When it comes to getting your product on the shelves, it's not always easy negotiating with retailers. Tim Potter explains how to make the relationship 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 possible profit margin from the product, while doing as little work as possible. A retailer is a bit like having a salesman who demands the highest bonuses and 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.
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 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.
2. Wholesaler margins
Some wholesalers will work for less than 1% margin, but if you're asking the wholesaler to act as a distributor and actively sell the product, you could pay between 10% and 15% - on top of margins of 30% to 40% for the retailer. Make sure that the overall amount you're having to pay in margins works for you.
Make sure that you're involved with the marketing material (catalogue pages, web content, staff training) and point of sale (POS) materials relating to your product. 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 includes your top Unique Selling Propositions (USPs) and that they haven't just used some nonsense tech specs (which they tend to do). As someone once said, "retail is detail".
4. 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 supply literature.
You may also be able to run a competition or offer incentives for staff to increase sales of your product. Some retailers can organise spifs (sales incentives to individual store staff members), but this tends to be expensive and bureaucratic, so running your own programme may be preferable.
Staff discounts can work when it comes to getting staff to use and love your product, so that they become effective advocates. But be aware that some retailers will ask for a price where they still make their full margin.
If a retailer wants you to contribute towards advertising, check the rates - retailers get the best deals, and they may try to make margin by getting you to pay extra. If you think that's happening, place the advertising yourself.
Encourage the retailer not to reduce the price unless they have an exclusive product, as this can lead to price wars across retailers and an overall lower income from your product. It is, of course, illegal for you to enforce this, but if they want to lower the price as a temporary promotion, they should take it from their own margin. When retailers ask for a lower cost price, it's often an indication that they want to lower the street price permanently - even if they say it's because they need extra margin.