Private brands are one of the ways that high-value distributors can claim their full profit entitlement from the supply chain. But success is far from guaranteed. The warehouses — and balance sheets — of distributors all over North America are littered with the remnants of failed private brand programs. The causes of the failures are many, including…
- Sub-par sourcing work leading to poor product quality and lack of availability.
- Poor brand design and messaging
- Dilutve margins resulting from ill-conceived price positioning as well as unanticipated
- product and operational costs.
- Anemic sales due to a lack of organizational support and alignment
- Ill-conceived product offerings
- And the list goes on….
Although the specific causes of failure are many, they can usually be traced back to one common thread…Poor Brand Strategy. For a brand to be successful it must create value for the organization developing it, which in turn requires the creation of value for the customers who buy it. Occasionally that happens by luck, or through a series of non-lethal mistakes followed by corrections made over time. In the end, success requires a clear and well-developed strategy that defines what the brand is about and what it intends to solve for the customer.
In a previous article on MDM, I shared three general types of customer value to which a brand can appeal. They include Monetary Value (price benefit), Functional Value (performance benefit) Psychological Value (emotional benefit). Each can be the basis of a successful private brand program if the right capabilities, circumstances, disciplines, and commitment are in place. When they are, the private brand initiative can create a virtuous cycle of profitable growth that extends beyond the private brand itself. Here is what that cycle involves…
Step 1 – Sourcing
Once the Brand Strategy is in place, the first step is sourcing the products. Few things can destroy a private brand effort as thoroughly and completely as poor sourcing work. And while sourcing requires a range of disciplines like search capabilities, engineering and quality control, negotiation and supplier management – none of that goes very far without a brand strategy that defines what the product solution needs to be. An organization can do a phenomenal job sourcing a product of extremely high quality and impeccable delivery performance, but that doesn’t mean much if the strategy doesn’t call for that level of product. Additionally, a solid strategy that can be articulated to potential suppliers engenders confidence in the suppliers, a critical component to capture not only their interest but also their best deal.
Step 2 – Sales, Marketing and Organizational Alignment
It’s not uncommon for a private brand program to face strong resistance from its own sales and marketing teams. Oftentimes that is a result of confusion around the brand’s value proposition. It’s difficult for salespeople to effectively sell a product when they don’t know who the solution is targeted at, or the problem that the brand solves for its customers. A well-documented and clearly articulated brand strategy provides the understanding that is necessary for the sales and marketing teams to drive it effectively to customers.
Step 3 – Profit Realization
Profit realization is the goal, of course. And it increases as volume grows because of a sound strategy, solid sourcing work that is informed by the strategy, combined with organizational alignment leading to effective sales and marketing activities. We now have the beginning of the virtuous cycle, but it’s not complete yet.
Step 4 – Supplier Leverage
As volume grows, the distributor gains increased leverage with its private branded suppliers whose confidence in the program will increase, along with its manufacturing efficiencies leading to potentially lower costs for the distributor. But the leverage does not end there. In the face of a growing private brand program, many of the organization’s branded suppliers will want to ensure they maintain the distributor’s mindshare, not to mention page space and screen space. In many cases this can lead to greater investment in the form of product cost, rebates, MDF’s, and selling support which in turn leads to even more profitable growth.
Step 5 – Expansion
Also known as the “rinse and repeat” phase, success in one category leads to expansion of the private brand program into other categories leading to similarly beneficial results.
The Final Word
And there you have it…the virtuous cycle. And at the center of it all…the Brand Strategy. Don’t start a private brand program without (a good) one!