Are your loyal customers likely to switch to the new private label product? (That is, is the target market for the private label line your existing customers or budget shoppers?) Assume you are part of the management team of a cookie manufacturer. A major supermarket chain has approached your firm to manufacture a private label version of one of your best-selling and most profitable cookie product lines. The supermarket chain would like a cookie that is a similar design, look, and reasonably similar quality (can be a little less).

They want the packaging to look fairly basic (to communicate a lower price cookie), but they want it clear to consumers that the product is comparable to your branded cookie line. They want to purchase this new product at a 25% lower price than they now pay for your current brand. They then plan to retail both products, virtually side-by-side, with the private label version retailing at $1.99, compared to your cookie normal retail price of around $2.50.