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Supply Chain - Traditional Vs. Modern

Updated: Mar 9


The positioning of any product depends on the ability to execute the right strategy and be present at various points of sale. As a brand owner you must be extremely clear about the distinctions between the traditional and the modern supply chain.

In the modern channel, the customers can complete their purchasing goal using a self-service paradigm. Supermarkets and department stores are ideal examples of such channels. On the other hand, local shops may serve as the traditional channel's primary representation. In these forms, a middleman—the seller—delivers the product.

Modern Channel Vs. Traditional Channel

So that you are always aware of the challanges of channel management and increase your strategic vision of trade marketing actions in the modern channel and in the traditional channel, we are going to briefly discuss the following:

· Differences between the modern channel and the traditional channel.

· How to propose the execution strategy of different channels.

· How to measure the effectiveness of trade marketing actions in both channels.

· Tipping Glass

1. The Difference

a. Modern Channel

The modern channel is a service model in which shoppers have direct access to the products on display and can independently choose the product that best suits their needs. The points of sale that are normally part of this channel are supermarkets, hypermarkets, wholesale distributors, pharmacy networks and other self-service establishments. The modern channel accepts different types of payment, such as debit and credit cards, loyalty card, food vouchers and cash. These places sell food, drinks, electronics, household utensils, among others.

According to a report by Kantar Worldpanel, the modern channel represents 41.2% of the market in Mexico and 55% in Latin America. This channel developed more intensely in Chile, Brazil, Mexico, Argentina and Colombia, countries where supermarkets occupy an important space.

b. Traditional Channel

The traditional channel, in turn, is represented by neighborhood stores, corner stores.

In this format, shoppers do not have direct access to the products and another person is in charge of serving them behind a counter. Generally, these stores are located in adapted spaces in a residential area, which allows a more flexible operating schedule to be established, but at the same time, it does not allow the storage of a large number of products, since the spaces are reduced.

The traditional channel concentrates 30% of the sales of consumer products in the world, distributed in more than 23 million stores, according to a Nielsen study. And despite the growth of modern channels thanks to supermarket networks, neighborhood stores continue to be the most important distribution channel in many Latin American countries. Ecuador, the Dominican Republic and Peru are currently the countries that concentrate the most traditional channels. Convenience stores are essential for families without transportation, as they often live close to the stores. Another important point is the means of payment, when the store allows shoppers to record their purchases in a notebook to pay for them later, the famous "fiado".

2. Execution Strategies: Modern Channel Vs. Traditional Channel:

In trade marketing, successful strategies must consider the different needs of shoppers, how and why they are choosing certain stores and products, how they got to those stores, and what are the main concerns of merchants. If you develop strategies and direct them to different channels, that will help you ensure that your product is in front of the shopper and that it generates a positive consumer experience.

The modern channel allows shoppers to come into direct contact with your products and, therefore, requires more frequent monitoring of the points of sale. And this is where we put trade marketing into practice, transforming it into an ally to obtain positive results.

a. Modern Channel Management:

i. Exhibition Point Performance

One of the most important processes for the modern channel is related to the excellence of execution at the point of sale . This allows your product to stand out from the competition and connect to shoppers efficiently. Your field team must always be alert regarding the shelf share, that is, the space (percentage) that your brands occupy on the shelves, as well as the storage time and whether the assortment of products is adequate for the different points of sale. Having these performance indicators on hand allows you to identify if your strategies are being executed according to what was planned and if the results correspond to expectations.

ii. Shopper Experience

Analyzing the experience of shoppers during their purchase process also has to do with examining the presence of products on the shelves. Are they in good condition? Is the price tag visible? Are there products out of stock? These are some factors that influence the purchase decision, as they capture attention.

iii. Promotions & Exhibitions

Another interesting investment to give your product or brand more visibility is to give gifts in your actions or offer tastings at points of sale. These trade marketing actions increase the shopper's attention and, therefore, the purchase probability. One idea, for example, is to work with seasonal dates. Dominating the traditional channel is a great challenge but achieving it can represent a huge competitive advantage. It is important to know that corner stores have a limited budget and certain agreements with distributors.

b. Traditional Channel Management

i. Merchant Feedback

Before asking what products, you should sell in neighborhood stores, it is important to know who buys and why they buy. Since traditional channels generally do not have sell-out data, it is important to identify shopper behavior directly through those who make the sales: the merchants of these stores. Neighborhood store owners are the best people to talk to about it. They know which products your shoppers like the most, which days of the week and month they make the most purchases and which are the promotions that motivate these people.

ii. Study the location of the channel in which you are going to invest.

Dividing the study by region, defining areas according to store density, GDP, population density, socioeconomic status, all of this will contribute to making your trade marketing planning more efficient. After knowing all the details of the location, you will have more clarity on which categories and products you should invest in in each region. The visit of your field team to the defined places is crucial so that you have real data on the channels that deserve the investment of your brand.

iii. Includes differentiated products in the channel.

Considering that the corner store has limited space, how can your product stand out? One way out is to leave items within reach of shoppers, such as in refrigerators or additional displays. Investing in products that have an eye-catching presentation or packaging is also a strategy that pays off. Since what is not shown in the traditional channel runs a great risk of not being sold. In addition, it is essential to monitor the display of your products. Having a place on a store shelf, hanger, or display case that is visible to both the merchant and shoppers is essential for movement in the traditional channel. Using your field team to monitor trade marketing actions and the performance of each neighborhood store gives you the possibility to understand what is working and what is not so successful.

iv. Build long-term relationships with distributors and dealers.

A study carried out in collaboration between Nielsen and McKinsey showed that Latin American manufacturers that are opening space in the traditional channel give priority to exclusive and collaborative professional relationships. Retailers from traditional channels are relevant because they decide which products deserve more attention and which brand will continue to sell. On the other hand, distributors are the main points of purchase for retailers. Consider implementing discounts for merchants and distributors who buy in bulk so you can make yourself available to lend a hand in their strategies and build a friendly relationship. Encouraging the training of distributors and dealers and that they become experts on your products can also yield good results.

3. How To Measure The Effectiveness Of Your Actions?

The informality, the variety of distributors and the lack of data from traditional channels contribute to the fact that the tasks of tracking sales, studying shopper profiles and shopping hours are not successful or effective. Modern channels, in turn, open the possibility of designing and applying direct actions to impact shoppers at the point of sale.

It is important to know the different channels and their respective characteristics, but then, how can you measure the effectiveness of the trade marketing actions? The answer lies in the use of technology. Managing your strategies is essential and having a platform that allows you to extract the data you collect in your trade marketing actions, and have control over it, becomes vital for the positioning of your product. Trade marketing software allows you to have real-time information about what is happening in the different channels in which you are present. The data collection is done by the field team, and that will give you all the answers you need to be successful in a modern channel or a traditional channel.

Tipping Glass

Placing the right product at the right spot takes the right guide to the market. Connect with us and let us explain how we can place your products at the right place, at the right time for the prefect buying segment and help you build and grow your brand.

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