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Please explain the idea of "private label" and the advantage or disadvantage of private...

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alliels | Honors

Posted August 6, 2013 at 4:39 PM via web

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Please explain the idea of "private label" and the advantage or disadvantage of private labels. I have an essay to write and don't quite understand the concept or its value.

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K.P.L. Hardison | College Teacher | eNotes Employee

Posted August 18, 2013 at 12:47 AM (Answer #1)

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A private label, also called a private brand or a store brand, is a product or service manufactured or developed by a manufacturer who refrains from marketing the product or service under their own brand label, then, instead, markets the product or service under a particular company's label.

A hypothetical example of this is if the manufacturing company Tomatoes Off the Vine were to manufacture tomato puree and--instead of marketing it as the Tomatoes Off the Vine puree--sells it to and labels it as Kroger's or Safeway's or Von's or Albertson's or Shaw's private label tomato puree (maybe even distributing to each of these different companies and putting each company's private label on their specifically ordered batch of puree). What you would see, then, when you enter one of these stores to buy tomato puree would be Von's Tomato Puree or Shaw's Nature's Way Puree or Albertson's Essentials Puree. The same principle would apply to services such as, perhaps, for example, an annuity that is developed by a large financial group and distributed under a private label to small, local financial companies, possibly, for example, local insurance companies.

One advantage of private labels is that the prices products or services are sold at are less than they would be for a manufacturer's label, for example Del Monte Puree. The reason for this is that the manufacturer reduces their expenses by eliminating specific business costs like marketing and branding. As a result, the lower cost of business is passed on to the private label companies which then pass on to the customer the lower cost to stock the item.

One disadvantage is that it is not immediately known by the customer who the manufacturer is. Another disadvantage is that a shopper might conceivably have no choices between stores if the same manufacturer supplies all the stores in one area. This potentiality could be problematic if the shopper has some reason for not buying the item under any label (e.g, allergy, dislike, etc). In this case, of course, the shopper could opt for the more costly manufacturer brands, like Paul Newman's organic cookies instead of Nature's Way organic cookies.

[As a point of related interest, this website announces the PLMA's 2013 Private Label Trade Show.]

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