Thursday, September 17, 2009

Mitigating Buyer Power

One worry for many fast moving consumer products companies (FMCG) has to be the continuing consolidation of the retail sector in the U.S. and many other nations. That consolidation has resulted in a substantial increase in power for the retailers relative to the consumer products companies, e.g. Wal-mart and others have huge leverage. What can companies do about this buyer power issue? Well, they could just resign themselves to a future of lower margins, or they could try to cultivate and enhance their alternative routes to market. What do I mean by that? Well, firms often have other channels where they sell their goods, and in some cases, the margins available in those channels are far superior to the mass merchandiser/large grocer channel. Companies need to think creatively about how to drive sales in those channels, many of which may be conducive to higher margin, impulse sales to consumers. Companies also should try to think about how they might offer mass customization of their product via the internet, thereby providing yet another outlet for getting their products to consumers while driving higher gross margins. For instance, companies can offer various forms of personalization via the web (think messages on product labels or the products themselves, monogramming, custom sizes, etc.). All of these efforts to cultivate alternative routes to market mitigate the growing buyer power that consumer products face from the consolidation of the mass retail channel.

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