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Do retailers and manufacturers have to be adversaries? For far too long, an adversarial relationship has been the default. The belief was that there was simply too much at stake to trust “the other side” of the equation when bringing products to market. Every piece of profit one side makes is taken from the other. Does it have to be this way? There’s evidence to suggest that there was no need for it to become this way in the first place.

Retailers and manufacturers are increasingly discovering that trust can be a mutually beneficial asset when built up properly. As e-commerce competition and changing buying behaviors squeeze and stretch both retailers and manufacturers in new ways, we discover that the two groups have been hidden allies in more ways than they knew. Take a look at the power of trust in retailer-manufacturer relationships.

The Problem of Mistrust in the Manufacturer-Retailer Relationship

Manufacturers held the power position until very recently. This becomes truer as bigger manufacturers are discussed. Larger manufacturers are often part of large conglomerates and entities that wield huge amounts of power compared to retailers. Just think of the power relationship between a small, local grocery chain and a manufacturer like Pepsi. Ultimately, the smaller retail entity will simply acquiesce to Pepsi’s conditions just to be able to carry a product based on its high traffic draw. The same goes for everything from convenience stores to restaurants. These retailers need the brand more than the brand needs them. While it may seem like only the small retailer suffers in this scenario, the reality is that everyone suffers because opportunities are being missed to increase both retail foot traffic and brand sales. Here’s a look at the unintended consequences of strained retailer-manufacturer relationships:

• Smaller retailers may not promote the “arrogant” brand.
• The two parties miss an opportunity to come up with a better “third” solution instead of simply ignoring the less powerful party’s needs in favor of the larger party’s needs. This equals lost innovation simply because of a power play!
• The reputation of a manufacturer to be adversarial to retailers could ultimately cause more retailers to seek out alternative brands that provide similar products out of fear of being “shut out” without warning. While the progression is slow, a manufacturer may actually be giving a competitor an opening for market share that remains unseen until it’s too late.
• When mistrust and adversarial actions dominate manufacturer-retailer relationships, opportunities for growth, creativity and collaboration are lost because all the attention is being focused on the power struggle.

Ultimately, mistrust is an outdated model. While it was never optimal, its insufficiency was veiled under the consistent, predictable customer patterns that steadied sales expectations. However, manufacturers can no longer afford to lose allies in a climate where customer behaviors and attitudes are shifting wildly. Preserving market share comes down to innovating relationships.

Factors That Exacerbate Mistrust in the Retailer-Manufacturer Relationship

The big obstacle to trust in the retailer-manufacturer relationship is lack of exclusivity. This also happens to be one of the only problems that cannot be changed based on the very nature how both entities create revenue. In most cases, retailers carry the direct competitors of the manufacturer they are working with. Similarly, the manufacturer is a supplier to the retailer’s direct competitors. This built-in tension can often cause both sides to be very guarded regarding how “warm” they want to get with the other side.

In the case of manufacturers, there is the fear that getting “too cozy” with one retailer may create tension with a larger retailer in the same market. For retailers, there is the looming threat that exclusivity with one brand could ruffle the feathers of competing brands that generate substantial sales. Nobody wants to be “embargoed” due to an alliance. However, there are some instances where developing regional or territorial exclusivity can be beneficial for both parties without compromising other relationships. In fact, an opening for a low-risk exclusivity agreement in a specific market is the low-hanging fruit that manufacturers and retailers should be grabbing for when attempting to build up trust for better delivery and revenue.

A Shifting Power Dynamic Gives Way to Trust

Traditionally, manufacturers focused on managing customer relationships while using retailers as necessary “middle steps.” However, a retail industry that has become increasingly concentrated has derailed conventional thinking. Manufacturers now need retailers to bring the customers to them.

“But today’s retail industry is more concentrated than ever; in many industries and markets, a handful of retailers account for the majority of sales,” according to Niraj Dawar and Jason Stornelli at the MIT Sloan Management Review. “Retailers, whether they operate traditionally or electronically, have become increasingly astute at capturing consumer loyalty with effective merchandising, innovative private-label offerings and targeted pricing and rewards programs. Their ability to control market access and influence consumer buying behavior means not only that manufacturers need retailers more than ever but also that manufacturers’ need to understand what makes retailers tick is more pressing than ever.”

The balance of power first began shifting with the rise of larger mega-retailer chains and alliances. This creates buying alliances that can actually impact a manufacturer. While a big brand may be able to cut ties with a small mom-and-pop store without any repercussions, having your products dropped from the shelves of a grocery retailer with hundreds of stores around the country is a much bigger problem. Your product is suddenly invisible in an entire market.

The Benefits of Trust in the Manufacturer-Retailer Relationship

At the end of the day, trust costs nothing for manufacturers and retailers. A complete sea change is often as simple as upper-level management creating a culture of collaborating with partners. This can be as simple as creating an initiative to innovate using partners to widen brand awareness and distribution. In fact, manufacturers can completely rewrite the script of the manufacturer-retailer relationship by creating shared goals that require collaboration between manufacturers and retailers. A shared goal gives both entities some skin in the game while tying the success or failure of one to the other. Here are the benefits that germinate once trust is embedded in the manufacturer-retailer relationship:

• The two entities can share confidential information that creates better market awareness.
• Both entities are able to dedicate specific people and resources to fostering a successful partnership.
• The two entities can form a relationship with greater dependence that utilizes the channels and assets of both.
• Customers can benefit from dynamic collaborations that make products easier to purchase.

The big “first step” to fortifying the manufacturer-retailer model comes down to agreeing on a benefit-sharing model. To begin, the unbalanced dynamic between the two parties has to be recognized. This opens the door to identifying where there is room to increase the benefits for the party that has always had less to gain from the relationship. In many cases, this looks like strategic pricing using either increases or reductions. The two entities can also work together to find room for increasing sales by combining the separate insights held by each into shared action points.

It’s also very important to have a way to jointly manage performance and measure impact. A lack of clarity regarding the goals, objectives and gains of the other side is actually one of the biggest reasons behind retailer-manufacturer tensions. Once the objectives are shared, both parties can put their resources toward achieving them instead of relying on one-sided efforts that “shut out” the other side. Specific goals will vary by market. However, some common shared goals that can align manufacturers and retailers include reducing logistical costs, optimizing shipments and reinforcing branding. Once the objective has been identified, both parties will agree on shared metrics for determining the success of any initiatives that are implemented. Leadership should build follow-up meetings and “progress reports” into the business relationship as a way to keep these unifying goals prioritized.

The Power of Strategic Trust

The reality of infusing trust into a manufacturer-retailer relationship is that it may not be possible in every case. There are simply external factors that make collaboration impossible in some situations. The most common example is that a company simply cannot risk alienating other partners by forming an exclusivity alliance with one brand. However, being strategic about building trust with high-value, high-impact partners can be an extremely smart move for both retailers and manufacturers looking to build strength in specific markets. With a trust-centered relationship, the strength of the other entity becomes your brand’s strength without the need to do the legwork to get an “in” within that market.

Final Thoughts on Building Trust Between Manufacturers and Retailers: Embrace the Imbalance

The first step to building trust is to recognize the lack of trust. In most cases, the lack of trust in a manufacturer-retailer relationship stems from the fact that there is a lopsided power dynamic that almost always favors the manufacturer. It only takes one side to decide to view the imbalance as an opportunity for the relationship to become an opening for increased mutual success.