Marketing Channel Management
PAPER 1 : Retailer power in the grocery industry
Retailers have become the gatekeepers to shoppers, the end users of CPG products
(consumer packaged goods).
Why are retailers in the driving seat? Two sources of retailer power:
1. Growing retailer scale
Through internationalization, mergers and acquisitions, buying group membership.
2. Growing retailer sophistication
Growing through multi-channel operations and selling private labels so they become
competitors to their suppliers.
Growing retailer scale
More market power, because of economies of scale.
Internationalization
Started in 1980. This caused a shift in power from manufacturers to retailers. Early
entries, 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, in terms of long-term sales performance and efficiency.
Local/national orientation global players with worldwide operations.
Exists have become more common. Retailers cannot be leading players everywhere
in the world (Africa and South-East Asia), although they can be very powerful on a
more limited regional basis (Carrefour).
Mergers and acquisitions
Being early is critical to success, when entering through greenfield expansion!!
Entering a country where many retailers are already active, isn’t super attractive. But
this is less important when opting for a merger and acquisition, as the retailer may
acquire or merge with an earlier entrant with the better locations (Jumbo & C1000).
However Van Lin and Gijsbrechts (2014) showed that consumers show outlet loyalty
after a store changes ownership. Moreover, acquisitions increase retailer power more
than organic growth does.
Buying groups
Buying groups are horizontal, typically cross-border collaborations through which
retailers purchase from suppliers. By generating scale advantages, larger buying
groups keep suppliers on their toes and extract better buy-in prices, which results in
higher margins and decreases costs of goods sold, and retail prices, which may
increase the retailer sales.
However, retailers benefit less from buying group scale when the group is more
heterogeneous in terms of member size. So buying groups should try to attract
similarly sized retailers.
, A high degree of geographic-market overlap between the members should be
avoided, because the advantages are then also available to one’s direct competitors.
However, it increases the retailers’ power, a wider product-market scope 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.
Growing retailer sophistication
The better availability of customer data is contributing to retailers’ power surge, therefore,
retailers have become much closer to the consumer than manufacturing companies.
Format diversification
This diversification strategy allows retailers to target different consumers and cater
to different shopping occasions. Moreover, it provides some insulation of their power
should retail format run into difficulties. Through diversifying into discount and
convenience formats, retailers’ stores are better tailored to meet the different
consumer needs, thereby increasing retailers’ sales and their power in supply chain.
Many traditional brick-and-mortar retailers are launching a new format that might
mark the tipping point for online grocery: click and collect, buy online pick up in store
(BOPS). By this way of diversifying, retailers hold yet another revenue-generating
gateway to shoppers, thus further increasing their power position.
Private labels
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. This thus reinforces retailers’ bargaining position
and enables them to obtain more favorable terms from brand manufacturers.
Creating ‘true’ private label brands
1. The development of multi-tiered offerings (good, better, best).
Economy and premium private label tier.
2. The brand name (to differentiate more easily)
The key to branding is that consumers perceive differences among brands in a
product category. This creates more credibility and a retailers’ power rise.
Internationalization & Private labels
Interestingly, domestic standard private label tier products can be marketed as premium
goods in a retailer’s overseas operations. And a retailer’s private labels can also get stronger
due to distribution partnerships or alliances with retailers around the world. Economies of
scale arise when selling a retailer’s private label across multiple countries, contributing to
increasing retailer power.
Internationalization & format diversification
Many retailers are now looking to alternative routes to gaining an international presence,
which carry less risk and provide greater flexibility than greenfield expansion or M&As.
Online creates the opportunity of reaching to a wider international audience. Format
diversification into international marketplaces further increases retailer power
, Buying groups & private labels
Buying groups may provide access to own-brand ranges, which increases the sales of their
members. By gaining economies of scale for sourcing private labels, retailers may further
enhance their power position.
PAPER 2 : Do You Really Want to Be an eBay?
Multisided-platform (MSP) look financially more alluring than resellers. Consequently, their
operating costs are low and their percentage margins are high.
Multisided platforms: marketplaces that allow buyers and sellers to transact directly with
each other.
Choosing the right model
Determining whether more or less control over buyer-seller transactions will allow your firm
to create or extract significantly more value involves the consideration of four factors.
Scale effects
High-demand products are sold more efficiently by one large reseller than by many
small sellers. A reseller can capitalize on economies of scale (in purchasing,
investments, delivery, customer support, etc.). However, this does not apply to low-
demand/long-tail products.
Aggregation effects
Some products/services have much higher value to buyers when bought together
than purchased separately. In those cases, resellers do better than multisided
platforms.
The buyer and seller experience
Multisided platforms create value by matching buyers with the right sellers. This
caused the shift to reseller. Sometimes the need to provide a good seller experience
calls for the reseller model. Multisided platforms often lack the expertise, credibility,
and time to compete with the professional sellers in these marketplaces.
Market failures
The most obvious cause of a market failure is uncertainty about product quality or
about the reliability of sellers or suppliers. Many multisided platforms have solved
this problem without moving to a reseller model (e.g. eBay with their feedback
system). Sometimes it is necessary to move closer to a reseller model by exerting
more control over transactions. Another potential failure is when one side has an
information or bargaining advantage over the other. Intellectual Ventures create
value by correcting the huge power imbalance between small patent owners and
large operating companies.
Start-up and growth
The catch-22 problem
When having a start-up and decided that the multisided platform is the best model for you.
Problem: buyers won’t join your platform if you do not have enough sellers, neither will
sellers if you do not have enough buyers. Solution: sometimes focus on small niche and
growing from there, or resorting the model to a reseller model. However, the reseller model
is probably not optimal in the long run.
