Spawning Map COVID: How To Bulletproof Your Supply Chain Now And In The Future
COVID-19 struck our world in a manner that would deter economic conduct from the demand side, earning itself names like “the 90% economy” or “the new/next normal” in order to highlight a new set of rules that results from unusual patterns…
The Floor Is Lava
The current atmosphere is quite similar to this game we played as children as it casts a map onto the world but instead playing with our modes of consumption, fears and inhibitions to drive serious threats to our health and setting new rules that require careful consideration — especially taking the business side now thinking about distribution channels and fulfilling demands.
Globally operating multinational corporations are generally competing on the excellence of their supply chains and rely on its performance to ensure for sustainable competitive advantage. Specifically distribution channels are to be seen as useful gatekeepers between the producer and the end-consumer of goods and services.
In particular it becomes a) of interest how to design and manage product distribution and b) how to keep up with the challenging competition.
*Considering the current climate and shifting priorities the number one priority is the protection of your workforce, then your top and bottom line.
Furthermore, the relevance of operationally excellent distribution channels increases for companies in a landscape and time where companies can no longer leverage too much of their core industry expertise to gain a competitive edge over the competition.
Global Marketing Strategy
Distribution channels in marketing are one of the classic 4 Ps and they pose a key element in the entire marketing strategy (Appendix I) as they enable the company to expand in reach, grow revenue and general provide value.
The general design of distribution channels follows the overall marketing efforts that are aligned with a company’s corporate strategy, including strategic objectives and the overall mission. A company will put particular emphasis on its distribution channels when going after new customer segments, releasing a new product or looking for new ways to further grow the business.
A first important determination of distribution channels is the fact that due to the unique context of every company and its offerings each channel will differ in structure and scope. For this reason the standardization of global marketing channels cannot take place. However, the process of marketing channel strategic decision making can be standardized and should be discussed in the following by portraying best practices to design of distribution channels.
From the company side distribution plans are an essential component that comprises of the following subjects: company profile, structure of portfolio and programs including pricing, e- commerce and global retail management, trade and retail marketing as well as a go-to market policy.
Distribution Channel Design
Companies need to consider a sophisticated approach (Appendix II) to their distribution strategy as the correct approach to design and management will determine long-term success for product, services and the overall business.
The following four steps portray a best practice approach to the process:
I. Specification of distribution function
A channel strategy should be designed within the context of the overall marketing mix.
Interdependence vs. self-interest
Being aware of the own mission, corporate strategy and objectives enables the company to find the right balance between interdependence and self-interest. The relation with multiple stakeholders and parties may hold potential for conflict and a lack of alignment. It also reviews the objectives of marketing.
Segmentation & service outputs
The segmentation of products and consumer groups for tailoring on the basis of the demands for the service outputs of the marketing channel.
II. Selection of channel mode
After specifying the distribution function of the overall marketing program, the company makes a choice for the most suitable channel for its product.
Length
A crucial aspect in the horizontal design is the number of links within the chain that reaches from producer to retailer. While westernized nations get along with shorter chains, developing countries establish more intermediaries while at the same time the size of a geography will require more sophistication in the network design as does the product type. A product that requires a make-to-assemble process will run through more steps as a perishable piece of consumer good.
Breadth
For the vertical part of the design the question of channel member type and associated amount is raised as different types will be required for certain product types, e.g. intensive (beverages), selective (specialized appliances) or exclusive (luxury cars).
III. Determination of distribution intensity
Three types of distribution can be determined by product range:
a) Intensive distribution commonly refers to products that are in fast and high-quantity circulation, such as consumer goods.
b) Exclusive distribution occurs when geographically exclusive rights to distribution of products are granted to a small number of distributors.
c) Selective distribution marks the combination of the previously mentioned types of distribution and while it may decrease overall control in execution, it does hold the potential to reduce overall costs within the marketing of the products.
Channel flows
Import and in the design is the identification of channel flows, stakeholders and the associated cost of each flow in order to increase for effectivity (cost side) or efficiency (improving for value).
Make or buy (i.e. choice of governance structure)
Make or buy as the fundamental decision between the inhouse use of capabilities (e.g. sales- and production subsidiaries) or outsourcing via incorporation of agents. In terms of costs, the company in question will aim to minimize both transaction costs and coordination costs at every given point. On default, the company will choose a buy-option as their standard mode in operation unless transaction costs are rising uncontrollably.
IV. Selection of specific channel members
Depending on its industry the company in question may choose from a variety from options when setting up its distribution channels in foreign markets:
· International departments
· Digital (Online/Mobile/Peripheral)
· Distributors
Channel institutions
The adequate selection of retailers, wholesalers, agents, distributors and franchise agreements.
Decision drivers and considerations
Decision drivers and considerations (Appendix III) are to be considered indirect factors to play a role in the design of distribution channels and stem from the overall setup of the company, considering the following dimensions:
Experience — brand image and satisfaction are affected by the customers channel experience Resource Allocation — Building effective marketing channels requires significant resources, which cannot easily be re-configured
Factors affecting channel design and implementation (e.g. technological change, buyer preferences, industry consolidation) are changing constantly
Management — mismanagement leads to long-term disadvantage
Coordination — the goal is to achieve channel coordination, a concerted effort among channel members, even though members all have different individual goals and motives.
Success Measures
The success of distribution channels depends on a variety of measures that revolve around
Effectiveness — are customers products and services sufficiently addressed by the distribution channel design?
Coverage — is the value to the customer’s offering provided and how is the balance between use of single to multiple distribution channels?
Cost-efficiency — is monetary efficiency aligned with coverage and do both hold the balance? Adaptability — is the design robust enough to deal with change and the introductions of products and services?
Channel Strategies
In order to provide long-term success by implementing a distribution channel a range of channel-wide strategies are to be considered relevant with regards to sustainable competitive advantage. Each implemented strategy by itself provides advantages in performance and competitive positioning of a distribution channel.
Flow separation
This particular strategy caters to the individual strength of channel participants or intermediaries in order to specialize in performing flow activities for improved effectiveness and efficiency (e.g. separation of transactions from logistics). The potential benefits of such separation may include efficiencies from economies of scale, reduced redundancy of channel activities, easier co-ordination of a particular flow, and increased learning effects.
Postponement
Postponement refers to a strategy that allows for a delay in various activities. In the case of a retailer, postponement allows for the delivery of the final product to its destination but for manufacturers in an assemble-to-order context this refers to the final assembly of the product. This strategy is of particular interest to companies who want to leverage the time advantage in order to allow for extended personalization and configuration of finished products to customers orders while at the same time allow for reactions to last-minute market conditions to suit any changes in demand.
Acceleration
Quite opposite to the concept of postponement acceleration serves to reduce existing uncertainties within the channel by speed in execution. Advantages of this particular strategy lay in the accurate planning of supply, production, labour, distribution as well as the required utilization of assets. Further uncertainties are diminished by use of consumers’ monetary resources to induce collection certainty and serve as a trade-off substitute to postponement by considering the form or location of inventories. Competitive advantage can be achieved with this strategy by establishing additional entry barriers for competitors.
Conclusion
While the simultaneous consideration and subsequent adoption of marketing flow strategies can provide a competitive advantage to a channel and its participating entities, it remains crucial to retain overall transparency of the overall requirement to implement these strategies in order to achieve improved customer satisfaction. With regards to the design of distribution channels in foreign markets it becomes additionally of interest to think further about local context and especially about institutional voids along the way. Nevertheless, the primary goal of distribution channel design by strategy is the response to customer needs and their fulfilment — with or without map COVID.
About: Alex Michael Pawlowski is a consultant and author who writes about topics around International Business.
For contact, collaboration or business inquiries please get in touch via lxpwsk1@gmail.com.
For more information please visit www.lxpawlowski.com.
