Retail chains have pushed manufacturers onto the ledge and are primarily responsible for the value proposition a buyer finds and what they pay for it. Photo/FREDRICK ONYANGO
One of the keys to effective marketing is distribution.
A company can develop or import an excellent product but if the distribution is not well thought out, then the product fails.
I cannot overemphasise the importance of the retail end of the chain which interacts directly with consumers.
If you are selling a mass market brand then you may be familiar with challenges in distribution.
Industry observers contend that retailers have risen above manufacturers over the past 20 years.
Some of the largest firms in Kenya are retailers, Nakumatt for example employs about 5,000 people; the fourth largest company in the world is the US retailer Wal-mart.
Two supermarket chains rank in the UK’s top ten companies. Belgium’s largest company, by revenue is a retailer.
This power extends even to shopping malls where the retailers are also commanding the drive for shopper traffic to emerging locations.
Malls like Nakumatt Westgate, Yaya Centre, Galleria command over 5000 shoppers every day.
A few years ago when Uchumi supermarkets shut down branches in key shopping malls, the smaller shops in those malls suffered a sharp drop in customer traffic. Reason? The retailer’s shoppers spilled over to other enterprises.
Many consumers believe that significant price differences for identical goods across countries are the result of retailers’ actions and their different strengths in different locations.
Retailers have outgrown their leading brand suppliers by far.
Emergence of the dominant retailer is a result of the shift in channel power from manufacturers to retailers.
This trend has been attributed to increased use of ICT by retailers, scramble for shelf space by the large number of new products, increased penetration of retail chains, and introduction of successful private labels.
Other commonly cited causes include a decline in advertising and improved quality of retail management.
Industry sales
Analysts show that distributors have more power when industry competition is strong and industry sales are equally distributed among industry manufacturers.
Dominant retailers attract more customers using finely tuned product lines and, more importantly, competitive pricing.
By keeping prices low, these retailers enjoy the advantage of mass movement of inventory.
Manufacturers stand to benefit by riding on dominant retailers.
Suppliers can benefit from economies of scale in transaction costs.
For example, the transportation costs or billing costs may be lower for bigger shipments.
Another potential source of suppliers’ distribution efficiency is the dominant retailers’ sophisticated information technologies.
By creating large customer databases fuelled by customer loyalty cards, retailers have created ways to monitor markets and influence the preferences, attitudes and behaviour of consumers.
As shoppers choose what to buy and where, different companies are responsible for the value proposition a customer seeks.
Ask yourself how well your company’s brand adds to the value of your reseller’s brand.
The reality is that if your brand does not add value to the retailer’s brand so that it retains and attracts customers, you risk being de-listed, having lesser margins and losing market share.
With their growth, retailers have strengthened their negotiating position with brand manufacturers and improved their profitability by developing logistics capabilities and launching private label products.
Retailers are increasingly using their scale and position to gain power from the brands.
Segment customers
Delhaize carried through its threat to remove Unilever products from its shelves in Belgium.
With rising penetration of private label, greater control over shoppers and improved buying power, retailers are set to apply even more pressure on brands.
The way to address these challenges is to build deep insight of global retail trends, your key customers and what the future holds.
Segment your customer’s customers on the basis of benefits sought.
It is important to look at your suppliers and see how their brands add to the value of your brand.
Then, think of arrangements in which you collaborate and where you can share revenues and costs.
Be specific.
The writer is the marketing director SBO Research
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