Nghiên cứu về quản trị hệ thống kênh phân phối tại công ty trách nhiệm hữu hạn một thành viên thương mại và xuất nhập khẩu viettel

Objectives The research aims to: Clarify the current situation of distribution channel management at Viettelimex through the activities of organizing and structuring distribution channe

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

-

ĐẶNG HỒNG TRIỀU

A STUDY OF DISTRIBUTION CHANNEL SYSTEM MANAGEMENT

AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED

NGHIÊN CỨU VỀ QUẢN TRỊ HỆ THỐNG KÊNH PHÂN PHỐI TẠI CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN

THƯƠNG MẠI VÀ XUẤT NHẬP KHẨU VIETTEL

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2019

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

-

ĐẶNG HỒNG TRIỀU

A STUDY OF DISTRIBUTION CHANNEL SYSTEM MANAGEMENT

AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED

NGHIÊN CỨU VỀ QUẢN TRỊ HỆ THỐNG KÊNH PHÂN PHỐI TẠI CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN

THƯƠNG MẠI VÀ XUẤT NHẬP KHẨU VIETTEL

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 NGUYỄN NGỌC THẮNG

Hà Nội - 2019

ACKNOWLEDGEMENT

“I would like to show my great gratitude to Associate professor Nguyễn Ngọc Thắng, my tutor and who gave me profound support during the conduct of this reseach Without his greatly enthusiast guidance, I could never have completed the thesis on my own

My grateful thanks are also extended to the employees working in Viettel import and export company limited (Viettelimex), especially Distribution Center, have provided to me much necessary and invaluable data and documents for the research

I beloved HSB’s staff and friends supports and encouragements during our 2 years of studying in HSB are also deeply acknowledged with unspeakable gratitude

My success today could never be achieved without the presence of them”

Last but not least, I would like to thank my family who has supported me with strong encouragements during my studying period

Thank you./

Hanoi, November 2018 The Author

TABLE OF CONTENTS

INTRODUCTION 5

1 Rationale 5

2 Literature review 6

3 Objectives 8

4 Research subject 8

5 Scope 8

6 Reseach method 8

7 Structure 9

CHAPTER 1: THEORETICAL STRUCTURE OF RESEARCH 10

1.1 Distribution channel 10

1.1.1 Conception and Role of distribution channel 10

1.1.2 Functions of the members of the distribution channel 15

1.1.3 Structure and organization of distribution channels 16

1.1.4 Selection of distribution channel 26

1.1.5 Decision on distribution of physical goods 29

1.2 Distribution channel management 33

1.2.1 Conception and Role of Distribution channel management 33

1.2.2 Selection of channel members 34

1.2.3 Encourage channel members 37

1.2.4 Evaluation of activities of channel members 39

CHAPTER 2: ANALYSIS OF VIETTELIMEX'S DISTRIBUTION CHANNEL MANAGEMENT 41

2.1 Overview of Viettel Import and Export CompanyLimited 41

2.1.1 General information about Viettel Import and Export CompanyLimited 41

2.1.2 Formation and development of Viettelimex 42

2.1.3 Main products and partners 44

2.2 Current situation of distribution channel management of Viettelimex 45

2.2.1 Situation of organizations and design of distribution channels 45 2.2.2 Comparision between the distribution channel of Viettelimex with

2.2.3 Customer surveys on the distribution channel of Viettelimex 53

2.2.4 Advantages and disadvantages of distribution channel management of Viettelimex 67

CHAPTER 3: SOLUTIONS FOR IMPROVING DISTRIBUTION CHANNEL MANAGEMENT OF VIETTELIMEX 70

3.1 Solutions to select members in the channel 70

3.2 Solutions to encourage members’s activities in distribution channel 72

3.2.1 Encouraging channel members to distribute 72

3.2.2 Marketing and sales solutions to enhance distribution activity 73

3.2.3 Using technology to manage and motivate activities of distribution channel 74

3.3 Solutions to evaluate members’ activities in the channel 76

3.4 Solutions to compete with others 77

3.5 Solutions attached to study results 80

3.5.1 Research results 80

3.5.2 Solution attached to survey results 83

CONCLUSION 85

REFERENCES 86

APPENDIX 88

LIST OF DIAGRAMS

Diagram 1: Members of distribution channel 11

Diagram 2: Flow connecting and binding members in the distribution channel 12

Diagram 3: Intermediaries increase the efficiency of contact with customers 14

Diagram 4: Channels for personal consumption products 16

Diagram 5: Common distribution channels for industrial goods 18

Diagram 6: Traditional distribution channels 21

Diagram 7: Vertical Link Distribution System (VMS) 22

Diagram 8: Types of vertical link marketing systems 23

Diagram 9: Distribution channel management model of Viettelimex 46

Diagram 10: Organizational and operational modes 47

LIST OF TABLES

Table 1: Key financial targets over the years of Viettelimex 43

Table 2: Evaluation criterias of stores, supermarkets and agents 49

Table 3: Market share of Viettel Store in 2017 50

Table 4: Statistics of surveyed customers at locations 54

Table 5: Summary of collected results and deliver survey ballots 58

Table 6: Proportion of gender participating in the survey 59

Table 7: Age structure of survey participants 59

Table 8: Income structure of survey participants 60

Table 9: Percentage of information source that customers know about products and services of Viettelimex 61

Table 10: Survey results of customers' evaluations for Viettelimex's stores 61

Table 11: Survey results of some questions about customers' evaluations for Viettelimex 63

Table 12: Survey results of some questions about customers' evaluation for Viettel Store's website 65

Table 13: Survey results and evaluation of the author 80

INTRODUCTION

1 Rationale

One of the major concerns relating to sales strategy of every business, demonstrating the hit or miss of the product on the market is managing distribution channels Weakness in distribution is one of the reasons for the decline of the company's competitiveness Therefore, to enhance competiveness the company has

to not only provide better products and services, but also raise the ability to serve its customers whenever, whatever and however they want This can only be implemented through the distribution channel Businesses should focus their attention on the distribution channel as a basis for their competitiveness

According to the Vietnam Association of Software and IT Services (VINASA), between 2003 and 2017, the industry’s revenue has increased more than 1,000 times, a growth rate which can be considered extremely great In 2017, the total turnover of IT industry is estimated at 1,723,500 billion VND, projected to increase approximately 13.15% more than that of 2016

According to the market research institute GfK, demand for technical consumer goods in Vietnam has annually grown at about 15.7% from 2011 to 2017 According to the United Nations Population Fund, Vietnam with a young population mounting towards 98 million and an average income of $ 2,500/person/year by 2020 will be the driving force for cell phone retail market

Modern and well-planned retail chains entails efficient brand coverage on the markets The booming of the cell phone market between 2015 and 2017 has triggered nationwide expansion of Vietel Store, FPT shop, Mobile World, Tran Anh Store, Nguyen Kim, Green Machine , reaching even rural areas Traditional stores have been gradually replaced by modern and well-planned retail chains Concerning particularly the electronics retail chain, between five years from 2011 to 2017, the market share increased from 20% to 55%

The growth rate of the market is the catalyst for the development of businesses in the industry Financial reports in the electronics - information technology retail market also show impressive results With the rapid development

(Viettelimex) – established in 2006 as a subsidiary of Viettel Group – is one of the early entrants to the electronics retail market in Vietnam Viettelimex's Viettel Store system is a chain of retail stores providing high-tech products including: phones, laptops, tablets, miscellanous and medical devices by many brands

Currently in Vietnam, apart from Viettel Store there are many different retail chains e.g FPT Shop, Mobile World, Tran Anh Store as well as small outlets across every living area, to meet the diverse needs and rapid development of technology The more the development of information technology, the more people's demand for technology products Viettelimex is one of the pioneering retailers in this market Despite its great potential, it is facing fierce competition from other chain stores of FPT Shop, Mobile World and the likes Therefore, this paper will partly contribute to the research and solutions to foundation and effective management of the distribution channel of Viettelimex, to improve competitiveness

in product distribution as well as operational efficiency

The topic of the paper is:

“A STUDY OF DISTRIBUTION CHANNEL MANAGEMENT

AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED”

The paper will carry out far-reaching analysis of these questions:

- What is the current picture of Viettelimex distribution channel? What are the advantages and disadvantages?

- What are the solutions to improving management efficiency of Viettelimex distribution channel?

2 Literature review

In order to have a comprehensive overview on the research field and the history of this subject, the literature review will be briefly and succinctly presented through a number of studies and works that the author have been aware of:

Associate Professor Dinh Van Thanh conducted a scientific research at ministerial level on "Assessment of the current picture and orientation of distribution channels for some major commodities in Vietnam" in 2006 The investigation was held by Vietnam Trade Research Institute in 2006 Mr Dinh Van

focused on the distribution channel of some main commodities such as vegetables, meat, textiles, steel, fertilizer, cement

Dr Tran Thi Diem Huong, Ph.D., Doctor of Economics (2005) "Organization

of retail marketing activities of consumer goods by commercial companies in urban markets", Vietnam University of Commerce The aforementioned research by Dr Tran Thi Diem Huong focused on the organization of retail marketing activities of consumer goods by commercial companies in urban markets and proposed some solutions to improving retail marketing of consumer goods in big cities in Vietnam

"Research on wholesale and retail services of a number of countries and potentials to be applied into Vietnam", conducted by the Institute of Trade Research (2007) These authors have researched and gathered experiences in developing wholesale and retail services of several countries over the world and proposed solutions that can be apply into Vietnam

Nguyen Thi Phuong Tu (2013), M.A thesis, "Managing distribution channels

of soy milk at Vietnam Soymilk Company (Vinasoy)”, University of Danang The research highlighted the basic concepts of distribution and distribution channel management From the study of soy milk products, the author provided readers with insights into the Vinasoy Company, its current distribution network, its strengths and weaknesses in distribution channels as well as solutions to improving distribution channel management The enhancement of the distribution channel depends on increasing brand coverage, inreasing sales promotion, price adjustment, incentives and support for sales agents in terms of HR, prices, discount, competition

These studies have contributed to systemizing theories of general issues of distribution channel management in economic organizations in Vietnam However, there currently lacks research on the system of distribution channel management of Viettelimex In the face of new changes in the domestic and international economic situation, especially the 4.0 technology revolution, many issues need to be discussed not only in terms of management but also in the application of technology into management The author will broaden the horizons concerning the distribution

channel management of the retail chain in the current market in general and Viettelimex in particular

3 Objectives

The research aims to: Clarify the current situation of distribution channel management at Viettelimex through the activities of organizing and structuring distribution channels; comparing with competitors on the market; performing survey customers about the distribution channel, analyzing advantages and disadvantages of the distribution channel From that, the paper proposes some solutions about human resources, management, key performing indicators (KPIs)…especially technical solutions to improving the management of distribution channel in the future

4 Research subject

The subject of the paper is the management activities of Viettelimex distribution channel

5 Scope

- Spatial scope: The management of Viettelimex distiribution channel

- Temporal scope: 2015– 2017 (some contents are updated to 30/09/2018)

6 Reseach method

- Logical, historical, statistical methods

- Analyzing secondary documents: The analyzed data includes data and parameters obtained from Viettelimex and related magazines, reports and scientific research

- Survey: Survey is used to collect information about the distribution channel

of Viettelimex and customer's assessment of distribution channels of Viettelimex in big cities like Hanoi, Ho Chi Minh City 10 stores and 200 customers are surveyed

- Data processing method: Excel software

- Quantitative study: Based on the number of people choosing criterias, the author quantifies criterias, thereby evaluating performance and evaluating advantages and disadvantages of the agents and stores in the distribution channel compared to competitors

- Qualitative study: For more information on the assessment of factors affecting the distribution channel management at Viettelimex, at the same time to learn these factors in the retail chain of Viettelimex, the author conducts interviews with customers, so that customers can answer some open questions

- Research tools applied

(1) Use the "fish-bone" analysis tool to analyze the organization and management of distribution channels, find causes and propose solutions through primary and secondary datas collected by the author

(2) Use statistical and general tools to handle collected datas

(3) Use questionnaires for customers to survey customers' opinions about Viettelimex's stores Survey and assessment of customers in Viettelimex's chain of stores, thus assessing the efficiency of Viettelimex's distribution channel

7 Structure

The paper consists of 3 chapters:

- Introduction, which presents Rationale, Literature review, Objectives,

Research subject, Scope, Reseach method, Structure of the Thesis

- Chapter One: Theoretical structure, which presents Overview of research

and infomations about distribution channel and distribution channel management

- Chapter Tow: Situation of distribution channel management at Viettel

import and export company limited – Viettelimex, which presents overview of Viettelimex and actual status of the distribution channel management of Viettelimex

- Chapter Three: Solutions to improve efficiency of distribution channel

management at Viettelimex, which provides analysis of the foundations for proposing solutions, solutions to improve distribution channel management for technology products of Viettelimex and distribution channel management policies

CHAPTER 1: THEORETICAL STRUCTURE OF RESEARCH

1.1 Distribution channel

1.1.1 Conception and Role of distribution channel

1.1.1.1 Conception of distribution channel

Today, the companies are increasingly emphasized the role of distribution channels in their marketing activities Therefore, decision on the distribution channel is one of the most important and complex decisions to be approved by management board The distribution channels selected by the Company will directly affect all other decisions in the marketing field and it decides largely to the success

or failure of the Company later

There are many conceptions of distribution channel Depending on different aspects of research, one can introduce different conceptions about distribution channel

According to general point of view, "Distribution channel is a set of interdependent and independent enterprises and individuals involved in the process of bringing goods from the producer to the consumer In other words, this is a group of organizations and individuals performing activities that make product or service available for consumers or industrial users to buy and use" (Extract source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

In addition, distribution channel is defined as follows:“A distribution channel

is a chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer It can include wholesalers, retailers, distributors, and even the internet Channels are broken into direct and indirect forms:

A direct channel allows the consumer to buy the good from the producer, and an indirect channel allows the consumer to buy the good from a wholesaler or retailer (According to: Investopedia)

We should understand that distribution channels exist outside the enterprise, they are not part of the internal structure of the enterprise Distribution channel management involves using management capabilities between organizations rather than management within an organization Members of a distribution channel have mutual relationship to bring Company’s goods to consumers

The establishment of distribution channel management aims at the ultimate goal of achieving distribution goals Before setting up a distribution channel, the distribution goal must be defined so that the channel management design follows such goal The distribution goals can be changed and can lead to change the elements of the organization, external relations and management of activities

Distribution channels make up the flow of goods from producers through or without intermediaries to the final buyer All participants in the distribution channel are called members of the channel Trade intermediaries between producers and final consumers are important members in many distribution channels

Diagram 1: Members of distribution channel

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

There are many types of commercial intermediaries take part in distribution channel and perform various functions Here are some main types of commercial intermediaries:

- Wholesalers: are trade intermediaries selling goods and services to other intermediaries, sell to retailers or industrial users

- Retailers: are intermediaries selling goods and services directly to end consumers

Channel participants

Channel’s

official members

Support organizations

Producer

Consumer

- Distributor: refers to intermediaries performing distribution functions in the industrial market Sometimes people refer to wholesalers as well

There are some types of commercial intermediaries buying goods from sellers, stocking them and selling them to buyers Other intermediaries such as agents and brokers represent the seller but do not own the product whose role is to bring buyers and sellers together The importance of intermediaries is evident when people consider their functions and benefits that they generate for end buyers

Once a distribution channel has been developed, many flows appear in it These flows are enough to connect and bind members in the channel and other organizations together in the distribution of goods and services From the channel management viewpoint, most important flows are: Product flow; Negotiation flow; Ownership flow; Information flow; Promotion flow; Monetary flow

Diagram 2: Flow connecting and binding members in the distribution channel

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

Transport

company

Transport company

Advertisin

g agent

Information

flow

Negotiation flow

Product flow

Ownership flow

Promotion flow

- Product flow: represents the actual physical movement of the product in space and time, through all members take part in this process from the production location to the final consumer location

- Negotiation flow: represents the interaction of buyers and sellers related to product ownership Perceptions that the transport company is not in this flow because it does not take part in negotiation At the same time, it should be noted that this is a two-way flow indicating the negotiation relating to bilateral exchanges between buyers and sellers at all levels of the channel

- Ownership flow: represents the transfer of ownership of the product from the producer to the end consumer Here again the transport company is not in this flow because it does not own the product during transport, it only facilitates the exchange

- Information flow: We see that transport company appears in this flow and information flow from the producer to the end consumer is two-way information All members taking part in the information flow and this information are mutual passed between each pair of members Most of this information relates to the purchase, sale and promotion, quantity, quality of goods, time, place of delivery, payment, etc

- Promotion flow: represents the support on product communications by producers for all channel members in the form of advertising, personal sales, sales promotion and public relations Here there is the participation of advertising agencies to provide and implement advertising services Producers and advertising agencies will work together to develop effective channel promotion strategies Content of the flows in the channel provides different basis for distinguishing between physical distribution management and channel management Channel management relates to managing all of the flows while managing the physical distribution solely relates to product flow management

1.1.1.2 Role of distribution channel

For the producer, the use of distribution channel is a commercial intermediaries that improves efficiency and specialization of the distribution by

Through contacts, experience, specialization, and scale of operations, intermediaries shall give producers more benefits than they do themselves Main role of commercial intermediaries is to make supply and demand suitable effectively and orderly In some cases, the producer can distribute directly, but most

of the products need to be distributed through a variety of trade intermediaries on the principle of specialization and division of social labor

Distribution channel is the path where the goods are circulated from producers

to consumers Thanks to the distribution channel network that overcomes differences in time, place and ownership between producers and consumers of goods and services

Diagram 3: Intermediaries increase the efficiency of contact with customers

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

1.1.2 Functions of the members of the distribution channel

Different commercial intermediaries perform different marketing functions at different levels Here, these marketing functions are completely objective, need to have management personnel in the process of product distribution, whether the producer or intermediary In other words, the question of distribution management here is not whether or not to implement these functions but who will implement them and to what degree? Channel members often talk about the specific functions that they will perform Sometimes conflict occurs, breaking the relationship between the channel members Of course, the producer can remove a commercial intermediary but can not remove functions that it does As such, all channel members must perform the following major functions:

1.1.2.1 Function of researching market:

To gather the information needed to develop the distribution strategy

1.1.2.2 Extensional promotion functions for products that they sell:

Compose and propagate information about goods This makes their goods known by the customer

1.1.2.3 Function of negotiation:

Agree to divide responsibilities and benefits in the channel Participants in the distribution channel agree together on pricing and other distribution conditions

1.1.2.4 Function of distributing material:

Transport, maintain and reserve goods

1.1.2.5 Function of setting relationships:

Establish and maintain relationships with potential buyers

1.1.2.6 Function of completing goods:

Make goods meet requirements of the buyer, means to carry out part of the work of the producer

1.1.2.7 Function of funding:

Financial mechanism helps channel members in payment

1.1.2.8 Function of sharing risk:

Risks involved in the distribution process The problem is that these functions

functions is specialization and division of labor If the producer performs these functions, the cost will increase and the price will be higher than the transfer of some functions to the intermediary Therefore, the issue of who is to do the work of the channel will result in higher productivity and efficiency

1.1.3 Structure and organization of distribution channels

1.1.3.1 Structure of distribution channels:

Organizations and individuals that participate in distribution channels with different ways of linking different channel structures The distribution channel structure is determined by the length and width of the channel system

* Length of distribution channel:

Length of distribution channel is first determined by the number of intermediate levels present in the channel A distribution channel is called a long channel if there are multiple intermediate levels in the channel Below are the distribution channels which are structured in length:

Distribution channels for personal consumer goods and services

Diagram 4 below shows four popular distribution channels for consumption goods and services It also shows the number of levels in each distribution channel, expressed by the number of intermediaries between producers and the end consumers If the number of intermediaries between producers and buyers increases, the channel is considered to increase in length For example:

Channel: Producer → Wholesaler → Retailer → Consumer

Is longer channel: Producer → Consumer

Diagram 4: Channels for personal consumption products

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

Channel A is a direct channel: because producers sell directly to end consumers Many products and services are distributed in this way For example, companies use home sales forces Because there is no intermediary in direct channel, producers must perform all functions of the channel More and more businesses use Direct Marketing to exploit buyers Direct marketing allows consumers to buy products through the use of advertising information medium without directly contacting sellers Direct marketing includes mail sales, catalog sales, telemarketing, computermarketing

The remaining three channel types are indirect channels because there are intermediaries located between producers and consumers and perform many functions of the channel

Channel B: often referred to as one-level channel with more retailers, is often used when large retailers can buy large volumes from the producer or when storage costs are too expensive if using wholesalers

Channel C: often referred to as two-level channel with two more wholesalers Channel C is commonly used for low unit value goods, low cost which are purchased by consumers such as confectionery, cigarettes, magazines, etc

Channel D is the longest channel called three-level channel, used when there are many small producers and small retailers, an agent that is used to help coordinate the supply of bulk products

There are also more multi-level channels According to theproducer's point of view: more and more multi-level channels are less likely to control it

- Distribution channels for industrial goods and services:

Four most popular channels for industrial goods and services are shown in Diagram 1.3 below Unlike channels for consumption goods, distribution channels

none because industrial users are less in quantity, geographically focused and buy with big quantity

Diagram 5: Common distribution channels for industrial goods

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

Channel A is a direct channel: Businesses using this channel can maintain their own sales force and are responsible for all channel functions This channel type is used when buyers are large and well-defined, sales efforts require strong negotiation, high unit value products and require installation assistance or manual The remaining channels are indirect channels with some intermediaries to reach the industrial buyers In Channel B, an industrial distributor performs a variety of channel functions including sales, warehousing, distribution and credit

In many respects, industrial distributors like wholesalers in consumer goods

Channel C introduces the second intermediary as an agent, acts as a independent force of the producer and introduces the producer to industrial users The longest D channel includes agents and distributors Agents use this channel for contacting to distributors - sellers for industrial users

semi-Producer

Technology User

Technology User

Technology

User

Technology User

Agent Agent

Producer Producer

Technology Distributor

Technology Distributor Producer

In some cases, the producer uses a parallel distribution, a form of distribution

in which the business meets the need of different buyers thank to using two or more different channels for the same product

Parallel distribution is often used to achieve rapid market coverage - a basic requirement for producers who are selling fad products Through parallel channels, producers can create many paths to the market, satisfying the needs of many buyers and increasing sales However, parallel distribution can also be a cause of conflict

in the channel and may increase legal issues

* Width of distribution channel

In order to achieve the best market coverage, enterprises must determine the number of intermediaries at each distribution level Businesses must choose between many different distribution modes, each with different commercial intermediaries There are three distribution modes: broad distribution, selective distribution and unique distribution (privilege)

Broadly distribution: means that businesses sell products through multiple commercial intermediaries at each distribution level In this case, businesses try to bring their products and services to as many retailers as possible Broadly distribution is often used for popular products and services, such as: chewing gum, cigarettes, etc Medicinal services are also being distributed in this way

Only distribution (privilege): is opposite of broad distribution, in each market area, enterprises only sell products through a single commercial intermediary For example, businesses only sell products through a single retailer in a particular geographic area This often goes together with exclusive sales, which means that producers ask their agents not to sell competing items This unique type of distribution is common in such industries as cars, equipment Through exclusive distribution, producers expect sellers to be more active and at the same time more easily in control of the intermediary's policy about pricing, credit, advertising and other services

Selective distribution: lies between broad distribution and exclusive distribution which means that businesses sell products through some selected

For example, businesses seek out selectively certain retailers to sell their products in

a particular market area This is the most common form of distribution and is commonly used for thoughtful purchases and for businesses seeking to attract commercial intermediaries Producers can focus their efforts, open good business relationships with selected intermediaries if they achieve the appropriate market size and save distribution costs

1.1.3.2 Organization and operation of distribution channels

* Overview of organization and operation of the channel:

Distribution channels are not just a passive gathering of related organizations

in the distribution of goods and services that they are complex operating systems in which human beings and companies interact each other to achieve their own goals Some channel systems have only informal interactions between loose connection companies, some other systems have formal interactions and high levels of connectivity Channel systems do not keep still, new intermediaries are emerging and new channel systems are formed Here, just consider the motivations for the channel's activity and how channel members organize to to complete the work

A distribution channel is the link between different manufacturing and commercial enterprises for mutual benefit Each member of the channel relies on other members of the channel and their success is linked to the success of other channel members Each channel member holds a specific role and specializes in performing one or several functions Channels will be most effective when each member is assigned the tasks that they can do best

Ideally, for the success of each member depending on the success of the channel, all members of the channel must understand and accept their own work and coordinate their activities with targets and activities of other members, and coordinate to accomplish targets of the whole channel Producers, wholesalers, and retailers must complement each other's activities and work together to make more profits than when working alone Each member should consider how their activities affect the operation of the whole channel By cooperation, they can supply and satisfy the target market better

* Traditional distribution channels:

In traditional distribution channels is described as a random collection of independent sovereign and managerial facilities and each facility has little interest

in the performance of the channel It is a disconnected network that loosely connects producers, wholesalers and retailers due to selling directly to each other, actively negotiating terms of sale and independent operation Traditional channel members work for their own targets, not common target of the whole channel Thus, these channels lack centralized leadership and are characterized by poor performance and a lot of disastrous conflicts

Diagram 6: Traditional distribution channels

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

In fact, members of the traditional distribution channel are more likely to be interested in short-term targets and deals with their closest members in the channel Collaboration to achieve common targets of the channel sometimes means abandoning specific targets Therefore, although the members are interdependent, they often operate independently for their best short-term interests They often do not agree on the role that each member must make and the corresponding benefits Disagreements about such roles and targets shall generate conflicts in the channel

- Horizontal conflicts: are conflicts between intermediaries at the same level

of distribution in the channel For example, conflicts between wholesalers of the same item due to different pricing or sales outside of the divided territory

- Vertical conflicts: occur between members at different levels of distribution

in the channel For example, conflicts between producers and wholesalers on

pricing, service provision, and advertising

Channel conflicts can lead to a reduction in channel efficiency even if the channel is broken, but there are also more conflicting cases that make the channel more effective when members find a better way to handle conflicts

Customer Retailer

Wholesaler Producer

In order for the channel to function properly, it is necessary to clearly define the role of each member and resolve conflicts To do so, good executive leadership

is needed, means that there will be a member or apparatus has the power to duly divide the distribution function in the channel and resolve conflicts In order to do

so, good executive leadership is needed, means that there is a member or apparatus has the power to duly divide the distribution function in the channel and resolve conflicts Many businesses have developed new channels to perform their channel functions more efficiently and achieve greater success It is a vertical marketing system that is in contrast with traditional distribution channels

* Vertical distribution channels (vertical marketing system)

Vertical Marketing System (VMS) is professionally, centrally managed distribution channels designed to achieve maximum distribution effect and marketing impact Members of the channel are closely connected with each other and act as a unified entity, in order to satisfy the market demand of the whole system VMS appears to control channel activity and resolve conflicts It achieves efficiency by scale, affordability, eliminates duplicate works and minimizes conflicts

Diagram 7: Vertical Link Distribution System (VMS)

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

A vertical marketing system (VMS), including producers, wholesalers and retailers, acts as a unified entity Either a member is the owner of other members, or give them exclusive selling rights or power so strong that other members must cooperate The vertical marketing system can be placed under the control of a producer, a wholesaler or a retailer The vertical marketing system is a centralized planning and management network that is designed with the intention of ensuring

Retailer

Wholesaler

Producer

Customer

savings in the exploitation and maximizing the impact of the market The vertical marketing system is moving towards controlling the channel's behavior and eliminating the inconsistencies generated by independent members of the channel pursuing their own targets This is due to the scale, the ability to negotiate and eliminate duplicate services

In developed countries, VMS channels became popular and accounted for 64% of the consumer goods market Diagram 1.8 describes main types of vertical marketing systems

Diagram 8: Types of vertical link marketing systems

(Source: Basic marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002)

Each type of VMS has a different machinery for establishing or using leadership in the channel In corporation VMS, collaboration and conflict resolution are achieved by having the same owner at multiple levels in the channel In contractual VMS, tasks and channel relationships are established by contractual agreements between members In managed VMS, the leadership of one or several members has the most power in the channel

Support VMS Contractual VMS

Corporation VMS

VMS

Retailer's cooperation

Voluntary chain

sponsored by

wholesaler

Franchise organization

- The first channel system, which is the vertical link marketing system (corporation) VMS Group is a combination of production and distribution stages on the same owner These are distribution channels which all members of the channel belong to the ownership of an organization, or the retailer can own production companies These channels are the result of the expansion of a vertical business upwards from the retailer or downwards from the producer

For example, producers can own intermediaries on the next side such as buying wholesale organizations or even organizing retail outlets in the channel In corporate channel systems, collaboration and conflict resolution are accomplished through usual organizational management manner within abusiness Group channel managers can control channel activity by commands of superiors to subordinates

- The second channel system, which is the contractual vertical link marketing system This is a distribution channel that the link of members in the channel is carried out through contracts binding responsibilities and interests among channel members A contractual VMS consists of independent facilities at various stages of production and distribution, agreeing on their programs on basis of contracts for higher economic efficiency and marketing objectives when they work alone On the market today, contractual VMS is the most popular, accounting for 40% of total retail sales

There are three types of contracting systems Each type has its own advantages and disadvantages when selecting distribution channels, channel managers should consider

Type 1: Voluntary Chain: are guaranteed by wholesalers as VMS channel in

which a wholesaler develops contractual relationships with small independent retailers to standardize and coordinate purchasing activity, goods display programs and inventory management efforts With an organization type consisting of a large number of independent retailers provided with goods by a wholesaler, this channel can achieve economic efficiency according to scale and discount on purchase volume to compete with other large retail businesses

Type 2: Retail Collaboration VMS : exists when small independent retailers

create an organization that performs wholesale functions Retailers focus their

purchasing power through retail cooperative organization and planning coordination activities as pricing and advertising Profits are divided to members in proportion to their purchasing quantity Due to the concentration of purchasing quantity, retailers

in this channel can achieve low purchasing prices, preferential purchasing conditions

Type 3: Distribution of privileges (franchise) is the most obvious contractual

VMS It is the contractual relationship between the parent company (Franchisor) and a company or individual (Franchisee) that allows the franchisee to conduct a certain type of business under the established name and under special rules Three most popular franchise channels are: Franchise system of retailers sponsored by the producer; Franchise system of wholesalers sponsored by the producer and Retail franchise system sponsored by the service company

- The third channel system, which is the support vertical link marketing system Unlike the two above systems, VMS is managed to achieve coordination at the next stages in production and distribution not through common ownership or binding contract but by the scale and impact of a channel memeber to others For example, well-known brand name producers can gain strong support and business cooperation from retailers

On the market today, competition in the retail sector does not gradually occur between independent facilities, but rather in complete vertical marketing systems with a central program to gain highest economic efficiency and affect the largest buyer

* Horizontal link distribution channels (horizontal marketing system)

A further development in channel organization is the willingness of two or more businesses at one level to work together to exploit a new marketing opportunity Every business can lack of capital, technical know-how, production capacity and marketing resources to do business independently, or they are afraid of risk, or because they see tremendous effect when working with other businesses Businesses can work together on a temporary or permanent basis, or set up a separate business Adler calls it as symbiotic marketing

* Multidimensional link distribution channels (multidimensional

marketing system)

Previously, many businesses sold to a single market through a single distribution channel Nowadays, along with the more diverse development and structure of customer groups and service capabilities of the distribution channel, many businesses have adopted multi-channel marketing Multi-channel marketing is the way in which a business uses two or more distribution channels for different customer groups By adding more distribution channels, businesses can increase market coverage, reduce operating costs of distribution channels, and increase customer satisfaction Businesses often add a distribution channel to reach a group

of customers whose existing distribution channels are not reaching yet For example, adding salespeople to a rural area in order to sell to scattered farmers Businesses can add new distribution channels to reduce their selling costs to an existing group of customers, such as telephone sales without directly visiting small customers Businesses can also add more sales channels that are more suitable to customer's needs, such as using technical sales force to sell relatively complex equipment However, new distribution channels also cause certain difficulties in managing the channel system They can develop contradictions as distribution channels scramble for some customers, and control becomes more complex as new distribution channels become more independent Therefore, businesses need to carefully consider advantages and disadvantages that arise to design and operate effectively the distribution system with multi-channel structure

1.1.4 Selection of distribution channel

Bases of distribution channel selection: The important issue for the distribution channel manager is the choice of appropriate distribution channels for his product In some industries, distribution channels have developed over the years and become traditional channels However, not traditional channels are always effective, in many cases still need to select new distribution channels with higher efficiency In the case of product distribution channels are not available, it is necessary to make the channel selection Common bases for selecting optimal distribution channel for the product are:

- Targets of the channel: Targets of distribution channel will determine

which market the channel will reach, with what target? Different targets require different distribution channels, both in structure and in management Targets may

be customer service levels, operation level requirements of intermediaries, market coverage Targets are determined by the target of marketing -mix and the overall strategic targets of the company

- Characteristics of target customers: This is also an important factor affecting the selection of channels Important factors to consider in terms of customer's characteristics are size, structure, density, and customer's behaviors The more geographically dispersed customers are, the longer the channel is If

a customer buys a small quantity frequently, also need long channel The higher unit density, the more direct distribution channel should be used One reason that make industrial consumer products often sold directly is the small quantity industrial customers, but the size of each customer is large and geographically concentrated

- Characteristics of the product: Another factor controlling the channel selection is characteristics of the product Perishable products, time from production

to consumption is short, need direct channels Bulky, heavy products require a short distribution channel to minimize transportation path and unloading times Non-standardized goods that need to be sold directly, high unit value products are usually sold by the sales force of the company rather than by intermediaries

- Characteristics of commercial intermediaries: Commercial intermediaries will participate in channels that play an important role in distribution channel selection The channel manager must consider what types of commercial intermediaries are available in the market; ability, strength, weakness of intermediaries in the performance of their duties Commercial intermediaries have different capabilities in advertising, warehousing, customer exploitation, and credit provision, etc As a result, businesses have to analyze to choose the right types of intermediaries for their distribution channels

- Competitor's distribution channels: Distribution channel selection is also

that have the same retail outlets with competitors or channels completely different from their channels Businesses must select distribution channels that can bring competitive advantages versus competitors' channels In general, if the competition

is strong, producers need closely linked channels

- Characteristics of the business itself: is also an important basis when choosing distribution channels The size of the business will determine the size of the market and the ability of the business to find appropriate commercial intermediaries The business's resources will determine what functions it can perform and what functions must be given to other channel members The product flow of businesses influences the type of channel For example, if product flow is consistent, the channel is homogeneous Marketing strategies of businesses are different, types of used channel are also different

- Marketing environment characteristics: When the economy degrades, producers often use short channels and remove unnecessary services to reduce the selling price Regulatory and legal constraints also affect the type of channel Legislation preventing the organization of channels tends to destroy competition and create monopoly

- Market coverage requirements: Due to characteristics of the product, the marketing environment affects the sales, needs and expectations of potential customers that require market coverage in the product distribution will change Market coverage of the distribution channel is considered as a variation table from widespread distribution to exclusive distribution

- Channel control level requirements: While selecting distribution channel, businesses must rely on desired channel control level requirements The level of channel control is direct proportional to the directness of the channel When using indirect channels, producers have to give up some requirements for controlling their consumption of the product in the market

- The size of total distribution cost: When selecting a channel, the total distribution cost of the entire channel system should be taken into account, as this is

a system that is interdependent The target of businesses is to optimize the operation

of the whole system Businesses must select distribution channel with the lowest total cost of distribution

- The last thing to consider is the flexibility of the channel This comes from the requirements of the producer need to adapt to the changes of the market which is going fast For example, if the producer has long-term working relationship with the retailer, the ability to adapt the change of buyer's demand and population mobility will be limited In general, if the future is uncertained, it is unnecessary to choose channels with long-term commitment

1.1.5 Decision on distribution of physical goods

Choosing the right distribution channel is important, but this does not ensure the product availability for the right time and place of consumption Material distribution decisions need to be made here The nature, targets, systems and methods of organizing material distribution shall be described below

1.1.5.1 The nature of material goods distribution

“Material distribution is the activity of planning, implementing and controlling the storage and transport of goods from the place of production to the place of consumption in the target market in order to serve needs of consumers and gain highest benefit.”

Material distribution provides benefits in terms of time, location and ownership transfer that can be performed Material distribution decisions must ensure that the material delivery system provides benefits and meets customer needs

at appropriate level of service and cost

The cost of material distribution accounts for a large proportion of the total cost of distribution and total sales of businesses Therefore, marketing managers are very interested in the total cost of distribution, trying to find savings Basic material distribution costs include the costs of transportation, warehousing, storage, loading and unloading, delivery, packing, administrative costs and order processing costs Material distribution is a tool that has the potential to generate demand Thanks to the good material distribution system can reduce the cost and thereby reduce the selling price to attract more customers Conversely, businesses will lose customers

potential and coordinate the decisions on storage levels, transport modes, location

of plants, warehouses and stores to reduce distribution costs

1.1.5.2 Targets of material distribution

Material distribution targets of companies is usually to supply the right item, the right quantity and quality at the right place and right time with minimal cost However, it is impossible to achieve all these targets simultaneously No material distribution system can simultaneously maximize customer service and minimize distribution costs Maximizing customer service means larger inventory, faster shipping, more warehouses, etc All of that will increase costs The low cost means that inexpensive transport, less inventory and warehouses will not have good customer service levels

Thus, the level of service and the cost of material distribution are inversely proportional Typically, the level of service is determined based on research of customer needs and the level of service supply level of competitors Customers are required to supply goods timely, when unexpected requirements are met, ensuring the quality of goods in the transport, easy to change the goods not in accordance with requirements, ready to maintain the volume of goods for customers Furthermore, when composing their standards of service, businesses must refer to the competitor's standards The level of service provided by businesses can be equal, higher, or lower than the competitor's level of service, depending on the strategic targets of businesses

The lowest cost target approach may not be the best if the customer is not satisfied Higher service levels can create better strategies

Thus, the distribution targets vary enormously between businesses, products, and between different market situations These targets can be quantified to certain levels by businesses

1.1.5.3 Material distribution decisions

Once material distribution targets have been determined, businesses must decide on the following issues: order processing, warehousing, transportation

* Order processing

The material distribution begins with an order of the customer The order processing department must perform the processing work as quickly as possible They must quickly check the customer, especially the payment capacity of the customer Invoices should be made as quickly as possible to send to different departments The procedures for delivery to customers are conducted in time Many companies have used computers and advanced information tools to carry out the fastest order processing

* Decision on warehouse storage

Goods reserve in distributions is necessary because production and consumption are seldom in tune, which helps to resolve the conflict between time, place of production, time and place of consumption

Businesses must decide on the number of warehouse locations Many warehouse locations mean that it is possible to bring goods to customers faster but this increases warehouse costs When approving a decision on the number of warehouse locations, it is necessary to combine the level of customer service and distribution costs

In addition, businesses must also decide to build their own warehouses or rent

a public warehouse With private warehouses, businesses are easy to control but the construction of a private warehouse is very expensive, need large capital and hard to change When using a public warehouse, businesses must pay rent and must have additional services, but types and locations as well as other requirements shall be selected

Businesses can also use long-term warehouses, as well as using transhipment warehouses In long-term warehouses, goods are stored in medium to long term Transhipment warehouses import goods from different businesses and suppliers, then try to deliver the goods to the final destination Today, many modern technical facilities such as lifting machines, computers, etc have been used to arrange, load and unload and store goods in warehouses

* Decision on volume of goods in stock

Warehousing level (inventory) is a decision that affects customer satisfaction

businesses, maintaining a large goods in stock will be unprofitable because warehousing costs increase according to increasing level of goods in stock and they affect sales and profits

Warehousing decisions mean knowing when to place more orders and how much to order Businesses must define new order points - that is if level of goods in stock is lower than that, businesses can not meet the order and they have to order new ones Conversely, if level ofgoods in stock is too high, it will cause huge waste due to stagnant goods

Businesses need to decide how many orders each time Each time with large quantity, the number of order times are little and processing costs are low However, warehousing costs are high due to large goods in stock The number of optimal orders can be determined by comparing the cost of order processing and the cost of storage at each different level of order

* Decision on transport

Distribution channel management needs to decide on how to organize the transport The choice of transportation will affect the cost and price of the product and whether it will be delivered on time or the status of goods upon arrival and the satisfaction of customer

Businesses can choose from five transportations: railway, waterway, road, pipeline and airway Each transportation has different speed, cost and convenience Businesses will choose the transportation depending on the nature of goods Each of these transportation has different speeds of transportation, the ability to guarantee different types of goods without damage, and therefore they are usually suitable for certain goods

- Railway is low-cost transportation, suitable for large-volume goods, large volume of transportation and long transport distances

- Waterway also has low transportation costs, suitable for bulky goods, long lasting, low value such as sand, stone , etc However, waterway has slow speed and

is influenced by factor of weather

- Road has high mobility, suitable for expensive shipments with short transport distances

- Airway has fastest speed, but high cost, suitable for perishable goods, lightweight, high value

When deciding which transport to choose for particular transport, businesses must take into account six factors including: speed of transport, frequency of delivery, reliability, ability to transport different types of goods, the ability to transport to the location as required and finally shipping costs For example, if the target is least cost, it will have to choose between waterway and railway Businesses are increasingly seeking to combine two or more means of transport and use transport by container Businesses can build their own transport crews or hire public transport companies In general, transport decisions must consider multiple factors between means and its relationship to other distribution factors such as warehousing

or yard

1.2 Distribution channel management

1.2.1 Conception and Role of Distribution channel management

Once distribution channels have been selected, the next important issue is the management of their operations Channel management focuses on selective activities and encourages channel members to work, solve issues on product, price, promotion through distribution channels, and evaluate their activity over time Conception: Distribution channel management is the whole process of managing and regulating the operation of distribution channel in order to maintain, establish cooperative relationships and support among members in the channel to perform the purpose of general distribution of businesses

In production and business activities in the enterprise, the distribution channel management is very important, helping products reach customers in the fastest way and promote the development of the enterprise Besides, the distribution channel is

an important factor for investors or partners to assess the position of enterprises in the market, effective management of distribution channels will help enterprises enhance their position in domestic and international markets

For a enterprise, the consumption of goods is always an important issue, deciding the existence and development of the enterprise It’s not only a good

depends on the approach to bringing the enterprise’s products to customers This will determine the success of the enterprise in the market Distribution channel is an important bridge for enterprises to bring their products to customers, the effective distribution channel management is a challenge for enterprises This requires managers to be knowledgeable about products and consumer markets as well as distribution systems, capture market changes, since then, there are timely and accurate decisions to help the distribution channel operation to be highly effective The management of distribution channels includes the following contents:

- Selection of channel members

- Encourage channel members

- Evaluation of activities of channel members

1.2.2 Selection of channel members

Similar to the selection of employees, in the business organizational process of channel activity, businesses must select and attract specific commercial intermediaries participating in their distribution channels Selection is easy or difficult depending on the size of businesses and the type of product they sells Normally, businesses must define a set of criterias to select channel members, such

as the mode of business, items that they sell, their level of profitability and their ability to grow, affordability, co-operation and their prestige, business conditions, etc If the intermediary is a sales agent, producers must evaluate the quantity and characteristics of the other items that they sell, the size and quality of the sales force, their capital resources, their market size

Setting up a distribution channel is effective or does not depend greatly on the selection of members and channel design The channel members directly influence the amount of goods consumed by the Company, so selection of members to participate in the distribution channel is a difficult decision for the channel manager The process of selecting channel members includes the steps:

Step 1 : Search for potential channel members

To search for channel members, there are many sources of valuable information for managers to find the right channel members

Important sources include:

- Sales organization by region: For companies with their own selling force available at the wholesale and retail level, this force will gather the best information about intermediaries Many companies determine that finding and maintaining sincere relationships with qualified intermediaries is one of the key responsibilities

of their sales force

- Commercial sources: Trade associations, affiliates, trade magazines, other companies sell related or similar products Their trade shows and word-of-mouth information are all valuable sources of information about the intermediaries that enterprises want

- Customers : Through customers, the company may have information about distributors and the ability to perform their distribution functions

- Ads: Through advertisements, the company has more information about potential channel members so that the company can choose

- Trade associations or conferences: Via trade associations or conferences, it can have good sources of information to find potential members of the channel Through trade conferences, the company will see information showing the capabilities of channel members

- Other sources of information

Step 2 : Analysis of selection criteria

After finding a list of future members of the next job channel for the channel manager, analysis of the selection criteria is to assess their capabilities The key criteria in selecting channel members are:

- Credit and financial conditions: This is a widely used standard, almost every company investigates on financial and credit conditions of intermediaries, it is a condition to accept future channel members

- Sales ability: This is a special, most important standard, which shows the sales power of intermediaries, especially for wholesale intermediaries, it is the quality of the selling force or the technical assistance of the selling force, the intermediary

- Reputation of intermediaries: This standard is also considered important, the

enough reasons not to choose them as a channel member because a distribution center that is judged to be bad will adversely affect the company’s reputation

- Ability to market coverage: expressed in two aspects, including the ability to reach the geographical market areas that the company wants to achieve as a market dominance However, it is necessary to avoid encroachment of each other’s activities, which is one of the causes of conflict between channel members

- Management ability: Good sales force proves good management ability and vice versa, it is difficult to evaluate intermediary management ability but it is an important standard in selecting channel members

Step 3 : Reinforcement of channel members

We know that the selection process is a two-way process The company selects intermediaries to represent them, but it is not up to their selection, intermediaries also choose the company that they will act as distribution representatives This relationship must bring bilateral benefits and the parties perform their duties properly In order to strengthen the relationship in the channel manager channel, companies must try to ensure the benefits for channel members to show them future prospects for the success of channel members

In general, the Company can tell the channel members what support they will receive from the Company Members want to know what they get when they join the channel Most channel members appreciate the following support areas:

- Product line: The company proposes to offer a line of products with good returns, high sales and potential profits It is clear that the famous and highly reliable type of goods brings great confidence to channel members It is important for the Company to show the channel members the benefits they receive when consuming the Company's products

- Support for advertising and promotion: Intermediaries want to be supported

by producers (companies) in promotion In the consumer goods market, a large advertising plan is one of the most influential attractions to win retail outlets In the industrial goods market, the big program of commercial advertising also gave similar success

- Management assistance: Management assistance reflects the Company’s interest in channel members, which will bring the trust of channel members to the Company, to their success in distributing the Company's goods This assistance may include many areas such as: Support training, market analysis, help in customer rating, promotion methods

1.2.3 Encourage channel members

Channel members are often encouraged to work the best First and foremost, producers must understand the needs and desires of their members, since the commercial intermediaries are independent business enterprises, an independent market with their own strengths and targets, etc Intermediaries act as a buyer for their customers They try to sell the whole items rather than individual items In many cases, the business conception of commercial intermediaries is very different from that of producers, producers must investigate channel members to have sales policy suitable to their needs and desires

There are many methods that producers use to encourage channel members, in which the three most common methods are cooperation, establishment of membership relationships and development of distribution programs These methods are focused on creating close binding relationships within the channel They differ only in the level of planning and control: from only individual incentive methods which are not calculated to the establishment of a planned vertical marketing system and is professionally managed marketing system In the distribution program, producers establish a department within the marketing department to plan relationships with the distribution intermediaries, which determines the needs and desires of members and develops distribution programs to help channel members achieve optimum performance

Businesses must know the use of other mixed marketing tools in managing the activity of distribution channel Producers must apply product decisions, sales prices, mixed promotions with channel decisions Other marketing tools must be used appropriately to create the cooperation of channel members and motivate channel members to operate on the distribution strategy of businesses