Selling & Distribution


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Selling & Distribution

  1. 1. EXECUTIVE SUMMARY The basic idea behind selecting the topic “Selling & Distribution” is To study how selling & distribution play a vital role in the organization. What is the process conducted by organizations in practical. Many Organizations are coming up with their own selling & distribution strategy. Many organizations functioned in a very traditional way and didn’t take special assistance for selling & distribution. Many organizations lacked professional staff for selling & distributing the product Here there is need of professional companies who create market, sell and distribute the product. In today’s competing market these companies plays a very important role to sell the product. The net result of companies who are not appointing any distribution company for distributing their product was lack of efficient supply channel, less demand for the product, inefficient warehousing facility and also affects the production process. The net result of many organizations who are not appointing any distribution company for distributing their product was lack of efficient supply channel, less demand for the product, inefficient warehousing facility, also affects the production process. Thus, this project aims at finding out and analyzing the selling & distribution process and strategies carried out by the organizations. This project provided a valuable insight to management students like me and also to certain extent to organizations. This project also helped me to get practical know how about the distribution company involved in selling & distribution and capturing the market for the product. This project has also enlightened me and equipped me for my future in selling & distribution management and helped for my better knowledge in this field. Visiting to Ingram Micro India Pvt. Ltd. helped me to gain the practical knowledge about the selling & distribution process used in the organization. This has been a great opportunity to present this project with which I can exhibit my knowledge and caliber. Therefore it gives me immense pleasure to present my project report. 1
  2. 2. CHAPTER NO.1 SELLING Selling is thought of as a part of marketing, however, the two disciplines are completely different. Sales often form a separate grouping in a corporate structure, employing separate specialist operatives known as salespeople (singular: salesperson). Selling is considered by many to be a sort of persuading "art". Contrary to popular belief, the methodological approach of selling refers to a systematic process of repetitive and measurable milestones, by which a salesperson relates his or her offering of a product or service in return enabling the buyer to achieve their goal in an economic way. While the sales process refers to a systematic process of repetitive and measurable milestones, the definition of the selling is somewhat ambiguous due to the close nature of advertising, promotion, public relations, and direct marketing. Sales departments often form a separate grouping in a corporate structure, employing individuals who specialize in sale specific roles. Selling involves sales which are the pinnacle act of completed of a purchasing activity. Selling also involves salespeople who are the primary agents of facilitating sales. Selling is the profession-wide term, much like marketing defines a profession. Recently, attempts have been made to clearly understand who is in the sales profession, and who is not. There are many articles looking at marketing, advertising, promotions, and even public relations as ways to create a unique transaction. 2
  3. 3. Many believe that the focus of selling is on the human agents involved in the exchange between buyer and seller. Effective selling also requires a systems approach, at minimum involving roles that sell, enable selling, and develop sales capabilities. Selling also involves salespeople who possess specific set of sales skills and knowledge are required to facilitate the exchange of value between buyers and sellers that is unique from marketing, advertising, etc. Professional Selling is defined as: "The holistic business system required to effectively develop, manage, enable, and execute a mutually beneficial, interpersonal exchange of goods and/or services for equitable value.” Selling and Sales Management Selling is a highly misunderstood profession. Many people, when asked what they think of salespeople, instantly use terms such as pushy, greedy, or some other unkind adjective. Yet professional selling is not what most people think. Professionally trained salespeople are among the most important individuals within many companies. This is especially true in business-to-business selling situations where the amount of promotional expense allocated to support a sales force far exceeds expenses for advertising. Also, successful selling requires the establishment of strong relationships with customers, relationships that are intended to last for a long time. Salespeople whose goal is to just get the sale and not worry about the customer are doomed to failure. Professional selling requires knowledge and skills that must to learned over time, thus on-going training is critical for most. In this section resources are offered to help both the experienced sales professional as well as those new to the field. 3
  4. 4. 1.1) Personal Selling Personal selling is a promotional method in which one party (e.g., salesperson) uses skills and techniques for building personal relationships with another party (e.g., those involved in a purchase decision) that results in both parties obtaining value. In most cases the “value” for the salesperson is realized through the financial rewards of the sale while the customer’s “value” is realized from the benefits obtained by consuming the product. However, getting a customer to purchase a product is not always the objective of personal selling. For instance, selling may be used for the purpose of simply delivering information. Because selling involves personal contact, this promotional method often occurs through face-to-face meetings or via a telephone conversation, though newer technologies allow contact to take place over the Internet including using video conferencing or text messaging (e.g., online chat). 4
  5. 5. 1.2) Advantages of Personal Selling One key advantage personal selling has over other promotional methods is that it is a two-way form of communication. In selling situations the message sender (e.g., salesperson) can adjust the message as they gain feedback from message receivers (e.g., customer). So if a customer does not understand the initial message (e.g., doesn’t fully understand how the product works) the salesperson can make adjustments to address questions or concerns. Many non-personal forms of promotion, such as a radio advertisement, are inflexible, at least in the short-term, and cannot be easily adjusted to address audience questions. The interactive nature of personal selling also makes it the most effective promotional method for building relationships with customers, particularly in the business-to- business market. This is especially important for companies that either sell expensive products or sell lower cost but high volume products (i.e., buyer must purchase in large quantities) that rely heavily on customers making repeat purchases. Because such purchases may take a considerable amount of time to complete and may involve the input of many people at the purchasing company (i.e., buying center), sales success often requires the marketer develop and maintain strong relationships with members of the purchasing company. Finally, personal selling is the most practical promotional option for reaching customers who are not easily reached through other methods. The best example is in selling to the business market where, compared to the consumer market, advertising, public relations and sales promotions are often not well received. 5
  6. 6. 1.3) Disadvantages of Personal Selling Possibly the biggest disadvantage of selling is the degree to which this promotional method is misunderstood. Most people have had some bad experiences with salespeople who they perceived were overly aggressive or even downright annoying. While there are certainly many salespeople who fall into this category, the truth is salespeople are most successful when they focus their efforts on satisfying customers over the long term and not focusing own their own selfish interests. A second disadvantage of personal selling is the high cost in maintaining this type of promotional effort. Costs incurred in personal selling include: • High cost-per-action (CPA) – CPA can be an important measure of the success of promotion spending. Since personal selling involves person-to- person contact, the money spent to support a sales staff (i.e., sales force) can be steep. For instance, in some industries it costs well over (US) $300 each time a salesperson contacts a potential customer. This cost is incurred whether a sale is made or not! These costs include compensation (e.g., salary, commission, bonus), providing sales support materials, allowances for entertainment spending, office supplies, telecommunication and much more. With such high cost for maintaining a sales force, selling is often not a practical option for selling products that do not generate a large amount of revenue. • Training Costs – Most forms of personal selling require the sales staff be extensively trained on product knowledge, industry information and selling skills. For companies that require their salespeople attend formal training programs, the cost of training can be quite high and include such expenses as travel, hotel, meals, and training equipment while also paying the trainees’ salaries while they attend. A third disadvantage is that personal selling is not for everyone. Job turnover in sales is often much higher than other marketing positions. For companies that assign salespeople to handle certain customer groups (e.g., geographic territory), turnover 6
  7. 7. may leave a company without representation in a customer group for an extended period of time while the company recruits and trains a replacement. 1.4) Objectives of Personal Selling Personal selling is used to meet the five objectives of promotion in the following ways: • Building Product Awareness – A common task of salespeople, especially when selling in business markets, is to educate customers on new product offerings. In fact, salespeople serve a major role at industry trades shows where they discuss products with show attendees. But building awareness using personal selling is also important in consumer markets. The advent of controlled word-of-mouth marketing is leading to personal selling becoming a useful mechanism for introducing consumers to new products. • Creating Interest – The fact that personal selling involves person-to- person communication makes it a natural method for getting customers to experience a product for the first time. In fact, creating interest goes hand-in- hand with building product awareness as sales professionals can often accomplish both objectives during the first encounter with a potential customer. • Providing Information – When salespeople engage customers a large part of the conversation focuses on product information. Marketing organizations provide their sales staff with large amounts of sales support including brochures, research reports, computer programs and many other forms of informational material. • Stimulating Demand – By far, the most important objective of personal selling is to convince customers to make a purchase. • Reinforcing the Brand – Most personal selling is intended to build long-term relationships with customers. A strong relationship can only be built over time and requires regular communication with a customer. Meeting with customers on a regular basis allows salespeople to repeatedly 7
  8. 8. discuss their company’s products and by doing so helps strengthen customers’ knowledge of what the company has to offer. 1.5) Classifying Selling Roles As noted above, worldwide millions of people have careers that fit in the personal selling category. However, the actual functions carried out by someone in sales may be quite different. Below we discuss the four major types of selling roles: order getters, order takers, order influencers, and sales support. It should be noted that these roles are not mutually exclusive and that a salesperson can perform more than one and possibly all activities. a) Order Getters: The role most synonymous with selling is a position in which the salesperson is actively engaged in using their skills to obtain orders from customers. Such roles can be further divided into: • New Business Development– A highly challenging yet potentially lucrative sales position is one where the main objective is to find new customers. Sales jobs in this category are often in fields that are very competitive, but offer high rewards for those that are successful. The key distinguishing factor of these positions is that once a sale is made new business salespeople pass customers on to others in their organization who handle account maintenance. These positions include: o Business Equipment Sales - These salespeople are often found in industries where a company’s main profits come from the sale of supplies and services that come after an initial equipment purchase. The key objective of business equipment salespeople is to get buyers to purchase the main piece of equipment for which supplies and service are needed in order for the equipment to function. For instance, in the photocopier industry certain salespeople only seek out new accounts and 8
  9. 9. once a photocopier sale is made they pass along the account to other sales personnel who handle the sales of maintenance and supply products. o Telemarketing – This category includes product sales over the phone, whether aimed at business or consumer. While in the US laws restrict unsolicited phone selling, the practice is still widely used in the business market. o Consumer Selling – Certain companies are very aggressive in their use of salespeople to build new consumer business. These include: retailers selling certain high priced consumer products including furniture, electronics and clothing; housing products including real estate, security services, building replacement products (e.g., windows); and in-home product sellers including those selling door-to-door and products sold at “home party” events such as cosmetics, kitchenware and decorative products. • Account Management – Most people engaged in sales are not only involved in gaining the initial order, but work to build and maintain relationships with clients that are intended to last a long time. Salespeople involved in account management are found across a broad range of industries. Their responsibilities involve all aspects of building customer relationships from initial sale to follow-up account servicing. These include: o Business-to-Business Selling – These salespeople sell products for business use with an emphasis on follow-up sales. In many cases, business-to-business salespeople have many different items available for sale (i.e., broad and/or deep product line) rather than a single product. So while the initial sale may only result in the buyer purchasing a few products, the potential exists for the buyer to purchase many other products as the buyer-seller relationship grows. o Trade Selling – Sales professionals working for consumer products companies normally do not sell to the final user (i.e., consumer). Instead their role is focused on first getting distributors, such wholesalers and retailers, to handle their products and once this is accomplished, helping 9
  10. 10. distributors sell their product by offering ideas for product advertising, in-store display and sales promotions. b) Order Takers: Selling does not always require a salesperson use methods designed to encourage customers to make a purchase. In fact, the greatest number of people engaged in selling are not order getters, rather they are considered order takers. In this role, salespeople primarily assist customers with a purchase in ways that are much less assertive than order getters. As might be expected, compensation for order takers is generally lower than that of order getters. Among those serving an order taker role are: • Retail Clerks – While some retail salespeople are involved in new business selling, the vast majority of retail employees handle order taking tasks, which range from directing customers to products to handling customer checkout. • Industrial Distributor Clerks – Industrial purchase situations, such as distributors of building products, will also have clerks to handle customer purchases. • Customer Service – Order taking is also handled in non face-to-face ways through customer service personnel. Usually this occurs via phone conversations, though newer technologies are allowing for these tasks to be handled through electronic means such as online chat. c) Order Influencers: Some salespeople are not engaged in direct selling activities at all. That is, they do not sell directly to the person who is the ultimate purchaser for their product. Instead these salespeople concentrate on selling activity that targets those who influence purchases made by the final customer. The primary example of an order influencer is the missionary salesperson: 10
  11. 11. • Missionary - These salespeople are used in industries where customers make purchases based on the advice or requirements of others. Two industries in which missionary selling is commonly found are pharmaceuticals, where salespeople, known as product detailers, discuss products with doctors (influencers) who then write prescriptions for their patients (final customer) and higher education, where salespeople call on college professors (influencers) who make requirements to students (final customer) for specific textbooks. d) Sales Support: A final group involved in selling mostly assist with the selling activities of other sales professionals. These include: • Technical Specialists - When dealing with the sale of technical products, particularly in business markets, salespeople may need to draw on the expertise of others to assist with the process. This is particularly the case when the buying party consists of a buying center. In business selling many people from different functional areas may be involved in the purchase decision. If this buying center includes technical people, such as scientists and engineers, a salesperson may seek assistance from members of their own technical staff, who can help address specific questions. • Office Support – Salespeople also may receive assistance from their company’s office staff in the form of creating promotional materials, setting up sales appointments, finding sales leads, arranging meeting space or organizing trade shows exhibits. 11
  12. 12. 1.6) Trends While the basic premise of personal selling, building relationships, has not changed much in the last 50 years, there are a number of developments that are impacting this method of promotion including: a) Controlled Word-of-Mouth Promotion One of the most influential forms of promotion occurs when one person speaks highly of a product to someone else, particularly if the message sender is considered an unbiased source of information. Until recently, marketers have had little control over person-to-person promotion that did not involve salespeople (i.e., biased source). However, marketers are beginning to experiment with new methods of promotion that strategically takes advantage of the benefits offered by word-of-mouth promotion. Unlike salespeople who attempt to obtain an order from customers, controlled word- of-mouth promotion uses real people to help spread information about a product but do not directly elicit customer orders. With controlled word-of-mouth promotion a marketer hires individuals to spread positive information about a product but in a way that does not make it obvious to others that they are being paid to do so. The technique is especially useful when building awareness of new products and this approach has been dubbed “buzz” marketing as a way to describe its objective of building a high level of awareness for a product. For example, a brewer may form a team of word-of-mouth marketers who visit local taverns and night spots. As part of their job these marketers may “talk up” a new beer sold by the brewer and even purchase the product for some customers. 12
  13. 13. But in the course of doing so they do not directly disclose that they are being compensated by the brewer for their efforts. Controlled word-of-mouth has received a great deal of publicity though much of it has focused on potential ethical concerns. Some have expressed concern that paying people to “act” as if they are interested in a product without any indication of their relationship with the product breaches ethical standards. As more companies explore controlled word-of-mouth marketing it is expect to become an even more scrutinized form of personal selling. b) Customer Information Sharing Possibly the most dramatic change to occur in how salespeople function on a day-to- day basis involves the integration of customer relationship management (CRM) systems into the selling arena. CRM is the name given to both the technology and the philosophy that drives companies to gain a better understanding of their customers with the goal of building stronger long-term relationships. The essential requirement for an effective CRM system is the need for all customer contact points (e.g., salespeople, customer service, websites) to gather information so that this can be shared with others in the company. But CRM has faced some rough times within the sales force for the exact reason it is important: salespeople must share their information. Salespeople have historically been very good at developing relationships and learning about customers, but often loath sharing this since, in effect, information is what makes them important. In the minds of some salespeople, letting go of the information reduces their importance to the company. For example, some salespeople feel that sharing all they know about a customer will make them expendable as a salesperson since a company can simply insert someone new into their spot at anytime. While the attitude toward CRM has made its implementation difficult in many companies, salespeople should understand that it is not going away. CRM and information sharing has proven to be critical for maintaining strong customer relations and salespeople must learn to adapt to it. 13
  14. 14. c) Mobile Technology and Web-Based Computing The move to an information sharing approach is most effective when salespeople have access to information sharing features when they need it most. Mobile technologies, such as wireless internet (Wi-Fi) and cellular Internet access, allow salespeople to retrieve needed information at any time. Additionally, there is a growing trend to make key business applications available through a browser rather than having programs loaded on a salesperson’s computer. This allows for the application to be accessed from anywhere at anytime. For example, many companies have moved to web-based CRM systems where simply having Internet access allows salespeople to enter and retrieve information. Also, many new office productivity applications, such as word processing and spreadsheets, are now becoming web-accessible. New generation cell phones or smart phones along with other handheld devices, such as personal digital assistants (PDA), lighten the burden of carrying laptop computers. But because these handheld devices are web-enabled they provide access to much of the same information as a standard computer. While the computing power of handheld devices is still underpowered compared to conventional computers, the move to web-based computing may some day make the handheld the main instrument for inputting and outputting information. d) Electronic Sales Presentations Technology is also playing a major role in how sales professionals reach prospects and existing customers. While audio/video conferencing has been available for many years using high-end telecommunication hookups, it has only been within the last few years that improvements in Internet access speeds, computing power and meeting software have made this method for reaching customers a practical alternative to face- to-face sales meetings. These options include: • Online Video Conferencing – Online conferencing essentially acts in the same way as telecommunications videoconferencing, with one big exception; it is delivered over the Internet. Anyone who has an Internet connection knows that trying to deliver video over the Internet can be a trying experience as video often appears to be slow, jittery and sometimes not even 14
  15. 15. recognizable. But these problems are quickly disappearing and while real time Internet video conferencing (i.e., television quality video and audio) is still not routinely accessible to most salespeople, this is expected to change. • Web/Phone Conferencing – To offset the problems associated with Internet delivery of real time audio and video, many companies deliver sales presentations using a combination of web and telecommunications. The most widely used services use the Internet, to deliver visual material (typically a slide presentation) and telecommunications, to allow for voice conversation. The process has a salesperson arrange for a conferencing time with a prospect who enters the conference by: 1) using their web browser to gain access to the visual presentation and 2) using their telephone to call into an audio conference. Splitting the visual and audio feeds allows for smoother presentations since the conference participants’ computers need only process the visual material. It should be noted, that while audio access is now being carried out over telephone connections, the emergence of telephone over the Internet (i.e., VOIP - voice over Internet Protocol) may soon help resolve some of the problems that have been encountered when delivering both. • Online Text Chat - Online chat allows for real time communication between multiple participants using text messaging. While this form of buyer-seller communication may not be very effective at getting customers to agree to make a purchase, it has proven very effective in building initial product interest. For example, potential customers visiting a website may use the chat feature to ask a few questions about the company’s products. Engaging a customer this way can then lead to the customer agreeing to receive a phone call from a salesperson to further discuss the product. e) Electronic Sales Training Developing the skills and techniques needed to be successful at selling requires an extensive commitment by the individual seller and the seller's company to sales training. Sales training is the hallmark of professional selling. If there is one thing that separates the truly successful salesperson from those who are not, it is the amount of training and preparation they engage in. 15
  16. 16. Most organizations that employ a sales force offer new salespeople an extensive formal training program often held at dedicated training facilities. These training programs can range from a few days to many months depending on the industry. But once a salesperson has made the move to the field, training does not stop. Those involved in selling must continue to stay abreast of their products, customers, markets and competitors. While many companies may continue to employ the same methods used when they first trained their salespeople, a large number of firms are finding that ongoing training can be just as effective using electronic options such as delivering training over the Internet, through downloadable computer programs or through interactive CDs or DVDs. While feedback using electronic means is not as personal as it might be with in-person training, sophisticated electronic training programs are effective in educating and testing trainee’s knowledge. Also, a live trainer can be contacted very quickly via e- mail, online chat or by a phone call if a question does arise. Using electronic delivery, the cost to the company for adding or updating training material is inexpensive and quick compared to the cost and time needed to produce and ship paper-based materials. Additionally, the use of RSS feeds or email enables salespeople to be quickly notified when new training material is available. This is useful when the sales force must be made aware of a recent change that will impact how products are promoted such as a price change, new information to be used as comparison to competitor’s products, a potential problem that has arisen when installing or using a product or some other adjustment. f) Use of Customer Sales Teams As we noted in discussion of technical specialists, salespeople may require the assistance of others in their organization to effectively deal with prospects. In fact, many companies are moving away from the traditional sale force arrangement, where a single salesperson handles nearly all communication with an account, in favor of a team approach where multiple people are involved. Teams consist of individuals from several functional areas such as marketing, manufacturing, distribution, and customer service. In some configurations all 16
  17. 17. members share bonuses if the team meets sales goals. Clearly to be effective a team approach requires the implementation of customer relationship management systems that we discussed earlier. CHAPTER NO.2 DISTRIBUTION 2.1) Distribution Decision Product decisions may be the most important of all marketing decisions since these lead directly to the reasons (i.e., offer benefits that satisfy needs) why customers decide to make a purchase. But having a strong product does little good if customers are not able to easily and conveniently obtain it. Distribution decisions focus on establishing a system that, at its basic level, allows customers to gain access and purchase a marketer’s product. However, marketers may find that getting to the point at which a customer can acquire a product is complicated, time consuming, and expensive. The bottom line is a marketer’s distribution system must be both effective (i.e., delivers a good or service to the right place, in the right amount, in the right condition) and efficient (i.e., delivers at the right time and for the right cost). 17
  18. 18. Distribution decisions are relevant for nearly all types of products. While it is easy to see how distribution decisions impact physical goods, such as laundry detergent or truck parts, distribution is equally important for digital goods (e.g., television programming, downloadable music) and services (e.g., income tax services). In fact, while the Internet is playing a major role in changing product distribution and is perceived to offer more opportunities for reaching customers, online marketers still face the same distribution issues and obstacles as those faced by offline marketers. In order to facilitate an effective and efficient distribution system many decisions must be made including (but certainly not limited to): • Assessing the best distribution channels for getting products to customers • Determining whether a reseller network is needed to assist in the distribution process • Arranging a reliable ordering system that allows customers to place orders • Creating a delivery system for transporting the product to the customer • For tangible and digital goods, establishing facilities for product storage 18
  19. 19. 2.2) What are Channels of Distribution? For marketers, the distribution decision is primarily concerned with the supply chain’s front-end or channels of distribution that are designed to move the product (goods or services) from the hands of the company to the hands of the customer. Obviously when we talk about intangible services the use of the word “hands” is a figurative way to describe the exchange that takes place. But the idea is the same as with tangible goods. All activities and organizations helping with the exchange are part of the marketer’s channels of distribution. Activities involved in the channel are wide and varied though the basic activities revolve around these general tasks: • Ordering • Handling and shipping • Storage • Display • Promotion • Selling 19
  20. 20. • Information feedback 2.3) Type of Channel Members Channel activities may be carried out by the marketer or the marketer may seek specialist organizations to assist with certain functions. We can classify specialist organizations into two broad categories: resellers and specialty service firms. a) Resellers These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. If a marketer utilizes multiple resellers within its distribution channel strategy the collection of resellers is termed a Reseller Network. These organizations can be classified into several sub-categories including: • Retailers – Organizations that sell products directly to final consumers. • Wholesalers – Organizations that purchase products from suppliers, such as manufacturers or other wholesalers, and in turn sell these to other resellers, such as retailers or other wholesalers. • Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers. 20
  21. 21. b) Specialty Service Firms These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product): • Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. • Distribution Service Firms – Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing. • Others – This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance. 2.4) Importance of Distribution Channels As noted, distribution channels often require the assistance of others in order for the marketer to reach its target market. But why exactly does a company need others to help with the distribution of their product? Wouldn’t a company that handles its own distribution functions be in a better position to exercise control over product sales and potentially earn higher profits? Also, doesn’t the Internet make it much easier to distribute products thus lessening the need for others to be involved in selling a company’s product? While on the surface it may seem to make sense for a company to operate its own distribution channel (i.e., handling all aspects of distribution) there are many factors preventing companies from doing so. While companies can do without the assistance of certain channel members, for many marketers some level of channel partnership is needed. For example, marketers who are successful without utilizing resellers to sell their product (e.g., Dell Computers sells mostly through the Internet and not in retail stores) may still need assistance with certain parts of the distribution process (e.g., Dell uses parcel post shippers such as FedEx and UPS). In Dell’s case creating their own transportation system makes little sense given how large such a system would need to be in order to service Dell’s customer base. Thus, by using shipping 21
  22. 22. companies Dell is taking advantage of the benefits these services offer to Dell and to Dell’s customers. When choosing a distribution strategy a marketer must determine what value a channel member adds to the firm’s products. customers assess a product’s value by looking at many factors including those that surround the product (i.e., augmented product). Several surrounding features can be directly influenced by channel members, such as customer service, delivery, and availability. Consequently, for the marketer selecting a channel partner involves a value analysis in the same way customers make purchase decisions. That is, the marketer must assess the benefits received from utilizing a channel partner versus the cost incurred for using the services. 2.5) Benefits Offered by Channel Members • Cost Savings in Specialization – Members of the distribution channel are specialists in what they do and can often perform tasks better and at lower cost than companies who do not have distribution experience. Marketers attempting to handle too many aspects of distribution may end up exhausting company resources as they learn how to distribute, resulting in the company being “a jack of all trades but master of none.” • Reduce Exchange Time – Not only are channel members able to reduce distribution costs by being experienced at what they do, they often perform their job more rapidly resulting in faster product delivery. For instance, consider what would happen if a grocery store received direct shipment from EVERY manufacturer that sells products in the store. This delivery system would be chaotic as hundreds of trucks line up each day to make deliveries, many of which would consist of only a few boxes. On a busy day a truck may sit for hours waiting for space so they can unload their products. Instead, a better distribution scheme may have the grocery store purchasing its supplies from a grocery wholesaler that has its own warehouse for handling simultaneous shipments from a large number of suppliers. The wholesaler will distributes to the store in the quantities the store needs, on a 22
  23. 23. schedule that works for the store, and often in a single truck, all of which speeds up the time it takes to get the product on the store’s shelves. • Customers Want to Conveniently Shop for Variety – Marketers have to understand what customers want in their shopping experience. Referring back to our grocery store example, consider a world without grocery stores and instead each marketer of grocery products sells through their own stores. As it is now, shopping is time consuming, but consider what would happen if customers had to visit multiple retailers each week to satisfy their grocery needs. Hence, resellers within the channel of distribution serve two very important needs: 1) they give customers the products they want by purchasing from many suppliers (termed accumulating and assortment services), and 2) they make it convenient to purchase by making products available in single location. • Resellers Sell Smaller Quantities – Not only do resellers allow customers to purchase products from a variety of suppliers, they also allow customers to purchase in quantities that work for them. Suppliers though like to ship products they produce in large quantities since this is more cost effective than shipping smaller amounts. The ability of intermediaries to purchase large quantities but to resell them in smaller quantities not only makes these products available to those wanting smaller quantities but the reseller is able to pass along to their customers a significant portion of the cost savings gained by purchasing in large volume. • Create Sales – Resellers are at the front line when it comes to creating demand for the marketer’s product. In some cases resellers perform an active selling role using persuasive techniques to encourage customers to purchase a marketer’s product. In other cases they encourage sales of the product through their own advertising efforts and using other promotional means such as special product displays. • Offer Financial Support – Resellers often provide programs that enable customers to more easily purchase products by offering financial programs that ease payment requirements. These programs include allowing customers 23
  24. 24. to: purchase on credit; purchase using a payment plan; delay the start of payments; and allowing trade-in or exchange options. • Provide Information – Companies utilizing resellers for selling their products depend on distributors to provide information that can help improve the product. High-level intermediaries may offer their suppliers real-time access to sales data including information showing how products are selling by such characteristics as geographic location, type of customer, and product location (e.g., where located within a store, where found on a website). If high-level information is not available, marketers can often count on resellers to provide feedback as to how customers are responding to products. This feedback can occur either through surveys or interviews with reseller’s employees or by requesting the reseller allow the marketer to survey customers. 2.6) Costs of Utilizing Channel Members • Loss of Revenue – Resellers are not likely to offer services to a marketer unless they see financial gain in doing so. They obtain payment for their services as either direct payment (e.g., marketer pays for shipping costs) or, in the case of resellers, by charging their customers more than what they paid the marketer for acquiring the product (termed markup). For the latter, marketers have a good idea of what the final customer will pay for their product which means the marketer must charge less when selling the product to resellers. In these situations marketers are not reaping the full sale price by using resellers, which they may be able to do if they sold directly to the customer. • Loss of Communication Control – Marketers not only give up revenue when using resellers, they may also give up control of the message being conveyed to customers. If the reseller engages in communication activities, such as personal selling in order to get customers to purchase the product, the marketer is no longer controlling what is being said about the product. This can lead to miscommunication problems with customers, 24
  25. 25. especially if the reseller embellishes the benefits the product provides to the customer. While marketers can influence what is being said by training reseller’s salespeople, they lack ultimate control of the message. • Loss of Product Importance – Once a product is out of the marketer’s hands the importance of that product is left up to channel members. If there are pressing issues in the channel, such as transportation problems, or if a competitor is using promotional incentives in an effort to push their product through resellers, the marketer’s product may not get the attention the marketer feels it should receive. 2.7) Channel Arrangements The distribution channel consists of many parties each seeking to meet their own business objectives. Clearly for the channel to work well, relationships between channel members must be strong with each member understanding and trusting others on whom they depend for product distribution to flow smoothly. For instance, a small sporting goods retailer that purchases products from a wholesaler trusts the wholesaler to deliver required items on-time in order to meet customer demand, while the wholesaler counts on the retailer to place regular orders and to make on-time payments. Relationships in a channel are in large part a function of the arrangement that occurs between the members. These arrangements can be divided in two main categories: independent and dependent. a) Independent Channel Arrangement Under this arrangement a channel member negotiates deals with others that do not result in binding relationships. In other words, a channel member is free to make whatever arrangements they feel is in their best interest. This so-called “conventional” distribution arrangement often leads to significant conflict as individual members decide what is best for them and not necessarily for the entire 25
  26. 26. channel. On the other hand, an independent channel arrangement is less restrictive than dependent arrangements and makes it easier for a channel members to move away from relationships they feel are not working to their benefit. b) Dependent Channel Arrangement Under this arrangement a channel member feels tied to one or more members of the distribution channel. Sometimes referred to as “vertical marketing systems” this approach makes it more difficult for an individual member to make changes to how products are distributed. However, the dependent approach provides much more stability and consistency since members are united in their goals. The dependent channel arrangement can be broken down into three types: • Corporate – Under this arrangement a supplier operates its own distribution system in a manor that produces an integrated channel. This occurs most frequently in the retail industry where a supplier operates a chain of retail stores. Starbucks is a company that does this. They import and process coffee and then sell it under their own brand name in their own stores. It should be mentioned that Starbucks also distributes their products in other ways, such as through grocery stores and mail order. Starbucks is using a multi-channel structure to market their products. • Contractual – Under this arrangement a legal document obligates members to agree on how a product is distributed. Often times the agreement specifically spells out which activities each member is permitted to perform or not perform. This type of arrangement can occur in several formats including: o Wholesaler-sponsored – where a wholesaler brings together and manages many independent retailers including having the retailers use the same name o Retailer-sponsored – this format also brings together retailers but the retailers are responsible for managing the relationship o Franchised – where a central organization controls nearly all activities of other members 26
  27. 27. • Administrative – In certain channel arrangements a single member may dominate the decisions that occur within the channel. These situations occur when one channel member has achieved a significant power position. This most likely occurs if a manufacturer has significant power due to brands in strong demand by target markets (e.g., Procter &Gamble) or if a retailer has significant power due to size and market coverage (e.g., Wal-Mart). In most cases the arrangement is understood to occur and is not bound by legal or financial arrangements. (More discussion on channel power can be found below.) 2.8) Factors in Creating Distribution Channels Like most marketing decisions, a great deal of research and thought must go into determining how to carry out distribution activities in a way that meets a marketer’s objectives. The marketer must consider many factors when establishing a distribution system. Some factors are directly related to marketing decisions while others are affected by relationships that exist with members of the channel. Next examine the key factors to consider when designing a distribution strategy. We group these into two main categories: marketing decision issues and channel relationship issues. In turn, each of these categories contains several topics of concern to marketers. a) Marketing Decision Issues Distribution strategy can be shaped by how decisions are made in other marketing areas. 27
  28. 28. • Product Issues The nature of the product often dictates the distribution options available especially if the product requires special handling. For instance, companies selling delicate or fragile products, such as flowers, look for shipping arrangements that are different than those sought for companies selling extremely tough or durable products, such as steel beams. • Promotion Issues Besides issues related to physical handling of products, distribution decisions are affected by the type of promotional activities needed to sell the product to customers. For products needing extensive salesperson-to-customer contact (e.g., automobile purchases) the distribution options are different than for products where customers typically require no sales assistance (i.e., bread purchases). 28
  29. 29. • Pricing Issues The desired price at which a marketer seeks to sell their product can impact how they choose to distribute. As previously mentioned, the inclusion of resellers in a marketer’s distribution strategy may affect a product’s pricing since each member of the channel seeks to make a profit for their contribution to the sale of the product. If too many channel members are involved the eventual selling price may be too high to meet sales targets in which case the marketer may explore other distribution options. • Target Market Issues A distribution system is only effective if customers can obtain the product. Consequently, a key decision in setting up a channel arrangement is for the marketer to choose the approach that reaches customers in the most effective way possible. The most important decision with regard to reaching the target market is to determine the level of distribution coverage needed to effectively meet customer’s needs. Distribution coverage is measured in terms of the intensity by which the product is made available. For the most part, distribution coverage decisions are of most concern to consumer products companies, though there are many industrial products that also must decide how much coverage to give their products. As we will see the marketer must take into consideration many factors when choosing the right level of distribution coverage. However, all marketers should understand that distribution creates costs to the organization. Some of these expenses can be passed along to customers (e.g., shipping costs) but others cannot (e.g., need for additional salespeople to handle more distributors). Thus, the process for determining the right level of distribution coverage often comes down to an analysis of the benefits (e.g., more sales) versus the cost associated with gain the benefits. There are three main levels of distribution coverage - mass coverage, selective and exclusive. 29
  30. 30. o Mass Coverage - The mass coverage (also known as intensive distribution) strategy attempts to distribute products widely in nearly all locations in which that type of product is sold. This level of distribution is only feasible for relatively low priced products that appeal to very large target markets (e.g., see consumer convenience products). A product such as Coca-Cola is a classic example since it is available in a wide variety of locations including grocery stores, convenience stores, vending machines, hotels and many, many more. With such a large number of locations selling the product the cost of distribution is extremely high and must be offset with very high sales volume. o Selective Coverage - Under selective coverage the marketer deliberately seeks to limit the locations in which this type of product is sold. To the non- marketer it may seem strange for a marketer to not want to distribute their product in every possible location. However, the logic of this strategy is tied to the size and nature of the product’s target market. Products with selective coverage appeal to smaller, more focused target markets (e.g., see consumer shopping products) compared to the size of target markets for mass marketed products. Consequently, because the market size is smaller, the number of locations needed to support the distribution of the product is fewer. o Exclusive Coverage - Some high-end products target very narrow markets that have a relatively small number of customers. These customers are often characterized as “discriminating” in their taste for products and seek to satisfy some of their needs with high-quality, though expensive products. Additionally, many buyers of high-end products require a high level of customer service from the channel member from whom they purchase. These characteristics of the target market may lead the marketer to sell their products through a very select or exclusive group of resellers. Another type of exclusive distribution may not involve high-end products but rather products only available in selected locations such as company-owned stores. While these products may or may not be higher priced compared to competitive products, the fact these are only available in company outlets give exclusivity to the distribution. 30
  31. 31. b) Channel Relationship Issues A good distribution strategy takes into account not only marketing decisions, but also considers how relationships within the channel of distribution can impact the marketer’s product. Following are the three such issues: • Channel Power A channel can be made up of many parties each adding value to the product purchased by customers. However, some parties within the channel may carry greater weight than others. In marketing terms this is called channel power, which refers to the influence one party within a channel has over other channel members. When power is exerted by a channel member they are often in the position to make demands of others. For instance, they may demand better financial terms (e.g., will only buy if prices are lowered, will only sell if price is higher) or demand other members perform certain tasks (e.g., do more marketing to customers, perform more product services). Channel power can be seen in several ways: o Backend or Product Power – Occurs when a product manufacturer or service provider markets a brand that has a high level of customer demand. The marketer of the brand is often in a power position since other channel members have little choice but to carry the brand or risk losing customers. o Middle or Wholesale Power – Occurs when an intermediary, such as a wholesaler, services a large number of smaller retailers with products obtained from a large number of manufacturers. In this situation the wholesaler can exert power since the small retailers are often not in the position to purchase products cost-effectively and in as much variety as what is offered by the wholesaler. o Front or Retailer Power – As the name suggests, the power in this situation rests with the retailer who can command major concessions from their suppliers. This type of power is most prevalent when the retailer 31
  32. 32. commands a significant percentage of sales in the market they serve and others in the channel are dependent on the sales generated by the retailer. • Channel Conflict In an effort to increase product sales, marketers are often attracted by the notion that sales can grow if the marketer expands distribution by adding additional resellers. Such decisions must be handled carefully, however, so that existing dealers do not feel threatened by the new distributors who they may feel are encroaching on their customers and siphoning potential business. For marketers, channel strategy designed to expand product distribution may in fact do the opposite if existing members feel there is a conflict in the decisions made by the marketer. If existing members sense a conflict and feel the marketer is not sensitive to their needs they may choose to stop handling the marketer’s products. • Need for Long-Term Commitments Channel decisions have long-term consequences for marketers since efforts to establish new relationships can take an extensive period of time while ending existing relationships can prove difficult. For instance, Company A, marketer of kitchen cabinets that wants to change distribution strategy, may decide to stop selling their product line through industrial supply companies that distribute cabinets to building contractors and instead sell through large retail home centers. If in the future Company A decides to once again enter the industrial supply market they may run into resistance since supply companies may have replaced Company A’s product line with other products and, given what happened to the previous relationship, may be reluctant to deal with Company A. If Company A decides to change their reseller network they may find it difficult to regain the building contractor customer base, who may continue to purchase from the industrial suppliers but are now purchasing products from Company A’s competitors. In this case, Company A may have to give serious thought to whether breaking their long-term relationship with industrial suppliers is in the company’s best interest. 32
  33. 33. 2.9) Overall Distribution Design Mindful of the factors affecting distribution decisions (i.e., marketing decision issues and relationship issues), the marketer has several options to choose from when settling on a design for their distribution network. Marketing decision factors (e.g., product, promotion, pricing, target markets) or the nature of distribution channel relationships may not permit the marketer to pursue a particular option. For example, selling through a desired retailer may not be feasible if the retailer refuses to handle a product. For marketers the choice of distribution design comes down to selecting between direct or indirect methods, or in some case choosing both. a) Direct Distribution System With a direct distribution system the marketer reaches the intended final user of their product by distributing the product directly to the customer. That is, there are no other parties involved in the distribution process that take ownership of the product. The direct system can be further divided by the method of communication that takes place when a sale occurs. These methods are: • Direct Marketing Systems – With this system the customer places the order either through information gained from non-personal contact with the marketer, such as by visiting the marketer’s website or ordering from the marketer’s catalog, or through personal communication with a customer representative who is not a salesperson, such as through toll-free telephone ordering. • Direct Retail Systems – This type of system exists when a product marketer also operates their own retail outlets. As previously discussed, Starbucks would fall into this category. • Personal Selling Systems – The key to this direct distribution system is that a person whose main responsibility involves creating and managing sales (e.g., salesperson) is involved in the distribution process, generally by 33
  34. 34. persuading the buyer to place an order. While the order itself may not be handled by the salesperson (e.g., buyer physically places the order online or by phone) the salesperson plays a role in generating the sales. • Assisted Marketing Systems – Under the assisted marketing system, the marketer relies on others to help communicate the marketer’s products but handles distribution directly to the customer. The classic example of assisted marketing systems is eBay which helps bring buyers and sellers together for a fee. Other agents and brokers would also fall into this category. b) Indirect Distribution System With an indirect distribution system the marketer reaches the intended final user with the help of others. These resellers generally take ownership of the product, though in some cases they may sell products on a consignment basis (i.e., only pay the supplying company if the product is sold). Under this system intermediaries may be expected to assume many responsibilities to help sell the product. Indirect methods include: • Single-Party Selling System - Under this system the marketer engages another party who then sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store- based retail chains or through online retailers, in which case it is often referred to as a trade selling system. • Multiple-Party Selling System – This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailers. c) Multi-channel or Hybrid System In cases where a marketer utilizes more than one distribution design the marketer is following a multi-channel or hybrid distribution system. The multi-channel approach expands distribution and allows the marketer to reach a wider market. 34
  35. 35. 2.10) Establishing Channel Relationships Since channel members must be convinced to handle a marketer’s product it makes sense to consider channel partner’s needs in the same way the marketer considers the final user’s needs. However, the needs of channel members are much different than those of the final customer. Resellers seek products of interest to the reseller’s customers but are also concerned with many other issues such as: • Delivery – Resellers want the product delivered on-time and in good condition in order to meet customer demand and avoid inventory out-of- stocks. • Profit Margin – Resellers are in business to make money so a key factor in their decision to handle a product is how much money they will make on each product sold. They expect that the difference (i.e., margin) between their cost for acquiring the product from a supplier and the price they charge to sell the product to their customers will be sufficient to meet their profit objectives. • Other Incentives – Besides profit margin, resellers may want other incentives to entice them especially if they are required to give extra effort selling the product. These incentives may be in the form of additional free products or even bonuses (e.g., bonus, free trips) for achieving sales goals. • Packaging – Resellers want to handle products as easily as possible and want their suppliers to ship and sell products in packages that fit within their system. Many resellers are now requiring marketers to consider adding identification tags to products to allow for easier inventory tracking when the product is received and also when it is sold. • Training – Some products require the reseller to have strong knowledge of the product including demonstrating the product to customers. Marketers must consider offering training to resellers to insure the reseller has the knowledge to present the product accurately. • Promotional Help – Resellers often seek additional help from the product supplier to promote the product to customers. Such help may come in the form of funding for advertisements, point-of-purchase product materials, or in-store demonstrations. 35
  36. 36. CHAPTER NO.3 INGRAM MICRO INDIA PRIVATE LTD. Head Office Ingram Micro India (P) Ltd Gate 1A, Godrej Industries Complex, Pirojshanagar, Eastern Express Highway, Vikhroli (East), Mumbai 400 079. Tel: 91-22-67960101 Fax: 91-22-67960102 36
  37. 37. 3.1) Introduction Ingram Micro, a Fortune 100 company, is the largest global information technology (“IT”) wholesale distributor by net sales, providing sales, marketing, and logistics services for the IT industry worldwide. Ingram Micro provides a vital link in the IT supply chain by generating demand and developing markets for our technology partners. While we remain focused on continuing to build our core IT distribution business, we also are developing an increasing presence in adjacent technology product categories, such as consumer electronics (“CE”), automatic identification and data capture (“AIDC”), point-of-sale (“POS”), enterprise computing and storage solutions, and mobility technologies to broaden our product lines and market presence. We create value in the market by extending the reach of our technology partners, capturing market share for resellers and suppliers, creating innovative solutions comprised of both technology products and services, offering credit facilities, and providing efficient fulfillment of IT products and services. With a broad range of products and an array of services, we create operating efficiencies for our partners around the world. 37
  38. 38. 3.2) Vision, Mission, Values Vision Ingram Micro will be universally regarded as the best way to deliver technology to the world. Mission To help our business partners grow and be more profitable, while maximizing value for our shareowners, by: • Broadening the reach of our business partners, connecting them with new markets, technologies and solutions • Earning the respect and loyalty of our business partners through superior value and service • Creating innovative ideas through bright, energetic, customer-focused and talented people Guiding Principle Ingram Micro will achieve results with the highest integrity, with a focus on enhancing the success of our customers, vendors and associates. Values We commit to these values to guide our decisions and our behaviors: • Teamwork We promote and support a diverse, yet unified, team. We work together to meet our common goals. 38
  39. 39. • Respect We honor the rights and beliefs of our fellow associates, our customers, our shareowners, our manufacturers and our community. We treat others with the highest degree of dignity, equality and trust. • Accountability We accept our individual and team responsibilities and we meet our commitments. We take responsibility for our performance in all of our decisions and actions. • Integrity We employ the highest ethical standards, demonstrating honesty and fairness in every action that we take. • Innovation We are creative in delivering value to our fellow associates, customers, shareowners, manufacturers and community. We anticipate change and capitalize on the many opportunities that arise. 39
  40. 40. 3.3) History We began business in 1979, operating as Micro D Inc., a California corporation. Through a series of acquisitions, mergers and organic growth since then, Ingram Micro’s global footprint and product breadth have been expanded and strengthened in North America; Europe, Middle East and Africa (“EMEA”); Asia-Pacific; and Latin America. In 2004, we acquired Techpac Holding Limited (“Tech Pacific”) to significantly boost our market share in Asia-Pacific. From 2004 through 2006 we acquired three specialized distributors to build our presence in AIDC/POS and CE. During 2007 we continued investing in high-growth segments.We acquired VPN Dynamics, a North American network security products training and services provider, and purchased a minority interest of 49% in related company, Securematics, a North American network security products and solutions distributor. We also enhanced our CE presence in North America with the purchase of DBL Distributing, Inc. (“DBL”), a leading U.S. distributor of CE accessories and related products. We further expanded our presence in the European AIDC market through our January 2008 acquisition of Paradigm Distribution, a UK distributor of mobile data and AIDC products. 40
  41. 41. 3.4) Industry The worldwide technology products and services distribution industry generally consists of two types of business: traditional distribution business and the fee- based supply chain services business. Within the traditional distribution model, the distributor buys, holds title to, and sells products and/or services to resellers who, in turn, typically sell directly to end-users, or other resellers. Product manufacturers and publishers, which we collectively call suppliers or vendors, sell directly to distributors, resellers, and end-users. While some vendors have elected to pursue direct sales strategies for particular customer and product segments, we believe that suppliers continue to embrace traditional distributors that have a global presence and are able to manage a large number of products and multiple resellers worldwide and to deliver products to market in an efficient manner. Resellers in the traditional distribution model are able to build efficiencies and reduce costs by depending on distributors for a number of services, including product availability, marketing, credit, technical support, and inventory management, which includes direct shipment to end- users and, in some cases, provides end-users with distributors’ inventory availability. Those distributors that work with resellers to offer enhanced value-added solutions and services customized to the needs of their specific customer base are better able to succeed in this environment. Fee-based supply chain services encompass the end-to-end functions of the supply chain, taking a product from the point of concept through delivery to the customer. 41
  42. 42. Suppliers choosing to sell direct present opportunities for distributors to supply logistics, fulfillment, and marketing services, as well as third-party products in a fee- based model. Similarly, retailers and Internet resellers seek fulfillment services, inventory management, reverse logistics, and other supply chain services that do not necessarily require a traditional distribution model. In summary, distributors continue to evolve their business models to meet customers’ needs (both suppliers and resellers) through provision of fee-for-services programs while maintaining an efficient and low-cost means of delivery for technology hardware, software, and services. 42
  43. 43. 3.5) Ingram Micro India Private Limited Ingram Micro India Pvt. Limited is a subsidiary of Ingram Micro Inc., USA. Established in 1989, IMIPL today is the No: 1 industry having a Turnover of 6300 plus crores with close to 1200 associates in 42 locations. We have extensive market expertise in providing a comprehensive product line from a single source. We enjoy an excellent reputation and market credibility as a leading wholesale provider of Computer Systems & Components, Peripherals and Printers, Networking Solutions, Computer Storage Systems, Supplies and Accessories, Application Software and Support Services. As a subsidiary of Ingram Micro worldwide we bring to India the best of business practices and our state-of-the-art information systems in worldwide distribution. We are committed to be the best wholesale provider of IT products and services in India providing real value to our customers and principals 43
  44. 44. 3.6) Company Strengths We believe that the current technology industry environment generally favors large, financially sound distributors that have large product portfolios, economies of scale, strong business partner relationships and wide geographic reach. Two-tier distribution continues to be an integral element of the go-to-market strategy for IT manufacturers bringing products to market. We deliver value to our partners by making reseller customers more valuable to their end-user customers and suppliers more profitable. We continue to build on the strong foundation we have established over the last several years. We have identified several catalysts for growth in our core business and in new markets. We believe that the following strengths enable us to further enhance our leadership position in the IT distribution industry, expand our leadership position in adjacent technology product categories and generate sustainable, profitable growth. • Global Market Reach and Scale. We are the largest IT distributor in the world, by net sales. Based on currently available data, we believe that we are the market share leader, by net sales, in North America, EMEA, Asia-Pacific, and Latin America. These thriving regional businesses provide a unique global footprint that is unmatched by any of our full-line distribution competitors. Ingram Micro is the only global full-line distributor with operations in the Asia-Pacific region. Our broad global footprint enables us to serve our resellers and suppliers with our extensive sales and distribution network while mitigating the risks inherent in individual markets. Our global market coverage provides a competitive advantage with suppliers looking for worldwide market penetration. The scale and flexibility of our operations enables Ingram Micro to provide the infrastructure behind the technology value chain in all its new and 44
  45. 45. traditional forms. We have local sales offices and/or Ingram Micro representatives in 34 countries: North America (United States and Canada), EMEA (Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Italy, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and United Kingdom), Asia-Pacific (Australia, Bangladesh, the People’s Republic of China including Hong Kong, India, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Thailand, and Vietnam), and Latin America (Argentina, Brazil, Chile, Mexico, and Peru). We have a presence in South Africa through our joint venture with MB Technologies. Additionally, we serve many other markets where we do not have an in-country presence through our various export sales offices, including our general telesales operations in numerous geographies. We sell our products and services to resellers in more than 150 countries. As of December 29, 2007, we had 114 distribution centers worldwide. We offer more than 1,400 suppliers access to a global customer base of approximately 170,000 resellers of various categories including value added resellers (“VARs”), corporate resellers, direct marketers, retailers, Internet-based resellers, and government and education resellers. • Business Diversification. Our ability to execute on new initiatives and adapt to new business models provides a competitive advantage by allowing us to overcome the risks and volatility of a single market, vendor or product segment. • Products. In addition to our extensive market reach, our broad base of products allows us to better serve our customers, as well as mitigate risk. Our broad line card, or catalog of product offerings, makes us less vulnerable to market dynamics or actions by any one vendor or segment. Based on publicly available information, we believe we offer the largest breadth of products in the IT industry. We continuously focus on refreshing our business with new, high-potential products and services. We are focused on moving deeper into new adjacent product categories and globalizing our efforts. We remain focused on our expansion in the mobile convergence market. As one of the few distributors with telecom carrier relationships throughout the world, Ingram 45
  46. 46. Micro is positioned to benefit from the robust demand for smart handheld and converged devices. We believe that these adjacent product categories will provide a solid platform for growth. We continue to invest in technologies that will offer higher growth and value-add opportunities as exemplified by our acquisition of VPN Dynamics, a network security products training and services provider, and by our minority investment in a related company, Securematics, a network security products and solutions distributor. Ingram Micro is increasingly focused on expansion in higher-end technical solutions as demonstrated by the 2007 launch of the Infrastructure Technology Solutions Division in North America and similar groups in other regions, which enable reseller partners to sell and support complex infrastructure solutions and effectively compete against larger and better-funded systems integrators in providing technology solutions. In support of our strategy to diversify revenue streams and expand addressable markets, we continue to build our private label business under the V7 brand. New products and expanded product lines were added during 2007 to our V7 line which is currently distributed in 27 countries. • Services. Service is one of the fastest-growing segments of IT spending. Ingram Micro is intent on building its service offering which will enhance our gross margin profile with no inventory risk while allowing us to bring additional value to our customers and become more connected to our resellers’ enduser customers. Augmenting advances made through the 2006 launch of Ingram Micro Services Division (North America), we continue to roll out new managed services offerings for VARs to offer to their endusers. Ingram Micro often reduces the costs for VARs to deliver IT managed services through the use of our tools and applications, creating value and loyalty among our VAR customers. Ingram Micro Logistics provides end-to-end order management and logistics supply-chain services to manufacturers, retailers, Internet software, hardware and consumer electronics companies on a fee-for-service basis. In certain countries we provide logistics services to cellular/phone operators, including breaking bulk, retail kitting, SIM card administration, and distribution, as well as warranty services for a number of vendors. In addition, we also surround products and programs with our own services to resellers, such as technical support and financing. Although 46
  47. 47. services represent one of the initiatives of our long-term strategy, they have represented less than 10% of our revenues in the past and may not exceed that level in the near term. • Customers. Our focus on diversification extends to the wide-ranging customers we serve in each of our regions. Our customer segments are distinguished by the end-users they serve and the types of products and services they provide. We try to limit exposure to the impact of business fluctuations by maintaining a balance in the customer segments we serve. This diversification strategy has been enhanced with our additional focus on AIDC/POS, CE, home automation and entertainment, and mobility products, which offer new customer segments for our traditional IT products. For example, revenue growth for AIDC/POS products is enhanced by cross-selling IT products to AIDC/POS division customers, as well as offering Ingram Micro customers access to the AIDC/POS division’s product portfolio. We target market segments that provide growth opportunities for existing customers and vendors. The small-to-medium sized business (“SMB”) customer segment is generally one of the largest segments of the IT market in terms of revenue, and typically provides higher gross margins for distributors. Because of the number and dispersion of the SMB companies, it is a difficult segment for manufacturers to penetrate. SMB customers tend to upgrade or add systems often and employ VARs and other service providers for technology solutions in lieu of using an in-house IT staff. Our programs and services are geared to add value to VARs in a number of ways. We serve VARs with a complete “go-to- market” approach to a VAR’s business, including sales, marketing and technical support, training, solutions development, as well as expanding their end-user reach. • Competitive Differentiation through Superior Execution. We are committed to enhancing customer loyalty and share of business by continually strengthening our value proposition. Through our understanding and fulfillment of the needs of our reseller and supplier partners, we provide our customers with the supply chain tools they require to increase the efficiency of their operations, enabling them to minimize inventory levels, improve customer delivery, and enhance profitability. We provide business information to our customers, 47
  48. 48. suppliers, and end-users by leveraging our information systems. As evidenced by a number of awards received by Ingram Micro over the past year. In 2007, Ingram Micro was awarded first place in Fortune Magazine’s 2007 list of “Most Admired Companies” in the Electronics and Office Equipment Wholesalers category. Within this category Ingram Micro was rated number one in innovation, people management, use of corporate assets, quality of management, and quality of products/services. Cisco Systems awarded Ingram Micro its 2006 Worldwide Distributor of the Year award (announced in April 2007) Our operations in Australia, India, and Singapore received several “Distributor of the Year” awards from vendors and channels in 2007. • Strong Working Capital Management and Financial Position. We have consistently demonstrated strong working capital management in both positive and difficult economic conditions. In particular, we have maintained a strong focus on optimizing our investment in inventory, while preserving customer fill rates and service levels. We have maintained our inventory days on hand at a stable range for the last six years as a result of our focused and sustainable initiatives towards minimizing excess and obsolete goods while improving buying patterns on our product flow. Furthermore, we continue to manage our accounts receivable generally through timely collections, credit limit setting, customer terms and process efficiencies to minimize our working capital requirements. Our business process improvement programs have also resulted in improving profitability and higher returns on invested capital, while providing us with a solid foundation for growth. • Continuous Focus on Optimizing Productivity. We continue to seek ways to improve our processes and streamline our business model. We leverage our IT systems and warehouse locations to support custom shipment requirements, and by optimizing delivery methodologies, we deliver faster, while reducing shipping costs. We remain focused on ensuring that our catalog includes the products most desired by our customers, optimizing inventory management, realizing higher margin opportunities, and developing merchandising and pricing strategies that produce enhanced business results. We continue to drive productivity gains through employing the Six Sigma methodology globally. Each 48
  49. 49. regional division is focused on streamlining costs and creating the most efficient infrastructure possible while investing in opportunities for growth. While investments in growth initiatives, processes and systems may result in higher operating costs in the near term, they are intended to lay the foundation for stronger operating margin performance in the future. In order to fully leverage our global operation, we make continuous investments in our IT infrastructure to drive efficiency and provide best- in-class quality in our processes and systems throughout the world. 49
  50. 50. 3.7) Customers Our reseller customers are distinguished by the end-user market they serve, such as large corporate accounts, mid-market, SMBs, or home users, and by the level of value they add to the basic products they sell. They include VARs, corporate resellers, retailers, systems integrators, direct marketers, Internet-based resellers, independent dealers, reseller purchasing associations, and PC assemblers. Many of our reseller customers are heavily dependent on distribution partners with the necessary systems, capital, inventory availability, and distribution facilities in place to provide fulfillment and other services. We conduct business with most of the leading resellers of IT products and services around the world. Our continued expansion in the AIDC/POS and CE markets has generated opportunities to expand sales in our current customer reseller base, as well as add new reseller customers. In most cases, we have resale contracts with our reseller customers that are terminable at will after a reasonable notice period and have no minimum purchase requirements. We also have specific agreements in place with certain manufacturers and resellers in which we will provide supply chain management services such as order management, logistics management, configuration management, and procurement management services. Under these agreements either party can terminate them without cause following reasonable notice. 50
  51. 51. 3.8) Sales and Marketing We employ sales representatives nationwide wide who assist resellers with product and solution specifications, system configuration, new product/service introductions, pricing, and availability. Our product management and marketing groups create demand for our suppliers’ products and services, enable the launch of new products, and facilitate customer contact. Our marketing programs are tailored to meet specific supplier and reseller customer needs. These needs are met through a wide offering of services by our in-house marketing organizations, including advertising, direct mail campaigns, market research, on-line marketing, retail programs, sales promotions, training, solutions marketing, and assistance with trade shows and other events. We also create and utilize specialized channel marketing communities to deliver focused resources and business building support to solution providers. 51
  52. 52. 3.9) Products We distribute and market hundreds of thousands of technology products worldwide from the industry’s premier computer hardware suppliers, networking equipment suppliers, software publishers, and other suppliers of computer peripherals, CE, AIDC/POS and mobility hardware worldwide. Product assortments vary by market, and the suppliers’ relative contribution to our sales also varies from state to state. On a nationwide basis, our revenue mix by product category has remained relatively stable over the past several years, although it may fluctuate between and within different operating regions. Over the past several years, our product category revenues on a consolidated basis have generally been within the following ranges: • IT Peripheral/CE/AIDC/POS/Mobility and Others:. . . . . . . . . . 40-45% • Systems:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-30% • Software: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-20% • Networking: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0-15% • IT Peripheral/CE/AIDC/POS/Mobility and Others. We offer a variety of products within the Peripherals and Others category that fall within several sub-categories: o Traditional IT peripherals such as printers, scanners, displays, projectors, monitors, panels, mass storage, and tape; o CE products such as cell phones, digital cameras, digital video disc players, game consoles, televisions, audio, media management and home control; o AIDC/POS products such as barcode/card printers, AIDC scanners, AIDC software, wireless infrastructure products; 52
  53. 53. o Services provided by third parties and resold by Ingram Micro; o Component products such as processors, motherboards, hard drives, and memory; and o Supplies and accessories such as ink and toner supplies, paper, carrying cases, and anti-glare screens. • Systems. We define our systems category as self-standing computer systems capable of functioning independently. We offer a variety of systems, such as servers, desktops, portable personal computers, tablet personal computers, and personal digital assistants (“PDAs”). • Software. We define our software category as a broad variety of applications containing computer instructions or data that can be stored electronically. We offer a variety of software products, such as business application software, operating system software, entertainment software, middleware, developer software tools, security software (firewalls, intrusion detection, and encryption) and storage software. • Networking. Our networking category includes networking hardware, communication products and network security hardware. Networking hardware includes switches, hubs, routers, wireless local area networks, wireless wide area networks, network interface cards, cellular data cards, network-attached storage and storage area networks. Communication products incorporate Voice Over Internet Protocol, communications, modems, phone systems and video/audio conferencing. Network security hardware includes firewalls, Virtual Private Networks, intrusion detection, and authentication devices and appliances. 53
  54. 54. 3.10) Suppliers Our nationwide suppliers include leading computer hardware suppliers, networking equipment suppliers, software publishers, CE manufacturers, and AIDC/POS suppliers, such as Acer; Adobe; Advanced Micro Devices Inc.; Asus; Canon USA, Inc.; Cisco; Computer Associates; EMC; Epson; Hewlett-Packard; Hitachi GST; IBM; InFocus; Intel; Juniper Networks; Kingston Technology; Lenovo; Lexmark; LG Electronics; Microsoft; Motorola; NEC Display Solutions; Oracle; Palm; Philips; Printronix; Samsung; SanDisk; Seagate; Sony; Sony Ericsson; Sun Microsystems; Symantec; Tom Tom; Toshiba; ViewSonic Corporation; VMWare; Western Digital; Xerox; and Zebra. Products purchased from Hewlett-Packard generated approximately 23%, 22%, and 23% of our net sales in fiscal years 2007, 2006 and 2005, respectively. There were no other vendors that represented 10% or more of our net sales in any of the last three years. Our suppliers generally warrant the products we distribute and allow returns of defective products, including those returned to us by our customers. We do not independently warrant the products we distribute; however, local laws might impose warranty obligations upon distributors (such as in the case of supplier liquidation). We do warrant services, products that we build-to- order from components purchased from other sources, and our own branded products. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Historically, warranty expense has not been material. We have written distribution agreements with many of our suppliers; however, these agreements usually provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries in which we can distribute the products. The agreements also are generally short term, subject to periodic renewal, and often contain provisions permitting termination by either party without cause upon relatively short notice. Certain distribution agreements either require (at our option) or allow for the repurchase of inventory upon termination of the agreement. Even in cases where suppliers are not obligated to accept inventory returns 54
  55. 55. upon termination many suppliers will elect to repurchase the inventory while other suppliers will either assist with liquidation or resale of the inventory. 3.11) Competition Ingram Micro retained its #1 position once again. In fact, it was the best year in terms of growth and diversification post the merger with Tech Pacific. The systems business once again dominated the revenue share, while the consumer electronics business grew significantly contributing more than 12% of its revenues. The consumer PC business saw maximum growth at about 30% despite Ingram dropping the LG product line. It added ASUS to its portfolio and stopped reselling Toshiba notebooks. Ingram’s high-end enterprise business contributed almost 20% to its revenues. Its enterprise software portfolio grew by almost 50% having added the Autodesk and Adobe businesses. Ingram managed to leverage on its excellent base of resellers to launch more products in tier-2 and -3 cities. Its UNIX hardware and software as well as Red Hat businesses performed better compared to FY 07 while the thin client business did not take off as expected. Ingram also started an in-house training cell and began vendor specific training sessions for Red Hat and Fortinet to both resellers as well as customers. We operate in a highly competitive environment in each of the zone in which we operate. Factors that we compete on include: • Ability to tailor specific solutions to customer needs; • Availability of technical and product information; • Credit terms and availability; • Effectiveness of sales and marketing programs; • Price; • Products and services availability; • Quality and breadth of product lines and services; 55