Know-How Exchange : Strategy

I dont' think it's any different than any manufacturer selling their own products direct as well as thru distribution. Or private labeling for one company and selling their own brand. Or one manufacturer -- manufacturing for several competing companies (this happens alot with offshore factories).

A very popular flooring manufacturer does this-- sells direct and thru distribution. The dealer would be sitting at the bid opening with the factory rep, competing with each other. But, just cause they went direct doesn't mean the direct guy was selling at the same wholesale that the dealer was buying at.

Another owns 2 separate companies, makes product identical for both-- changing only the names.

WPI could start selling for Weber next week.

The issue isn't that they are selling a competing product. It's what price they are offering it at. If they are selling to the public at "retail" then you all can co-exist. If they are selling their product at the same wholesale price as WPGP-- then you are directly competing.

Maybe WPI could manufacture items specifically for WPGP and agree not to sell those designs to another or market direct.

In today's world-- there is little to protect these kind of things. Companies sell thru distribution and direct. I was working with an offshore manufacturer, trying to "copy" (we call it nicely custom) a tile that their design department wanted to use. Within 48 hours I had the match in my hands from Taiwan.

Dear Randall,

Hmm, reminds me of a Monty Python skit.

To business. Is Wacky Parrot Industries PART of or OWNED by Wacky Parrot Grilles and Pits? Or is two companies in one niche—one making, one selling the same thing—just one big coincidence?

If WPI is HAPPY making and supplying and has NO plans to sell its own products DIRECTLY as a competitor to WPGP, then theoretically, there's little to worry about. To my mind it would depend which of the two companies currently holds the lion's share of the market and how drastically the counterpart would need to market his or her business in order to become any kind of marketplace threat—either to the other, or as a confusing element to the customer.

I'm guessing that at the moment, WPGS is the big dog and that WPI is quite happy to make and supply, and to cash checks.

The problem arises when buyers of WPGP products, who may ordinarily be price immune because of brand loyalty or through social proof and wanting to keep up with the Joneses, see WPI products, perhaps on some wild-eyed web search in the wee small hours of the night.

If WPI are peddling their wares wholesale to an open market (and really, what's to stop them if the non compete contract stipulates "within a certain price range" or, "within a certain geographical location"), then we introduce buyer doubt as to which is the real deal.

All this stuff about the handshake agreement between the two is admirable, but in this day and age, a little short sighted (CYA and all that).

There is the option of changing the name of one or other of the companies but then you flush ALL brand equity down the pan and with it, all brand value, brand integrity, and image. Not good.

So to my mind there are two other possible solutions.

1. WPI does NO marketing at ALL and manufactures EXCLUSIVELY for WPGP. All this is written out, signed, sealed AND hands get shaken, but in effect, it's the same thing: WPI works for WPGP.

The end.

This means WPI has NO signage, it does away with its logo, and it ceases to do any advertising because it has a lifetime contract to supply goods to WPGS as long as WPGS remains in business. Thousands of engineering companies work like this (the auto industry is a prime example) and as long as the main parent company remains in business, everything's just peachy.

2. Scrap ALL non compete and no piracy contracts and have one company (WPGP?) buy out the other.

THAT way, WPGP has nothing to worry about because it OWNS its own manufacturing arm and COULD, if it chose to, sell DIRECT to consumers AND offer higher-end retail sales for customers that don't want to get their hands dirty by dealing with a wholesaler (because let's face it, to a percentage of shoppers, "wholesale" still means cheap. To this crowd, the word "wholesale" does not mean "bargain", nor does it mean "value").

Option 2 might be better if WPGP sees itself building its portfolio of goods and services in terms of related sales items strategically over the next 5 years or so.

I've also sent you a separate e-mail with an extra paragraph or two and a few links that might help flesh out the longer term value of option 2.

I hope this helps.

—Gary B.

The Direct Response Marketing Guy™
Wilmington, DE, USA

Why not explore second-sourcing your client's products? As a minimum it'll be in case the first-client can't handle the volume. At worst, it'll give your client a plan B to end their informal deal and move to a more formal deal (that may be more lucrative for all parties).

When money is involved, I believe the partners should put something in writing. Handshakes and gentlemen's agreements die when the gentleman passes away, retires, or gets in a financial pinch.

It need not be a lawyer produced document. A memo of understanding signed as a celebration of our handshake works just fine.