Lately, we’ve had several family businesses call Meridian to get our opinion on de-branding as a strategic maneuver to lower their cost and boost gross margins. How much of a premium a customer will pay for a specific brand remains the driving question with no concrete answer.
The most astute business owners are aware of a shift in consumer demand. With the proliferation of big box discount stores, consumers are gravitating toward generics. So the thinking goes, If consumers don’t care who makes their laundry detergent, will they care who makes their gasoline or tires or garden tools? As you can imagine, this shift in consumer behavior towards generics is being fought vigorously by traditional, major brand ad campaigns.
When family businesses consider dumping their major brand(s) and going generic, there are vital issues that need to be confronted:
• Rebates—any recent conversions that received branding support likely have payback clauses in the contract. The economics of the payback will likely kill any savings from going generic. If you are still in a rebate period, it might be best to sit tight.
• Imaging—even if you are beyond the rebate period, you will have signs, canopies, etc. to reimage at a cost that you must shoulder alone. Check this cost against your anticipated gross margin gain.
• Credit Cards—be sure you weigh in the credit card cost and/or gain into your decision. There are good processors, but you may encounter unanticipated equipment and/or set-up charges.
• House Brand—if your company has the volume and stature, you may want to consider your own house brand combined with an aggressive marketing campaign highlighting the consumer savings.
• Price Inversions—don’t forget to check historical pricing on your current major brand(s) versus the unbranded product(s) you are considering. Historically, there have been times of price inversion when businesses could buy branded product considerably cheaper than unbranded. Make sure you know the price history of the brands you are getting and leaving.
• Promotional Perks—many majors provide “freebies” integral to your business. From education to award trips to support and customer give aways, Factor the value of these benefits into your decision.
• Finally, after you’ve done all this homework, take one more step— consider supply interruptions and allocations. You need to find a way to compare reliability of supply. A cheap price on a product will do you absolutely no good if you can’t get it!
Before you make the leap to go unbranded, carefully weigh all the costs and benefits.
