Buying of Private Brands and Manufacture of Brands
Johanson and Burt article provides an analysis on recent decades’ trend of private labeled brands in European retail outlets—the trend is also gaining pace in North America.
The authors are specifically interested in finding similarities and differences of purchasing processes of private brands verses those owned by independent manufacturers.Private brands are hereby taken to mean good, usually foodstuffs that bear retailers name.Johanson and Burt highlight find that initial introduction of these brands into retailers’ shelves was marked with low quality and low prices.
However, continued trade of these products has gradually been companied by improved quality to an extent of private brands becoming part of mainstream retailing business.
For instance, private brands constitute of 40-50 percent of merchandise sold in British retail outlets (Johanson & Burt 2000). This is in consideration that competitive pressure in retailing industry has sent participants out looking for ways to increase profit margins.
Private brands have also been mentioned as sources of more variety of merchandise and therefore consumer choice at respective outlets (Bass & Binder 2008). Players in the industry have therefore embarked on competing on the provision of low priced private brands, as well as increasing these brands’ loyalty in their already existing customer base.
The purchasing of own private brands comes with greater responsibilities on companies and therefore complicate individual retail outlets’ operations. This is in consideration the on other brands, retailers are used to just ordering merchandise from respective manufacturers, but the new approach require retail management to be involved in every step of product development.
For instance, retailers have to bore the responsibility of designing private brands, looking for manufacturers (or processors in the case of foodstuffs) and transporters to individual stores, as well as dealing with non sold items.
The authors expressed fear that preoccupation with the above processes could derail retailers from their traditional occupation of buying and selling of merchandise and therefore suffer through decreased profit margins, especially because of the extra costs involved.
However, private brands have the advantage of the greater amount of market information held by respective retailers. Indeed, shopping chains are more likely to undertaking deep research on merchandise that would fetch most profit margins as private brands (Mattsson 2008). Secondly, the heavy market powers held by private owners are more likely to attract discounts from manufactures and other businesses involved.
Many are the companies that scrabble for contracts for manufacture or processing of private brands. Johanson and Burt (2000) have mentioned that success in private brands depend on three forms of integration within individual retail chains.
First is vertical integration, which means coordination between retail chain and individual store outlet—this is important in developing efficient processes of moving private brands to from low demand to high demand territories.
Second is the horizontal integration which comes to play when the retail chain has many stores that need to interact with each other. Efficient integration between different stores in the same chain and stakeholders is therefore central to successful private branding in retail stores. Johanson and Burt have did, in their article find integration as what has caused British chains to reap higher revenues through private brands.
Bass, A. & Binder, S., 2008, Retail Space Invaders, Available At: http://www.brandchannel.com/papers_review.asp?sp_id=775
Mattsson, A., 2008, Global Retailers Increase Private Brand Goods, Available At: http://www.intertek- etlsemko.com/portal/page/cust_portal/ITK_PGR/ABOUT_INTERTEK_ETL_PG/ OUR_NEWSROOM_PG/UPDATE_NEWSLETTER_PG/Update_2002/SUM02_ global_retail_article