Buyer Churn

The emerging practice of limiting a buyer’s tenure to twelve months per category undoubtedly allows a retailer to concentrate upon getting the best price. Furthermore, by frustrating the development of buyer-seller relationships, the organisation limits the degree of emotional involvement in the process, again adding to the short-term price-only focus. Added to the fact that a buyer with only twelve months to make a career impact will not take any prisoners, much less think through strategic implications, then the twelve-month rule seems like a recipe for long-term opportunity-loss…

However, whilst a retailer vigorously applying the rule will undoubtedly miss longer-term opportunities, it will not be for the reasons above. A professional supplier organisation will easily re-adjust to accommodate tough, margin-fixated buyers and re-active customers. However, the real casualty of buyer churn is the potential loss of an overall view (and co-ordination!) of the supplier relationship by the retailer, a possible loss of supplier-franchise and elimination of all long-term investment…

Sainsbury’s current problems arise in part from many years of suppliers being prevented from gaining effective access to the inner workings of the company, and modifying their act accordingly…by the same token Tesco’s current success stems from an openness to supplier-retailer networking, effective penetration and involvement throughout the same period. In many supplier organisations during that period Tesco and Sainsbury’s were important enough to warrant a shared-NAM (!), handling the most important job in the sales division. Faced on the one hand with an ‘arms-length’ customer that insisted upon all contact being filtered through a relatively inexperienced buyer having mainly negative power, whilst its main competitor fielded a more experienced and autonomous buyer who positively encouraged multilevel and multifunctional contact, the NAM gradually reduced Sainsbury’s trade support to a level that just maintained the business, and began to divert discretionary funds to a more appreciative and interesting rival.

Tesco remained a challenge and was tough to manage, but over time, both NAM and customer grew via deeper mutual understanding, a commitment to joint aims and effective implementation. The longer-term buyer could afford to invest in initiatives and relationships that had longer gestation periods, encouraging reciprocal behaviour on the part of the NAM. More importantly, the good buyer was able to build, maintain and profit from a total understanding of the supplier’s business, and was more inclined to seek and find opportunities for joint-profitability. Moving to a twelve-month buyer tenure eliminates that strategic element in the supplier-customer relationship.

Whilst the NAM-team can possibly compensate by developing a two-sided strategic view of category and relationship, the customer will be unable to optimise long-term opportunities without having an in-house resource managing and co-ordinating the total and strategic relationship with the supplier. This in-house co-ordinator should be encouraged to become the supplier-champion for chosen trade partners and ensure that other retail functions do not unnecessarily compromise the long-term output of the supplier-retailer relationship. A minor but important side-benefit of the role would be the ability to preserve the continuity of the buyer-seller relationship during buyer changeover. The role would be all-embracing, based upon a calculation of joint-profit divided to reflect relative risk and be managed day-to-day via a P&L of the supplier’s business with the customer, starting with shelf prices and reflecting all the sales and costs associated with the joint business relationship.

This approach would still leave the customer very much in charge, buying at very keen prices, and prevent ‘abuse’ of personal relationships but would not sacrifice long-term joint profit. The buyer’s level of influence will be reduced in the process, but this is already an inevitable side-effect of the twelve-month rule.

Suppliers meanwhile have to ensure that the NAM role is not reduced to deal-maker in response, and suffer unplanned NAM-churn, to the advantage of a competitor…

Date article published: 05/01/2004

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