As more distributors and reps venture into the private-label arena, the value
of brand equity in a price-conscious market comes into question.
Private labeling is a hot topic of conversation these days. It's nothing new for an electrical manufacturer to quietly ink a deal with a Chinese factory to produce products for them, but in recent years electrical distributors and even independent manufacturers' reps are following in their vendors' footsteps and establishing their own private labels.
Some distributors have been private labeling products for years. City Electric Supply Co., Orlando, Fla., private labels PVC conduit under the Centaur brand and lighting fixtures under the Tamlite Lighting brand. Rexel USA, Dallas, now private labels fasteners, exit signs and emergency lighting fixtures.
Other private labelers exist not too far from the electrical mainstream. W.W. Grainger Inc., Lake Forest, Ill., sells approximately 24 percent of its products under company brands, including motors and lighting fixtures. Fastenal Co., Winona, Minn., sources 15 percent of its products directly from Asia and is evaluating opportunities to directly source up to 20 percent more of its existing product line.
Some customers are looking more seriously at private-labeling, too. Centex Corp., Dallas, and Beazer Homes USA, Atlanta, two of the largest homebuilders, may start purchasing lighting fixtures directly from Chinese manufacturers.
Although the low manufacturing costs is obviously the big attraction for sourcing products overseas, I believe another issue is at least partially responsible for the current popularity of private labeling. When a distributor or rep decides to private label products, they are making an educated guess that their brand will have more power in the marketplace than the brands of competing products from traditional manufacturers.
A big part of their decision to launch a private label comes down to the strength of competing manufacturers' brands. These private-labeling arrangements seem to most often involve products where end-user brand recognition for a product has deteriorated so badly that the product falls into dreaded commodity status, and manufacturers and distributors have convinced themselves that end users see no discernible differences between their products and competitive offerings and are solely interested in the lowest price.
Manufacturers must assume a lion's share of the blame when end users perceive their products as commodities. A product turns into a commodity when a manufacturer chooses to not build that brand. A sure sign a manufacturer has lost hope is when it stops promoting the features and benefits of a product that make it easier, safer or more cost-efficient to install, and stops teaching distributors about the value-added services they wrap around the product that makes it easier to sell.
Mature products are often in the most danger of being perceived as commodities, but think about the millions of dollars consumer-product companies invest to maintain brands for mature “commodity” products such as Heinz ketchup, Sunkist oranges and Goodyear tires.
Private-labeling agreements force manufacturers to ask themselves some very uncomfortable questions:
Is my brand equity dead?
Is my brand now just the price customers are willing to pay for the nuts-and-bolts of the products my company produces?
Do customers place any value on the millions of dollars my company spends on research and development, customer service, logistics and all of the other things it does to get the best product possible to the market as quickly and efficiently as possible?
This month's cover story, “99 Can't-Miss Sales Tips from the Pros” (page 24), touched on the salesperson's perspective of vendors' brand equity. While researching this article, I asked salespeople, “How much of a successful sale can be attributed to a salesperson's selling skills, and how much of it is the combination of product, company reputation, brand equity, etc.?” Their opinions varied, but all respondents said pure sales skills only went so far, and that no less than 50 percent of any sale can be attributed to the product and its benefits, and the brand equity the manufacturer had developed and maintained in the market.
Price will always play a role in any sales equation, but don't discount the importance of brand equity.