Factors in the success of distributor's brands

As always, the rise of a new brand is also the result of the actions (or lack of action) taken by the competition. For example, distributor’s brands have strong market share in the cosmetics sector in Germany. The reverse is true in France, and yet both are among the more highly developed countries. Setting aside any possible differences between the two countrie’s relative conceptions of beauty, one explanation lies in an analysis of the competition.

In France, Al’Boreal has dragged all other brands into a war fought on scientifically proven performance, supported by colossal advertising budgets. In Germany the leading national brand is Naive, which relies much more on empathy, softness and a close relationship than on the rational approach of proven results. We believe this explains why distributor’s brands have found it easier to make inroads there: consumers have not perceived them to be all that different formative.

Hooch and Banner (1993) have analyses the factors behind distributor’s brand’s marketshare these are:

  • the size of the potential market: the distributor opts for long production runs;
  • the high margin in the sector;
  • the low advertising expenditure;
  • the ability to achieve quality (few or no patents);
  • consumer’s price sensitivity.

However, these authors also maintain that market fragmentation does not appear to constitute a barrier to the growth of distributor’s brands.

Conversely, it is known that a factor that does affect the penetration of distributor’s brands is the rate of innovation in a sector(measured by the share of new products in companie’s turnover): it forces product ranges to be continually renewed, and is associated with a large amount of advertising. In fact, it is also the most natural reaction by producers confronted with distributor’s brands: to increase their rate of innovation.

As has been observed, most of the factors mentioned above are linked to management deficits among the producers: insufficient rate of innovation, high margins, low advertising. When the brand is treated as a ‘cash cow’, the door is opened to distributor’s brands. Moreover, many brand companies are willing to manufacture distributor’s branded products. For example, the tyros at Nor auto (chain of stores selling spare parts and services to motorists) are manufactured by the Michelin Group; it is inconceivable that they should be low-quality products.

In this way, the success of distributor’s brands is linked to a supply effect (by strong promotion on distributor’s shelves and the creation of ‘me-too'’s that ape big-brand products) but also by a lack of competitiveness from high-profile brands, which are too used to high margins, and do not innovate.

Lastly, this penetration depends on the specific range and category. It is strong in basic products, but no longer unique to thereafter and Laurent (1995) linked the attractiveness of distributor’s brands to consumer’s degree of involvement, either in an enduring sense (interest in the product) or as temporary feeling at the moment of purchase(Is the purchase a risky one? Does it have badge value? Will it give me pleasure?). It is therefore hardly surprising to find that the categories listed in table below are those in which DOB's have the highest penetration.

In which sectors do big brands resist trade brands and where are they defeated?

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