A manufacturer some way or the other is looking for new ways to expand his business and increase sales. Selling directly to end-users is an effective way of generating revenue but when a manufacturer works with a retailer to get his products in the marketplace, they can reap benefits like garnering brand loyalists and growing revenue. But does manufacturer-retailer collaboration truly yield the desired business result?
Research suggests that manufacturers that are winning over their category are those who have strengthened and deepened their collaboration with retail partners forming “Power collaborations” that yield meaningful results both in terms of revenue and growth.
Retailers have become increasingly adept at capturing consumer loyalty through effective merchandising, innovative private-label offerings, targeted pricing, and rewards programs, whether they operate traditionally or electronically. Because of their ability to control market access and influence consumer purchasing behavior, manufacturers not only need retailers more than ever but also need to understand what makes retailers tick.
Benefits of Collaborating With Retailers
Examine the benefits that retailers bring to your business and then decide whether it belongs to your business model or not:
1. A retailer becomes the sales arm of your brand
A manufacturer’s primary business practice is to manufacture and package products. A retailer acts as your company’s sales arm, and you don’t have to pay for it. You can reach a large number of retail outlets without investing any of your company’s money in developing and maintaining that business network.
2. Increased Customer exposure
A retailer’s primary responsibility is to establish and manage a network of potential customers. Many retailers can help you reach a specific demographic. When you use a retailer, you can get your product out to a mass market to increase customer exposure, or you can reach a specialty target audience without doing any market research.
3. Stay up to date on customer preferences
Retailers frequently deal with end-users. If you want to conduct market research on a current product or get feedback on new ideas, a retailer can collect that information directly from your end-users. This allows you to take advantage of a retailer’s large network of clients to stay up to date on customer preferences.
4. Get hands-on larger customer data
Retailers have access to a lot of customer data, including traffic and purchasing information. Manufacturers may gain access to a variety of data sets by maintaining positive relationships with retailers, allowing them to better market products, connect with customers, and make positive adjustments to future marketing initiatives.
5. Partnerships create Brand and Retail Synergy
By collaborating, brand manufacturers and retailers can ensure a positive customer experience, track the sales funnel to see how customers arrived at the product, and capture the sale in the most convenient location for the customer. Collaboration with retailers and the creation of brand synergy across all purchase channels boosts revenue for both manufacturers and retailers. These alliances pave the way for brand loyalty and repeat purchases, which benefit both parties.
When relationships between manufacturers and retailers become strained, the customer experience suffers. Manufacturers should make it simple for customers to find products both on their websites (if they choose to participate in e-commerce directly) and on the websites of retailers. Don’t make your customers look for your products. This results in a poor user experience, lost sales funnel tracking and data, and possibly the loss of the sale. Missing out on valuable data gathered by retail partners could have a significant impact on sales and product growth.
”The most important thing to provide is a streamlined shopping experience that allows customers to easily locate and purchase your products.’’
Principles for successful collaboration
Co-create long-term strategies
Both parties in a partnership should be aware of each other’s medium- to long-term objectives. Both sides must be willing to share three- to five-year strategic plans and build a joint long-term vision.” In an ideal world, 60% of the time spent together would be spent on strategic initiatives and 40% on delivering the annual plan.” Conversations should focus on long-term goals and growth rather than cost cuts and quarterly results.
Create an agile business model.
To support nimble execution, the manufacturer–retailer operating model must evolve. The best collaborations have adopted agile principles, such as reviewing and prioritizing collaboration topics and allocating resources dynamically, including bringing in topic-specific experts, during collaborative “sprints.” This transition to an agile model is made up of three parts: structure, cadence, and incentives.
- Structure
It is difficult to be truly agile if the manufacturer’s functional experts are out of sync with and disconnected from the retail partner. If you want your collaboration to meet its goal, create account-specific (rather than brand- or category-wide) functional roles, particularly for capabilities like category management, e-commerce, and supply chain. Manufacturers should also include their consumer-insights teams in discussions with retailers. - Cadence
Quarterly meetings for joint business planning, as several interviewees emphasized, are no longer sufficient. Real-time collaboration is essential. Agile operating models enable much more frequent, as-needed interaction, resulting in value-creating actions. - Incentives.
Winning manufacturing firms align their incentives with those of their retail partners. They can create joint scorecards with clearly defined key performance indicators and targets that benefit both parties.
Collaborate across the full value chain
Finally, the most successful power partnerships address all commercial and operational issues. Manufacturers are more likely to benefit from cross-functional collaborations on topics ranging from trade optimization to merchandising to supply-chain improvements.
Some manufacturers and retailers are expanding their collaborations by investing together in new ventures. Companies that broaden the scope of collaboration reap a variety of benefits, including increased promotional effectiveness, product assortments that better align with consumer needs, lower transportation and inventory costs, and extra funds to reinvest in demand-driving in-store activities or innovation.
Manufacturers that have chosen to be transparent in their retailer partnerships—open about their long-term strategies, sharing insights and opportunities, aligning on metrics, and seeking collaboration outside of traditional commercial areas—have earned the trust of retailers and, as a result, outperformed their peers.