Managing distribution channel for beer products in habeco trading one member company limited

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH --- NGUYỄN MẠNH HÙNG MANAGING DISTRIBUTION CHANNEL FOR BEER PRODUCTS IN HABECO TRADING ONE MEMBER COMPANY LIMITED ĐẨY MẠNH QUẢN LÝ K

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

NGUYỄN MẠNH HÙNG

MANAGING DISTRIBUTION CHANNEL FOR BEER PRODUCTS IN HABECO TRADING ONE MEMBER COMPANY LIMITED

ĐẨY MẠNH QUẢN LÝ KÊNH PHÂN PHỐI CÁC SẢN PHẨM BIA HÀ

NỘI TẠI CÔNG TY TNHH MTV THƯƠNG MẠI HABECO

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

NGUYỄN MẠNH HÙNG

MANAGING DISTRIBUTION CHANNEL FOR BEER PRODUCTS IN HABECO TRADING ONE MEMBER COMPANY LIMITED

ĐẨY MẠNH QUẢN LÝ KÊNH PHÂN PHỐI CÁC SẢN PHẨM BIA HÀ

NỘI TẠI CÔNG TY TNHH MTV THƯƠNG MẠI HABECO

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS HOÀNG ĐÌNH PHI

Hà Nội - 2018

DECLARATION

I declare that the research outcome in this thesis is the result of my independent work during study and research period and it is not yet published in other’s research and article

The other’s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

I am responsible in front of the Thesis Assessment Committee, Hanoi School

of Business and Management, and the laws for above-mentioned declaration

ACKNOWLEDGEMENT

“First of all, I would like to send my faithful thanks to Hanoi School of Business, Vietnam National University (HSB, VNU) with all the members, lecturers and assistants for the whole knowledge, experience that has been taught and transferred through comprehensive lectures, discussions and exams in the passing time

“Thirdly, one of the most important factors which supports me to finish this thesis is the willing help of many people working at Habeco Trading One Member Company Limited, especially the leaders, who are very busy at business but still be passionate in answering my interviews Absolutely, without their opinions and information, I could never

be able to complete this thesis in a practical and proper manner.”

“Finally, I would like to save my special thanks to my family, without their encouragement and support, it would be extremely difficult for me to be totally focus on completing my thesis which is one of my biggest targets in this recent time.”

TABLE OF CONTENTS

ABBREVIATIONS i

LIST OF TABLES iii

LIST OF FIGURES iv

EXECUTIVE SUMMARY 1

CHAPTER 1: INTRODUCTION 3

1.1 Rationale 3

1.2 Research objectives 5

1.3 Research object 5

1.4 Research scope 6

1.5 Research methodology 6

1.5.1 Research process 6

1.5.2 Data collection 6

1.5.3 Data analysis 8

1.6 Research structure 8

CHAPTER 2: THEORETICAL BACKGROUND ON DISTRIBUTION CHANNEL MANAGEMENT FOR BEER INDUSTRY 10

2.1 Introduction of beer industry 10

2.1.1 Beer industry in the world 10

2.1.2 Beer industry in Vietnam 13

2.2 Overview of distribution channel 14

2.2.1 Definition of distribution channel 14

2.2.2 Role of distribution intermediaries 15

2.2.3 Functions of distribution channel 15

2.2.4 Kinds of distribution channel 16

2.3 Distribution channel management 17

2.3.1 Selecting channel member 17

2.3.2 Controlling conflict between channel members 18

2.3.3 Motivating channel members 19

2.4.1 Market considerations 21

2.4.2 Product considerations 22

2.4.3 Middlemen considerations 23

CHAPTER 3: LITERATURE REVIEW 24

3.1 Previous studies on distribution channel management 24

3.2 Distribution channel management model applied for Habeco 27

CHAPTER 3: CURRENT SITUATION OF DISTRIBUTION CHANNEL MANAGEMENT FOR BEER PRODUCTS OF HABECO TRADING ONE MEMBER COMPANY LIMITED 32

4.1 Overview of Habeco Trading One Member Company Limited 32

4.1.1 History of development and establishment 32

4.1.2 Organizational structure 37

4.1.3 Human resources 38

4.1.4 Current situation of distribution channel system of Habeco 39

4.2 Dimensions and attributions to manage distribution channel for beer products in Habeco Trading One Member Company Limited 43

4.3 Sample size description 44

4.3.1 Gender 44

4.3.2 Age 45

4.3.3 Obtained degree 46

4.3.4 Working seniority 47

4.4 Actual situation of distribution channel for beer products in Habeco Trading One Member Company Limited 47

4.4.1 Selecting members for distribution channel 47

4.4.2 Training members for distribution channel 53

4.4.3 Motivating members for distribution channel 57

4.4.4 Evaluating distribution channel 62

4.5 Assessment of distribution channel management at Habeco Trading One Member Co., Ltd 66

4.5.1 Achievements 66

4.5.3 Causes of shortcomings 68

CHAPTER 5: SOLUTIONS TO STRENGTHEN DISTRIBUTION CHANNEL MANAGEMENT AT HABECO TRADING ONE MEMBER CO., LTD 72

5.1 Developing orientation of distribution channel management at Habeco Trading One Member Co., Ltd 72

5.1.1 General developing orientation of Habeco Trading One Member Co., Ltd 72

5.1.2 Developing orientation of distribution channel management at Habeco Trading One Member Co., Ltd 73

5.2 Solutions to strengthen the distribution channel management at Habeco Trading One Member Co., Ltd 73

5.2.1 Improve criteria for selecting channel members 73

5.2.2 Improve training courses for channel members 74

5.2.3 Improve motivation policy for channel member 75

5.2.4 Improve evaluation method for channel members 76

5.2.5 Improve cooperation with channel members 78

5.3 Recommendations 79

5.3.1 Recommendation to the State management agencies 79

5.3.2 Recommendation to the intermediaries 81

CONCLUSION 84

LIST OF REFERENCES 85

APPENDIX 1 87

APPENDIX 2 88

APPENDIX 3 92

ABBREVIATIONS

4P : Product, Price, Place, Promotion

ABI : Anheuser-Busch InBev

Assoc Pro : Associate Doctor

Bancassur

BOD : Board of Directors

DC : Distribution Channel

HRM Dept : Human Resources Management Department

HSB : Hanoi School of Business

IT : Information Technology

KPI : Key Performance Indicator

MBA : Master in Business Administration

PR : Public Relations

TPP : Trans Pacific Partnership Agreement

TV : Television

UK : United Kingdom

US : United States

USA : United States of America

VBL : Vietnam Brewery Limited

VNU : Vietnam National University

LIST OF TABLES

Table 4.1: Habeco Trading One Member Co., Ltd’s staff qualification in 2017 39 Table 4.2: Dimensions and attributions to manage distribution channel for beer products in Habeco Trading One Member Company Limited 43 Table 4.3: Criteria for evaluating distribution channels of Habeco Trading One Member Co., Ltd 50 Table 4.4: Actual situation of selecting member for DC at Habeco Trading One Member Co., Ltd 51 Table 4.5: Actual situation of training member for DC at Habeco Trading One Member Co., Ltd 55 Table 4.6: Actual situation of motivating member for DC at Habeco Trading One Member Co., Ltd 59 Table 4.7: Actual situation of evaluating DC at Habeco Trading One Member Co., Ltd 63

LIST OF FIGURES

Figure 1.1: Research process 6

Figure 2.1: Total beer volumes from the top 30 beer consuming countries 11

Figure 2.2: Volumes and shares of global countries in beer market 12

Figure 2.3: Consumer distribution channel 16

Figure 3.1: Distribution channel management model applied for Habeco 28

Figure 4.1: Organizational chart of Habeco Trading One Member Co., Ltd 37

Figure 4.2: Organizational chart of each branch of Habeco Trading One Member Co., Ltd 38

Figure 4.3: Distribution channel system of Habeco Trading One Member Co., Ltd 40 Figure 4.4: Number of distributors level 1 in 2016 41

Figure 4.5: Average monthly income of distributors level 1 in 2016 41

Figure 4.6: Sample’s gender 45

Figure 4.7: Sample’s age 45

Figure 4.8: Sample’s qualification 46

Figure 4.9: Sample’s seniority 47

EXECUTIVE SUMMARY

“Being considered as the bridge connecting producer/supplier with the final user or customer, distribution channel is one of the most important factors to make the success of any enterprise Actually, an effective management of the distribution system is the key management element which helps a company to achieve the competitive advantages fighting against other rivals.”

“Habeco Trading One Member Co., Ltd, established in 2009 after being separated from Hanoi Beer Alcohol and Beverage Joint Stock Corporation, hasthereforefull advantage ofbothhuman and resourcestopromote the development ofthis distribution channel Thanks to distribution channel is considered as a strategic point to expand the total sales premium revenue in a long and sustainable period, the company has established the Marketing and Sales Division to focus on managing this particular channel since 2010.”

“Before the attractiveness of the Vietnamese beer market, many domestic and foreign beer companies have been stepping up their investment and competition

to occupy Habeco's market share In addition, in the trend of modernization, information technology becomes more and more important and indispensable in the process of managing and operating the production and business activities of enterprises Some major brands in the beer sector have applied very well technology

in sales system management, business efficiency improvement and have boom such

as Saigon Beer, Sapporo, Huda, etc For those reasons, the researcher himself chose

the subject “MANAGING DISTRIBUTION CHANNEL FOR BEER

PRODUCTS IN HABECO TRADING ONE MEMBER COMPANY LIMITED”

to study and put into practical application at Habeco to improve distribution activities for beer products at Habeco and improve its competitiveness in the market.”

“By applying the theoretical framework of “Marketing management” combined with the actual in-depth interviews with managers (02), distributors (02),

Sales Division of Habeco, and employees at 11 branches of the company (104), the researcher has noted and would perform the following findings.”

“Some achievements include Habeco selects its DC members based on their reputation, financial strengths and product lines, Habeco usually holds training courses to improve product knowledge, sales skills and negotiation skills, Habeco uses some approaches to learn about its DC members’ needs and problems, and usually gives some monetary rewards and recognition to its DC members with outstanding and excellent results, etc Some shortcomings include Habeco does not take into account the promotion and advertising programs that intermediaries can give to its beer products, Habeco encounters some problems in holding communication skills training courses Moreover, for some specialized training courses, DC members have to pay some tuition fee, which causes their dissatisfaction, etc.”

“Finally, looking at the discovered points, the researcher would like to recommend some solutions to improve the distribution channel management at Habeco Trading One Member Co., Ltd such as: focus on reviewing and improving the cooperation with intermediaries in term of relationship and commitment with the senior leaders, the operation model supporting business, invest more resources

in improve the quality of training course for channel members, etc.”

CHAPTER 1 INTRODUCTION 1.1 Rationale

Distribution Channels perform a crucial role in the successful distribution and marketing of all products They have various contacts, expertise and wider knowledge of the products The rapidly growing markets and increasing complexities of distribution have increased the demand and requirement of the distribution channels First and foremost, distribution channels offer salesmanship The distribution channels offer pivotal role of a sales agent They help in creating new products in market They specialize in word of mouth selling and promotion of products They assure pre-sale and post-sale service to the consumers Since these channels are in direct and regular contact with the consumers, they do salesmanship very well and at the same time provide true and valuable feedback to the producers Moreover, distribution channels increase distributional efficiency The intermediary channels ease the sales process as they are in direct contact with the customers They narrow down the gap between producers and consumers both economically and efficiently These intermediaries reduce the number of transactions involved in making products available from producers to consumers For instance, there are four producers who are targeting to sell their products to four customers If there is no distribution channel involved, then there will be sixteen transactions involved But

if the producers use distribution channels, then the number of transactions involved will be reduced to eight (four from producer to intermediary and four from intermediary to customer), and thereby the transportation costs and efforts will also

be reduced

Furthermore, the channels offer products in required assortments Just like the producers have expertise in manufacturing products, similarly the intermediaries have their own expertise The wholesalers specialize in moving and transferring products from various producers to greater number of retailers Similarly, the

greater number of final customers Due to the presence of distribution channels(wholesalers and retailers), it is possible for a consumer to buy the required products at right time from a store conveniently located(geographically closer) rather than ordering from a far located factory Thus, these intermediaries break the bulk and meet the less quantity demand of the customers In addition, distribution channels assist in product merchandising It is actually the merchandising by intermediaries which fastens the product movement from the retail shop desk to the customer’s basket When a customer goes to a retail shop, he may be fascinated by the attractive display of some new product, may get curious about that new product, and he may switch over to that new product leaving his regular product Thus merchandising activities of the intermediaries serve as a quiet seller at a retail store The channels assist in executing the price mechanism between the firm and the final customers, the intermediaries help in reaching a price level which is acceptable both

to the producers as well to the consumers Also, distribution channels assist in stock holding The intermediaries perform various other functions like financing the products, storing the products, bearing of risks and providing required warehouse space Thus, the distribution channels are a vital constituent of a firm’s comprehensive marketing strategy They assist in expanding product reach and availability, as well in increasing revenue

Nowadays, businesses are operating in a competitive environment where customers are becoming increasingly demanding and competitors are more savvy The ways that a company markets its brand, products and services are becoming increasingly varied and differential from one company to another The beer industry

is one of the Fast Moving Consumer Goods (FMCG) industries Currently, Vietnam

is considered as a potential market due to its young population and rising incomes Habeco Trading One Member Co., Ltd is one of the three largest beer companies in Vietnam However, before the attractiveness of the Vietnamese beer market, many domestic and foreign beer companies have been stepping up their investment and

modernization, information technology becomes more and more important and indispensable in the process of managing and operating the production and business activities of enterprises Some major brands in the beer sector have applied very well technology in sales system management, business efficiency improvement and have boom such as Saigon Beer, Sapporo, Huda, etc For those reasons, the

researcher himself chose the subject “MANAGING DISTRIBUTION CHANNEL

FOR BEER PRODUCTS IN HABECO TRADING ONE MEMBER COMPANY LIMITED” to study and put into practical application at Habeco to improve

distribution activities for beer products at Habeco and improve its competitiveness

in the market

1.2 Research objectives

This research aimed to achieve the following objectives:

- To summarize the theories on distribution channel management

-To analyze the current situation of managing distribution channel for beer products at Habeco and find out the achievements and shortcomings of its distribution channel

- To give some recommendations to improve distribution channel management for beer products at Habeco

1.3 Research object

The research object is managing distribution channel for beer products at Habeco by surveying 104 employees working at the Marketing and Sales Division and 11 branches of Habeco

1.4 Research scope

The geographical scope of the research is in the territory of Vietnam

Time period for the research: Secondary data were collected in the period of 2015-2017, primary data were collected from September to October, 2017

DISTRIBUTION CHANNEL REQUIREMENT

CURRENT DISTRIBUTION CHANNEL MANAGEMENT FOR BEER PRODUCTS AT HABECO

distribution channel system to the business The researcher mostly used description analysis method to process these data

Besides that, public information was also gathered to make the analysis more convincing Based on public information both in Vietnam’sbeer industry on the whole, the researcher tried to study through Internet, via newspapers, magazines or other people’s research relating to beer industry in Vietnam market

1.5.2.2 Primary data

 In-depth interviews

First and foremost, in-depth interview method was applied in this research and played an important role in helping the researcher reach more factual and reliable required information The researcher conductedin-depth interviews with six (6) interviews All questions that were brought out during the interviews were brief, clear and sharp; ensured that they were effective in reaching the reliable and valuable answers

* In-depth interview with Habeco’smanagers: Firstly, the in-depth interview was conducted with the Executive Manager of Habeco The content of the interview turned aroundHabeco and found out the strengths and weaknesses of distribution channel management of the company

The second interview was conducted with the Sales Manager of Habeco He told about the real situation of Habeco’sdistribution channel management Additionally, he shared about the market potential for Habeco’sdistribution channel management forbeer products

* In-depth interview with distributors: The researcher interviewedtwo (02) distributors of Habeco; the in-depth interviews were designed to collect the information on the operation of distributors and to understand any difficulties they get when they distribute the beer products of Habeco The researcher also asked distributors to comment about Habeco’s policies to them and their sales force as well as the sales force of Habeco The result aimed to analyze the performance of

distributors and find out the distributor’s gaps that Habeco needs to cover in order

to design optimal distribution channel model in the future

* In-depth interview with retailers: Retailers playeda very important role in Habeco’s distribution channel system because they themselves sell beer products of the company directly to the end-users The researcher interviewed two (02) retailers

to understand more about their perception on the current selling system of Habeco, their evaluation about goods delivery, sales team, and consumption potential for Habeco’sbeer products The researcher depended on such information to analyze distribution channel management of Habeco in the territory of Vietnam

 Survey (Questionnaire)

The survey wasconducted with the following respondents:

- Marketing and Sales Division of Habeco: All 24 employees

- 11 branches of Habeco: Each branch has about 6 – 8 employees (including

1 director, 2 deputy directors, 1 market manager and about 2 – 4 market supervisors) Total employees of 11 branches are 80 employees

The information that the researcher collected from the questionnaire was useful to some extent Habeco’s decision of distribution channel managementin the future Among 104 questionnaires all sent by email, there were 100 valid answer sheets, reaching the ratio of 96.15%

1.5.3 Data analysis

The researcher used structure map, table of comparison, descriptive analysis via Excel program.All the interview and survey result, data and figures collected were performed by using Excel figures and tables to demonstrate the current situation of distribution channel management for beer products at Habeco, and then find out the solution to improve it

1.6 Research structure

The research was divided into four chapters as follows in addition to Introduction

Chapter 2: Theoretical background on distribution channel management Chapter 3: Current situation of distribution channel management for beer

products of Habeco Trading One Member Company Limited

Chapter 4: Recommendations to improve distribution channel management

for beer products of Habeco Trading One Member Company Limited

CHAPTER 2 THEORETICAL BACKGROUND ON DISTRIBUTION CHANNEL MANAGEMENT FOR BEER INDUSTRY 2.1 Introduction of beer industry

2.1.1 Beer industry in the world

What we are seeing today in the brewing industry is the outcome of a running consolidation cycle that started in the 1970s with the purchase of Miller Brewing by Phillip Morris The continuation of consolidation in the industry leaves two sides to consider, Wall Street and Main Street Those on the Wall Street financial side clearly recognize the strength and opportunity in consolidated global brewers powered by scale and efficiency On the other side, Main Street consumers recognize the inherent risks and limitations to market access, choice and value as an outcome of too much consolidation Having a few consolidated brewers with a presence in all major markets brings economies of scale, but it also brings risks to related industries, businesses and consumers who may be impacted by consolidation (Alison, R et al., 1964)

long-A quick look at world markets and brewer share of each market offers a glimpse into what outcomes we will see post mergers Of course, whether or not more mergers pass the litmus test of regulators around the world is yet to be seen

In the table below, total beer volumes from the top 30 beer consuming countries are listed along with their share of total world volumes and estimated market shares of the top five brewers in each country Clearly there are a wide range

of consolidated markets, with Germany at 40 percent to Venezuela and Philippines

at 100 percent On a weighted average basis, more than 85 percent of world volumes are controlled by five brewers per market (Francioni, J L., 2012)

Figure 2.1: Total beer volumes from the top 30 beer consuming countries

Source: Habeco (2017)

A deeper look shows ABI and SABMiller market shares in their top share markets A few countries where these brewers operate were already highly consolidated by one brewer Depending on how approvals work out in each country,

a new mega brewer has the potential to take a dominant position in 13 countries around the world (Nelson, J P., 2005)

Figure 2.2: Volumes and shares of global countries in beer market

Source: Habeco (2017)

The consolidation of the global beer industry has been in motion for decades The consolidation activity crosses both vertical and horizontal lines of the industry

In addition to purchasing other brewers, brewers have pursued vertical integration

up and down the supply chain from owning agriculture resources, to packing, distribution and retail These are not necessarily country borders only, but involve smaller geographies such as the recent horizontal and vertical merger activity in California – which happens to be the eighth largest economy and thirteenth largest beer market in the world (Francioni, J L., 2012)

At the foundation of brewing economics is economies of scale From raw ingredients, to bottles and cans, to distribution and retail, the more of the same beer that a brewer sells translates directly into greater profit with each additional unit But beer is mostly water, and water is heavy and heavy things are expensive to transport So producing it locally is key to success – hence the drive to consolidate

in breweries across every market Moreover, because alcohol is an affordable luxury, consumption of alcohol increases as income increases Companies that recognize and seize the opportunity are driving worldwide consolidation (Francioni,

J L., 2012)

2.1.2 Beer industry in Vietnam

In Vietnam, competition is getting tougher for domestic brewers as foreign rivals increased their shares within the country’s beer industry With a population of

93 million and a beer-drinking culture, Vietnam is attractive to foreign investors because of the perceived growth potential of its beer industry Indeed, foreign manufacturers, both newcomers and those who have been in country a long time, have rushed to scale up their production in Vietnam Recent entrants include ABI from the USA and Sapporo from Japan

Vietnam has a total of 129 breweries and an installed capacity of 4.8 billion liters whilst in 2015 production was 3.4 billion liters In 2015, Saigon Alcohol Beer

& Beverages Corp (Sabeco) remained the biggest player with a production of 1.38 million liters followed by Vietnam Brewery Limited (VBL) brewers of Tiger and Heineken with 729 million liters The other big local player is Hanoi Beer and Beverage Corporation with a production in 2015 of 667 million liters (Habeco, 2017)

Sabeco and Habeco have long been investment targets from foreign investors but to date have remained state owned but their growth is said to be slowing and profitability is said to be much lower than their closest rival VBL

Domestic beer companies are preparing themselves for fierce competition

Agreement Under the TPP, Vietnam will remove its tax on imported beer This is expected to attract a further wave of new investments from overseas and even fiercer competition and will increase the interest further from foreign investors in both Habeco and Sabeco (Habeco, 2017)

Now, Vietnam is the place to be for entrepreneurs and adventurous brewers The market is booming and changing rapidly Platinum and Pasteur Street Brewing started in 2015 and are now the old ones Germans with their 500-year-old-breweries will off course disagree with the term old There are many new tap rooms and craft beers in Ho Chi Minh City while it’s moving a bit slower in Hanoi The next thing to happen is to see a craft brewery open up somewhere between these two cities Maybe Mui Ne with lots of beer places and already has one of Hoa Vien microbreweries or Da Nang/Hoi An which is a popular tourist destination for both domestic and international tourism There are also new beer importers and breweries such as Bach Brewing from New Zealand is selling their craft beer in Vietnam (Habeco, 2017)

2.2 Overview of distribution channel

2.2.1 Definition of distribution channel

A channel of distribution or trade channel is the path or route along which goods move from producers to ultimate consumers It is distribution network through which a producer puts his products in the hands of actual users A trade or marketing channel consists of the producer, consumers or users and the various middlemen who intervene between the tow The channel serves as a connecting link between producers and consumers By bridging the gap between the point of production and the point of consumption, a channel creates time, place and possession utilities (Hoang, H et al., 2003)

Channels of distribution is known as “Place” in the “4P's” model of marketing Distribution channels provide the utility of place, of having products where the customer wants, when the customer wants them

2.2.2 Role of distribution intermediaries

Firstly, many firms lack the financial resources to carry out direct channel, thus, they need distribution intermediaries, such as distributors, dealers, retailers to distribute their products to customers

Secondly, producers who do establish their own channels can often earn a greater return by increasing investment in their main business If a company earns a

20 percent rate of return on manufacturing and a 10 percent return on retailing, it does not make sense to do its own retailing

Thirdly, training human resource and establishing distribution channel will take much time and cost Therefore, firms take advantage of intermediaries' human resource, especially salesmen, as well as their experience, facilities in order to bring the goods to end-users promptly

Fourthly, in some cases direct channel simply is not feasible Producer must use intermediaries in their channel system (Mentzer, J T., 2004)

2.2.3 Functions of distribution channel

There are a number of functions of distribution channel The main use of distribution channel marketing is to move goods from producers to consumers It overcomes the time, place, and possession gaps that separate goods and services from those who need or want them Other functions include information gathering, promotion, and matching Negotiations, physical distribution, financing, and risk taking are also functions of distribution channel All these functions are necessary for success in any market (Rosenbloom, B., 2004)

2.2.4 Kinds of distribution channel

0 Level1 Level2 Level 3 Level

Figure 2.3: Consumer distribution channel

Source: Philip Kotler et al (2012)

A brief explanation of different channels of distribution is given below:

Zero - level channel: This is also known as selling because the manufacturer

sells directly to the final customer The major examples are door-to-door sales, home parties, mail order, telemarketing, TV selling, Internet selling, and manufacturer owned stores

One - level channel: This is the stage distribution channel having one

middleman, i.e., retailer In this channel, the producer sells to big retailers like departmental stores and chain stores who in turn sell to customer

Two - level channels: This is the groceries channel of distribution There are

two middlemen in this channel of distribution, namely, wholesaler and retailer This channel is most suitable for the products with widely scattered market

Manufacturer - Distributor - Wholesaler - Retailer - Consumer: In the

meatpacking industry, wholesalers sell to jobbers, who sell to small retailers (Rosenbloom, B., 2004)

2.3 Distribution channel management

Distribution channel is a flexible corporation method of enterprises to implement the same business objective, or the moving line from the producer to the last consumer The thesis focuses on the distribution channel in the beer field In the beer providing, the definition of distribution channel is defined as the path through which beer products from a beer company to the client or payment for those beer products from the clients to the beer company A distribution channel can be as short as a direct transaction from the beer company to the client, or may include several interconnected intermediaries along way Distribution channel of beer, in particular, almost are interconnected intermediaries along way such as agents system channel (Philip Kotler et al., 2012)

Distribution channel has many functions The main function of a distribution channel is to provide a link between production and consumption It fills the gap of places, time from producer to consumers Organizations that form any particular distribution channel perform many key functions

The components in distribution channel management include:

- True alignment to corporate and sales strategy

- Defined partner selection process

- Adherence to a channel governance process

- Partner focused recruitment package

- Comprehensive channel enablement content

According to Philip Kotler et al., 2012, the process of distribution channel management is divided into four main parts as follows

2.3.1 Selecting channel member

In order to facilitate distribution channel member selection, the company should entirely understand then determine what significant characteristics distinguish a better intermediary In more detail, it should examine the actual record performed in the market, such as: number of year operating, other lines carried,

growth and profit result, financial strength, cooperativeness, and the service reputation of distribution channel member

For specific circumstance, the intermediaries may vary, so the company should consider and evaluate more about the number and the characteristic of other lines carried, as well as the size and the quality of the sale force, as well as should evaluate the location, potential future growth and client segments of those intermediaries (Philip Kotler et al., 2012)

2.3.2 Controlling conflict between channel members

Channel conflict is not a new phenomenon that was created by the Internet revolution To the contrary, the conflict construct received considerable attention in channels research in the 1970s and 1980s In the 1990s, conflict received little attention in the channels literature, in part due to the emphasis of the relationship marketing paradigm on the field Recently, though, the magnitude and speed with which electronic marketing channels have emerged, along with the trend toward multichannel distribution, have brought channel conflict to the forefront once again (Philip Kotler et al., 2012)

The foundation for the study of channel conflict lies in the organizational behavior literature The macro level or sociological approach has focused on conflict between groups, departments, divisions, and even entire organizations as units of analysis Conflict is viewed as being inevitable because of inherent differences in the perceptions and goals of the organizational members Conflict is also depicted as being functional, provided the very basis of the relationship is not threatened, because constructive conflict might move the organization to higher levels of creativity, innovation, and competitive energy The primary causes of conflict are identified as competition over scarce resources, drives for autonomy, and divergence of subunit goals Lastly, this sociological view of conflict contends that it is of concern to the organization only in so far as it has implications for performance (Philip Kotler et al., 2012)

To avoid channel conflict, companies have to develop strategies for integrating the new e-commerce channel with their traditional distribution system The key element in introducing the Internet into the channel mix is understanding what customers in each channel value and whether the current channels are meeting these needs and expectations Marketers must begin with accurate market segmentation and provide channels of distribution that meet their target segments needs in the most convenient manner Providing multiple channels is the best way for producers to effectively serve a diversified customer base, and manufacturers need to use the power of a multichannel distribution system in order to be everywhere (Gundlach, et al., 2006)

Industrial suppliers should use e-commerce to support their distribution network, rather than to displace their existing intermediaries Channel partners can offer a range of services, many of which cannot be replaced by the electronic channel Once a company has clearly segmented its customers based on needs and willingness to pay, they can determine which channel(s) are best suited to serve each segment, traditional and/or the lower-cost Internet Coordinating a firm’s channel resources in this fashion, with customer needs as the centerpiece, is called the integrated distribution (Truong Dinh Chien, 2004)

2.3.3 Motivating channel members

After distribution channel members are selected, the company needs to consider and treat them in the same ways as do with the end-user.In addition to managing its channels, the company should often persuade distributors that they can succeed better by working together in the stable system By that way, distribution channel members can well complete their tasks and have a close cooperation with the company Moreover, they have to understand the practical situation and find out distribution channel member’s needs and concerns, based on that findings, there should be suitable motivation program to encourage distribution channel members

to work more active and effective accordingly (Philip Kotler et al., 2012)

Once being able to stimulate distribution channel members to work and dedicate for the common benefit of company, it should invest in training programs Otherwise, the market research should also be implemented frequently in order to get a proper comparison and evaluation then improve distribution channel’s performance (Andrii Galkin, 2015)

On the other hand, distribution channel members differ greatly in respect of channel power, the ability to alter distribution channel member’s behavior so that members take actions they would not have taken otherwise There is a popular fact that gaining intermediaries’ cooperation can be a huge challenge Therefore, a package of motivation program should be designed suitably to attract intermediaries

to cooperate in long-term for the common development of the company (Philip Kotler et al., 2012)

2.3.4 Evaluating distribution channel

The company must regularly check its distribution channel performance against such standards as sales volume, customer delivery time, cooperation in company promotion and training programs, and services to the customer The collected results must be recognized and rewarded correspondingly Distribution channel members that perform well and create good values to the company will be noted and rewarded Those who are performing poorly should noticed, and in the worst case, to be replaced (Andrii Galkin, 2015)

Factors affecting scope and frequency of evaluation include:

- Degree of manufacturer’s control over distribution channel

- Relative importance of distribution channel

- Nature of the product

- Number of distribution channel members

- Distribution channel member audit: That is a periodic and comprehensive review of distribution channel member performance Audits may do for one, several

or all distribution channel members at the wholesale and or retail levels The

frequency of the audit varies but is usually not one more frequently than once per year per distribution channel member (Philip Kotler et al., 2012)

Distribution channel member performance audit consists of three phases: i) Developing criteria for measuring distribution channel member performance such as sales performance of distribution channel members, selling capabilities of channel members, attitudes of distribution channel members and competition faced by distribution channel members

ii) Periodically evaluating distribution channel members performance against criteria

iii) Recommending corrective actions to reduce the number of inadequate performances (Philip Kotler et al., 2012)

2.4 Factors affecting distribution channel

Most producers do not sell their goods directly to the final users between them stands a set of intermediary’s performing variety of functions Thus, choosing the best channels is very important While selecting a distribution channel, the entrepreneur should compare the costs, sales volume and profits expected from alternative channels of distribution In order to select the right channel from distributing his product, manufacturers should keep in mind the following considerations (Minh Dao, 2006)

2.4.1 Market considerations

The nature of the markets is a key factor influencing the choice of channel of distribution The following features of the market should be considered to determine the channels:

Consumer or industrial market if the product is meant for industrial users, the channel of distribution will be a short one This is because industrial users buy in a large quantity and the producer can easily establish addict contract with them But

in case for goods meant for consumers, retailers may have to be included in the channels of distribution

- Number and location of buyers:When the number of potential

customers is small or the market is geographically located in a limited area, direct of wholesalers and retailers becomes necessary

- Size of order: Direct selling is convenient and economical where

customers place order in big lots as in case of industrial goods But where the product is sold in small quantities, middlemen are used to distribute such products

A manufacturer may use different channels for different types of buyers He may sell directly to big retail stores and may use wholesalers to sell to small retailers (Rui Borges Lopes et al., 2015)

- Customers buying habits: The customer buying habits like the item he

is willing to spend desire for credit the preference of personal attention and one stop shopping significantly affect the choice of distribution channels The manufactures should consider the time taken by customers, to select the product, level of involvement, availing the credit facilities, inclination towards availing the series offered That's why all the while goods manufacturers prefer authorized showrooms

for theirs product in offer specialized service (Vlajic, J V et al., 2012)

2.4.2 Product considerations

The type and nature of the product influence the number and type of middlemen to be chosen for distributing the product The important factors with respect to the product are as follows:

- Unit value: Product of low unit value and common use is generally sold

through middlemen, as they cannot bear the cost of direct selling On the other hand, expensive consumer goods and distribution products are sold directly by the producers

- Perish ability: Perishable products like vegetable, fruits and bakery

items have relatively short channels as they cannot withstand repeated handling Goods, which are subject to frequent changes in fashion and style, are generally distribute through short channels, as the producer has to maintain close and

- Bulk and weight: Heavy and bulky products are distributed directly to

minimize handling costs

- Standardization: Custom-made and non-standardized products usually

pass through short channels due to the need for direct contract between the producer and the consumers Standardized and mass-made goods can be distributed though middlemen

- Technical nature: Industrial requiring demonstration, installation and

after sales service are often sold directly The other hand, firms with one or two products find it profitable to distribute through wholesalers and retailers (Hoang, H

et al., 2003)

- Age of the product: Anew product needs greater promotional effort and

few middlemen may like to handle it As the product giants acceptance in the market, more middlemen may be employed its distribution

2.4.3 Middlemen considerations

The cost and efficacy distribution depend largely the nature and type of middlemen as given in the following factors:

- Availability: When middlemen as desired are not available, an

entrepreneur may have to establish his own distribution network No availability of middlemen may arise when they are handling completive product, as they not like

to handle more brands

- Attitudes: Middlemen who do not like a firm's marketing policies may

refuse to handle its products For instance, some wholesalers and retailers demand sole rights or a guarantee against in prices

- Services: Use of those middlemen in profitable who provide financing,

storage, promotion and after sales services

- Sale potential: An entrepreneur generally prefers a dealer who the

greatest volume of sales

- Costs: Choice of a channel should be made offer comparing the costs of

CHAPTER 3 LITERATURE REVIEW 3.1 Previous studies on distribution channel management

According to Ha Pham (2014), being considered as the bridge connecting producer/supplier with the final user or customer, distribution channel is one of the most important factors to make the success of any enterprise Actually, an effective management of the distribution system is the key management element which helps

a company to achieve the competitive advantages fighting against other rivals This thesis gives actual overview of distribution channel management of bancassurance

at Bao Viet Insurance Corporation (BVGI) BVGI has determined bancassurance to

be one of the most strategic channels to maintain and improve the dominant leading position in the Vietnamese insurance market Despite the fact that BVGI is the company having the longest history of development with the best experienced and qualified human resources, the distribution channel management for bancassurance still faces many difficulties to operate effectively For the purpose of getting more understanding about the current distribution channel for Bancassurance at BVGI,

Ha Pham (2014) focuses on the following objectives: 1) Clarify the requirements of distribution channel management for Bancassurance; 2) Analyze the current situation of distribution channel management for Bancassurance at BVGI to find out the gaps; and 3) Propose solutions to improve the distribution channel management for Bancassurance at BVGI

According to Ha Pham (2014), the theory of “Marketing Management” of Professor Philip Kotler was used in this thesis to demonstrate the researcher’s points

of view By applying the theoretical framework of “Marketing management” combined with the actual in-depth interviews with the Leaders of BVGI (1 Deputy Chief Executive Officer and 2 directors of bancassurance division), 80 bank’s staffs

of cooperated banks, the researcher noted and performed the following findings

selecting channel member, training course, motivating program and evaluating on channel member.Some strategic bank partners have cooperated very well with BVGI, but some others still think about the benefit in the short term without considering about the long term and sustainable development with bancassurance.The business management division regulate strict guideline on all types of products, hence bancassurance products are not much different from traditional products and are not competitive enough to attract customers tightly controls designed products.The training course organized by BVGI for bank channels are not really supportive There is lack of trainee forces to onside support the bank channels in the daily business The motivation program for bancassurance

is not strong enough to encourage bank channels to focus on selling, they have to complete the tight revenue target from banking mission.Evaluation for bancassurance channel management is not really specific and effective, it is mainly depended on the revenue reports while it should be seriously considered from daily operational activities Finally, looking at the discovered points, the researcher recommended some solutions to improve the distribution channel management for bancassurance at BVGI including focusing on reviewing and improving the cooperation with bank channels in term of relationship and commitment with the senior leaders, the operation model supporting business, investing more resources in improve the quality of training course for channel members, designing and selecting

a better and more attractive motivation scheme for channel members to strengthen the bank leader’s belief as well as push the sales force in selling bancassurance products, balancing resource to implement the evaluation sessions frequently and focusing on more on the detailed and practical situation of the current operation process

Also analyzing distribution channel management at a bancassurance provider, Anh Pham (2014) focused on the case of Bao Viet Life He also pointed out that bancassurance has many challenge for both of banks and insurance companies, too In fact, although bancassurance has proved to be an effective

distribution channel in a number of countries, but in Vietnam it still a secondary distribution channel The dissertation focused on the main research objectives as follows: 1) To summarize requirement about distribution channel management; 2)

To analyze current situation at banks that co-operation with BaoViet Life to identify the gaps of distribution channel management for bancassurance at BaoViet Life and analyze the reason for those gaps; 3) To make recommendation some solutions to improve the managing distribution channel for bacassurance at Bao Viet Life.Basing on the theories on managing distribution channels combines with primary data and secondary data, the author has analyzed current situation of managing distribution for bancassurance at Bao Viet Life including selecting channel members, motivating channel members and evaluating channel member to find out shortcoming of managing distribution for bancassurance at Bao Viet Life and causes of these shortcomings He found that the cooperation between Bao Viet Life and commercial banks is quite complex and uneasy for both parties.Bao Viet Life has not designed products yet to take full advantage of this distribution channel.Banking staff is unable to thoroughly understand products’ characteristics and they are not very active in attracting potential customers.Bao Viet Life and commercial banks has not paid much attention to advertising so customers do not know about it.Base on findings, the author has come up with some recommendation

on solution such as improving the cooperation between Bao Viet Life and banks, developing suitable products for bancassurance distribution channel, improving training and motivation programs for staffs and improving products advertising and introduction

According to Tuan Bui (2012) in his research, although 2012 has affected economic recession and the risk of deflation, but the milk market in Vietnam is still

a lot of promise Distribution channel system of Phuc Nhan Duong Pharmaceutical Company Limited is affected by characteristics of milk product, such as distribution channel is normally organized geographically and consists of many levels of

channel must guarantee the quickness and accurateness to end-users because of timely matter Profit of the members in the distribution channel is not high because the absolute profit made on FMCGs products is relatively small Based on the requirements of the development company, empowering and brands on the domestic market and on the above current distribution system of Phuc Nhan Duong, some proposals are recommended such as firstly, developing an appropriate distribution channel structure Phuc Nhan Duong should restructure anew distribution channel model that will help it overcome the existing weak points and uphold the strong points in the old distribution channel structure but it still ensures in accordance with marketing strategy of the company that it will focus on two main channels of Groceries channel and Super-Market channel Secondly, improving the selection assignment of channel members then develop an advance sales-force management structure by establishing a standard performance evaluation process with useful criteria as selling performance of the channel members, their attitude the activity coordination with the company’s policy or their growth potential Finally, foster the relation with channel members, improvement the competence of sales force and issuance more techniques to motivate channel members are important issues that recommended

3.2 Distribution channel management model applied for Habeco

As mentioned above, it is able to see that the main target of a distribution is

to bring suitable products/services to the customers Hence, clearly understanding the actual needs of the customers is very significant as the essential role of marketing, this point makes distribution channel system succeed or fail obviously Once the company has decided to choose distribution channel alternative, individual intermediaries must be selected, trained, motivated and evaluated And the channel arrangement will be modified over the time passing From the above literature review, based on the actual reality and characteristics of distribution channel for beer companies, in the researcher’s opinion, the distribution channel management

Figure 3.1: Distribution channel management model applied for Habeco

Source: Philip Kotler et al (2012)

From the above figure, it is able to see that the management of distribution channel for beer companies, in this case Habeco, is nearly the same with the management of distribution channel in general by Philip Kotler et al (2012) (also including three main steps: selecting channel members, motivating channel members and evaluating distribution channel) The contents of those three steps are

as mentioned above

In terms of selecting members for distribution channel (DC), according to Philip Kotler et al (2012), this step can be broken into five factors as follows:

- Finding prestigious intermediates in the beer market as DC members;

- Selecting DC members based on their reputation financial strength;

- Selecting DC members by identifying their product lines as competitive products, compatible products or complementary products;

- Selecting DC members by fair dealing and friendly relationship it can establish with;

- Selecting DC members based on their advertising and promotion support given to beer products

Selecting DC

members

Training DC members

Motivating

DC members

Evaluating DC

For the additional but very important step of training channel members, after selection, training presents a prime opportunity to expand the knowledge base of all distribution channel members, but sometimes the company finds the development opportunities expensive Distribution channel members also miss out on work time while attending training sessions, which may delay the completion of projects Despite the potential drawbacks, training and development provides both the company as a whole and the individual distribution channel members with benefits that make the cost and time a worthwhile investment (Rosenbloom, B., 2004)

Most distribution channel members have some weaknesses in their workplace skills A training program allows them to strengthen those skills that each of them needs to improve A development program brings all distribution channel members to a higher level so they all have similar skills and knowledge This helps reduce any weak links between them and the company which relies heavily on others to complete basic work tasks Providing the necessary training creates knowledgeable distribution channel members who can take over for one another as needed, work on teams or work independently without constant help and supervision from others (Rui Borges Lopes et al., 2015)

A distribution channel member who receives the necessary training is better able to perform his job He becomes more aware of safety practices and proper procedures for basic tasks The training may also build his confidence because he has a stronger understanding of the industry and the responsibilities of his job This confidence may push him to perform even better and think of new ideas that help him excel Continuous training also keeps the company’s distribution channel members on the cutting edge of industry developments distribution channel members who are competent and on top of changing industry standards help the company hold a position as a leader and strong competitor within beer industry

Moreover, a structured training and development program ensures that distribution channel members have a consistent experience and background knowledge The consistency is particularly relevant for the company’s basic policies