IPLC Obervatory Is it possible to build an alley between industrial brands and pl products?

IS IT POSSIBLE TO BUILD AN ALLEY BETWEEN industrial

BRANDS AND Pl products?

Innovation, competition and cooperation, today, are essential keywords for profitable relationships between manufacturers, distributors and other companies of the supply chain. The companies of the supply chain in which my company operates are counterparts to steal the highest value from, or are potential partners, instead, to create new values with?

These are hard times for managers that don’t have the right skills to develop valuable relationships: listening, empathy and openness to dialogue are determinant soft skills that can generate unexpected and lasting results for the companies (and the people) involved. Who has more bargaining power? Who needs whom the most in the supply chain? In addition, retailers built tangible or intangible supply to excel in "inter store competition": the category supply, of PL, of service - these are the main factors to be unique and valuable - is designed based on the target customer profile.

Manufacturers’ brands, both tangible and intangible, try to be the favourite ones in the shelf competition, to win the "inter store competition". In fact, sales points - where the customers take more than 70% of their purchase decisions - are the ‘media’ to which the most part of the investments of communication and promotion from manufacturers are dedicated (in Italy, according to Nielsen data before the pandemic, accounted for approximately 7 billions per year). These two brief, but true, statements have different meanings: we faced situation in which the complementarity among formats of sales points generated long lasting alleys, for example, discounters situated next to supermarkets, which sometimes shared the car park or specialized selling points next to superstores or hypermarkets (category killers), frequently had ‘symbiotic’ relationships with mutual benefits. However the category, the strategic business unit of retailers and often also of producers, is the most fertile ground to convey interests and cooperate, by working together and complementary with the marketing leverages and retail mix. Here, there’s a non-isolated example of collaboration between brand manufacturers and retailers in an important sector, briefly described in the following ‘virtuous circle’:

a. The manufacturer develops and innovates products that markets with its own brand, investing in communication and obtaining the access to the shelf in a partner retail with its PL products. b. When innovation decreases and sales generate return on investments (of the manufacturer for innovation and the retailer for the place occupied), the same product, possibly designed by the same brand manufacturer, enters the retailer’s PL product supply, developing sales (objective of the retail that generates continuity in production volumes for the producer). c. Meanwhile, the manufacturer R&D and Marketing worked on innovations/news, to redirect the attention of shoppers and consumers towards their brand, attracting in this way sales to the category.

KPI (Key Performance Indicators) - such as, for example, for retailers: rotation, reddivity of the place, category and PL margins, and for manufacturers: brand product sales and margins and PL product margins realized by the same manufacturer - can show the win-win effect of this process, generating the repetition of more cycles with a+b+c phases. However, not all the industries have company profiles (and managers) able to organize collaboration cycles like this and especially in those categories without, or with few and weak industrial brands, retailers play an essential role and, for this reason, sometimes have difficulties. Without leading manufacturers or ‘category captains’, or in categories in which PL is leader, who plays the role of product innovator? The retailer? The manufacturing contractor? And if it’s this last, will the retailer be available to invest in innovation, assuring a contract until, at least, the return of the investment of the manufacturer? In this case, especially for categories with high involvement of the consumer and with weak industrial brands, the performances of all the players of the category risk to drop, unless ever increasing vertical competition creates and involves interesting profiles for the consumer that take up the challenge set by the retailers to innovate relevant aspects for the consumer, for a PL that definitely eliminates the ‘ME TOO’ approach and adopts the ‘ME FIRST’ approach instead.l

Paolo Palomba, Expertise on Field Managing Partner/IPLC Italy Partner