says. “The corner drugstore would have a hard time getting away with these hardball marketing tactics.”
Some of the largest distributors -Sysco and W.W. Grainger among them -have long-established private label product lines and the resources to support them.
So how can smaller distributors compete? It takes critical mass to spread the cost of a private branding program over an adequate amount of business. One way for a smaller distributor to do this, Grover says, is through a buying or marketing group. The group can produce a brand that is only available to members of the group, volume that provides leverage to negotiate favorable manufacturing costs and reduce transport costs and spread the investment and risk.
Healthcare distribution buying group National Distribution &Contracting Inc. (NDC) manages and markets a private label brand -Pro Advantage -for its roughly 280 distributor members. It also has a dental private label brand. “The real driver in this is to make sure that our independent distributors can remain competitive in the markets that they are serving,”says President and CEO Mark Seitz. “It’s not a low-cost offering. It’s going to be a good product that’s a good value -a quality product for an affordable price.”
NDC tapped its first director of brand development at the start of this year, partly to oversee the transition the group made from four brands to one this year. “We needed to have an individual who can coordinate all of the moving parts that go along with that initiative,” says Lori Paulson, vice president of marketing. “We also felt that having an individual who would champion the private label program, particularly with Pro Advantage, was key.”NDC has also created a marketing team to oversee the overall direction of the brand going forward.
“You can put yourself in the shoes of one of our member customers and say how am I going to protect my position in my account against a company that’s much larger, publicly traded, better funded with more available resources?” Seitz asks.
“We tell them to partner with us.”This article looks at the most common mistakes distributors make in private label and how they can protect their brand in the marketplace with successful branding.
It does not really matter what you call it -private label, private branding, store brand, white label, proprietary brand -coming through on the implied promise of quality or experience that comes with the product line should be front and center. Unfortunately, many distributors who have ventured into private label have not kept a sharp focus on a branding strategy and the risks if not done right.
Brand management, says Evergreen Consulting’s Brent Grover, involves creating, growing and protecting a product or group of products sold under a particular name. Here are keys to successful branding, according to Grover:
Designing a product identity that is fresh and relevant to the target market, while also being consistent and in line with the company’s image and overall objectives.
Positioning the brand relative to the company’s other brands, competitive manufacturers’brands and the brands offered by the distributors’own suppliers.
Promoting the brand to create brand equity.
Pricing the brand correctly in relation to its perceived value and where it is in its lifecycle.
Protecting the brand against competition.
Repositioning the brand when needed to preserve its brand equity.
Meeting company’s strategic and return-on-investment objectives.
Ensuring suppliers chosen to manufacture the products maintain the necessary levels of quality and service.
While in retail branding is more of a pull”relationship -customers’needing to connect with the brand -in business-to-business selling, it is more a “brand push.”Distributors typically rely heavily on personal selling and customer relationships,”Grover says.
High Costs, High Responsibility
One of the more common mistakes a distributor makes in private label is underestimating the costs and responsibilities of building and managing a brand, Grover says.
For example, manufacturers employ brand management professionals and engage outside experts to design and manage their brands. Manufacturers also incur considerable research and development costs while a product is being created, tested and brought to market. Manufacturers have to be prepared to spend huge amounts of time and money to protect their brands against incursion by competitors and to defend against infringement against trademarks and other intellectual property.
“It’s a complicated deal because you have to become like a manufacturer,”United Stationers CEO Dick Gochnauer told MDM earlier this year. “You don’t have return privileges, and it’s a longer lead time so your inventory investment is greater. If the quality is not right, you have the liability.”
But Gochnauer says United Stationers, a master distributor, had to go in the private label direction to serve the needs of its customers. In the office products sector, independent distributors are competing with larger national wholesalers and retailers, such as Staples -all of whom have strong private-label programs.
Another common mistake made by distributors, according to Grover, is “assuming that importing products from Asia is easy.”Grover cites a company that has imported high-quality packaging products from Asia for many years. For this company, overseas sourcing is a “core competency,”a task they would not consider outsourcing.
Company executives spend a “considerable amount of time”visiting plants in Asia, traveling to many current and prospective suppliers in many countries. “I would guess that the CEO spends 25 percent of his time abroad on at least six to eight major trips each year,”Grover says. He says this distributor recognizes that “making one or two trips to trade fairs does not make a distributor into a modern-day Marco Polo. Nor does making deals with a couple of agents who handle imported products.”
“A serious private branding program for imported products suggests a serious investment of time and money as well as significant risk,”Grover says.
Of course, not all private brands are sourced overseas. “In some cases we are sourcing globally from low-cost countries,”says Arleen Quinones, marketing manager for HD Supply, which just released two new brands: Seasons and Brigade.
“But not in all cases. Some of these products are being sourced from our domestic suppliers themselves. We want to dismiss the myths out there that proprietary brands or private labels are cheap products. Or that they’re low-quality products or synonymous with globally sourced products. Part of it is educating our associates on what proprietary brands are and how they bring value to our customers and our company.”HD Supply has a quality assurance team in China for products sourced in that country.
Brand and Price
Though some distributors have done a good job relating price to the brand, others have mismanaged a private brand’s positioning. For example, a sales force may perceive private brands as a “bid line,”Grover says, using the brand to undercut competitors’prices or sell against their own company’s national brands.
“An especially dangerous tactic is offering extended price guarantees on the private brands, but without the backing of the manufacturer,”Grover says. “During the recent rounds of price increases in many commodities, these ‘uncovered’guarantees burned some distributors.”
A private brand can be presented at any price point relative to the value you want to provide. The right branding can command a better price. Grover presented this case study:
A privately held distributor of paper products created an elite brand of toilet tissue and paper towels. The products are supplied in sturdy, attractive corrugated cartons. The individual rolls of toilet tissue are wrapped in beautifully printed shiny paper, and the folded towels are furnished in good-looking sleeves. The products have an elegant name. They are consistently the highest quality products. When you see them in luxury hotels and on top-tier cruise ships, you will likely think it is a national brand.
Balancing Manufacturer Brands
The paper products distributor above contracts with leading manufacturers to produce its private label line and avoids using the private label to undercut regular suppliers. Distributors need to balance their brands with manufacturer brands in advertising and marketing efforts. This can be difficult, Grover says.
“Some distributors have been hasty about creating knock-offs of their suppliers’fast-moving products,”he says. “The profit margin potential is compelling, especially for products imported from low-cost sources in Asia.”
He cites replacement parts for equipment. It is relatively easy to find inexpensive parts that will fit. The lucrative margins on these parts may tempt some distributors to freely substitute imported parts on orders for the manufacturers’authorized replacement parts, Grover says.
HD Supply uses a mix of domestic and global suppliers for its private brands, due in large part to lead times. For its White Cap Construction Supply business, which wanted to accelerate the introduction of the new private brands, the company turned to current suppliers.
Private branding can be more risky for a smaller distributor, Grover says. “The manufacturers of national brands must grit their teeth when they see their high-equity brands on the retailers’shelves next to the knock-offs in very similar packaging with ‘compare to’ insignia,” Grover