Building Brand Equity in Conjunction with Distributor Private Label Programs

U.S healthcare distributors continue to increase the number of products offered under their own brands, a practice called private labeling. Everything from disposables to capital equipment has become part of distributors' private label programs. This practice has increased over the last decade for several reasons:

• Like all companies distributors have found that building their own brands helps bring value by differentiating them from their competitors and by clearly identifying their products and services for current and potential customers.
• It has become easier for distributors to lower the cost of products that are readily imported through U.S manufacturers or on a direct basis from other countries.
• Healthcare provider organizations entering into vendor consolidation programs prefer to purchase as much as possible through their contracted distributor organization. In doing so, they expect and prefer products to bear the distributor's own brand.

Because private label programs have enjoyed much success, distributor organizations are now more likely to choose as partners those manufacturers willing to support private label initiatives. Healthcare manufactures that supply distributor organizations with private labeled products are reporting strong sales growth. Manufacturers that reject private label programs may be missing out on a critical sales channel. However, while distributor private labeling
is beneficial to distributors and healthcare providers, it presents a threat to the medical manufacturers whose own brands are stripped away in the process.

With careful analysis, strategic product development, and focused marketing, many manufacturers are learning to retain the benefits of branding even while sharing branding prerogatives with distributors. Devising a "balanced branding strategy" begins with an understanding of the range of healthcare products, which can be divided into three basic categories:

Competitive products, or, commodities; include, among many others:

• Wood and cotton products such as tongue blades, cotton tipped applicators and gauze.
• Paper-based products such as patient gowns and drape sheets.
• Rubber and vinyl gloves and catheters.
• Plastic syringes and specimen containers.
• Stainless steel equipment like standard surgical instruments, instrument stands, I.V. poles, and exam stools.

Distinctive products include such items as:

• Digital thermometers that measure skin surface temperatures on the forehead
• Infrared technology used in waste receptacles to automatically open and close the lid, thus contributing to infection control efforts
• Electronic scales with hand rails and a 1,000 pound capacity that automatically calculate Body Mass Index (BMI).

Break through products increase the ability of health care professionals to screen, diagnose and treat patients. Examples include:

• Immunological fecal occult blood testing technology (IFOBT) has eliminated dietary restrictions on patient screening for colorectal cancer making patients 35 percent more likely to take the test.
• Hemorrhage controlling dressings containing Chitosan, an organic substance made from shrimp shells that can quickly staunch heavily bleeding.

Maintaining and evaluating your brand while profiting from private label programs requires the assessment of how products are performing and an accurate understanding of trends in the market. With product and market information, manufacturers can decide what branding strategy is best for each product or product category. Developing a balanced branding strategy often includes allowing highly competitive, high volume commodity items to distribution organizations to be private labeled. It is more difficult for manufacturers to decide if it makes sense to permit their more distinctive products to be relabeled, or to insist that these products retain their original label to support their own brand. Break-through products should always stay under the manufacturer's brand. In some instances, co-branding can provide a win-win option for the latter two categories of products.

Producing only products categorized as competitive justifiably creates concerns for these manufacturers. Distribution organizations possessing the resources to produce competitive products on their own may be forced to bypass the manufacturers on categories that have profitability challenges. Unbalanced branding strategies evolve into an image of being an off shore manufacturing agent which adds cost to the supply chain and potentially could be eliminated.

The grid below may be helpful in determining where your products, service and relationships are currently positioned: competitive, distinctive, or break through. Over time the market tends to pull products, service and relationships to the left of the grid. To create balances, always try to move to the right. Manufacturers strive to develop distinctive or breakthrough products build valuable brand equity.

A competitive product can be upgraded (moved to the right) to a more distinctive one by adding unique features. For example, a ten centimeter ruler printed on the wrapper of basic cotton tipped applicator is a useful feature that allows a clinician to measure wound dimensions quickly. In another instance, adding silver compounds to wound care dressings dramatically increases their healing properties and upgrades a product from the competitive to break through category.

Manufacturers balance their branding strategy through product development. Products that start off as breakthrough or distinctive eventually become competitive (move left on the grid as they age) and at some point should be considered for private labeling for distribution. Continuing to develop new breakthrough and distinctive products creates a balanced brand identity.

Developing breakthrough products is very expensive. However, developing break through service and relationships can be less costly. Innovation and creativity can create breakthrough service which can earn enhanced brand equity. Every company can trace its original successes back to one or two breakthrough relationships with key people or organizations. Developing new break through relationships can provide similar opportunities to develop breakthrough products, service or both even in long-established companies.

To summarize: refocusing your brand while profiting from private label programs requires you to assess how products are performing and to understand market trends. With accurate product and market information, manufacturers can determine what branding strategy best suits each product or product category. Clearly, more competitive products may benefit by providing distributors with a private label option. However, even if the decision is made to avoid private label programs there are still ways to increase sales through distribution. Methods such as offering a distinctive or break through service will create break through relationships that are highly valued by distributors.

The advent of off shore production has created a new dynamic where the US manufacturers may consistently recreate the value they bring to Health care. Massive resources that were consumed by high labor cost and other production expenses are now refocused on research and development. Health care product manufactures earn brand recognition from distribution and end users by developing products that provide better patient outcomes and/or simplify the lives of those who use them. Manufacturers that consistently innovate with products and services also seem to easily and consistently develop new breakthrough relationships. Maintaining these three variables will support well balanced branding strategies and assure that brands build equity and endurance.

Too often, manufacturers are unnecessarily willing to sacrifice their brand in exchange for immediate volume as well as rapidly offering up the wrong part of their product line. Now more than ever it is important to balance this effort. Gathering all of the information available on the market dynamics of your particular category, combined with a well structured branding strategy is well worth the effort and a very prudent investment.