No, I am not talking about Hermès today but about a maker of power tools! You see, I often get challenged by marketing friends that the principles of premium branding that we lay out in our model only apply to emotionally charged lifestyle categories. They would not work on utilitarian products such as toilet paper, brooms or fax machines. “Oh yes? So what about Renova luxury toilet paper?” I respond. “It is up to the manufacturer to transform a product like bottled water into a ‘lifestyle’ product, there is nothing naturally premium about water.” But then, I am told, that that’s an unfair comparison. Renova is but a tiny niche brand for weird creative types. And San Pellegrino or Perrier might be premium but they are also sold through the regular FMCG channels and it is there that they really make all their volume and money.
So does a strategy of selective distribution really only apply to Prestige brands and condemn brands to stay small?
That’s where my visit to a Lowe’s store and the power tool brand Stihl come in. You need to know that the do-it-yourself (DIY) market is a huge in the US and that the big box format retailers Lowe’s and Home Depot practically own it. They are everywhere and sell everything you never knew you wanted to take care of you house and garden. That’s how one day I found myself looking at chain saws. Honestly, I was just looking at them because my next door neighbor had impressed me felling his own tree and cutting it into small chunks with one of these noisy machines. Of course, by the end of the exercise, half the neighborhood had congregated to admire his work. My contribution to the conversation was to note that his saw was a “Stihl” was German. That gave the owner the opportunity to laud his tool. Being German, it even made me feel a bit of pride… But back at the store, I could not find any of these iconic-orange saws. I was soon told that Stihl only sells in some small tool stores. Are they are too small for a Lowe’s, I wondered? Stihl must be a niche brand in the US. Curious, I followed up on the brand, smelling a possible ‘masstoclass’ story.
What I found out was that Stihl power tools are only distributed through “Independent Servicing Dealers.” And the company is quite proud of it, telling from its website. Stihl’s brand ideology is to ensure that the customer gets the personal education and service they deserve with their premium product and that both – brand and owner – support the local economy by buying at a locally owned store. And despite this very selective distribution strategy they have grown to become the value share leader in chain saws – at least that is what their advertising says. So far, they seem not to have slipped into the price promotion routines of their big box competitors. They have not launched a more basic line to compete there, either. There you have it. You think you are looking at a niche brand in limited distribution when, in fact, it is the category leader selling at a premium price. Isn’t that interesting? (And similar to how we experienced Starbucks, Apple, Nike, etc. before they became too obviously popular and omni-present?)
Now, some readers might argue that this example is unfair, too, because these Stihl chain saws are not really that expensive in absolute (some $200-400) or compared to the big box models. In fact, a competitor – Husqvarna – sells at similar prices there. Others might argue that I myself have demonstrated that these chain saws are not pure utilitarian tools but also showpieces that owners are proud to display. I agree and would add that Stihl also encourages consumers, retailers and brand to bond around shared values. Thus lifting themselves up from purely functional or cost considerations… – We can continue that discussion below.
What I wanted to illustrate is that selective distribution, competing beyond price and market leadership (in value terms) are not mutually exclusive but can work together. For a Prestige brand the value of this model can be that the market leadership is not very visible and thus the perception of exclusivity preserved. For the more functional brand the advantage can be that selective distribution adds value through service and differentiation and thus helps prevent commoditization and with it price level degradation.
Sources and Related Links:
Read more about limiting distribution and other Ueber-Brand strategies in our book “Rethinking Prestige Branding – Secrets of the Ueberbrands”
Stihl press release on their market leading position and differentiated distribution model
The Wall Street Journal on why big box distribution might be a trap, providing more case studies.