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The right way to fight for Shelf Domination; NOT DEAD YET: Manufacturer brands can hold their own against retailer brands.

Article Excerpt
Byline: NIRMALYA KUMAR

The past two decades have seen a rapid increase in the share of private labels, also referred to as store brands or retailer brands. Private labels have outperformed manufacturer brands in all but one of the past 10 years. They now account for 20%, 34% and 45% of sales in the U.S., Germany and the U.K., respectively. If the U.S. closes the private-label development gap with the U.K. by half, manufacturers will lose tens of billions of dollars in annual sales. This will put tremendous pressure on brand manufacturers.

To visualize the power of retailers, consider that Wal-Mart accounts for more than $10 billion of Procter & Gamble's annual sales-exceeding the GDP of Jamaica. How should manufacturers respond when their largest customers are also their fiercest competitors?

First, the bad news: There is no single answer. Whatever consultants or marketing gurus may claim, no magic potion exists. But through hard work and consistent effort, brand manufacturers can address the private-label threat in three ways: by partnering effectively, innovating brilliantly and fighting selectively.

Effective Partnerships

Manufacturers often view fast-growing retailers such as Amazon, Best Buy, Costco, Save-A-Lot and Wal-Mart as destroying value because they sell manufacturer-branded products at very low prices. This generates conflict for manufacturers vis-a-vis their traditional, and often inefficient, channels. But those retailers are growing precisely because they are...