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Distribution Strategies Distribution Strategies for the Asia Pacificfor the Asia Pacific

Asia-Pacific Marketing Asia-Pacific Marketing FederationFederation

Certified Professional Certified Professional MarketerMarketerCopyrightCopyright

Marketing Institute of SingaporeMarketing Institute of Singapore

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OutlineOutline

Basic channels & transaction costsBasic channels & transaction costsCompetitive advantage of channelsCompetitive advantage of channelsAligning channels with how Aligning channels with how

customers buycustomers buyDistribution strategiesDistribution strategies E-commerce: Online distributionE-commerce: Online distributionM-commerceM-commerce

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IntroductionIntroduction

““Marketing channels are sets of Marketing channels are sets of interdependent organizations interdependent organizations involved in the process of making involved in the process of making a product or service available for a product or service available for use or consumption” use or consumption” Philip KotlerPhilip Kotler

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Basic Channels of Basic Channels of DistributionDistribution

Manufacturers/products

Agents/brokers

Wholesalers/distributors

RetailersRetailers

Consumers and organizational end users

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Typical Distribution of DrugsTypical Distribution of Drugs

Manufacturers

Marketing Agents

Retailers/Wholesalers/Distributors

Private GPs/specialists

Group Procurement

Office

RetailPharmacy

Public Hospitals / Institutions

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Distribution ObjectivesDistribution Objectives

Minimize total distribution costs for a Minimize total distribution costs for a given service outputgiven service output

Determine the target segments and Determine the target segments and the best channels for each segmentthe best channels for each segment

Objectives may vary with product Objectives may vary with product characteristicscharacteristics e.g. perishables, bulky products, non-

standard items, products requiring installation & maintenance

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DiscussionDiscussion

What do these three companies What do these three companies have in common?have in common?

Amazon.comAmazon.comDell ComputersDell Computers POEMS (Philips Securities)POEMS (Philips Securities)

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Transaction Cost by Transaction Cost by ChannelsChannels

As the value-added increases, the cost of As the value-added increases, the cost of transaction also increasestransaction also increases

Direct marketing channels—low value-Direct marketing channels—low value-added; low cost of transactions e.g. e-added; low cost of transactions e.g. e-commerce, telemarketingcommerce, telemarketing

Indirect marketingIndirect marketing channels—medium channels—medium value-added; medium cost of transactions value-added; medium cost of transactions e.g. retail stores, distributorse.g. retail stores, distributors

Direct sales channels—high value-added; —high value-added; high cost of transactions e.g. own sales high cost of transactions e.g. own sales forceforce

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Competitive Advantage of Competitive Advantage of ChannelsChannels

Traditional means of achieving competitive Traditional means of achieving competitive advantage is through products but can be advantage is through products but can be easily copiedeasily copied

Low-cost as a competitive advantageLow-cost as a competitive advantage Also suffer from sustainabilityAlso suffer from sustainability

Brands as competitive advantageBrands as competitive advantage Only if you are a strong brandOnly if you are a strong brand

Marketers are turning more and more to Marketers are turning more and more to channels as a competitive advantage e.g. channels as a competitive advantage e.g. Dell ComputerDell ComputerSource: The Channel Advantage by Friedman and Furey

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Aligning Channels With Aligning Channels With How Customers BuyHow Customers Buy

1.1. Identify customers’ channel Identify customers’ channel preferences and buying behaviorpreferences and buying behavior

2.2.Tabulate channel selection to key Tabulate channel selection to key buying criteriabuying criteria

3.3.Provide flexible channel optionsProvide flexible channel options4.4.Monitor (and respond to) changes in Monitor (and respond to) changes in

buying behaviorbuying behavior

Source: The Channel Advantage by Friedman and FureySource: The Channel Advantage by Friedman and Furey

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Example of buying criteriaExample of buying criteria

Buying criteria for flowers:Buying criteria for flowers: PricePrice Ordering speedOrdering speed Delivery flexibilityDelivery flexibility Personal selection & customizationPersonal selection & customization Expert adviceExpert advice Channel appeal & attractivenessChannel appeal & attractiveness Purchasing eventsPurchasing events

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Distribution-Scope StrategiesDistribution-Scope Strategies

Exclusive DistributionExclusive Distribution Limiting the distribution to only Limiting the distribution to only

one intermediary in the territoryone intermediary in the territory

Intensive distributionIntensive distribution Distribute from as many outlets Distribute from as many outlets

as possible to provide location as possible to provide location convenienceconvenience

Selective distributionSelective distribution Appoint several but not all Appoint several but not all

retailersretailers

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Example of Exclusive Example of Exclusive DistributionDistribution

LEICA was officially appointed Jebsen & Jebsen LEICA was officially appointed Jebsen & Jebsen Marketing as the exclusive distributor for Marketing as the exclusive distributor for Singapore, Malaysia, Thailand, Indonesia and Singapore, Malaysia, Thailand, Indonesia and BruneiBrunei

A main factor in choosing J&J was its expertise in A main factor in choosing J&J was its expertise in “high-quality technical products on the consumer “high-quality technical products on the consumer market.”market.”

Source: Smartinvestor, Singapore Ed. June 2000

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Exclusive Distribution:Exclusive Distribution:AdvantagesAdvantages

Maximize control over service Maximize control over service level/outputlevel/output

Enhance product’s image & allow Enhance product’s image & allow higher markupshigher markups

Promotes dealers loyalty, better Promotes dealers loyalty, better forecasting, better inventory and forecasting, better inventory and merchandising controlmerchandising control

Restricts resellers from carrying Restricts resellers from carrying competing brandscompeting brands

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Exclusive Distribution: Exclusive Distribution: DisadvantagesDisadvantages

Betting on one dealer in each Betting on one dealer in each marketmarket

Only suitable for high price, Only suitable for high price, high margin, and low volume high margin, and low volume productsproducts

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Example of Intensive Example of Intensive DistributionDistribution

NewspapersNewspapersMost fast moving consumer goods Most fast moving consumer goods

you see in the newsstandyou see in the newsstand Photo processing shopsPhoto processing shops

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Advantages:Advantages: Increased sales, wider customer Increased sales, wider customer

recognition, and impulse buyingrecognition, and impulse buying

Disadvantages:Disadvantages:Characteristically low price and low-Characteristically low price and low-

margin products that require a fast margin products that require a fast turnover turnover

Difficult to control large number of Difficult to control large number of retailersretailers

Intensive DistributionIntensive Distribution

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Example of Selective Example of Selective DistributionDistribution

Daewoo have 2 distributors in SingaporeDaewoo have 2 distributors in Singapore ““Starsauto, part of a larger Indonesian group, Starsauto, part of a larger Indonesian group,

represents Daewoo’s traditional line of sedans.represents Daewoo’s traditional line of sedans. Homegrown family-owned JTA Motors market Homegrown family-owned JTA Motors market

Daewoo’s offroad vehicles like the Musso and Daewoo’s offroad vehicles like the Musso and Korando, and an upmarket model called the Korando, and an upmarket model called the Chairman.Chairman.

(Source: BT, Motoring, Feb4/1999)(Source: BT, Motoring, Feb4/1999)

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Selective DistributionSelective Distribution

Advantages:Advantages:Better market coverage than exclusive Better market coverage than exclusive

distributiondistributionMore control and less cost than intensive More control and less cost than intensive

distributiondistributionConcentrate effort on few productive Concentrate effort on few productive

outletsoutletsSelected firms capable of carrying full Selected firms capable of carrying full

product line and provide the required product line and provide the required serviceservice

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Selective Distribution (cont’d)Selective Distribution (cont’d)

Disadvantages:Disadvantages:May not cover the market adequatelyMay not cover the market adequatelyDifficult to select dealers (retailers) Difficult to select dealers (retailers)

that can match your requirement and that can match your requirement and goalsgoals

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Multiple-Channel StrategyMultiple-Channel Strategy

Using two or more different channels to Using two or more different channels to distribute goods and servicesdistribute goods and services

Why?Why? Permits optimal access to each market Permits optimal access to each market

segmentsegment Increase market coverage, lower channel Increase market coverage, lower channel

cost and provide more customized sellingcost and provide more customized selling

What to look out for?What to look out for? More channels usually means more More channels usually means more

conflict and control problemsconflict and control problems

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Complementary ChannelsComplementary Channels

Each channel handles a product or Each channel handles a product or segment that is different or non-segment that is different or non-competing e.g.competing e.g.

Toyota LexusToyota Lexus MPH online portalsMPH online portals Magazine distributionsMagazine distributions

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Competitive ChannelsCompetitive Channels

The same product is sold through two The same product is sold through two different and competing channels different and competing channels e.g.e.g. Non-prescriptive drugsNon-prescriptive drugs Electronic goodsElectronic goods

Why? To increase salesWhy? To increase salesWhat to look out for?What to look out for?

Over extending yourselfOver extending yourselfDealers’ resentmentDealers’ resentmentControl problemsControl problems

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Modifying Distribution StrategiesModifying Distribution Strategies

Modify when the following changes occur:Modify when the following changes occur: Consumer markets and buying habitsConsumer markets and buying habits Customer needsCustomer needs Competitor’s perspectivesCompetitor’s perspectives Relative importance of outlet typesRelative importance of outlet types Manufacturer’s financial strengthManufacturer’s financial strength Sales volume level of existing products, Sales volume level of existing products,

andand The marketing mixThe marketing mix

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Channel-Control StrategyChannel-Control Strategy

Vertical Marketing System (VMS)Vertical Marketing System (VMS) Also known as centrally Also known as centrally

coordinated, professionally coordinated, professionally managed and centrally managed and centrally programmed network systemsprogrammed network systems

The emerging trend in ASPAC The emerging trend in ASPAC replacing existing conventional replacing existing conventional marketing channelsmarketing channels

Classified into corporate, Classified into corporate, administered and contractual VMSadministered and contractual VMS

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Channel-Control Strategy Channel-Control Strategy (cont’d)(cont’d)

Horizontal Marketing SystemHorizontal Marketing System Two or more unrelated companies Two or more unrelated companies

putting together resources to exploit a putting together resources to exploit a marketing opportunity marketing opportunity

Adler called this Adler called this symbiotic marketing symbiotic marketing (HBR Nov-Dec86) (HBR Nov-Dec86)

Example:Example: In Japan, small companies In Japan, small companies form HMS in the form of form HMS in the form of YugokaYugoka

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E-Commerce: Online E-Commerce: Online DistributionDistribution

The success depends on the characteristics of the The success depends on the characteristics of the consumers in the market in terms of their consumers in the market in terms of their disposition to e-commerce and surfing habits disposition to e-commerce and surfing habits e.g.e.g.

South Korea has the most dynamic Internet South Korea has the most dynamic Internet surfers in Asia. They spend the least time—28 surfers in Asia. They spend the least time—28 seconds—on a web page before moving onseconds—on a web page before moving on

Australian surfers were the “stickiest”, clocking Australian surfers were the “stickiest”, clocking one minute per page one minute per page

(Source: March 2001 figures from Nielsen/NetRatings (Source: March 2001 figures from Nielsen/NetRatings Globel Index)Globel Index)

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The Future: M-CommerceThe Future: M-Commerce Mobile commerce is going to be the next Mobile commerce is going to be the next

revenue stream once the killer mobile-revenue stream once the killer mobile-application is rolled outapplication is rolled out

The penetration of mobile data services is low in The penetration of mobile data services is low in ASPAC (1%) compared to the Western Europe ASPAC (1%) compared to the Western Europe (23%), Japan (21%) and the US (7%) (23%), Japan (21%) and the US (7%)

(Source: ARC Group, 2000)(Source: ARC Group, 2000)

Japan’s NTT DoCoMo's recently launched i-Mode, Japan’s NTT DoCoMo's recently launched i-Mode, a data communications service rather like Wap, a data communications service rather like Wap, and signed up several million customersand signed up several million customers

(Source: Intelligent Enterprise Asia, July 2001)