Topic for Discussion: Why do private label products produce higher margins?

Answer: Private label products are generic products labeled with your company's name. Generic products are less expensive than the nationally recognized brands because the manufacturer has not invested in the advertising and public relations efforts necessary to achieve that level of recognition.

Consequently, the manufacturer of a generic product can price his product lower than a well known competitor and still make a profit. The retailer can then pass this cost savings on to the consumer, making the generic product an attractive alternative to the price-conscious customer.

Topic for discussion: So if a retailer buys a generic product, puts his label on it, and sells it as the least expensive alternative, that will be the store's #1 seller?

Answer: The decision to buy is affected greatly by the price. But price is not the only consideration. Consumers have to trust that the product will do what it is intended to do. Navarro Pharmacy capitalizes on its customer loyalty in providing private label products; they know their customers have faith in them and believe Navarro will not put their label on a low quality product. And the company treasures their customers' trust, and is careful to evaluate products thoroughly before attaching the imprimatur of its private label.

How does a company know when private labeling is a good alternative? You heard Louis say that they couldn't private label products until they had 7 stores. Manufacturers require substantial order quantities before they can private label a product cost effectively for a retailer. For companies who can achieve the necessary volume, private labeling can be a win-win-win for the manufacturer, the company, and the customer.

You think about it: Can you use this idea even though you're operation may not be as large as Navarro Pharmacy?