Business Insights 19 Jun 17

The power of a trustful relationship between manufacturers and retailers is important for organizations as much as it is to distributors. In the never ending battle of establishing superior control, retailers seem to be winning it owing to its sharp ability at capturing consumer loyalty. Across retail industry the balance of the power relationship is constantly shifting. Owing to the rise of specialty superstores, the dynamics of a retailer-manufacturer relationship is determined by several factors such as buying alliances and increasing mergers. As a result, the influence of power concentrates with a group of mega retailers who have an access to a large base of consumers.

The Bigger Picture

Observing sour between retailer-manufacturer in either type of trade, the control mechanism in their relationship focuses on several factors. These factors involve who’s got the power of position owing to control on money and the fundamental retailer model. Although retailers may seem to have an edge over suppliers, they find the current system inadequate and insufficiently strategic. However, the new age retailers and suppliers are constantly striving for an improved framework. The improvement includes (but not limited to) incentive allocation, payment flexibility, margin structure and trade marketing budgets.

The rising shift in dynamics also debate whether use of fear and intimidation must be adopted to effectively manage relationships. Or should trust be the fundamental premise of longstanding association? If the latter were true, in that case what should be an ideal framework that can be leveraged for long-term benefits by both parties?

The Harvard School team had conducted an extensive global survey to understand the manufacturer-retailer relationship. They arrived at the conclusion that although organizations are adopting fear as a tactic, it is after all a short-term measure. While it may work immediately, it defeats the purpose in the long-run.

Nature of Trust between Manufacturer-Retailer

Trust for a large number involved dependability. Corporate managers believed that distributors were partners who would honor their word. As a general observation, the nature of trust is such that retailers wouldn’t demand additional concessions on order booking and multinational manufacturers will abide by the fulfilled agreements. The core attribute that distinguishes trusting from distrusting relationships is the ability to take decisions for each other’s welfare.

An association that is high on information exchange and communication are important factors to build a trusting relationship.

Ways to strengthen Manufacturer-Retailer relationship

  1. Create Value – As partners, retailers and manufacturers work cohesively towards a common goal to provide maximum value to its customers at the best prices.
  2. Building competitiveness – A constructive partnership promotes idea and experience sharing. Retailers are quick to provide competitive information based on their pricing, quality, reliability and industry trends.
  3. Innovation – Since retailers are living the product and its features, they can offer valuable inputs for product innovation while understanding the company and its industry trends.
  4. Financing options – When the retailers are loyal and financially considerate, there is scope for them to tap additional financing options once they expand. It may take extended terms on new purchases, investments or loans in the company. These measures significantly improve the cash position of the company.
  5. Timeliness – Timely deliveries are crucial to how retailers perceive of manufacturers. Quick turnarounds minimize inventory, which in turn translates to lesser cash needs and reduced risks.

Developing good relationships with the retailer is a simple process that strongly plays on the power of trust and communication. In this process, the company and their distribution channels jointly exploit their complementary skills to reduce transaction costs and adapt to market volatility. In addition, they also ideate new ways to enhance customer satisfaction.

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