The 20th century was a century of brands. The distribution channels were badly fragmented, mostly mom-and-pop stores, and had little choice but to follow the frequently coercive mandates of brand owners. The manufacturing brands were working in a context where the media was consolidated and the channels of distribution fragmented.

Today, distribution channels have consolidated while the media has fragmented. Audience are deserting television for gaming, mobile phones and the Internet. Even if they are in front of the TV, there are 500 channels to choose from. With media audience completely fragmented, it is both hard and expensive to reach out to a mass audience. At the same time, the distribution channel has consolidated. Today, 10-12 major retailers can account for 40-50% of manufacturer's global sales. So they have enormous negotiating power and leverage. The size and dominance of retailers, combined with media fragmentation, means that large retailers have become the mass channel for communicating with the customer. One of the most trusted names in the US is Wal-Mart. One of the most trusted names in the UK is Tesco. It is not as if retailers have no brand value.

There are many inherent advantages for the retailers. They can share daily data of what sells, store by store, with their suppliers. Thus, the logistics can be lowered without carrying lots of inventory. They do not need to advertise and market their products. So they save, say, 10-15% of the sales value there. Then, they don't need a sales force. So may be they save another 5%. They don't do any research and development, so you add another 5%. Suddenly, you have a 20-25% cost advantage over packaged consumer goods companies.

As consumers start comparing the significant cost differentials between manufacture brands and private labels with relatively small, if any, gap in quality, they begin to switch loyalty. What do you do when the retailers say, "We don't want the brand?" Even brand sympathetic retailers like Wal-Mart and Tesco do not need more than two or three brands in a category. If your brand is not No.1 or No.2 in a product category, it is going to be very tough. In most of the FMCG categories, the retailer's mantra is that it stocks the brand leader, No. 2 and its own private label.

In the new retail order, consumer reports and other independent companies objectively rate your products against other products. They are commoditizing the products. To tell the truth, the main challenge for brand owners is to change their mentality. Brand owners cannot tide over the current crisis in branding by simply deploying newer frameworks. The only way to keep ahead of the retailer is to continuously innovate and get to the next product because there is a six-month window before the retailers copy it.

Concluded.

* Contributed by -
Devanshu Darmora (Campus Associate),
Student of Post Graduate Programme in Management,
International School of Management Excellence, Chennai.