Brand battles

I stopped buying the butter brand I grew up with when I realised that my preferred hypermarket sells butter as well, at a 25 per cent discount to old favourite. Still, I would probably be still on the fence""it is difficult to break the habits of a lifetime, after all""but for the fine print: both butters had been processed by the same contract manufacturer. The score at the end of the day: private label 1, manufacturer brand 0.

As well-entrenched manufacturer brands across the world and in India""the Luxes, Nestles and Ariels, but also the Amuls and Kissans""are finding out, they aren't quite as irreplaceable as they thought. Store brands have been quietly, but surely, gaining ground, striding forward on the strength of improved design and product quality. So much so that Nirmalya Kumar and Jan-Benedict E M Steenkamp predict that across the world, private labels will have a 22 per cent share of consumer packaged goods by 2010, up from 14 per cent in 2000. Global private label sales are already close to $1 trillion, point out the two marketing gurus.

There was a time when private labels meant cheap substitutes for well-known brands""cheap inexpensive and cheap shoddy. Not anymore. These aren't no-name stand-ins for the real thing. Most store brands now fight on the value-for-money platform and that is why, the authors point out, you can distinguish between four types of private labels.

Basic, generic products sell purely on price, while copycats imitate the appearance and brandnames of the category leaders. Neither of these, however, will give retailers the volumes or value they seek. For that they need premium brands that go neck-and-neck with the best in class brands, aiming to stand out rather than ape, in terms of quality and packaging; and value innovators that offer excellent quality and rock-bottom prices by keeping a stranglehold on costs and constant innovation.

As private labels prosper, manufacturer brands are finding to their dismay that their customers (the retailers) are now their biggest competitors. How should manufacturer brands cope with the onslaught? Should they compromise and supply private labels to retailers or is it better to slash prices of their brands? Meanwhile, how can retailers ensure maximum profitability from store brands? Private Label Strategy examines these issues (and more) in painstaking detail, with examples from the world's best-known retailers and brand-owners (in some cases, the two are the same)""from Aldi, Wal-Mart and Tesco to Whole Foods, Macy's and Boots.

The key takeaways: store brands that offer comparable or superior quality and brand imagery will thrive, while manufacturers can take on private labels by focusing on market leader brands and reorienting the portfolio towards categories where innovation and brands have greater potential to add value. Oh, and most important: private labels may be here to stay, but manufacturer brands aren't fading into the sunset any time soon. Both are critical to the success of any retail venture, since customers expect and demand the variety of quality and price that only a combination of the two can provide.

Now for my grouses. The authors define private label as "any brand that is owned by the retailer or the distributor and is sold only in its own outlets". I'm not sure I buy that. Surely it isn't fair to dismiss IKEA and Zara as store brands"""value innovators", to be sure, but mere retailer brands, nonetheless. (In fact, these are success stories deserving of a book of their own, but that's another issue.) Perhaps an undiluted focus on consumer goods would better fit the bill""in any case, most of the case studies in the book deal with just that category.

There is also no mention of what is increasingly common in India: contract manufacturing, where "manufacturer brands" are outsourced to third-party producers, especially in toiletries and household products and increasingly even in foods and dairy products. It is all too easy for a retailer to tie up with the same supplier for an identical product of similar quality, but packaged and branded differently""remember the butter?""and the manufacturer brand's odds even out when such associations are formalised. When the retailer and manufacturer are selling the same product (no distinction in quality or process), what should the incumbent brand's strategy be? How can the private label owner maximise his returns from the transaction? You won't find those answers in this book. Private Label Strategy was written to fill a void in the existing marketing literature. It does that job admirably, but there is still scope for a sequel.

Private Label Strategy
How to Meet the Store Brand Challenge

Nirmalya Kumar and Jan-Benedict E M Steenkamp
Harvard Business School Press
Price: Rs 695; Pages: 270