HBR CASE STUDY

A Rose by AnyOther NameRose Partyware's largest retail customer has decidedto create a private-label line of party goods-andwants Rose to manufacture it. Should Rose put itsefforts behind its own brand instead?

by Daniel B. Stone

TOM ROSE hated to go to a meet-ing with ice cream on his pants.But Rose Partyware's after-schoolparty-a monthly gesture of goodwillto the local community and, not inci-dentally, a field trial for products thecompany was developing - had con-firmed his suspicions that one of thenew ice-cream bowls was just too shal-low. The five-year-old who had demon-strated that fact had been sitting rightnext to him.

So here he was getting ready to listento a major presentation, with paper tow-els in his hands."Go ahead, Cassie,"Tomsaid to his marketing director. "It'll dryor harden - or something. Thankfully,if s my last meeting of the day!"

He could tell that Cassie Martin wasexcited about the presentation she wasgoing to make to the top management

team.Tom had personally recruited herabout a year ago to spearhead thebiggest strategic initiative in Rose's his-tory: the launch of a branded line ofparty ware. In fact, it was the first timea company in the party goods industryhad contemplated a branding effort, atleast in the 30 years Rose had been inbusiness.

Party LinesRose manufactured a wide variety ofpaper goods- plates, bowls, cups, nap-kins, tablecloths, favors, crepe-paperstreamers, and so forth - for birthdayand holiday parties and other socialevents. Tom's uncle, who had workedfor one of the largest paper companiesin the United States, had started Rose inthe 1970S. He had personally driven thecompany's growth until eight years ago,

HBR's cases, which are fictional, present common managerial dilemmasand offer concrete solutions from experts.

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HBR CASE STUDY A Rose by Any Other Name

when he died suddenly, victim of an au-tomobile accident.

A few years before the tragedy, Tomhad joined the company-never expect-ing to stay long. He was freshly grad-uated from a liberal arts college andintended to work for a year while con-sidering options for graduate school.Because he'd minored in art, Tom choseto work in Rose's design and graphicsdepartment. But as the year wore onand turned into another year, he wasdrawn more and more to the manage-ment issues Rose faced. His uncle soonhad him spending time in the field,going on sales calls to better understandthe needs of parents and brides andgrooms to be, as well as those of theshop owners who helped make theirparties happen. Before long, Tom wasmaking his mark in Rose's sales depart-ment and was clearly being groomed totake on more responsibility.

When the company's patriarch andchairman suddenly passed away, theRose family found itself turning againand again to Tom, the only family mem-ber who worked for the company. Asthey slowly absorbed the shock, a con-sensus emerged that he should take overthe top slot. Tom reluctantly agreed. Hepersuaded his college roommate, JerryDavis, who was then working for one ofthe country's largest accounting firmson the West Coast, to join him as chieffinancial officer but otherwise left thesenior management team unchanged.

After a challenging first year learningthe ropes as head of the company, Tomgot Rose back onto the growth path dis-rupted by his uncle's tragic death. Overthe next five years, he helped it realizeannual gains in revenues and profits.That was not an easy achievement inthe party goods industry, which wasone of the last frontiers of entrepre-neurship. Hundreds of small companiessold full party-ware lines or a few spe-cialty products at throwaway prices, andnew competitors appeared and disap-peared regularly. They all competed for

the attention of mass retailers, drugstorechains, and big regional grocers, as wellas for independent retailers that soldparty products through storefronts, cat-alogs, home-based distributors, and Websites. The independents ranged in sizefrom a few superstore chains with manyoutlets focused solely on party supplies

gins, acquired a near three-dimensionaleffect. When Rose test-marketed the newparty-ware designs, consumers lovedthem, and all participating retailers saidthey would give the new line a lot ofdisplay and merchandising support.

That emboldened Tom, who had be-come increasingly concerned about the

Having a strong brand would allow Roseto stay ahead of its rivals even when theycaught up with its printing capabilities.

Daniel B. Stone is the vice president ofcorporate communications at Alberto-Culver in Melrose Park, Illinois.

to lots of owner-managed single storesthat got by on sales of a few thousanddollars a month. Rose, with its high-endprinting capabilities and great trade re-lations, was one of a handful of big play-ers in the industry. It employed 300 peo-ple in its single plant and distributioncenters around the country, and it wasa pillar of the upstate New York townwhere it was headquartered.

Brand-New CapabilitiesIt was during a visit to Drupa, the Ger-man printing and paper trade fair, thatTom spotted his opportunity to breakout of the pack. A vendor at the showwas talking up its next-generation digi-tal imaging technology, which tookcolor files from the pre-press networkand put them directly onto the printingpress,thereby eliminating the expensivefilmmaking process. That approach wasstill in prototype, but it held out thepromise of speeding up production,making shorter print runs viable, andbringing down costs. Best of all, Tomthought, it might actually enhance theprinted product's quality.

He decided to go with his hunch, andwith the help of some expert consultingengineers, his production team modi-fied the new machines to work withsome of the trickier - and more eye-popping-inks and finishes. The resultsproved to be better than Tom hadhoped: Abstract designs on the partyware seemed to glow, and popular char-acters, like Harry Potter and Frodo Bag-

fact that Rose sold its party ware undergeneric labels like Your Birthday, YourWedding, and Your Anniversary. Thecompany's name - his name - appearedonly on a small sticker on the back ofthe plastic packaging, almost as an in-formational afterthought. Tom felt thatthe new line presented a great oppor-tunity to undertalie a major brandingeffort. Having a strong brand, rooted ina quality advantage, would allow Roseto stay ahead of its rivals even when,sooner or later, they caught up with itsprinting capabilities.

When Tom asked around at confer-ences and trade shows about a personto lead his branding initiative, Cassie'sname kept cropping up. People praisednot just her creativity but also her busi-ness grounding: She had left a fast-trackcareer in a market research firm to gether MBA. After B school, she joined ahigh-end toy-store chain. Toy Pile, andwas credited with turning it into one ofthe top five in the industry.

Everything'sComing Up RosesTom was now seeing the evidence thathis instincts had been right; Cassie'sslides told a great story. She'd spent thebetter part of a year putting togetherRose's fiedgling marketing departmentand preparing for the launch of thebranded line. She had researched cus-tomers, trade partners, and retail chainsand established relationships with ad-vertising and market research agencies,

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promotion houses, and merchandisingfirms. Customers loved the brand con-cept, Cassie was able to report with au-thority. They saw it as bringing a trustfactor to party ware - as Crayola haddone to crayons and Elmer's to glue.

"Virtually all our retailers, too, re-sponded positively," crowed Cassie, asshe moved on to the next slide. "Theparty stores and retail chains saw brand-ing as bringing order and excitementto what is pretty much a hodgepodgetoday. The independents loved the ideaof advertising behind a brand they couldfeature"

"The only bad news" Cassie contin-ued, "is that establishing our brand isgoing to be more expensive than 1 had

budgeted for. After conducting the ad-vertising and promotion tests, we'vefound that we need to deliver the mes-sage more often in the first two years.In the toy business, I could concentratecommunications around the holidayseason. To make a party goods brandclick in people's minds, we have to ap-pear in a variety of magazines-for par-ents, brides, teens, and more-through-out the year. We have to grab peoplewhenever they're thinking about throw-ing a party." Cassie passed the ad agency'screative presentation around the tableto all the meeting members. Most ofthegroup had seen one or two of the ads,but the reality of the full campaign cre-ated an instant buzz.

"My recommendation would be tofund this additional expenditure with asmall price increase on all the brandeditems." She put up a new slide. "As youcan see, my figures show that we shouldbe able to accomplish our objectiveswith a price hike in the range of 6% to7%. In your presentation books, after thecost estimates, I have included studies ofhalf-a-dozen brands that sell at premi-ums to nonadvertised competitors andstill lead their markets. Our price differ-ential would be less than all those cases."

"I don't know about that, Cassie." Itwas Jerry Davis, the CFO, "Party warehas always been a commodity business,and pricing above the market scares me.When people are hurriedly comparing

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HBR CASE STUDY A Rose by Any Other Name

paper items for a party, they will alwaysopt for the cheaper product."

"Customers say that isn't true," Cassiecountered. She switched to a slide thatunderscored the point. "In our studies,they consistently indicated that theywere willing to pay even more for ourbranded products than I'm suggesting."

"What they say can be different fromwhat they do," Jerry replied."Sure, they'lltake a stand on quality when speaking

ways been marketers and designers, notjust pressmen."

"Better listen to the full story," advisedHank. "Party! is going to do this with orwithout us. The company plans to giveits store line lots of space and merchan-dising support and sharply reduce thenumber of other party-ware lines it car-ries. If we're the supplier, we're guaran-teed one of the remaining positions.If we're not, there are no guarantees. 1

"Every party store, every supermarket, everydrugstore is trying to eat the independents'lunch. You're either with 'em or against 'em"

to a researcher, but when they're buyingdisposable stuff for 20 little kids, it's easyto say, 'Who'll notice the difference?'"

Tom interceded. "Jerry, you've putyour finger on a key decision point. ButI want to give everyone a chance to di-gest what Cassie's presented. As youknow, we're reconvening next week towrestle this to the ground." He thankedCassie for her excellent presentationand adjourned the meeting.

A Thorny IssueAs Tom made his way back to his office,his national accounts manager. HankLewis, caught up with him. "Got a min-ute?" he asked.

"This may complicate things a bit,"Hank said, as he shut Tom's office doorbehind him. "Remember I was out call-ing on Party! yesterday?" He was refer-ring to one of Rose's largest customers."I got back just in time for Cassie's pre-sentation. The thing is, Party! has de-cided to get into private labeling in thiscategory. It's planning to offer custom-ers a complete line of party goods underits own name."

Seeing Tom wince. Hank hastened tocontinue." Yeah, that's the bad news. Butthe good news is, they want us to do theproduction. They'd just be doing the de-signing and setting the specs."

"But that's not our business. Hank,"Tom replied, a little sharply. "We've al-

don't need to remind you that's about20% of our sales."

Having Tom's full attention now.Hank filled in more details. The retailer,he reported, would initially test the linein 100 of its stores. If it did well, the com-pany would roll it out to all 300 outlets."Party! will price the products on a parwith the other lines, including ours, butit's proposing to pay us 15% less than itdoes now. Still, we wouldn't have tospend any promotional dollars on thosesales, and the volumes could be huge.The price difference and the promo-tional spending about balance out, and,net-net, I figure it would be a good-sizedwin for us."

"Okay," countered Tom, "but you'renot thinking of our setup costs to do it.And it sounds to me like you're count-ing on sales of our own lines holdingsteady. Won't Party! be cannibalizing alot of them?"

Hank pressed the case again. "Noquestion. Party! will be a gorilla of arival, but like I said, the stores will carryfewer other lines. 1 think we could holdour own," he said, getting up to go."Maybe even do a little better."

Behind EverySuccessful BrandAs Tom drove home that night, it struckhim that he faced an either-or proposi-tion; Rose didn't have the capacity, he

was sure, to undertake Cassie's brand-ing initiative and respond to the Party!opportunity at the same time.

Lost in thought, he nearly forgot thepromise he'd made to his daughter topick up supplies for her school project.He ended up backtracking a mile toOfficeMart rather than going homewithout the requisite three colors ofposter board and markers.

On his way to the register, Tomstopped short in front of a section de-voted to writing tablets. Six brands wereon display, but the top shelf and the twobottom rows all bore the same name:OfficeMart. Tom also saw a neat displayof OfficeMart scratch pads when he gotto the end of the notebook aisle anda stack of smaller OfficeMart notepadsnear the register. He thought back tosomething Hank had said as he leftTom's offlce: "You're always saying weshould look for the opportunity in everysetback. Maybe there's a bigger businessfor us in this private-label stuff than justthis one account."

It was hard to argue with Hank's as-sertion. If the Party! store brand caughton, all the other mass and party chainsmight want to launch private-labelbrands, too, and quickly. In that case.Rose could be the supplier of choice -the one that had already figured outhow to do it and represented the lowest-risk partner.

The next moming, Tom decided hisfirst conversation should be with MargeDinson, Rose's sales director for the in-dependent stores. In truth, his heart hadalways been with this group, the smallretailers who focused on providing theircustomers with a little more personal-ized service along with their party-warepurchases. They were an idiosyncraticbunch: mothers looking for a careerafter the kids had left home, caterersand liquor distributors who sold partygoods as an important adjunct to theirbusinesses, some Internet-only sellers-all were great sources of ideas and en-couragement. Tom always looked for-ward to meeting these folks at the showsand in their shops; he felt he owed thema debt of gratitude for Rose's successover the years.

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Tom and Marge met over a cup of cof-fee in his office, where he proceeded toexplain the Party! opportunity to her.It didn't take long to tell where Margestood on it. "Madness!" she cut in, assoon as she got the gist of it. "This in-dustry is like a small town, and the dayany retail chain launches its own line, by5 PM everyone will know who's makingit. That's a loyalty check. Every partystore, every supermarket, every drug-store is trying to eat the independents'lunch. You're either with 'em or against'em. They realize we can't stop selling tothe chains, but they sure don't expect usto make the wave that could wash themaway. You'd lose 80% of their business inthe first six months. That's almost 35% ofour sales. You'll be better off telling theindependents what Party! is planning

fact is, you simply can't trust them.Today, you'll be their favorite. Tomor-row, they'll want to pay you a dime lesson their line, then a dollar less. You'renot at the foot of a ladder; instead,you're at the top of a slippery slope."

The rest of the group didn't holdback, either. Jack Kuczinski, Rose's pro-duction manager for almost two de-cades, reminded Tom that they were inpossession of a printing breakthrough."Anyone can be a commodity producer,"Jack stated fiatly. "If your uncle hadwanted to be in that business, he'd havestayed at United Paper. But the fact is,we manufacture products better thananyone else does. There's no way anyretailer is going to toss us out of theirstores. This branding thing is the way togo, if you ask me. It's about pride in who

"This branding thing isthe way togo....It's about pride in who and what weare- not skulking around..."

and asking them to ratchet up their sup-port for our products than turning thescrew on them yourself. And you reallythink they'll get behind our brandedtine if we also manufacture products forParty!? Forget it."

Wiiat's in a Name?The next day, the management teamonce again gathered in the party room;Tom had asked Hank to present Party!'sproposal to all the group members, afterwhich they would hear Marge's point ofview. Both Hank and Marge got caughtup in their emotions and went furtherthan either had earlier.

"Whether we like it or not, chains arethe future," Hank declared. "We had bet-ter learn how to play their game, orwe're going to be on the sidelines witha handful of independents, making a fu-tile last stand. This business is changing,and we have to change with it."

"Hanl

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