Many distributors struggle with private-label branding and view it as an either-or proposition. They see private label as too complex or a conflict to their core supplier partners. To mangle a line from Shakespeare, it turns into a black-and-white evaluation of to-be or not-to-be a private-label distributor. That’s a mistake. There are many ways to manage a private-label brand strategy, at many levels. My advice is to consider it carefully and don’t summarily dismiss making private label a part of your mix.
To be sure, it takes a strategic plan, talent and investment to be successful. But the payoff can be powerful in higher profit, building your own brand and having your own part numbers. It can be a huge competitive advantage.
The best place to see the power of private label in action is in a grocery aisle. Supermarkets were the early adopters. They started with generic black-and-white packaging. This “no-name” approach was eventually replaced by “me-too” products, where for example the store would put their laundry detergent in an orange-colored package. The packaging was strangely close to a Tide’s color scheme to leverage that powerful brand.
Today top supermarkets have more than 25 percent of their sales in private label brands. They have developed strong standalone brands like Kirkland at Costco. The store brand is its own brand. Just type “Is Kirkland Vodka Actually Grey Goose?” in Google, and you will see some vigorous online debate that really showcases the power of a great private brand.
What happens in retail eventually finds its way into wholesale. That’s why today we’re seeing increasing numbers of distributors making private-label programs a key part of their market strategy.
As a distribution marketing manager, I’ve had the pleasure and sometimes extreme pain of being on a number of private-label teams. (As a tip from personal experience, don’t come up with a great idea of making a limited-edition extension cord that matches your logo color. Did I mention that private-label campaigns can seem easy, but the mistakes can be painful?)
It’s critical to understand where your organization is on your private label/sourcing journey. These are my three stages of a B2B private-label journey:
1. We don’t need no stinking private label strategy (do nothing) – The classic bunker down with your top supplier’s strategy. You use their brands exclusively to defend the castle from attack. It’s what you have been doing for years, and it’s worked. They build the brand strength, and you capitalize on that with superior service and loyalty.
The larger distributor you are, the more successful this strategy is. You can leverage the best terms and support from your supplier partners, and build a credible good-better-best product strategy.
The open question for this strategy is this: How long can you stay in the castle and win, when the power of brands is being eroded and increasingly commoditized in the digital age?
2. The toe in the water strategy (slow and steady) – In my first private label assignment, I asked my manager where we should start. His response? “I don’t know, look at what our competition is doing.” It wasn’t anything original but it worked. The competition had chosen non-technical products that were prime targets. We borrowed that strategy and were able to sell more products at higher margins. This gut-feel, build your strategy one category at a time approach is often successful. The challenge it brings is the slow and steady approach rarely becomes a significant part of your total sales.
The question for this strategy is this: How far can I go that makes sense, because the investment in time, energy and resources to move to the next level is significant?
3. Put our logo on anything that moves strategy (differentiate or die) – A number of B2B distributors have grown their private label volume to encompass a large portion of their business. In the digital age this can be a formidable moat around the castle. It’s harder to cross the products, their customers are using the distributor nomenclature and part numbers, and it’s culturally a big part of the distributors strategic plan. They often have sales offices overseas and directly source many of the products they sell.
The question and challenge for this strategy is this: How much do I have to invest to build the brands, protect the brands, and win. The challenge B2B distributors face is that branding is difficult and costly. (I recommend my colleague Ian Heller’s series on the challenges of B2B distributor branding as a great starting point to begin building an approach to building a private-label program.)
Another key point: Your supplier partners are critical to your success. The times are also changing for suppliers, and they are more open to working with you than ever before.
Over many years in this industry, I’ve found that most distribution companies don’t have a private-label strategy or experienced personnel to execute the plan. The journey will be difficult for companies that aren’t already accomplished at private label. For most organizations, it will require hiring some outside help. But with the direction markets are moving, the question is no longer “to be or not to be” to include private label products in your portfolio, but rather how to advance a private-label program that’s right for your unique market position. I recommend you get started now.
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