Analyzing Distribution Channel of “LG”

Analyzing Distribution Channel of “LG”

Name of the Course: Distribution Management

“Table of Content”

Topics	Page no.
1.0. Introduction	01
1.1. Origin of the Report	01
1.2. Objective of Report	01
1.3. Scope of the Report	01
1.4. Methodology	01
1.5. Limitations	01
2.0. Organization Overview	02
2.1. LG company history	02
2.2. Market coverage	02
2.3. The channel	03
2.4. Distribution Process of LG	03
2.5. The product	04
2.6. Management	04
2.7. Controlling	04
3.0. Package enticements	05
3.1. Managerial product and sales training	05
3.2. Regional warehousing	05
3.3. New product development plans	06
3.4. Market Management Manufacturer Management	06
3.5. No penalty stock rotation	06
3.6. List pricing	06
3.7. Comprehensive Cooperative Advertising	06
3.8. Price Protection	07
3.9. Drop shipment capability	07
3.10. Rapid or Time Delivery	07
4.0. Channel conflict	07
4.1. Over-distribution	07
4.2. Stocking levels	08
4.3. Assigned markets	08
4.4. Transshipping	08
4.5. Competition resources	08
4.6. Size of profit margin	08
4.7. Pricing issues	09
4.8. Overselling without regard to Availability	09
4.9. New product launches	09
4.10. Sales quotas	09
4.11. Large account coverage	09
4.12. Competitor	10
5.0. Better alternatives for the company	10
5.1. Indirect channel	10
5.2. Increase Warehouse	10

1. Introduction

1. Origin of the Report:

Our instructor, assigned us a report, which is a partial requirement of the course "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.

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.

4. Limitations:

It was not possible for us to cover all the segmented regions of Karachi city let alone all districts. There were also problems of collecting the primary data from the sales force. For above mentioned reasons we had to come up with some arbitrary data.

2. Organization Overview

1. 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, telecommunication equipment & handset. LG Electronics' goal is to enable the intelligent networking of digital products that will make consumers' lives better than ever.

2. 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 Karachi. They have their showrooms as well. They are setting up or expansion their channel where necessary and they also have more than one show room in some of the areas.

3. 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 300 showroom in the country by 2012.

2.4 Distribution Process of LG:

LG is an international brand world wide. They have their unique distribution channel in Pakistan; 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 Karachi 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

LG

Showroom

END-USER

LG

Showroom

LG

Showroom

2.5 The product:

Digital Display & Media Company Digital TV, PDP, Monitor, CD-ROM Drives, DVD-ROM Drives, CD Rewritable Recorder, 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 Karachi reports to the direct sales manager in country head and the sales person in Karachi also report to the sales manager in Islamabad. Finally all the report go to the head office of LG.

2.7 Controlling:

They strictly control their work force. Each day the direct sales force channel report everything to the head office. They record sales copy, customer copy showroom copy and send it to the head office.

3. Package enticements

3.1 Managerial product and sales training:

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

3.2 Regional warehousing:

LG have total 9 regional warehousing in this country. 4 in Karachi. Each of the warehousing is based on the need of their distribution process .

3.3 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.

3.4 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.

3.5 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 entire product they can return their product to the head office, though it happens very rarely.

3.6 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 products at a certain level.

3.7 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.

3.8 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

3.9 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.

3.10 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

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 Karachi 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-monopoly business, 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 spending their own money to set up a showroom which is quiet costly. They can take the help of indirect channel.

5.2. 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.

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