Finesse Profit Margins on House Brands

A collection of research results offers guidance to you as you set profit margins for the private label goods—house brands—on your shelves and racks. Recall that profit margins, not the prices themselves, are what pay the bills.

• By cultivating a range of suppliers for your house brands, you can achieve higher profit margins. The obvious reason is that limiting yourself to one source curtails your power to negotiate lower supplier costs. A less apparent reason is that having a range of suppliers gives you the confidence to fully exploit your negotiating skills. 
• Adding a value version to a premium version house brand allows you to profit by setting a higher margin on the premium version. Prior to introduction of the value version, the premium version was likely to be considered by consumers to be of standard, not premium, quality. After introduction of the value version, consumers’ quality assessments of the premium version increased. 
• If a premium version is introduced to an existing value version, the assessment of the value version doesn’t change noticeably. 

     Some of the supporting research was conducted at Katholieke Universiteit Leuven in Belgium and Tilburg University in the Netherlands. It’s possible the results would not hold as strongly in the U.S., since other studies have found cultural differences in American consumers’ reactions to private label pricing.

• Research based at University of Memphis suggests that African-American consumers tend to steer away from private label brands in clothing, particularly boys' clothing, because the private label lacks the cachet of widely advertised brands. 
• Other research finds that Asian-Americans expect much more information about product features and consumer ratings when considering house brands than when considering national brands. Raising profit margins on the house brands implies higher prestige. 
• Hispanic shoppers like low prices, but they are more attracted by popular brands. This can be a private-label brand. Although Hispanic shoppers are more likely than non-Hispanics to start by considering the national brand alternative, almost 70% of them go on to compare with the private label alternative when it’s on the shelf. The easily recognized brand assures the Hispanic shoppers of quality when they’re insecure about their choices. It also serves as a mark of status for public display items, such as school and church clothes for their children. About 53% of Hispanics say finding high quality items is a most important selection criterion. Among consumers overall, it’s 40%. 

Click below for more: 
Increment Your Profitability Margins 
Raise Prestige of House Brand Premium Label 
Dissolve Cautions About Private Label Goods 
Welcome the Family of Hispanic Shoppers