In an analysis of the consumption of nearly 300 key account customers, we identified a recurring trend: companies are mainly opting for high-end products from premium brands rather than private labels for their long tail spend. However, by avoiding excess quality and choosing mid-range products from private labels, you can save around 20% per product! So, what is a private label? Why are premium manufacturer brands more popular? What are the advantages of choosing a private label? You will find all the answers in this article.
What is an own brand?
Also known as “private label”, an own brand is a commercial brand whose products are sold by the company that owns the brand. Of course, that company also sells various other brands of goods. However, private label products have the advantage of being significantly cheaper than other brands, while still ensuring good quality.
Own brands differ from national brands in that they are marketed much less or not at all. This is one of the reasons why costs are kept down, making it possible for companies to offer their own range of products at competitive prices.
Private labels can be found in many areas, such as agri-food, furniture and – as in the case of Manutan – business equipment.
The leading retail giants include, for example, Carrefour, with its own label food products. The German retailer Lidl has made a similar choice: nearly 80% of the goods it carries come from its own brand. Again in the food sector, Ikea – best known for its furniture – also created its own private label a few years ago for food products sold in its Swedish stores.
Despite the rise of private labels, shoppers still tend to turn to premium brand products, partly out of habit and partly because they are unaware of the many advantages that a private label has to offer.
High-end products and premium brands are popular
Across all sectors and markets, we found that, for their long tail spend, companies buy 35% of their products from premium brands and 17% from private labels on average.
The disparity is particularly pronounced when it comes to offshore activities and industry (mining and manufacturing), as well as the production and distribution of electricity and water. Conversely, in the property business, agriculture, forestry and fishing, this discrepancy tends to be smaller as more private label products are purchased.
There are several reasons for this trend:
- Procurement departments often have little to no control over long tail spend;
- Users are drawn to products whose quality is assured;
- Users tend to favour premium brand products, which add more value than private label products.
This fits perfectly with the positioning of premium brands, but it is not always justified for this type of purchase. Ultimately, this trend has a direct impact on companies’ procurement budgets.
Private labels have an underestimated potential
As very little private labels follow a marketing strategy, their products are largely undervalued. However, while they may not be promoted through advertising like manufacturer brands, own brands or private labels offer an attractive alternative to premium brands, as long as they meet certain criteria:
- A level of quality comparable to premium brands;
- A better warranty than premium brands;
- Much lower prices.
These private labels offer long tail spend products of similar quality and specifications to high-end products, but at prices up to 20% lower.
To raise awareness and change purchasing behaviour, procurement departments and suppliers need to work together to promote private labels and their advantages when premium products are not essential.
Now, let’s take a look at a practical example of a customer case study to understand the real benefits of choosing a private label over a premium brand.
Customer case study: savings of €11,438 achieved through private labels
Let’s take the example of a company in the construction sector, with a spend of €571,919 (£485,774) made with its long tail spend products supplier. Following an analysis of its purchasing habits as part of Savin’side®, the company decided to adjust its product mix.
The company reduced its consumption of premium brand products and started using a private label. This new product mix enabled it to save €11,438 (£9,715), representing a saving of 2% on the spend made with its long tail spend products supplier.
|Entity||2017 consumption||2017 consumption||Savings compared to premium|
|Entry level||€55,551||€55,551||- €|
This is especially true of Manutan, which has developed a private label to meet the needs of its customers, focusing on high-quality everyday essentials (with a warranty of up to 10 years) at a competitive price.It should be reminded that premium brands are not always the most appropriate choice for long tail spend and that some private labels can offer a good alternative to high-end brands.
Today, it brings together 5,800 everyday products across a number of categories (office, warehouse, industrial supplies, packaging and more) to help companies rationalise their long tail spend.
- Download our white paper “Purchasing policy and CSR”