Continuing the Discussion on Private Labeling

Interesting article in this month’s TED magazine entitled “The Myths of Buying Foreign Off-Brands” (article is not online). Interesting for a couple of reasons:

1. The article is in TED, an association publication that includes manufacturers as affiliate members. This is a topic that continues to receive much attention and deserves to be discussed in an open environment and it is important to dispell sourcing myths.
2. The research conducted by Scott Benefield entitled “Disruption in the Channel” provides insight into distributor thought process in a multitude of industries. Part of the challenge is that in this topical area, there are no distinct definitions. Scott defines off-brands as “products without a highly recognized brand name that are made in foreign countries” and private labeling as a “distributor branding strategy”. So what does this mean for U.S. manufacturers that are contract manufacturers?

Over the past two years we’ve conducted electrical industry research on the topic, surveying distributors, reps and end-users and interviewing them and manufacturers. (The report is available for a nominal fee.) The trend to private label and seek alternative manufacturing sources has accelerated. We’ve spoken to small distributors who are labeling troffers and large distributors that are seeking to expand current initiatives. While private labeling may focus on branding, distributors are seeking new suppliers for cost reasons – and the need to maintain some margin.

More importantly, we see a trend to purchasing becoming more of a strategic resource for distributors. Purchasing “professionals” need to better understand their purchasing alternatives, whether they be on-shore, off-shore or near-shore. Different purchasing solutions will be needed to serve different customer segments. At times price will drive decisions, other times brand will, as well as value-added. Distributors should seek to enhance their purchasing department’s skill set and have individuals seek their CPM or AAP designation.

Manufacturers, on the other hand, need to continually promote their points of differentiation, and services, to end-users and distributors to retain and capture market share.

Where do you see private labeling, off-brands and alternative purchasing strategies going? What will be the impact on manufacturer relationships?