A buying groups function is to meet the business needs of their members and vendors. But, when those needs aren’t met, the buying group and its members’ success is in jeopardy. Many buying groups operate on old or outdated revenue streams that are shrinking in demand.
Historically, buying groups have relied on three sources of revenue:
- Marketing materials like flyers, which most retailers are phasing out of marketing strategies
- Charges to members and vendors to be part of the group
- Warehousing margins if the organization stores products
All these profit centers rely on the group’s largest asset - engaged membership. Maintaining the group's most significant asset requires the group to meet 100 percent of its members’ needs. Most buying groups are far from achieving that 100 percent mark, and much of that gap is a result of the inability of a buying group to harness technology to better serve its membership.
I know this is a pretty high bar to achieve, but in this case, it is attainable through new business strategies. Further, it is critical to achieve because technology is increasing the competitiveness of suppliers, driving up order efficiency and reducing direct-to-retailer costs. This market pressure is leaving a thinner edge for current buyer group revenue streams. Before addressing potential solutions, first it is essential to identify the problems and risks associated with maintaining the status quo.
Meeting Members Needs
The old one-size-fits-all approach to dealing with buying group members isn’t going to cut it anymore. Members of a buying group will always look out for their business interests. Most members are aware that the buying group profits are at odds with the member's profits, but as long as the buying group meets its members’ needs, there is no problem. When a member feels that their interests aren’t being met, they will make purchases elsewhere. So what are those needs? Well, they vary, but the big one is the price. Members join buying groups to receive the best possible price on products. Next, is convenience and vendor management. Retailers rely on the organization to properly manage vendor relations and to provide simple ordering processes. If it's too hard to acquire information, or if the ordering process is to complex a retailer will simply choose to do it themselves.
Now, retaining those members is as simple as giving them access to the services they need. Yes, that's it. Just like any business, when you look after your customers you retain them. So now let's review what that service might look like in the modern business landscape.
Reducing the Friction between Members and Vendors
Buying groups are a liaison between members and vendors making the interaction between both parties better. If the administrative overhead of buying through the group adds significant overhead, you aren’t providing services that makes transaction better for both sides. Simply put, nobody wants unnecessary administration costs to do business. Retailers are always looking to reduce administrative expenses and vendors want access to customers who place large value orders. The solution is to reduce friction through a consistent and simplified processes.
Imagine if a buyer could purchase from any of the buying group suppliers in the exact same way and have all of their order history in one online interface. Online ordering services like LinkGreen help to reduce friction by providing all sides of the equation for the services they need through technology. Members gain access to a conveniently integrated ordering process, vendors gain access to customers who place large value orders, and the buying groups head office gains visibility over the transactions. Providing a solution that meets the needs of everyone is the core of a buying groups purpose.
Providing Better Service Through Data
Large corporate retailers rely on data to guide most of their purchasing decisions and so should buying groups. In fact, in a recent Zebra 2017 retail vision study 73% of retailers rate managing big data as important or business-critical to their operation.
"73% of retailers rate managing big data as important or business-critical to their operation."
When managing product selections or production rates, how are decisions made? Continuing to use a buying group management protocol that does not capture and share relevant data will leave you with unengaged members. A member on the east coast is likely to have differing purchase needs from a member in Ontario. No one retail business is the same because each consumers has their own unique needs.The needs of the consumer directly impact the needs of the retailer. To gain critical market visibility, you need to collect data on: Consumer trends; buying group member purchasing; and vendor production. Collecting data on all three sides of the equation is possible through technology solutions. Now that’s value a buying group can provide to the independent retailer they cannot find anywhere else.
Investing in the Future
The retail landscape has changed and there is little room for outdated business strategies and inflated overhead. Retailers of all sizes are reducing overhead and adopting technology to eliminate administrative cost and better serve their customers. Buying groups should follow suit in order to best serve their members and vendors in the future: Reviewing your business needs and adopt technology to meet those specific needs. LinkGreen offers technology solutions for all parts of the supply chain. Collecting data, reducing administrative costs and providing better service is all a part of the LinkGreen solution.