Retailers have not only gained strength over the last 20 years but have also outgrown their

leading branded suppliers by far. Today they come to a point where they are threatening the suppliers. This was probably initiated by the growth of Walmart as a retailer in FMCG market. In terms of annual revenues, for example, Wal-Mart, Carrefour or Metro reached multiple amounts of manufacturers like Nestl or P&G. They become more powerful then the suppliers. With this growth, retailers have strengthened their negotiating position with brand manufacturers and improved their profitability by developing logistics capabilities and launching private label products. By creating large customer databases filled by customer loyalty cards, retailers have also become advanced marketers with the know-how to monitor markets and influence the preferences, attitudes and behaviors of consumers. These large retail firms use their size and buying power into a more forceful position when dealing with the consumer goods manufacturers.

As an example, recently, one of the supply chain supermarkets had a discussion with Coca-Cola and could not offered it on its shelf. The Coca-Cola example can show how serious is the situation since it is the most demanded FMCG brand and the supermarket can accept the consequences. Looking further to this, it is seen that the Coca-Cola all turn over in North America is 30 Billion whereas this super market chain has turn over of 92 Billion dollars. Due to the fact that the Coca-Cola sales is only a fraction of total sales of the supermarket, the real damage is occurred on the manufacturer. Retailers also develop strategic private label programs. Such events together with the advantage of retailers having direct contact with ultimate user began the shift of power in the supply chain to the retailers and away from the manufacturers. However, the customers value the brand equity on many products; therefore the manufactures have the possibility to reduce the power shift on retailers. Below are the supporting reasons of retailers being very strong over the recent years.

A retailer easily benefits web-based technologies to efficiently and effectively provide personalized ad flyers to each of its shoppers and delivered automatically into the transaction at checkout. By having contemporary data base, retailer offers at a shopper level with different shopper segments receiving different marketing initiatives across different channels. A next-generation system for making shopper data actionable, automatically creating extensive shopper segmentations based on behavior, and supporting category managers and buyers as they collaborate with manufacturers. Fast-moving consumer goods retailing also uses the benefit of offering bundles of complementary products and services to the customers. Another point is, the retailers offer many different products. The customer can only choose among what is offered in the shelves. Unless the brand is very demanded, the customer will not chance his shopping retailer just because he couldnt find a brand in FMCG that he uses. The most strength of the retailers is their direct contact with customer. If we imagine that there is only one retailer supermarket in your town, and the second one is half hour drive, you will probably not prefer to drive the second supermarket for a brand in the fast moving consumer products that you couldnt find in the first one. The retailers also have the capabilities of having the priceless data of customer purchasing behavior. The retailers have this information right at the check out. This data not only provides the information on the buyers choices, but also provides efficiency in terms of inventory and logistics. In addition, this gives the possibility of efficient sales tracking with real time. Manufacturers are going through a very difficult time under the pressure of retailers. To be able to coop with this situation, the manufacturers should increase their branding and brand loyalty so that the buyers demand their products from the retailers. The seller benefits from the brand by legal protection, ease in segmentation, loyalty and brand equity whereas the buyer benefits due to identification, consistency, ease in comparison and self expression. Without a brand value, the buyer has no differentiation at the point of purchase and create tendency towards generic brands which increase the power of retailers. It is vital for the suppliers to improve the brand knowledge and affect, brand loyalty, brand expendability and other proprietary brand assets to attach the retailers to them. Center of origin and non-product related attribute of brand image strengthen the power of manufacturers. However, considering the FMCG are mostly low involvement products, it is difficult to develop the brand equity. It should not be forgotten that the average brand premium for manufacturers versus retailers varied by category, personal statement and culture. For example, the customer may not pay attention to toilet paper brand, on the other pays attention on the deodorant brand. Similarly the different strategies should be followed for different cultures. For

instance, coffee brands mattered more in Italy than in other countries, while beer brands mattered more in Germany. If the manufacturer does not have brand equity, then it should start to develop one by first choosing a brand name. During this process, the manufacturer should consider the followings: the name should suggest products benefit, easy to spell, pronounce, recognize and remember, be distinctive, suggest concrete, high imagery qualities, should not carry poor meanings in other countries or languages. While developing the brand loyalty, the manufactures should use all 4P sales tools (price, promotions, place, product), but especially give importance to promotions. Besides the personal selling which is very costly for FMCG, the other marketing communications like advertising, sales promotions, public relationships and direct marketing should be effectively used. Public relationships with no cost to the companies are very beneficiary for the manufacturers. In terms of PR, the manufacturers use the different ways of publications, news, media, lobbying and social investments. Advertisements help the customer to be aware of the product and sales promotions help to the customer to finalize the behavior of purchasing. The promotions should be separately managed for end users and retailers. Price deals, coupons, refunds and rebates, premium offers can be offered to the end user whereas POP displays, trade show and exhibits, buy back guarantee methods can be applied to the retailers. Especially in FMCG, the first shelves and POP displays are sold with significant amounts to the manufacturers. Another way to help reducing the power shift to retailers is to work on the pull strategy rather then the push strategy. The reason is, pull strategy provides the end users to request the brand from the retailers which increases the retailers dependence on the manufacturer. During all the promotions, the suppliers should be aware of the hierarchy of effects model. All the steps should be followed: to reach the customer, getting the attention, maintain the attention, understand the message, get convinced, remembered, recalled, action of purchasing behavior, repetition of the purchasing behavior and keeping the loyalty. Without any of these steps, the purchasing behavior will not be achieved. All these strategies develop positive WOM which is very critical in FMCG market. The manufacturers always need the intermediaries, especially retailers in FMCG. The benefits of retailers can not be underestimated: creating place, time, ownership utility, providing efficiency by reducing the transactions dramatically to reach the end user, cost and scale efficiencies, and sorting. In addition, the retails can feed back the supplier with the market information, customer requirements, financing of the manufacturer by having stock and sharing the risk. Since these benefits are significant for manufacturers, there will be always a high level of dependence on the retailers. However, the channels can be designed by the manufacturers. For example, the company should try to develop 0 channel level which provides direct contact with the customer. This can be managed by supporting smaller retailers rather than the monsters which do not negotiate easily. If this is not workable, the company can try to improve the other levels besides level 1 which

will reduce the dependence on the retailers. For example the suppliers can improve the 2level and 3-level channels where the wholesalers can find alternative retailers which gives negotiation power to the suppliers against retailers. For very large retailers, this may not work because the large retailers contact the manufacturers directly rather than buying from wholesalers due to the huge consumption they have. As explained above, in any case the suppliers continue to have significant benefits from the retailers. For this reason, having an efficient and effective relationship between supplier and retailer based on trust and commitment help both parties to benefit. This creates a win-win situation. Although it is very difficult to build trust and commitment, it can be achieved by experimental factors (role performance, relationship duration, fairness, consistency) and personal factors (shared values, perceived concern and competence). The suppliers should also try to improve the dependence of the retailers to themselves. By this way the power shift can be reversed. To be able to achieve this, the supplier should be value provided, irreplaceable and convince the retailer for investment with termination costs. For example, if the retailer has invested specifically for suppliers product, due to the high termination costs, the retailer will not be able to leave or negotiate heavily. Another way would be the manufacturer should try to have a contract with the retailer. As a conclusion, the retailers are nowadays gained more power than the manufacturers. The reasons are briefly explained. Although it is almost impossible to reverse this tendency, with the above actions can improve the dependency of retailer on the manufacturers and help to equalize the both sides. By having the correct strategies, the relationship between retailer and manufacturer can provide a win-win situation. This results in high efficiency for the manufacturer and best price which means higher profit for the retailers.

References: Retailer power and supplier welfare: The case of Wal-Mart Paul N. Blooma,*, Vanessa G. Perryb Retail 3.0 , created by Hawkins Strategic