The principles of negotiating with a retailer are similar to negotiating with almost any stakeholder. The ideal result is a win-win situation, but what does that mean when it involves a retailer?
Here are a few guiding steps:
- Know where you stand
- Gain extensive knowledge of your category and competitors
- Understand your retailer
- Set clear financial expectations
- Prepare a strong pitch deck
Know where you stand
Before any negotiation, it’s best to visualize what you want to achieve. It’s more than just getting listed; it’s also shelf space and position, agreeable price point, and how much product you can supply over a specific time period. Expect tough negotiations, a cut in your profit margin for the sake of the retailer, and the other party exploring the option of re-positioning of your product depending on what they know about their customers.
To navigate retailer negotiations successfully, you must know the terms that would be “deal breakers” in light of your growth strategy.
Gain extensive knowledge of your category and competitors
Unless you are introducing a whole new category, it is unlikely that the retailer you are negotiating with will find this information to be new. It is, however, important to showcase your strong handle of the data and therefore your confidence in navigating the category successfully. Where possible, understand how the category serves the retailer, it might reveal an opportunity gap for your product.
Understand your retailer
To identify a win-win situation, you must understand the retailer’s motivations as well as yours. Revenue generation is a given, but are they also looking to expand or rebrand? How can the association with your brand, or carrying your product, help with that? Do they prefer to deal with the manufacturer directly, or through third-party distributors (which is another cost for you to consider)?
Finally, it is important to note, that part of revenue growth for the retailer is connected to how fast your product can sell for them to restock. To prepare, you need to know—and—prove that your target consumers are the same as the ones who visit their stores frequently.
Just as essential, is to be prepared with the information on how your key competitors are represented within the store, their promotions and any shelf branding they might be providing.
Set clear financial expectations
It is critical for brands to have clear, and realistic, financial expectations when approaching negotiations. As mentioned earlier, you must know your preferred pricing, profit margin, etc—and you also need to know how much you would be willing to part with to count as the retailer’s profit margin.
Other financial considerations include the use of distributor companies (if applicable), as well as listing fees (see “Traditional vs modern trade” below).
Prepare a strong pitch deck
Frankly, a presentation deck is not for everyone. It’s best, however, to have one at hand if needed. To truly prepare for negotiations, you must expand your investigation to beyond the overall retailer’s motivations and include the person(s) you will be in conversation with. Know what their negotiation style is, their position, responsibilities and career history with the retailer and overall. At the end of the day, you will be pitching to a person, not only an establishment.
Traditional vs modern Trade
The division of the retail landscape differs from one market to another. The best practices for navigating them vary just as widely. There are, however, some general truths that can apply to most markets.
Not usually in the form of chains, stores that make up “traditional trade” are singular stores owned by a solopreneur or run as a family business. They might not rely on data to understand their consumers, but rather have firsthand experience and almost daily interaction with their regulars. Hence, they have a good handle on what sells, and what doesn’t, in their store. Additionally, retailers’ motivations for traditional trade are mostly driven by pricing and payment facilitations: the more competitive your product is, and the more flexible the payment requirements are, the better.
Finally, in some markets, traditional trade stores deal with the seller directly, instead preferring to work with distributor companies.
With modern trade, growth and fast off-shelf rate serve as key motivators. Moreover, any additional location branding you can provide could add to the value of your product as it subsequently adds to the beautification of their space.
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