Despite several positive trends toward better collaboration between retailers and their suppliers, there will always be a certain degree of competition for who gets the greater share of the consumer’s wallet. Each company strives to get the best margins possible while keeping prices competitive. One tactic major retailers have used to help increase their margins is to offer their own private label branded products as lower-cost alternatives to the consumer goods brands. Consumer goods manufacturers have struggled to combat these private label incursions, with varying degrees of success. Today’s consumer-controlled omni-channel shopping experience may offer consumer goods companies an unexpected alternative.
It’s always been a power struggle
The history of the world is replete with examples of one economic group struggling against another. Whether that was the landed aristocracy versus the peasants in agrarian society, the big merchants of The Netherlands and Great Britain against the third world producers of foodstuffs and raw materials in the 1600s and 1700s, the great industrialists battling both labor and retailers in the late 1800s, or manufacturers taking on mass merchants in the 20th century, the struggle has always been about economic power.
The rise of mass merchandisers, chain stores, and big-box retailers since World War II has wrestled much of the supply chain power away from consumer goods companies. This power has allowed retailers to increasingly push their private label products over name brands to increase their margins. This tactic was especially effective during the recent recession when consumers were more focused than ever on price. But economic power has shifted again.
The hyper-connected, technology-enabled consumer now holds economic power over both retailers and manufacturers. This actually levels the playing field for consumer goods companies somewhat since they now have direct access to consumers without having to always go through retailers. That is just one of the factors weighing into how the new omni-channel environment is helping consumer goods companies battle private label incursions, however. Another is a change in attitude concerning what is important to shoppers.
Why omni-channel can help consumer goods companies
One major advantage retailers have in their stores is the ability to place their private label merchandise on the shelf next to consumer goods brands with a ‘compare price’ shelf tag. That advantage disappears, however, when consumers shop through other channels. While consumers still shop for best price, the absence of a direct side-by-side comparison makes differences less obvious, especially for lower-cost items. This opens the door for another emerging trend—convenience.
While many pure-play ecommerce retailers such as Amazon got their start by offering name brand merchandise at lower cost, almost all of the current battles between online and brick-and-mortar retailers center around convenience. Whether it is same-day or next-day delivery, buy-online / pick-up in-store, or endless aisle and save-the-sale initiatives, the key ingredient is making the shopping experience more efficient and convenient for the shopper. The good news for consumer goods companies is that consumers have demonstrated a willingness to pay a slightly higher price for this convenience, negating some of the advantage of private label brands.
What may be an even bigger potential advantage for consumer goods companies in fighting private labels are the automatic replenishment options such as the Amazon buttons. The ultimate in convenience, these buttons allow shoppers to skip shopping altogether. Low on Tide—push the Tide button. Running out of Kleenex—just push the Kleenex button. Or sign up for automatic replenishment and have your desired quantities of Tide and Kleenex sent to you on a scheduled basis. And since consumers have shown they are willing to pay a little extra for this convenience, how likely do you think it is that consumers will opt for a private label button versus a Tide or a Kleenex button?
How to leverage the convenience factor
In order to leverage the convenience factor, the first thing you must do is understand the customer. This requires the latest supply chain analytics to mine the extensive amounts of consumer data (big data) to determine which products to offer at which price points through which channels and services.
Next, you need visibility to all inventory across the enterprise integrated with a distributed order management system so you can not only deliver on your customer promises, but do so as profitably as possible.
Finally, your customer analytics and order management capabilities must be integrated with your supply chain planning and execution systems to optimize inventory levels and placement, optimally plan offers, and efficiently deliver to meet customer expectations for cost and convenience.
If consumer goods companies can leverage the convenience factor inherent in omni-channel shopping and deliver to customer expectations profitably, competition from private label brands will be significantly reduced.
In his role as Director, Thought Leadership at JDA Software, Jim LeTart is responsible for developing thought leading content to support JDA’s Plan to Deliver suite of integrated retail and supply chain plan and execution solutions. Jim came to JDA in 2013 through its merger with RedPrairie, where he spent over 13 years in various marketing leadership roles. Jim has over 35 years of sales and marketing experience in the computer technology industry, and is a frequent speaker, writer and blogger on how technology can improve business processes and outcomes. Jim has an MBA from the University of Michigan and a BSME from Marquette University.