When we go to a grocery store to buy hair oil, chances are we will pick a brand which is familiar and the one which we normally use. Reason is we trust the brand. We don’t want to experiment. Fast moving consumer products like Hair oil are a very small part of our personal household expenditure and we don’t go around experimenting with similar cheaper alternatives.
Brands bring with them trust and assurance of quality. We don’t mind paying a little more. Brands give companies pricing power (Pricing Power = Ability to charge higher prices).
The world of business is all about competition. Businesses only compete with their competitors but also with their suppliers. With the increasing size of large retail chains, market position of a lot of consumer product brands are under threat.
Retailers where consumers regularly go build a certain level of trust with their customers. Retailers can get similar consumer product under their own private label (that is the retailer can get the product manufactured from a third party and put its own brand on it) and can price it much cheaper as they don’t have to spend a lot of money in advertising to build the brand.
Kirkland is the private label brand of US based retailing giant Costco. Costco prices Kirkland products at 20% cheaper than national brands.
Here the private label brand gets the legitimacy or assurance of quality from the trust people have on the retailer. This will certainly erode the market position of the existing consumer brands. Will increase the pressure on existing brands to reduce their prices.
This is happening at much larger scale in US. As large retail chains become bigger in India, we will see larger share of private labels.
PS: Next time when you visit Dmart, look out for Parachute like similarly packaged hair oil at much cheaper price kept just besides Parachute in the shelf.
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