Brand and Service Belong Together

The decision to introduce a private brand was taken in light of the strategic advantages, says point S international AG. Point S believes that it can react more flexibly to the changing market conditions because of its adoption of the Summerstar and Winterstar tyres, which are produced in Europe and sold in all states represented by the cooperative. Heinz-Werner Knörnschild, chairman of point S international, told Tyres & Accessories what he sees as the benefits and requirements that come along with the introduction of a private brand.

Tyres & Accessories:
Why should a tyre trade chain or a wholesaler bring its own brand onto the market?

Heinz-Werner Knörnschild:
No single answer is equally representative of all markets. The decision to launch our own private brand dates back to the middle of the 1990s. The introduction of our private brand was and still is a strategic decision because we are of the opinion that it is a reasonable completion of our already existing tyre assortment. Furthermore, with regards to the sizes of the point S organisation we are witnessing a synergetic combination of our point S service brand and our private brand.

T&A:
When exactly did you launch the Summerstar/Winterstar tyres in relation to their predecessor, Securis?

Knörnschild:
We sold our first summer tyre in 1995. Back than this brand was named Eurostar. The point S Securis tyre followed this product as a summer tyre.

T&A:
Why did you rename Securis as Summerstar/Winterstar during the summer of 2003?

Knörnschild:
We have stocked point S Winterstar since 2001. When we launched our new summer tread pattern in 2004 we decided to name it point S Summerstar in accordance with our winter tyre.

T&A:
Does the brand belong to point S international AG?

Knörnschild:
The Summerstar and Winterstar products are developed in Europe and distributed in eight European countries under the roof of point S international. These are the national point S subsidiaries of Denmark, Germany, France, Italy, Austria, Poland, Spain and Hungary. Point S international AG fulfils co-ordination tasks. We collate the national forecasts and keep contact with our manufacturer. We are also responsible for the further development of our private brand in order to enable us to expand the list of available sizes or introduce a new pattern.

T&A:
What was the original motivation behind the launch of point S’s private brand?

Knörnschild:
This decision has mainly been a strategic one under the precondition that the distributor was capable enough to sell the necessary volume needed for a successful market approach. Today we are talking about well over 800,000 units a year. Since the introduction of our private brand we have considered selling an exclusive brand instead. But we have chosen the private brand route because it is consistent with our broader strategy. And control and influence over a private brand seemed to be much easier than with an exclusive brand. Private brand means that you take over responsibility as a sort of ‘semi-producer‘ because the manufacturer of this brand does not do anything else except manufacture, all the remaining responsibilities are down to us.

T&A:
In light of this, how important is the freedom in pricing?

Knörnschild:
The retail price positioning is completely our own responsibility. To some extent it is possible for us to avoid a direct comparison with our competitors in terms of pricing. This, of course, is very beneficial when it comes to gross profits.

T&A:
Is the Summerstar/Winterstar brand produced for the budget market?

Knörnschild:
Yes indeed. The pricing of these tyres is in the middle of the budget segment.

T&A:
Has there been a change in the market segment they are pitched at, or the pricing since the brand was launched?

Knörnschild:
A definite yes. By selling Summerstar and Winterstar tyres we have to generate ideal gross profits. In this context it is necessary to use all appropriate marketing tools to stabilise the price positioning in a general market environment that allows for latent price decline.

T&A:
Are there any plans for further private brands at point S international AG?

Knörnschild:
Nothing specific.

T&A:
Theoretically, is it possible to sell a private brand in the premium segment of the market?

Knörnschild:
Partly, as the question implies, the answer is yes, but this is really only theoretical. Practically, the development as well as the marketing costs could never be handled economically.

T&A:
What kind of status will private brands have in, say, five years time? What will be their market share?

Knörnschild:
This is a question for both the development of private brands and the whole tyre market itself. We have to differentiate between selling a private brand as a wholesaler or, as it is the case with point S, as a cooperative that delivers directly to the end consumer. Because there are only a few places that are actually capable of handling a private brand properly and of selling it profitably, I believe that we will rather witness a stagnant market. As mentioned above, the marketing of a private brand, if done right, is subject to some very specific rules. It is too often the case that private brands are only sold by price.

T&A:
What is the market share of private brands in Europe?

Knörnschild:
At the moment there are up to 50 private brands in Europe and we reckon that the market share of private brands in Europe is about eight per cent. When we take a close look to the distribution channels of private brands in Europe we notice that 50 per cent of all private brands are sold by retail chains such as Kwik-fit, Speedy, Norauto or Vergölst. Another 30 per cent are sold by national or international wholesalers and 20 per cent by co-operatives such as point S. However, it is very difficult to be precise with these figures because sometimes there are problems of differentiation between private brands and exclusive brands.

T&A:
Are there any natural limits for the development of private brands and how are they defined?

Knörnschild:
I want to take a slightly different angle. It is important to keep up the balance. The tyre dealer or wholesaler must maintain a well-balanced selection of premium, budget and low budget brands – there are also limits to the marketing of private brands. To be a specialist retailer, in our own eyes at least, also means having renowned manufacturer brands in our portfolio. For us it is unthinkable to try and run our business without these leading brands. This is why there are also limits to the marketing of private brands. It is difficult to define exactly where these limits are. However, I believe that a market share of up to 15 per cent can be regarded as organic.

T&A:
Will the private brands of European tyre chains be able to compete with the cheap imports from the Far East?

Knörnschild:
If done right, yes. At point S we have taken the decision not to manufacture our private brand in the far East but in Europe. A substantial part of this decision was the fact that point S stands for quality. As point S is also imprinted on the sidewall of these Summerstar and Winterstar tyres it can be regarded as clear commitment to quality, too. Therefore we don’t regard ourselves as being in a direct competition with low budget products from the Far East.

T&A:
Who or what poses the biggest danger for the long-term success of private brands?

Knörnschild:
I wouldn’t call this a danger, but the price decrease we are currently witnessing in the premium brand market could have a negative impact on those who do business with budget private brands too.