Otsikko

Otsikko

10 September 2013

8 tips to sell an unknown product and brand to retailer

LG has just made a time-limited, exclusive distribution agreement with Best Buy on newest TV model sales in the United States. But few vendors have strong enough brand or enough marketing money to easily recruit retailers or especially retailer chains to sell vendor's products to consumers. In summary, strong bargaining power of retailers makes building of retail channels one of the most challenging go-to-market activities.

Retail Business

Retail business models vary widely depending on the role a retailer takes, i.e. what functions of product retailing and services a retailer delivers to an end customer. This post will focus on product sales, where services are primarily in a supporting role.

In order to make a retailer a compelling cooperation proposal, it is important to understand, how retailer business model works and what the key measures to evaluate success are. Put simply, the three main measures are sales, margin and productivity, more information can be found e.g. here.

Revenue growth is a key objective in retailing. To affect it, among the most important levers are product mix and its promotion, store format and location, customer profile, retailer positioning and pricing.

Profitability is monitored, above all, through gross margin and net profit, both in money and percentage terms. Gross margin is a measure of retailer´s value added, a difference between the price paid to suppliers and the price obtained from end users. Net profit is gross margin minus overheads, such as advertising and promotional costs, store costs, distribution and logistics, as well as administrative and financial costs.

Inventory turn as well as sales and profit per used store space (m2) are the most important productivity measures.

After a retailer is identified as a potential partner to complement vendor´s channel strategy, the next task is to analyse in more detail retailer´s strategy and business fundamentals, as well as its opportunities as a seller of vendor´s products. On this basis, strategy, tactics, and business case are developed, aiming at merchant to accept vendor´s cooperation proposal. In the following we introduce 8 building blocks that can be used to assist in formulating a lucrative offer, matching with merchant´s sales, margin and productivity objectives. The ideas are best suited to tackle retail chains with physical stores, but they can be adapted to create argumentation for online retailers, too.

Positioning for growth

If a product takes a merchant to new growing businesses, it becomes much more interesting. A product may spearhead use of some new technologies that are about to be introduced also in many other product categories. On the other hand, a product may be the first one in emerging and significant product category or market segment. In addition, a product may primarily generate demand among consumers, who are the most lucrative customers, because of their regular large or high margin purchases.

A vendor needs to explicitly document, how the future lucrative market will emerge and also numerically justify opportunities for retailers. A retailer is thus getting coaching, what kind of new business opportunities are looming ahead and how to develop necessary skills and competences necessary for them. If a vendor is also able to lean on success cases from other countries or market areas, it has a chance to be considered as a valuable cooperation partner, beyond basic supplier role.

Creation of new demand

Being able to appeal new customer groups that have previously been non-customers, in other words hesitating, refusing or not explored ones, is an extremely interesting message for retailers. To convince a merchant, a vendor must be able to clearly demonstrate the elements and features in its offering that are appreciated both by current customers and non-customers. A vendor may also bring in new customers by introducing a product that offers less features than competitors´ ones, but still enables new customers to get their jobs done, all at a lower price (low-end disruption).

Reaching new customers

By doing active and well-designed inbound marketing, a vendor may be able to generate plenty of consumer attention and interest around its products. For example, social media presence can create a community that actively increases consumer pull through word-of-mouth and viral activities. Correspondingly, product functionality can be extended with an application that also gathers a lot of information about customer needs and requirements. A well-thought-out way to link acquired customer interest and insights to serve also retailers, is a valuable asset in getting them engaged.

More sales to existing customers

It is often possible that a vendor can sell complementing products or services to existing customers; complementing offerings assist in using the basic product functionality or enhance the offering to get new jobs done.  This kind of additional product utilities make merchants more important to their customers and increase their share of customer spending. Accordingly, a vendor product may be complemented by some other products or services already sold by a retailer, in order to form a complete, easy-to-deploy solution. In both cases, it is vendor´s job to identify and communicate the opportunities.

Exclusive sales rights

From retailer profitability perspective, it would be best to have no competition in product selling, so that pricing could be done as independently as possible - in other words, a retailer would have exclusive rights to sale. For a vendor, this is very rarely a desirable situation, due to suboptimal pricing decisions, marketing support or market coverage. Exclusive rights for a limited time is an often used compromise, sometimes requiring stronger sales commitment from a retailer in return. If it is possible to make an exclusive version of a product that only a retailer can sell, at least some of the benefits of exclusive deals can be achieved. For example, in mobile phone sales, dominated by operators in most of the countries, both of the above approaches are widely used.

Sales mix margin improvement

By selling more to existing customers, not only increases revenues but might also lead to a higher gross margin percentage, a very nice message at least for a person responsible for the category. For example, accessories and supplies in strongly competed personal computer and laptop sales bring plenty of margin Euros, thus increasing also overall profitability of the category.

Also, if a vendor product has higher margins due to barriers to competition, such as patent protection or proprietary technologies, this should be clearly highlighted when communicating to retailers.

Utilisation of vendor resources

Bringing vendor´s know-how and resources available for retailers improves both profitability and productivity. In order to be cost-effective for the vendor, and to benefit retailers significantly enough, it is good to target the resources only at the most critical success factors and to avoid too long commitments. In the same way, vendor´s partners can be utilised to bring their own know-how, especially if the vendor has privileged access to partner resources.

Business model that supports retailers

Finally, you have to remember the significance of a business model that cleverly supports retail business. The model needs to be developed early enough and recognise the vital role of retailers in economic success of vendor´s product. This needs to be further built in to all business model elements - to assist retailers to reach their key objectives, increase sales and improve margin and productivity.

No comments:

Post a Comment