Stump the Consultant: Should Distributors Do Private Label?
If branded manufacturer margins decline, some distributors may consider expanding their model to add private label revenue. This could be a good idea for the company, but it’s only one component within the greater plan.
There are two primary types of business for customers to purchase product. If a customer has a need fulfilled by a specific brand, such as if they want to buy a Caterpillar bulldozer or Rolex watch, for example, then they’ll most likely purchase directly from the source. Said another way, they’ll contact a CAT or Rolex dealer directly.
However, most of the business in B2B is channel-led. This means that the customer chooses their distributor first, trusting that distributor’s discretion in providing the most suitable product from the brands they want.
If you’re a distributor whose primary business comes from channel-led sourcing, then you may want to explore implementing private label. But first, it’s critical to know the risks involved. Other companies, potentially global companies who previously supplied private label products, may want to reach out directly to customers they’ve developed relationships with. You’ll want to prepare solutions for retaining customers in case this happens.
Take a look as Mike Marks discusses the ins and outs of pursuing a private label strategy: