Do You Really Want To Sell Your Products at Wal-Mart?

Consumer insights on mega-distributors

Do you really want to buy your products from Wal-Mart?

Great article in the spring edition of Marketingpower.com by Andrew R. Thomas and Timothy J. Wilkinson entitled, “The Devolution of Marketing.”

Messrs. Thomas and Wilkinson attribute a large portion of what drove us into the great recession as our dysfunctional pattern of distribution — sell more through a mega-distributor with much of the profit split between the distributors and the overseas manufacturers.

Power has transferred from creators of innovative products and service to mega-distributors who are increasingly in control of the global marketplace.

Many manufacturers and marketing departments see distribution through mega-distributors as the way to boost sales and market share and it is.  However, it’s not the way to grow profitably.

Mega-distributors live by high volume and low prices.  They use their powerful leverage to demand price cuts and other concessions from suppliers.

And there’s a trickle down effect.

I worked on Volvo Truck in the early-1990’s when one of Wal-Mart’s truckload carriers was negotiating for new Class 8 trucks, engines, transmissions and tires.  The carrier brought all of the OEM’s to a hotel and put them each in a separate conference room and negotiated the lowest price from each vendor.  Ultimately each OEM took a loss to get the order — about 500 new units I believe.  I have to assume the carrier made money on their Wal-Mart contract since I still see their trucks on the road today.

Numerous manufacturers have fallen prey to the profit margin squeeze and brand erosion of the mega-distributor — Vlasic Pickles, Rubbermaid, Levi Strauss, Goodyear and a multitude of less powerful brands — and their relentless pressure to cut prices.

In 2006, Jones Soda Company made $39 million on $406 million in revenue (9.6% margin) from sales made to consumers through tattoo parlors, snowboarding shops and other independent channels where their target audience shopped.

In 2007, Jones Soda began to sell to the mega-distributors, including Wal-Mart, and ended up posting an $11.6 million loss.  Jones Soda sold their soul, and brand, and ultimately lost their shirt.

The scope and the magnitude of a mega-distributor can quickly erode the brand equity of products and services.  Private labels, discounts, lack of service and mass-market presentation have diluted the value of American brands.

Lakewood Engineering & Manufacturing once sold its 20-inch box fan for $20.  Wal-Mart demanded a lower price.  Instead of walking away from Wal-Mart in 2000, Lakewood opened a factory in China where labor costs were $0.25 per hour versus $13 per hour in Chicago.  By 2003, the fan sold in mega-distributors for $10.  In 2008, Lakewood laid off 220 workers.

There is a success story.  STIHL, Inc. sells outdoor power equipment through thousands of independently-owned servicing dealers across the U.S. and around the world.  STIHL is a global leader in market share and profitability selling only through independently-owned dealers, no mega-distributors.

The authors conclude to avoid the negative outcomes of those manufacturers who have sold through mega-distributors, companies need to maintain control of their distribution.  This may mean selling direct to customers online, through company-owned retail stores or striking deals with distributors and avoiding partners who will not accept stringent terms.

By doing so, the manufacturer will have a greater ability to control pricing, customer service and service after the sale thereby building longer-lasting relationships with customers.  This will yield more value to both parties over the long-term.

Do you sell your products through a mega-distributor?

Do you still want to?

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About Insights From Analytics

Integrated marketing professional who generates insights from analytics to increase revenue. Daily blog now resides at www.insightsfromanalytics.com/blog.
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