First, know that I don’t have an ‘I-told-you-so’ bone in my body. But the November 2004 issue of this magazine carried a column I authored detailing concerns with China as the end-all solution for our supposedly price sensitive heavy-truck parts market.
Most of the problematic scenario I painted then recently has come true. Quality concerns, shifting currency valuations, exploding longshoreman wage demands, evaporating government rebate support and environmental issues have lined up as a perfect storm to rain on the Chinese parade toward world dominance in manufacturing.
Source of supply is certainly an important issue. However, there are two ways to increase results in this market: improving how you buy and improving how you sell. The latter, I believe, pays a far greater dividend and is more sustainable. After all, superior customer service can become a virtually unassailable competitive advantage.
With these observations as background, I question the value of private brands as a major weapon for heavy-duty distributors in the parts pricing war.
Our industry is not alone in facing this question. Total private-label share of U.S. retail sales is expected to hit about 22 percent by 2009 – a 50 percent increase over nine years. Wal-Mart already has achieved 40 percent of its sales on store brands, and store brands are present in 95 percent of consumer product categories.
The simple reason why private brands are succeeding is that too many name brands lack the development skills to avoid becoming unchanging commodities that can be reverse engineered – quickly, accurately and cheaply – then made and sold for a lot less, without any perceived loss of value.
Distributors and marketing groups have deployed a range of private label strategies that follow three historic patterns:
