Despite constant references to equal trade partnership, real world customer management has to play to a more pragmatic hymn-sheet…
Essentially, when a seller’s need to sell is far greater than a buyer’s need to buy, a genuine 50/50 relationship is not possible. Increases in trade concentration merely add to the problem.
Given the need to actively participate in the game, it is perhaps wise to optimise available resources by working to a vision of true mutual dependency and then scaling back activities and expectations to a level that acknowledges the actual power balance that exists between the two parties.
Strictly speaking, even a very one-sided relationship can be productive… No matter how large a customer, and despite having product research budgets that dwarf those of many suppliers, a retailer operates a business model that ‘knows a little about a lot’ and as a result can form a very productive, if on-sided, relationship with a supplier who essentially operates a business model that relies upon ‘knowing a lot about a little’.
In other words, a supplier with three categories and a focus upon consumption, can be a very valuable asset for a retailer who to manages 400 categories and by inclination concentrates upon shopping behaviour. In a willing partnership, their combination of consumption insight and shopping insight can be highly synergistic. As long as key precautions are taken to minimise risk, it matters little that the relationship is relatively lop-sided.
Whilst strong branding can help to tip the balance, it has to be said that one way of increasing mutual dependency is through the provision of own label on the back of an established brand. Philosophical issues apart, an own label relationship not only gives access to those parts of the category which might have gone to other suppliers, but also makes the overall supplier-retailer relationship richer and more complex.
Realistically, a brand-based relationship boils down to a one-to-one relationship between buyer and seller, and is vulnerable in that a buyer can de-list a brand with a keystroke, whereas uncoupling a complex own label relationship needs justifying up and down the corridor…
However, the influence of strong branding can be enhanced when a high degree of congruence exists between a brand’s consumer profile, and the store’s shopper profile. This match in consumer and shopper profile means that supplier and store marketing share a common goal, albeit with different behaviours required of the target audience in terms of consuming and shopping.
One can still go a long way on a one-sided relationship, but this can be tested to the limits, especially where a high maintenance customer may even resent attentions going elsewhere and demand exclusivity.
However, if a retail customer abuses the relationship, in terms of interpersonal behaviour (‘bullying’ is the description in the small print) or becomes ‘over demanding’ and unreasonable despite GSCOP, the extent of their power may prevent suppliers retaliating via ‘head on’ confrontation. Instead of open confrontation, the supplier may simply insidiously divert discretionary funding to other customers, reduce service level and seek affection elsewhere.
Incidentally, in a world of increasing service levels, merely maintaining the service level to a problem customer, whilst upping the service to a favoured competitor-customer can be an insidious way of undermining a problem customer’s profitability.
Collaboration is about sharing risk. It is also about sharing reward, but not necessarily on a 50/50 basis. This is really about calculating relative exposure to risk, and attempting to divide available profit in the same proportion…
This exposure can include credit given, it being key to ensure that at least this is no more that the average credit given by all trade suppliers (see KamCity for method of calculating trade credit periods).
Another exposure is the level of ‘dedicated’ stock held in order to maintain agreed service levels, a direct relationship with mutual profit split.
Incidentally, those who are frustrated by the demands of a one-sided relationship should stop wasting energy attempting to ‘improve’ the partner, switch to building up mutual dependency, before seeking solace elsewhere.
However, if all else fails, buy a shop…
Essentially, when a seller’s need to sell is far greater than a buyer’s need to buy, a genuine 50/50 relationship is not possible. Increases in trade concentration merely add to the problem.
Given the need to actively participate in the game, it is perhaps wise to optimise available resources by working to a vision of true mutual dependency and then scaling back activities and expectations to a level that acknowledges the actual power balance that exists between the two parties.
Strictly speaking, even a very one-sided relationship can be productive… No matter how large a customer, and despite having product research budgets that dwarf those of many suppliers, a retailer operates a business model that ‘knows a little about a lot’ and as a result can form a very productive, if on-sided, relationship with a supplier who essentially operates a business model that relies upon ‘knowing a lot about a little’.
In other words, a supplier with three categories and a focus upon consumption, can be a very valuable asset for a retailer who to manages 400 categories and by inclination concentrates upon shopping behaviour. In a willing partnership, their combination of consumption insight and shopping insight can be highly synergistic. As long as key precautions are taken to minimise risk, it matters little that the relationship is relatively lop-sided.
Whilst strong branding can help to tip the balance, it has to be said that one way of increasing mutual dependency is through the provision of own label on the back of an established brand. Philosophical issues apart, an own label relationship not only gives access to those parts of the category which might have gone to other suppliers, but also makes the overall supplier-retailer relationship richer and more complex.
Realistically, a brand-based relationship boils down to a one-to-one relationship between buyer and seller, and is vulnerable in that a buyer can de-list a brand with a keystroke, whereas uncoupling a complex own label relationship needs justifying up and down the corridor…
However, the influence of strong branding can be enhanced when a high degree of congruence exists between a brand’s consumer profile, and the store’s shopper profile. This match in consumer and shopper profile means that supplier and store marketing share a common goal, albeit with different behaviours required of the target audience in terms of consuming and shopping.
One can still go a long way on a one-sided relationship, but this can be tested to the limits, especially where a high maintenance customer may even resent attentions going elsewhere and demand exclusivity.
However, if a retail customer abuses the relationship, in terms of interpersonal behaviour (‘bullying’ is the description in the small print) or becomes ‘over demanding’ and unreasonable despite GSCOP, the extent of their power may prevent suppliers retaliating via ‘head on’ confrontation. Instead of open confrontation, the supplier may simply insidiously divert discretionary funding to other customers, reduce service level and seek affection elsewhere.
Incidentally, in a world of increasing service levels, merely maintaining the service level to a problem customer, whilst upping the service to a favoured competitor-customer can be an insidious way of undermining a problem customer’s profitability.
Collaboration is about sharing risk. It is also about sharing reward, but not necessarily on a 50/50 basis. This is really about calculating relative exposure to risk, and attempting to divide available profit in the same proportion…
This exposure can include credit given, it being key to ensure that at least this is no more that the average credit given by all trade suppliers (see KamCity for method of calculating trade credit periods).
Another exposure is the level of ‘dedicated’ stock held in order to maintain agreed service levels, a direct relationship with mutual profit split.
Incidentally, those who are frustrated by the demands of a one-sided relationship should stop wasting energy attempting to ‘improve’ the partner, switch to building up mutual dependency, before seeking solace elsewhere.
However, if all else fails, buy a shop…
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