Demi van de Pol | Summary | Marketing Channel Management | TISEM | Tilburg University | Fall-2022
SUMMARY MARKETING
CHANNEL
MANAGEMENT
Demi van de Pol || Master Marketing Management || Tilburg University || 2022
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, Demi van de Pol | Summary | Marketing Channel Management | TISEM | Tilburg University | Fall-2022
CONTENT
This summary is written for the course “Marketing Channel Management” during the semester Fall-
2022 and is part of the master Marketing Management. The input for this summary consists of all the
course material including lectures, knowledge clips and articles.
MODULE 1: Introduction to Marketing Channel Management
ARTICLE 1: GEYSKENS (2017). “RETAILER POWER IN THE GROCERY INDUSTRY”
Nowadays, retailers rank among the biggest corporations in the world. Through their sheer size,
retailers have become the gatekeepers to shoppers, the end users of consumer packaged goods (CPG
products). 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.
There can be made a distinction between two sources of retailer power: (1) growing retailer scale
and (2) growing retailer sophistication. Retailers have grown in scale through internationalization, a
consolidating wave of mergers and acquisitions, and buying group membership. Furthermore,
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.
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
● Entering into buying groups
Internationalization
The fact that retailers have set up international operations has contributed to the shift in power from
manufacturers to retailers. Retailing companies that were formerly characterized by a local or
national orientation have increasingly developed into global players with worldwide operations.
In the 1970s and early 1980s, retailers expanded into neighbouring countries. Only in the late 1980s
true internationalization was initiated as retailers wanted to reduce their reliance on the conquered
stagnant markets. When entering emerging markets firms may need to rethink their strategies
instead of using their developed world wisdom as a default option as it may be necessary to operate
with a different approach.
In addition to entries, also exists 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. 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.
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, Demi van de Pol | Summary | Marketing Channel Management | TISEM | Tilburg University | Fall-2022
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.
Buying groups
Buying groups are horizontal, typically cross-border collaborations through which retailers purchase
from suppliers.
Buying groups can be seen as the most powerful participants in the market as by pooling volume and
using their influence, 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. Buying groups generate scale advantages for their members as group scale
increases group members’ productivity and sales and decreases their cost of goods sold.
However, 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.
Although a wide geographic scope allows for insight in price differentials across many countries,
which can be used to exchange information about price differences between the buying group
members and to negotiate lower buy-in prices, 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.
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, agreeing on the
product range to be sourced may be more difficult when the buying group covers many different
retail formats.
SOURCES OF RETAILER POWER: GROWING RETAILER SOPHISTICATION
The 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. Retailers 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. In addition, it provides some
“insulation” of their power should a certain retail format run into difficulties.
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, Demi van de Pol | Summary | Marketing Channel Management | TISEM | Tilburg University | Fall-2022
Many retailers are now looking to alternative routes to gaining an international presence – methods
which carry less risk and provide greater flexibility than greenfield expansion or mergers and
acquisitions. Shifting demographics (ageing populations, shrinking households, urbanization, and
fast-paced lifestyles) are driving demand for proximity retailing, which explains the diversification of
retailers into the convenience channel.
Through diversifying into discount and convenience formats, retailers’ stores are better tailored to
meet the different consumer needs in individual catchment areas, thereby increasing retailers’ sales
and their power in the supply chain.
Besides demographics changes, also environmental changes find place, such as the COVID-19
pandemic. An emerging diversification strategy is the ‘click and collect’ format, also referred to as
‘buy online, pick up in the store (BOPS)’. In the click and collect format, consumers place orders
online but pick up the goods themselves later, at no extra fee. Click and collect is rapidly becoming a
success in many countries. By diversifying into click and collect, retailers hold yet another revenue-
generating gateway to shoppers, thus further increasing their power position.
The growth of online in particular has provided an opportunity for a whole host of smaller retailers to
reach out to a wider international audience. The emergence of marketplaces has opened up huge
potential markets. Moreover, selling through these marketplaces is a fraction of the cost of setting
up a physical store network abroad. Format diversification into international marketplaces further
increases retailer power.
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. 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.
A first key element in creating “true” private label brands is the development of multi-tiered
offerings. Three-tiered private label programs follow a “good, better, best” approach: They include
an economy and a premium private label tier in addition to the standard private label that has been
around for a long time. Whereas economy private labels are no-frills bottom-of-the-market private
labels that typically economize on more expensive ingredients to reduce costs, standard private
labels imitate mainstream-quality manufacturer brands and are positioned as mid-quality
alternatives. Premium private labels, in turn, are at the top end of the market and deliver quality
equal to (or even exceeding) that of premium-quality national brands while typically still selling for a
slightly lower price.
A second key element in creating “true” private label brands is their brand name, which allows
consumers to more easily differentiate among various private labels. After all, “the key to branding is
that consumers perceive differences among brands in a product category” (Keller, 2012).
The vertical differentiation of private labels into premium-standard-economy tiers, and their
increased brand equity, have contributed significantly to retailers’ power rise. A retailer’s private
labels may also get stronger due to distribution partnerships or alliances with retailers around the
world, including online grocers, as well as the above-mentioned international marketplace platforms.
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