Sixteen years ago I used to work as a sales executive for one of the largest and most dynamic multinational consumer goods manufacturers in the country. When push came to shove and the sales numbers had to be delivered, one of the most effective tools in my arsenal to convince my accounts to carry additional inventory was a big smile and a big chocolate cake! I’m not kidding. Times were simpler then and good rapport with your accounts would take you a long way.
In today’s market environment, however, a smile and a cake can only do so much.
The rapid development of technology and the exponential progression of mass media has created pressures on the relationships between consumer, manufacturer, and trader unlike any we have ever experienced before.
Developments in manufacturing technology allow for lower capital investment on machinery and lower cost of operations. This creates new and aggressive players in the marketplace. One needs to only go to a nearby food manufacturing expo to realize that the cost of an industrial confectionery processor is now well within reach of many startup businessmen. As tariffs for international trade become more relaxed, the influx of machinery as well as products from nearby countries makes equipment more accessible than ever.
Consumers spend more and more time interconnected, either online or via mobile. Selling to them through Internet viral marketing becomes a very cost-effective yet lightning-fast tool to communicate a clear, relevant message to a focused target market.
The traditional barriers to entry of size and years of operation are no longer as relevant as they were before. Nowadays, it’s anybody’s ballgame.
Consumer Value Squeeze
As consumers become more aware of the multitude of products around the world and the value propositions offered, they become more difficult to please. They demand the best quality product, at the most convenient location, at the best possible price. Right here, right now—and with a freebie!
It’s as if consumers across the globe share a central nervous system. A good or bad experience of a product in one continent is felt just as intensely by brethren halfway around the world, in real time. One need not look further than one’s favorite gadget blog to see how real this has become.
Trade Value Squeeze
The retail trade remains the front liner for the manufacturer in its relationship with the consumer. As the consumer exercises the power of choice, the first to feel its effects are retailers. Especially now. As a store’s operating costs increase and trade margins remain constant, the retailer’s profit is rapidly shrinking.
For the majority of the retailers, the notion of store improvement and expansion now remains a pipe dream. The more pressing matter is pure survival in the face of expanding giants, whose purchasing volumes allow them to obtain the lowest cost of goods and drive prices down. This while smaller retailers can barely make enough margins to cover overhead.
For the retail giants, however, rapid expansion obviously requires substantial amounts of profits and capitalization in order to fuel growth. So at the hands of the giant retailer, a puny supplier feels the squeeze for support getting tighter and tighter. Listing fees, display allowance, anniversary support, and shrinkage allowance are clear manifestations that our trade environment is becoming increasingly complex and harrowing.
(Continued in the next issue)
Print ed: 08/09