SALES STRATEGY WITH UNFAVOURABLE EFFECTS ON SMALL RETAILERS. ALSO, ABOVE AVERAGE LOCAL BRANDS’ POSITIONS.
Managing sales based on key account management is very common in large companies that distribute their products nationally.
It enables manufacturers to gain insurance of “large and stable quantity sales” in large foreign and domestic supermarket chains. Unfortunately, this also undermines small local retailers and they lose their sales power. It’s no secret that discount rates off and on invoice for “large retailers” are twice as big as those for small retailers. It’s a way for large retailers to be cheaper and in a better competitive position than small retailers at any given time. Long-term, it means more profit and more power for large retailers. Endgame in this first phase is that small retailers suffer and when all there is left are large retailers, who with monopolistic logic demand lower and lower prices through bigger discounts. This relation at first seems logical to some, but not so much in the end – it has boomerang effect.
In first years of production, retailers often get by with raising their prices and seemingly they go through customers’ raising demands. In the end, some products are unlisted because they are simply overpriced or customers and retailers turn to foreign products that are easily found in large supermarket chains. All of this is also aided by illogically high exchange rate of kuna (that same high rate has been the reason Croatian manufacturing was struggling and collapsing for years and all the while import is flourishing). In the long run, the market is facing serious problems, even manufacturers or some of their brands crash. They are lost in the midst of raising prices, rates towards retailers, effects of import supported by illogical exchange rates of kuna; that all lead to profits and consumption decline.
At first sight, key account management policy seems normal and expected since it’s a global trend, but besides the crash of small local retailers, manufacturers will also face the same destiny. Manufacturers in the beginning of such collaboration often forget that what comes next is their own personally- financed failure and crash, all because of high discount rates towards “large” supermarket chains.
First signs of possible brand and manufacturers’ problem are on small local areas. Previously they had market shares above average because of their years-long relationship with small local retailers and also, building regular customers’ habits during years.
With specific product categories, such as beer, water, meat products, key account management policy in the beginning stage first destabilizes small local retailers. Also, strong local position of brands gradually “melts away” towards mediocre market share even on previously strong markets (regions) by new products introduced in same category and with changed customers’ habits.
Losing above average market positions on domestic markets (regions) is at first camouflaged since they seemingly take over new markets (positions on shelves) in large supermarket chains on national level. Some products seem like they took positions on shelves, but customers aren’t accustomed to buying those products. If companies don’t heavily invest in promotion of those products, there won’t be any large profit from them. Once companies lose their previous favourable positions on local markets, it’s difficult to regain them. Over time, potential that companies had before is lost, they face stagnation and possible crash of those once powerful brands.
To prevent this from happening, besides existing KEY ACCOUNT MANAGEMENT, we introduce a new term and a way of managing and running sales: KEY AREA (region).
Key area is a region where a certain brand has market share of 50% or higher above market share compared to brand’s share on national market. That’s an area where manufacturer would have to provide, for both small and large retailers, SAME additional discount (off invoice) to maintain such market position. With equal discounts, also investments in sales promotion should be at least somewhat higher compared to the same previous period of time.
In key area, your sales strategy comes to the phase of defending your positions. That phase is often forgotten by sales and marketing directors and managers. A certain area that’s currently strong doesn’t bring growth, but logic dictates that you spread to other areas where sales growth is possible. That currently strong area is targeted by competition that tries to disrupt positions by strategically attacking. In key area, there is little chance of sales growth, but sales decline is very much possible and dangerous.
It’s normal that large sales moguls won’t understand, let alone support such sales policy in small retail market because this policy means protection for brands’ position and small local retailers. It’s a lot odder that it’s seriously opposed by brands’ manufacturers. Instead of keeping above average market positions in certain areas, where those in lower positions falsely firm up discounts for small retailers. Literally, small retailers are forced to have higher prices or lower profits on a brand that’s locally well- established. It’s completely wrong to stimulate small retailers in key area only based on size of achievements. One and only solution is stimulating large market positions on shelves. Currently sales managers have the feeling that they saved up some (LOGIC: “If we are to grant discounts for big ones, it can’t be the case with small ones too.”) Saving is only temporary because when large supermarket chains take over the area without the competition of small retailer – discount rates to traders will be even greater, and previous market positions of their brands will never be able to return.
Savings are unfortunately short-term, and this policy creates ground for above-mentioned situation- destroying small retailers and ultimately a brand in just two moves.
As representatives for small retailers, we tried to talk to large manufacturers, using reasonable arguments. For part of products, they had national positions and far more powerful regional positions. We were never shown understanding, even though we were right. After the crash of above- average regional market share, some products (water, beer, meat products) have come to a stagnation, and some might soon even be unlisted.
We think that sales managing solely based on key account management policy and logic only brings catastrophe, first for small retailrs, and later surely for strongly positioned local brands. The problem is that, in certain phase, manufacturers support and finance this sales policy through key account management.
It seems as there is no solution for that because companies are focused on growth and think defending positions will come by itslef. There is a belief that manufacturers have their loyal customer who should be the only guarantee for maintaining strong local above- average brand positions. That is, unfortunately, only an assumption. Even our customer eventually figures out that they are merely a pawn in a game and starts getting used to new brand of beer or any other product.