Retail hard discounters (HDs), such as 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 U.S., while Amazon ramped up its B2C private-label-clone SKUs. Then, in October 2018, Amazon quietly announced its “brand accelerator program.” I predict this program will spark the creation of new B2B clone products on Amazon.
THE CLONE FORMULA
The HDs’ business model includes:
- Stocking only 5 percent of the SKUs found in grocery stores;
- Private-labeling 90 percent of them;
- Insuring quality (that consumers rate) equal or better than No. 1 brand SKUs;
- Prices at 50 percent less. For much more on this, get the must-read book: “Retail Disruptors” by Jan-Benedict Steenkamp; and
- Amazon follows the same formula with additional killer advantages.
When we search for a generic product, new brands dynamically and precisely appear. With five-star reviews and (50 percent off) price-savings, we buy them (then repeatedly). Example: Amazon battery sales grew more than 90 percent this past year and now constitute 93 percent of all battery sales on Amazon.
With unlimited cyber-shelf space at Amazon, start-ups can use Amazon’s evolving, global, factory-to-doorstep, cloud-channel services to clone one SKU at a time.
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 Amazon’s total-value brand rather than the specific, factory-SKU brands.
CAN 50% OFF BE PROFITABLE?
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.
In “Retail Disruptors,” Steenkamp explains the underlying economics of an HD’s business model. Then, he offers four counter strategies for both brand managers as well as channel resellers.
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 (firstname.lastname@example.org). 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.
Publication date: 01/11/19