1. Expanding A Company Through An Indirect Channel of Distribution
Since 1980 SM
Expanding A Company Through An Indirect Channel of Distribution
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2. What follows is an explanation of the fundamentals of Indirect Channels of Distribution which. will allow you to compare/contrast and better understand how each strategy might be appropriate for your organization.

3. Assumption:
A company or division of a company wants to and/or needs to grow and capture additional marketshare.
Goal:
Maximum Market Penetration with the highest level of customer satisfaction

4. Assumption
There are only three possible growth strategies the company or division can utilize to obtain its goal of Maximum Market Penetration

5. Growth Strategy # 1
Vertical Expansion

6. Vertical Expansion Growth Strategy # 1 Company or Develop a “chain” or
“network” of
locations, which are
owned and operated
by the company
or division.
Company or
Division

7. Total control of operational standards and processes.
Growth Strategy # 1
Vertical Expansion
The Benefit:
Total control of operational standards and processes.
Company or
Division

8. But, will only work when the company or division has:
Growth Strategy # 1
Vertical Expansion
Company or
Division
But, will only work when the company or division has:

9. Vertical Expansion Growth Strategy # 1 Company or
Division
Adequate financial resources
Dedication to recruiting and retaining sufficient human resources
and
Adequate time to reach new markets

10. Growth Strategy # 2
Horizontal Expansion

11. Horizontal Expansion Growth Strategy # 2 Company or
Division
Complete a “Merger or Acquisition” or establish an Alliance
with another compatible
organization.

12. Leveraged resources of others.
Growth Strategy # 2
Horizontal Expansion
Company or
Division
The Benefit:
Leveraged resources of others.

13. But will only work when the company or division has:
Growth Strategy # 2
Horizontal Expansion
Company or
Division
But will only work when the company or division has:

14. Horizontal Expansion Growth Strategy # 2 Company or
Division
Adequate financial resources
Dedication to recruiting and retaining sufficient human resources
Adequate time to reach new markets
and
Can successfully integrate the combined cultures

15. Indirect Channel of Distribution
Growth Strategy # 3
Indirect Channel of Distribution

16. Indirect Channel of Distribution
Growth Strategy # 3
Create an
Indirect Channel of Distribution
Company or
Division

17. Indirect Channel of Distribution
Growth Strategy # 3 An
Indirect Channel of Distribution
Company or
Division
The Benefit:
Control and Leveraged resources of others.

18. Indirect Channel of Distribution
Growth Strategy # 3 An
Indirect Channel of Distribution
An opportunity to seek
“Co-Venture”
participants.

19. Indirect Channel of Distribution
Growth Strategy # 3 An
Indirect Channel of Distribution
An opportunity to seek
“Co-Venture”
Participants, who contribute Capital, Energy, Loyalty & Entrepreneurialism, in a controlled environment.

20. Indirect Channel of Distribution?
What is an
Indirect Channel of Distribution?

21. Indirect Channel of Distribution
is an alternative expansion strategy used by thousands of worldwide organizations in over 60 industries.

22. There are different types of Indirect Channels of Distribution

23. MANAGEMENT INCENTIVES
FRANCHISING
LICENSING
DEALERSHIPS
DISTRIBUTORSHIPS
JOINT VENTURES
MANAGEMENT INCENTIVES
PLUS MANY OTHERS

24. Indirect Channels of Distribution
The differences occur based on the operational
relationship and
degree of control
between the company
and its “Co-Venture”
participants.

25. Franchising

26. Franchising
The business relationship is a Franchise when the following three (3) elements occur at the
same time.

27. Definition Of A Franchise – 3 Elements
Franchising
Definition Of A Franchise – 3 Elements
1. USE OF A NAME (License)
The company grants the distribution system participants the ability to use the trademark, service mark, logotypes or advertising symbols to promote their own businesses.

28. Definition Of A Franchise – 3 Elements
Franchising
Definition Of A Franchise – 3 Elements
2. USE OF A SYSTEM
The company allows the distribution system participants to use operating or marketing procedures created specifically for the business and consistent with all other locations.

29. Definition Of A Franchise – 3 Elements
Franchising
Definition Of A Franchise – 3 Elements
3. PAYMENT OF A FEE
The distribution system participants pay an initial or on-going, direct or indirect fee or payment in order to receive the rights to the name and the use of the system.

30. Definition Of A Franchise – 3 Elements
Franchising
Definition Of A Franchise – 3 Elements
1. USE OF A NAME
2. USE OF A SYSTEM
3. PAYMENT OF A FEE
(Remove one of these elements and the relationship becomes a different Indirect Channel of Distribution.)

31. Franchising
Franchising Is Effective For Many Reasons
The company tests the operating concept prior to involving “Co-Venture” participants, thus eliminating the trial and error normally associated with starting and operating the business;

32. Franchising
Franchising Is Effective For Many Reasons
Franchising brings proprietorship to the level of the distribution system to the closest level to the customer or end-user;

33. Franchising
Franchising Is Effective For Many Reasons
The company can grow faster due to the willingness of the “Co-Venture” participant to follow prescribed formats;

34. Franchising
Franchising Is Effective For Many Reasons
The “Co-Venture” participants all operate as a group thus taking advantage of volume discounts and shared advertising available through many sources, for many purposes;

35. Franchising Works Best For:
Businesses that desire operational consistency throughout their entire
distribution system, such as:
Foodservice
Retailing
Service
Healthcare
Lodging

36. Franchising
Franchising Works Best When Both Parties Have:
An emotional vested interest,
Shared values,
Complimentary competencies,
Cultural compatibility,
Safety and longevity,
Risk to result balance,
Effective communications, and
Quality control standards.

37. Licensing

38. Licensing
1. USE OF A NAME
2. USE OF A SYSTEM
3. PAYMENT OF A FEE

39. Licensing Works Best For:
Businesses that desire only brand identity and not operational consistency, throughout their entire distribution system, such as:
Sports Apparel
Jewelry
Luggage Manufacturers
Clothing Manufacturers
Celebrities

40. Licensing Works Best When Both Parties Have:
A financial vested interest
Complimentary competencies
Risk to result balance

41. Dealerships or
Distributorships

42. Dealerships or Distributorships
1. USE OF A NAME
2. USE OF A SYSTEM
3. PAYMENT OF A FEE

43. Dealerships or Distributorships
Dealerships Work Best For The Following Types Of Businesses
Businesses linked to a manufacturer
that desire brand identity and
operational consistency, but only collect
revenues on the movement of
products;

44. Dealerships or Distributorships
Dealerships Work Best When Parties Have
Complimentary competencies
Risk to result balance
Effective communications

45. Franchising Facts Over 1/3 of all retail sales in the United States.
Over $900 billion generated from all types of Indirect Channels of Distribution.
Combined sales reached $1 trillion in 2000.
Employs over 9,000,000 people.
A new franchise opens every 6 1/2 minutes.
94% of franchise owners say they are successful.
75% would repeat their franchise again.*
* Source: International Franchise Association and Gallup Poll

46. COMPARISON Company Owned Franchise Organic (1) Cooperative Examples
Conversion (2)
Cooperative
Examples
Level of Control
Complexity of Operational Model
Speed of Implementation
Authorized Dealer Network
Gap
Sherwin-Williams
Disney Store
Mrs. Fields’ Cookies
Mail Boxes Etc. McDonalds
Holiday Inn
Midas
Bally’s Total Fitness
Coldwell Banker Real Estate
Century 21
Radisson
VISA &
Master Card
ACE Hardware
1-800-Dentist
True Value
Catepillar
Computer Resellers
Electronic Resellers
Sears Retail Dealer Stores
Other Considerations
Significant capital requirements
Increased management requirements
Availability of qualified franchisees
Quality control
Growing legal power of franchisees
Adequate conversion opportunities
Cultural integration of independents
Quality control and service/ product consistency
Ability to build brand value
Purchasing objectives and advantages
Inconsistent delivery of customer care
Inability to control operational standards (Best Practices)
(1) New business units
(2) Converted from established business units
Legend:
= High
= Medium
= Low

47. International Franchise Development
A global management consulting firm which provides clients with a wide range of services.
Since 1980 SM
International Franchise Development
Organizational Design Corporate and Business Unit Strategy
Shareholder Value Enhancement
Market Strategy and Strategic Market Assessments
New Business Development and Market Entry Strategies
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