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How To Make Money With Private Label Branding |
Rather than vie with the big brands for retail position it may be wiser to work with them, allowing their market-dominant brand to be placed on your product(s) for greater sales.
In many countries today, the biggest retailers dominate the consumer environment. Although the Internet and catalogs may allow manufacturers to sell directly to the public, these media will currently only deliver a niche market opportunity. If you want to reach the mass of consumers, you have to cozy up to the major retailers.
In its turn, retailing is a highly competitive market, usually with a small number of very large retailers slugging it out for the top position. Nor is it that profitable; while they make a considerable mark-up on manufacturers' prices, retailers often make net profits significantly below those made by the largest manufacturers.
Over the last few years, the largest fast-moving consumer goods manufacturers have become increasingly threatened by the largest retailers because, without them, they would not be able to reach their customers, both in terms of logistics and consumer communications. The role of retailers as communicators for your brand may be more important than you think - a great deal of advertising works not because it directly persuades consumers to buy your brand, but because it persuades retailers to allocate you extra "facings" (shelf space). This tells your consumers that your brand is much in demand, and therefore probably worth buying.
Another problem for manufacturers is that most of the largest retailers have started developing their own product brands that are displacing many manufacturer-branded goods.
New product development has been one way for manufacturers to keep ahead of the game, but new products are copied, and soon turn up as commodities sold under retailers' brand names. Some retailers have a strategy of being first to market with new products in order to build their brand beyond a lowest price positioning.
There is therefore only one way for manufacturers to build and maintain relationships with retailers, and that is to develop their brands with consumers. Branding is the last differentiator. Left to their own devices, retailers will demand more for less, with the constant threat of not listing or delisting you - this is their job. However, if their customers are demanding your products, they have to make a calculation - will their customers still buy from them if they no longer provide access to your brand? For a proportion of their customers, the answer will be "No", which gives you great power if yours is the leading brand in a traffic builder" category (the reason why customers go to the retailer in the first place). Your role is to maximise that proportion, and to keep retailers informed of how significant it is.Why retailers choose which brands to list
Most retailers are seeking to maximise the profit they make from each square yard/metre of shelf space. If your brand can generate a greater profit for the retailer, you have an interesting proposition to make. However, you will probably have to make it fast and persuasively, because retail buyers do not give you much time. So take your best evidence - current sales in other outlets, market research on potential customer demand, predictive research on the outcome of your advertising or promotional campaigns.
You should also be clear about the retailer's perception of the role your category of products plays in their stores:
Service "table chips"
Certain elements of your service package are also "table chips" - if you do not meet the required level of service, you will be at a disadvantage compared with those of your competitors that can.
The largest retailers are unforgiving of failures of service. If your delivery misses the allocated time slot, it may be turned away. Non-compliant administrative details will lead to delayed payments. Goods are rejected more-or-less at the retailer's discretion. Your money-off vouchers will be redeemed against other manufacturers' goods.
Increasingly, retailers employ just-in-time processes that minimise their stockholding by feeding their EPOS (electronic point of sale) data into EDI (eletronic data interchange) systems. The way this works is that when stock on the shelf falls to the pre-defined re-order quantity, it places an order electronically on the supplier. The EDI systems may also complete other elements of the transaction electronically, such as order acknowledgement, invoicing, and payment. As retailers make considerable administrative cost savings by trading with suppliers electronically, many require that suppliers are EDI-enabled - no EDI, no business.
Category management
Major retailers routinely use store planning software to optimise the mix of products on the shelf in order to generate maximum returns, an expertise many suppliers have adopted in a bid to maximise their opportunity for gaining listings and shelf space.
The latest trend is for retailers to consider appointing category managers, whereby suppliers bid for the right to manage an entire category of products, both their own and competitors', by offering the highest guaranteed rate of return to the retailer.
Maximising the merchandising opportunity
The levels of expertise and investment required to get your products listed tend to make it ever more difficult for small suppliers to obtain listings directly. Therefore, most will address the retailers through agents, in return for a margin discount. However, even here, the larger of the agent's suppliers will tend to get the most attention.
Retailers, especially food retailers, are rarely interested in smaller suppliers developing their brands in their stores, as they prefer to carry the major manufacturers' brands and then their own.
However, should you get your products listed, and should you be allowed to use your own brand names, here are some of the ways of maximizing your brand opportunity:
In many cases, however, Private Labeling products with larger brands allows smaller manufacturers to compete for placement, while providing the big brands with new brand extension capabilities without the upfront research & development investment.