Innovation in Private Labels- A case study of Marks and Spencer- British retailer and the challenge when applying to private labels’ market in Vietnam.
Private labels now play an important role in retail market, which are considered as the new trend of providing new products under retailers’ names. However, existing private labels still face some prejudice in the customer point of views and difficulties in expand more sale volume and confirm their stands in the market.
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Innovation in private labels is the key factor to help private labels overcome the weaknesses. With the concept of innovation and their applying to private labels products, this essay will give the overall look of how private labels in the world innovation and their impact. Moreover, the case study of Marks and Spencer will be given to clarify clearly of the issue. Besides, this essay will mention the challenges when applying innovation in private labels in Vietnam to compare with those in the world market to find out the similarity and the weaknesses of Vietnamese private labels.
II. Literature review
1. Overview of private labels:
A. Definition of private labels:
Private labels may also be referred to as home brands, own brands, own labels, store brands, retailer brands or generics. Private labels which were first introduced in United States around 1900 (Hoch & Banerji, 1993) and Germany, Aldi in 1948 (Sachon and de Albeniz, 2009) are not owned by producers or manufacturers but by retailers. These retailers let other producers to make the products or service for them and put their brand on the labels of the products. Private label goods and services are available in a wide range of industries. They are often existed coincidently and compete on a horizontal level with national brands. Read also which helps enable an oligopoly to form within a market?
There is another way to define Private labels according to lKumar and Steenkamp “to be any brand that is owned by the retailer or the distributor and is sold only in its own outlets”Therefore many well-known brands such as Gap, H&M, SmartBuy are private labels because they are sold only in their own stores and their products are not sold through any other outlets. There are many companies who take parts in the private labels and act as the manufactures for the retailers. For instance, Richelieu Food- a private label food manufacturing company, headquarter in Randolph, Massachusetts, produces food such as frozen pizza, salad dressing, sauces, marinades, condiments and deli salads for other companies, including some famous retailers and companies like Aldi, Hannaford Brothers Co., BJ's Wholesale Club (Earth's Pride brand) and Shaw's Supermarkets (Culinary Circle brand).
There is a big association in the world for private label manufacturer known as PLMA (The Private label manufacturer Association) which categorizes Private Label manufacturers into 4 main categories:
Large national brand manufacturers: they utilize their expertise and excess plant capacity to supply store brands.
Small and medium manufacturers who specialize in particular product lines and concentrate on producing store brands. These SMEs are often owned by corporations that also produce national brands.
The retailers and wholesalers that own their own manufacturing facilities in order to provide store brand products for themselves.
Regional brand manufacturers who produce private label products for niche markets.
B. Global Private label trends:
Someone who usually goes to the supermarkets or retail stores can easily find out the daily products or some special ones named as the brand of the stores or supermarkets and are displayed on the shelf with the national brands. There are some housewives or astute consumers who can easily aware of the presence of these store brands and their dramatic development. Retailers have realized their strengths in the “shelf-space” completion to exploit their growing buying power by developing their own store brands and of course in the manner of association with other manufacturers.
According to the report of Datamonitor, IRI Times ; Trends (2008), the private label industry is approaching US$1 trillion in sales annually and, the largest markets for private label are in food and beverage products which are increased dramatically in North America and Europe.
Figure 1: Private label introductions, as a percentage of all introductions, by region
Figure 1, which illustrates private label introductions as a percentage of all product introductions for major geographic regions over the 2005-2009 (year-to-date) periods, shows greatest penetration in North America and Europe. In Asia Pacific, the percentage of introduction is the least.
In Europe and the USA, private label retailing is days by days increasing and is considered now a mature industry. In some retail sectors, private labels account for 40 to 50% of sales, reaching 100% in some categories; for instant chilled foods. However, on the global scale, the impact of private label plays as a marginal role. The global progress of private label tends to grow continually, stably but slowly in some regions. This is the result of the deploying private label products in a growing number of categories which is considered as a phenomenon in two decades. With this result, the small and medium brands get delisted in favor of private labels. The consideration is that in Europe where private labels develop the most, store brand still only accounts approximately average of 35%.
Figure 2: The private label reality is significant and mostly growing, but not everywhere
C. Private labels vs National brand:
Nowadays the competition between private and national brand becomes harder and harder. The manufactures have realized that the rise in private labels will be a threat for them. Historically, private label products were generic, commodity-based products which were developed to undercut higher-priced traditional national brand products—first developed by Sainsbury in the U.K. in 1869 (Collins ; Bone, 2008), these products are aimed to serve for lower-income consumers. Today, generic, commodity-based products account for roughly 30% of total private label sales and provide a discount of up to 40% compared to name brands (Collins ; Bone, 2008).
Private-label brands give retailers, regardless of size, the ability to control and manage their shelves and to create another level of relationship with consumers. Price sensitivity plays an important part in remaining the key driver of share and the growth of private labels. Although private label products are still mainly found in the low and medium priced range, some retailers have begun to introduce premium brands, which compete in quality as well as price with national brands. National manufacturers have been aware that the best way to remain their market share is to treat private label as legitimate competition. Read Marks ; Spencer market structure
D. Incentives for Retailers to Create a Strong Private Label Program:
Short-term subsidization of private labels can be profitable in the long run ? Pushing private labels is more profitable than pushing manufacturer’s fringe brands ? Retailers with Strong Private label Programs have more leverage with manufacturers
E. Buying behaviors of private labels:
As normal view of the consumers, Private label products are mostly considered low price with somehow low in quality. To analyze the buying behaviors of private labels from the customers, a lot of researches have been made to find out the key factor which influenced the consumers on buying private label products. Without any surprise, the result reveals that money is the most important reason. To analyze deeply this issue, the researchers combine psychology and economy knowledge to compare the differences between consuming behaviors of store brands and national brands.
Attitudes toward money for consuming products are a complex multidimensional concept and they have both positive (e.g., love) and negative (e.g. distrust) feelings from people (Medina, Saegert and Gresham1996). Consequently, the scale and concepts are adopted here.
According to Yamauchi and Templer (1982), the buyers who have power-prestige can view money as a tool to impress others and a symbol of success. Moreover, they tend to pursue prestige and image through consumption (Bella 1998). Thus, they will purchase promoted national brands to enhance their self-perception of personal values as national brands are considered more reliable and more expensive than store brands “The effect of perceptions of money as a tool of power-prestige on promoted brand attitude will be more positive than its effect on private label attitude.”
Yamauchi and Templer (1982) describe people who distrust with products is as hesitant, suspicious, and doubtful regarding situations involving money. These kinds of buyers show low confidence in their ability to make efficient purchases. According to Roberts and Jones (2001) Price-conscious consumers are sensitive to price difference and concerned with obtaining low prices for products (Lichtenstein, Bloch and Black1988). Therefore, they refer to buy private label brands. Due to the research of Thaler (1985) and Zeithaml and Graham (1983), purchasing private labels enables consumers with strong distrust because they do not worry about being not satisfied with the products or have to complain about the price they pay. “The effect of money attitude regarding distrust on private label attitude will be more positive than its effect on promoted brand attitude.”
People belongs to the group of retention time often have the money saving view for the future and are good at monitoring their financial situation. They are very sensitive with price of the products. Therefore, they refer to consume more store brands than national brand products because of cheap price.
The effect of money attitude regarding retention-time on private label attitude will be more positive than its effect on promoted brand attitude.
With the research of Yamauchi and Templer (1982), the buyers who have high on anxiety often display nervousness when they don’t have enough money and become worried when it comes to money. However, they also favor compulsive buying (Robert and Jones 2001). This shows that anxious consumers tend to buy national brands as purchasing these kinds of products can satisfy their contradictory needs.
“The effect of money attitude regarding anxiety on promoted brand attitude will be more positive than its effect on private label attitude.”
According to McClelland (1961), motivational needs are classified into three types: needs for achievement, needs for power, and needs for affiliation. The buyers who have needs for achievement refer to buy national promoted brands. Ones who have need for power have desire to control others and situations and they likely to purchase national promoted brands as they may boost their status in a society or group. People with affiliation attitudes enjoy situations such as team activities and cooperate with others. Meanwhile, low-price private labels seem not to benefit in developing friendships and seeking acceptance.
“The effect of needs for achievement on promoted brand attitude will be more positive than its effect on private label attitude.”
“The effect of needs for power on promoted brand attitude will be more positive than its effect on private label attitude.”
“The effect of needs for affiliation on promoted brand attitude will be more positive than its effect on private label attitude.”
Smart shopper self-perception:
Smart shoppers think that the cost is relatively related to the quality (Schindler 1988).The more the products cost, the better the quality is.
Therefore, they like to purchase national brands than store brands.
“The effect of a smart shopper’s self-perception on promoted brand attitude will be more positive than its effect on private label attitude.”
According to the research of Bolemer and Ruyter (1998), store image is defined as the complex of a consumer’s perceptions of a store on different (salient) attributes. Store aesthetics have no effect on judgments regarding the quality of national brands (Richardson et al.1996b). These results suggest that store image exerts less influence on national brand attitudes. “The effect of store image on private label attitude will be more positive than its effect on promoted brand attitude.”
Figure 3: Buying behaviors of private labels.
With the results from 2010 Nielsen global online survey of more than 27,000 respondents across 53 countries show that the percentage of purchasing private labels increase during the economic downturn. However, 91 percent said that they will come back to purchase national brands when the economy improves.
Figure 4: The majority of consumers purchased more private label brands during economic downturn
Figure 5: When the economy improves, virtually all consumers will continue to purchase private label brands.
2. Concept of Innovation:
A. Definition of innovation:
There are a lot of definitions about innovation. For example, “Change that
creates a new dimension of performance.” – Peter Drucker “The ability to deliver new value to a customer.” – Jose Campos. Innovation is something new, a new or improved product or service, a new or improved process, method, structure. Besides, Innovation is something that substantially different from routines, a process from idea finding to implementation or the application and transfer of ideas which have to prove themselves on the market or in internal process. According to the economist Schumpeter (1934), innovation is defined as a process of creative destruction, where the quest for profit pushes companies to innovate constantly, breaking old rules and establishing new ones. In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that remained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power.
For Schumpeter, innovation is not only the introduction of new products but also the successful of new commercial combinations, based on the application of new materials, the introduction of new processes, the opening of new markets or the introduction of new organizational forms. Moreover, innovation is not only new idea, new products or new services but also the improved process, new technology usage to make the existing product, service or organization better. According to Johnson et al. (2008): Innovation is the conversion of new knowledge into a new product, process or service and the putting of this new product, process or service into use, either via the marketplace or by other processes of delivery.
B. Business concept innovation:
Every entrepreneur has to know that no business can last forever, and the only way to cope up with this is to think out of the box and improve or create new things. The concept of business innovation was introduced by Joseph Schumpeter view innovation as the core of economic growth. He also gave the differences between innovation and invention. To qualify as innovation, an invention must be successfully applied and established within the marketplace Moreover, the term business
innovation is very helpful and practical for small and medium enterprises.
Innovations take place by way of a creative change of one or more of the four dimensions of the business system
? · Offering
? · Process
? · Distribution
? · Customer
Table 1: Four dimensions of the business system
C. Types of innovation:
There are three types of innovation that an organization or a company can choose to pursue: incremental, breakthrough, transformational.
Transformational: is the most difficult because it changes the way we live and often makes big companies, even whole industries, obsolete in a short period of time.
Incremental Innovation - This is the kind of innovation that most of people are used to achieve. It improves the products based on the old ones. They can be new bells & whistles, new packaging, new improved ingredients, etc.
Breakthrough innovation falls between incremental and transformational on
the innovation spectrum. Breakthrough ideas create new markets and business opportunities that did not exist before.
Innovation in Private labels:
1. The motivation for innovation and differentiation in private labels: A. From the consumers’ point of view:
Although the private labels are on the way to develop and become trendy in retail market
especially in the recession time, they are also have some bad views from the mindset of the customers. Private labels are still considered the “copy cats” of successful products of national brands. The consumers still believe that they are choosing cheap, low quality products instead of confirming their good value for money. As the previous studies mentioned above, customers during the economy down turn purchases store brands for saving money and can leave the low quality behind. However, when the recession time ends, they come back to buy national brands.
The copy cats of private labels with the copy of successful national brands
B. From the retailers’ point of views:
The retailers realize their competitive advantages in the “self-space” competition with manufacturer brands and private labels of other stores in differentiation the products and branding.
? Private labels enable retailers to compete with and decrease their reliance on national brands.
? Unlike national brands that need to spend cost for marketing and advertising, retailers can save the marketing cost because they can direct introduce their private labels products to the shoppers by shelf-space display.
? Creating their own value through private labels in order to provide customers variety of products in coincidence with national brands can give them more profit and strong brand recognition in the long term.
? Manufacture stores can be their partners and their competitors. With the rise and differentiation in private labels, retailers have the high chance to act no longer as the price taker but the price giver. The strong example for this idea is Wal-mart. ? Private labels allow them to differentiate from other retailers in a highly competitive environment.
On the other hand, retailers also recognize their weakness in the comparison with national brands, which prevent their market share of private label products from increasing when the economy is not in the downturn period.
They focus mainly on cheap products and copy cats which prevent them from having their own brand products and differentiate with national brands
Their packaging is not concerned much in design and material, which lead to bad impression of the customers.
The process and technology for making private labels products are often out of date and do not have well concerned from the retailers.
With the realization of strengths and weakness of store brands products in order to last longer in retail market, the retailer have to innovate their private labels as a preconditions for development and changing the bad customer’s point of views.
2. How private labels innovate:
According to PhD, Professor of Food Marketing– Richard J. George in Haub School of Business, Saint Joseph’s University, “Retailers need to think like a brand and act like a retailer.” The retailers are now well aware of their advantages over national brands. They own the place where customers shop. If they listen to what buyers really want and their buying behaviors, they can
lead the shoppers to better experiences and lay the foundation to build a true store brands. The Financial Times article mentioned earlier explains that “store brands are no longer copying the competition. They are setting their own style trends. The ugly ducklings of the supermarket shelves are growing into swans.”
Now, Private label brands are in position to compete on value and quality with national brands. The opportunity for retailers is to use private labels to differentiate themselves by innovation to help build and sustain the image of the entire stores. “Private label has now joined the innovation game,” said Karen Young, founder of The Young Group. “Not only are they surviving but they are thriving, because they are no longer the lowest common denominator.”
According to the concept Innovation of the economist Schumpeter (1934), innovation is not only the introduction of new products, service or process but also the improving the old ones to make it better, suitable with the demand of the market and bringing profit. Innovation in private labels is the combination of creating new products and the improvement of the old ones. It is also the study of the weaknesses of the old ones and the action to improve and bring private labels in higher position.
Moreover, from the view of retailers, innovation in private labels is also the business innovation to service and develop in the market for long time. By innovation, private-label is no longer strictly a me-too solution or a value offering. It has expanded into exclusive, premiumquality brands that are as good as the national brands or even better. “To be innovative, a product has to generate a different experiential response” The latest trend is to establish high quality products with distinctive packaging, presented as a whole new product line by the retailer, targeted at competing with the top brands in the range.
True product innovation is one of the strongest competitive weapons of
private labels against the national brand products. A major innovation by the retailers leaves the category’s national brands in the same competitive position.
Before innovation, private labels are categorized in two kinds: generics and copy cats. Now there are more 2 kinds of innovative private labels: Premium store brands and value innovators. Both of them are also the result of innovation from the old kinds of private labels.
Figure 6: the level of private labels
? Premium store brands:
Retailers have seen the opportunity to differentiate their products especially in food and beverage and thereby target a whole new section of the market. Their targets are setting two types of premium brands: the premium private label which is exclusive, higher in price and superior in quality and the premium-lite store brand which is promoted as being equal or better in quality to the competing brands, while being cheaper.
Value innovator owned labels are followed the approach to cut down costs and processes to simplify the production and marketing. The value innovator approach differs greatly from generics, copy cats. There are a number of key principles that must be adhered to for this approach to be successful.
Limited number of products
Low costs of production and marketing
Good quality products at low prices
With the approach to bring private in higher position, they differentiate their private labels by innovation in investment more in packaging design and production lines by adding new recipe in food and beverage or apply new technology in order to ensure the best quality of the product. ? Packaging:
The “less-fancy packaging” of previous private label products are substituted by more interesting and fancy look to attract the customers and act as the signal of good quality products. Retailers invest more money in designing interesting packaging as they know that packaging is very important to decide the buying behaviors of customers and is considered the first impression of evaluating good or bad products.
For instance, In the UK, Sainsbury’s premium line is called Taste the Difference, Tesco has Tesco Finest, and Asda has Extra Special. These labels tell the consumer that this is the best product, and the packaging is also targeted to this effect.
The packaging of generics and premium private labels
Innovation in production lines:
With food and beverage private labels products, the retailers who have their own manufacture company also find out new ingredients or recipes to make food and beverage of their store brands equal or even better than national brands. They are seriously now acting and thinking like the manufacturer to think outside the box and want to produce the best products which are very good in quality and have the store brands’ specialty. Moreover, they apply new technologies in producing food and beverage products which both reduce cost and give the best quality products. With the retailers who have their manufacturer partners, a new generation of private label manufacturer is forming exclusive, strategic alliances with several technology centers to bring a think tank approach to personal care formula and delivery system
innovation, toward the goal of creating truly differentiated products. This is the result of the need for innovation in private labels from the retailers which force the manufacturers for private labels to innovate their process, their technology to answer the need of the retailers.
? Innovation in marketing:
Unlike national brands, private labels do not have advertising or marketing campaign as usual. The retailers also depended on the self-space- their strength to capture the attention of the customers. Now, with the innovation in marketing, some of retailers use packaging as the tool to do marketing for their private label products. In the packaging, the retailers put the discount price with colorful design and the information of the quality or some advices from the retailers to customers. This method leads to the curiosity and interest of customers.
3. The impact of innovation’s private labels in general:
The innovation in private labels will make the manufacturers of national brands worried about decreasing in their market share. However, the harsh competition between store brands and national brands will bring many benefits to customers as well as the retail market. One of the most important of innovation in private labels is the supply of various qualified products, which gives customers more choices in purchasing goods.
With the innovation, private labels will stand at the same level with national brands in the battle of quality, service and price. The retailers do not only provide more good products in the market but also the potential factors to increase the “quality” of retail market. Innovation in private labels forces the innovation in many relating industries who take part in the supply chain for manufacturing products. Moreover, with the rise in private labels because of innovation, the manufacturers of national brands have to do innovation in order to get more competitive advantages.
Innovation is considered as the precondition for not only the growth of the
business but also the development of the economy.
IV. Case study of Marks and Spencer in innovation of their food private labels:
The UK is widely acknowledged as a pioneer in private label, and the penetration of ownlabel products is one of the highest in the world. Marks and Spencer is the major retailer who is well known for their innovated premium private labels in food and packaged food.
1. Background of Marks and Spencer:
Marks and Spencer was founded in 1884 by Michael Marks and Thomas Spencer in Leeds. It has over 450 stores located throughout the UK, this includes the largest store at Marble Arch, London. In addition, the Company has 150 stores worldwide, including over 130 franchise businesses, operating in 30 countries.
Marks and Spencer plc (also known as M&S; colloquially known as Marks and Sparks, Marks's or, simply, Marks) is a major British retailer headquartered in the City of Westminster, London, with 703 stores in the United Kingdom and 361 stores spread across more than 40 countries. It specializes in the selling of clothing and luxury food products. Moreover, it is very well-known for the premium private labels for food, clothes,……
2. Innovation in food private labels
The Marks ; Spencer choose the expand their private labels products as premium brand and can charge premium prices for many of its own label food products as it has successfully marketed its food lines as gourmet, high-quality food.
Unlike private labels in other retail stores, Marks and Spcener food are well known for its taste, ensured quality and the variety of all kinds.
Before they choose a manufacturer, we inspect the food they produce, as well as where it’s produced, and use internationally recognized methods to check their manufacturing processes are safe.
? Innovation in production line and technology:
? Manufacturing processes:
Marks and Spencer has their own reliable manufacturers for their food store brands. But they also take part in the manufacturing process in order to ensure the high quality products When it comes to producing food, hygiene standards have always been a priority at Marks ; Spencer. They employ a team of hygiene technologists alongside specialist independent
companies to help them set standards, inspect the suppliers' factories, provide the highest quality training and introduce new technologies to improve the ways of working yet further. Each Marks & Spencer product has its own unique specification, which includes the ingredients, the approved manufacturing processes, quality standards and testing procedures. The products from every batch produced are tasted and tested to meet the high standards. Moreover, they inspect manufacturing processes regularly to ensure safety and quality For 100% of our own label food products, they source all non-GM (*) ingredients or derivative from approved and reliable suppliers, testing raw material. By carefully checking all manufacturers' factory processes, they prevent their food mixing with any GM materials. They also work with number of laboratories specialists in GM testing. They check all the food and products before they come to the shoppers.
To ensure the products meet the exact quality standards, they use only the best ingredients for their food products.
They spend a lot of time researching which ingredients are authentic for particular dishes, and make sure to use only genuine ingredients. It is surprised that they are using over 5,000 different ingredients in their foods. (Example - Indian). Especially if they use a particularly sensitive or complicated ingredient, they are always along with the suppliers, and may
introduce extra requirements.
They know that their customers prefer not to use of additives, so they minimize the use of additives whenever they can and use natural additives instead There are a number of food additives which they do not use for their food including monosodium, glutamate (msg), cyclamates and tartrazine.
They also remove artificial colors and flavor from their foods. Up to now, 99% of their store brand food is free from artificial colors and flavor.
Since spring 2002, they have been producing all their fresh meat and poultry, salmon, shell eggs and fresh standard milk from animals fed on a diet based on non GM cereals and ? Innovation in packaging:
Nanotechnology is an emerging science and involves the use of very small particles that have a size of one hundred nanometers (nm) or less. A nanometer is one billionth of a meter. They use nanotechnology on packaging to offer more benefits for customers (packaging density) ? Friendly bio environment packaging:
They use bio environment packaging in order to send the message to the customers their private label products are not only good in quality but also in having high aware of environment protection.
? Packaging design:
The design of their food private labels is well concerned and researched due to the taste of the consumers. They are usually colorful and well displayed in order to attract the attention of the consumers. Differentiating its brand from others with innovative and bright packaging, M;S offers a unique experience for its shoppers with a variety of exclusive items. Moreover, good packaging design is considered the signal of good quality.
? Innovation in private label marketing:
The packaging attracts attention to the product and its promotional price. With the innovation in marketing for private label products allow the store to promote price directly on the packaging which create the eye-catching signage on every facing.
Bright colorful packaging and prices directly on the label create distinctive promotions
Challenge when applying innovation model in private label in Vietnam:
1. Private label industry in Vietnam:
To capture the trend of private labels in the world, Vietnamese retailers’ have step by step invested in their store brands products. Own branded products are increasingly in sale and their prices are cheaper from 10 - 30% in comparison with the competitors. Vietnamese private label market becomes more active when a series of supermarket expand strategies, shake hands with manufacturers in the race to launch private label products to attract customers. Metro Cash ; Carry is the first supermarket own label goods in Vietnam with owning six brands, such as: Fine Food, Fine Dreaming, Sigma, SELEC Horica, Aro ... Next, Wow Big C
with the 15 to 35% cheaper price than the brand of the same type. Co-op Mart has about 150 Coop Mart store brand items ... In Vietnam, Private label is a strategy to help retailers make up the difference with competitors.
According to the Hanoi Supermarket Association, the rate of private label goods account for only about 3% of the system's retail distributors. The number of businesses, manufacturing private labels for supermarkets
increasingly expanded, but still modest, with nearly 100 manufacturers. Dr. Dinh Thi My Loan, Chairman of the Vietnam Retailers Association, private label goods are considered still fairly new in Vietnamese market, mostly concentrated in key products such as: frozen food, cosmetics, house wares, apparels.
2. The challenge of innovation ‘s private labels in Vietnam: The market share of private label goods is expected to continue to increase, which is considered as the good business market environment for both distributors and manufacturers, especially in the recession time. According to the research of Neilson, like the trend of buying behaviors in the world market, Vietnamese purchasers refer private labels products when having economy downturn and will continue to come back buying national brand products when the economy is better.
In Vietnam, there are only two kinds of private labels: generics and copy cats which are low in price and somehow low in quality too. This means, the innovation in private labels are not well concerned with the retailers. Developing the generics and copy cats of private labels in Vietnam still faces some difficulties, so the retailers do not think to develop the premium brands or value innovator like some retailers in the world. Moreover, innovation in private labels at this time is not suitable for Vietnamese economic situation and the infrastructures of business environment. ? Barriers to entry:
Not many of Vietnamese manufacturers are willing to make large order discounts to produce the traditional private labels as they are afraid of losing their market share in the retail market. Moreover, producing low price products means that they have to cut cost in some process of Page 30
production which are not suitable for manufacturing their existing national brands . Therefore, the retailers who want to develop their store brands find it difficult to look for qualified manufacturers who can comply with their requirements.
? Barriers to capital:
Investments in private labels need more resources and have to invest in distribution and retail also. Selling private label not only put products on the shelves, the retailers must also calculate the cost to support manufacturers, market research, consumer tastes for each product, characteristic for the product ... At this time, private label strategy is not merely a lucrative market for retailers looking to make a profit, it is a real challenge if companies do not have a solid strategy and steps.
? Barriers to Technology:
To produce good private products which have the same quality or even better the national brands, the retailers and manufactures have to cooperate with each other to apply new technology in production and process or even new recipe or ingredients for food and beverage. The technology for manufacturing in Vietnam is still weak because of the lack of the government’s concerns and the capital to invest.
Conclusion and recommendation:
Innovation in private labels is the evident for better development and help retailers confirm their stands and last longer in the retail market. Some of the retailers from developed countries are doing good job in innovation their store brand products, which not only bring benefits for themselves but also for the consumers and economic growth. However, when applying innovation to Vietnamese market, it still face a lot of difficulties because of the lack concern and investment in technology, the lack of relationship with suppliers to suppliers and the prejudice of consumers.
If retailers in Vietnamese market want to do innovation in their store
brands, they have to make a long term investment with a clear strategic plan and good vision of the market. Besides, they have to cooperate closely with the manufactures in order not only to set up their own standards of quality but also invest more money to develop the technology, the process of production. Moreover, they have to do carefully the market research and the taste of Vietnamese buyers to develop the exact products as well as the time to launch. The business environment in Vietnam does not have the good foundation in comparison with developed countries. Thus, if the retailers want to join in the game of innovation, they have to set up their own value and not copy the same model and process of the successful case like Marks and Spencer as “ when in Rome, do as the Roman do”
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