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Benefits of a chain cooperation and how such cooperation can best be utilized

Benefits of a chain cooperation and how such cooperation can best be utilized

Seen from my legal point of view, I will focus on the benefits of chain cooperation. Although chain cooperation has become very common these days, I believe that such cooperation is often underdeveloped in the sense that many opportunities often lie unused.

The most important legal content of a chain cooperation is that the retail dealer (the store) is licensing the brand owner`s trademarks, logo, and methods of doing business (intangible characteristics). The advantage of such arrangement seems obvious to all parties: The branding will be far more efficient, primarily because the brand reaches more people. The more agreements made between the brand owner and the single retail dealer the more famous and valuable is your brand. In addition the retail dealer will achieve the advantage of less investments and financial exposure when using fully developed methods and trademark which is incorporated instead of building up the brand itself.

In practice there are often a lot of disturbances around the developing of a brand within the chain cooperation. Ideally, the brand should be included in the store name and preferably also in the company name and these names should not be disturbed with using some additional names. There are also cases in which the stores operate with a chain’s name within another chain name, so that customers associate the store with two different brands, both of which destroy each other.

The stores should also be subject to the maximum uniformity in other ways through the use of common name and logo in addition to branding. Common features should include at least the level of service, assortment, any additional services such as engineering and repair, price level, joint promotions, merchandising (including colors), and preferably that the shop staff is wearing uniformed clothes. Such uniformity has proven difficult in practice, and requires both a detailed and clearly indication in the cooperation agreement regarding the characteristics of the retail concept and a meticulous follow-up from the brand owner. It also requires strict discipline with the individual store.

In addition to uniformity with respect to intangible assets and other characteristics, the normal chain cooperation also includes sale of goods from the brand owner. This part of the cooperation can lead to “advantages of large operations”, where the result could be good selections at reasonable prices while both the brand owner and the store can achieve good profit margins. Size brings strength, and in this respect it is advantageous if the brand owner is doing most of the purchases from the importer or manufacturer. The higher quantities the brand owner is able to purchase, the better purchasing conditions will be achieved.

The content of the cooperation agreement is important also in the respect mentioned, and the agreement should impose high purchase loyalty on the stores. Such purchase obligation could be combined with incentive schemes to the stores, such as discounts on purchases from the brand owner.

Purchasing from brand owner will also provide greater security for the more professional procurement, because the brand owner is normally in possession of larger store professional expertise. However, the stores have ongoing and direct contact with the market, and the stores should therefore be consulted by the brand owner. The cooperation agreement therefore often includes a consultative Council for the purchase of goods with representatives from both the stores and the brand owner.

Good chain cooperation often also includes various central services within key aspects of the business operation: Accounting, computer systems and consulting services in economics and law.

The development of a well-functioning chain cooperation requires, among other things, a good agreement and a professional and targeted brand owner. It also requires stores that act disciplined. In my view there is great potential for improvement in many of these points.

Terje Sverdrup Mår

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