The Retail Leverage Principle of Physics – When Two Opposing Brands Are Better Than One

By Vincent Young

Most categories at retail have room for a “good-better-best” stratification of category players. In today’s culture at retail, the retailer is predisposed to seek ownership of the “good” position by introducing an opening price-point category alternative under a private label or house brand. As a result, branded suppliers typically feel compelled to justify a position in either the “better” or “best” lanes within a category in order to survive on shelf long-term.

Herein lies the opportunity for a paradigm shift for branded suppliers at retail – why not offer both? In order for branded suppliers to have greater control over the rules of category engagement, many branded suppliers at retail have realized that the key to success is to offer branded solutions for both “Better and Best” simultaneously to the retail marketplace. How do some do it – by expanding their own brand portfolio and purposely introducing and managing a new category competitor through licensing agreements?

THE RETAIL LEVERAGE PRINCIPLE OF PHYSICS:

The concept of protecting your own brand by purposely creating a new category competitor through licensing may sound counterintuitive to a discussion about how to improve your company’s brand presence at retail until you consider the following: the discipline of Physics teaches us that objects in opposition create friction and from friction, energy is created. Today, many successful brand strategists understand how to apply this basic principle of matter to create a form of leverage against retailers and to dominate a category at the same time.

Here are a few examples of how some branded suppliers have been able to gain greater control over a category at retail by applying the Retail Leverage Principle of Physics:

Office Supplies Category

For many years, the Office Paper category has operated like a commodity with too many paper mills, too much production capacity, and too little pricing discipline. Retail private labels now make up over 1/3 of all office paper sales, thus putting many national paper mill brands out of business at retail.  Today, however, International Paper, owners of the “Hammermill” brand of office paper since 1987, has the ability to significantly influence the rules of engagement in the office paper category at retail by complimenting its Hammermill brand with an offering of a full portfolio of hp-branded office papers (through a licensing arrangement). By offering and managing a seeming competitor along with its own brand, International Paper is now able to control the rules of engagement for both “Better” and “Best”, thus increasing their ability to protect the positioning of the two brands in the marketplace – especially its own brand Hammermill.

Consumer Electronics Category

Western Digital (WD) competes in the growing, yet very competitive segment of external hard drives/storage at retail. Recently, WD has complimented its branded portfolio at retail by adding a licensed set of hp-branded external hard drives. By offering both brands together, WD now has the ability to provide retailers with a more complete category solution while also providing some category guiderails within which the WD branded products can live and thrive long-term.

Toy/Game Category

For many years, toy-maker Bandai America has successfully secured “master licensor” status for many popular kids properties/programs in America. By complimenting its portfolio of Bandai-branded games and toys with the exclusive rights to offer a full-suite of licensed toys (eg. Power Rangers, Roady the Race Car, and others), Bandai is able to maintain a certain level of category and retailer control/ influence over the extent to which the Bandai brand is represented in each participating category.

SUMMARY: TO GAIN CONTROL YOU HAVE TO LOSE CONTROL:

All manufacturers want to own the brand names associated with the goods and services that they sell. Why? Because there is greater profit, personal pride, and control over a company’s long-term fate if every time a customer is created and satisfied, positive equity is assigned to the company’s brand and stored as a reference point for future consumer purchases.  There are times, however, when, in order to establish your company’s brand value proposition within a category over the long haul, it may make sense to create (and control) a new category competitor in order to gain leverage in the retail marketplace.

Related Reading / Sites:

• “Licensing Love Triangle” roundup by New Market Builders – a must read and I swear it is safe for work