BRAND DISTRIBUTION

In addition to branding and brand communication, a firm has also to determine how the branded product is distributed to the customer into the new foreign market. Brand distribution thereby includes both the choice of the distribution channel as well as the physical distribution of the branded product. Distribution channels are generally selected due to potential of sales volume and market share, distribution costs and sales margin, market coverage, possibility of cooperation (e.g. brand alliances), speed and flexibility of market cultivation, influence and control of distributional activities, as well as image transfers from the distribution channel to the brand.

The decision on the adequate distribution channels involves two selections: vertical selection and horizontal selection. Vertical selection is the choice between distribution channels (direct sale, retail, wholesale, exporter/ importer) and determines the length in terms of number and types of distribution layers. Horizontal selection is the choice of sales partners within a channel. It determines scope and depth of distribution, and thus the intensity of distribution into the market distinguished three degrees of intensity:

a) intensive distribution or high market coverage, distribution of the brand through all possible channels, examples are daily goods such as cigarettes.

b) selective distribution, selection of distribution channels along qualitative criteria such as contractible sales volume, environment (size of shop, service quality, geographical location, etc.) and brand building support (image of the channel, possibility of promotional cooperation, price level and promotions).

c) exclusive distribution, additional limitation of channels by quantitative criteria, in order to closely control all brand building activities and motivate sales partner for higher sales.

In reality however, a branded company can seldom decide on distribution channels on its own. As shelf space is limited and brands manifold, a listening and promising placement in the shop means likely tough negotiations. It is to convince the retailer that the brand increases the attractiveness of the store and achieves higher profit margins than competitive products do. Generally, a firm can stimulate brand attractiveness by three categories: pull, push, and cooperative stimuli. Pull effects base on end-consumers and their preferences of a brand. It is the more positive and established the brand is among end-consumers, the more end-consumers demand the brand in the store. Pull effects are typically built up by brand communication activities and ensure retailers higher frequencies of consumers in the stores, enhanced store-brand-images and therefore increased sales. Push stimuli, in contrast, address the retailers directly. They likely involve arguments in terms of price reductions, bonus payments, improved cost structures, and add-on services such as merchandising, shelf care, and paid sales promotions. Cooperative stimuli go beyond such push-strategies and include partnerships between the manufacturer and the retailer in order to generate synergies along the supply chain.

An increasing cooperation is the “dual strategy”. Dual strategy means that the brand owner manufactures retail or private labels in addition to its own brands. From the brand owner’s perspective, dual strategies likely intensify the relationship to the retailer and improve to operate at full capacities. On the other hand, they comprise the risk of cannibalising own products in the store and damaging own brand images. Known retail brands are JA!, Salto and Ehrlenhof in the German food sector and TCM (Tchibo) for consumer goods. According to a grocery retail study conducted by Feige, consumer-pull effects have been the key success factor of convincing retailers. They contributed to the success 66%. Cooperative stimuli explained 19% and push-effects had only minor relevance. Tomczak et al  confirmed these findings. Pure pushstrategies and strategies without any over-proportional incentives are likely not successful, whereas a “cooperative pull-strategy” which combines cooperative and pull stimuli is found the most promising strategy.

Meffert and Bolz added that in foreign markets the selection of adequate distribution channels is also determined by availability. When a country market becomes more advanced, the distribution layers and the number and different formats of channels in the market also increase. Additionally, the more advanced the country market becomes, the smaller the number of small stores and the larger the size per store. In Western European markets 70-90% of the revenues are made by the top five largest retailers (M+M Planet Retail 2006). These are particularly large-scale multiple food retailers such as Wal-Mart and Carrefour which are present in many countries and increasingly undermine the position of local specialist shops. Since international retailers likely favour global standardised brands because of volume-orientated price advantages and standardized product ranges across markets, they are considered a valuable distribution channel for a fast and comprehensive going-international of brands.