By Steve Marzio

What in the world is a RLF Rating?

We now have over 40 articles here at  RetailLeverage.com detailing many examples on vendors utilizing retailers successfully to achieve their own ends.  Because the amount of retail leverage a particular company holds is a highly subjective matter of discussion, the experts at RetailLeverage.com are introducing a way to measure this “power” in terms of a 1-10 rating scale, which we call a Retail Leverage Factor, or “RLF” rating for short.

Is Your Retail Leverage Factor A Fear Factor?

A RLF-10 rating represents the highest amount of retail leverage possible that a particular vendor may possess vis-à-vis  the largest retailers.  In these rare cases, retailer make very little if any margin but must feature aggressively in order to steer the strong consumer foot traffic through their doors.  Conversely, a RLF-1 rating is indicative of a company with little to no leverage to conduct business at main-stream, big box retail.  You will not find these products at retail and they have no consumer pull whatsoever, barely making them exist at all but for perhaps some tax shelter benefits.

Some ratings may be obvious, others may surprise you.  This is because there are many factors being considered when generating a retailer’s RLF score.  Let’s take a look at some of these factors.

Here Are The 5 Components Of The Retail Leverage Factor:

1. Overall Size of Business of Vendor to Retailer: Obviously, when a company does hundreds of millions of annual dollars of business or more with a particular retailer, the vendor and retailer often feel the necessity to work collaboratively together to hold those significant dollars “in situ”.  However, sheer size of business is not enough to generate a perfect “10” score since sometimes large companies can fall asleep at the wheel and let new upstarts quickly become retailer darlings and get the premium features in ad and on the floor over the big guys.
2. Growth Categories of Participation with the Retailer: The higher the growth curve of the category, the more interested a retailer becomes in giving those vendors what they want.  Consumers are asking store associates for the product and are pulling this product through retail shelves and off retail endcaps without much selling effort on behalf of the retailer.  Consequently, retailers want to feature these categories aggressively so that they can establish themselves as a category destination.
3. Innovation Level of Company: Certain companies consistently bring new innovations to market helping participating retailers capture  new, incremental sales early and at the highest retail price points.  Beyond the direct revenue and margin benefits of showcasing new products, offering new innovations also helps solidify the image of said retailer as a destination for the uber-new, hot items.
4. Margin Dollars and Rate Given to Retailer: When growth, innovation or sheer vendor size is not in a particular manufacturer’s  favor, often margin dollars can compensate for this and work to garner attention and support by the retailer for rather obvious reasons.  Throwing money at a retailer in various forms can produce results in the short run if spent correctly.  Quality defects or dismal results however will usually trump margin dollars every time.
5. Consignment or Other Retailer-Incented Sell Through Incentives: Similar to #4 above, providing other go-to-market financial incentives such as consignment can effectively add to a retailer’s bottom line and go a long way to compensate for lack of substance in topics discussed in numbers 1-4 above.

Stay tuned to RetailLeveragec.om as we rate some of your favorite companies and assign them their first RLF score.

UNDERSTANDING THE SCALE RATINGS

As with any scale, the meaning of the rating is best interpreted when one understands the what the boundaries of the scale really mean.  Therefore, the retail leverage consultants have unanimously assigned Apple with a “RLF-10” rating. Retailers make very little selling Apple products vis-à-vis other manufacturers.  But the foot traffic and thus the opportunity for other market-basket filling items (i.e. high margin accessories) that featuring Apple can generate is quite considerable.  Retailers sit by the phone and just hope they will receive allocations commensurate with their forecasted demand on the latest Apple widget.  If Apple even has “sales persons” employed , they must be fully trained in the art of telling retailers “no” in hundreds of creative ways.  That is, Apple decides when and how high to turn the retailer faucet among its vast array of innovative products.

Since a “RLF-1” rating means a company is completely irrelevant to retail, it is not necessary to name an example.  By definition, it would be an oxymoron to even be able to do so.  We will not spend much if any time on companies with a score of RLF-1 since you most likely would not be able to find them at retail anyway.

Here are a few examples of our RLF scores for various manufacturers.

• HP: RLF-8
• Samsung: RLF-8
• Vizio: RLF-6
• Panasonic: RLF-6
• Brother: RLF-5

TAKEAWAYS:

We’re trying to quantify the intangibles that we’ve all recognized when it comes to competing with other brands.  We haven’t patented the algorithm yet but we think we’ve got a unique angle that can help provide reference within categories and among vendors at a retailer.  If you are interested in obtaining an RLF rating for your company, please reach out to us.

Twitter: @retailleverage

Email: retailleverage@gmail.com

By Benjamin Smith

Hand It Over!

A retailer asking for more margin?  Not shocking – or ridiculous.  It’s a free country – you can decide if you want to offer more, or stare them down.  Unless they have no respect for you or  your brand, in most cases, when they ask for more margin they have a good reason.  At the end of the day, it all goes back to the cost of opening / maintaining all those retail stores.

Credit: Wall Street Journal

You have to have faith in free markets that there are limits to what they can justify asking for – otherwise their competition down the street – or increasingly online – will find a way to do more with less.  This is of course reaching critical mass today as retailers like Best Buy see customers come to their store to get educated, then use smart phone apps and web research to compare prices and buy elsewhere.

How does a retailer asking for more margin tie into Retail Leverage?  I’ll illustrate our ideas and provide some suggestions at the end of this article, but the key perspective is that changes at retail present opportunities for a repositioning.  Whether it is a new buyer at your key retailer, a new entrant in your category, or a seismic shift in terms of where consumers purchase, change means you have a chance to gain leverage.

SOS – “Save Our Stores”

A favorite author of mine, Rafi Mohammed, founder of the Pricing for Profit blog, touched on the disadvantages facing brick and mortar stores and proposed a way to save them.  His proposal is called the “Physical Store Equalizer” aka the “PSE”, where manufacturers help compensate physical retailers for the value they bring to the sales proposition.

I’m linking to Rafi’s article “The Pricing Strategy that Can Save Brick and Mortar Stores”, as well as including the key sections here:

The conventional wisdom is that consumers will pay a premium for the convenience and service provided by brick and mortar stores. But as online retailers’ growing market share attests, that CW isn’t holding up. I went online to buy the TV the Sears associate helped me select, and I saved $150. As the sliding value of Best Buy shares confirm, too many shoppers aren’t willing to pay a premium for sales associates, in-person demonstrations, or the ability to get a product right now. The current retailing model, which expects consumers to pay this premium, is starting to look broken.

It’s time for a new system in which manufacturers help compensate physical retailers for the value they bring to the sales proposition. They can do that by offering brick and mortar retailers lower wholesale prices than their web counterparts. I call this discount the Physical Store Equalizer, or PSE.

Retailers’ pitch to manufacturers to try to gain this discount should be straightforward: “As a brick and mortar retailer, we add value and generate higher sales of your product. Our stores increase your brand awareness, provide a venue for people who want to touch and feel the product before they buy it (whether they buy it from us or online), and our sales staff help educate your buyers. We bear costs for these services, so it’s impossible for us to match online prices of your product. To be fair to us, we require a wholesale price that is 10% less than what you are offering web retailers.”

Retail Leverage Takeaways:

Let’s be realistic – the PSE already exists in many different forms.  Different classes of trade have different margin requirements already, and that is just the cost of entry.  Start layering on paying for circular ads, end caps, slotting fees, in-store tv, staff training / access to staff – it adds up.  What Rafi’s “Physical Store Equalizer” is attempting to capture is payment for the advertising effect some retailers provide, even if the customer purchases elsewhere.

And you know what – participating in these extra “advertising” opportunities is one way to gain retail leverage.  Not to mention that many may be truly advertising and come out of a different budget.  I’m not sure what scorecard they keep internally at retailers but it surely doesn’t hurt your buyer if you belly up to the bar on some of the extra opportunities they ask you to participate in.

However that doesn’t get around the central proposal Rafi made, which is to survive, brick and mortar retailers should be asking for/receiving extra margin, above and beyond whatever has been built into the system today.  An overlay if you will.  While I firmly believe all brick and mortar retailers will be increasing their margin demands (maybe with a copy of Rafi’s article attached), I don’t think all will see equal results.  Increasingly manufacturers are going to have to make tougher choices about where & what they sell.  If you don’t know where your retail bread is buttered you’d better figure out quick.

If you’ve got a big brick & mortar business but have little leverage, you may have tough choices to make in terms of what & where you sell online – from amazon.com to your own direct site.  I know – it’s tough – the whole Internet thing isn’t going away anytime soon.  Or you have to be prepared to sweeten your offering to brick & mortar retailers – from exclusive or protected lines/items, to better terms, to more money for in-store marketing/advertising.

And without getting into all the legal pricing issues, there is always a number you can get to that will justify a business case – offer x retailer increased margin with expectation of a y increase in business (from retailer steering more business your direction).

What Do You Think?

Put up or shut up?  We’d love your perspective on this situation, whether you are from the brand, retailer or agency side of the aisle.  Please share your comments in the section below, or share with us on twitter @retailleverage .

Related Reading:

• WTN: Retail business model innovation prediction easier than Super Bowl bet
• WSJ: Phone Wielding Shoppers Strike Fear Into Retailers

By Ben Smith

The term “Couch Potato” has made it into pop culture, with its own wikipedia listing.  So when my friend Doug Garnett mentioned a concept he kept coming back to when describing dud products at retail, “Shelf Potatos”, I knew exactly what he was talking about, and I figure that anybody who is reading this retail oriented blog can start to get the picture.  Here is the concept, in Doug’s own words:

For years I’ve written about a type of retail product that my agency calls a “shelf potato“. It’s a well loved product — loved by the manufacturer, loved by the retail buyer who brought it in, and loved by the consumers who buy it. Except, the product mostly lounges on the shelf instead of rushing out the door.

It doesn’t need to be this way. Communication can bring shelf potatoes alive – especially communication with direct response television. (That’s DRTV – short-form and long form.)

There are many important examples of shelf potato success. Grills identical to the Foreman grill sat on shelves for nearly 20 years before that infomercial brought them to life. The Drill Doctor drill bit sharpener was languishing on retail shelves until our half hour made them into a superstar and a brand. The Kreg Jig sold well to cabinet shops, but came alive at retail once a half hour infomercial showed homeowners what they could do with it.

For more, read my article with tips for finding those shelf potatoes that communication can bring alive. The article was published by Home Channel News on May 5, 2010 as part of their Hardware Show Daily at the National Hardware Show.

Maybe your shelf potatoes can come to life if you put them on the right program for retail fitness.

What do Shelf Potatos have to do with Retail Leverage?  Well if you’ve had experience with Shelf Potatos, you know that they are enemies of gaining leverage at Retail.  They can stop you in your tracks, or set you back to square one, all the while sucking time and resources away from your primary mission, which is to drive growth for retailers and improve your standing at retail.

From time to time, I will syndicate content from The Shelf Potato Blog.  I think you will find it to be retail infotainment!  Let’s be realistic – if you are reading a retail blog, you think about what makes some products fail and some products succeed.  If we can save one spud from being a dud, then it was all worth it.

By Ben Smith

So I thought I had  come up with this revelation, but apparently I’m not the only one.  The good news is that as you read this you’ll likely realize you’ve had the same thoughts too.  Type A personalities might want to stop reading now.

We are in the age of “Good Enough”.

Wired magazine called it “The Good Enough Revolution - When Cheap and Simple Is Just Fine”.

They lead with the example of how in camcorders, the fancy expensive football size gave way to Flip’s pocket sized basic video camera with built-in USB.  The ability to easily upload & share short video clips proved “good enough”.  Of course Flip can’t be feeling too cocky.  One day they’ll be the victim of “Good Enough”.  See the next few examples I’ve supplied and you can probably imagine why …

Cameras (10 years ago)- Film and even one-time use cameras gave way to at the time inferior picture quality point&shoot digital cameras.  The instant gratification of the LCD made the lower quality pictures “good enough”.

Digital Cameras (today) – Sure your digital cameras can take 14 megapixel pictures.  But your mobile phone’s camera – especially starting this year with next generation, led by Iphone 4, for many people it takes good enough (and getting better) pictures and is already connected to the internet.  This seems easily repeatable for video also.

TV’s – do you remember people in the early days of Plasma & LCD’s telling you how your Tube TV had a better picture.  Who cares – I just gained 2 feet deep of space in my living room, and by the way, it doesn’t take 3 guys under the age of 30 to move it around.

Consumer Package Goods- This one is scary because we’ve all thought about buying Private Label products before – the recession just gave enough of us a nudge to try them that they gained critical mass.  Not only does the cereal not cut the roof of your mouth anymore (or you’ve decided the pain is worth the $ gain), but private label in many cases has thrown the price/value equation out of whack.  Private label brands have in their arsenal shiny new packaging, quality that is the same or in some cases better, and ability to price at parity or significantly lower if need be.  Line 2 or 3 weapons up and you have a killer proposition.

Retailers – okay warehouse clubs and Walmart already fit the “good enough” mold for some people who held their noses to make it through a trip for the savings.  But dollar/discount stores – that’s a whole ‘nother story.  See my recent article about why marketers should re-examine their biases against retailers like Dollar General and Big Lots.

Implications To Our World Of Selling Stuff:

Your Value Proposition To Consumers: Can your products take advantage of the “good enough” revolution?  Or are you vulnerable?  How can you reformulate / repackage / reposition what you are already doing to address this?

How You Build Programs To Communicate & Go To Market: For starters, coming up with original ideas and programs is just as valuable if not more than perfecting something.  Yes, I know I am veering dangerously close to 80/20 rule territory, but if that helps drive the point home – so be it.  The armchair marketers in all of us tend to gravitate towards the imperfections in other people’s original work / ideas.  I’m not saying throw the kitchen sink out there, but rather re-frame your expectations.  You might find something that resonates.  Very little in life is one shot only.  If it is “good enough” you will get a chance to refine it.  That is a conundrum in itself – but don’t refine it to perfection – just refine it until it is “Better Enough” – or as the chart that I borrowed from Mr. Scott W. Ambler suggests, is “Just Barely Good Enough”.

What Trumps “Good Enough”?

Not an exhaustive list by far, and I welcome your suggested additions:

• Connectivity.  Everybody wants it – but not every company can offer it.  Those who can are well positioned.  Anything related to mobile phones and convergence.
• Anything that deals with your health or well being and/or safety.  Well except for Universal Healthcare – maybe –  that depends on the government’s definition of “Good Enough”.  And I’m still trying to decide what Toyota’s definition of Good Enough is.

Related Reading / Resources:

• 2009 Wired Magazine Article on “Good Enough” Revolution
• Content about “Agile Modeling” by Scott W. Ambler that coins the phrase “Just Barely Good Enough”, and while written for something technical, is just as applicable to marketing.
• I wanted to credit the header image I am linking to as originating from Scott W. Ambler.

By Vincent Young

As long as I can remember, only two brands of toothpaste have mattered – Crest and Colgate. I use Crest. Why do I use Crest, you ask? Because, as a very young child, our family dentist used Crest during my annual check-up and he then gave it a tacit recommendation that we should be using it too when he gave me a sample tube of Crest (along with floss and a new toothbrush). From that moment on, my Mother would look for the Crest brand of toothpaste for our family to use.

When a brand is either directly or indirectly specified as “appropriate for optimal effectiveness” by an expert or by a complimentary good, then your brand’s ability to wield assortment, pricing, and promotional power at retail increase significantly.  Sounds like a recipe for Retail Leverage (or inoculation against private label).

So how do you protect yourself and build Retail Leverage?

BUILD A SHIELD THROUGH PRODUCT SPECIFICATION:

Leveraging the power of specification should be seriously considered as a part of the product commercialization strategy of all national brands, if retail is your path-to-market of choice. Rather than setting aside monies for “launch” efforts that are anchored by the traditional advertising campaign or national consumer promotions, it may make sense to plow those same funds into sampling, co-packing, or buying favor with key sources of product specification that can be leveraged with retail to support your desired assortment or positioning strategy. If your budgets are tight, then seriously consider barter or putting free product samples in the hands of key, relevant specifiers as a way to establish your brand as a “call brand” prior to entering the world of retail.

While there are many ways to approach product specification as a means to gaining leverage at retail, there are three sources of product specification that seem to give brands the greatest advantage at retail.

THREE SOURCES OF PRODUCT SPECIFICATION:

Product Specification Source #1 – Schools: When the school specifies “Elmer’s Glue” on its school supplies list, then we, as usually very logical parents, would never consider buying any other brand of something as generic as glue. The power that Elmer’s has at retail to minimize the threat of retail substitutes or private label is greatly enhanced by being specified on most elementary school supply lists. If your product is one that participates in a category that is relevant to teachers of students, then you should devise a strategy to become a specified brand by schools before approaching retail with your next new product or line extension.

Product Specification Source #2 – Physicians/Veterinarians: In addition to the aforementioned example of toothpaste, consider the power that various dog food brands and contact lens solutions providers have at retail given their sampling and specification footprint with the medical professional industry. Brands ranging from Science Diet and Eukanuba Dog Foods to Ciba-Vision and Johnson and Johnson have a tremendous advantage at retail given the reluctance of most consumers to switch away from the brand recommended by their trusted medical experts.

Product Specification Source #3 – Complimentary Goods further Up the Value Chain: One of the best examples of product specification as a form of retail leverage is represented by Avery Dennison. At its peak, Avery commanded as high as 88% market share in the “inkjet and laser labels” category at retail. In addition to offering a broad variety of relatively easy-to-use products (identified by name and template number), the Avery brand name and its label templates were pre-specified in the “Labels and Envelopes” function within Microsoft Office software. Avery’s product and brand specification model through its integration with Microsoft makes Avery Dennison virtually untouchable at retail As a result, Avery has long maintained its position as the dominant brand of labels within the mass, office supplies, and education channels.

RETAIL LEVERAGE TAKEAWAYS:

The next time your new product approaches the commercialization phase of product launch, it may be worth your while to gather your team together to create a “specifier’s map” as part of your brand’s go-to-market strategy/plan. Determining a path to becoming specified by credible sources of influence may be far more important than optimizing the traditional media mix or even securing a celebrity endorsement when selling through retail.

By Ben Smith

In physics, momentum defined as the product of the mass and velocity of an object (p = mv).  In life, momentum is when things are going good and keep on getting better.  In sports, when teams go on a winning streak, it is often referred to as “The Big Mo”.  However you define it – once you’ve got it, you want to keep it.  And when you lose it, you may have to work twice as hard to regain it – if you are ever lucky enough to get momentum again.

WHAT IS RETAIL MOMENTUM?

Now look at momentum from a retail perspective.  Here at Retail Leverage, we’re defining Retail Momentum as when your sales velocity reaches critical mass. The definition works at all levels – it can occur in a single store, category, retailer, channel, or the entire market.  Of course getting your sales to a high level and sustaining them is easier said than done.

This is probably a good time to tell you this article isn’t about how to achieve a high level of sales and gain momentum.  It’s about understanding Retail Momentum and ideas to keep from losing momentum.

Note – this article is written through the lens of a consumer electronics marketer, and it proudly reflects the scars of insanely short lifecycles, ridiculous promotions, merciless partners, and painful paths to profit.  I think the concepts shared and ideas we are trying to generate will apply across multiple consumer segments, but I wanted you to know where they came from.

RETAIL MOMENTUM – USE IT OR LOSE IT:

Frankly at some point everybody and every brand has their moment in the sun.  There are enough levers you can pull that it is possible to get virtually any product to a high level of sales for a period of time.  That’s not the problem.  It’s not about being #1, it’s about sustaining it.  Well – that doesn’t tell the whole story.  So far everything I’ve said is from the brand perspective.  Me Me Me.  Us Us Us.  Here at Retail Leverage we continually argue that selling at retail is not about your own product or brand – it’s ultimately all about the retailer.  Them Them Them.

So what is the key thing you need to understand?

Your products are ultimately a profit delivery mechanism for the retailer. The sooner you recognize it, the better.  You are feeding a beast.  If you don’t feed the beast, somebody else will.  If you are feeding the beast successfully, and the beast wants more – you have to find a way to keep feeding it.  Even in the short term, you can gain Retail Leverage by helping the retailer become somewhat dependent on you.  As long as you keep feeding the beast.  As long as you keep the momentum.

If you could give some retail truth serum to a veteran of retail sales or marketing, I expect you’d be able to get an admission that one of their biggest regrets revolves around when whatever they were selling had momentum, but due to certain actions (or lack of) they lost that momentum.  Just for the sake of honesty, to get you to open up, I’ll admit that I’ve got my own personal list of 4 or 5 times where what I was selling/marketing had momentum and let it slip away.  I’m not sharing the specifics here because the who what when where aren’t important, but recognizing past failures is important to making sure you don’t repeat those same mistakes.  I’m pretty sure I’m not the only one reading this – I’m sure you can easily identify similar situations in your own retail life.

IDEAS TO KEEP (OR NOT LOSE) MOMENTUM AT RETAIL:

The 4P’s are as good of a place as any to start.  Here’s the list, with some background on each.

1. Keep exact PRODUCT alive as long as possible.
2. Keep your PRICING and PROMOTION consistent.
3. Keep in PLACE support for your existing distribution.

Keep exact PRODUCT alive as long as possible.

Imagine a product that has finally broken through at retail.  You got close with several previous products, but this time you have set your world on fire.  The stores can’t get seem to get enough, customers come in asking for it, and the store staff describe it with that classic line “it sells itself”.  So why would you want to stop a good thing?  Do you blindly follow the product roadmap (designed long before your product hit the shelves and then flew off them)?  If you still have the ability to keep the manufacturing lines going – do so.

You will likely know what you have on your hands well in advance of any critical decisions such as with manufacturing or retail resets.  Don’t you hate it when the old adage “a bird in the hand is worth two in the bush” is true.  In this case it can be.  The roadmap wouldn’t matter if the replacement was going to be late anyway, which is proof enough that you can try keeping the existing product going longer than initially planned.

Keep your PRICING and PROMOTION consistent.

Have you ever been in a car where the driver speeds up, then slams on the brakes. Speeds up again.  Slams the brakes again.  Or even worse, when the driver gets upset, they pull over to the side of the road, yank the keys out and throw them on the dash.  Now imagine this in retail terms.  If you use promotions to drive sales, and that is what has gotten you to the promised land where you have Retail Momentum, it doesn’t make sense to immediately turn them off.  Nothing leaves a buyer’s head spinning faster than the brand who used to come in slinging guns and then puts their hands up.  The buyer doesn’t care why you do what you do, as long as you do it and are consistent.  More to the point – the buyer doesn’t care if your pricing and promotions aren’t sustainable as long as you are driving sales for them.

Keep in PLACE support for your existing distribution.

Now is not the time to get greedy.  If you’ve ever heard the term “dance with the one who brought you”, think about that in retail terms.  So you’ve got this great product/brand that everybody wants a piece of.  That’s a great problem to have.  But remember where you came from and who got you there.  Focus on keeping the existing beast fed before you start to open up new retailers / channels.  Proceed with caution.  The less track record you have, the more important this ideas is.  I always wonder what is more memorable in a buyer’s mind – if your product sells but you supported them well; or if your product was hot but you always disappointed them with out of stocks, missed shipments.  Buyers have long memories, and they move around often.  So even if it might not come back to bite you in your current position, it could in the future.

CALL TO ACTION: SHARE YOUR IDEAS TO KEEP MOMENTUM AT RETAIL:

I got the conversation started, but since we’ve been so honest throughout this article, I kept it pretty basic.  The 4P’s are great for Marketing 101, but there are nuances to every category and segment of retail that you can’t wrap up with a pretty bow.  So I challenge our readers to share their ideas on how to keep momentum at retail.  I’ll compile the ideas I get via comments, tweets, and email and update this article in a few days.

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