ALESSIEvolution of an Italian Design Factory

Marketing ManagementTeam CEMBA ’06

How to control and expand distribution without

compromising the brand image?

Distribution Structure

Distribution and the Brand Image

Challenges

Next Step

Why Controlling Distribution?

Control Brand Image Problem of heterogeneity in retailer

strategies over product display Diversity in distribution channels Recovering from price and brand

confusion of past ten years Increase turnover

Distribution Structure

Use distribution as A channel of distribution

• Diversified channels: retail outlets, museum stores, gift shops, … A place to increase brand equity

• Luxury retail shops in Italy

Offering: between shopping and specialty Design-oriented table and kitchen products Shopping goods (not convenience goods!): about 50% purchases

as gifts, wedding presents, Christmas: overall 25-30% of annual sales.

Specialty goods: best sellers like M.Suicide, Magic Bunny, etc…

Consumer side distribution structure ~1983: Change into streamlined distribution system

Distribution Structure

Manufacturer

Independent Distributors

Retailers

Manufacturer

Retailers

orders - deliveries

orders - deliveries orders

Single Country Independent agents

or subsidiaries

orders

deliveries

1983: streamlined distribution system

Hybrid channel administration Indirect for orders and direct for deliveries Agents: independent or company-owned subsidiaries

Benefits: increase of control in distribution, reduction of functional discrepancies, reduction of delivery costs, economies of scale in order management, better mapping in assortment of goods and better services by company-owned subsidiaries

Distribution Structure

Manufacturer

Retailers

orders

Single Country Agent

orders

deliveries

PUSH strategy Induce cooperation with retailers,

keep inventory low, display products, and visibility on shelf spaces to win voluntary co-operation.

streamlined distribution system

Shift in market coverage strategy From intensive distribution to

selective distribution: Agents as independent

entities in exclusive geographical areas

From 9000 retailers in 1989 to

5000 in 2000.

Management of Power in Distribution Channels

Avoidance Strategy Differentiation: design oriented and product naming Focus: Table and kitchen, high-quality Reduction in costs: Reduction in delivery costs by streamlined

distribution system. Lately: Resistance and confrontation strategy

Diversification of channels: selected retailers, own stores, licensing

Controlled distribution system

Management of Power in Distribution Channels Power Management increased by streamlined

distribution system Better control over products and shorter delivery channels

thus reduction of costs of opportunity.

Threat of revocationRetailer churn=5% in ‘03

TrainingsMerchandising Reference value

Identification

Coercive sources

Non-coercive sources

Powerbasicoffering

Services: support in merchandising, inventory risk, training

service offering

Distribution and the Brand

Distribution on Brand Image

Consistent retail experience to strengthen the brand Benefits: Customer Loyalty, more inelastic consumer response,

greater trace cooperation and support, possible licensing opportunity

Shop-in-shop for control over product display, demanding retailer commitment: ask for minimal surfaces

Mono-brand stores: show rooms and flagship stores

’03: 3 moves to expand distribution while increasing customer-based brand equity value: Consistent retail experience Increasing retail penetration in key markets Licensing the Brand for newer types of products like watches

and cars

Distribution Challenges on Brand Image

~80s: Too intensive distribution system Price discrepancy between luxury retailers and

others confusing brand image

Constant control challenge over product display, merchandising and pricing Though selective approach, Licensing still

putting at risk the brand image by partners controlling manufacturing and distribution.

Luxury Other retailers

Next Step: Multiple Trademarks