Trading relationships between retailers and suppliers are evolving at a ferocious pace, and simply having a great brand is no longer enough for suppliers to win with their key customers. But what do retailers expect from branded suppliers?
 

From negotiation to collaboration

At their most basic level, transactional trading relationships between retailers and suppliers focus predominantly on the negotiation of price, margin and terms. Whilst for some, trading relationships are no more sophisticated than this, there are opportunities for leading suppliers to broaden the scope of their trading relationships to include more collaborative elements.

Retailers are looking for branded suppliers to display consistent levels of basic customer engagement capabilities before focusing on more complex competencies. For multinational suppliers this means that getting the basics right in all markets is the first step to successful international customer engagement.

However, retailers segment and prioritise their branded suppliers according to their customer engagement capability.  Therefore, it is important for suppliers to be able to understand this to help them understand the direction of their trading relationships, and move them beyond their transactional nature.  In turn, retailers will dedicate greater resources and seniority to those suppliers with high customer engagement capability, enabling them to become more involved in collaborative projects.

A broad range of capabilities

A genuinely successful supplier is expected to demonstrate strength across a wide range of capabilities. These include:

• Proactive customer management
• Best-in-class brand marketing and innovation
• Optimised supply chain
• Category leadership

all of which are underpinned by rigorous reporting structures, financial management and shopper insights.

Our unique and exclusive research into the trading relationships between retailers and branded suppliers explains how suppliers are evolving their customer engagement capabilities and the extent to which this is aligned with retailers’ expectations.

Survey Methodology Our research into the trading relationships between retailers and suppliers investigates how suppliers are evolving their customer engagement capabilities and the extent to which this is aligned with retailers’ expectations. This has been achieved through IGD’s exclusive retailer and supplier surveys and interviews with senior executives across the industry conducted in January and February 2008. Our research into the trading relationships between retailers and suppliers investigates how suppliers are evolving their customer engagement capabilities and the extent to which this is aligned with retailers’ expectations. This has been achieved through IGD’s exclusive retailer and supplier surveys and interviews with senior executives across the industry conducted in January and February 2008. We received more than 50 responses to our retailer survey, from 36 individual retailers based in Europe and Asia. 55% of respondents were at Director-level or above. More than 185 respondents from 127 individual companies completed IGD’s supplier benchmarking survey. Respondents came from more than 45 multinational branded suppliers and over 80 local or regional branded suppliers. 57% of all respondents were Director-level or above.

The chart below illustrates which customer engagement capabilities retailers expect from branded suppliers at a basic level.
 

Retailers’ basic expectations of branded suppliers

Source: IGD Retailer Survey, 2008

Retailers value supplier anticipation of future shopper trends

Retail-supplier relationships are evolving

As a basic expectation, retailers are looking for their branded suppliers to display strong capability in new product development and innovation, high service levels and an understanding of their strategic direction. However, when asked what they expect at a more advanced level, having the ability to analyse and anticipate future shopper trends is the most valuable capability.

When asked which capabilities retailers would like suppliers to develop further, respondents said they are looking for branded suppliers to display consistent levels of basic customer engagement capabilities, rather than focus on more complex competencies. For multinational suppliers this means that getting the basics right in all markets is the first step of successful international customer engagement.

Our limited development of genuine new product innovation is causing us to lose share of voice and category facings. Senior Executive, Multinational Supplier

As grocery retail markets become increasingly competitive, it is unsurprising that retailers are looking for their branded suppliers to develop capability in new product development (NPD) and innovation to help them differentiate from their competitors. In addition, as private label gains momentum and plays an increasingly important role in retailers’ strategies, branded suppliers are being challenged to innovate to stretch the category (or even create new categories) and to deliver additional category growth.

Our supplier survey reveals that both multinational and regional/local suppliers find that developing NPD and innovation capability is one of the greatest challenges of customer engagement. Suppliers who are struggling to develop a strong NPD pipeline and operate within a peer group of innovative competitors, find that their trading relationships are suffering as a result.

Investing in collaborative and strategic relationships

The key challenge for many suppliers is to develop more collaborative and strategic relationships and to gain a return on their investment.  However, there is a strong correlation between the type of relationship and the level of return, and it is not surprising that suppliers which have succeeded in forming strategic relationships with retailers are also those that derive the most benefit from global account management.  Indeed, multinational suppliers which are engaged in global account management can add a further dimension to their relationships by building relevant customer engagement capability both at a local and global level.

More information:

Building Customer Engagement Capability The full findings and analysis from these surveys can be found in IGD's report. Whether you are looking to enhance your engagement with key customers in local markets or forge deeper global trading relationships with your key international customers, this report will provide practical unbiased insight to assist you in this process.

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Fiona Miller is a Senior Business Analyst in IGD's International Research team. She leads Asian research with specific expertise in the Indian and Chinese retail markets. Fiona has authored IGD’s Retailing in India(2006), Retailing in China (2005) and Building Customer Engagement Capability reports.