Own-label tiers are built as a price ladder

What follows is an argument about own-label ranges, and about where the received version of it stops being true.

What the ladder is for

A retailer with three own-label tiers can occupy a low, middle and upper price point in the same category without adding suppliers. That lets it compete with discounters at the bottom and with brands at the top from within its own range.

The tiers are positioned relative to external prices rather than to each other, which is why the gaps between them vary by category. A category with a wide ladder is usually one where price competition is intense. A category with only one own-label option is usually one where it is not.

Where the goods come from

Own-label products are made by contract manufacturers, and the same factory frequently supplies several retailers and sometimes branded lines too. That does not mean the products are identical, since specifications, ingredients and tolerances are set by the customer placing the order.

It does mean that assumptions about who makes what are usually unreliable and often circulated without evidence. What is verifiable is the specification printed on the pack, which is where any comparison should start. Whether one product performs better than another is a judgement outside the scope of a pricing discussion.

Reading a tier for pricing information

The gap between a value tier and a standard tier tells you how much room exists in that category at the bottom. The gap between standard own label and the leading brand indicates how much of the brand price is positioning rather than production.

Tracked over a quarter, where a premium own-label tier sits above a brand, the retailer is claiming a position rather than undercutting one. Watching those gaps across a few categories reveals where competition is strongest, which is useful when deciding where to spend attention. The ladder is a map of the category rather than a ranking of quality.

Packaging and price points

Value tiers are usually packaged plainly, which reduces cost and also signals the position clearly on a shelf. Pack sizes across tiers often differ, which is why unit price is the only sound way to compare them.

Across a sale weekend, a tier can be repositioned by changing pack size rather than price, which is invisible unless you read the unit figure. Promotions frequently apply to one tier at a time, which can temporarily invert the ladder.

The ordering you assume is stable is often not, and the label knows.

Where the savings actually are

The largest proportional gaps between tiers tend to appear in categories where processing and branding form a large part of the price. They are smallest in categories dominated by raw material costs, since everyone pays a similar amount for the input.

The number underneath says something else: that means switching tiers pays very differently depending on the aisle you are standing in. Testing a switch on a few high-frequency items reveals where it is worth doing without any general theory. Frequency again decides where the effort pays.

This is general consumer information and not advice about your own finances.

A method rather than a rule

Compare unit prices across tiers rather than assuming the ladder is evenly spaced. Try switches on things you buy weekly, since those are where a small difference compounds.

The number underneath says something else: judge the result on whether it does the job for you, which is a personal question this article cannot answer. Keep the switches that work and reverse the ones that do not, without treating either as a principle. The ladder is information about the market, and what suits you is information only you have.

The takeaway

Compare tiers on unit price in the aisles you visit weekly, and treat the ladder as a map rather than a ranking.

Decide what you would pay before you look at what they are asking.