DISTRIBUTION Martin Jung Manuel Tal Taro Arindam

Agenda Introduction Product Consumer Partner IT

Imagine … But have you ever thought about distribution? Imagine you become a Product Manager, and you have to decide upon your product strategy. You are probably thinking, design, marketing, promotion operations, pricing But have you ever thought about distribution?

Output Input Black Box The neglected “P” For most people distribution is still a black box Output Input Black Box

Looking for distribution on the Value Chain Porter’s value chain does not specifically define distribution Outbound logistics? Marketing and Sales? Services? ? ? ?

What really influence our distribution? Product Channel Partners Consumer Information Technology

Evolution of channel management What’s the value added from each Intermediary? Producer Consumers Retailers Wholesalers Agents or Brokers Wholesaler Channel Retailer Direct Agent/Broker Producer Consumers Retailers Wholesalers Agents or Brokers Agent/Broker Channel Can we retain the value without intermediary? Conventional Marketing Channel Vertical Marketing System (VMS)

Factors to influence channel strategy decisions Issues that Influence Channel Strategy Levels of Distribution Intensity Factors Affecting Channel Choice Objective Intensity Level Intensive Selective Exclusive Achieve mass market selling. Convenience goods. Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Number of Intermediaries Many Several One Product Factors Partner Factors Customer Factors Other Factors

Agenda Introduction Product Consumer Partner IT

West-African natural gas producer Traditional natural gas transport occurs via extensive pipeline networks. Gas pipelines West-African natural gas producer

Regasification terminal Liquefying gas to LNG enables new distribution possibilities. Gas production Cooling gas to minus 162°C results in the condensation of the gas, known as Liquefied Natural Gas (LNG). Liquefaction plant Shipping Regasification terminal Benefits LNG takes up about one six hundredth of the volume of gaseous natural gas. LNG can be transported to distant customers via ships without expensive pipeline networks Pipeline delivery

LNG is a growing market especially for remotely located gas producers. Market trends Major players: Shell, ENI, Gaz de France, Tractebel, Endesa, Iberdrola Main countries: Algeria, Lybia, Oman, Qatar, Nigeria, UEA, Trinidad, Egypt, Australia, Norway, Venezuela 5.9% 3.8% % Worldwide growth in gas % Worldwide growth in LNG

Agenda Introduction Product Consumer Partner IT

Coke versus milk – multi-channel distribution. Coca-Cola accounts for less than 2 ounces of the 64 ounces of fluid that each of the world‘s 4.4 bn people drink every day. The enemy is coffee, milk, water. Mr. Goizueta CEO Retailers Super-markets, Kiosks Consumers Airlines Bottler Clubs, Bars Restaur-ants, Hotels Vending machines

how to choose the right partner The Pepsi challenge or how to choose the right partner 70.4% Venezuela was the only country in which Pepsi was bigger than Coca Cola In 1996 Cisneros Group switched from bottling Pepsi to Coke In the last quarter of 1996 Pepsi had only 15.5% market share 100% 21.5%

Agenda Introduction Product Consumer Partner IT

Number of companies in Japan based on number of employees In the Japanese office supply market customer needs changed over the years. Although we are a small company... we want to buy office supplies in any number, at any time! 5% 95% Number of companies in Japan based on number of employees >30 employees < 30 employees < 10 employees Let us introduce the case that customers require new distribution channel. The revolution of distribution happened in office supply market in Japan. In Japan, there are 6.2 million companies. But, 95% of them are offices with less than 30 employees. In case of big firms like Sony or Toyota, sales rep of each office supply company comes to replenish almost everyday. But, small companies had to go to a store to buy their office supplies. It’s troublesome to go out to buy office supplies. And, they do not know the store keep what they want to buy. So, administrative staffs, like her, always complains about office supply companies. Yes, this is the customer needs, which is the chance for new business. To enjoy night life in Tokyo, what she needs is blah blah blah…. Big firms: Daily replenishment by sales reps at discount price Small firms: Go to stationer’s shop and buy at a fixed price Small order, frequent deliveries Quick delivery One Stop Shopping New customer needs!

Askul revolutionized the distribution of office supplies by introducing an agent-vendor system. Promise: Next-day delivery on all orders, from a single pencil to a truckload of office supplies Maker Primary Wholesaler Secondary Retailer Customer Inventory Old distribution Reduction of intermediaries Faster delivery Less inventory cost Growing customer base Wholesaler and retailer revert into agents. Profit sharing and little cannibalization among stakeholders possible. New distribution Agent Billing, Registration Order Delivery Customer One company named ‘Askul Corporation’ caught the needs and revolutionized distribution in office supply business. Their promise to customers is next-day delivery on all orders, from a single pencil to a truckload of office supplies. To realize the promise, Askul needed to invent new distribution channel. Here is the typical distribution model of old office supply. There are many wholesalers, so it’s impossible to require customer needs. So, Askul developed the following distribution model for business with small companies. Agents introduce Askul’s new business model to customers, sell membership to them and registered them. Then, customers order directly to Askul by phone, mail or internet. Askul deliver office supplies within 24hours. Then, agents send bill to customers and customers pay for office supplies through agents. By the new distribution system, Askul achieved reduction of intermediaries, faster delivery, less inventory cost and growing customer base. And, last but not least, the new distribution channel could avoid confliction with existing distribution channel by converting wholesalers and retailers into agents. In this new model, wholesalers and retailers of old distribution channel act as agents. They have customer base which Askul does not have. Also, the old distribution channel is also important for Askul because there is a market for conventional individual customers. The new distribution model made it possible to share profits in stakeholders, without cannibalizing.

Agenda Introduction Product Consumer Partner IT

One of the largest distribution networks exist in India. Do you know one of the largest distribution networks in the world? Making over 200.000 transactions in one hour? Mumbai Nutan Mumbai Tiffin Box Suppliers Charity Trust or…Dabbawallahs or… Lunch deliverymen

… Key facts Cooking at home Home-made lunch picked up 10 am Boxes taken to nearest railway station & sorted Boxes unloaded at destination and re-sorted Delivered at 12.30 p.m. At 1.30 p.m returned to houses Packaging Transport/ Delivery Key facts Customer at workplace Started in 1890 with 25 clients – Now over 200,000 clients Boxes carried on heads, hand-wagons & cycles Each porter covers 70 - 80 km in 2 ½ hrs

… Each lunch-box-lid has a complex coding system: Symbols identify the house, the originating & destination stations Colors identify each suburb & individual sectors Dashes, crosses & dots identify the street, the building and the floor of delivery IT-Free and certified! Prof. C K Prahlad: “quintessential master of supply chain management” 6 Sigma performance rating by Forbes ~ 1 error in 16 million transactions -- Treated on a par with Motorola

Distribution as strategic asset

Distribution as strategic asset Thanks. Any questions?

Product Channel Partners Consumer Information Technology