DESIGNING CHANNELS OF DISTRIBUTION

Distribution channels help firms meet customer requirements by taking products from the manufacturer and
bringing it to consumers for eventual sale. Formally, a channel of distribution is a set of independent firms
collaborating to make a product or a service available to end-user for consumption 1. Starting with the very
first link in the chain of distribution, i.e. the manufacturer, it includes all channel partners (such as
distributor, wholesaler, and retailer) that are involved in bringing the product/service to the consumer.

Traditionally, channel partners were involved in a uni-directional flow of products that ensured the supply
from manufacturer to end consumer. However, more recently firms have started to appreciate more
complex channel partner roles. For example, a lot of global as well as large scale local manufacturers are
careful about their reputation and brand image. To send a unified message to customers, their distribution
systems need to be in line with the corporate and marketing strategy. In this regard, companies manage
existing distribution systems such that they positively build their brand’s image or at the very least does not
harm it. Thus, the full spectrum of seller-channel partner activities is not only limited to distribution of
products but also includes: 2

• Information: collection and dissemination of market information and intelligence about competitors
and customers as well as insights about new buying trends.

• Promotion & Image building: conduct activities to increase awareness, educate and persuade
potential buyers (e.g. in store advertising, informal seller-customer conversations) as well as develop
company/brand reputation in the minds of consumers through in-store experience.

• Physical possession: transporting and storing goods as well as handling related issues such as
inventory holding and delivery costs.

• Order and payment: processing customer orders and receiving payments from them.

• After sales service: Includes processing or providing after sales support to customers such as
warranties, repairs, insurance.

CHANNEL TYPES

Many different classification schemes exist to explain types of distribution channels e.g., they can be
segmented on factors such as extent of control, physical structure and network design. Although all these
factors remain important, below, we discuss the overarching customer-firm proximity classification which
defines types of distribution as either direct channels i.e., where customers directly interacts with the firm or
indirect channels i.e., there are intermediaries between the two 3.

Direct Channels:

A direct channel signifies that the company oversees supply chain and distribution by itself (company’s
sales force, company owned stores) to maintain product quality standards and maximum oversight on the
sale process. For example, Siemens uses its own sales force to sell industrial engineering products directly
to potential customers. Similarly, company owned Servis shoe stores is an example of a direct channel,
where company sells its products directly to customers while maintaining maximum control on in-store
experience. In recent years, online stores have also become a popular direct sales channel for companies.

1
Spekman (2009)
2
Kotler, Armstrong, Agnihotri, & Haque (2014)
3
Coughlan, Anderson, Stern, & El-Ansary (2005)

This case was written by Mr Muhammad Luqman Awan at the Lahore University of Management Sciences to serve as basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This material may not be
quoted, photocopied or reproduced in any form without the prior written consent of the Lahore University of Management Sciences.

© 2015 Suleman Dawood School of Business, Lahore University of Management Sciences

Designing Channels of Distribution Draft Version

Initially, these websites were used to disseminate information, but increasingly companies are operating
online shopping stores where consumers come and shop at convenience e.g. lawn: Gul Ahmed
(http://www.gulahmedshop.com/); shoes: Stylo (http://www.stylo.com.pk/). Maintaining company owned
channels require substantial cost for firms not only in setting it up (e.g. human capital, site rentals/purchase,
warehousing etc.) but also in maintaining the quality of services at these channels (e.g. inventory holding &
shipping cost, employee training). Thus, direct channels remain viable for firms for which broader market
coverage is not critical and a limited number of access points can well serve customer requirements.

In-direct Channels:

In some product categories (e.g. cell phone cards, confectionaries, biscuits, FMCG), firms are interested to
cover a broad market. However, most firms lack resources to develop such massive reach on their own,
therefore, they engage multiple channel partners to develop an indirect channel structure. It involves third
party suppliers, distributors and retailers who facilitate firms distribute its products to a wider market. A flip
side of such an arrangement is that firms have lesser control on how their products are actually sold. To
counter this, firms follow different distribution strategies such as intensive, exclusive and selective, to strike
a balance between how much coverage the firm aspires to have and how much control it can forgo.

In intensive distribution, firms stock products at every store in the locality 4. For products used and
demanded every day by consumers, manufacturers have to ensure maximum availability. Any stock
out/unavailability would trigger customer to switch to competing brands as they have little incentive to hold
back their daily requirements. In such situations, the switching behavior is further facilitated by retailers
who would push competitors’ product as they have little interest in letting customer walk off to the next
shop in line. Nestle Pure Life, world’s most popular bottled water brand, follows intensive distribution 5.
Water is consumed throughout the day and there is little incentive for consumers to defer their consumption
needs for any brand in this product category. If a person doesn’t find Nestle Pure Life at the local retail
shop, he/she will buy the next reliable mineral water brand on the shelf. For this reason, Nestle sends loaded
wagons of bottled water to its distributors and retailers across the city every day. This ensures low stock
outs, lost sales and continuous customer loyalty for Nestle Pure Life.

Exclusive distribution is at the other end of the spectrum, where companies form exclusive agreements with
intermediaries to only stock products at their outlets 6. As such intermediaries are not allowed to sell
products from competitors, therefore they get exclusive distribution rights for a geographic area. Such
arrangements are suitable for categories where control on the sales process and customer experience is
important such as luxury automobiles, high end clothing. For example, Mercedes-Benz is distributed in
Pakistan by Shahnawaz Pvt. Ltd 7 only. Such an arrangement suits Mercedes, as product availability at every
showroom is not a major concern and prospective customers will be willing to travel long distances to visit
an authorized showroom. In addition, the level of close cooperation and control offered by such an
arrangement, helps Mercedes ensure exquisite experience to incoming customers and maintain its high end
brand image. The customer-friendly showroom atmosphere, aesthetic product presentation and highly
qualified sales personnel holistically create an ambience which makes the buying process a memorable
experience in itself.

Selective distribution is a mix of intensive and exclusive: maximize coverage and control by keeping
products at certain stores with no exclusive agreements or regulations 8. This strategy is often followed
when substantial infrastructure costs are required for distribution. K&N, a frozen meat and packaged food
(poultry enterprise) company in Pakistan, started its operations in 1964 with the sole objective of providing
better nutrition for the nation. To keep food products fresh, K&N is constrained to have a cold value chain
(freezers) system which restricts it to stock products at certain outlets only. Currently, K&N’s products are
available at company operated stores and large grocery stores.

Multichannels 9

Traditoinally firms would contend by either going for a direct or an in-direct channel structure. However,
over the years market complexities have forced firms to consider mutichannel structures. This refers to a
combination of direct and in-direct channels used simultenously to better serve different segments of the
market. For example, a multichannel structure (also known as hybrid channel structure) would be when a

4
Cespedes (1988)
5
Nestle Pakistan (2015)
6
Cespedes (1988)
7
Shahnawaz (Pvt) Limited. (2015).
8
Cespedes (1988)
9
Frazier (1999) and Rosenbloom (2007)
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manufacturer uses direct channel to serve large customers and an in-direct channel to serve small
customers. If designed carefully, a multichannel structure is more efficient for firms as they can
simultaneously reap benefits of both direct and in-direct structures.

Bata Pakistan is a leading shoe manufacturer with a company valuation of PKR 15 billion. Bata conducts its
sales through two distinct channels, namely retail and wholesale. The retail division includes 300 company
operated stores (direct) and 113 franchises (in-direct). While in the wholesale division, company sells its
products to different distributors (in-direct) who then supply products to tier ‘C’ stores. These stores stock
products from competitors such as Servis, as well as private label store brands. Towards the end of 2013,
Bata launched its online store bata.pk (direct) as another channel for customers to order shoes. Customers
select the color and size of their selected model and can pay either through ‘cash on delivery’ or via
Easypaisa (a mobile shop-shop payment solution). In 2014, a total of 2000 pair of shoes were sold online,
resulting in sales of PKR 3.5 million. Most of the online orders were received from young consumers
residing in urban centers of the country (Karachi, Lahore). Bata does not have any long term aggressive
plans for the internet channel, and wishes to focus more on existing physical channels while keeping the
online store as a convenience option for customers. As the additional channel has low traffic, therefore it
cannot be seen as a source of serious conflict for current channel partners.

Although enticing for broader market coverage, multichannel structures bring their own share of issues such
as reduced intermediary incentive to promote products for sales, inter-channel conflit, territory overlap,
requirement for complex channel management capabilities etc. For example, a challenge often faced by
companies is how to sustainably manage existing channels when new channels are added. Unilever
Pakistan 10 distributes its products through many channel partners including distributors, resellers,
departmental stores, retail shops and small local stores. Sometimes even organizations as big as Unilever
face issues to not let existing channels get disturbed by a major channel partner such as Metro Pakistan 11.
Self-service wholesale is a relatively new concept in Pakistan that has proved quite successful in attracting
huge volumes of customers. Therefore, it is important for manufacturers to slot their products in such stores
by giving them preferential treatments such as greater discounts than smaller intermediaries, regular sales
team visits and in-store advertisements, and be more forgiving if Metro doesn’t keep its part of the bargain.
Quite often it happens, that Metro uses its own sales team of more than 160 people to pass on some of the
preferential treatment that it gets to smaller distributors thereby creating channel conflict for Unilever.
Suppose that Unilever supplies a product to its regular distributors at Rs. 100 and which is eventually
bought by retailers at Rs. 105. Quite often Metro, due to its preferential treatment, gets the same product at
Rs. 95. What if Metro sells the product at Rs. 102 to retailers? Although, written agreements exist to sort
out many multichannel issues, but the success of multichannel structure depends quite a lot on mutual
understanding and trust between the parties to work efficiently. Developing a good structure requires
significant investments in time, commitment and infrastructure which if developed successfully, can also be
a source of competitive advantage.

HOW TO DESIGN DISTRIBUTION CHANNELS

Designing an efficient distribution channel holds strategic implications about how well a firm will cover the
market and meet its objectives. Different firms follow different approaches to channel design structures.
These differences primarily stem from the focus of the process i.e. some companies focus on customers
while others focus on firm’s internal strengths. However, most of the proposed approaches to channel
design do ensure an evaluation of four areas/steps.

They can be referred to as the 4Cs (see Figure 1) of Channel Design: Customer, Competitor, Channel, and
Company 12 (see Case Example: Mausummery Textiles)

10
Unilever Pakistan is the largest FMCG company in Pakistan, as well as one of the largest multinationals operating in the country.
The company enjoys a leading position in most of its core Home and Personal Care and Foods categories, e.g. Personal Wash,
Personal Care, Laundry, Beverages (Tea) and Ice Cream
(http://www.unilever.pk/aboutus/introductiontounilever/UnileverPakistanLtd/).
11
METRO-Habib Cash & Carry Pakistan is part of METRO GROUP’s sales division METRO Cash & Carry, the international leader
in self-service wholesale. The company operates more than 700 stores in 29 countries in Europe, Asia and Africa and has a
workforce of over 100,000 employees. Sales in 2011 were approximately 31 billion Euro (http://www.metro.pk/public/about-us).
12
Adapted from Rangan (2006)
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Designing Channels of Distribution Draft Version

Figure 1: Steps for Channel Design

Start with
Customers

Assess Evaluate
Channel Company
Capabilities Objective-Fit
Benchmark
Competitors

1. Start with the Customers’ Perspective:

The first step starts with managers developing a better understanding of customer requirements. For any
channel design exercise, it is important that managers clearly understand how the customers would want the
products to be delivered to them.

Quite often companies find it easier to understand customer purchase requirements by first segmenting
them into distinct groups. For example, a common segmentation can be done on ‘volume of purchase’
which explains that volume of transaction and level of service required by each set of customers is different.
There could be some customers such as Metro and Al-Fatah asking for bigger lot sizes, while end
consumers walking into the stores usually asks for smaller quantities only. Both these customers vary in
terms of their preference for assortment sizes and expected level of after sales service. By analyzing
requirements of distinct customer segments, managers will better understand demand-chain characteristics
of their customers.

Firms need to critically asses customers’ requirements and vet out those they wish to serve. For example,
some customers would require a higher level of customization or personalized service, but it may not be
feasible for companies to serve each customer individually. Or it could be the case that customers are not
willing to pay the extra price for an additional level of service (such as home delivery or after sales
support). In this the company has to decide whether the additional level of customer satisfaction gained
through a service is worth the incremental costs incurred by the company.

2. Benchmark Your Key Competitor(s):

After understanding your customers, a firm also needs to bench mark itself with competitors. A
comprehensive overview of competitors’ structures to assess its channel service competitiveness and costs
associated with it will be useful. Quite often, some firms (e.g. new innovative startups, market leaders) find
it challenging to conduct a viable competitor analysis. A solution for them is to analyze direct competitors
in similar markets internationally e.g. Telenor assessing the channel structure of mobile financial services in
Africa or India; or to analyze indirect competitor satisfying same or similar customer requirements e.g.
K&N conducting ‘cold distribution chain’ analysis of ice-cream category in Pakistan. As long as there are
similarities across channel functions with another company, the exercise can be seen as a means to improve
your own distribution.

3. Measure Channel Capabilities:

Channel capabilities are best measured with customers’ perspective i.e. which channels perform which
functions the best for the intended target segment. Generally, direct channels are better suited for purchase
situations where product information, customization, quality assurance, and lot sizes are critical for
customers. On the other hand, in-direct channels are better suited when customers search for larger
assortment choices and continuous availability of the product.

4. Implementing Channels at Company Level:

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The last step involves evaluation of the 3Cs and its fit with the firm’s objectives. Major objectives for
distribution channel include maintaining market coverage, preserving product quality and ensuring the
integrity of the buying process at the lowest cost to firm. In addition, firms also aspire to develop channel
structures that can help reach untapped segments of the market.

Normally, this step starts with a discussion on existing channel structure capabilities and how well it serves
customers. Existing channel strengths (step 3) are compared with the requirements of different customer
segments (step 1). Managers identify gaps in the distribution channel between what is needed (ideal
demand-chain requirements) and what is being provided (existing value chain). They also need to identify
any customer requirements which have never been taken care of. Or the ones which are catered by the
competitors (step 2) and not by the firm (step 3). If the problem solving exercise results in creation of new
channels, then it is imperative that firms also assess their impact on the existing value chain. There has to be
concrete value addition to existing distribution channels or the activity would just create more inter-channel
conflict and sore intermediary relations. In situations where existing channel structures are not available as
a starting point for discussions, firms find it convenient to discuss market leader’s channel structure (Step
2). However, managers need to be cautious here, as blindly replicating market leader’s structure would not
serve the firm well. Not all distribution channels are perfect fit for every company and that the market
leader had developed a structure which best fits its own capabilities and constraints only.

In the implementation phase, companies often find it helpful to actively engage channel partners in
execution discussions. Learn what they have to say about proposed changes as they are the ones who will
be affected by such decisions on a daily basis. Channel partners would also be able to offer additional
customer insight: is their opinion in line with customer findings of step 1? If not, why is there a
discrepancy? Having an active discussion with channel partners will ensure that all differences are set aside
before the program is set in action.

Updating Existing Channel Structures:

Channel structures are not static by nature. Regular reviews help sales and distribution managers evaluate
efficiencies of their channel structures over time and asses when revision becomes necessary. Managers
responsible for channel structures should be able to preempt channel revisions once they observe changing
trends in the firm or industry. Thus, active channel management is imperative for continued channel
efficiencies.

Managers would find the 4C framework of channel design useful for channel revisions as well. Any
substantial change or trend within the ‘4C’ should trigger a channel revision and assessment exercise. For
example:

1. Customers are increasingly getting tech savvy and with better diffusion of 3G and 4G networks in
years to come, mobile internet activities are going to see an uptick. Is it time for companies to
make their online stores mobile compatible? Or have a smartphone application that facilitates
information dissemination and mobile based purchasing? Recently, Shaheen Air has added a
mobile application which helps its prospective customers find flight information and reserve
tickets on their mobile phones.

2. Competitor actions often necessitate firms to establish channel structures for parity purposes. Gul
Ahmad, a leading retailer in lawn industry was among the few firms to launch an online store
when such a practice was not prevalent in the lawn industry. Such an action creates pressures on
competitors to follow suit by launching their own online stores, if not, their services will be
considered below par than Gul Ahmad.

3. Channel capabilities are also improving with time. For a significant number of years, a major
handicap for online purchasing was low number of credit card holders in Pakistan. With new and
convenient payment solutions in the market (such as pre-paid internet cards by major banks,
mobile banking, Easypaisa, Cash on-delivery payment services), should companies take online
channels more seriously? Stylo, a leading ladies shoe brand has successfully leveraged cash on-
delivery payment services to create an efficient online shop with a significant chunk of online sales
coming from rural areas.

4. Companies often launch new products and services that necessitate revision or reconstruction of
existing channels. When Telenor launched its financial services product Easypaisa they had to
redefine their retailer relationship. They used their existing franchisee network but had a more
selective set of retailers who could conduct Easypaisa transactions.

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TRENDS

Recent years have seen some phenomenal changes related to channels. Below we discuss few major ones:
Internet 13

Internet usage has become a regular activity of modern lifeystle, especially, among the younger generation.
However, most firms are struggling to use it efficiently. Most webpages are informaton centered (product
details, company history etc.) and only few firms have attempted to fully leverage it as an additional
purchase touchpoint for customers. Product categories which involve high information searching such as
music, movies, books, are better served with internet as a sales channel. The internet already allows
customers to check status of their orders, find information about new products and read product reviews. In
designing online shops, firms should be careful when they sell same products provided to distributors as
this creates inter-channel conflict and may lead to potential misalignment of firm-distributor preferences.

Self-Service/Modern Trade:

Modern trade includes outlets with consumer self-service. According to an estimate in FY2013-14, around
27 percent sales 14 for Unilever came from modern trade. This includes local modern trade such as Al-Fatah
(Lahore) and Imtiaz stores (Karachi), and international modern trade such as Metro and Hyperstar. Because
of its rising influence, modern trade asks for preferential terms and to satisfy their requirements companies
have established separate departments for key accounts such as “modern trade”.
Retailer Power:

Power is the ability of one channel member to force another to do something it would not have done
otherwise. With the advent of internet, it was expected that the intermediary power will reduce. However,
the simultaneous proliferation of brands had resulted in in an increase in retailer power 15.

Retailers gain their power by virtue of their market reach and volume of sales. In recent years, they have
gotten accustomed to more actively using it for preferential treatment from firms. For example, an orthodox
practice was that firms would receive payments for goods even before delivery 16 whereas these days
retailers make payments after receiving goods. Interestingly, in more competitive industries (e.g. Telecom
sector), distributors/franchisees even maintain an active credit system with their retailers i.e. retailers pay
after few days of receiving the good/service. This increasing power is not only exhibited in preferential
payment mechanisms, but has also led in greater demand for merchandising and additional margins for any
activity conducted at the store.

Excessive use of retailer power to negotiate unfavorable bargain terms for firms can lead significantly
damage the relationship. For example, back in 2012 17, K&N’s decided to part ways with Metro and Makro-
Habib Pakistan (recently merged to form Metro Pakistan) because of a pricing conflict. According to
K&N’s CEO Khalil Sattar, the company was being forced to charge higher prices to customers coming to
buy K&N’s products at the stores. They were also asked to pay for advertisements placed inside Metro
stores and supply products to Metro at a discounted rate. In response to the never ending battle between
K&Ns and its distributor, the poultry firm advertised a public message in newspapers across the country
(see figure 2).

For K&Ns, it was more feasible to exit the partnership instead of creating dissatisfied customers out of price
hikes at such stores. The products which were initially being sold through Metro can now easily be bought
at K&N owned Chicken Stores. In the words of Mr. Sattar: “If we accept their demands, we will have no
choice but to increase prices of our products that will neither help the customers nor the producer. We could
have considered this demand had our sales at Metro and Makro shown an upward trend. Our sales have
increased all over the country except for Metro and Makro so why should we pay more to them.”

13
Adapted from Frazier (1999), Rangan (2006), and Spekman (2009)
14
Industry Analyst, Personal Communication, 2014
15
Ibid.
16
Ibid.
17
Zaheer (2012)
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Designing Channels of Distribution Draft Version

Figure 2: K&Ns ending its Partnership with Metro 18

19
CHANGING PHILOSOPHY

Once channel structures are put in place then it’s time to manage them efficiently. Previously, channels
were considered as vertical integration of actors where products moved from the manufacturer through
distributor, reseller, and retailer to end consumers (see figure 3). It was a step-wise progression of product
from one end to the other. This approach was devoid of integration between partners and each actor worked
in isolation with their profit motives and interests at the forefront.

Figure 3: Evolution of Distribution Channel Paradigms 20

Old Paradigm New Paradigm

Channel value chain: vertical system Channel value chain: horizontal collaboration
Incentive system: relay race Incentive system: team sport
Channel value chain a black box Channel value chain increasingly transparent
Profit pool not always within reach Increasing access to profit pool

18
Source: http://www.express.com.pk/images/NP_LHE/20120519/Sub_Images/1101525681-1.jpg
19
Adapted from Rangan (2006)
20
Rangan (2006)
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Designing Channels of Distribution Draft Version

The more recent paradigm views channels as a horizontal cooperation between channel partners in which
multiple distributors and retailers work in tandem to promote the product for eventual sales. This
collaborative approach ensures team work where everyone is rewarded equitably for their efforts. Firms try
to establish trust between partners and transparency in activities while intermediaries take increasing
ownership to push the product down the channel for sales. Companies are increasingly adopting this
practice and have started to actively involve intermediaries in company activities e.g. Unilever sends its
distributors to international sales conferences to develop a better firm-distributor relationship and to
demonstrate a sense of mutual well-being. Good organizations demonstrate to intermediaries that close
team coloration leads to win-win situation for all the partners involved in the process.

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CASE EXAMPLE: MAUSUMMERY LAWN

With changing lifestyles Mausummery lawns was faced with the situation where most of the leading lawn
brands had developed online shops. In order to assess the merits of adding this new channel to the existing
distribution channel structure, an application of 4C framework is demonstrated:

CUSTOMER

People walking in to the store usually involve females in the age bracket 20-40 years. They value the luxury
of time and choice afforded to them, and hence prefer to spend 45-50mins at the outlet to browse through
different products on display. Prospective customers remain quite interested to see the whole range of
products on display.

The buying process is information intensive and consultative in nature. Prospective customers come up with
a lot of pre-purchase discussions on designs through varying sources such as recommendation by friends,
online searching, current trends etc. To reduce dissonance, buyers spend considerable time on the shop and
engage in active conversation with the salesperson. The assistance and presence of knowledgeable
salespersons is highly appreciated by these customers, specifically when sales staff help you look for the
right color and fabric of your choice.

COMPETITOR

In 2012, the top 15 lawn brands in Pakistan sold a total of 9.5 million suits. Of these, Gul Ahmed and Al-
Karam accounted for 3.9 million and 2 million respectively, while Mausummery sold 0.16 million. The
total turnover for these 15 firms resulted in a contribution of PKR 23.9 billion in 2012. With more than 75
brands in the country, leading companies such as Gul Ahmed provide the benchmark for Mausummery to
aim at 21.

Gul Ahmed sells its products through multiple channels including its flagship stores, wholesalers, exclusive
branded outlets (EBO) and multi brand outlets (MBO). EBOs are company owned outlets that stock
products only from Gul Ahmed, while MBOs such as Bashir Sons (Mall Road, Lahore) contain products
from Gul Ahmed, Sitara fabrics and other cloth manufacturers as well. Online distribution is a recent
channel which is now being employed by major fabric and clothing brands. Gul Ahmed, Al Karam and
Kayseria now provide the option of online purchase and shipping of orders to any destination in Pakistan.
Customers have given favorable response to this convenient option and are making orders with an
increasing frequency, putting greater emphasis on online distribution for all brands.

CHANNEL

With regards to its channels, Mausummery initially maintained retail stores and an information only
website. In retailing, company operates a total of 35 outlets in Pakistan, of which 10 are owned and
operated by the entity itself while remaining are franchised outlets (25). Franchises are mainly for Tier 2
(Faisalabad, Multan) and Tier 3 (Sahiwal, Bahawalpur) cities of Pakistan, while Tier 1 cities such as
Islamabad, Lahore and Karachi are covered by company owned stores.

Mausummery has managed growth through franchised outlets by offering some of the most attractive terms
in the business to franchisees. Competitors often demand up-front payments ranging from Rs. 3 million to
Rs 5 million as non-refundable franchise fees. In comparison, Mausummery asks for only Rs 0.5 million as
a non-refundable franchise fee and Rs. 1 million as an advance for stock. A major issue with franchisee
operated stores is that franchise owners are not knowledgeable and motivated enough to deal with
customers on their own. They do not offer excellent service quality and luxury of time as demanded by
consumers. Franchise owners are interested in return on investment, while executives at Mausummery are
more worried about their brand equity.

Currently, 80 percent of sales is from company outlets, even though they are only ten in number. Remaining
sales (i.e. 20 percent) come from 25 franchised outlets. The critical decision in keeping franchises is
whether Mausummery wishes to venture in Tier 2 cities on its own. Doing so will also require a substantial
level of investment from the company itself.

21
Nawaz, M., Personal Communication, 2015
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Designing Channels of Distribution Draft Version

COMPANY

Mausummery started in 1997 and operated with only one outlet till the year 2011. By 2013, in its sixteenth
year of operations, Mausummery was ranked amongst the top ten lawn brands in Pakistan. The company
launches a separate product line all four seasons of the year (fall, winter, spring, summer). Each collection
is marketed through newspapers, billboards and mobile advertising. For Mausummery, 85 percent of
revenues are derived from lawn prints, while 15 percent come from linen.

To retain its position in the top leading lawn brands, the company has to ensure that its distribution structure
satisfactorily meets customer requirements. Analysis of customers, competitors and channel structures leads
the firm to identify few areas of concern:

1. Customers like to spend time and browse through the complete range of designs.
2. All major competitors have launched online stores and customers are increasingly preferring the
convenience to shop online.
3. Franchisee stores are not working as required thus impacting sales and the brand equity.
4. Tier 2 and Tier 3 coverage is not strong enough to induce customer satisfaction.

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CONCLUSION:

In order to address some of the identified issues, Mausummery recently launched the service of online
purchase and home delivery for its products with cash on delivery option. These products are mailed via
TCS, and payments to the courier company are made every 15 days by Mausummery. All outfits displayed
on the website are also available at Mausummery stores and are priced the same on both channels.
According to Mansoor Nawaz (Chief Operating Officer, Mausummery Textiles), maintaining the same
ecosystem online and at stores is very important to send a unified, integrated message to customers.

As customers value the presence of after-sales service for any problems in product fabric and stitching of
suits bought from a Mausummery store, the company has a dedicated customer support helpline for
complaints and queries. The response time is 24 hours for suits returned for repairs and stitching. Customers
can either hand over their clothing items at the store or send them in a package via courier.

The company has witnessed encouraging results in a short time. Interestingly, majority of the orders are
coming from Tier 2 and Tier 3 cities. One reason could be that customers in Tier 1 cities are satisfied with
the level of service provided at company owned stores whereas in franchisee operated areas (Tier 2 and Tier
3 cities) customers are not satisfied with in-store experience or product collection. Mansoor Nawaz is quite
optimistic about the prospects of online selling and expects that in years to come, online sales will account
for 20% of total sales because it offers convenience of browsing the full selection of products while at home
and simultaneously consulting with family members as and when they are available. Mausummery sees
online channel as an alternative to maintaining low performing franchise operations in Tier 2 and Tier 3
cities.

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REFERENCES

Cespedes, F. V. (1988). Channel management is general management. California Management, 31(1), 98

119.

Cespedes, F. V., & Corey, E. R. (1990). Managing multiple channels. Business Horizons, 33(4), 67-77.
Frazier, G. L. (1999). Organizing and managing channels of distribution. Journal of the Academy of
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