Product Branding Challenges in Winner Take All Business: Products As Services
At the turn of the past century, the dominant retailer was Sears Roebuck and Company of Chicago, Illinois. Their famous catalog advertised virtually everything an American family would need. Sears also owned many factories that made the products and branded products as Sears, including motorized buggies (cars) and house kits (known then and today as Sears houses). There was near virtual integration. But why did product brands not matter, then? Sears was the “Winner Take All” catalog provider. It alone defined quality, value, and availability. Buying from Sears was already a great choice, and maybe the only choice. Sears did the hardest part of the sales – getting the items on trains to people’s homes. That critical service of availability was more important to buyers than getting an independently branded item. The lesson is that once a retailer is in a “Winner Take All” position, the value of brands is altered and the expense of marketing and building a product brand can be re-purposed. In such cases, what looks like a product is really a service. Sears provided the service of sourcing, transporting, and in some cases even assembling the products. Yes, people needed the product, but they needed Sears to fulfill it even more. That service trumped the product and its brand.
Winner Take All Examples Today
The rise of digital giants has brought us many Winner Take All firms. Companies like Apple, Amazon, Microsoft and Facebook are examples. The firms have developed a dominant position and the value proposition to the customer is clear. In fact, in each of these examples, there are often few competitors. Each has beaten competitors away with tough-pricing, enormous scale, and great product delivery. Once a firm is a Winner Take All provider, the value of product brands is reduced. The provider is the brand and what is served as a product is really a service. Amazon offers a delivery service (of many great items). Microsoft is a software service provider (now, really, in the cloud). Facebook is an advertiser or friend finder. In seemingly more traditional retail, we have Costco, which is a product provider and curator.
Let’s examine some contemporary examples.
Costco Wins with Kirkland
The Kirkland brand, which is donned on everything from underwear to Champagne now accounts for over 25% of Costco sales. In a recent visit to a Chicago-area Costco, I saw a man with cases of Kirkland Bourbon at the checkout. It had me think about the value proposition of Costco and Kirkland more. He preferred, presumably, the Kirkland brand over Maker’s Mark, which is also sold at Costco. Perhaps the taste difference was minor (or not important to him). However, Maker’s Mark spends millions in nurturing its brand, in creating brand awareness, in applying fancy wax seals, and even in convincing you and me that their bourbon is better, tastier, or somehow more desirable than other bourbons. Maker’s Mark might even deploy marketing dollars to convert gin drinkers to bourbon drinkers, which is about luring new customers and growing the pie. Branding and marketing expenses behind the brand have important roles for a stand-alone firm with growth ambitions. That is rationale spending for Maker’s Mark or any firm like them.
Costco, through its Kirkland brand, has no such expenses. It hires someone to make bourbon and places the Kirkland-branded bottles in the stores. Everyone who shops at Costco sees the Kirkland brand. It represents value. Because of Costco’s size, it has no need to specifically grow bourbon buyers. It spends its marketing on getting people to Costco instead. Branding dollars are not spent on nurturing a bourbon brand, but on making Costco a more attractive shopping destination. The moat gets bigger. Or, the branding investment is entirely skipped, allowing for lower priced items and or higher margins. The moat gets bigger. It works because Costco is a “Winner Take All” retailer. Yes, it has some competitors, but few, and it is a dominant club retailer, especially in higher-income suburbs of the US. It is its own demand generator. There is little to no need to draw people based on brand, well at least not in bourbon, nuts, and many other products that now have the Kirkland brand. Bourbon drinkers know when to reload and Costco has what they need. Still, to compete against the likes of Amazon, Costco should close the last mile and move to delivery of goods.
Amazon and 365
With Amazon’s rapid integration of Whole Foods into its retail network, we are sure to see a new and more powerful leveraging of the Whole Foods private label 365. Amazon is also a Winner Take All (r)-etailer. It’s focus on convenience, ease, availability, and price transparency have made it a go-to place to buy most anything. Amazon has embraced brands and used them for growing new market segments, such as toys, sports apparel, and electronics. Indeed, in those markets brands matter now because of intellectual property, technology, and fashion style. But in food and beverage, the promise of 365 is probably enough for most people. Instead of deploying capital to grow a brand, Amazon has a ready-made, excellent private label in 365. Do you need Lavazza coffee or 365 coffee, if both are Arabica? The broad scale attack to food and beverage brands is underway! Amazon can sell most any consumer-packaged-good (CPG) product under this brand and combined with its dominant, digital platform, it can target-market to people like nobody ever before. Also, because of Amazon’s dominant “Winner Take All” digital platform, it can take what would have been branding investments and use that capital to improve digital marketing, improve operations, and compete on price.
The Kirkland and 365 labels have grown to communicate more than value. Each has anchored successfully on quality at a good price. This message is especially hard for a stand-alone brand to attack. Do you attack on price? That is a bloodbath. Do you attack on quality? How can you be more organic, healthier, or aspirational than these brands in something like vitamins, nuts, allergy sprays, or even bourbon? Amazon in 365 and Costco in Kirkland have great labels and now great control over their product providers.
The battle of CPG brands has just gotten much more difficult. Expect that the winners will not be product brands, but service brands, like Amazon or Costco. Amazon has a compelling service model, even over Costco in many market segments. The products come right to my door; that is a valuable service. For many items, this service far outweighs the product’s brand.
Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.
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About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
Professor Walker has developed and taught executive programs on Enterprise Risk, Operational Risk, Corporate Governance, Analytics and Big Data, and Global Leadership. He founded and teaches the Analytical Consulting Lab, Risk Lab, Global Lab, and Digital Lab, all very popular experiential learning classes at the Kellogg School of Management, which bring Kellogg MBA students together with corporate opportunities focused on data and strategy. He also teaches courses in risk management, analytics, and on strategies in globalization. He was awarded the Kellogg Impact award by Kellogg MBA students for excellence and impact in teaching.
He serves on the Scientific and Technical Council for the Menus of Change, an initiative led by the Harvard School of Public Health and the Culinary Institute of America, to develop healthier and more environmentally friendly food choices. He is a former member of the board of the Education and Technology Committee to the Morton Arboretum. He was a board member of the Virginia Hispanic Chamber of Commerce, where he developed support programs for Hispanic entrepreneurs and worked with US senators on US Latino matters.
You can find him at @RussWalker1492 and russellwalkerphd.com and bigdatatobigprofits.com
365, Amazon, brands, Competition, Costco, featured, Google, Kirkland, Marketing, Microsoft, Pricing, Products as Service, Whole Foods
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