Analyzing Distribution Channel Of

“LG”

Prepared For : Mr. Rumman Hassan Lecturer, Marketing

Name of the Course : Distribution Management Course ID : MKT 380

Section : 01

Prepared By :

Faisal Rezwan………………………………………Mir Murtoza Karim………………………………..Ramiv Mehedi……………………………………...Sohel Mahamud……………………………………Most. Rubina Parvin………………………............

0220227

0320016

0220024

0220013

0320344

Date of Submission24th April 2007

Independent University, Bangladesh

“Table of Content” Topics Page no.

1.0.1.0. IntroductionIntroduction 01 1.1.1.1. Origin of the Report 01 1.2. 1.2. Objective of Report 01 1.3. 1.3. Scope of the Report 01 1.4. 1.4. Methodology 01 1.5. 1.5. Limitations 012.0. 2.0. Organization OverviewOrganization Overview 02

2.1.2.1. LG company history 02 2.2.2.2. Market coverage 02 2.3. 2.3. The channel 03 2.4. 2.4. Distribution Process of LG 03 2.5. 2.5. The product 04 2.6. 2.6. Management 04 2.7. 2.7. Directing 04 2.8. 2.8. Controlling 043.0. 3.0. Package enticementsPackage enticements 05

3.1.3.1. Territorial integrity 05 3.2.3.2. Demonstration equipment at a reduce cost 05 3.3.3.3. Managerial product and sales training 05 3.4.3.4. Regional warehousing 05 3.5. 3.5. Equitable and swiftly policy decision 05 3.6.3.6. New product development plans 06 3.7. 3.7. Market knowledgeable manufacturer management 06 3.8. 3.8. No penalty stock rotation 06 3.9. 3.9. List pricing 06 3.10. 3.10. Comprehensive Cooperative Advertising 06 3.11. 3.11. Product warranty 07 3.12. 3.12. Price Protection 07 3.13. 3.13. Drop shipment capability 07 3.14. 3.14. Rapid or Time Delivery 074.0.4.0. Channel conflictChannel conflict 07 4.1. Over-distribution 07 4.2. Stocking levels 08 4.3. Assigned markets 08 4.4. 4.4. Transshipping 08 4.5. 4.5. Competition resources 08 4.6. 4.6. Size of profit margin 08 4.7. 4.7. Pricing issues 09 4.8. 4.8. Overselling without regard to Availability 09 4.9. 4.9. New product launches 09 4.10. 4.10. Sales quotas 09 4.11. 4.11. Large account coverage 09 4.12. 4.12. Competitor 105.0.5.0. Better alternatives for the companyBetter alternatives for the company 10

5.1. 5.1. Indirect channel 10 5.2. 5.2. Demonstration 10 5.3. 5.3. Increase Warehouse 106.0.6.0. 11-20

1. Introduction

1.1 Origin of the Report:

Our instructor, Mr. Rumman Hassan, assigned us a report, which is a partial

requirement of the course MKT-380 "Distribution Management". A research was

conducted on the distribution channel of the LG Company.

1.2 Objective of Report:

The objective of this report is to asses the existing distribution system, the impact

of the Distribution process, and to find out better alternatives for the company.

1.3 Scope of the Report:

The report contains a brief discussion of the various activities of the company and

its distribution process, also the sales promotional activities. Due to some limitations

discussed here the departments and its activities are not explained in details, which is

been discussed later.

1.4 Methodology:

The data collected for this report are both secondary and primary. Past records of

the company were analyzed to gather information and direct interviews were conducted

to collect information.

1.5 Limitations:

Time constraints were the main hindrance for this report. And thus it was not possible

us to cover all the segmented regions of Dhaka city let alone all districts. There were also

problems of collecting the primary data form the sales force. For above mentioned

reasons we had to come up with some arbitrary data.

2. Organization Overview

LG company history:

LG Electronics, Inc. (Korea Stock Exchange: 6657.KS) was established in 1958

as the pioneer in the Korean consumer electronics market. The company is a major global

force in electronics and information and communications products with more than 64,000

employees working in 76 overseas subsidiaries and marketing units around the world.

With annual total revenues of more than US $16.9 billion (non-consolidated), LG

Electronics comprises three main business companies: Digital Display & Media, Digital

Appliance,TelecommunicationEquipment&Handset.

LG Electronics' goal is to enable the intelligent networking of digital products that will

make consumers' lives better than ever.

Market coverage:

For market coverage the company use intensive distribution system by

authorizing several distributor to sell products in a given market segment. They

have total 129 direct sales in the country, 36 direct sales force in Dhaka. They have

their showroom in (mirpur, banani, elephant road, mohammadpur, dhanmondi). They are

setting up or expansion their channel where necessary and they also have more

than one show room in some of the area.

The channel:

To reach the market company use their direct sales force. They have total 139

direct sales force and to reach the regional end user company also use their direct

channel system and to serve the market more smoothly they are planning to set

up 200 showroom in the country by 2010.

2.4 Distribution Process of LG:

LG is an international brand world wide. They have their unique distribution

channel for Bangladesh; they market their product through a domestic renowned

company known as BUTTERFLY. LG has given their license to BUTTERFLY Company

to market their product.

LG import their product from KOREA and the product come to the chittagong

port and then it send to the warehouse, from where the product delivered to the different

showroom located in the country. Lastly the showroom or the direct sales force can sell to

the end user.

Imported Warehouse

LGShowroom

LGShowroom

LGShowroom

END-USER

2.5 The product:

Digital Display & Media Company Digital TV, PDP, Monitor, CD-ROM Drives,

DVD-ROM Drives, CD Rewritable Recorder, VCR, DVD Player, Audio, Security

System, Recording Media, Video Phone, PC Camera, Banking Automatic System PCB

Digital Appliance Company Air Conditioner, Refrigerator, Microwave Oven, Washing

Machine, Vacuum Cleaner, Compressor for Air Conditioner, Compressor for

Refrigerator.

2.6 Management:

They have direct sales manager. Area based manger, and also country sales

manager. The sales person in Dhaka report to the direct sales manager in Dhaka and

the sales person in Dhaka report to the sales manager in chittagong. Finally all the

report go to the head office in Dhaka.

2.7 Directing:

The evaluate their opponent’s market position in all functional aspects, not

just sales and marketing. They directing their procedure in bureaucratic way. They have

their short term and long term plans.

2.8 Controlling:

They strictly control their work force. Each day the direct sales force channel

report everything to the head office. They record sales copy,cutomer copy showroom

copy and send it to the head office..

3. Package enticements

3.1 Territorial integrity:

AS the company using direct sales force system they are not facing any kind

of territorial integrity.Overdistribution of their product line don’t happen. From the

company it has been told that it will be the only authorized showroom of that

area. They are using area based distribution system ,if they need more then then

they set up more showroom in the area according to the demand of the product.

3.2 Demonstration equipment at a reduce cost:

As it is a electronics and costing is related with it company is unable to

give demonstration product to their showroom. Whatever they are giving their

distributor they have to take it and for demonstratration purpose .

3. Managerial product and sales training:

Manufacturers train their sales person so that they will be able to sell the product

to the customer.

3.4 Regional warehousing:

LG have total 9 regional warehousing in this country. In Dhaka and 1 in

chittagong. Each of the warehousing is based on the need of their distribution

process .

3.5 Equitable and swiftly policy decision:

They don’t use tough policy decision. They use correct fair and quick decision

when any problem happens.

3.6 New product development plans:

Company let their channel to know about their new products.IT helps them

to market their product more efficiently .But the company don’t share too much

information about their new product to the distributor.

3.7 Market knowledgeable manufacturer management:

Every manufacturer need a market knowledgeable manager to care about the

distributor’s marketplace, business challenges and customers. A lack of experience and

sensitivity can easily create a problem in the channel of distribution. LG use market

knowledgeable area manager who come to the showroom any time to observe what is

happening.

3.8 No penalty stock rotation:

No penalty stock rotation is also given by the company. Each showroom can carry

as much product as it can capable of. If any showroom cannot sell their they can

return their product to the head office, though it happens very rarely.

3.9 List pricing:

Company use their own research team to find out the list pricing in the

market. They increase and decrease the price of their product according to their

market research report. They can decrease the price of their at a certain level.

3.10 Comprehensive Cooperative Advertising:

Though cooperative advertising allows the distributor to perform ,on a

manufacturer pre approved basis, certain local market sales promotional activities ,but

because of their direct sales force system company perform their promotion on their

own way.

3.11 Product warranty:

Their average warranty period is 1 year and for AC they give 2 yrs

warranty which is quiet competitive.

3.12 Price Protection:

Depending on the industry ,price protection can be a major channel policy

consideration. In fast moving ,dynamic marketplace like electronic products pricing

fluctuations is occasional and significant. Company set their price and they don’t

need to worry about because they are using their own sales force so they don’t

need to pay money if they change the price of their product

3.13 Drop shipment capability:

LG do offer drop shipment. If any distributor face any emergency situation

they can call the head office to drop the shipment to customers location.

3.14 Rapid or Time Delivery:

LG always try to deliver the product to the warehouse and then to the

showroom as soon as possible. Their average delivery period is three days.

4. Channel conflict

4.1 Over-distribution:

Sometime Company over distribute their product. These kinds of problem happen

when company authorizes several distributors in the same area. LG management and

sales department authorize one distributor in each area and not facing any over

saturation. If they need to authorize more than one distributor they set up showroom

according to the demand or either they just expand the current showroom.

4.2 Stocking levels:

The primary responsibility of a showroom to maintain adequate stock of the

company’s product. Each showroom maintain a certain amount of stock which is

possible for them.

4.3 Assigned markets:

Distributors want to do business in their comfort or existing zone. When

company open any new showroom in other area other showroom sales personnel

too get the chance to do business there. IF any distributor seeing that company

opening a new showroom in Mohammadpur other showroom personnel also get

the chance to operate that showroom.

4.4 Transshipping:

Out of authorized product shipments by distributor is call transshipping. This

kind of activity is harmful for the company, because of strict control and better

managerial performance transshipping don’t happen in LG’s distribution process.

4.5 Competition resources:

Each of direct sales personnel get the training and other sales improving

performance technique what is allocated for them. Company gives training fairly and

treats them equally.

4.6 Size of profit margin:

Making money is the primary target for any distributor, but here company

use direct sales force channel .They are not transferring their cost. They invest their

money to build a distribution facility or showroom. Their profit comes through how

they charge for their product.

4.7 Pricing issues:

Company who use direct sales force channel ,they are not much worried

about their pricing issues. If they would use indirect sales force channel then there

were some possibilities of pricing issue between them and the indirect sales force

channel ,sometimes company is prevented to charge a price by the indirect channel

force.

4.8 Overselling without regard to Availability:

This kind of conflict happens when distributor unethically shift the full

burden of order to the manufacturer. Direct sales force channel of LG do not perform

this kind of work , if they need any product they call the main office to supply

the product and after that if the product is not available to the main office then

they told the customer that it will take time to give them the product.

4.9 New product launches:

When launching any new product company don’t need to pull any

distributor because of the advantage of using direct sales force channel, whatever

product they are introducing the showroom will get the product. The company

don’t need to perform any pull strategy.

4.10 Sales quotas:

LG don’t follow any sales quota system. They don’t force their direct sales

channel that they have to sell this amount or unit of product.

4.11 Large account coverage:

Their direct sales force gets the advantage of large account coverage. When they

deal with any large corporate customer they can deal with the corporate customer

or the company can also handle it directly. Company don’t interfere in the case of

large corporate when they directly contact with the direct sales force.

4.12 Competitor:

AC-General, Refrigerator-monopolybusiness, Washing machine-Samsung,

Microwave oven-Samsung, TV-Sony

5. Better alternatives for the company

5.1. Indirect channel:

Distribution is a cost transfer business, by using indirect channel the company can

transfer the cost and can save money. Traditionally they are sspending their own money

to set up a showroom which is quiet costly. They can take the help of indirectchannel.

5.2. Demonstration:

The product they give their showroom is only for sell, but some customer

don’t want to take the showroom product, they want new product, so they can give

some demonstration which will only for demonstration purpose.

5.3. Increase Warehouse:

Now they have only 9 showroom which is very big ,but the increasing

demand of the product require them to build more warehouse so that they can

more efficiently stock their product.

………………….

Distribution management is "managing the channels or the path that helps to reach

a product of a company to the end user". Usually there is a vacuum or gap

between the manufacturer and the end user or consumer. This vacuum is been

reduced with the help of channel of distribution or by a sales force.

From the operational standpoint, a marketing channel is the path a product or

service takes as it moves form the manufacturer to its end user or consumer.

Direct Channel of Distribution: The manufacturer employed direct sales force

that sells products to the end user. The manufacturer does have the authority in

controlling, directing, how to sell, what to sell, how much to charge. Form the

production point to the reaching point to end user its totally been controlled by the

manufacturer.

Indirect Channel of Distribution:

When a media is used to reach the end user with the transfer of the ownership of

the product is called the indirect channel. Indirect channel of distribution helps a

company to reach the end user more efficiently and effectively as they specializes

in the channel of distribution.

Primary Business Challenge:

The primary business challenge is to set up and mange a complex network of distributors

and resellers that sell your product along with those of many other manufacturers.

Crafting a business relationship with indirect channel member by achieving the

disproportionate share resource commitment.

Market coverage strategy:

There are different kinds of market coverage strategies that a company follows to reach

the end user. They are as follows:

Intensive Coverage: Covering a market by authorizing several distributors to sell product

in a given geographic area or market segment.

Selective Coverage: Selecting only those distributors that meet certain channel selection

criteria to sell products in a given market.

Exclusive Coverage: Authorizing only one distributor per geographic area or market

segment to sell products.

Market:

Horizontal Market: A company or its product is all things to all people. Example: for the

products those does not have complex feature to understand.

Vertical Market: A company or its product is all things to some people. For instance the

product does require some extent of specialization.

Research and rank customer satisfaction requirements:

A company must assess what the customer or end user requires form the organization that

sells the product of the company or service. Canvassing an adequate number of buyers to

discover how well they know the product, whom they purchase the product form, which

do they prefer to buy the product form, etc. then according to the often mentioned choices

should be ranked first and then according to the task should locked to perform first.

Which distribution channel to chose:

A company has thoroughly research and determines what channel structure that are

available. Constructing a matrix that illustrates the various structures through which

reaches the end user more efficiently. Then they need to decide which channel structure

opportunities should b e brought on board. The priority for channel introduction should

specifically orient around channel sales revenue potential, profit possibilities, and

whether or not the company can provide the internal support for the channel.

Decide upon eagle channel partners:

To make final candidate decision and decide the sequence in which the company will

bring the new member into the company the participation of the other corporate managers

in the company are also important. Because they do have criteria to meet for the new

channel member.

Monitor and evaluate the channel structure:

After selecting new member of the company it is absolutely necessary to monitor and

evaluate the operation of the member, other wise they might leave the company's sales

high and dry. And also for the internal environment is working well.

Marketing channel macro influences:

End users buying behavior: As the end users are the ultimate goal that's why they do have

certain degree of influences over how products finally reach them. That's why the

changes that should be constantly kept in observation are:

Where the customers buying the products.

How they but the company's product.

When they purchase the products.

Who does the buying?

The Economy: The economy does affect the three parts of the total channel equation.

Interest rate: High interest slows the spending, decreasing the company's

sales commensurately.

Product and material shortage: In poor economic time the suppliers are

reluctant to supply goods or materials for production thus the rate of

production goes down.

Inflation: In inflation time the consumers spends less on buying thus the

sales goes down.

Recession: It puts pressure on cost of sales, thus the corporate has to cut

down the current structure.

Competitors: There is little control over the competitors who are using the current

channel. But to evaluate the competitors three basic questions should be kept into

consideration:

Who are the main competitors?

How strong is their presence in the COD company desires?

Is the company is willing to use the same marketing channel?

Political Factors: the state political arena is another area over which the company have

little or no command. For example, a channel marketing manager at a medical products

company needs to be concerned about federal healthcare legislation that may require him

or her t reorganize channels in order to meet new, more administratively demanding

influencers such as HMOs and PPOs. These influencers must be included in the

company's future channel marketing plans.

Environmental regulations could affect the way a company produces a product and

therefore add to the total cost that is passed through the channel to the end user. In this

case, the manufacturer must conform risk a penalty or disqualification.

Direct competitive analysis:

Need develop a descriptive profile of the company's top three to six direct competitors.

This profile should be continually and faithfully maintained.

Evaluating each competitor's strengths and weaknesses as they accurately and fairly

compare to the company's own characteristics.

Anticipating each competitor's future strategies and tactics. This is critical for the

company future success or failure and is clearly the most important.

Where to find information about competitors:

Customer

Existing indirect channels(dealers, manufacturers representative, distributors,

and resellers )

Suppliers

Competitors ' employees

Advertising agencies

Other channel managers at noncompetitive companies in the same industry.

What does the Distributor Desires?

Quality product: All the distributor want to represent a quality product of a company.

That's why it's wise to have a quality product on the production line. Because

representing a low quality product can lead to a bad impression to the end user, which

most of the distributor doesn't want to face.

Adequate compensation: If a company cannot or will not meet a distributor's margin

demands, then the distributor will refuse to deal with the company.

Committed manufacturer field sales people: As they are the last line of communication

and management between the manufacturer an d the distributor, an d they are responsible

for implementing the business policies and procedures of a company. They distributor

want a sales person to be a company representative, channel defenders, trainers, and field

sales manger at a time of the service.

Competent internal support system: Customer service, technical support, training, and

marketing service support are one of the key ingredients of lasting a relationship with a

distributor.

Reputable manufacturer image: All of the distributors want to represent a manufacturer

who is well known in the market. It makes them proud to be part of the reputed company.

Differentiating the product or service:

A Company can block competitive moves by positioning the product or service in a way

that clearly shows it's advantage over the competition in the eves of the channel and the

end users. They're a number of ways the company can accomplish this objective:

Achieve a higher product quality image in the eyes of the customers.

Offer consistently superior customer or channel member service that exceeds all

marketplace satisfaction requirements.

Forge formal and informal business relationships that build long term loyalty.

Employ the most efficient, state-of-earth business technology to improve

communication flow among all channel members.

Implement policies that make it easy to do business with your company.

What are channel selection criteria:

Channel selection criteria are what the company and the end user wants the company

distributor to perform tasks. First the company needs to judge what is the company's need

and secondly what the customers desire from the distributor.

The criteria is based on three different categories:

Business and Operation Criteria (What are the quality does the company have in

terms of organizational structure and policies).

Sales and Marketing Criteria (What kind of marketing strategy do they follow and the

current sales competency).

"Coup de Grace" Factors that Indicates a Motivated Candidate (Perception towards

the interested company and their willingness to work with the company).

Enticements to offer:

Antes: Are the policies that are necessary to get into the channel of distribution business.

They are what the company to put into the pot in order to play. They include basics like

meeting the channel's economic demands for profitability, quality, and physical

distribution.

Pluses: Are policies that strengthen the company's position and make an advantageous

difference between the company and the company's main competition. Lucrative

payment terms, and increased warranty period or a higher standard of quality are all good

examples.

a) Adequate or superior discounts/margins: An adequate discount or margins should be

offered to the channel member, because it reflects the profitability of channel

member. Based on the profitability they may want to stay or not. That's why it's

better to leave the provision to adequate discounts or margins.

b) Quality product: Always try to present the best quality product to the channel

member, because non of the member would want to present a bad quality product in

front of the end user, because it's would put a very bad impact on the other present

products of the member.

c) Full product line/mix: Just as customers want one stop shopping from distributors, the

company's distributor look to a full array of products. Before the company approaches

distributors it has to make sure that it offers a complete assortment of products of it's

product line.

d) Consistent and responsive sales and marketing support: if the channel partners do not

receive quick, accurate, consistent, and honest responses to requests for information,

they would simply cease contacting the company. That's why it's better to meet the

situational demands at the point of the demand.

e) Rapid or timely delivery : Every market place has it's won set of product delivery

standards. Finding out what they are and then decide how the company can meet or

beat the time required to fulfill the channel shipment needs. If a eagle takes 24 hrs to

process order and the company takes more than one day then it would unwise to

continue with the same standard.

f) Price protection: Depending on the industry, price protection ca be a major channel

policy consideration . In a fast moving, dynamic market place like cellular products,

pricing fluctuations can be deteriorate as a product approaches a commodity

classification while a great deal of units are available for purchase. With price

protection the distributor is protected when the manufacturer decides, for competitive

reasons to lower its entire pricing schedule.

g) No penalty rotation: No penalty stock rotation motivates channel members to carry

adequate physical inventory levels of the company's product line by allowing

distributors to return slower, nonmoving units. Generally, product returns are

allowed only once or twice during a twelvemonth calendar period - the first two

weeks in December. It's a good idea to limit the amount of non moving stock a

distributor can send back. This limit is normally based on a specified percentage of

purchases during the period of time. These amounts vary but usually top out at 10

percent of total annual purchase.

h) Market knowledgeable manufacturer management: The manufacturer management

should be updated and knowledgeable about the market place and the changes that are

occurring in the present time. This helps to easily communicate and also to take

preparatory actions.

i) Product customization: This special possibility may appeal to large, national

distributors that want to promote and market their tremendous size as a competitive

advantage to their customers. Let such distributors know that the company are

receptive to changing product features to meet a distributor's customer requirement to

affixing their corporate logo to the company's product to complement their business

plans.

j) An effective and frequent channel communication program: The company' s

distributor wants to know how pertinent information will be conveyed. During the

meeting, show examples of newsletters, testimonials, and other communications

vehicles.

k) Sales training: Manufacturer should constantly pursuing distributors to take their

product sales training.

l) Territorial integrity: As convincingly as possible, inform the potential channel partner

that the company do not intend to over distribute the product line. If an exclusive

market coverage strategy matches the company's channel marketing plan, tell the

distributor that it will be the only authorized representative in its geographical

marketplace. No distributor in his or her right managerial mind wants to have several

other same market, same customer counter parts serving common geographic

markets.

Push and Pull strategies:

There two kinds of promotional activities: (1) those that push products through the

company's channel and (2) those that pull products through the company's channel.

Push: A push strategy is any marketing activity that entices the company's COD to sell its

product rather than those of other manufacturers the channel represents. In other words,

these types of promotions push the product through the channel. Push strategy examples

are:

Travel incentives programs that award an all-expense-paid trip to a domestic or

foreign destination for meeting a quota during a specified period of time.

Merchandise programs that reward salespeople for performance with items such as

televisions, sporting goods, clothing, and gourmet foods.

Training programs that increase the distributor salespeople's comfort level with the

company's products, thereby making ti easy to sell the products to their customers and

reap compensation accordingly.

Monetary SPIFFS (special promotional incentive factory funds) that draw specific

attention certain models or groups of units in the company's product line.

Special discounts or allowances that draw special attention to company's product line

through a limited time offer.

Local COOP advertising efforts (direct mail, exhibitions, space advertising) that

produce local market quality sales leads that materialize into real purchase.

Pull: A Pull strategy motivates the end user to approach the company's channel of

distribution and "call out" for the product. A customer that asks for a specific product

won't be satisfied with anything else- so the distributor must sell the intended company's

product n order to fulfill its customer's demand. This kind of strategy pulls the product

through the channel. Pull strategy examples are:

Space advertising in leading publications that generates qualified customer inquiries

that produce actual purchases of the company's product.

Public relations releases announcing new products or features, which cause potential

ends users to request further information or a demonstration form the company's

distributor.

Rebate programs offering a limited-time, factory-issued cash rebate to end users that

purchases the company's product.

Exhibitions where end users spend time in company's exhibit booth expressing an

interest in the product line.

Direct mail campaigns targeted at qualified individuals who request further contact.

End user seminars conducted by the company's staff and attended by individuals who

have, by their presence and time commitment, expressed a sincere interest in the

product.

Internet exposure via a Web page illustrating the features and benefits of the

company’s product line and that directs visitors to local distributors for further

information.

Radio and television advertising that promotes the products to potential end useres

that then contact the company's COD for additional details and sales information.