Channel Relations Between Supplier and Retailer Types: Exclusive vs. Intensive vs. Selective Distribution
Retailer Channel Relations and Vendor Management
Channel relations between the supplier and retailer is the last stage in a channel of distribution—all of the businesses and people involved in the physical movement and transfer of ownership of goods and services from producer to consumer. Here are the different relation types and how you can improve your vendor management.
Channel relations tend to be smoothest with exclusive distribution, whereby suppliers make agreements with one or a few retailers that designate the latter as the only ones in specified geographic areas to carry certain brands or products.
This stimulates both parties to work together to maintain an image, assign shelf space, allot profits and costs, and advertising.
It also usually requires that retailers limit their brand selection in the specified product lines; they might have to decline to handle other suppliers’ brands. From the manufacturers’ perspective, an exclusive distribution may limit their long-run total sales.
Channel relations tend to be most volatile with intensive distribution, whereby suppliers sell through as many retailers as possible. This often maximizes suppliers’ sales and lets retailers offer many brands and product versions.
Competition among retailers selling the same items is high; retailers may use tactics not beneficial to individual suppliers because they are more concerned about their own results. Retailers may assign little shelf space to specific brands, set very high prices on them, and not advertise them.
With selective distribution, suppliers sell through a moderate number of retailers.
This combines aspects of exclusive and intensive distribution. Suppliers have higher sales than in exclusive distribution, and retailers carry some competing brands.
It encourages suppliers to provide some marketing support and retailers to give adequate shelf space.
The average sales transaction per shopping trip is well under $100 for department stores, specialty stores, and supermarkets. This low amount creates a need to tightly control the costs associated with each transaction (such as credit verification, sales personnel, and bagging); to maximize the number of customers drawn to the retailer, which may place more emphasis on ads and special promotions; and to increase impulse sales by more aggressive selling. However, cost control can be tough.
For instance, inventory management is often expensive due to the many small transactions to a large number of customers. A typical supermarket has several thousand customer transactions per week, which makes it harder to find the proper in-stock level and product selection. Thus, retailers are expanding their use of computerized inventory systems.
Final consumers make many unplanned or impulse purchases. Surveys show that a large percentage of consumers do not look at ads before shopping, do not prepare shopping lists (or do deviate from the lists) once in stores, and make fully unplanned purchases.
This behavior indicates the value of in-store displays, attractive store layouts, and well-organized stores, catalogs, and Web sites.
Candy, cosmetics, snack foods, magazines, and other items are sold as impulse goods when placed in visible, high-traffic areas in a store, catalog, or a website
. Because so many purchases are unplanned, the retailer’s ability to forecast, budget, order merchandise, and have sufficient personnel on the selling floor is more difficult.
Retail customers usually visit a store, even though mail, phone, and Web sales have increased. Despite the inroads made by nonstore retailers, most retail transactions are still conducted in stores—and will continue to be in the future.
Many people like to shop in person; want to touch, smell, and/or try on products; like to browse for unplanned purchases; feel more comfortable taking a purchase home with them than waiting for a delivery, and desire privacy while at home.