Every relationship, professional or otherwise works most effectively when reciprocity is evident. With any seller to buyer relationship sales figures are the most crucial and potentially contentious element that can define long term success or rapid failure.
As a brand, you want to sell as much to your retailer as possible and in return your buyers want to sell through the most stock to the customer as they can at the most profitable margin. Most brands know that this is very often not a painless process. The need to be tactical is truly essential figuring out ways of working hand in hand with your retail customer in the most effective way possible to maximise your potential, by maximising theirs.
In a recent Myagi presentation, Brian Hume, Managing Director of Martec International had this to say about the current state of retail buyer-seller relationships based on feedback brands and retailers commonly offer when talking to Martec about their buying relationships.
What the Brands have to say:
- ‘’We don’t understand why they chose some of our products over others’’
- ‘’They keep asking for price cuts and longer payment terms rather than working with us to take redundant costs out of the supply chain’’
- ‘’They don’t invest in product training for their store personnel and can’t sell as effectively as we would like’’
What the Retailers have to say:
- ‘’Manufacturers don’t understand our business: Assortment planning, Assortment architectures, Good-better-best, Open to buy””
- ‘’They keep shoving too much inventory at us’’
- ‘’They don’t understand our cash flow’’
[Brian spoke in more detail about this disconnect and concerns this raises in a discussion with Myagi’s customer success team. Find it here]
From the feedback, it is clear that even if you have the most fantastic personal relationship with your buyer, it may be the case that you do not fully understand their business. In the case of an unsuccessful relationship, it is almost certain that one of the main reasons for failure is a lack of understanding of that company’s commercial goals and buying process.
What you need to know as a vendor
One of the first thing to understand as a brand; Is my buyer a Category Management or Merchandise Management retailer?
Below you can see the table outlining the differences between the two, but what is essential is understanding why these differences matter and the impact this understanding can have on your success.
Category management accounts should have the ability to forecast more accurately, run much lower risks with their ranges and thus (generally) have lower margin expectations.
Merchandise management is harder to predict demand for and once a product goes off sale, it may not come round again until the same time the following year and possibly not at all depending on trend cycles.
Understanding where your retailer considers themselves to be is a good way to manage expectations on demand, especially when you consider that one of the biggest pain points that retailers highlighted was manufacturers pushing irrelevant product ranges at them.
Know your contact’s drivers
The next step to ensure you are maximising the potential of your accounts is to ensure you are speaking to the right person. Of course, this sounds very obvious but the point here is that it is not enough to simply know who the right person is and build a relationship with them; you need to truly understand what it is that is motivating them professionally.
Do you understand the bonus structure for your buyer contacts for example? If so, great—but are you utilising this information when negotiating with them about price and quantity of your goods? If you do not know this information, the diagram below will give you a general overview on some metrics that your buyer is measured against. Understand these and you understand where you can leverage and where you can’t.
Another major consideration when selling more of your product into retailers is the range architecture of your account. Typically, retailers have a split between, good, better and best products. Divided roughly along the lines of ‘Good’ (entry level products) that amount to around 25% of sales, ‘Better’ products that are roughly 50% of the sales proportionally and ‘Best’ (high end or specialist) products that account for the remaining 25% or so of sales.
It is important that you understand from the retailers perspective where your product would fit in this architecture. If your product is just replicating a competitor’s at the same position in the architecture, it will be much harder to get it into the range. When there is limited fixture space in the store (so, pretty much always), you must ask—what is unique about your product that will mean it should have priority over other brands?
Watch this walk through real life example:
Protecting Against Excessive Payment Terms
As many of you will undoubtedly have experienced, retailers can often utilise their favorable cash flows and leverage them to add some pressure to you as a supplier by either extending payment terms and negotiating deals where early payments result in greater discounts that erode your margin.
So as brands, what can you do to protect yourself against circumstances?
Understand The CFO Bermuda Triangle
- Gross Margin %
- Inventory Turn
- Payment Terms
Watch as Brian Hume talk through these three steps of the CFO Bermuda triangle to find out how you can protect yourself against worsening payment terms:
If you would like to watch the full presentation by Brian Hume, or download the full 30 minutes audio, you can do so here.
With anything in business it always returns to obvious steps that we should take when trying to generate more business and sell more into our buyers . The reality is, if you do not actually implement these steps day to day, you may be missing out massively on an opportunity to expand accounts and generate more sales with that retailer.
- Identify how your sellers categorize their own style of retail
- Make sure you understand the personnel structure of your accounts
- Understand the bonus structure of the people you need to engage
- Identify where your product fits into the assortment architecture of your account
- Analyse the cash flow of your buyers
- Know how to defend your brand against excessive payment terms
Get more insights from Martec International inside the Myagi Platform HERE
About Martec International ; Over the last 25 years, Martec has become the world leading team of retail business process experts. Their expertise extends to training and consulting services for companies that sell to retailers.
About Brian Hume; Prior to founding Martec, Brian held significant posts in Debenhams executive team. He has been invited to lecture to retail audiences all over the world and has taught merchandise management theory and practice to US retailers on behalf of the National Retail Federation