Brand Compression---How Many Choices Do You Really Need?

The ongoing battle between manufacturers and retailers seems to be tilting more to the stores.
• Costco announced they will no longer carry Coca Cola in their stores.
• CVS/Caremark will get rid of most Energizer Alkaline batteries.
• Wal*Mart will add hundreds of products under their Great Value name.

What does that mean for consumers and for brands? In the down economy, not only are people downsizing their buying habits but retailers are squeezing their assortments.

While we all have favorites, most of us have a short list of acceptable brands in every category. There are (almost) none that we would die for. I asked a group ten men if there were any brands that they would absolutely positively accept no substitutes for. One said Trader Joe’s Peanut Butter. Another said Mercedes Benz. The rest said no.

I would have thought that Coke buyers would rather drink warm milk than be forced to swallow Pepsi. Maybe Costco will prove otherwise. Energizer vs. Duracell? I wouldn’t know or care. Wal*Mart butter? Probably OK. Wal*Mart cologne, no way.

Here’s what three groups might think about:

1. Retailers. I think it would wise for them to get rid of the fifth or sixth brand in many categories. There would be less stock keeping units to manage and their shelves would be simpler and easier to shop. People demand alternatives, but studies show that displays of three or four choices sell more than five or more.

The key word here is choice. I was the head of the private label program at Target Stores. If a buyer wanted to add a private label brand in his category he had to demonstrate that it would add an important dimension (usually price). Our policy was that our product had to at least as good as the leading brand, and we had an independent testing lab for verification. I can tell you that is virtually impossible to do. There was high pressure to cut a little on quality so that we could also offer a better price.

Private labels are stronger in Europe than here, and I’m not sure why. But there is a danger that a store goes too far. Remember when Sears mostly sold the Sears brands? They almost went out of business until they added manufacturers’ brands. The same happened with Radio Shack, but they are prospering with wide assortments. The Target brand accounted for less than five percent of their sales.

2. Manufacturers. They are losing clout. More than 80% of their new products or line extensions are doomed. You have to pay serious money to stores to get them to stock your brainchild. And you are out the door quickly if you can’t cut it. And as I said above, if you aren’t one of the top brands you are in jeopardy.

The secret of branding has always been to “own” some unique, important benefit. Maybe not so strong that people would die for it, but so in demand that the stores would hesitate to bury it. Maybe it identifies with the role it could play in the user’s life. Maybe it would participate with new social media.

3. Consumers. They are the winners if they are smart. They will have sharper choices and a more pleasant shopping experience. The advertising they are forced to look at will be more focused and less frivolous. They will get better deals and better products.

After the economy rights itself I would predict that these trends will continue, and that’s good. Some new problem and its solution will no doubt replace it. Stay tuned----

George Lemmond