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Product Distribution Is Key
By Tom Coyner
Korea Times
Dec. 27, 2006
Since spring, this
newspaper has featured my weekly column. Readers have often asked if I may
be offering the columns in a book. The answer is yes -- in a 250-page
volume, published by Seoul Selection, that will be available this coming
January [sic: it now looks more like early February], co-authored by Jang
Song-Hyon. The book will include what is
presented in this and other columns, but with much more information. So,
for better or for worse, you have been warned.
Getting to this week's
topic, let me point out there are several consumer product distribution
systems operating in Korea.
An observant marketing manager can find advantages and disadvantages in
each system and must choose the one(s) most appropriate for one's product
line.
General Trading Companies & Importers
Imported products, such
as high-priced consumer products and household durables, can be distributed
through the large general trading companies or by the importers themselves.
Their distribution channels have been in existence for quite some time and
are therefore relatively well developed.
Manufacturers maintain,
however, very little control over this distribution system. There is also a
limited potential for growth with many of these products, as their high
prices push them into the upper-end of the market. A few notable exceptions
to this rule, however, do exist.
Distributors
The importance of
independent distributors to the growth of Korean industry has been
recognized and their development is proceeding at a rapid pace. Department
stores, supermarket and convenience store chains, as well as major discount
stores have proven popular. But they now have gigantic purchasing power and
routinely demand -- and get -- exceptional pricing as well as
supplier-financed promotions.
Manufacturers
Often goods can be
distributed through channels established by other manufacturers, such a mutually
beneficial move serves to expand and diversify their product line. It also
allows them to utilize their distribution system to its full capacity by
accepting products from other manufacturers. Here, it is important that the
products of the two manufacturers in question be compatible in nature,
i.e., related but not directly competitive. Consumer and food &
beverage companies are particularly well suited to use Korean
manufacturers' logistics and distribution systems. Some companies, such as Nongshim -- a manufacturer of instant noodles, etc.-- have excellent distribution and inventory control
systems down to the neighborhood mom-and-pop store level. Partnering with
such a company may maximize possible market penetration.
Partner/Parent Joint Venture Company
In a joint-venture
relationship, the local partner/parent company usually distributes the
products of their subsidiary. In this situation, as in all business
encounters, good, cordial working relationships are absolutely necessary
for success. One should also provide proper motivation of the field force
for their ``step-brother products'' since one cannot simply assume they
will push one's products as aggressively as their parent's goods.
In-House Distribution
Distribution is one of
the most important factors affecting the success or failure of a consumer
product. This basic fact reveals the critical nature of the control of
distribution channels. Although costly in terms of time and money, the
establishment of one's own distribution system can be greatly beneficial in
the long run. Such a plan should be executed gradually over a period of
time: product by product, segment by segment, region by region. As long as
one maintains a sustainable comparative advantage, developing one's own
distribution is desirable.
Select Distributors Carefully
Since the role of
distributors is so important, one has to pay careful attention to their
capabilities before making a commitment to any one of them. Consider in
depth their strengths and weaknesses and in channels such as supermarkets
versus convenience stores; also weigh their regional strengths,
merchandising capabilities, etc. One must also compare the compatibility of
their existing products with one's own and investigate the financial
stability and reputation of the owner. Try to be open-minded about new
venues such as television home shopping, the Internet and cell telephone
purchasing.
Build Relationships
Whether one distributes
directly to the consumer or wholesalers or joint-venture partners, personal
relationships play a major role in business transactions. Business must be
regarded as the building of a network of relationships. Without such a
network, it is extremely difficult for a business to be prosperous.
Although time-consuming and costly to build, relationships once established
can be both durable and profitable.
Expand Gradually
The concentration of
population in urban areas makes expansion relatively easy especially in
physical distribution. Companies with limited resources may take a step-by-step
approach, either by region, such as Seoul
and the metropolitan area which usually represents half of the market, or
the three major cities -- Pusan,
Daegu and Gwangju in Chollanam-do,
and the rest of the country. If a wide range of products is involved, a
product-by-product approach may be taken. Innovative online distribution
can make one's products available nationwide immediately.
Maintain a ``Feel of the Market''
Closeness to the market
is one of the major traits common among large and successful Korean
corporations. The local market is quite dynamic and the pace of change --
often at Internet speed -- is so rapid that lucrative opportunities may
pass one by, or competitors may take over one's share of the market if one
is not attentive to the changes.
Develop Independence
Dependence upon the
goodwill of the distributor is not always desirable. Since one of the most
important elements for successful marketing is the distribution capability,
one has to strive to develop expertise and capability in this area as well
as with such intangibles as a network of personal relationships through
local employees. Here, stability and the loyalty of local executives and
staff are of paramount importance.
At the same time, Korea is a
world leader when it comes to leading edge distribution channel
development. It may be critical to one's Korea operations' success to
closely monitor what are the newest developments in online shopping and
distribution.
Product suppliers have
found some distribution systems rather precarious, yet crucial. An
effective and economic distribution channel is absolutely indispensable to
significant business expansion and growth. The prudent business executive
must probe the alternatives and devise an efficient system that expedites
one's products to the consumer as quickly and reasonably as possible. In
some cases, just getting one's products into a single national discount
store or convenience store chain may be enough to get one's products
launched in Korea.
At the same time, one's products' next truly big distribution opportunity
may take place on the Internet or cell phone.
Imagination and
ingenuity can devise such a system with the help of local counterparts. New
and collaborative ideas may give one insight into knowing which way to go.
One thing is certain. The Korean market will not stay static -- and nor
should one's distribution strategy. Korean consumers are world leaders in
using the Internet and wireless networks via cell phones and PDAs. Perhaps in a future column we may review that
important aspect.
Tom Coyner, a long-term resident in Korea, runs consulting firm,
Soft Landing Korea.
Coyner can be reached on softlandingkorea.com.
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