Monday, January 15, 2007

Retailing Business Model – Traders v/s Manufacturers

Day before yesterday, I had a discussion with a friend who has spent more than 20 years as a marketing man. He has represented several pharmaceutical companies in various capacities. He has worked in several of the possible positions, both in the field and at office and has been maintaining a bird’s eye-view on the developments in the retail sector.

Here is one interesting view point that emerged from the discussion.

Organized retailing has been in existence in our country for quite some time in two basic forms…

Manufacturer Retailing through Exclusive Showrooms

Organized manufacturer retailing has been in practice for a long time. Several companies, specifically in the textiles segment, have set up their showroom chains in the country in past. These showrooms had one common characteristic and that was they all displayed and sold only the products they themselves produced. These were exclusive showrooms.

There are umpteen examples where it was observed that such showrooms started with a bang, with all the company fan-fare and marketing strength. They did brisk business in the beginning. As time passed, people started wandering away in search of something new, something different and sales would decline. The very USP (unique selling point) with which these showrooms were launched – exclusivity – went against them.

Trade-Oriented Retail - Departmental Stores

Similarly, trade-oriented organized retailing has been around for quite some time now. It is visible in the form of single large departmental stores. The types of products that they offer cover a wider range and in every product category they competing products from competing manufacturers.

Again there are plenty of examples where we have observed that the wider the product range and variety the more customers are drawn to them. This retail model is very popular because it allows the consumers to compare a wider range of products before concluding their purchase.

It will be interesting to see which business model the new corporate giants planning to foray into the retail sector will be adopting.

The plans made public by these players so far reveals a mix of both models. Some have announced their plans of displaying products from various categories and multiple options within each product category. Some of the new retail players are manufacturers or brand owners who will be selling only products of their own brands.