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Relationships between the Giants in Retailing: how WalMart and Procter&Gamble trade together - from Fear to Trust prevalence in the Supply-Chain

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  1. Abstract
  2. Introduction
  3. Defining the relationship between a retailer and a supplier
    1. The organisation and development of the buying function
    2. The initiation and development stages
  4. Trade marketing
  5. Partnering
  6. Category management
  7. The relationship between Procter and Gamble and Wal Mart
  8. Extended conclusion
  9. References

The paper shows how the relationships between suppliers and retailers have experienced several important changes over the last decades. By analysing the main developments of these relationships and the different tools implemented to improve them, the paper argues that the western and now worldwide, business to business approach to retailing is following the same trends. Based on two of the largest partners in the worldwide retailing environment, Wal-Mart and Procter & Gamble, the paper illustrates how the buyer's market has gradually resorted to a cooperation strategy the supplier-retailer relationship, emphasizing the features of Category Management.

Over the last several years, the nature of the buyer-supplier relationship in retailing has been undergoing dramatic changes. Industry observers and researchers have described these emerging relationships as "partnerships" or "strategic alliances," as opposed to the traditional "arm's length" type of associations. The supplier's market had been followed by the buyer's market due to concentration amongst retailers between the 1970s and 1990s which have given the latter most of the powers. But these conditions are likely to change too.
The acquisition of Gillette by Procter & Gamble is the sign of a new evolution in the retail environment. Like this newly-formed group, big manufacturers tend to create the world's largest stable consumer brands and hold on to their portfolio brands that generate more than $1bn in annual sales. This will deeply affect the prevalent relationship between retailers and manufacturers on a long term perspective.
Despite the rise of own-brand products, a worst-case scenario is not likely to happen, as the concentration among retailers faces the concentration among their main suppliers. Thus, relationship between retailers and suppliers which used to encounter conflicts of interests might now enter a turning back of the clock. As Kumar (1996, p92) notices, ?trust is stronger than fear: partners that trust each other generates greater profits, serve customers better and are more adaptable?.
This paper analyses the reasons why retailers and suppliers are developing less conflicting relationships firstly in regards to their historic development and secondly in the light of the notions such as Trade Marketing, Partnership and Category Management. The case study of Procter & Gamble and Wal-Mart supports the presentation of the arguments employed in this paper.

[...] Thus, Trade Marketing is the cooperation between retailers and manufacturers, through the exchange of information, in order to strengthen a long-term relationship. Yet, Randall (1994, p118) underlines that there is not a unique method to applying it. Partnering The US term ?partnering?, also referred to as strategic partnership, implies a stronger relationship than Trade Marketing, according to Mentzner et al (2000). Partnering occurs through extensive social, economic, service and technical ties over time (Stern, El-Ansary and Coughlan in Mentzner et al, p549). [...]

[...] Therefore, consumers assume there is a real difference between personal care products from retailers and manufacturers: they prefer to pay a premium and trust manufacturers' expertise that in other areas they usually do not. As a Category Manager, P & G/Gillette ought to convince Wal-Mart of the necessity to carry its national brands (Dickie et al., 2005) In fact both Wal-Mart and Procter & Gamble/Gillette have had to make an alliance in order to take the most advantages of their situation, reduce costs, and survive in the long-term, in an increasing tougher environment which is believed to become more complex in the future (i.e. [...]

[...] Apart from this, the current evolution of the relationships in retailing has been largely beneficial for suppliers since, between 1994 and 2002, they have gained 5 points in their operational margin whereas retailers gained only 1.5 point. In general, this strategy favours the development of larger suppliers against smaller ones. Thus, suppliers have strengthened their portfolios through both acquisitions and divestments to face the requirements of stronger retailers. For instance, the Anglo Dutch Unilever has reduced its number of brands from 1,600 to 400 in the past four years. [...]

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