Oct 9, 2008

Branded Product Wars - Best Buy Fires Warning Shot

While branded product marketers are focusing more and more on just how their retail partners are thinking, they better pick up speed.

Originally, their interest in these retail relationships was simply an after-effect of years of acrimony and antagonism, and vicious margin-sharing wars. They focused initially on ramping up their 'key account' activity; learning more about retailers' concerns, objectives, store equity and images and how these companies go about creating bonds with shoppers.

But times are changing fast, and the window for branded product action is closing fast. As Advertising Age ominously warned a few weeks ago:

"Today's retailers are evolving far beyond their historical role as simple points of distribution for selling national brands. They have changed their approach, marketing their stores as their own brands and systematically building better, stronger relationships with shoppers.

Believing that their long-term growth is tied to shopper loyalty, retailers increasingly want to develop their own shoppers. And because it is easier to get additional shopping trips, and increased purchases per trip, from shoppers who like your store, retailers are consistently using organized, data-driven, shopper-insight approaches. Retailers are creating better touch points and shopping experiences to build stronger, more-loyal shoppers. This is largely the result of the creation of their own voices-their retail brands".

And now comes Best Buy, the latest national retail player to announce what will ultimately herald another round of branded product market share loss. The company, long focused on the tough task of improving customers' experiences, has shifted more aggressively into traditional and comfortable retail strategy territory: private label or house brand products. Apparently the company's new Blue Label house brand is a result of collaboration between Best Buy and technology companies in which Best Buy gathered insights from customers and worked with contract manufacturers to design products.

We know these type of private label programs take a massive amount of management attention, logistics investment, and product development risk. It's too early to tell if Best Buy's new House Brand development program will distract the retailer from its core mission of creating a differentiated customer experience. We certainly hope it doesn't become the slippery slope it has for others.

But in the end, it's branded product players that should take note. And it's simply inadequate to say this is a weeding out of weak players; the branded player strategy problem is too systemic for that. As their available shelf space and retailer support continues to dwindle, their opportunities for growth and differentiation head in the same direction. It's time for these players to step up and recognize that old-school marketing and distribution models are broken and require new forms of strategy and leadership.

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