The difference between a brand and a commodity is loyalty. There are folks who know that the Samsung may do more than the iPhone, but they are loyal to the iPhone. It’s their brand and no matter if it costs more or does less, if it’s not an iPhone, they won’t buy it.
There are very good reasons why most packaged consumer products are branded with the producers’ brand rather than the retailers’ brand: they can’t be held ransom by a retailer; the brand is known outside of any one particular retailer; it’s already in demand and has a loyal following. The loyalty to the brand is generally stronger than the loyalty to the retailer. Consumers can demand that their retailer carries “their” brand, or threaten to take their business elsewhere. Retailers know this and have to carry popular brands at competitive prices to attract and keep those brand fans in their stores.
Retailers, on the other hand, feel they are held hostage by the name brands. They want to make more on the commodities that name brands represent by selling generic products or their own house brands (also known as control brands, own brands, and store brands). Then they can underprice the name brands and attract consumers looking to save a few bucks. They often compare their house brands to the name brand as if to say, “Why spend more for the same commodity?”
This retailers’ tactic actually works with certain customers who value the price more than the brand promise or the perceived value of a name brand in the same category. It works with customers who don’t shop anywhere else and don’t know that the house brand in their store is not found anywhere else. It also works on certain commodities better than others. Fresh veggies are less likely to be branded. Certain toiletry and drug items seem to be more susceptible to brand erosion by lower-priced house brands. Many hardware items tend to be generic or house brands.
But who makes these house brands anyway? Surprisingly, in many cases it’s the name brand producers themselves. For short-term financial reasons, or ignorance of the consequences, many brand builders fall into this trap. Tempted by large purchase orders, they label their commodities with a retailer’s house brand. They quickly become dependent on those big, regular checks. Then they are surprised when their retail customer shops their price to other producers and forces them to lower their prices – or be discontinued. And the price squeeze is on!
And therein lies the lesson. Don’t be a supplier for a house brand. Don’t sell commodities. You will get into a price race for the bottom just to save your business. Be a brand builder and commit yourself to the more challenging task of building a following. Master distribution so you will be available at many retailers and won’t be held captive by one retailer. And over deliver on your brand promise. That is how a brand is built.
Brands are worth more than the commodities they represent. Your customers will be more loyal to your brand than to the commodity, or the retailer from whom they bought it. A name brand with a loyal following is worth a lot more to an acquirer than a commodity producer selling a house brand to a retailer. For your brand’s security, brand equity and customer loyalty, you must be a brand builder, not a just a commodity producer of a house brand.
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders