Third-Party Logistics: Why 3PLs need to build their brand
A fast-changing, competitive arena has made it more difficult for third-party logistics providers (3PLs) to differentiate their services in the marketplace. But clear differentiation—call it effective branding—is essential to long-term success in this industry. Here are some steps that can help 3PLs sharpen their brand message and benefit the buyers of their services at the same time.
By Robert C. Lieb and Kristin J. Lieb -- Logistics Management, 6/1/2009
Over the past several years, the global third party logistics (3PL) industry has changed dramatically. While the demand for 3PL services has grown steadily, the major logistics service providers have expanded their geographical reach and broadened their service offerings. At the same time, the structure of the industry has changed not only through mergers and acquisitions, but also through new market entry by many companies, including some funded by private equity investors. 3PL company reorganizations and name changes have become commonplace.
These changes have fostered a degree of buyer confusion in the marketplace, and many large 3PLs fear a possible "commoditization" of their services in the eyes of those who currently buy their services or are considering doing so. If this is indeed occurring, existing and potential customers will become increasingly indifferent when choosing between logistics service providers. And this, in turn, will intensify the price compression pressures that already plague the 3PL industry.
A key question that needs to be asked here is: What are executives of those 3PL companies doing in response to these market developments? Specifically, what steps have large 3PLs taken in recent years to differentiate their service offerings in the marketplace while strengthening their brands? Further, is there more that those executives should be doing in those areas?
This article addresses the typical steps that companies should take in building, refining, and strengthening their brands—and in particular examines recent attempts by major 3PLs to do so. Branding literature forms the basis for discussion of the general case, and the branding steps taken by large 3PLs were documented through data generated during 2006 and 2007 in surveys of the CEOs of major 3PLs operating in three geographic regions: North America, Europe, and the Asia-Pacific region. (For more on the surveys, see accompanying sidebar). We conclude with suggestions for 3PL industry executives concerning their future branding efforts—and the potential positive implications of these efforts on the buyers of these services.
Step 1: Define your brand, mission and key points of difference.
Marketing texts have defined a brand as "a name, term, sign, symbol, or design, or combination of these that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors." (Kotler and Armstrong, 2007).1 Branding can also be used to communicate information about specific service offerings, explain a shift in company direction, demonstrate a commitment to a social cause, associate the company with a celebrity, or to simply remind the marketplace what a company stands for and what it does. Brand clarity is critical to any of these pursuits. If a company isn't clear about its brand, the marketplace certainly won't be clear about it either.
An important first step for companies in the branding process is to decide what really differentiates them from their competitors. Sometimes this differentiation is obvious—a company serves a different niche than others, operates in different markets than others, or charges more or less for services than others.
But, more often, a company's points of differentiation are subtler, and require elaboration and explanation. Perhaps a company is focused on environmental or sustainability issues. In such a case, the company may need to demonstrate its commitment to the cause through illustrative case studies. By telling the story of a prominent customer that uses the company's services in attempting to "go green," the company may create a powerful, positive association for the brand that moves beyond price and reach.
3PL market differentiation factors
Over the past several years, many 3PL companies have taken steps to differentiate their service offerings from those of their competitors. Some of those steps were documented in a 2006 survey of 44 3PL CEOs. The survey questionnaire asked the CEOs to identify the most important market differentiation factor used by their companies in attempting to set their companies apart from their 3PL competitors. As shown in Exhibit 1, many factors were identified and several were mentioned by multiple respondents.
The CEO respondents mentioned two differentiation factors, IT systems capabilities and broad geographic coverage, most often as the most important differentiation factors, each being cited nine times. It should be noted that in many instances, the companies emphasizing superior IT solutions capabilities as a competitive variable rely upon alliance agreements with software companies to deliver those services. Several of the companies that focused on broad geographic coverage also highlighted country-specific experiences, which have become increasingly important as the 3PL customer base has become more international in scope.
The third most frequently cited differentiation factor, company commitment to high-quality customer service, was mentioned by seven respondents, with two of them emphasizing the consistency of that commitment across countries. Three other differentiation factors were each mentioned by four CEOs. They were the breadth of company service offerings, ability to provide excellent execution of solutions for customers, and adoption of a non-asset approach to the marketplace. Presumably, that last factor would lead to a lower overhead burden for clients and greater provider flexibility.
These company-reported points of difference are telling. Firms citing IT capabilities and broad geographic reach as points of differentiation may need to refine their marketing message further, as others are obviously attempting to claim the same space in consumers' minds. These companies may refine their stated differences by saying more about them and providing a stronger focus for customers. For instance, those companies claiming broad geographic coverage may want to elaborate on the benefits of working with a 3PL partner with vast knowledge of a given country, for example China; and its local regulations, policies, and customs.
Similarly, companies claiming IT excellence may also emphasize the breadth or speed of their IT systems, their ability to integrate customer IT systems with their own, or their ability to link their customers' systems with those of their supply chain partners.
Step 2: Explain the company's mission and key points of difference internally.
So, how does a company harness all of its possible points of difference in an effort to choose and refine the best one? All levels of the organization should be involved in the process to make sure that all views of the brand/company are considered. This is particularly important when acquisitions are being migrated into the acquiring brand in order to ensure that all operating units understand the message. Management may take a variety of approaches to successfully solicit feedback from all levels of the organization. For example, they may distribute physical or online surveys to employees, hold brainstorming meetings at company headquarters, create off-site retreats to discuss branding issues and answer brand questions. Alternatively, they may have an outside consultant interview employees (and perhaps customers) about the brand and synthesize the findings for top management.
The company could then create an ongoing brand panel of selected executives to monitor the brand, hire a brand steward or brand manager whose sole responsibility is monitoring and protecting the brand, or designate a high-ranking executive as the person with decision-making authority with respect to brand decisions. This person or group of people ensures that the points of difference are present in the company's myriad messages and customer touch points. Brands are dynamic—they don't live in isolation. Therefore, this appointed brand expert or group of brand experts must continuously monitor what the brand stands for, who it serves, and what services it provides. Once the company can answer these questions, it must share this information internally with all of the people who contributed to the process of developing potential points of differentiation. The aim is to garner widespread understanding and buy-in for the brand as defined. Of course, this buy-in is not a given, particularly when a company has acquired other companies with radically different cultures. It is likely to take significant time and resources to achieve real buy-in in such situations.
While the 3PL surveys did not generate data on the extent to which such internal processes are currently used within the industry, they did address the issues discussed in Step 3.
Step 3: Develop an integrated messaging plan and dissemination strategies for the outside world.
Once there is internal agreement about what the company is, what it does, and who it serves, the next step is to develop an integrated messaging strategy for external audiences (mainly investors, customers, and potential customers).
One surprising finding from the surveys was that many companies appear to invest more time thinking about the marketing medium than the message. That may be because sometimes the marketplace views the medium as the message. As such, when a company chooses to advertise in periodicals rather than on broadcast television or over the Internet, that says as much about the company as the advertisement itself. While it is important to consider the media used to carry messages, it is as important to invest in making sure the message is compelling, succinct, and memorable to your intended audience. As part of this effort, you need to decide on key elements to use regardless of whether the message is to appear in print, on a television advertisement, or on a podcast.
It is also important to think about the "personality" of your brand. Brand personality is how a company wants its audience to interpret and describe its brand in personality terms.2 Is it exciting? Reliable? Worldly? Efficient? For example, some service brands, such as GEICO and AFLAC, have created memorable characters and creative vignettes to establish and reinforce their brand messaging. Such an approach might lead customers to call them "modern" or "cutting edge" insurance companies. Whatever a company feels is its most important, memorable point of differentiation should be consistently reinforced through an integrated approach to marketing across various forms of media.
Once a company has built a brand and established a messaging strategy, the next step is to decide how to share that message with potential customers. Simply put, this means selecting the medium or media most appropriate for carrying the message or messages. One approach might be to test the messages with your customers to determine the best media to carry those messages. Also valuable is a concept called Integrated Marketing Communication (IMC), an increasingly popular strategy for delivering consistent messages regardless of the medium used. Using an IMC approach, a company effectively develops a central marketing and messaging strategy designed to cut across all media types and touch points (presentations, print and television ads, personal selling efforts, direct marketing efforts, press releases, and so forth.)
This comprehensive approach to messaging and dissemination is an improvement over the old model, which often failed because different groups within the same company (for example, advertising and public relations) were operating more or less independently and were unwittingly sending inconsistent and therefore confusing messages about the brand into the marketplace. As the industry has grown and evolved, such problems have plagued many of the larger 3PLs.
The 2006 surveys also asked the CEOs to discuss their companies' strategies for disseminating their differentiation messages to the marketplace—their branding dissemination strategies. Their responses, summarized in Exhibit 2, reveal that the approaches varied broadly.
The most frequently cited means of communicating the differentiation message (cited by eight CEOs) involved presentations to potential clients that had been identified through existing client references or referrals. Six CEOs cited direct presentations to executives in targeted companies, but without references or referrals. Five respondents said that their companies delivered the differentiation message through presentations at major professional conferences. Exhibit 2 lists all of the other communications strategies mentioned by at least two CEOs.
Recent branding activities of 3PLs
As we mentioned earlier, the annual surveys of 3PL CEOs conducted in 2006 and 2007 clearly indicated that branding issues are becoming increasingly important in the industry. In fact, 36 of the 40 executives involved in the 2007 survey indicated that their companies had recently taken significant branding actions. They were then asked to identify the specific branding steps taken to develop, refine, or strengthen their company brands. Their responses, shown in Exhibit 3, may be clustered in several categories.
The first category of responses focused on brand name. Among the actions taken by companies in this category were migration of all company divisions to one name, re-branding of all company acquisitions to the acquiring brand, and re-branding of the entire company with new corporate names and logos. It should be noted that several of these actions were accompanied by programs aimed at implanting company culture into the acquired companies. Illustrative of this approach was Apollo Management L.P.'s decision in 2007 to rebrand its two major logistics service company acquisitions, TNT Logistics and Eagle Global Logistics, as CEVA. That same year, YRC Corporation rebranded its 3PL subsidiary Meridian IQ to YRC Logistics.
The second category of CEO responses centered on development of messaging materials such as case studies highlighting branding initiatives, upgraded company websites, increased focus on industry awards given to the company, and increased emphasis on the company's expertise in particular verticals.
The third category of responses focused on media strategies and included such actions as making a commitment to consistent messaging, initiating advertising in top logistics magazines on a global basis, expanding press release activities, adopting more liberal policies on media interviews of company executives, developing an "outreach" program targeting top industry periodicals to get more company mentions, and designing more aggressive, multimedia campaigns. An illustration of this last approach is provided by the earlier "What Can Brown Do For You?" and the more recent "White Board" campaigns employed by UPS to demonstrate the breadth of its service offerings to a wide, diversified audience.
While the data gathered in the 2007 surveys are interesting, they also bring some cause for concern. There appears to be little consensus within the industry concerning the steps that need to be taken to build brands. Only four of the steps mentioned in Exhibit 2 were reported by four or more CEOs.
Recommendations going forward
Data generated in the 2006 and 2007 3PL CEO surveys suggest that while brand-building efforts are clearly on the minds of many 3PL executives, to date these efforts often appear to be short-term and tactical in nature. A review of branding literature suggests these companies should focus more on strategy and planning and less on execution—at least until they clearly define who they are, how they differ from competitors, and how they want to position themselves for the long-term in the marketplace.
Several industry dynamics make these steps easier to prescribe than to accomplish. As large, branded companies acquire other companies to build expertise, service offerings, or, in some cases, reputation, they struggle to decide what the core brand will be. If the acquiring brand is well-known and well-regarded, it is likely that the acquired company will be folded into that brand umbrella.
In contrast, if the acquiring company has a weak brand, it may be wise to assume the brand of the acquired company. Of course, these things do not happen overnight. Brands have many dimensions, and as such branding decisions are complicated, strategic moves. Similarly, a company may end up with three or four strong brands under its corporate umbrella, and may need to decide whether it can support that number of brands successfully.
In single-brand situations, however, there are several steps we suggest 3PLs consider to develop, refine, or strengthen their brands.
-
Focus less on tactics and more on strategy. 3PL companies should be building long-term brands, not cobbling together just-in-time solutions.
-
Seek inputs from employees about what your brand is and does.
-
Decide what your brand is and does—and make sure everyone in your company understands.
-
Establish a brand group or brand steward to make ongoing brand decisions that are consistent with the company's stated brand.
-
Develop a messaging strategy and test it with customers before taking it to market.
-
Decide on an integrated dissemination strategy. 3PL CEO responses to date suggest that companies focus more on modes of dissemination than on strategic messaging, which we believe is a mistake.
-
Reinforce the company brand through every touch point.
-
In the case of multiple brands, take the time to properly migrate acquisitions into the brand. This can't be rushed, and involves all of the steps above.
By incorporating these kinds of recommendations, 3PL companies are not only likely to strengthen their brands in the long-term, but also give existing and potential customers more relevant information about the options that exist in the marketplace. If those customers received consistent messaging from providers that reinforced real differences between the logistics service providers, the 3PL selection process could become more rational and efficient.
Buyers could better match their needs with the relevant services offered and focus their selection process on the best potential providers. This could form the basis for longer-term relationships.
View All On-Demand Webcasts