In the perennial tug of war between manufacturers and retailers, retailers seem to be winning. But manufacturers can benefit by understanding what type of business model a retailer emphasizes — and tailoring their approaches accordingly.
In the perennial tug of war between manufacturers and retailers, retailers seem to be winning. Just a few years ago, manufacturers had hopes of being able to manage consumer relationships and product delivery directly. But today’s retail industry is more concentrated than ever; in many industries and markets, a handful of retailers account for the majority of sales. Retailers, whether they operate traditionally or electronically, have become increasingly astute at capturing consumer loyalty with effective merchandising, innovative private-label offerings and targeted pricing and rewards programs. Their ability to control market access and influence consumer buying behavior means not only that manufacturers need retailers more than ever but also that manufacturers’ need to understand what makes retailers tick is more pressing than ever.
As retailer influence has grown, power has moved downstream in a wide range of industries, including hardware, books and consumer electronics. A prime example is the grocery industry, where global manufacturers have seen their brand clout erode in favor of consumer relationships cultivated by retailers. Manufacturers across industries rightly ascribe retailers’ power to their increasing size and concentration. For example, in 2007, Wal-Mart’s sales were approximately 4.5 times greater than those of its largest supplier, Procter & Gamble.1 Consolidation and retailers’ global scale have reduced the number of “buying points” that manufacturers can develop.2 By 2010, the 10 largest grocery retailers represented nearly 70% of U.S. sales, up from less than 30% 10 years earlier. The trade is even more concentrated within regional markets in the United States, as well as in most developed countries.3 Retailer scale has other consequences, too: It makes private-label programs viable, and it justifies the costs and effort of setting up loyalty and data-mining programs.
The Leading Question
How can manufacturers learn to work more effectively with retailers?
- Recognize that there are different types of retailers.
- Learn what makes specific retailers tick and tailor offerings to their particular business models.
- Work with retailers to develop exclusive products that will contribute to their profitability and success.