Why it pays to build brands not commodities

Mary Portas may not be a familiar name to many in South East Asia but the British born former actress has carved a niche for herself as a no nonsense retail guru.

Portas was responsible for turning the drab and dreary retail graveyard formerly known as Harvey Nichols into the cool, must go to destination now known as Harvey Nicks.

She went on to star in the TV series ‘Mary Queen of Shops’ and ‘Mary Queen of Frocks’ and most recently, she has been challenged to create a contemporary, hip UK ‘knickers’ brand.

The project is ongoing but she has already opened a closed down factory in an area of Manchester, England where the unemployment rate was 70%, created her first range and negotiated with retailers, or should I say bullied them into stocking the range.

You can read more about the project here.

What I like about this is that it may be an example of how it is possible to build a brand in an extraordinarily short period of time. We’ll have to wait to see the results but the brand could be well known and, more importantly, profitable within a year.

What I think is particularly relevant to Malaysian manufacturers obsessed with price but uninterested in the concept of building brands is the following data.

In the UK, cheap underpants retail for about £8 for a pack of three. That equates to £2.66 per pair. Materials, manufacturing, packaging, transportation and VAT accounts for £0.88. The balance of £1.78 goes to the retailer. The margins are minute and if mistakes are made in the manufacturing process or product is rejected, it can be the difference between profit and loss.

Mid range pants cost from £10 – £12 per pair
Materials, manufacturing, packaging, transportation and VAT accounts for £3 per pair. The higher price is because of the better quality materials which allows the higher cost. There is also more profit in this range.

Designer branded pants £35 – £85

Materials, manufacturing, packaging, transportation and VAT accounts for a higher price of between £5 – £15 per pair. The higher price is normally a reflection of the design complexity which means more time on the machines and the fact that more expensive materials such as silk are used. But the ability to charge a significant mark up is what should appeal to any company looking to move away from the commodity business and up the value chain.

Setting up your own brand will require investments in marketing. Something you don’t have to do if you are manufacturing cheap products or on a contract basis. But you won’t be the cheapest forever and once someone else produces cheaper than you, it will be only a matter of time before you are out of business.


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