“Table of Content”

Topics Page

no.

1.0. Introduction 01

1.1. Origin of the Report 01

1.2. Objective of Report 01

1.3. Scope of the Report 01

1.4. Methodology 01

1.5. Limitations 01

2.0. Organization Overview 02

2.1. LG company history 02

2.2. Market coverage 02

2.3. The channel 03

2.4. Distribution Process of LG 03

2.5. The product 04

2.6. Management 04

2.7. Controlling 04

3.0. Package enticements 05

3.1. Managerial product and sales training  05

3.2. Regional warehousing 05

3.3. New product development plans 06

3.4. Market Management Manufacturer Management 06

3.5. No penalty stock rotation 06

3.6. List pricing 06

3.7. Comprehensive Cooperative Advertising 06

3.8. Price Protection 07

3.9. Drop shipment capability  07

3.10. Rapid or Time Delivery 07

4.0. Channel conflict 07

4.1. Over-distribution 07

4.2. Stocking levels 08

4.3. Assigned markets  08

4.4. Transshipping 08

4.5. Competition resources 08

4.6. Size of profit margin 08

4.7. Pricing issues 09

4.8. Overselling without regard to Availability 09

4.9. New product launches 09

4.10. Sales quotas 09

4.11. Large account coverage 09

4.12. Competitor 10

5.0. Better alternatives for the company 10

5.1. Indirect channel 10

5.2. Increase Warehouse 10

1. Introduction

1. Origin of the Report:

Our instructor, assigned us a report, which is a partial requirement of the course "Distribution Management". A

research was conducted on the distribution channel of the LG Company.

1.2 Objective of Report:

The objective of this report is to asses the existing distribution system, the impact of the Distribution process,

and to find out better alternatives for the company.

1.3 Scope of the Report:

The report contains a brief discussion of the various activities of the company and its distribution process, also

the sales promotional activities. Due to some limitations discussed here the departments and its activities are

not explained in details, which is been discussed later.

4. Methodology:

The data collected for this report are both secondary and primary. Past records of the company were analyzed

to gather information and direct interviews were conducted to collect information.

4. Limitations:

It was not possible for us to cover all the segmented regions of Karachi city let alone all districts. There were

also problems of collecting the primary data from the sales force. For above mentioned reasons we had to

come up with some arbitrary data.

2. Organization Overview

1. LG company history:

LG Electronics, Inc. (Korea Stock Exchange: 6657.KS) was established in 1958 as the pioneer in the Korean

consumer electronics market. The company is a major global force in electronics and information and

communications products with more than 64,000 employees working in 76 overseas subsidiaries and

marketing units around the world. With annual total revenues of more than US $16.9 billion (non-consolidated),

LG Electronics comprises three main business companies: Digital Display & Media, Digital Appliance,

telecommunication equipment & handset. LG Electronics' goal is to enable the intelligent networking of digital

products that will make consumers' lives better than ever.

2. Market coverage:

For market coverage the company use intensive distribution system by authorizing several distributor to sell

products in a given market segment. They have total 129 direct sales in the country, 36 direct sales force in

Karachi. They have their showrooms as well. They are setting up or expansion their channel where necessary

and they also have more than one show room in some of the areas.

3. The channel:

To reach the market company use their direct sales force. They have total 139 direct sales force

and to reach the regional end user company also use their direct channel system and to serve the market more

smoothly they are planning to set up 300 showroom in the country by 2012.

2.4 Distribution Process of LG:

LG is an international brand world wide. They have their unique distribution channel in Pakistan; they

market their product through a domestic renowned company known as BUTTERFLY. LG has given their

license to BUTTERFLY Company to market their product.

LG import their product from KOREA and the product come to the Karachi port and then it send to the

warehouse, from where the product delivered to the different showroom located in the country. Lastly the

showroom or the direct sales force can sell to the end user.

Imported

Warehouse

LG

Showroom

END-USER

LGShowroom

LG

Showroom

2.5 The product:Digital Display & Media Company Digital TV, PDP, Monitor, CD-ROM Drives, DVD-ROM Drives, CD Rewritable

Recorder, DVD Player, Audio, Security System, Recording Media, Video Phone, PC Camera, Banking

Automatic System PCB Digital Appliance Company Air Conditioner, Refrigerator, Microwave Oven, Washing

Machine, Vacuum Cleaner, Compressor for Air Conditioner, Compressor for Refrigerator.

2.6 Management:

They have direct sales manager. Area based manger, and also country sales manager. The sales

person in Karachi reports to the direct sales manager in country head and the sales person in Karachi also

report to the sales manager in Islamabad. Finally all the report go to the head office of LG.

2.7 Controlling:They strictly control their work force. Each day the direct sales force channel report everything to the

head office. They record sales copy, customer copy showroom copy and send it to the head office.

3. Package enticements3.1 Managerial product and sales training:Manufacturers train their sales person so that they will be able to sell the product to the customer.

3.2 Regional warehousing:LG have total 9 regional warehousing in this country. 4 in Karachi. Each of the warehousing is based

on the need of their distribution process .

3.3 New product development plans:Company let their channel to know about their new products. IT helps them to market their product

more efficiently .But the company don’t share too much information about their new product to the distributor.

3.4 Market knowledgeable manufacturer management:Every manufacturer need a market knowledgeable manager to care about the distributor’s

marketplace, business challenges and customers. A lack of experience and sensitivity can easily create a

problem in the channel of distribution. LG use market knowledgeable area manager who come to the

showroom any time to observe what is happening.

3.5 No penalty stock rotation:No penalty stock rotation is also given by the company. Each showroom can carry as much product as

it can capable of. If any showroom cannot sell their entire product they can return their product to the head

office, though it happens very rarely.

3.6 List pricing:Company use their own research team to find out the list pricing in the market. They increase and

decrease the price of their product according to their market research report. They can decrease the price of

their products at a certain level.

3.7 Comprehensive Cooperative Advertising:Though cooperative advertising allows the distributor to perform ,on a manufacturer pre approved

basis, certain local market sales promotional activities ,but because of their direct sales force system company

perform their promotion on their own way.

3.8 Price Protection:Depending on the industry ,price protection can be a major channel policy consideration. In fast

moving ,dynamic marketplace like electronic products pricing fluctuations is occasional and significant.

Company set their price and they don’t need to worry about because they are using their own sales force so

they don’t need to pay money if they change the price of their product

3.9 Drop shipment capability:LG do offer drop shipment. If any distributor face any emergency situation they can call the head office

to drop the shipment to customers location.

3.10 Rapid or Time Delivery:LG always try to deliver the product to the warehouse and then to the showroom as soon as possible.

Their average delivery period is three days.

4. Channel conflict

1. Over-distribution:

Sometime Company over distribute their product. These kinds of problem happen when company

authorizes several distributors in the same area. LG management and sales department authorize one

distributor in each area and not facing any over saturation. If they need to authorize more than one distributor

they set up showroom according to the demand or either they just expand the current showroom.

4.2 Stocking levels:The primary responsibility of a showroom to maintain adequate stock of the company’s product. Each

showroom maintain a certain amount of stock which is possible for them.

4.3 Assigned markets:Distributors want to do business in their comfort or existing zone. When company open any new

showroom in other area other showroom sales personnel too get the chance to do business there. If any

distributor seeing that company opening a new showroom in Karachi other showroom personnel also get the

chance to operate that showroom.

4.4 Transshipping:Out of authorized product shipments by distributor is call transshipping. This kind of activity is harmful

for the company, because of strict control and better managerial performance transshipping don’t happen in

LG’s distribution process.

4.5 Competition resources:Each of direct sales personnel get the training and other sales improving performance technique what

is allocated for them. Company gives training fairly and treats them equally.

4.6 Size of profit margin:Making money is the primary target for any distributor, but here company use direct sales force

channel .They are not transferring their cost. They invest their money to build a distribution facility or

showroom. Their profit comes through how they charge for their product.

4.7 Pricing issues:Company who use direct sales force channel ,they are not much worried about their pricing issues. If

they would use indirect sales force channel then there were some possibilities of pricing issue between them

and the indirect sales force channel ,sometimes company is prevented to charge a price by the indirect channel

force.

4.8 Overselling without regard to Availability:This kind of conflict happens when distributor unethically shift the full burden of order to the

manufacturer. Direct sales force channel of LG do not perform this kind of work , if they need any product they

call the main office to supply the product and after that if the product is not available to the main office then they

told the customer that it will take time to give them the product.

4.9 New product launches:When launching any new product company don’t need to pull any distributor because of the advantage

of using direct sales force channel, whatever product they are introducing the showroom will get the product.

The company don’t need to perform any pull strategy.

4.10 Sales quotas:LG don’t follow any sales quota system. They don’t force their direct sales channel that they have to

sell this amount or unit of product.

4.11 Large account coverage:Their direct sales force gets the advantage of large account coverage. When they deal with any large

corporate customer they can deal with the corporate customer or the company can also handle it directly.

Company don’t interfere in the case of large corporate when they directly contact with the direct sales force.

4.12 Competitor:AC-General, Refrigerator-monopoly business, Washing machine-Samsung, Microwave oven-Samsung, TV-

Sony

5. Better alternatives for the company

5.1. Indirect channel:

Distribution is a cost transfer business, by using indirect channel the company can transfer the cost

and can save money. Traditionally they are spending their own money to set up a showroom which is quiet

costly. They can take the help of indirect channel.

5.2. Increase Warehouse:Now they have only 9 showroom which is very big ,but the increasing demand of the product require

them to build more warehouse so that they can more efficiently stock their product