Why more retailers tapping exclusive partnerships as strategy could be a win-win situation for Malaysian consumers

• May 19, 2021

KUALA LUMPUR, May 19 — Maintaining a competitive edge in the contemporary world of retail is a constant challenge. Ever-changing strategies are needed just to stay on the beat.

The most apparent change to retail is increased digitalisation. From major household names and brands to mom-and-pop shops, everyone is taking the initiative to set up shops online and diversify their distribution channels to include e-commerce and its associated platforms.

In this respect, strategic partnerships play an important role among business entities. From hypermarkets and petrol companies working hand-in-hand, to food and fashion brands forging alliances, brand ambassadorship and more.

Indeed, just like in the offline world, many of these partnerships are often exclusive, solely between two entities, that are aimed at pushing brand and sales growth that can be achieved by choosing the right partner with an established infrastructure, offers training opportunities and has a massive consumer base.

These unique partnerships also create valuable brand association and novelty among consumers both existing and potential, increase their demand, and of course, stimulate consumer chatter about a particular product or service.

It is ultimately a symbiotic relationship that has been tested across various sectors and categories in the retail industry, both online and offline for decades globally and domestically.

For example, some brands will agree to exclusively sell their products at preferred outlets for a certain period of time, and many brands do very well under these arrangements.

Take for instance the exclusive partnership between coffee company Wonda with convenience store chain 7-Eleven, McDonald’s which only sells Coca-Cola, health and beauty chain Watsons which carries a range of brands that are exclusively sold in their stores, and many more.

However, in some instances, it is easy to confuse exclusive partnerships with practices that are truly anti-competitive.

This brings to mind the recent issues faced by China e-commerce giant Alibaba which was fined a whopping US$2.8 billion (RM11.5 billion) by China’s State Administration for Market Regulation for enforcing the practice known commonly as er xuan yi, which literally means “to pick one from two.”

With er xuan yi, a platform forces its merchants to undergo exclusive partnerships or distribution channels solely with them.

Should the merchants decline or refuse to close down their stores or operations on competing platforms, they face the threat of no longer having shoppers’ traffic directed to their products on the platform in question.

In severe instances, merchants’ stores and their products are simply suspended altogether for failing to comply.

In Malaysia, businesses are presented with flexible options that would help them achieve business growth. Aside from the traditional retail model involving shopping malls, hypermarkets, convenience stores, pharmacies and more, in the quest to digitally transform, this may mean partnering with various e-commerce platforms like Alibaba-owned Lazada or Shopee, or with just one.

Unlike the China case, it is not mandatory for merchants to prioritise any platform as existing programs are optional, with no threats of penalties or restriction should they choose to sell on multiple platforms.

In fact, some brands, retailers and manufacturers even come up with online exclusive ranges of products to differentiate their existing traditional brick and mortar and online strategy as a means to appeal to a new target audience and achieve wider sales growth. The decision, therefore, lies with the merchants to determine their retail strategy.

Malay Mail spoke to digital transformer and marketer Jason Low, the partner and director of an integrated digital consultancy firm, Virtualtech Frontier, that focuses on pushing companies to the next level through on-ground and online strategies.

“When we talk about exclusive partnerships for brands, they benefit in terms of increased sales through visibility or awareness, specifically by targeting their niche market which is already known or identified by the brand’s own marketing team.

“In some cases, a brand is motivated to form an exclusive partnership with a retailer or e-commerce platform out of practical considerations, as the partner has logistical advantages including desired storage capability and an extensive logistics network,” he said.

Low added that although it might seem like a good idea for a brand to try and sell their products or services through multiple retailers, instead of forming an exclusive partnership, it may actually work against them.

“For relatively new brands without sufficient resources, doing so could result in spreading themselves too thin to have an impact.

“Sales may end up not being good; thus, it is preferable to be in an exclusive partnership with one retailer instead, so as to get market validation,” he said.

“For a well-known brand with enough clout and resources, it sometimes does not immediately choose a retail partner. Often, they will announce to everyone that, say, for example, a product is launching soon.

“In this case, they are seeking for retailers to provide their various pitches to them, justifying the rationale to sell the brand’s product exclusively on their platform.

“The result is that the brand will appoint the retailer based on who can offer them the best services, while also ensuring that retailers have a chance to compete with one another, with the best man winning,” he said.

Retailers themselves often view exclusive partnerships as beneficial, with the most obvious example being the pricing of products, which tend to have better rates.

“Brands in an exclusive partnership also help the retailers, as they will commit a certain amount of funds to them for marketing purposes.

“It also boosts the retailer’s confidence with brand association, by influencing consumers’ perception of them,” he said, adding that the more well-known or established the brand is, the more it helps the retailer, and in turn, leads to the retailer purchasing more stock from the brand.

Ultimately, the main beneficiaries of exclusive partnerships are neither side, but consumers themselves. Low said it is expected for consumers to seek out retailers that can offer them the best value for their buck.

“It is common for brands, when seeking out retailers for an exclusive partnership, to ask who can buy the most volume of products from them. Retailers who do so will usually purchase a considerable amount.

“The more the retailer purchases in terms of volume, the higher the chances are that they can provide better promotional deals to consumers when a product is launched. When it concerns small-and-medium enterprises (SME) what they would typically do is evaluate the hard key performance indexes that impact their final profits,” he said.

Should an SME choose an exclusive partnership with one retail partner, the company will consider current operating costs against the benefits, the new cost to run the business, and then the opportunity costs.

“Using the e-commerce model of retail, sometimes SMEs and smaller players decide to focus on one platform after running their numbers and realising that perhaps their sales have been marginal on the other, so they might as well move their resources to prioritise one and gain a discount on service fees.

“This way when they finally earn more profits, they can afford to run higher discounts for consumers from time to time. Besides discounts and evaluating which retail partner can provide the necessary infrastructure including logistics, payment methods and marketing, SMEs tend also to look for partners that can provide training assistance to help solve business needs and grow their business,” Low said.

Ultimately businesses need to decide on a retail strategy; in some cases exclusive partnerships work and even in exclusive partnerships, consumers benefit most, since it drives down prices through competition between retailers.

He concluded by saying that as far as exclusive partnerships between brands and retailers in Malaysia are concerned, it is a win-win scenario for all involved.

Source: https://www.malaymail.com/news/malaysia/2021/05/19/why-more-retailers-tapping-exclusive-partnerships-as-strategy-could-be-a-wi/1975272