If you’ve ever found yourself debating whether to spend a little more on Q-tips instead of the Up & Up brand cotton swabs at Target, you’ve experienced the power of private labels at work.
Private labels — commonly called “generic brands” — are a line of products developed and released by retail brands instead of national brands. Once considered a cheap but bland alternative to name-brand products, private labels have stepped up their game to become true competitors on store shelves and in online assortments.
In 2014, private labels accounted for 18.3% of consumer packaged goods spending in U.S. grocery stores — and 22% of units sold. At Walmart alone, private label products amounted to $49.3 billion dollars of sales in 2013 — only about 10% of total sales, but still a lot of money.
Needless to say, private label goods are important to retailers. Not only are they a source of revenue, they drive traffic to stores and cement brand loyalty.
Private labels are also critical for budget-conscious shoppers, especially in an uneven economy. You would think this would lead to a race to the bottom for price — and a dip in quality; yet, the opposite is happening. Retail companies are making a conscious effort to provide better private label products, and consumers are noticing.
Here’s an example: back in December, Amazon launched a line of baby products called Elements, which created real competition for incumbents in the baby space. Amazon was selling diapers online for about 19 cents less per pack than its premium competitors, and it already had a built-in subscription and distribution model. For new parents, especially those cash-strapped and overwhelmed, the convenience and price of Elements diapers could have been a steal.
Yet on January 22, less than two months after the launch, Amazon pulled its “Soft and Cozy” diapers due to “early customer feedback” (the baby wipes are still available). The reviews were neither great nor bad, averaging 3.5 stars out of five. Yet Amazon is offering early customers $25 in credit and a promise that they are improving diapers to be sold in the near future.
Amazon’s decision to pull diapers with 3.5-star ratings — hardly a flop — speaks to the importance of quality private labels for retail brands. Not long ago, private labels were just a cheap alternative to national brand products. Today, with so many store options, and price competition between stores for every kind of product (name-brand or not), creating the least expensive item is no longer a surefire way to ensure sales of a private label item. We now live in a new era of fantastic private label products going head-to-head with national brands on quality.
So what does all of this mean? Retail brands must carefully maintain the balance between price and quality for their private label products, and have a clear view of how these goods will meet the needs of each shopper segment. National brands must prove that their products sell well, create a healthy margin and attract customers to the store. For other companies that work with retailers, it means assessing their competitive risk with private labels in mind and strategizing accordingly.
And for consumers, it means new options, lower prices for higher quality goods, and new reasons to reach for those “generic” brand q-tips.
Abigail Kiefer is the Cofounder of Red Clay, a platform built to design exceptional products. It gives any company, from a startup to global enterprise, access to hundreds of vetted freelance designers and provides software to manage an entire design process to go from concept to prototyping within weeks.