He argues that suppliers should also learn to differentiate between channel conflict, where several channels are all targeting the same consumer, and channel competition, where several channels are reaching different consumer segments.
For Kumar, the ultimate way to deal with serious channel conflict is to publish a transparent menu of prices for all intermediaries. "That way you can turn round your existing partners and say 'you too can have the same price as big retail - if you are prepared to collect from our warehouse, buy 1 million units, etc.'"
When Kumar talks of new channels, he is primarily thinking of retail and the web. So where does the net fit into all this? "You can sell over the web where the value of the goods is high relative to the shipping cost and where touch, feel and see is not important."
So how do big retailers feel about suppliers selling their products direct over the web? Kumar says most of them couldn't care less anymore. "They aren't worried about manufacturers going to the web. They know that most who try to do this will ultimately learn that they lack the assortment and the skills for retailing to end-users."
Kumar sees the move to big retail as completely revolutionising how suppliers sell. The new mantra is not stuff the channel, but the Black and Decker battle cry: "Sell one, ship one, build one."
Again, Kumar reckons that most suppliers in retail and in business-to-business have not yet understood the real implications of all this. "Push marketing is dead. We are going to live in a world where end-user sales drives the entire process. Walmart in the USA was fundamental in changing to this the process. It is no longer interested in taking products on a special offer from suppliers."
Many academics expect own brand to fade and see the growing strength of brands like Coca Cola as the future. Kumar disagrees. Particularly in Europe he sees own brand as very powerful. Many US-based academics and brand marketers see retailersŐ private labels as some sort of cheap imitation of manufacturer branded products but this is not true anymore. "Look at Sainsbury and their three differentiated brands - Be Good To Yourself, Taste the Difference, and Blue Parrot Café for kids. They are adding value to their brands and competing head on with manufacturer brands."
And he paints a grim picture of the future of wholesale distribution. "Retailers want to buy direct so distributors will see their natural customer base of smaller players slowly shrinking."
An alternative route for suppliers is to transform themselves into solution providers. In every field Kumar sees a strong role for companies which are prepared to build a bespoke offering for customers.
"Push marketing is dead. We are going to live in a world where end-user sales drives the entire process."
But he feels that most CEOs don't understand now difficult it is to move from being a product supplier to being a solution provider. "You have to become product agnostic - you can't successfully use the solution provider label as a camouflage for cross selling your own products. You have to be willing to work with far fewer customers. And you have to be expert at picking those who are really prepared to pay for tailored solutions.
You have to modularise your products, services, and systems to deliver custom solutions at reasonable costs. And you have to employ people with a totally new skill set. As IBM learnt, instead of services supporting products, products have to support services in a solutions company.'
Perhaps it is time for chief executives to start taking routes-to-market seriously afer all.
Marketing: A CEO Perspective will be published next year. Nirmalya Kumar can be reached at kumar@imd.ch |
