Balanced focus on brands |
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| John Fanning on a new book focusing on the manufacturer versus retailer brand conflict |
Predictions of the 'deaths of brands' have been
made with monotonous regularity for at least three decades. They are
not exaggerated. In most European markets retailer brand shares have
tripled since the 1970's.
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'Big retailers can bully manufacturers to their hearts content but they |
'Big retailers can bully manufacturers to their hearts content but they
can't bully the consumer, who wants to identify with values imbued by
brands' – John Fanning
Much of what has been written constitutes the worst form of lazy
journalism; apocalyptic headlines followed by cut and paste copy with
no feel or understanding of the issues involved apart from the growing
concentration of retailer power and consequent weakening strength and
market share of manufacturer brands.
The more thoughtful commentaries have consistently urged
manufacturers to adopt the same remedy; more regular innovative new
products and better marketing communications, including strong
advertising campaigns.
The problem is that as retailers become more powerful, manufacturers
have less room to manoeuvre; declining brand shares and fragmenting
media audiences mean fewer resources for new product development and
marcoms.
Consequently, the regular appearance of 'vicious circle'
diagrams in much of the literature on the subject. The latest book on
the retailer brands threat, Private Label Strategy – How To Meet the
Store Brand Challenge, is by two academics; one European, one American
and introduces a slight but subtle change in approach. Nirmalya Kumar
and Jan-Benedict Steenkamp assume from the start that retailer brands
are not only brands in their own right but are also grown up brands
with emotional as well as rational attributes. They assume that
retailer brands are here to stay and that they may have more growth
left in them yet, but they most emphatically do not write off
manufacturer brands.
They are also careful to distinguish between the different
types of retailer brands; generic private label, copycat, premium store
brand and value innovators. The last category refers to retailers like
the German giant Aldi and Hennes & Mauritz (H&M) from Sweden,
offering quality products at low prices and with a limited range.
The book has good and bad news for the managers of both
categories of brands and useful advice for all concerned. The good news
for manufacturer brands is that they will always be required by large
retailers who wish to maximise their profitability and cite the example
of Sainsbury in the mid-90's, which overdosed on its own brands and
almost went out of business in the process.
The analysis of declining profit margins on retailer brands as
their share of market rises is particularly good. The other piece of
good news for manufacturer brands is that in spite of the fact that
two-thirds of customers now believe that supermarket brands are a good
alternative to manufacturer brands, even in product categories where
retailer brands are perceived to exceed the quality of manufacturer
brands, the price premium for the manufacturer brands is a substantial
21 per cent.
The good news for retailer brand managers is that the authors
believe they still have some way to go before they reach their full
potential, which they assume to be around 50 per cent. This would
suggest that retailer brands could double their share in the Irish
market from its current estimate around the mid-twenties.
But these are average figures, retailer brands can be contained
around the 20 per cent level and manufacturers who want to make sure
that this happens in their own market sectors would be well advised to
read this book most carefully.
But although the analysis of the issues involved manages the
difficult feat of being more comprehensive and succinct than anything
else I've come across, the conclusions for manufacturer brands are the
same as they always have been -more innovative new products and more
imaginative marketing communications.
If you want any help with the former it may be worthwhile
having a look at P&G's much vaunted 'Connect and Develop'
initiative, (Harvard Business Review March 2006; for the latter just
contact yours truly).
The big retailers can bully manufacturers to their hearts
content but they can't bully the consumer, who still will want to
identify with values imbued by brands, values that are much more
naturally created by manufacturer brands than by retailer brands if
only because the former offer more variety in most product categories.
American commentator Joe Mandesa covered the issue in a provocatively
titled article in the December issue of Admap. His piece, entitled
R.I.P. Retailer Dominance 1970-2006, suggests that we may already be
moving from the era where the retailer has dominance to a new era of
consumer dominance.
Whatever the outcome and whether you're responsible for
manufacturer or retailer brands, this particular book is essential
ammunition for the battles ahead.
John Fanning is executive chairman of McConnells Advertising.
