Guaranteed quality.
As a rule, federal retail chains pay great attention to the quality control of products manufactured under private labels, starting with the formation of technical specifications for the product and packaging and throughout the entire period of manufacture and sale. Compliance with all the required measures is a laborious and rather costly process. At the stage of establishing the production of "own" goods, retailers assigned the responsibility for quality control to the employees of the private label development department, which most often turned out to be ineffective due to the workload and low competence of managers in purely technical matters. Recently, federal and even some regional networks and associations are paying more and more attention to the quality factor of their products, creating special services for this or attracting highly qualified specialists for outsourcing.
Guaranteed product availability.
Control of all stages of the production process allows you to optimally draw up a schedule for the release of products and ensure its sufficient quantity, taking into account the seasonality of sales and planned promotional activities. This protects the network from possible interruptions that could occur when working with the manufacturer's brand.
It would seem that the advantages are obvious. However, there are a number of additional costs for the retailer to create an economic model for working with private label products and compare it with the sale of branded goods of the manufacturer. In order to estimate these costs, let's consider the full cycle of work with private labels, from the development of an idea, naming and ending with the disposal of unused packaging.
production costs
When working with a manufacturer’s brand, the supplier comes to the retailer’s office, agrees on a price and a promotional plan, provides a deferred payment (commodity credit), delivers goods to retail outlets, assists in merchandising, conducts marketing campaigns at his own expense and on his own, pays a trade premium . One minus - the products are presented in all competing networks, and the retailer is forced to keep a low margin.
In the case of private labels, the markup can be 15 or even 30 percent higher. But they are successfully “compensated” by additional costs.
The algorithm for working with a private label is shown in Fig. 2.
The entire process of launching a new private label product takes six months to a year and includes the following steps:
- Determination of private label strategy, name, logo Formation of a concept, strategy, creation of a private label logo is an important and expensive task that a retailer usually entrusts to a marketing agency. The cost of developing the brand of the network is transferred to all products released under private label.
- Selecting a product category for a product release. As mentioned above, private labels are designed to best meet any of the needs of the potential audience. Be that as it may, in order to form an optimal price offer for a non-unique product, it is necessary to obtain the lowest cost from the manufacturer, and this is possible only if the product has large sales volumes and the buyer is not sensitive to the brand. In addition, it is desirable that there is no clear leader in the product category. According to research conducted by Nielsen and the analysis of private labels of leading retail chains, the most attractive sectors in this regard are dairy products, groceries, confectionery, juices, water, beer, alcoholic drinks, as well as paper products, personal care products and household chemicals.
According to a study by PwC in Russia conducted in 2010, more than 90% of private label sales in the Russian Federation account for generic trademarks (whose names are not associated with the network or manufacturer's brand) and imitators (umbrella brands). At the same time, a large share of private labels is concentrated in the economy class. AT last years they began to actively develop in the middle and high price segments, but their level of penetration is still insufficient. - Development of a strategy for bringing the product to market. To date, experts identify three main strategies for developing private labels:
- Dumping. The most common strategy, since in the conditions of market stagnation and the expectation of a recession, most consumers remain quite sensitive to the price of goods with acceptable quality.
- Replacement of a competitor. A more sophisticated approach that focuses on the tastes and established preferences of the buyer. The challenge is to replace leading products in categories where brand habit is not an important choice. As a rule, this strategy is implemented in stages or in case of significant disagreements during negotiations with the sector leader. The path is quite risky, since it is not possible to avoid a decrease in the level of sales in quantitative terms and a certain loss of loyalty even when reaching a complete replacement of a competitor in terms of profitability.
- Brand extension. The strategy, the essence of which is that the loyalty of the buyer to the name of the retail chain is transferred to products under their own brands. In this case, private label becomes a full-fledged brand, which allows it to be positioned as a direct competitor to a popular manufacturer in the same price segment, and over time it may go beyond the network.
- Development of specifications and packaging design. Certain costs are associated with the involvement of specialists in the establishment of the technical conditions of the product and the design of its appearance.
- Conducting a tender for production. In principle, this stage does not require special costs. Various retail chains hold open or closed tenders. But after agreeing on the conditions on price and production volumes, it is necessary to conduct a study of the production capabilities and reliability of the supplier, and this is already associated with business trips, the involvement of specialists and, as a result, with additional costs.
- Purchase of raw materials and components. As a rule, after agreeing on commercial terms of production, the supplier can only compensate for the money spent. In this case, the costs of purchasing raw materials and packaging are borne by the retailer. The main problem of the production of goods under private label is that in order to obtain a competitive price, it is necessary to purchase raw materials and components in large quantities, which leads to large advance payments, storage of containers, and sometimes products manufactured in large quantities, payment of credit funds (instead of a commodity loan in case of work according to the manufacturer's TM).
- Next come the costs associated with product promotion, merchandising, regular quality control, and possible disposal of leftovers.
- Another significant cost item is logistics. In the production of goods under private label, the retailer takes over the entire logistics chain from the factory to the store counter, and this, depending on the product category, can be very costly.
Let's estimate the total costs:
- trading premium - up to 10%;
- advertising, placement on the spot for additional display, price promotions - up to 15%;
- logistics costs and merchandising - 2-5%;
- funds for the launch of the project, the purchase of raw materials, quality control, disposal of residues - 2-5%.
As you can see, the additional costs of the network can be up to 35%. And this is provided that a difference in price on the shelf of 10-15% is also needed. Apparently, the manufacturer should give a fifty percent discount from the cost of the main line when releasing private labels...
Hopes and fears
What does the manufacturer expect and what does he fear when releasing goods under a private label?
There are several logical explanations for which a company can start producing goods under a private label of a retail chain:
- gaining network loyalty in order to introduce or expand the product line under their own brands;
- advertising their trademarks and themselves as a manufacturer by associating in the minds of the consumer with the name of the retail network;
- optimization of logistics for the supply of its products by increasing supplies to the Customs Union;
- obtaining guaranteed and timely payment for the goods;
- additional income.
The main concerns of the manufacturer are related to the possibility of losses. They are due to the fact that the economic model of Russian enterprises is significantly different from the Western one.
In Europe private labels are produced by companies that initially built their business on the principle of exclusively working with private labels of the network and were thus spared from organizing an extensive sales and distribution system, which we see in Russia. They do not need marketing and sales departments - by the way, quite expensive - otherwise these costs are included in the cost of goods. Thus, a European manufacturer can ensure the supply of products with acceptable quality at a reasonable cost.
Manufacturer's risks are as follows:
- Get a loss from cooperation due to the need to provide the retailer with a price below the full cost of production.
- To become dependent on the seller due to the fact that when reorienting production to the production of private labels, it will be necessary to reduce commercial divisions and the active sales department, as well as abandon the client base that has been accumulated over the years. In the event of termination or termination of the contract with the network, it will be impossible to quickly restore sales volume, which will inevitably entail serious financial losses.
- If a retail chain insists on launching an "umbrella brand" similar to the TOP positions of its own range, there is a danger of substitution and crowding out of their products.
Win-win move
A huge number of manufacturers seek to supply retailers with goods under private labels. How to get the desired contract? There is a simple and effective rule: you need to understand what guides the retail chain's private label manager when making a decision, and make him an offer that you yourself would accept if you were in his place.
- Assess the needs of the retailer:
- analyze the market and assortment of the network;
- evaluate the network strategy when working with private labels;
- formulate the requirements for the product needed for the network.
- Weigh your own strengths and capabilities:
- check if you can sell a product with the required characteristics at the required price;
- objectively assess your production capabilities: will you be able to supply products in the required quantity without compromising the existing sales volume;
- identify the need for project financing and identify sources of fundraising;
- identify suppliers of raw materials and components and make sure of their reliability and readiness to provide everything necessary for the production of private labels;
- calculate the cost of production before and after launching a private label project. Track how the increase in volume affected the cost price. Develop a cost reduction program;
- compare the economics of a contract when cooperating on your own brand and private label network;
- formulate what goal you are pursuing;
- evaluate your risks and, if they are significant, draw up a program to reduce them.
- Make an offer that will benefit both the retailer and you, and make it without waiting for a tender to be announced. Your offer will become much more attractive if you:
- do your own research;
- simplify the quality control procedure or take on part of the costs;
- minimize network costs for the purchase of raw materials and packaging and storage finished products;
- Distribute a package of additional services provided to your trademarks and private label networks.
The proposed work algorithm can be quite effectively implemented by both domestic manufacturers and importers. The weakening of the ruble at the beginning of the year reduced the competitiveness of foreign goods. Nevertheless, the emerging trends towards a depreciation of the EURO, an increase in food imports from European countries, and the focus of a number of Western enterprises on the manufacture of private labels for European retailers make cooperation with Russian retail chains in the production of private labels and their own imports promising.
Trademark definition
The concept of a trademark is a literal translation of the English term "Trademark", and is understood as a designation, any symbol (figurative, verbal, combined or otherwise) used by the manufacturer or seller ( legal entity, a private entrepreneur) to individualize their products.
This principle of marking one's own products with a unique sign came into the modern civilized world of trade around the 19th century, and was borrowed from Western cattle traders.
Unlike a logo and other brand attributes, a trademark is a legal concept; its scope is strictly regulated by law Russian Federation. For Russia and some CIS countries, the single legal term used in regulatory documents and denoting a trademark is "trademark".
The owner of a trademark (private trademark) is free to use it and dispose of it at his own discretion. Its exploitation by other persons for commercial and other purposes who do not have the appropriate rights is prohibited. Thus, a trademark that has passed the registration process becomes the full legal and intellectual property of the company. At the same time, the number of patented trademarks that one company has the right to own is not limited.
Types of brands
1. Word - font (alphabetic and / or digital) compositions, accounting for approximately 80% of the total number of existing trademarks. These include:
- personal names;
- invented neoplasms (not previously existing, artificially created words);
- abbreviations of the full name of the brand;
- numbers or figures;
- phrases, small sentences (slogans);
- a combination of alphabetic and numeric characters, etc.
2. Pictorial - an individual illustration, a symbol - an abstract or traced graphic element. They make up about 5% of the total. More in demand in private professional activities.
3. Combined - containing the name of the brand and a picture. Visual and verbal components in this case are inseparable. This combination in design practice is often called a logo.
4. Sound - melody, ringtone, etc.
5. Three-dimensional - representing the product or its original packaging.
6. Olfactory - signs in which a certain aroma is patented.
In addition to these options, you can find a trademark in the form of a hologram with images changing at different angles, as well as a trademark, the subject of patenting of which is a unique color solution.
In other words, any original, unparalleled symbol (or set of elements) that can be a designation of a product or service, ensuring their correct identification, recognition in the understanding of the consumer, can become a trademark development product.
Development stages
The process of developing a new trademark is laborious, creative, with a number of tricks and nuances. It consists of the following main steps:
- Analysis of the characteristics of the product for which the brand is being created. Evaluation of its distinctive qualities, setting the goal of positioning in the market.
- Determination of the key elements of the future sign as a symbol of the company, industry, specific products.
- Direct development of a trademark - name, design (if a verbal, pictorial or combined form is chosen), etc.
- Selection of two or three options from the proposed sketches (or other development products) for their verification through the creation of focus groups.
- Legal verification of signs (designations) selected as a result of the activities of focus groups on the fund of trademarks registered in the Russian Federation, as well as conducting a search in the Rospatent database. The check is carried out according to the selected criteria. It is important to identify not only similar, but also similar designations.
- Comparison of sketches (selected variants of a trademark) with information obtained as a result of a search in the bases of registered marks.
- If necessary, adjustment of designations to avoid similarities with existing brands on the market.
- Approval of the final version of the designation.