Win-win or zero-sum?

Discussion board: Manufacturer brands v/s retailerss

Price-offs and big-bang sales organised by online retailers seem to be affecting the already-complex relationship between the retailer and the manufacturer. The latter views deep discounts as a sure-shot way to erode brand value, while the former sees them as a quick way to increase store traffic and consequently sales. Not surprisingly, some manufacturers are refusing to list their brands on shopping portals. But is the issue solely about protecting brand value or is it more about shrinking margins? More importantly, what purpose do these sales serve?

Our panels of experts offer their take on the raging debate

Online players have helped the cause of manufacturers and retailers: Deepak Shetty

The online world is changing the paradigm of the Indian markets and how the consumer view brands. Hence, product pricing is no longer a consequence of demand vis-a-vis availability but more about the product features or specifications. Players like Flipkart, Amazon, eBay have, in fact, drawn the debate away from the typical "how safe is online buying" to product specifications and pricing. This means that a traditional marketing head has an additional tool to reach out to the consumers. The tool has become a benchmark for pricing and product features.

Companies started mapping out separate budgets to attract consumers. And then the manic Monday (October 6) hit the online world. People may continue talking about the thugs that went wrong during the Flipkart sale but the fact is, things will no longer be the same.

So who was the biggest winner? Products. All of a sudden, online sales increased brand recognition across categories. Consumers may or may not have bought online but they are aware of products and brands and why 'this' is a good choice.

A survey conducted by us (with a base of 3,500 consumers) showed us that sales are still welcome and buyers continue to be predominantly in the age group of 25-40 years. Of course, 25 per cent of the respondents expressed a drop in their "perception of reliability" of the offers, but as many as 75 per cent of the respondents felt there was no quality issue and 80 per cent said they would use online buying but only after prudent price checks.

Though the actual market penetration will be known closer to the end of the year, I believe online players have actually helped the cause of manufacturers and retailers.

Deepak Shetty
Chief Marketing Officer, Moser Baer India

Design innovative offers that are not necessarily monetary in nature: Eric Braganza

India is the fifth largest retail market in the world and ranks fourth among 30 countries in terms of global retail development. Pegged at $500 billion, the Indian retail industry is expected to grow at 15-20 per cent per annum, and increase to $750-850 billion by 2015. Clearly, then, for a developing market that is so diverse, it is good to see the idea of shopping undergoing such huge change. Tier-II and Tier-III cities are now the centres of attention for most companies. The landscape of modern retail, complete with bustling shopping centres and swank, multi-storied malls, is proof that the Indian customer is evolving.
To lure aspirational customers (a majority of them young spenders) particularly during the festive season, retailers, both online and offline, offer discounts to get their cash boxes ringing. So far so good but it is at this point that things get tricky. To grow their customer base, retailers resort to heavy discounting. Manufacturers, on their part, would never endorse offers in the form of frivolous discounts to customers that are below the actual cost. In contrast, retailers seem ready to bear losses to improve footfalls and revenues, albeit temporarily. This spoils the market for both - other retailers and manufacturers. While offers enhance the consumer experience and help boost sales, deep discounting often disturb the market dynamics and the entire ecosystem.

To create a win-win situation, both the parties - retailers (online and offline) and manufacturers - should take each other into confidence and work as partners. Our experience shows respecting and promoting the discounts and offers set by the manufacturers is beneficial to all the parties concerned - manufacturers, retailers and consumers. The special discounts that retailers offer to create goodwill are rarely frowned upon but anything beyond that is not detrimental for everyone in the value chain. Manufacturers always want their customers to experience a pleasant shopping experience, be it offline or online, but the experience need not hinge on price discounting alone.

Eric Braganza
President, Haier Appliances India

Retailers and manufacturers should work together to offer the best deal: Anil Talreja

First things first: Price promotions in the form of big-ticket sales and deep discounts typically do not have any major impact on the manufacturer or the retailer. In fact, they don't have any 'permanent' monetary impact on either of them. However, big-bang sales, if done intelligently, can have a predominantly positive impact on both the manufacturer revenues and the retailer revenues.

Since the business goal of manufacturers and retailers offering discounts is to generate incremental revenue and footfall, it becomes important for them to not work in silos and find a common ground of engagement. A good strategy, therefore, is for both the manufacturer and the retailer to have a dialogue, a conversation to understand how a discount strategy can work not just for the brand but also for the retailer who is showcasing a range of products from several manufacturers.

India is a unique market in that there is a diverse consumer base with a diverse consumption pattern. So even if there is some erosion in brand value when retailers offer deep discounts, it would be insignificant. Eventually, the quality of the product matters because brand value is something that is created over a period of time - a temporary discount won't really impact that value. In fact, it might actually enhance value by opening up a new consumer base for the brand while also benefiting the existing set of consumers.

Look at the global scenario. In a developed market like the UK, you have the concept of Boxing Day (after Christmas and before New Year) when many retailers offer unimaginable discounts. It is not unusual to see people queuing up for these bumper discount sales - because they know the product quality would be the same. People wait for this sales so they can buy their favourite brands at a bargain price. Would they stop purchasing the brand later because there was a discount at some point? No, not really. The change in price works favourably for both the buyer and the seller.

The trouble happens when the retailer and the manufacturer fail to have a dialogue on how to use a discount to improve brand value. Retailers, especially, need to be innovative in their discount strategies so that they don't simply use the event to drive footfalls. If the retailer is willing to take a knock on his margins (even if temporarily), the sale should compensate him in some other way - in terms of new customers, footfalls through the year and so on.

Anil Talreja
partner, Deloitte Haskins & Sells