There’s a lot of discussion around private labels these days, most notably with respect to Amazon and Walmart. But the discussions rarely go past observations about the growth of private labels and the potential for them to impact national brand sales. In fact, there are a variety of different ways to “go private label” and the choice will have significant impacts on perception of the brand and its potential for success with consumers.

Consider Amazon’s Wag dog food, Petco’s Wholehearted pet food, and AmazonBasics. All are private labels but each reflects fundamentally different go to market strategies. Wholehearted makes no reference to Petco on its packaging or retailing, i.e. a true “owned brand.” AmazonBasics is a classic endorsed brand strategy, making a clear tie with the parent or master brand. Wag, however, appears to be an entirely new strategy, where there is no noticeable reference to Amazon on the front of the packaging, but it takes an endorsed approach in marketing and the retailing process.

There are two primary dimensions for private label strategies to consider; Identity and Category breadth. Identity refers to the extent to which the brand is endorsed, and Category breadth refers to the number of different product categories in which the brand is utilized. (See Leveraging the Corporate Brand for more detail).

There are a number of Identity options to consider but they can be grouped into the five main categories below.

1. Master branded – the product brand is the master brand. (e.g. just about every product at Trader Joes).
2. Endorsed brand – specifically mentions corporate brand (e.g. Amazon Fashion, Unleashed by Petco)
3. Shadow endorsed brand – no specific master brand mention, but evident (e.g. Costco’s Kirkland)
4. Owned stand-alone brand – no mention of master brand, not evident (e.g. Petco’s Wholehearted, Amazon’s Goodthreads)
5. Endorsed in commerce only – no reference on packaging, but master brand endorsement in marketing or retailing process (e.g. Wag)

Amazon’s Wag strategy is unusual and thus bears some examination. This strategy might ultimately enable it to become a stand-alone “owned brand” without changing the brand visuals on the packaging. The initial Amazon master brand endorsement can help it build sales, and the “in commerce” Amazon endorsement can slowly disappear enabling it to maintain a premium brand identity. Thus it gets the best of both worlds – the endorsement that helps it become established, followed by the stand-alone brand identity that helps it maintain its price point.

Increasingly, companies are opting to use an endorsed approach for their opening price point products (Amazon Essentials clothing, Home Depot’s HDX brand) and an unendorsed approach for slightly higher price point options (Amazon’s Goodthreads, Home Depot’s Husky).

Private label strategies must also consider whether to play in a single category, a few closely related categories, or in multiple unrelated categories. The key reason breadth is a critical strategic element is because spreading a private label across multiple categories is a dead giveaway that it’s a private label. Research has shown that consumers will correctly perceive that a brand that includes diverse products such as dog beds, olive oil, shirts and toilet paper is a private label (e.g. Kirkland), even if there is no evident endorsement or reference to the master brand. This may or may not be acceptable, depending on your strategy. There are pros and cons to being identified as a private label, but if your strategy depends on you hiding that fact from consumers (e.g. a high price point strategy), it’s obviously important that you avoid doing things that clearly peg you as a private label.

There are substantial benefits to be had by engaging a multi-category strategy, as well as risks. The benefit of moving across categories is that it gives consumers more points of entry into the brand, it’s less expensive to build a single brand rather than multiple brands, and you can leverage positive product experiences in one category into purchases in other categories. However, you are more limited when it comes to specifically defining a unique brand identity to suit a single product category or specific customer base. The brand, by definition, can’t be strongly associated with certain products or their characteristics; instead it must maintain a more generic appeal. Furthermore, it can be challenging to maintain the appropriate level of quality across multiple category merchants or buyers, and failures in one category can impact the overall brand, including customer perception of other product categories. (See Counting Sheep: Maintaining Brand Equity with Multi-category Brands). And because it will be perceived as a private label, there are (still) perceptions regarding quality and perceived risk on the part of consumers. Consumers love private labels, and their perceptions regarding quality has improved, but if the price is the same customers will still go with the Moen faucet over Lowe’s AquaSource brand. (See Positioning Private Label Brands for more detail).

The ramifications of early strategy decisions can be substantial. The following examples can illuminate some of the issues regarding private label strategies. For example, Petco has extended their Wholehearted brand into cat food as well as dog food. About a third of all pet owners have both a cat and dog, meaning the point of entry for a significant majority of pet shoppers will typically be food for one pet type or the other. Endorsing the brand with the Petco name would likely give it primacy in the minds of Petco shoppers, but also expose it as a private label. It might also make other retail channels problematic (e.g. Wholehearted is available on Amazon). Extending the brand into other categories (toys, treats, and furniture), whether endorsed or not, would mean additional brand exposure and recognition for each type of pet owner, and additional entry points would certainly lead to additional purchases. But, again, moving across categories would also expose it as a private label.

Wag (at least at the moment) is only dog food. The Wag brand could stay dog-focused, and conceivably be extended into other dog related categories (beds, toys, treats, etc.). Amazon could then develop a cat related brand and do the same thing, starting with food and extending into other categories. For now, they have the option of dropping the Amazon in-commerce endorsement and converting into a stand-alone brand, but extensions into other categories would make it harder to eventually back away from the private label track in the future.

The purpose here isn’t to condemn or condone a particular strategy, or to make specific recommendations, but rather to note that a well thought out private label strategy is essential, because decisions made early in the process will likely have a lasting impact on the prospects for success.