When it comes to getting your product on the shelves, it's not always easy negotiating with retailers. Tim Potter explains how to make a relationship with retailers work for you
Retail businesses are all about working their cash, keeping their customers and getting the most out of their suppliers. To do this they will take the largest profit margin from the product they can and do as little work as possible. A retailer is a bit like having a salesman who demands the highest bonuses, the fanciest car and doesn't want to work too hard for it.
However, there are six key ways that suppliers can make sure they get the most out of their retail partners:
- Returns. Make sure that you get an agreement on returns. Most retailers return any products that they cannot sell or that have been returned by the customers. This is difficult to protect yourself from, but if you are using a wholesaler then they may be able to handle the returns for a small margin increase. This also means that they do everything in their power to reduce the number of returns. Argos has been known to send back 30% of some product lines.
- Wholesaler margins. Some wholesalers will work on less than 1% margin but when you are asking the wholesaler to act as a distributor and actively sell the product then you could be asked to fund between 10% and 15% on top of the retailers who like to make margins of 30 to 40%. However, you obviously can't discuss that with the retailer.
- Detail. Make sure that you get final sign off on all the marketing material (catalogue pages, web content, staff training) and point of sale (POS) about your product from the retailer. You can insist on this if you give the impression that you will not support any misrepresentation of your product to consumers. When you check the material make sure that it has your three top Unique Selling Propositions (USPs) and that they haven't just included some nonsense tech specs (which they tend to do). As someone once said, "retail is detail".
- Store staff. See what you can do to help store staff to understand and sell the product. You may be able to arrange some training or include literature in a training pack. You may also be able to run a competition for staff supplying free kit for prizes. Some retailers also allow spifs (sales incentives to individual store staff members) but this tends to be expensive and bureaucratic because the retailers make their own money out of it, so running your own incentive may be preferable. Staff purchase programs can also work in getting the staff to use and love your product. But some retailers will ask for a price so that they can make their full margin, even for a 50% discount to their staff.
- Advertising. If a retailer wants you to pay for advertising, that may be a good idea but check the rates - retailers get the best advertising rates in the country and they may up their rates to make margin. If you think that's happening, place the advertising yourself.
- Pricing. Encourage the retailer not to reduce the price unless they have an exclusive product. It is, of course, illegal for you to enforce this but if they want to lower the price then let them take it from their own margin. When they are asking for a lower cost price this is often an indication that they want to lower the street price even if they say they need extra margin.
Written by Tim Potter.