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Chapter

RMG 200 Chapter Notes -Private Label, Store Brand, Brand Equity


Department
Retail Management
Course Code
RMG 200
Professor
Brent Barr

Page:
of 4
CH 11: BUYING STRATEGIES
BRANDING STRATEGIES
Manufacturer Brands
- Manufacturer brands: (aka national brands) a line of products designed, produced, and marketed by a vendor
and sold to many different retailers
- The manufacturer is responsible for developing he merchandise and establishing an image for the brand
- Some retailers organize some of their categories around their most important national brands
- Buying from vendors of manufacturer brands can help store image, traffic flow, ad selling/ promotional
expenses
- Retailers buy from vendors of manufacturer brands because they have a customer following people go into
the store and ask for them by name
- Manufacturers devote considerable resources to creating demand for their products
- Manufacturer brands typically have lower realized gross margins than private label brands due to the
manufacturer assuming the cost of promoting the brand and increased competition among retailers selling
these brands
- Stocking national brands may increase or decrease store loyalty
o If the manufacturer brand is available through limited number of retail outlets, customers loyal to the
manufacturer brand will also become loyal to the stores selling the brand
o If manufacturers brands are readily available from many retailers in a market, customer loyalty may
decrease because the retailer can’t differentiate itself from the competition
- Manufacturer brands may limit a retailer’s flexibility – vendors of strong brands can dictate how their products
are displayed, advertised, and priced
Licensed Brands
- Licensed brand: brand for which the licensor (owner of a well known name) enters a contractual arrangement
with a licensee (a retailer or a third party). The licensee either manufactures or contracts with a manufacturer
to product the licensed product and pays a royalty to the licensor
- Owners of trade names not typically associated with manufacturing have also gotten into the licensing business
Private Label Brands
- Private label brands: (aka store brand) products developed and marketed by a retailer and only available for
sale by that retailer
- Retailers typically develop specifications for the merchandise and then contract with manufacturers who are
often located in countries with developing economies to produce the products
- The size of retail firms has increased through consolidation, and private labels have assumed a new level of
significance by establishing distinctive identities among retailers
- Private labels have always added value to retailers (eg. The Bay, Sears, Zellers)
- Consumer attitudes are driving the trend consumers are replacing more expensive brands with private
brands from retailers
Benefits of offering private labels
- Boosts store loyalty
- Enhance store image if the brands are of high quality and fashionable
- Draw customers to the store less expensive than national brands
- Retailers that purchase private label brands don’t have the same restrictions on display, promotion, or price
that often encumber their strategy with manufacturer brands
- Gross margin opportunities may be greater with private label brandsd
Drawbacks
- Although gross margins may be higher for private label brands than for manufacturer brands, there are other
expenses that aren’t readily apparent
- Private labels outside of Canada are more complicated
Private Label Options
Four categories of private brands
Generic
- Unbranded, unadvertised merchandise found mainly in drug, grocery,
(house
brands)
and discount
- Perceived by the consumer to be lower quality, and its packaging
identifies it as a brand of the retailer
Premium
branding
- A branding strategy that offers the consumer a private label at a
comparable manufacturer brand quality, usually with a modest price
savings
- Attempts to match or exceed the product quality standard of the
prototypical manufacturer brand in its category
- No intention to duplicate that packaging or to trade off the brand
equity of a particular manufacturer brand
- Consumer perceive the retail premium labels as competing
manufacturer brands
- To succeed competition with manufacturer national brands, the
retailer must commit the resources in market research, product
development, quality control, and promotion in its market area
commensurate with it manufacturer-brand competitors
Loblaw’s President
Choice, Tesco’s Finest
Copycat
branding
- A branding strategy that imitates the manufacturer brand in
appearance and trade dress but generally is perceived a lower quality
and is offered at a lower price
- Risky private branding alternative because close copies can violate
packaging and patent laws
Parallel
branding
- A branding strategy that represents a private label that closely
imitates the trade dress (packaging) and product attributes of leading
manufacturer brands but with a clearly articulated “invitation to
compare” in its merchandising approach and on its product label
- Like copycat branding, parallel branding seeks to benefit from the
brand equity of the manufacturer brand by closely imitating the
national bran’s packaging and product qualities
- Leveraging strategy used to bolster a retailer’s private brand sales
- Exclusive co-brands: a brand developed by a national brand vendor, often in conjunction with a retailer and
sold exclusively by the retailer
- Eg. national brand manufacturer assigns different model numbers and has different exterior features for the
same basic product sold by different retailers
- Eg. manufacturer develops an exclusive product or product category for a retailer
A Brand or a Store?
- A natural extension of the retailer’s brand strategy is to exploit strong retail name recognition by selling its
products through channels other than its own stores
- On the other side of the distribution spectrum, several firms that have traditionally been exclusively
manufacturers have become retailers
o Eg. Guess, Calvin Klein, Ralph Lauren
- Reasons why manufacturers chosen to become retailers
o Total control over the way their merchandise is presented to the public
o Use stores to test new merchandise and merchandising concepts
o Use stores to showcase their merchandise to the public
o Have stronger retail presence creating name recognition and synergy between the manufacturer and
retailer that benefits both parties
INTERNATIONAL SOURCING DECISIONS
- A decision that’s closely associated with branding decisions is to determine where the merchandise is made
Costs
Associated
with Global
Country of origin
effects
- Retailers must weigh the savings associated with buying from developing
countries with the image associated with buying merchandise from a
country that has a reputation for fashion and quality
Sourcing
Decisions
- Other countries may have technological advantage in the production of
certain types of merchandise and can therefore provide their product to
the world market at a relatively low price
Foreign currency
fluctuations
- Exchange rates will increase or reduce the cost of the merchandise
Tariffs
- Tariff: (aka duty) a tax placed by a government upon imports
- Import tariffs have been used to shield domestic manufacturers from
foreign competition and to raise money for the government
- General Agreement on Tariffs and Trade (GATT), the North American Free
Trade Agreement (NAFTA), and foreign trade zones all reduce tariffs
Free trade zones
- Free trade zone: a special area within a country that can be used for
warehousing, packaging, inspection, labeling, exhibition, assembly,
fabrication, or transshipment of importas without being subject to that
countrys tariffs
Inventory
carrying cost
- The cost of carrying inventory is likely to be higher when purchasing from
suppliers outside Canada than from domestic suppliers
- Cost of carrying inventory = Average inventory value (at cost) X
Opportunity cost of capital
- Opportunity cost of capital: the rate available on the next best use of the
capital invested in the project at hand. The opportunity cost should be no
loer than the rate at which a firm borrows funds, since one alternative is to
pay back borrowed money. It can be higher, hweber, depending on the
range of other opportunities available. Typically, the opportunity cost rises
with investment risk
Transportation
cost
- The farther merchandise has to travel, the higher the transportation cost
will be for any particular mode of transportation
Managerial
Issues
Associated
with Global
Sourcing
Decisions
Quality Control
- Harder to maintain and measure quality standards than when sourcing
domestically
- There are both direct and indirect ramifications for retailers if
merchandise is delayed because it has to be remade due to poor quality
Building
strategic
partnerships
- Harder to build alliances when sourcing globally, particularl when the
suppliers are far away and in underdeveloped countries
- Communications are more difficult
- Language barriers
- Cultural differences
- Different business practices
Source Close to Home or Buy “Made in Canada?
Reasons for retailers shifting suppliers form Asia and Europe to nearby Central American and Caribbean countries:
1. It may be more profitable for the reasons detailed above
2. Quick response delivery systems and sourcing globally are inherently incompatible short and consistent lead
times, strong alliance between vendor and retailer that is based on trust and sharing information through
electronic data interchange (EDI) or radio frequency identification data (RFID) and collaborative planning,
forecasting, and replenishment (CPF)
3. Customers prefer products made in Canada quality perceptions
4. Easier to police potential violtions of human rights and child labour
CONNECTING WITH VENDORS
- Retailers “go to market” to see the variety of available merchandise and to buy
- Market: (aka central market) a group of vendors in concentrated geographic location or even under one roof or
over the Internet
- Buyers can use resident buying offices that prearrange opportunities for buyers to visit vendors in major
market centers in North America and abroad
Wholesale Market Centers