Wednesday, May 09, 2007

Premium and generic brands from the same mother company

+ 101 Brand Names, 1 Marketer from the WSJ looks at how in many cases one company produces multiple brands that compete against one another in the same categories, which stems from the pet food recall event.
But often the main difference is marketing -- and price -- and that can be hard to sustain once products are perceived as commodities. A recent survey by GfK Roper found that 54% of respondents weren't aware before the recall that both premium and standard pet food brands were made by the same supplier. Knowing this, 26% said they were less likely to buy premium pet food, though 60% said it made no difference.

"The sheer magnitude of how many branded products come from one source erodes the whole basic premise of what branding is in the eyes of the consumer -- they feel duped," says Eli Portnoy, who heads Portnoy Group Inc., a Los Angeles-based brand-strategy firm.

What's more, when many brands are made by the same manufacturer and a problem occurs, it's harder for consumers to find a safe substitute.

The growth of contract manufacturing reflects a number of changes in manufacturing and retailing. Decades ago, most branded products were actually made by the company that owned the brands. But over the past 20 years, many big retailers have tried to differentiate themselves from competitors by offering private-label brands, which they needed to have manufactured by outsiders.

Meanwhile, consumer-product makers, facing competition from store brands, sought to increase efficiencies by making private-label versions of their own branded products, or by outsourcing their manufacturing to third parties that could do it more cheaply.

Some consumer-product companies have been forced to make both generic and branded products to please retailers. "If a major manufacturer is unwilling to produce private-label products, there's a possibility the retailer won't sell their branded products," says Burt Flickinger III, who has advised companies such as Alcoa, Del Monte Foods and Heinz on how to better manage their branded and private-label businesses. Alcoa, which owns aluminum wrap maker Reynolds, for instance, makes both private-label and Reynolds aluminum foil and plastic wrap.

Making both private-label and brand-name products does give manufacturers a hedge against downturns. But, says Jack Trout, president of Trout & Partners, a marketing strategy firm in Old Greenwich, Conn., "If the public begins to get the perception that there's not much difference, then you can't hold your prices -- that's the bottom line of the whole [pet food] scandal." He adds, "Commoditization is the real enemy of branding."

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