National Brands vs. Private Labels - Term Paper Example

Private-label brand Vs. A national-manufacturer brand A private label is a brand owned exclusively by a retailer whereas a manufacturer or producer owns a national label. The labels have different benefits and disadvantages that this paper seeks to discuss. Many of the national-labeled products are of a better quality and thus sell at considerably higher prices than store brands. Consumers are therefore likely to purchase the national-labeled brand goods because of their higher quality despite the higher price placed on them.

The national labeled brands, therefore from this perspective, offer greater utility to consumers and higher profit margin to retailers (Aaker, 1991). Private brands, however, have a great economic value for both the retailer and the customer. They do create customer loyalty that eventually contributes to referrals and effective word of mouth to other customers and thus higher sales for the retailer. In addition, private labels give retailers sole ownership of the product. The retailer will come up with innovative ideas related to pricing and quantity and thus suiting the preferences of the customer (Horowitz, 2000).

The main disadvantage of nation-manufacturer brand emanates from the high cost that may discourage some consumers and limit profitability while low unit profit margin that may compromise quality to consumers and motivation among retailers is the major disadvantage of private-label brands. It is quite difficult to determine whether the own-labeled brands are equal in pricing and quantity to national labeled brands. Hence, the customers may be exploited without their knowledge. Unlike the store brands, national brands spend exorbitant amounts of resources in advertising across a wider region and the burden of the cost falls on the customer because of the expenses incurred (Aaker, 1991; Horowitz, 2000).

ReferencesAaker, D. (1991). Managing brand equity: Capitalizing on the value of brand name. New York, NY: Free Press.Horowitz, I. (2000). An Option-Pricing Look at the Introduction of Private Labels. Journal of the Operational Research Society 51(2), S. 222-230.