Retailer Impact on Brand and Product Part One

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© 2010 Boltgroup

By Tim Bogert / Jamey Boiter / Ed Holme

BRAND INNOVATION WISDOM

RETAILER IMPACT ON BRAND + PRODUCT

GO-TO-MARKET STRATEGIESBy Tim Bogert / Jamey Boiter / Ed Holme

By working on strategy through ull implementation with manuacturers and brands that sell in retail venues, we have identied 9

recurring themes that dominate retailer dynamics, and heavily impact how brands and products succeed in their market. Almost

every project that we’ve undertaken in the past 10 years has included several o these key themes, regardless o product category,

channel or product tier. Some o the emphasis on these themes has shited during that time, but they have always been present and

infuential. We’ll discuss these themes in 3 parts, beginning with dierentiation, innovation, and national brand strategies vs. private

label strategies.

The rst thing to accept is that retailers have a dierent end game than the manuacturers and brands that support them. Balancing

priorities is always challenging, but to do the right thing or your company and brand is o unparalleled importance, particularly in a

down economy when so many competitors are willing to throw away the equity and positioning they’ve struggled or, in the interest o

the short-term gain.

Differentiation

In their quest or market dominance, each retailer uses dierentiation to battle their competition. Each has their unique

brand personality, which is maniested through their own marketing vehicles, store environments, pricing strategies, and

product + brand strategy or the merchandise they carry. But retailers also use their supplier manuacturers to help

infuence and create preerence with their consumers.

In most cases, retailers use price or brand oering (leveraged through promotion and supplier relationships) to

dierentiate rom other retailers. Manuacturers develop unique SKUs at the request / demand o their retail customers

in order to provide a haven rom “every day low pricing (EDLP)” pressures, and then develop unique brand segments

(or entire brands) to show dierentiation and drive trac to their stores.

Additionally, this dierentiation is also achieved through the strong emergence o private brands. Traditionally positioned

at opening / mid-priced tiers, we have seen private brands promoted at national brand pace, and some that have really

encroached and overrun the top tier national brands. Private brands are obviously a way or retailers to control the

product space and to drive preerence toward their store. Some o these private brands have been developed

and evolved as true brands. But in some cases, retailers are portraying private labels as actual brands without a clear

branding strategy, but orcing competition against national brands at point-o-sale—primarily on price, not value.

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We have witnessed numerous cases where a ormerly strong national brand was “encouraged” to transition to an OEM

or the retailer’s private brand. That quickly erodes any momentum and equity the brand has ought to establish, and

turns the manuacturer into a transitional “commodity vendor” who eventually gets replaced by a lower-cost or easier-

to-maintain actory relationship by the retailer. And in several cases, the private brand was then manuactured in the

same actory as the national brand’s product.

This is a downward spiral or a manuacturers brand. This strategy serves only the retailer, no matter how they sugarcoat it.

In eect, they become the competition.

Specialty distributors / showrooms, buying groups, and independent retailers also see big box retailers as serious

competition, and a constant encroachment on their territory. The pressures that big box puts on the entire market are

signicant, and manuacturers with national brands are constantly called upon to help their partners in these channels to

dierentiate their oerings rom the big box retailers, which some manuacturers have thrived rom, and others struggle

with because o volumes, margins, and distribution.

Innovation

It’s sae to say that innovation is an important goal or every manuacturer involved in brand / product development.

Consumers say they want it, retailers demand it, and it’s a powerul business tool or manuacturers and brands i it’s

implemented correctly. “New and Improved!” is a marketing mantra that predates modern marketing, and it shows no

signs o going away. That being said, there are denitely pockets o resistance to innovation where amiliar or avored

designs / congurations have ruled or a long time. Shiting consumers rom the amiliar isn’t always easy, especially when

signicant investment in money or time is involved. How a product will t into their lie stage or liestyle is primarily

important over pure unction or improvement. For example, in some markets / segments consumers say they will

purchase ‘green’ products or brands, but not at an added cost or inconvenience. In others, the willingness to pay more,

and patronize brands and products that are environmentally and / or socially sustainable is through the roo.

Retailers play a huge role in determining how much innovation is actually available to the market. They will “dumb

down” or limit an oering to ensure overall sales saety within their context (not the manuacturer’s), and we have seen

several examples o products being promoted on perceived innovation rather than actual innovation or unctional or

aesthetic improvement. One key reason or this is that retailers themselves struggle with communicating innovation to

the market. While they develop products through global sourcing partners, they are not inherently product developers.

However, we have seen some shit in this, particularly through embedded consultant design teams and development

partnerships with consultants.

Innovation is denitely an area where manuacturers can increase their value with their retail channels.

(Inter)National Brands

We’ve spent some time talking about how private brands impact the national brand, but in most cases retailers still rely

on strong national (or international) brands to drive trac and occupy the top tier in their good / better / best strategy.

The ability or retailers to leverage a strong national brand that has been built on a manuacturer’s development and

marketing dollars, and has developed a connection to the user / consumer is one major benet o keeping nationals in

the mix. But a national brand has to do its homework suciently well enough to understand its position in the minds o

the consumer. And be willing to do whatever is necessary to elevate and continually maintain the value proposition. I it

doesn’t, it becomes a prime target or private brand OEM, especially i innovation hasn’t been a constant.

We have seen or been involved in several cases where the national brand is the motivator or consumers to go into the

store, only to be intercepted by well-positioned private brand oerings or semi-exclusive national brands. This hybrid

“RETAILER IMPACT...” continued

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relationship seems to work well or brands that haven’t gained a real oothold in the market—or that are “emerging”

brands—that have the ability to support the volume o business the retailer demands. National brands are at a

disadvantage, particularly in this scenario, because they are not allowed to ully understand the retailer’s merchandising

strategy, which is oten based on extensive research by the retailer on brand trends and real-time, category-wide (and

closely guarded) sales data.

So this highlights the responsibility o national brands to know their market and end user better than the retailer, and to utilize

those insights to develop innovative, valuable, and meaningul solutions that will help the retailer achieve their goals. Protable

sales growth and dierentiation.

These themes are the result o critical issues retailers ace in their competitive market, but they present complicated

challenges or our clients. Our experience is that well-researched and thoughtully conceived brand strategies, supported by

empirical data, can minimize their negative impact, and actually create greater opportunity.

In the next Brand Wisdom paper in this series, we will discuss the areas o Category Captain, Retail message vs. Brand message,

and “the Continuum.”

While we certainly haven’t touched on all issues, and our tone is somewhat critical / cautionary o retailers, our primary

objective is to help our clients navigate the challenges around their brands, and the most dire challenges are oten

presented by the retailers they are supporting.

JAMEY BOITER, AIGA

Principal, Director o Brand Innovation

Jamey leads BOLTgroup’s Brand Innovation team. He works with clients to develop their specic brand

strategies and with the brand team to integrate it into design and creative. As a storyteller, he nds a way to

tell every client’s story in a unique manner. He’s passionate about everything he’s into: college ootball, old

toys, good Scotch, and o course—design.

ED HOLME

VP, Business Development

Ed heads up business development—he calls it “exploring and dening strategic opportunities with clients.”

He also works with Jamey on brand and market strategy. O-hours, you’ll nd him “between the worlds” with

his wie Katie at Healing Horses. (You’ll have to ask him i you want to know what it means!)

TIM BOGERT, AIGA

Creative Director

Tim is one o BOLTgroup’s Creative Directors and oversees development o branding and communication

solutions with a ocus in consumer package goods, industrial products, and retail industries, managing

day-to-day activities on his accounts. When he’s not working, his ocus is on his wie, their boys, and their

rather large orange dog. The order o ocus depends on who is yelling or barking the loudest at any given time.

“RETAILER IMPACT...” continued

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Retailer Impact on Brand and Product Part One