NEED A COMPETITIVE ADVANTAGE? LOOK AT PRIVATE BRANDING.
By Lee Mulkey
Leaders spend a great deal of their energy looking for ways to bring innovation and a competitive advantage to the company, yet, it’s hard to find the magic to increase profits and differentiate one company from the competition. Finding the right strategy, products or process to dominate the market can be elusive. There are times the answer is not really complicated at all – creating private brand products. Many large companies have developed private brand products as the best way to improve profits and revenue growth while providing a competitive advantage and sustainability for the organization.
The Theory of Good . . . Better . . . Best
Most executives know the marketing theorem of customers who want to be given a choice of different levels of product quality at different price points. Unfortunately, most wholesale distributors and retail businesses only offer brand name selections also available to their competitors. Increasing market share in this environment generally means having to lower prices and profits. This has a bad ending. Also, most manufacturers of brand name products restrict price reductions on their products to protect their brand.
Image may be NSFW.
Clik here to view.
Most customers want the best quality for the least amount of cost. In the economic environment today, many customers have decided “good” is good enough. If customers can get the “best” quality at a “good” price that would be a compelling reason to buy.
Develop Your “Own” Brand
Creating a brand is one of the ways to provide a solution to best quality at a good price. Private brands used to be the province of larger companies and today with the right guidance, smaller distributors and retailers can add critical lines allowing them to build their own powerful brand and dominate their market. While replacing name brands is unlikely, private brands do have a place in the mix.
Why Private Brands?
Developing a core group of private brand products can mean:
- Higher Profits
- Flexibility in Pricing
- Control Over Design and Features
- Increased Customer Stickiness
- Improve Your Company Brand
- Better Inventory Management
An example of how powerful an “own” brand product can be is illustrated by personal experience. On my first day as the newly appointed CEO of an industrial work wear distributor, I was informed by our biggest customer (35 percent of revenue) that our products were going out for bid because the manufacturer of the name brand items had increased prices by a significant amount. We had only passed along a portion of the increase (reducing our margins to single digits) to our customer, but their portion of the increase was still 25 percent. We were not likely to keep the business at the new pricing and we were going to suffer a serious financial hardship if we lost the business or if we retained the business.
Having built private brands in other companies, we quickly mobilized and a new product was designed having all the features our customer liked and added others improving durability and comfort. We went to the contract manufacturer in Asia that made the name brand products for the original supplier. The contract manufacturer was more than happy to make our “own” brand of products and six months later our company won the bid against eleven competitors. The customer got a better product at a much lower price and our profit margins were ten percentage points higher than before the bid. We went on to add dozens of products under our “Own” brand label and for over two years we never lost a competitive bid when allowed to include our private brands.
Common Sense Rules
When developing an “own” brand:
- Pick only products that will have the biggest profit impact. Low price/high volume products are not good candidates, medium and higher price/high volume products are the best candidates.
- If it can’t be made as good or better than the “best” and sold at the “good” price point while increasing the profit margin by ten percentage points, don’t do it. Instead, go to the next product candidate – this is a lot easier than one might think because the name brand manufacturer usually has significant profit built into the price.
- Always try to have multiple suppliers (manufacturers). This keeps the suppliers competitive and protects the supply chain. Building a good relationship with an “Own” brand manufacturer is also important because it, too, protects the supply chain and gives a cost advantage.
- Maintain good quality controls and frequently inspect the manufacturer’s facilities, even when they are in foreign countries.
Get Professional Help to Get Started
There is a right way and many wrong ways to go about developing an “own” brand. Getting outside professional help at the start will reduce the risk and time to implement, as well as building the right set of internal controls to insure success. Here are some key elements that will need attention:
- Customer segmentation, identify those customers that are more likely to buy on value.
- Product selection, carefully select the right candidates (see above)
- Brand name, logo, market place image and protection of intellectual property
- Selecting the right design and features
- Finding and qualifying contract manufacturers (probably foreign)
- Negotiating price, trade terms, freight and minimizing import duties
- Quality assurance
- Proper SCM tools, training and strategy
There is a competitive advantage by adding private brands.
Lee Mulkey is CEO of ALM Company, an advisory firm serving global distributors, manufacturers and marketing companies. Lee has served as President and CEO of three global companies, earning his BBA from the University of Texas at Arlington and MBA in international business from the University of Dallas. www.ALMCompany.com