Partnerships: Why doing it?

  • The need to reduce development costs
  • The need to reduce the time to market
  • Limited R&D resources
  • No confidence in ROI (too risky from financial perspective)
  • Long development time and we are not sure the market will still be there by the time we are done
  • Limited entry barriers for new competitors

Common types of partnerships

  • Private-labeling partnership
  • Joint venture partnership
Private-labeling partnership
  • Selling a third-party product under a different name
  • Based on a mutual sales expansion interest
  • The buyer is looking to fill in a gap
  • The supplier is looking to boost sales or access new markets and sales channels
  • The buyer decides their own labeling, packaging and certifications, and small product modifications used for:
    • Product or service gap filing (usually non-strategic)
    • Product extension (completing or complementing a existing line)
    • Access new markets quickly
    • Optimum time to release: 6mo-1y after supplier

Advantages when private-labeling

  • Quick time to market
  • Proven concept
  • No investments in R&D and manufacturing
  • Limited legal and financial liability

Disadvantages when private-labeling

  • Not much differentiation from the original (if any)
  • Potential for other similar agreements in the same market place
  • Low margins
  • High dependence on supplier
  • Potential for credibility loss
  • We don’t own the design
  • Potential for fierce competition, and sales channel conflicts
  • No control on manufacturing costs, pricing
  • Limited control on your markets and sales channels impact
  • Limited control on quality
  • Future uncertain
  • Viewed as non-core product by the sales force

Selecting the right partner for private -labeling

Selecting the right partner for private -labeling

Company perspective:

  • Preferably not competing in exact same markets (channel conflict)
  • Must be the right size: Not too big, not too small
  • Manufacturing capacity and location
  • Open to consider product differentiation or exclusivity
  • Watch for legal traps…if direct competitor, don’t discuss market pricing

Product or Service perspective:

  • Preliminary product testing
  • The product or service must be the right match and fill the exact need
  • Ideally: Good product but low branding power
  • Technology used and Quality
  • Must be able to obtain the right price for the product or service
Joint venture partnership
  • Strategic move (defensive or offensive) with significant impact on a company’s future used for:
    • Better or faster positioning against another competitor, market trend etc.
    • Mutually complement product or service offering
    • Access to new markets
  • Based on a mutual strategic interest
  • Share the design, manufacturing and packaging burden (or jointly outsource them)

Advantages for joint ventures

  • Quicker time to market
  • Reduced R&D investment
  • Co-own the new design
  • Good control on manufacturing costs and profit margins
  • Good control on quality
  • Less potential competition vs. private-label
  • Future more certain
  • Increase R&D throughput and capabilities

Disadvantages for joint ventures

  • Must share the pie
  • Takes longer to develop
  • Higher legal and financial risk, due to bigger investment and liability
  • Tougher contracts (sharing is hard…)
  • Potential conflicts with partners on costs, markets served, channel conflict etc

Selecting the right partner for joint-ventures

  • Executive alignment (trust)
  • Preferably not competing in exact same markets but adjacent
  • Ideally similar size (R&D)

Conclusion

  • Both types have their own pros and cons
  • If timing is important, PL might be the preferred route
  • PL agreements are very common and could be very lucrative if the corporate culture allows it
  • Considering how fast consumer’s demands are changing, PL’s could be essential
  • However, too much of it could dilute the brand power
  • If the gap is critical (strategic weakness) then joint ventures are preferred
    •        It takes longer and more costlier but…
    •        Offers better legal, financial and competition control)

Things to know before considering a product portfolio development partnership

  • Is your R&D department struggling to keep up with market trends and what sales and marketing team demands ?
  • Is your product development costs too high compared to competition?
  • Is your time-to-market too long too long to take advantage of a new market opportunity?