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Summary Mandatory Papers - Marketing Channel Management 2022
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SUMMARY MANDATORY PAPERSMARKETING CHANNEL MANAGEMENT
Lecture 1 – Setting the Scene..................................................................................................................................................2
Lecture 2 – Channel Desing...................................................................................................................................................4
Lecture 4 – Partnerships........................................................................................................................................................8
Lecture 6 – Assortment & Promotions..................................................................................................................................13
Lecture 8 – Private Labels…............................................................................................................................. ...................21
Lecture 10 – Value Disruptors.............................................................................................................................................24
EXAM
- Papers: Data and method do not have to be studied. No exam questions in articles that has not been
covered in class, just to get to know the stuff from lectures better.
- Computer exam in test vision: A number of true false statements, have to explain why or why not
- Mini case studies with newspaper clippings
1
,READINGS LECTURE 1: SETTING THE SCENE
Paper 1: Retailer Power in the Grocery Industry
Retailing has become big business. Indeed, retailers now rank among the biggest corporations in the world,
often dwarfing their largest suppliers.
Through their sheer size, retailers have become the gatekeepers to shoppers, the end users of consumer packaged
goods (CPG) products. A relative handful of retailers now controls access to enormous numbers of consumers.
As a result, these retailers can confront suppliers with various demands – such as lower pricing, accelerated
delivery times, more tailored promotional programs, and more sustainable products and processes – and may
temporarily stop selling certain products if a manufacturer does not comply with their demands.
This paper provides an overview sources of retailer power. It distinguishes between two sources of retailer
power:
1. Growing retailer scale: Retailers have grown in scale through
- internationalization
- a consolidating wave of mergers and acquisitions
- buying group membership
2. Growing retailer sophistication: However, the playing field is tilted further in favor of large retailers than
indicated by their sheer size. Retailers have grown into sophisticated businesses, that are growing
organically through multi-channel operations and that have become competitors to their suppliers by selling
private labels.
- Format diversification
- Private labels
1. Sources of Retailer Power: Growing Retailer Scale
Larger firms tend to have more market power, as they enjoy economies of scale. Retailers have achieved
economies of scale through setting up international operations, engaging in mergers and acquisitions, and
entering into buying groups.
- Internationalization: Retailing companies that were formerly characterized by a local or national
orientation have increasingly developed into global players with worldwide operation.
o As shown by Gielens and Dekimpe (2001), those players who entered early, with substantial
scale, using greenfield investment, and offering a store format that was at the same time new to
the host market and familiar to the parent company fared best, both in terms of long-term sales
performance and in terms of efficiency (sales per square meter). All top 10 retailers, such as
Walmart and Carrefour, are targeting Africa and the Middle East. It is as yet unclear whether
the effects of the strategic entry decisions studied by Gielens and Dekimpe (2001, 2007) for
Eastern-Europe still hold when entering these new economies. Indeed, firms entering emerging
markets may need to rethink their strategies instead of using their developed world wisdom as
a default option.
o Interestingly, in addition to entries, also exits have become more common. The fact that retailers
are starting to focus on certain regions and withdrawing from others may be a signal that they
cannot be leading players everywhere around the world, although they can be very powerful on
a more limited regional basis.
- Mergers and acquisitions: When entering through greenfield expansion, being early is critical to
success. Indeed, being able to preempt the most attractive store sites may substantially increase the sales
potential of the retailer’s new stores in the country. Firms considering an entry in countries where many
retailers are already active, should realize that the most attractive positions have been taken for some
time. This issue is less important when opting for a merger and acquisition as the retailer may acquire
or merge with an earlier entrant that occupies the better locations.
o Van Lin and Gijsbrechts (2014) find that consumers exhibit outlet loyalty after a store changes
ownership. Moreover, acquiring outlets with a clientele in place leads to higher store traffic
levels than the acquiring retailer could reach by opening new outlets, which implies that
acquisitions increase retailer power more than organic growth does
2
, o As such, one merger or acquisition sparks others in a chain reaction, further contributing to the
overall increase in retailer power.
- Buying groups: Buying groups are horizontal, typically cross-border collaborations through which
retailers purchase from suppliers. By pooling volume and using their power, larger buying groups can
keep suppliers “on their toes” and extract better buy-in prices than might be achieved through individual
negotiation. Lower buy-in prices may result in higher margins but also enable retailers to (selectively)
reduce retail prices, which in turn may increase retailer sales
o Buying groups are the most powerful participants in the market
o However, bigger is not always better. Retailers benefit less from buying group scale when the
group is more heterogeneous in terms of member size. Moreover, relatively smaller members
win the least, presumably because they have to agree with the whims and wishes of their larger
counterparts. As such, when buying groups are on the lookout for new members, they should
try to attract similarly sized retailers. Similarly, retailers that want to join a buying group should
prioritize groups that are made up of similarly sized firms, and avoid riding the coattail of larger
retailers, a strategy that is much less desirable than it may appear at first sight.
o A high degree of geographic-market overlap between the members should be avoided. If
geographic overlap is high, advantages of buying group participation are also available to one’s
direct competitors.
o While a wider geographic market scope of a buying group increases retailers’ power, a wider
product-market scope (i.e., the number of different store formats represented in the buying
group) does not. The narrower the product-market scope of the buying group, the larger the
beneficial effect of the group’s scale on its members’ performance. Because retail formats differ
greatly in terms of product assortments and the consumer segments to which they cater
o There is further pressure on suppliers as also buying group executives are frequently switching
between groups, leveraging insider knowledge of each other’s terms, and making buying groups
even more powerful sources to reckon with.
2. Sources of Retailer Power: Growing Retailer Sophistication
What was once a simple way of doing business has been transformed into a highly sophisticated form of
management and marketing. In particular, the better availability of customer data is contributing to retailers’
power surge. Due to these data, retailers have become much closer to the consumer than manufacturing
companies. They have seized that opportunity to diversify into different channels – to target different consumers
-- and to develop their own private labels – to increase consumer loyalty to their chains.
- Format diversification: Diversification is an important strategic option that can be taken in search of
new opportunities. While not every store format may be a long-term success, this diversification
strategy allows retailers to target different consumers and cater to different shopping occasions. (e.g.,
the diversification of retailers into hard discount and convenience formats has or the diversification of
brick-and-mortar retailers venturing into online channels. (while online channels may be hard as some
shoppers do want fast delivery without paying the fees, the click and collect format, where consumers
place orders online but pick up the goods themselves later, at no extra fee proves successful. By
diversifying into click and collect, retailers hold yet another revenue-generating gateway to shoppers,
thus further increasing their power position.
- Private labels: Private labels, also known as store brands or retailer brands, have been extremely
successful in the past years. Through private labels, retailers’ channel power over brand manufacturers
increases because retailers can threaten not to buy manufacturer’s products, as they now also have
private labels as alternatives
o Offering a private label program thus reinforces retailers’ bargaining position and enables them
to obtain more favourable terms from brand manufacturers than would otherwise be expected
under normal competitive conditions.
o A first key element in creating “true” private label brands is the development of multi-tiered
offerings, to cater to the cherry-picking trend. Three-tiered private label programs follow a
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