Private labels in Europe

Manufacturers know that the best way to make loyal clients is giving them the right products with good quality and a fair price. Supported by adequate communication it will easily create a brain position for that product. However, when the focus of the communication is on price, the advantage goes for 90% to the retailer thus creating retailer preference and not product or brand loyalty. Price promotions also have the disadvantage that consumers are made aware of prices and the effect on the long term is the opposite of loyalty.
Making customers steady clients for branded products can only be done by differentiating the packaging, the brand name, a stable and good quality, features and a wide distribution. The creation of that brain position costs time and money. In some cases unique products, that fit in an actual trend and that cannot be copied quickly have the advantage of doing that with limited advertising budgets. But today a fast spread of distribution is needed to avoid delisting before the majority of consumers have seen or tried the product. This is a major dilemma that manufacturers face today.

Retailers have more interest in products that help them to compete better, either being cheaper or differentiating better. Private labels can be the best tool but a clear choice must be made between uniqueness, service or a price proposition. If it is only price oriented a fancy brand might be better than exploiting the retailers (brand)name for that.
Aldi is successfully using many fancy brands and brand changes hardly have any effect on sales volumes. The brand is the Aldi store which stands for above average quality at an unbeatable price. The quality and price level determined by simple and good buying principles, first aimed at quality and after launching the volume creates the option to get the lowest price.
Many retailers try to fight discounters with private labels but they do that with far too many articles and thus the know how of quality and the volume per article is lower than Aldi's.
Retailers put pressure on private label producers to get the lowest price and the result is that the quality of the private label is on average far inferior to A-brands and even consistently lower than Aldi's quality. Competing Aldi with private labels does not seem to be effective at all.

Some retailers, especially the English make there private label a "house brand" trying to bring new concepts with medium to high quality. Except in the UK, consumers however do not always understand that and they see private labels in general as less good then A-brands.

The above mentioned are the two extreme positions in private label approach:
German retailers want private labels only at low prices to compete the hardest discounters.
English retailers want them to profile their shops and assortment in variety and quality.
Retailers in other countries are between these extremes and often try to do both.

Our advice for retailers as well as manufacturers is to do more qualitative market research for the perceived value of their brands, retailer brands and fancy brands. A matrix with categories versus brands brings unexpected options. Consumers act different in most countries as well as different in categories, such as plain milk versus personal care products.

Use the category-brand matrix to find these options.

Every company has lots of options. Important is to take the right starting point: Use the private labels to improve your branded position (this is valid for manufacturers as well as retailers).
Manufacturers usually have many product concepts that do not meet all internal selection criteria for branded launching. Some of these will fit in a retailers strategy to differentiate versus competition. The retailer does have the power to promote such products in his stores and a balanced deal between manufacturers brand and private label is good for both