Crying Over Spilt Milk
How Underestimating your Partner Strategy can abruptly stall Growth and reduce Market Share.
If you’re reading this from outside of Australia you may not be familiar with Bellamy’s, some quick background.
This Tasmanian organic milk brand had experienced meteoric success in recent years, catapulting it from nowhere to the position of challenger brand in the Australian infant formula market. With a sky-high share price, fast-growing sales, and much-celebrated executive team, it seemed that Bellamy’s could do no wrong.
But in just a few short months, Bellamy’s glittering success seems to have ground to a stuttering halt, with sales dropping abruptly and the share price taking a gigantic $10 nosedive. Usually when something like this happens to a consumer brand it’s because of a serious reputational issue, such as a health scare or product recall. But in the case of Bellamy’s the route cause would seem to be less obvious than that. Their severe sales decline seems to be partly linked to mistakes they have made in their channel and partner strategy based on a recent Sydney Morning Herald Article
The Daigou Phenomenon – A New Channel is Born
Around half of baby formula product ends up in the hands of Chinese consumers, thanks to an informal sales channel called Daigou. Daigou are essentially independent personal shoppers who hoover up vast quantities of baby formula from supermarkets and pharmacies in Australia, and resell it to their friends and family networks in China. There is a huge market from the middle classes who like the idea of feeding their babies safe, genuine, Australian imports. In this way, consumers are able to avoid the constant food scares they experience from domestic Chinese food sources. The concept is simple, unstructured and unofficial, and the phenomenon has snowballed so that now there are reportedly more than 40,000 Daigou in Australia emptying supermarket shelves.
For the baby formula sector, sales have boomed with an estimated 50% of baby formula sales in Australia being absorbed by Daigou. So without even trying, Bellamy’s has benefited from a macro market change and seen the creation of a no-cost sales channel that ‘just happened’. It doesn’t get much better than that if you’re a brand!
But for Australia’s Daigou selling into China, price and margin are extremely important, so when reported over-production caused Bellamy’s to slash their prices online directly at JD.com and Taobao, it would seem they competed and destroyed trust with their offline Daigou channels. Facing reduced margins, the Daigou simply switched to buying up alternative formula brands whose stable price points promised them a higher sell-through margin. After all, Chinese consumers are really looking for “Australian Organic” baby formula and are unlikely to state a particular preference for different formula brands. So the ‘brand recommendation’ of the Daigou to their friends and family is loose, however critical.
For me this is a classic lesson in Go-To-Market Partnering 101. Look after your partners.
Never get complacent about their loyalty to your brand because loyalty in partner relationships is always tied to value and profitability. If the value of the relationship and the profitability they can achieve is eroded, do not be surprised if your channel starts to look elsewhere and sell your competitor’s products instead.
In Bellamy’s case this happened startlingly quickly. These independent Daigou saw the immediate margin erosion relating to discounted stock and simply stopped buying the product. According to Aztec’s scan data, between April and October 2016, Bellamy’s lost 10% of overall share in Australia’s infant formula market. Even more concerning Platinum A2, a competing brand, grew their market share by around 12% in just two months.
What lessons can you take from this into your own Partner strategy?
There’s some valuable lessons here if your brand relies heavily on Partnerships for your sales revenue:
- In the new ‘Digital’ economy, referral and affiliate partnerships represent either a major challenge to you, or a huge opportunity. How are you positioned to tackle this? Do you have a purposeful strategy in this area which sees you invest in and support your Partner routes to market? If not, you need one!
- Routes to market are no longer just ‘logical flows’. They are clusters, each with different attributes and requirements which need to be planned, managed and carefully nurtured, and continually monitored for health and performance. As the Bellamy’s example shows, markets and channels can shift at lightning speed. You need to be agile if you are going to adapt to new challenges or opportunities.
- Know Your Partner. And no, I don’t mean that you need to implement a CRM system. I’m often surprised how little some organisations know about their Partners and how rarely they seek to communicate with them or actively nurture their success. Understanding how and why your Partners are growing, what they need for success and further growth is critical if you are going to properly support your channel for the future.
Though the example here is baby formula, these rules are really no different for B2B customers in Information Technology, Finance, Insurance and any other B2B industry. New age B2B partnerships really require ‘B2C thinking’ for ultimate success because, if the Daigou phenomenon shows you one thing, it’s that at the end of the day, people really do buy from people.