Trade margin is the No. 1 element in trade relations mix. Dealers invariably look for wholesome, juicy margin. The principals invariably try to peg it as modest as possible. The point to be noted here is that the margin must be sufficient to enable the dealer to gain a reasonable return on his investment.
Present-day dealers as a rule, expect larger margin: In the earlier days, dealers managed to operate their outlets with modest trade margins. First, their investment in infrastructure was relatively low and they were able to make a profit even with a modest margin. Second, their expectation of profit was also relatively low. In recent years, the position has been changing rapidly. First, the new generation dealers adopt a more contemporary approach to retailing. Accordingly, their investment in the business infrastructure is much larger. They go in for attractive shops/showrooms; they periodically renovate and redecorate the premises; they also employ skilled and better trained salesmen.
All the above naturally pushes up their investment in infrastructure and their overheads. Running costs too have been going up. Added to this, the expectation of the new generation dealers in the matter of pro-fit is also considerably higher compared to the earlier day dealers.
Functions, the dealers have to perform:
1. Help establish the brand in the market.
2. Help achieve the sales targets.
3. Provide adequate shelf space.
4. Provide merchandising support.
5. Provide service to consumers.
6. Make prompt payments.
7. Maintain fair trade practices.
8. Provide winning store image.
9. Assist in promoting the product, especially in POP promotion.
Paradigm shift from â€˜gross marginâ€™ to â€˜retained earningâ€™: thus, the contemporary scene, in most cases, the manufacturers have to willy-nilly settle for a higher outflow towards dealer margin. It also becomes necessary for them to accept a paradigm shift in this matter from â€˜gross marginâ€™ to â€˜retained earningâ€™. They are required to hike the dealer margin to a level that would fetch the dealer a reasonable â€˜retained earningâ€™ after meeting all his normal expenses. They are also required to collaborate with their dealers and help them achieve a larger turnover and greater retailing productivity, so that at a given level of trade margin, their retained earning is higher.
In the matter of margins, the way it is structured and allocated among the different tiers/levels in the channel is as important as the total quantum. There are several instances where firms have suffered in their marketing endeavor on account of defective structuring and improper allocation of the margin among the different levels of the channel.