Case Study 2: Shopper Marketing Ramps Up 3. Is a retailer\'s desire to build up

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Case Study 2: Shopper Marketing Ramps Up

3. Is a retailer's desire to build up its private label brands an inevitable source of channel conflict? Explain your answer.

Case 2: Shopper Marketing Ramps Up Retail experts may disagree as to an exact definition of "shopper marketing." However, most agree that it encompasses in-store deals, promotions that are not store-based, and even digital coupons. Shopper marketing includes promotional activity by retailers and manufacturers before a shopper enters the store (such as a Web-based search), as well as in-store promotions. According to the director of integrated shopper marketing at Campbell Soup (www.campbellsoup.com): "Shopper marketing is bigger than just customer marketing because it takes into account what the consumer is thinking when he or she is outside the store and not planning an immediate purchase." In many cases, shopper marketing is conducted in a coordinated manner by manufacturers and retailers. A marketing manager at General Mills (www.generalmills.com) says that by working closely with retailers, it helps "them win their share of wallet, align with their programs, and offer solutions that are going to ultimately benefit them [the retailers] the most." Both manufacturers and retailers can gain from working together in shopper marketing activities. Manufacturers may be able to limit competition from retailers' private brands or to ensure that its second- and third-tier brands get adequate promotion. Retailers may want to use shopper marketing to access new technologies developed by manufacturers, such as in-store couponing via a consumer's smart phone. Nonetheless, there are major obstacles that need to be overcome for shopper marketing to reach its full potential. In the past, many retailers and manufacturers did not work together on joint promotions. Sometimes, shopper marketing is impeded by channel conflict among channel members, such as when retailers have insisted on obtaining slotting fees, trade allowances, and promotional reimbursements. An executive at a firm that manufactures private-label products suggests that: "If you continue with the mode of accepting money as a trade allowance [absent other changes], the reality is you are actually letting a national manufacturer control your store environment."

Explanation / Answer

Before getting into the discussion whether a retailer’s desire to establish its own private label brand results into channel conflict or not, let us first understand what is channel conflict and what are the consequences of the channel conflict for an upcoming, not so known brand.

Channel conflict is a situation that arises when the channel partners start competing against one another. Channel conflict can take multiple forms but the most common situations are the ones in which the manufacturer starts bypassing their channel partners like distributors, retailers, sales agents, dealers, etc. and start selling directly to the customers through other mediums like say, internet. The second type of channel conflict happens when a retailer or a distributor decides to manufacture and establish their private label brands. In this type of channel conflict, retailers start promoting their private label brands to the customers over any other manufacturer’s brand.

The retail giants like Walmart, as described in the case, have a strong control over their shelf space. The amount of shelf space, the location of the shelf space, all are tightly controlled by the retailers. This gives them an opportunity to manufacture and place their private labels at locations inside the store which are more visible and accessible to the customers. For example, the eye-level locations, end-of-eye locations, etc. When the retailer decides to build and establish its private label brand, it may lead to following consequences for other manufacturers, that may further add to the channel conflict:

Hence, there is no doubt that when a retailer decides to build up its private label brands, it becomes a viable source of channel conflict. Any manufacturer or brand may have to face detrimental consequences on their market share because of upcoming private label brands.

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