Saturday 3 February 2018

Redefining the Supplier-Retailer Relationship - the Independent Retailer as an advertising medium for the Brand

Given the fact that global pressures on supplier and retailer profitability, especially since 2008, caused by a combination of Amazonian online, and discounting in a flat-line environment, suppliers are having to re-consider the emphasis traditionally assigned to multiple retailers in customer portfolios. These developments coupled with the increasing need for suppliers to optimise every channel to the consumer, are causing brand owners to fundamentally re-assess the role of different customer-types in their portfolios.

In other words, the traditional view of major customers taking more than 50% of supplier resources has been overtaken by events...

Essentially, suppliers now need to view customers’ outlets as selling points, advertising media and fulfilment centres (in terms of optimising the retail space as distribution and Click & Collect points).

Whilst the customer’s role as sales agent has been well documented elsewhere, and their role as fulfilment centres is evolving pragmatically as means of traffic–building and covering distribution costs, their role as advertising media may be worth exploring…

As they struggle with large space redundancy, and with long-tail ranges increasing their need to cherry-pick within categories, the mults cannot afford to offer a full representation of the suppliers’ range at point- of-sale, let alone provide hands-on experience of the brand within the store.

Add to this the fact that in a zero-sum game the additional trade support required by the major multiples means that there are even less supplier resources available for maintenance and development of the independent trade.

Current market pressures in terms of limited growth potential of the mults, a need to match Amazon online standards in going direct to the consumer, and increasing risks of being unable to find ways of working with Aldi and Lidl as they deliver 15%+ rates of growth, makes it vital that suppliers try to make more use of the independent trade as a route to consumer.

In fact, it could be said that Independent retailers are becoming more important to suppliers as consumers shop smaller, faster, closer and more frequently. They are also in need of NAM-quality consultancy advice.

This, coupled with the fact that the revenue stream from a good independent retailer cannot cover the costs of regular calling by a salesforce, means that the opportunities represented by the independent trade will continue to represent unfulfilled potential, unless suppliers take a radically different approach to investment in the channel.

Historically, suppliers have regarded the independent trade as a sales outlet, needing to at least break even on the cost of visit vs. size of order in order required to justify the cost of calling. This approach has obviously limited the number of direct-call accounts that are economically viable, resulting in increases in trade concentration, as the strong get stronger. Fortunately, the evolution of alternative channels such as online and discounting has halted the progress of the mults…

In many categories such as toys, books, houseware and home entertainment, the independent specialist retailer can fulfill an important ‘educational’ role on behalf of the supplier. Here the retailer helps to bring the consumers closer to the brand, allowing them to interact and bond with the product. They will also benefit from advice and shop staff expertise.

Properly supported with appropriate training and sales-support material, the independent retail outlet can also function as a ‘living billboard’ for the brand, communicating with the consumer in a way not easily achieved via the multiples. Unfortunately, given the economics of running an independent retail store, it is not easy for the retailer to match competitor’s prices. This inevitably results in their shoppers taking the advice and experience of the brand, and buying the product elsewhere. The increasing appeal of online retailing simply adds to the dilemma of ‘lost sales opportunities’ for a specialist retailer.

However, if the supplier shifts the role of the independent retailer from a sales to a marketing function, seeing the outlet as an interactive advertising medium, then it becomes easier for the supplier to classify at least some of the cost of independent calling as ‘advertising’. In fact, given the increasing fragmentation of traditional above-the-line media, it could be said that a well-motivated and supported specialist retailer could have more brand impact on the consumer than traditional media. The same could be said of trade investment with mults that can no longer justify traditional levels of trade spend as they struggle to exceed flat-line sales performance.

With this change in stance, it becomes easier to justify the allocation of say 50% of the cost of independent coverage to a combination of the brand’s advertising budget and trade spend.
It may even be more cost-effective…

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