How can you ensure your brand doesn’t become a commodity?

Joe Jackman witnessed it first hand at a Wal-Mart south of the border: a fleet of Hot Wheels cars thrown into a large bin marked 'Roll Back' for 88 cents each - the latter sign obscuring the in-store Hot Wheels branding.

Joe Jackman witnessed it first hand at a Wal-Mart south of the border: a fleet of Hot Wheels cars thrown into a large bin marked ‘Roll Back’ for 88 cents each – the latter sign obscuring the in-store Hot Wheels branding.

‘It was shocking to me,’ recalls Jackman, chairman and CCO of Toronto-based strategic retail creative company Perennial. ‘Here’s this wonderful high-quality brand that people love, which commands a premium price. And at the end of the day, all the brand building, advertising, product development, salesmanship and marketing have ended up in a dump bin at 88 cents. There’s a big shift going on.’

It’s a dangerous shift too, because if your brand becomes a commodity, you may as well not have a brand at all. If people won’t pay extra for it, what’s the point?

The culprits, of course, are Wal-Mart, Costco, Sam’s Club and Winners, which promise the lowest prices to customers – brands be damned.

Thus, previously premium-priced brands are now selling for much less than ever before, and for much less than you would find them on the shelves of conventional stores, says Jackman.

‘The integrity of most brands has suffered dramatically in the last 10 years,’ agrees David Howell, Toronto-based consultant with NPD and SBR International. ‘Look at Chaps and Calvin Klein at Costco. High-end brands like Fila and Jones at Winners…. While it’s a brilliant retailer, Winners has eroded integrity.

‘And the problem exists across all sectors. Telecom companies now bundle telephone, cellular and Internet and certainly there is at least a perception of savings. Even corporate jets are discounted now. Avoiding commoditization is a project,’ he says.

In the late eighties, Howell helped launch Liz Claiborne in Canada. One of the challenges even in those early days, he says, was negotiating with retailers like The Bay, which pushed its scratch-and-save program.

‘I fought with them every Monday morning to make sure that we were excluded from any benefit from the scratch and save – simply to protect the integrity of the brand,’ he says.

‘And that was the beginning of the downward spiral to such a sale/promotional frame of mind – especially for consumers, where unless they are saving 30% to 40%, they feel gypped. All retailers have had to – pardon the expression – pull their pants down to get business.’

So what’s a brand to do to protect its integrity, its image, its heritage and its margins? Some manufacturers have also adopted what Howell calls a ‘good, better and best’ retail strategy whereby they manufacture various lines for various retail segments: lower-price-point shoes, for example, are sold at Wal-Mart, while high-end models are reserved exclusively for higher-end stores or partners.

Other strategies can also include product innovation (think Swiffer Wet Jet); high-level strategic alliances with non-discount retailers and/or retailers in completely new channels (such as chocolate bars at Canadian Tire); and the development of marketing programs to create excitement in-store so that it’s about more than just price, says Jackman.

‘Nothing is going to change unless manufacturers start to do things differently,’ says Jackman. When a brand approaches a retailer with a thoughtfully constructed and compelling [merchandising] proposition, it minimizes the risk of being seen as a commodity, he adds.

Lori De Cou, spokesperson for Burnaby, B.C.-based Future Shop, cites a recent example where the chain worked with its studio partner to create in-store and in-flyer excitement around the latest Lord of the Rings release.

‘We have strong relationships with our vendors and we’ve worked hard to protect those relationships and grow them. And it works both ways – sometimes they come to us with an idea, or we lead an initiative by going to them. And all of that, as well as price point, is part of the negotiation with the vendor partners,’ she says, adding that price is impacted by several things, including buying power, the ongoing relationship, the competitive environment, and Future Shop’s low-price guarantee.

‘We pride ourselves on our ability to offer a broad selection of brand name products at a competitive price point. That being said, it is imperative that we show the utmost respect to each of those brands,’ says De Cou.

We asked our own panelists to weigh in with their thoughts on how brands should avoid the commoditization conundrum.

Robert Fisher, professor of marketing, Richard Ivey School of Business, University of Western Ontario, London, Ont.

The problem that all the manufacturers run into is that [discount retailers] increase price competition in retail channels that traditionally have higher prices, but more services.

My dad, an independent pharmacist, is an example of this. He carries various brands of cameras, and will show the customer the features and how to use it, tell them about the warranty, and answer their questions. Then for $10 or $20 less, they will go down the block and buy it from Costco. But when they have a problem with it, they come back to my father. Dad has dropped a lot of product lines because they don’t pay.

People go to Costco because they get products at lower prices – despite the fact that it’s an average of 10 miles away (in the U.S., at least), it’s got concrete floors, it’s got no service, it’s got minimum product assortment, and you have to buy in gigantic quantities.

The other side of it is that Costco and Sam’s Club are not brand loyal – each quarter, or month, or year, they go to a different, or selected list of manufacturers for a clock radio – they find the best value, at the lowest price with the most features. Just because it was Sanyo last week, doesn’t mean it will be them next week.

So the consumer doesn’t see Costco as a Panasonic dealer, they see it as a low-price retailer. When you see multiple brands and you see a lot of the best brands of the marketplace in there, the [negative] impact of being in there three out of twelve months of the year is probably not severe. If you were in there all of the time, your [brand image] might suffer.

Wendy Evans, president, Evans and Company, Toronto

There are a number of ways to avoid commoditization.

Many large brands actually manufacture for the discount market. They’ll just put the product under a different name – it’s usually a kind of a knock off or variation so that they don’t harm the true brand.

Then there’s remaindering – for example, where you sell off the balance of the print run if it doesn’t sell. Or the remainder tables that you see in a Sears or Zellers, or gigantic book sales – you don’t like to see your product in there, but there are other ways for manufacturers to dispose of overstocks.

If it’s in the case of clothing, you take the label out of it, which is done all the time because customers really get a little ticked off when they see that Ralph Lauren coat that they paid full price for at another retailer at half price.

Of course, stores like Winners want the labels because customers buy because of the labels.

Another good way of dealing with overstock is to geographically remove it from the area where you have that brand strength – sell it in a different geography or market.

Brands should also take more pains to ensure that overruns [at the retailer end] are being dealt with in a responsible way by the [retailers].

Brands have to stay on top of their relationships.

Robert Levy, managing director, BrandSpark International, Toronto

In areas that have been commoditized in the consumer’s mind, many brands still do very well: Vector has a place in the crowded cereal market, and ING does very well in the banking market. It’s about having and using consumer insight. You have to be strategic in getting to the consumer insights. That can be difficult because it can be a challenge to build consensus and get a focus.

And it doesn’t have to be a new idea. I made a list of branding tenets and ways to avoid becoming a commodity; while many seem to be common sense, they really aren’t [adopted by] many brands: stand for a benefit, not a feature; stand for something in people’s minds; stand for something that no one else does; be targeted; but try not to be exclusionary; don’t confuse the customer.

Product innovation is good, but not all change is innovation: Avis (‘We try harder’) and L’Oréal (‘Because you’re worth it’) have stayed true to their positioning for over 20 years, while each company (and its products) have evolved. So don’t change for the sake of newness – you’ve earned that positioning, don’t walk away from it.

Let’s face it: Winners and Wal-Mart are smart retailers. And just because Wal-Mart is a discount brand, my sense is that it is still perceived as a quality-strong brand among consumers. If consumers believe that, then being associated with Wal-Mart could be fantastic. Obviously how it ends up being merchandised makes a big difference. But ultimately, if people are used to brands being in a discount environment or if it’s a one-time deal, they might still consider it a great brand, and are actually happy sometimes to get a great deal on it – it increases the value.