Problem:
Private label brands are products that are manufactured by one company and sold under another company's brand. Often positioned as lower cost alternatives to national brands, they have been increasing in popularity over the past several years. Store brands such as Wal-Mart's Equate or Target's Archer Farms are examples of private label brands.
According to a recent study by the Nielsen Company (Wong, 2008), 72% of respondents surveyed viewed private label brands as equivalent in quality to name brands. Rising commodity prices and consumer desire to get the best value for their money are driving the growth of private labels. As a result, some national brands have adopted a strategy of "if you can't beat them, join them," by making products for these private labels. For example, national brands such as Ralston-Purina, ConAgra, and Borden have all admitted to supplying products to various retailers to be used as private brands. Supporters of this strategy contend that it creates volume sales and profitability for national brands. Furthermore, businesses contend that if they do not supply retailers, someone else will, causing national brands to lose volume from private label sales and thereby jeopardizing a national brand company's profit position.
Other marketing experts disagree. They argue that consumers may become confused about the quality of the national brands. Opponents suggest that consumers may decide that national and private brands are essentially the same and hence, over time, private label brands may become as powerful as national brands. These critics contend that the long-term prognosis for national brand companies is not good if those companies continue with this strategy of supplying private labels.
Respond to the following:
Q1. Do you think national brand companies should sell their products to private brands, or should national brands stay clear of the private brands and not get involved with the supply of products to these private labels?
Q2. How does this play out in the international marketplace? What is the importance of national brands versus private labels internationally?
Q3. Defend your answer with specific examples.