Lesson VII - Push vs. Pull
(To read the previous lessons, please visit the Got Rum? Archives page)
When you work with distributors, it is only a matter of time before you hear or read the concepts of “push” and “pull”.
• In very simple terms, “push” activities are those related to getting bottled product to a distributor or retailer. Some people consider that the push starts as far back as the manufacturing of the goods, others think it starts once the product is being offered in commerce.
• “Pull,” on the other hand, refers to the activities resulting in consumers buying the products from retail outlets or consuming them in on-premise locations, thus “pulling it out ” of the market.
Success in the beverage industry requires that we pay attention to both of these concepts and their associated activities. So far, lessons I through VI have focused on the “Push” aspect of a Private Label Rum. We now focus our attention to the equally important “Pull ”.
How does the “Pull” work? Aside from the obvious fact that we must have a product to sell, we must abide by the laws and regulations of the market where we plan to commercialize it. In the USA, the market is, for the most part, divided into three tiers:
1. Distillers, Bottlers, Brand owners who can either distill their own alcohol or who can buy it (domestically or from international sources) and blend it, and companies that do neither, but that could outsource either activity. They are, generally speaking, not able to sell to consumers directly, they can only sell to Wholesalers or Distributors.
2. Wholesalers and Distributors can buy finished goods from Distillers, Bottlers or Brand Owners and they can sell these products to retailers (supermarkets, liquor stores, general stores, etc.) or on-premise accounts (bars, restaurants, nightclubs, etc.).
3. Retailers and On-Premise merchants cannot import, distill or bottle their own brands, instead they are limited to buying them from those on the second tier.
As a private label brand owner, you may think that your responsibilities end with selling the finished product to someone on the second tier, but you’d be wrong and this is exactly why many new brands fail! Wholesalers and distributors are not promoters, they make their money when those on the third tier place orders.
Granted, distributors have influence on what and how they offer to their customers, but they are not as well–trained about any particular brand, as those associated with its production.
Also, distributors love products that sell themselves, either because they are established brands or because they are actively being promoted.
For their part, retailers also like when products sell themselves, either people walking in already knowing what they want, or attractive packaging/concepts that grab clients’ attention. Products that sit on shelves for long periods of time represent stagnant capital that could be generating more income if it were in the form of faster-rotation inventory.
Q: So what does this mean for the new private label owner?
A: It means that they have to wear both the “Push” hat and the “Pull” hat, in order to ensure the success of their brand! The amount of time and resources that should be spent on the “Pull” should be determined through test marketing campaigns in isolated markets. The results of these tests can then be used to define a “playbook” that will be followed in larger markets.
Q: What happens if “Push” and “Pull” efforts are not in equilibrium?
A: If the “Push” is greater than the “Pull,” retailers will receive inventory, which will collect dust until the retailers ask the distributors to take it back (if allowed) or until the retailer decides to liquidate it or heavily discount it (which damages the product ’s image). Distributors do not enjoy being asked to take merchandise back, which is one of the reasons why many of them are reluctant to work with new brands.
If the “Pull” is greater than the “Push,” market awareness will be greater than distribution/ fulfillment capacity, leading consumers to ask retailers for a product which they don’t have and may not be able to get. While this works up to a certain point, by creating a sense of exclusivity and limited availability, it can also frustrate would-be buyers and turn them away from the brand. Over-spending in marketing and promotions (like running a Super Bowl TV ad for a product that only has regional distribution) is a sure way to get into this problem, while at the same time wasting precious marketing dollars.
There are three phases that new products go through, on their way to becoming established brands:
1. Proof of concept phase: all new products star there, with an idea for a brand name, a vision for the packaging, a concept for the contents of the bottle and dreams about how successful the operations will be. Local /state distribution is a must and the market can be used to fine tune the playbook.
2. Regional or Country-wide distribution phase: only the brands that succeed in the previous phase make it to this level. For small private label brand owners, this is the state where the proof of concept becomes a full-time business.
3. Rapid Growth (aka “Hot Brand”) Phase: the brand is growing steadily and rapidly in most of the regions of the country. It is also attracting the attention of large companies interested in mergers and acquisitions. Profit for unit/case sold is maximized, since the large volumes help the brand owner negotiate better prices all along the supply chain.
Most of the clients I work with dream about getting to this last phase, but the reality is that fewer than 1% will achieve their goal. Why? The reasons are many, but the biggest one is underestimating the effort and resources it takes to promote a new product.
I often tell clients that producing the private label rum is only 20% of the battle, that the remaining 80% is the tough part!
Q: So how does a brand owner move from phase 1 to phase 3?
A: By developing a close relationship with the distributor, riding along with sales/delivery people and by conducting tastings (if legal) at stores and on premise locations. Distributors will want promotional material, incentive programs, constant supply (don’t ever tell a distributor that you can’t fulfill an order) and inspiration!
I hope you will join me next month for the wrap-up of this primer.
See you then!
Luis Ayala
Rum Consultant