Manufacturer Retailer Conflict Inevitable Marketing Essay
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 3583 words||✅ Published: 1st Jan 2015|
With the emergence of large retail chain in the developed countries we have seen a shift of power from the traditional power house, the manufacturers to these large retailers. This power shift first came to notice with cases such as COKE-COSTCO conflict. However there has been no study in this regard for the Indian consumer market which has seen the rise of Modern trade in the last decade with Subhiksha and Big Bazaar leading the charge.
Our purpose is to study and analyze if there has been any such power shift in case of the Indian FMCG sector. Although to study this shift in detail a thorough analysis of policies, contracts and margins is need, which is not publically available. However we decided to delve into the perception part of the study.
Differences in ultimate goals and objectives between manufacturers and retailers will always produce at least some disagreement. The conflict between manufacturers and retailers can be measured in terms of the frequency and intensity of disagreements, as well as by the relative importance of the conflict (stated here as importance to the manufacturer). It also becomes possible to analyze the conflicts, determine their sources, and implement strategies to deal with them.
Differences in ultimate goals and objectives between manufacturers and retailers will always produce at least some disagreement.
Channel conflict occurs when manufacturers bypass their channel partners, by selling their products direct to consumers or over the internet through ecommerce.
The conflict between manufacturers and retailers can be measured in terms of:
frequency of disagreements
intensity of disagreements
relative importance of the conflict
It also becomes possible to analyze the conflicts, determine their sources, and implement strategies to deal with them.
Sources of Conflict:
Differences in key factors–goals, desired target accounts, desired product lines, and interpersonal relations
Differences in channel design
Differences in channel policies.
Some Evidences of Conflict:
Costco vs Coke and Kraft foods
Costco vs Coke
In November 2009, Costco stopped restocking all the Coca Cola products in an unusually public spat.
Costco Spokesperson said, “We cannot provide the value our consumers deserve”.
Haggle over prices that consumer should pay for the beverages
The issue was resolved after four weeks of negotiation.
Costco vs Kraft Foods
Costco temporarily pulled Capri Sun, a juice drink brand of kraft foods from its shelves.
They put up signs on store shelves and notices on its Web site.
Kraft Foods reduced the amount of juice per pouch and apparently raised price
Lays and Big Bazaar
In June 2007, Kishore Biyani’s Big Bazaar and Food bazaar pulled All of Frito Lays products off the shelf
PepsiCo breached the contract by reducing the margin and supporting other retailers. i.e., taking unilateral decisions not keeping Big Bazaar in loop
Frito Lays products out of 57 big bazaar and 70 food bazaar stores
The tussle was resolved after 4 months in the last quarter of 2007-28.
Big Bazaar’s private brand, “Tasty Treat” picked up sales big time
ITC Bingo brand took the 2nd largest brand position in these stores
Resolving Power conflict in the Value Chain by Lisa S Mcneil and Kim Shyan Fam
Sustainable competitive advantage can be built by coordination between manufactures and retailers but Power conflicts must be resolved before profitable relationship can be established.
This paper considers the issue of power conflict and coordination of goals in the supermarket industry, comparing manufacturers and retailers operating within one country (New Zealand) to those operating across and between cultural borders (New Zealand to Singapore and Malaysia and between Singapore and Malaysia).
Background: The relationship between retailers and manufacturers in the supermarket industry has tended to become based on conflict, often stemming from unequal power balances, incongruent goals and opposing strategic orientations. In terms of retail sales promotion management, it is posited that the greater the collaborative management behaviour between the two channel partners, the more likely they are to align their objectives and strategic goals.
Sometimes, one channel member forces their demands on to another in order to achieve their own strategic objectives. Also, there can be collaborative management of marketing tools such as sales promotion between two channel partners.
Research design comprises of a case-study, with three general cases(the New Zealand, Singaporean and Malaysian supermarket retail industries) made up of two embedded cases each (retailers and manufacturers operating within and between each country). The research design for the in-depth interviews included four clusters of interviewees (local retailers, local manufacturers, multinational retailers and multinational manufacturers) and 18 research interviews were conducted with 24 employees involved in channel negotiations participating.
Retailers and manufacturers prefer different types of sales promotion tools. For e.g. retailers concentrating on price-based tools and manufacturers preferring value-added tools. Often manufacturers were forced to use tools preferred by the retailer, often not meeting their own marketing objectives. Thus the power is more with the retailer rather than manufacturer.
Higher level of conflict were seen where there were differences in objectives
Establishment of trust and sharing of objectives is crucial for success in the supermarket retail environment. Rather than negotiating, channel members should focus on relationship building and alignment of goals which will result in synergy and efficiency of both manufacturer and retailer.
Political Role of Trade Associations in Distributive Conflict Resolution by Henry Assael
Differences in economic objectives result in conflict among channel members. This paper talks about Role of Trade Associations in resolving conflicts due to differences in goals/objectives. The paper is based on postwar distributive conflict.
The paper says that Conflict can be resoluted through Direct Negotiations and Bargaining.
Political role of retailer, manufacturer and wholesaler trade association was studied in this paper.
Two modes of conflict resolution were studied:
Political Resolution: Activity directed to power source outside the channel.
Self-Resolution of conflict among channel members i.e. internal resolution.
Different views on retail management create high intensity of conflicts among channel members.
When members feel direct economic threat from other channel members, associations resort to remedial political action.
Reliance of self resolution is increasing rather than relying on political resolution.
Nike Channel Conflict (Graduate School Of Business, Stanford University Case Number: EC-9B)
Nike had rolled out an ambitious e-commerce initiative, signed an exclusive deal with Fogdog sports that allowed NIKE products to be sold by a pure internet company for the first time, and had grown from twelve to 150 employees. But nike.com faced countless critical decisions in the coming months. Specifically, nike.com needed to plan not only its own direct-to-consumer sales strategy, but also its policies and rules for on-line sales of NIKE products by other vendors.
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Fogdog had repeatedly requested to carry the NIKE product line, only to be rebuffed by NIKE. In the end, Fogdog’s pricing policy of respecting manufacturers’ recommended minimum prices and reputation was attractive to NIKE. Fogdog was able to point to three years of consistently executing its pricing policy. Due to its ownership stake, NIKE had an incentive to make the deal work for both sides and agreed to treat Fogdog like any other major account, including preferred prices, joint promotions, and information sharing. Fogdog also received other special considerations from NIKE, such as product images for display on the fogdog.com website, product and sales data sharing, and unusual return privileges.
Traditional retailers of NIKE products, always concerned about being cannibalized by direct sales, had more reason to worry than ever before as they were denied the opportunity to compete head-to-head with NIKE for internet customers. NIKE knew it would have to strike a difficult balance to keep its traditional retailers content while expanding the company’s own direct sales efforts. NIKE hoped that by maintaining full retail pricing on its site, it would alleviate traditional retailers’ concerns over unfair competition. NIKE understood that the real opportunity for nike.com lay in defining a new, more profitable channel for selling shoes and other goods to consumers.
As NIKE considered further expansion into e-commerce, the company had to rethink its approach to nearly every core function it performed or managed. Manufacturing standards would have to change if NIKE was to ship goods directly to consumers who had to rely on consistent sizing for sight-unseen purchases. NIKE needed to learn manufacturing planning and inventory management to suit uncertain consumer demand rather than pre-determined retailer orders. The customization of marketing facilitated by the web gave NIKE reason to rethink its approach to athlete selection as athletes with smaller but intensely loyal fan bases could be better utilized.
Direct-to-consumer sales also allowed for greater pricing flexibility and forced NIKE to better understand price sensitivity across narrow bands of consumers.
Conflict in the Manufacturer-Retailer Relationship: Sales Promotion In The New Zealand Supermarket Industry by Lisa S Simpson University of Otego
Business to business relationships have typically been defined in terms of constructs such as trust, commitment and the sharing of values, yet in terms of the relationship between the food product manufacturer and the supermarket retailer, manufacturers are increasingly in adversarial retail relationships where they are pressured to provide sales promotion allowances that do not always fit with their strategy for building brand value. This paper looks at some of the antecedents to a lack of trust and an unequal power balance in the manufacturer-retailer relationship and highlights the need for an increased understanding of the other party’s objectives by firms in a dyadic channel relationship.
The author conducted in-depth interviews with 11 members of the supermarket retail industry throughout New Zealand, nine supermarket retailers and two manufacturers of consumer food products. The research shows that manufacturers view themselves as dependent on the dyadic manufacturer-retailer channel relationship (38% of manufacturer perception comments related to retailers holding the power in the relationship) and manufacturers are more likely to feel manipulated and exploited by retailers than retailers are by manufacturers (25% of 38% of manufacturers perception comments related to this).
In addition, retailers tended to agree that they held the balance of power in the dyadic channel relationship (25% of perception comments related to this) and did not feel that manufacturers were manipulative or exploitative at all. Prior literature suggests that the channel member who holds the majority of power in the relationship is less likely to perceive conflict in the relationship and is more likely to perceive the relationship positively.
The conflicting objectives of retailers and manufacturers with respect to sales promotion use leads to conflict in the exchange relationship and, the manufacturer may feel powerless to implement sales promotions that achieve their own objectives due to pressure from the retailer to provide whatever they ask for. The study therefore highlights the need for development of jointly-beneficial sales promotions, where, as one manufacturer puts it, the use of promotion becomes a win-win situation where you as a brand are going to do better obviously, but the trade are going to make more money out of your particular brand because you’re supporting it more strongly.
The objective of this study is to understand the power balance between manufacturer and retailer from the point of view of conflict. We are testing the following hypothesis through this study
There has been a shift in power from Manufacturer to Retailer in Modern Trade Channel
There has been no such shift in case of General Trade
First we have done Secondary Research by doing Literature reviews of some relevant case studies and articles. Then we have framed the hypothesis as mentioned below.
Formulation of Hypothesis
Framing Null Hypothesis
Based on Modern and Traditional Retail
Use of excel with graphs
Reject or Fail to reject the null hypothesis
1) There has been a shift in power from Manufacturers to retailer in Modern Trade
2) There has been no such shift in case of General Trade
After this we designed the questionnaire based on our understanding of the literature and keeping in mind the hypothesis.*Questionnaire can be found in the Annexure I.
We have done a primary survey of 33 retailers and found out if there are any cases of conflict or disagreement in the channel, and what are the areas which the channel members may have conflicts. Mentioned below is the flow of our primary survey.
Visit to Retailer Place
Single Brand Stores (Nike, Levis Store etc)
Multi-Brand unorganized stores ( local kirana/ mom & pop stores)
Multi-Brand Organized Stores (Croma, 24*7)
Understand Contract Agreements
Incidents of Conflicts
Areas in which Conflicts may occur
Telephonic Interviews(A few retailers)
Note: We faced considerable issues while administrating the questionnaire. Following are the major issues
General Trade retailers were reluctant participants. And their answers were not consistent throughout the interview
Since language was a major hurdle. Questionnaire could not be directly administered. We explained each situation to the retailers and then filled the questionnaire on their behalf as per their answers. *Here there is a possibility of confirmation bias. Because we were explaining them the situation it is possible that we inadvertently lead them in confirming our expectations.
There were certain questions which redundant in case of single brand retail. However it would’ve been very cumbersome to collect data from different questionnaires and then try to compare it. Hence we decided to go ahead with only a single questionnaire.
We managed to collect data from 33 stores in total. Out of these 19 belonged to the Modern Trade category and 14 to the General Trade. Although initially we had decided to test our hypothesis statistically but the owning to the overwhelmingly one sided responses, we decided not to.
Satisfaction level with the policies of Manufacture
Following graph shows the general satisfaction level of the retailers. Here we can clearly see that retailers belonging to the GT were generally unsatisfied.
**This could also be attributed to the fact that being business owners themselves they constantly seek to improve margins and profits and hence see the manufacturers as poaching their profits.
Increase/ Decrease of satisfaction over time period of 5 years
The intention of this question was to capture any change in perception since Modern Trade took off in India. As we can see there is not much of a difference between the retailers from Modern Trade and General Trade.
Frequency of disagreement
The higher frequency of disagreements in GT as compared to MT can be attributed to the professionally run nature of Modern Trade. Hence there is better coordination between manufactures and MT visa-viz General Trade.
Intensity of disagreement
The intensity of disagreement tend to be higher in GT than MT. This is contrary to our expectations. Since there is more equitable power distribution in modern trade, we expected to see tougher stand-offs between the manufacturers and retailers. However this was not the case. This feature can again be attributed to better coordination and understanding between manufacturers and Modern trade retailers.
Tolerance Level of Manufacturer regarding goal incompatibility
This question directly captures the power distribution in FMCG. Here we can clearly see that Manufacturers are more tolerant towards Modern Trade retailers.
Tolerance Level of Manufacturer regarding targets & market segment
Here we can clearly see that Manufacturers are more tolerant towards Modern Trade retailers.
Tolerance Level of Manufacturer regarding functions to be performed by each channel member
Here we can clearly see that Manufacturers are more tolerant towards Modern Trade retailers.
Tolerance Level of Manufacturer regarding perceptions about needs, size, trends, growth rate etc. of the markets and industry
Here we can clearly see that Manufacturers are more tolerant towards Modern Trade retailers.
The intention of this question was to capture how do the manufacturers treat their retailing partners. Here we can see that in Modern Trade Manufacturers took feedback more often than in GT. However this result could also be attributed to the fact that it is easier for manufacturers to collect feedback from professionally run organized Modern Trade outlets visa-viz General Trade.
Following are some of the key areas where we wanted to capture the differential treatment of Modern trade and General Trade
Product Placement Control
Credit Policy Control
Inventory Policy Control
Promotion Policy Control
On the surface the above graphs overwhelmingly confirm both are hypothesis. There has definitely been shift of power away from the Manufacturers. But the dilution of power has not been as much as in the developed countries. This is largely due to the fact that there is no single MT retail player in India which can boast of the sizes comparable to COSTCO. Also there are certain areas such as product placement where the tussle is still continuing. Apart from this Modern trade in India can termed as in its nascent stage.
However these results need to be taken with a pinch of salt. These results cannot be treated as the correct picture of the MT and GT marketing channels in FMCG. These results represent the perception of the retailers rather than absolute scenario. Following are some of the key points to be kept in mind while interpreting the findings.
The responses may suffer from confirmation bias due to the nature of data collection methodology
The retailer perception may not represent correctly real scenario
In GT the respondents were mostly the shop owners whereas in MT they were mostly the employees. This also can distort the results to a great degree.
A more detailed study is needed to probe the issue deeper.
A perception comparison study, covering both manufacturers and retailers would bring out the real issues more clearly
The customer understanding of the GT store owner is not being utilized fully. Manufacturers should make more effort on this front
Insights from Primary Survey:
Campus Corner: There is no sales pressure and he stocks only what he wants. No sales incentives from the company as he is a very small retailer whose monthly sales might be in 1000s
Big apple: Product placement and prices are decided by big apple. Companies have no say in deciding.
Apollo Pharmacy: monthly targets given by the central planning team. No monthly targets for individual products but a total revenues target. Company reps come and visit monthly to look whether the companies’ products are stocked and visible or not. Shelf given to companies. They can decide what product to be placed where.
Twenty-Four Seven: product placement done by the 24*7 planning team. All the items to be stocked also done by 24*7.
Levis: The marketing plan and promotions are decided by the parent organization headquarters. The retailers have no say.
Nike: The discounts and offers are decided by the parent organization and the retail store has no say in this.
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