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The evolution of private label: from cheaper alternative to prime differentiator

Private label today continues to thrive and grow. In the European markets we see private label taking around 38.1% market share, while it’s reaching the 20% mark in the US market. A shift in strategy and economic developments keep fueling its success. Back in the earlier years, private label was a whole different ball game. Let’s dive into the history of private label.

Generic labels focused on price

At the beginning of the twentieth century, retailers were looking to find ways to decrease their dependency upon brand manufacturers: in comes private label. However, brand manufacturers were still determined at what price the products had to be offered to the consumer. It took a while before retailers obtained a stronger position. In the meantime, retailers began launching generic ‘white’ labels to escape this vertical pricing. Both the choice in packaging and product quality were aimed at keeping the price as low as possible. Pricing was the main variable: private label products were on average 40% cheaper than manufacturer brands in the seventies.

Creating a unique identity

As private label competition grew among retailers in the eighties, they felt a growing need to distinguish themselves and develop something beyond a generic label: an own identity that could result in greater store loyalty and more stable turnover. An active product range policy with private label proved to be e great weapon for retailers.

Tiering up the landscape

But they were still ‘cheap’ imitations of leading A brands. Everything changed in the 1990s. Retailers expanded the private label architecture and began offering vertical differentiation, moving away from pricing as the sole argument towards shoppers. Adopting a three-tiered hierarchy, it became a strategy for targeting various shopper segments. As the first step was introducing private label into as many categories as they could, now it was time to stretch the brands within the categories.

Driven by consumer choice

Private labels began offering unique features. Even stepping away sometimes from the basic three tiers and implementing organic or fair trade through horizontal differentiation. Moving away from price, today’s development is driven by category management with a big focus on consumer choice. An own label has become a valuable opportunity to create distinction and differentiation, positively influencing store preference and shopper retention.