Private label products are a powerful source of competitive strength for online retailers. Many times head-on with national brands, etailers can make their own-store brands more appealing to customers by providing comparable quality at better discounts and deals. This way, they can make higher margins while providing a wider choice to customers.
FabFurnish, a two-year old e-retailer of furniture and home décor aspires to earn Rs 200 crore in its next fiscal year. While it houses various brands in the home décor category, furniture products are its own and brings in the maximum profits. It designs and sells its own furniture products as it can provide products at various price bands. In India, there is a lack of brands selling standardized products in the current price ranges.
Vendors selling through FabFurnish have to ship their products to the warehouse which are then shipped to customers according to orders. While FabFurnish thus takes care of end delivery to customer only, Pepperfry, another furniture portal, follows the managed marketplace model. It takes care of the logistics as well as the procurement of furniture from small vendors in Jaipur, Jodhpur and Saharanpur.
In the face of rising competition from multi-category sites like Flipkart, Snapdeal and Amazon, private labels help single category sites to sustain their stand and boost profits. The key is to provide differentiation in specialized stores otherwise people will overlook the advantages and finalise purchases based only on price.
Benefits of showcasing Private Labels
Private labels build value for single category online retailers –
- Helps to provide differentiation
- Profit margins of upto 40% or more
- Well designed products at appropriate and competitive price bands
- Can capitalize on the identity of the private label
- Brand loyal customers will come back to the site to get the brand
Myntra has capitalized on the advantages provided by private labels and has about 10 private labels on its portal currently along with selling its own fashion products. These account for about 20% of Myntra’s sales. Targeting revenue of Rs 1,500 crore by next year, it is planning to tie up with more labels and introduce more purchase options to its customers in the next few months.
In addition to product differentiation, Myntra also plans to alter its marketing strategy slightly with focus on certain private labels. Some of them have become large and it plans to create their brand identities beyond Myntra and probably sell them in other online and offline stores.
Jabong, another fashion and lifestyle portal, has also tied up with private labels and plans to launch four private labels this month.
Opportunity for an Indian online seller with a private label
Brand loyalty is one of the strongest brand retention aspects in customers. If a customer like a brand, he will come to wherever the brand is sold. Online retailers can capitalize on the marketing and strategy of online portals to boost sales. In store marketing is also on the rise which helps to boost sales.
It is easier to offer more competitive rates in the case of private labels which help to provide more appealing promotions and discounts, thus adding to boost in sales.