128. Brand Power-Shift To Your Service-Value Solutions

Invasion of Better Clone SKUs for Less

Retail “hard discounters” (HDs: Aldi, Lidl and Trader Joe’s) and Amazon have attacked B2C factory brands in the past 18 months. In 2017, the HDs announced big expansion plans for the US, while Amazon ramped up their B2C private-label-clone SKUs. Then, in October (’18), AMZ quietly announced their “brand accelerator program”. Prediction: this program will spark the creation of new B2B clone products on Amazon.

The Clone Formula: Equal or Better Quality For 50% Less

The HDs’ business model includes:

  1. Stocking only 5% of the SKUs found in grocery stores
  2. Private-labeling 90% of them.
  3. Insuring quality (that consumers rate) equal or better than #1 brand SKUs.
  4. Prices at 50% less.For much more on this, get the must-read book: “Retail Disruptors” by Steenkamp

Amazon follows the same formula with additional killer advantages.

  1. When we search for a generic product, new brands dynamically and precisely appear. With 5-star reviews and (50% off) price-savings, we buy them (then repeatedly). Example: Amazon battery sales grew over 90% this past year and now are 93% of all battery sales on AMZ.
  2. With unlimited cyber-shelf space at AMZ, startups can use AMZ’s evolving, global factory-to-doorstep, cloud-channel services to clone one SKU at a time.
  3. No need for a full-line, best channel-partners, or slow and expensive pushing of product news through distributors to unknown end-users.

What’s happening? Next-generation, B2B customers (aka Millennials) are being taught to buy the HD’s and AMZ’s Total-Value Brand rather than the specific, factory-SKU brands.

How Can 50%-Off Be Profitable?

The steep discounts are possible, because of the disruptors’ better business models. AND, full-line channel players over-price their best-selling SKUs. Excess profits on “vanilla” pay for the same-price-per-unit, long-tail SKUs. Vanilla SKUs will be targeted by killer clones.

Action Steps?

  1. Buy Retail Disruptors by Steenkamp. The author explains the underlying economics of HD’s business model. Then, he offers four counter-strategies for both brand managers as well as channel resellers.
  2. For distributors selling commodity brands, create and sell better service value solutions for the most (potentially) net-profitable customers within your account base. Your guaranteed, customer-tuned, service-metrics must become your new brand.

How? Request a free copy of my Core Renewal Roadmap (bruce@merrifield.com).  Have your Management Team read it and debate the concerns. Identify and improve the data-free beliefs that say – “NO WAY” – to my recipes. Or, watch your most-net-profitable, old-brand SKUs get creamed.

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