BRAND INNOVATION WISDOM

RETAILER IMPACT ON BRAND + PRODUCT GO-TO-MARKET STRATEGIES

By Tim Bogert / / Jamey Boiter / / Ed Holme By Tim Bogert Jamey Boiter Ed Holme

PART 1

By working on strategy through full implementation with manufacturers and brands that sell in retail venues, we have identified 9 recurring themes that dominate retailer dynamics, and heavily impact how brands and products succeed in their market. Almost every project that weve undertaken in the past 10 years has included several of these key themes, regardless of product category, channel or product tier. Some of the emphasis on these themes has shifted during that time, but they have always been present and influential. Well discuss these themes in 3 parts, beginning with differentiation, innovation, and national brand strategies vs. private label strategies. The first thing to accept is that retailers have a different end game than the manufacturers and brands that support them. Balancing priorities is always challenging, but to do the right thing for your company and brand is of unparalleled importance, particularly in a down economy when so many competitors are willing to throw away the equity and positioning theyve struggled for, in the interest of the short-term gain. 1 Differentiation In their quest for market dominance, each retailer uses differentiation to battle their competition. Each has their unique brand personality, which is manifested through their own marketing vehicles, store environments, pricing strategies, and product + brand strategy for the merchandise they carry. But retailers also use their supplier manufacturers to help influence and create preference with their consumers. In most cases, retailers use price or brand offering (leveraged through promotion and supplier relationships) to differentiate from other retailers. Manufacturers develop unique SKUs at the request / demand of their retail customers in order to provide a haven from every day low pricing (EDLP) pressures, and then develop unique brand segments (or entire brands) to show differentiation and drive traffic to their stores. Additionally, this differentiation is also achieved through the strong emergence of 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 for retailers to control the product space and to drive preference toward their store. Some of 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 forcing competition against national brands at point-of-saleprimarily on price, not value.

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We have witnessed numerous cases where a formerly strong national brand was encouraged to transition to an OEM for the retailers private brand. That quickly erodes any momentum and equity the brand has fought to establish, and turns the manufacturer into a transitional commodity vendor who eventually gets replaced by a lower-cost or easierto-maintain factory relationship by the retailer. And in several cases, the private brand was then manufactured in the same factory as the national brands product. This is a downward spiral for a manufacturers brand. This strategy serves only the retailer, no matter how they sugarcoat it. In effect, 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 significant, and manufacturers with national brands are constantly called upon to help their partners in these channels to differentiate their offerings from the big box retailers, which some manufacturers have thrived from, and others struggle with because of volumes, margins, and distribution. 2 Innovation Its safe to say that innovation is an important goal for every manufacturer involved in brand / product development. Consumers say they want it, retailers demand it, and its a powerful business tool for manufacturers and brands if its implemented correctly. New and Improved! is a marketing mantra that predates modern marketing, and it shows no signs of going away. That being said, there are definitely pockets of resistance to innovation where familiar or favored designs / configurations have ruled for a long time. Shifting consumers from the familiar isnt always easy, especially when significant investment in money or time is involved. How a product will fit into their life stage or lifestyle is primarily important over pure function 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 roof. Retailers play a huge role in determining how much innovation is actually available to the market. They will dumb down or limit an offering to ensure overall sales safety within their context (not the manufacturers), and we have seen several examples of products being promoted on perceived innovation rather than actual innovation for functional or aesthetic improvement. One key reason for 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 shift in this, particularly through embedded consultant design teams and development partnerships with consultants. Innovation is definitely an area where manufacturers can increase their value with their retail channels. 3 (Inter)National Brands Weve 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 traffic and occupy the top tier in their good / better / best strategy. The ability for retailers to leverage a strong national brand that has been built on a manufacturers development and marketing dollars, and has developed a connection to the user / consumer is one major benefit of keeping nationals in the mix. But a national brand has to do its homework sufficiently well enough to understand its position in the minds of the consumer. And be willing to do whatever is necessary to elevate and continually maintain the value proposition. If it doesnt, it becomes a prime target for private brand OEM, especially if innovation hasnt been a constant. We have seen or been involved in several cases where the national brand is the motivator for consumers to go into the store, only to be intercepted by well-positioned private brand offerings or semi-exclusive national brands. This hybrid

1415 S. Church St., Suite S, Charlotte, NC 28203 P 1.888.GET.BOLT or 704.372.2658 E info@boltgroup.com W boltgroup.com
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relationship seems to work well for brands that havent gained a real foothold in the marketor that are emerging brandsthat have the ability to support the volume of business the retailer demands. National brands are at a disadvantage, particularly in this scenario, because they are not allowed to fully understand the retailers merchandising strategy, which is often 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 of national brands to know their market and end user better than the retailer, and to utilize those insights to develop innovative, valuable, and meaningful solutions that will help the retailer achieve their goals. Profitable sales growth and differentiation. These themes are the result of critical issues retailers face in their competitive market, but they present complicated challenges for our clients. Our experience is that well-researched and thoughtfully 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 of Category Captain, Retail message vs. Brand message, and the Continuum. While we certainly havent touched on all issues, and our tone is somewhat critical / cautionary of retailers, our primary objective is to help our clients navigate the challenges around their brands, and the most dire challenges are often presented by the retailers they are supporting.

TIM BOGERT, AIGA Creative Director Tim is one of BOLTgroups Creative Directors and oversees development of branding and communication solutions with a focus in consumer package goods, industrial products, and retail industries, managing day-to-day activities on his accounts. When hes not working, his focus is on his wife, their boys, and their rather large orange dog. The order of focus depends on who is yelling or barking the loudest at any given time.

JAMEY BOITER, AIGA Principal, Director of Brand Innovation Jamey leads BOLTgroups Brand Innovation team. He works with clients to develop their specific brand strategies and with the brand team to integrate it into design and creative. As a storyteller, he finds a way to tell every clients story in a unique manner. Hes passionate about everything hes into: college football, old toys, good Scotch, and of coursedesign.

ED HOLME VP, Business Development Ed heads up business developmenthe calls it exploring and defining strategic opportunities with clients. He also works with Jamey on brand and market strategy. Off-hours, youll find him between the worlds with his wife Katie at Healing Horses. (Youll have to ask him if you want to know what it means!)

1415 S. Church St., Suite S, Charlotte, NC 28203 P 1.888.GET.BOLT or 704.372.2658 E info@boltgroup.com W boltgroup.com
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