A phenomenon in the retail merchandising of food and clothing in the United Stat

Question

A phenomenon in the retail merchandising of food and clothing in the United States and the United Kingdom is the growing popularity of private-label (also called store-brand) products. These products are priced at a lower level than the premium national brands. Use the concepts of price elasticity and relevant cost to explain the profitability of these products from the point of view of.

a. The retail stores that sell these private label products

b. The manufacturers of these private-label products.

Explanation / Answer

a) Since the cost is less and brands are new, the retailers would see demand in a particular consumer group that are cost conscious but at the same time ready to pay for new designs at affordable prices. Retailers need to keep the margin low and play on volumes. b) For manufacturers they need to be very cautious for input cost. Since, the brands are targeting cost conscious customers they need to keep a close check on input cost. Since, input cost has direct impact sales price that further is associated with highly elastic demand.

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