Just a few years ago, the large retailers really needed major brands, making them vulnerable to pressure from suppliers.
Brand hybris is a thing of yesterday. Retailers are no longer only a distribution operation run by small scale merchants, but have evolved into branded companies themselves.
Understanding of the retailers own respective strategy, on an overall global, country and concept level is a key issue for anyone who wants to have their products on display in any store.
The role of the supplier is to help the customer to reach their respective goals of differentiation by giving tools of relevance, to the customer in the situation the customer (i.e. retailer) meets the consumer. That means that the supplier should walk the same shoes as their respective retailer, and align its production according to the direction where the retailer is going, thus provide SKUs that is engineered and priced to fit the retailers strategy.
Retailers want to be understood. The first role of the branded goods supplier is to understand.
Brand owners are stumbling under the pressure of shorter product cycles and lesser media attention, along with hard core SKU rationalisation.
There are no power brands – only brands that sell more, and brands that sell less. The traditional view of brands as sacred assets that must be allowed to exist just because they have a long history or are cherished by key officers in the organisation, or by small groups of consumers at some time of the years is no argument for keeping a brand or SKU in production. Mind space that cannot be converted to shelf space is of no use whatsoever. There is no room for politics in internal discussions or defending babies that should be able to stand on their own. Sales figures are the only relevant measurement of real brand strength. Mind space is not paying the bills.
The role of the supplier is to help the retailer to reach their respective goals of differentiation by giving them tools of relevance. Brands are still assets but needs distribution to be able to bring value to their owners.
To get to the shelf relevance to the retailer and thereby the understanding of the retailers goals and how the specific SKU should help to reach that goal, is crucial. There is no substitute to distribution.
Therefore any internal discussion on any supplier should start with the question, “in what channels do we deserve to be on the shelves?”
Discount grows by the minute
The discount channel is virgin land for many suppliers. A traditional view on branding as well as seeing discounters as a threat rather than a potential volume channel has hampered the development of the distributions via this channel. The fact that the Stockholm office is situated far from where the action is, is also a fact that has to be considered. Category Directors and Brand Managers, along with their consultants, must understand the dynamics of local markets and move away from 20th century branding theory were everybody can build a brand.
Discount is gaining power. If suppliers do not choose to align with the needs of this specific channel, and the threat it constitutes to others, the share on the markets with a growing number of discounters will decline as Every Day Low Prices gets to be the standard on these markets.
The role of the supplier is to provide SKUs that could be priced in accordance to the need of the market. No retailer sets the price level on its own. The market does collectively. But for the branded goods provider trying to push its brand portfolio to anybody this means bad news.
To understand and act to address the needs of the discounters is a major task on several markets.
PL is an essential part of key retailer’s strategy
Price and differentiation are two different reasons for launching a private label, and the PL share is on the rise on a global scale as competition sharpens.
Private Labels means that the retailer is taking charge of several functions such as marketing, certain product development and other things, and that the supplier to a large extent merely is a production facility. In special cases branded good has been converted into PL buy being offered exclusive distribution.
There are several key questions that need to be taken into consideration.
-The volumes that retailers PL have and their rate of growth as consumers accept them at a larger scale. PL-opportunity means large volumes.
-The question of available capacity at plants. Do we have spare capacity that makes us loose money?
-If a retailer approaches with the possibility of PL-production, any cost based calculation must be stripped from normal administration, product development, and internal procedures and so on. PL-production requires a dedicated organisational function.
-If a retailer wants a PL, he will get it. Saying no will bring the volumes to anyone else.
In a world where the supplier understands the needs of the retailer, he will also understand the need for a private brand, and be able to provide it if asked.
Addressing the retailers relevant needs for differentiations are crucial to stay and grow in the market.
So how do you build your brand portfolio to suit the needs of the retailer, and how could you build a new segmentation of the brands/SKUs and at the same time evaluate the channel strategy? Well here are a few ideas:
Ask yourself: What will the role of the particular brand/product be in the assortment? What effect will be the consequence when adding it to the offer from a total branding perspective? Ingvar Kamprad demanded that the hot dogs in the snack bar at the end of an IKEA store should be priced at levels of 50% lower than expected in order to project a breathtaking offer, contributing to the low price image of the company. The finance department screamed at the unresponsible action, meaning that this would take away any possibility of making the snack bar operation profitable. Needless to say, Kamprad won the discussion and the profits went sky high as volumes went the same way.
This led to the definition of a “hot dog product” at IKEA, namely a product that the customer has a clear point of view on of what it ought to cost, and then priced at 50% of the expected price. Today, there should be a hot dog in each category to enforce the price position of IKEA. This is a great example of hoe product/price mix is translated into a branding tool.
Beeing a brand owner, it sometimes is hard to keep ones head cold when it comes to kill low performing brands, as well as seeing the potential of limited distribution for the real premium ones. An effective way is to categorize the brands and SKU according to brand strength, sales potential and the role in marketing, from a perspective where the brand fits in the retailers assortment. Borrowing the idea of Kamprads sausage, one could easily create other tactical tools by defining the role of the product brand, and then take appropriate actions.
Description: This brand is a staple of the local/international market. Its history and reputation makes it a definition of the category itself. The category icon is a top level both in terms of brand strength and high volume and could sustain rough handling of its brand, since it defines the market.
Role: The category icons are the main weapon for any company with aspirations in being market lead-ing.
Actions: Defend/develop at all costs. Should be treated with care, but could due to its cult status be used with some force, also in terms of price aggres-siveness. This is possible as the market uses the brands as a definition of the category itself and would not disregard it at any time.
Description: The category driver is a healthy and innovative newcomer, which brings vitality and new interest into the category, usually from a premium or top premium position. It attracts attention to the category from new target audiences and makes them stronger with the fans of today.
Without the category drivers a category could degenerate as a whole.
Role: The category icon is a tool that identifies the companies that is developing icons of tomorrow and drives the market in a forward direction.
Actions: Use with selected channels to build a premium image.
Description: B and C type of brands which brings width & depth to a portfolio.
Role: Creates volume as a whole and also show that their owner aspires to be a complete suppliers and a market leader.
Actions: Activate whenever possible in retailer campaigns. For certain brands it could be considered that it should be converted into a PL.
Description: B or C brands that suffers from decreasing profit/volumes and are considered having a hard time to recover, despite moderate/high knowledge in the market.
Role: To add to total volumes as long as listed in the portfolio by harvesting any brand value in the public.
Example: Various sub brands in all categories.
Actions: Activate in discount segments if possible, without any considerations taken to future branding issues or traditions. The only consideration whatsoever is volume today.
Retailers would love a supplier taking their time to really understand the problems and challenges they are facing. Just like all customer loves understanding.
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