A private brand (OEM) or not?
One small change makes a great difference!
September 14, 2020Tires distributors with a considerable presence in one or more markets and a sizable volume to match usually aspire to have their own private tyres brands.
China, with the highest tyres yield capacity in the world, is definitely the hub for private branding or as it is called in China - OEM project.
The quality of Chinese radial tires has been significantly improved in the last 20 years. You might notice that well-known international distributors’ OEM projects in China have been running under win-win strategy and mutual benefit, and the sales volume increases rapidly, however, these distributors change their OEM factories frequently, and their market shares has reached the peak and started declining. The details are summarized as below:
1. Since these distributors have strong advantages on capital and sales channels through years of distributing internationally well-known brands, their OEM orders are very attractive to Chinese start-up factories at the very beginning, and those orders could also help these factories to ride out the period of increasing yield capacity, and improve product quality and add various sizes and patterns. These distributors fully benefit from the low prices offered by Chinese factories. As these factories grow & mature, OEM brands are well accepted with positive feedback at home and abroad.
2. In the past decade, more and more new factories have sprung up in China, which gives more options to OEM projects. In order to keep the purchasing cost as low as possible, many private brand distributors gradually shifted their OEM projects from these mature factories to new factories or any of the factories that could accept their low target prices. However, their quality control is not well managed which brings quality issues to their brands. Recently, more conflicts are being observed between the factories and the private brand owners. And since distributors have to expand the market by their brands’ popularity from the past, it usually ends up in a vicious circle.
The above-mentioned phenomenon happens due to any of following reasons:
1. Your investment will never be your guard, the world is never short of money. Your safe zone can be easily destroyed by others with more capital.
2. Most factories are not willing to make private brands in the long run until they can really get abundant profit from this project, and/or have a strong partner who can help them improve product quality and improve their corporate image.
3. Private brands disturb factories’ own sales channels, which creates conflict and eventually hampers growth for the private brand.
4. End-users can hardly recall how well tires performed, but they will always remember which brands failed. Frequent shifting from one factory to another makes customers connect all tires failures and defects to these private brands. Factories that are powerful and forging ahead will keep improving product quality with investments in R&D. They will not agree to producing an inferior or cheaper product even if they can make money on it. If other factories are offering lower prices, there has to be a reason.
5. In an OEM project, the private brand is just like the adopted son of a factory. When prices are on the way up, the private brand is always the last to be produced. And in case the prices are going down, factories produce many private brands and keep pushing for more shipments. This results in reduced profits for the private brand owners due to over supply or bad timing. These distributors lose the opportunities and have to make extra efforts to survive.
In a nutshell:
The private brand owners have to be clear as to what advantages they are bringing to the table. The factory needs something besides volumes and investment in moulds. These distributors have to keep adding value to the factory in different ways for both of them to grow together.
OEM as one of the business models, follows the basic business rationale - You are not valuable until you bring value to others.
The above realities of the Chinese tyres industry have to be kept in mind before one considers developing their own brand.
In short, a brand relies on how you build it. If someone wants to make a private brand, they have to think deeply of all the above aspects before diving into it.
China, with the highest tyres yield capacity in the world, is definitely the hub for private branding or as it is called in China - OEM project.
The quality of Chinese radial tires has been significantly improved in the last 20 years. You might notice that well-known international distributors’ OEM projects in China have been running under win-win strategy and mutual benefit, and the sales volume increases rapidly, however, these distributors change their OEM factories frequently, and their market shares has reached the peak and started declining. The details are summarized as below:
1. Since these distributors have strong advantages on capital and sales channels through years of distributing internationally well-known brands, their OEM orders are very attractive to Chinese start-up factories at the very beginning, and those orders could also help these factories to ride out the period of increasing yield capacity, and improve product quality and add various sizes and patterns. These distributors fully benefit from the low prices offered by Chinese factories. As these factories grow & mature, OEM brands are well accepted with positive feedback at home and abroad.
2. In the past decade, more and more new factories have sprung up in China, which gives more options to OEM projects. In order to keep the purchasing cost as low as possible, many private brand distributors gradually shifted their OEM projects from these mature factories to new factories or any of the factories that could accept their low target prices. However, their quality control is not well managed which brings quality issues to their brands. Recently, more conflicts are being observed between the factories and the private brand owners. And since distributors have to expand the market by their brands’ popularity from the past, it usually ends up in a vicious circle.
The above-mentioned phenomenon happens due to any of following reasons:
1. Your investment will never be your guard, the world is never short of money. Your safe zone can be easily destroyed by others with more capital.
2. Most factories are not willing to make private brands in the long run until they can really get abundant profit from this project, and/or have a strong partner who can help them improve product quality and improve their corporate image.
3. Private brands disturb factories’ own sales channels, which creates conflict and eventually hampers growth for the private brand.
4. End-users can hardly recall how well tires performed, but they will always remember which brands failed. Frequent shifting from one factory to another makes customers connect all tires failures and defects to these private brands. Factories that are powerful and forging ahead will keep improving product quality with investments in R&D. They will not agree to producing an inferior or cheaper product even if they can make money on it. If other factories are offering lower prices, there has to be a reason.
5. In an OEM project, the private brand is just like the adopted son of a factory. When prices are on the way up, the private brand is always the last to be produced. And in case the prices are going down, factories produce many private brands and keep pushing for more shipments. This results in reduced profits for the private brand owners due to over supply or bad timing. These distributors lose the opportunities and have to make extra efforts to survive.
In a nutshell:
The private brand owners have to be clear as to what advantages they are bringing to the table. The factory needs something besides volumes and investment in moulds. These distributors have to keep adding value to the factory in different ways for both of them to grow together.
OEM as one of the business models, follows the basic business rationale - You are not valuable until you bring value to others.
The above realities of the Chinese tyres industry have to be kept in mind before one considers developing their own brand.
In short, a brand relies on how you build it. If someone wants to make a private brand, they have to think deeply of all the above aspects before diving into it.
