Overthrowing the Product / Brand Incumbent

By Power Insights Consulting @ www.powerinsights.com

Unlike retail and foodservice channels, the warehouse clubs offer the unique opportunity for manufacturers to obtain product placement exclusivity. Product placement exclusivity can be defined as having the only product represented in a particular product or category segment. For example, in the frozen category there is only one orange juice product / brand in the frozen concentrated juice beverage segment. Product placement exclusivity is common with the warehouse clubs as they offer minimal SKU's based on proven membership demand and minimum inventory turn requirements. While these requirements vary at Costco (by region), Sam's Club and BJ's, product placement exclusivity allows manufacturers to play an integral role in category development. This role is a tremendous responsibility for manufacturers; as buyers expect the incumbent to proactively offer "a dded-value" features & benefits through packaging innovations, supply chain management enhancements, etc. to increase sales performance.

Costco, Sam's Club and BJ's have proven to become the "real brands" that members trust and have thus changed the scope warehouse club merchandising and purchasing strategies. Subsequently, club buyers have become more open-minded to consider alternatives to existing product & national brand incumbents. For example, private label (i.e. Kirkland - Costco; Member's Mark - Sam's Club; Berkley & Jenson - BJ's) and regional brands have assumed roles in products and categories that have historically been national brand dominant.

What was once considered as an impossible task, overthrowing the incumbent product / brand has now become an attainable task, but one that requires careful go-to-market preparedness and execution. If you are in the process of overthrowing the product / brand incumbent the following (4) go-to-market strategy components should be considered in the following order: 1) value-chain knowledge & evaluation; 2) become the trusted product & category resource; 3) offer product & supply chain innovation; 4) selling your "non-core items" as in & outs to earn a track record and member awareness.

Value-Chain Knowledge & Evaluation
Before challenging the incumbent, understand their value chain and determine your own. The value chain is defined as "a chain of value principles that an organization designates to define how / why their products & brands profit (within a particular channel)." These value principles continually measure the organizations functional design effectiveness against the internal / external factors that influence product line performance. What determines the value principles are based on an organizations functional design capabilities (i.e. core competencies). For example, is the incumbent known for offering product innovation? Are they a vertically integrated company? From this functional design assessment, perhaps it can be concluded that the incumbent offers a product formulation that is proprietary to a particular warehouse club customer or that they have unlimited product supply capabilities to meet warehouse club volume requirements? If they do, the incumbent can defin e its value chain as offering: 1) a proprietary product formulation and 2) unlimited supply capabilities.

Knowledge of the incumbent's value chain is a key component to evaluate the strength of your own. In determining your own value chain, it is important that you first understand your functional design capabilities both internally and externally. Ask yourself the following: What are your internal core competencies? Do you have strong external strategic alliances (i.e. brokers, logistics partners, etc.)? It is the understanding of these questions that creates the platform for determining your value chain. For example, if your primary functional capabilities are that you have a strong R&D team, a strong brand and are an efficient / low-cost producer, then your value chain can be defined as: 1) innovative product development & design, 2) brand & category management, 3) product control cost and well-defined production & engineering methods. The primary difference between your functional capabilities and your value chain is that your capabilities define your organizationa l strengths while your value chain is what determines how your strengths will allow your products / brand to profit within a particular channel or category segment.

Value chain knowledge and evaluation is the "nucleus" and first step in determining how you will create your go-to-market strategy / approach to overthrow the incumbent. More importantly it will allow you to determine your success probability before you make the sales call as you will know if you are truly offering a better value to increase club member satisfaction and product / category performance. Finally, share your value chain with your club buyer(s) to show them how / why your products & brands can be more successful than the incumbent. Remember, it does not matter how good your product is, unless you have the ability to control and manage its success, especially when it's being evaluated versus the proven incumbent.

Become the Trusted Product & Category Resource
Club buyers respect and encourage vendors to inform them of valuable product & category information. In some cases, the incumbent product / brand manufacturer becomes an "order-taker" and begins to lose sight of buyer expectations and its role in category development. In a case like this, the incumbent becomes too comfortable and does not feel any competitive pressure from the buyer. Most competitive manufacturers do not try to overcome the incumbent, as there exist a "perceived" notion that problems do not exist with the incumbent. As the competitor, you must create opportunities for yourself by creating performance hurdles for the incumbent by becoming a trusted product & category resource. This process begins by educating the club buyer on specific product & category related issues. You will know if the buyer is interested in your "insights" if the buyer begins to respond and probe.

Be aware that the club buyer is sensitive about his / her time. You must be prepared to share product and category information that is pertinent and applicable to your targeted warehouse clubs customer needs. Important areas include: 1) product & category field intelligence at Costco, Sam's Club & BJ's [comparison / contrast], 2) your success stories with other club customers, 3) your track record with retail and foodservice channels, 4) product supply and quality issues, etc. The objective in becoming the trusted resource is to earn buyer credibility, build a relationship and create the opportunity to sell your products. Whether you are using a broker or selling direct, becoming a trusted resource will "open the doors" for you and your organization to sell your products / brands. Though this approach may appear simple, poor preparation and the sharing of useless information can easily lose your credibility and ability to get "in the door." Remember tha t club buyers are savvy and can detect warehouse club inexperience. Put your organization in a position of strength. Do not lose the battle before the war begins.

Offer Product & Supply Chain Innovation
Challenge the incumbent "through the club buyer" by offering product & supply chain innovation. This approach can be viewed as risky as your ideas can be shared with the incumbent. However, if your ideas support your value-chain that only you can manage, now you have leverage. Again, it is important that before sharing product & supply chain innovation that you conduct a thorough assessment of the incumbent as the club buyer will be able to detect lack of preparedness and creativity. Remember that club buyers have heard several "ideas" and know how to detect a credible recommendation. However, if you have become a trusted product & category resource, your ideas will be heard and tested if the buyer deems them as a viable concept.

While broad in scope, product innovation ideas can include (but not be limited to) pack / size modifications to meet a tested price point, merchandising concepts to reduce spoils and increase inventory turns, promotional support, quality enhancements, equipment / engineering test results that decrease product cost while maintaining quality, etc. In addition, conclusive product & category specific focus group research findings are always useful if they offer new insights.

Unlike product innovation, supply chain innovation involves your ability to offer innovation through a collaboration of resources that allows the product to reach peak performance levels. The supply chain is defined as "the development of strong collaborative relationships amongst suppliers, vendors, manufacturers, sales agencies, customers and consumers to create profitable business growth and cost efficiency gains through speed in decision making that is generated from the value chain." The benefits of the supply chain are created not by the product, but by the participants that "touch" the product throughout the chain. These benefits are then transferred back into the product in the form of value-added and added -value features & benefits. Therefore, if the participants of the supply chain are able to contribute to your value chain design; innovation in services, technology, and product performance is unlimited. As a result, your ability to share the str engths and benefits of your supply chain to illustrate how it can generate incremental performance versus the incumbent product / brand is a valuable evaluation point for club buyers.

Selling your "Non-Core Items" as an In & Out Test to Earn a Track Record and Member Awareness
If you have properly approached the club buyer in an objective / fact-based manner to overthrow the incumbent, you should have earned the right to sell one of your products. While your primary objective may have been to sell your core ("flagship") product, it may be premature, as the buyer may want to first test one of your more innovative products (that you have been pre-selling during one of your discussions). This test may serve as a seasonal in & out program that allows the club buyer to test your value chain and supply chain management capabilities (as you have been pre-selling). When presented with this opportunity, you should approach it strategically. In other words, do not jump to quickly to "get the order." Think carefully about how your product should be merchandised, when it should be purchased and what the price point recommendation should be to successfully attain the required performance thresholds. Based on your ability to continuously showc ase product and supply chain innovation, you should have already determined what the best strategy is for a particular product.

Selling your "non-core items" as an in & out test allows you to earn a track record that will make the selling process easier for you in the future (i.e. establish item number, vendor number, etc.). Given a successful test, the club buyer will be more open to supporting additional new product in & out programs that can lead to the introduction of your "core / flagship" products. In addition, selling your "non-core items" will allow you to create member awareness and confidence in your product quality and value. This is helpful in gaining immediate credibility for future product introductions. The importance of creating product line presence will begin to challenge the incumbent and serve as a strategic mechanism for the buyer to keep the incumbent honest.

In conclusion, your ability to effectively and continuously 1) showcase value chain knowledge, 2) become a trusted resource 3) offer product & supply chain innovation and 4) sell your "non-core items" as in & outs to earn a track record and member awareness - will attract club buyer attention and the eventual opportunity to overthrow the incumbent product / brand. It's a proven method. Be patient and enjoy the process.

Power Insights Consulting specializes in management consulting for the warehouse club industry. Through client management, on-site training and seminars & workshops; Power Insights offers proven sales, marketing and organizational strategy consultation to simplify & control the warehouse club go-to-market process.