Sunday, October 4, 2009

Private Label Competing On More Than Price

Private labels have always been perceived as the lower quality but cheaper alternative, benefitting retailers with high profit margins and low marketing costs. No more are private labels a 'me too' product. They are now equalizing major brand names in quality and becoming a trend leader with category leading design.

Costco has created a desired private label in Kirkland Signature, with its name on clothes, food, office furniture, and everything in-between. They continue to bring in consumers with major brand names like Sony and Crest, but make no mistake, they are building trust and loyalty with their Kirkland brand.

Their innovative design reminded me of Method. Kirkland may be more focused on functionality while Method is focused on aesthetic appeal, but they both have identified an open space in the market. Method made hand soap and shower cleaner bottles that consumers wanted to have sitting out. Kirkland has made square shaped milk cartons and detergent bottles that save space in the fridge and on the shelf.

Beyond bringing added value to the consumer, they are achieving pallet efficiencies and cutting internal costs for Costco. By changing the packaging from a circular to square shape, Costco could get more on a pallet, saving 600 truck loads a year. Retailers are now taking the time to rethink the way they are utilizing their brand. Target has recently renamed their private label, Up and Up. How many years in the making was this insightful name being thrown around in meetings? I would guess not as long as you think.

With private labels now battling the giants in quality and continuing to be in the drivers seat for price, how will the Tide's and Charmin's fight back and sustain their shelf space? With private labels addressing environmental friendly products and staying ahead of the curve, will this make it increasingly difficult for new brands to break-in? Would the cost be too great?