The BESTX Method for Sustainably Managing Networks and Channels

Management for Professionals Distribution Strategy Livio Moretti The BESTX® Method for Sustainably Managing Networks and Channels Management for Professionals More information about this series at htt.

Management for Professionals Livio Moretti Distribution Strategy The BESTX® Method for Sustainably Managing Networks and Channels Management for Professionals More information about this series at http://www.springer.com/series/10101 Livio Moretti Distribution Strategy The BESTX® Method for Sustainably Managing Networks and Channels Livio Moretti INSEAD European Institute of Business Administration Paris, France ISSN 2192-8096 ISSN 2192-810X (electronic) Management for Professionals ISBN 978-3-319-91958-4 ISBN 978-3-319-91959-1 (eBook) https://doi.org/10.1007/978-3-319-91959-1 Library of Congress Control Number: 2018943454 # Springer International Publishing AG, part of Springer Nature 2019 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Endorsements “This book provides valuable insights and a managerial approach to Distribution Strategy and Pricing, including a comprehensive assessment on how to apply its tools in the continuously evolving business environment.” —M Bonaccorso, Group CFO – PartnerRE “Historically, distribution Channels—the 4th P in the marketing mix, has been the least glamorous of the marketing mix variables The reality today is radically different Product proliferation, media fragmentation, intermediary power, e-commerce, m-commerce, etc., among other things have conspired to place a premium on effective Channel design and management Unfortunately, there is a dearth of practical advice on how firms can build an effective distribution Channel management Livio has leveraged his wealth of experience to create a compelling book which will help leaders and their organizations to design and execute state-ofthe-art Go-to-Market Channel strategy.” —Paddy Padmanabhan, Chaired Professor of Marketing at Insead, Academic Director Recognized in the Ten Most Influential Management Science Authors “A much-needed book that raises awareness about the roles of Distribution and Commercial Strategy A timely contribution, nice to read and well substantiated Very useful for crafting and developing a winning Distribution strategy.” —Adrián Zicari, Full Teaching Professor Management Accounting and Control Department, ESSEC Business School Paris “A must-read book, very pragmatic and customer-oriented Especially useful for managers who always wondered how to get efficient and effective results without experiencing negative outcomes No to mention the focus on the pharmaceutical industry in the appendix, very insightful!” —Anne-Flore Maman Larraufie, Academic Director of ESSEC’s advanced master of Strategy and International Business v vi Endorsements “Although entitled “Distribution Strategy”, Livio Moretti’s book goes beyond distribution strategy per se Indeed, it encompasses multiple Management approaches such as Commercial Policy and Pricing Strategy and relates them all to a well-integrated set of management tools useful for all levels of business managers Based on a long professional experience, especially in the consulting and pharmaceutical sectors, it takes a pragmatic approach and describes the intricacies and pitfalls related to distribution in all business sectors, to emphasize the best practices in the field A “must read” opus, all the more as good books on distribution management are so rare!” —Hubert Faucher, Permanent Professor, ESSEC, B2B Management and Marketing, Key Account Management Foreword The business environment is becoming increasingly volatile and complex The 33-year average tenure of companies on the S&P 500 in 1965 narrowed to 20 years in 1990 and is forecasted to shrink to just 14 years by 2026 This should be a flashpoint for executives; with this churn rate about half of the S&P 500 will be replaced over the next 10–15 years A plethora of factors, such as tougher competitive landscape, channel consolidation, price pressure, rising R&D costs, stricter regulation, supply-chain sophistication and emerging market instabilities not to mention the disrupting force of digital innovations and robotics, lie behind the necessity to rethink the way a company operates Corporations’ performance has recovered since the last global turmoil, but not because of a revenue growth Remarkably, what has helped report better earnings has been a renewed focus on how the core business is effectively managed The difference between the trends of revenues and profits is a clear indication of efficiency gains: within years after the crisis, the earnings growth has been twice the corresponding increase in revenues.1 Having reduced expenses as deeply as possible and with no signs of demand uptake in their markets, many organizations had no other option than (re)focusing on their internal capabilities Competitive advantage, nowadays, has a very short life span Bringing an innovative product to market can be costly and, often times, provides only a few months head start Therefore, leaders need to figure out, while their competitors are catching up, how to maintain the edge Yet if the case for bringing an organization to upscale its capabilities is clear, how to it is less certain A recent survey2 concluded that nine organizations out of ten are far from implementing any of the most basic Commercial Excellence principles Excluding the historical sectors that adopted and developed the discipline, the adoption rate ranges from to 10%, surprisingly still very low In the period 2009–2011, the cumulated S&P 500 companies’ revenues have grown by 8%, while the EBITDA has improved by 17% The survey was carried out in 2013 on 313 revenue managers and pricing professionals working in international medium and large organizations vii viii Foreword This book fills a gap by focusing on Distribution Management, one of the core Commercial Excellence domains Its areas of application are vast and the rewards are immense when thoroughly applied, enhancing the financial performance and creating the conditions for a sustainable competitive advantage The following pages guide the reader through the steps required to strategically and practically reshape the Distribution Channels The approach is based on the methodology adopted by Fortune 100 multinationals developed together with management consultancies and condenses the experience of hands-on transformation initiatives with an abundance of concrete examples, visual frameworks, templates, and checklists This is a manual conceived to be used not just read; it is a dialogue with a business school classmate who turned into a Distribution and Pricing expert As a good friend, he would support you through an overly theoretical and generalist literature just providing what you need to know to lead a transformation program and materialize tangible, durable results I am sure that everyone will enjoy the read and will get that inspiration needed when embarking on such an exciting journey McKinsey & Co New York, NY, USA Kiran Raghavapudi Acknowledgments Over time, this book has benefited from the influence of a large number of people, and it would be a daunting task to recall the names of General Managers, pricing experts, heads of marketing, sales directors, and regional teams who have significantly, often unconsciously, contributed to shaping the concepts exposed and to whom I owe a debt of recognition In particular, I would like to acknowledge the support of Kiran Raghavapudi, Engagement Manager within the Pricing Practice of McKinsey & Co., who has enhanced with an experienced eye the overall methodology, sharpening the concepts and polishing the flow He also authored the Diagnostics section, explaining how private equity managers assess organizations maturity I also wish to renew my gratitude to Francesco Puppini, a seasoned data scientist, who has been introducing Business Intelligence tools to large corporations for almost two decades Francesco has written an enlightening overview of Data and Systems explaining how organizations can make the most out of their most valuable intangible assets Antoine Tran Quan Nam deserves a special mention Antoine did significant research in the Revenue Management area with ESSEC Business School, a leading French institution and contributed to this book with bibliography research, theoretical sections, and practical examples issued from his current role leading Gross to Net projects globally for a large Pharmaceutical company I wish to express my recognition to all the subject matter experts who had the patience to proofread the manuscript and suggest very valuable improvements In particular, Carolina Heitmann who has implemented various Commercial Excellence initiatives globally for a chemical manufacturer and Javier Hyman, an experienced finance senior professional, who has orchestrated several various Gross-to-Net initiatives in the Generics and FMCG sectors Javier has provided enlightening insights on value chain analysis and pricing waterfalls Finally, I thank my family for the unshakable patience and undimmed support throughout the (long) process of writing a book ix 8.7 Data Analytics Frameworks 199 Brand Customer 50,0% Commercial policy as percentage of gross sales 40,0% Customer 30,0% Customer 20,0% Customer 10,0% -20,0% -10,0% Customer Customer Customer Customer 10 0,0% 0,0% -10,0% Customer Customer Customer 10,0% 20,0% 30,0% 40,0% 50,0% Net sales growth Fig 8.8 Customers’ commercial policy and net sales growth Source: Antoine Tran Quan Nam Figure 8.8 presents customers’ incentives as a proportion of Gross Sales with Net Sales growth over two selected periods The size of the bubble represents the Gross Margin growth The aim of this chart is to provide a view of the “customer mix evolution” For example high-margin customers with high growth will impact the margin positively, whereas low-margin customers with high growth will be margindilutive The bubble chart can be run by brand instead of by customer We can even analyze the portfolio of a specific customer The same analysis can be done at a Brand level helping us understand the optimal allocation of marketing Push expenditure across the portfolio Key Questions • • • • Is the commercial policy generating net sales and gross margin growth? Are customer investments justified? Which customers are margin dilutive? Which customers positively impact gross margin? Should we invest more in these customers? • If we run the Brand analysis: how should be reallocate the incentives by brand? Where can we expect the highest IROI? 200 350 Gross / net price Business Intelligence Volume in millions units 300 18 16 14 250 12 200 10 150 100 50 0 2015 Q1 2015 Q2 2015 Q3 Gross Price 2015 Q4 Net Price 2016 Q1 2016 Q2 2016 Q3 2016 Q4 Volume in Millions Units Fig 8.9 Gross price, net price and volume evolution for a particular brand Source: Antoine Tran Quan Nam Figure 8.9 compares gross price, net price and volume evolution for a particular product (or SKU) over time The analysis can be completed by an assessment of price/volume elasticity Key Questions • How are volume, gross to net incentives and price evolving? • How are price and volume changes correlated? • What are the learnings in terms of Commercial Policy and Incentives budgeting? 8.7 Data Analytics Frameworks Key Points 201 • Spend time to understand how internal/external information can be leveraged Invest proportionately to the value added by the usage of data • Ensure your Data Marts are interconnected and the resulting warehouse is consistent Consider Data Lakes if your business would benefit from the processing of unstructured data Nevertheless Keep it simple • Focus on getting the right technology solution and having the analytical experience necessary to make appropriate technology choices • Do not get lured into fashions but choose based on precise benefits analysis; often times a self-service BI can be the ideal choice • Remember the importance of Modularity and not place all your bets in User Acceptance Testing Perform analytical and sample testing • See your environment as a learning lab, adapt to changes, and ensure effective governance Start small and think long term • Identify a core set of analysis (as we have shown in the appendix) that help you identify correlations, efficiencies and maximize the IROI Annex A: Case Study—The Pharmaceutical Industry In the most basic terms, Pharmaceutical Laboratories are involved in the research, development, production, and distribution of medicines Their prominent role involves granting the broadest possible access to drugs to treat and prevent both human and animal diseases The industry provides a good example of a sector grappling with mounting external pressure and focused on improving its operational performance One undisputable sign of the deteriorating environment is the relative decline in valuations compared to other sectors Small and Large Laboratories alike need to leapfrog their performance management Partially because of their good financials, they have for too long lagged behind other industries in many areas including the management of their sales channels In this context, the redefinition of the go-to-market models and distribution strategy is no longer an option but has to be seen as a fundamental leg of a longer and muchneeded transformation journey A.1 Challenges and Scenarios Among the most profitable industries globally and with a demand growing at mid-single digit, the sector accounts for yearly revenues skirting one trillion dollars Nowadays however, witnessing the disruptive events to which the Drug Makers are confronted, the golden age seems to irremediably head towards an uncertain future The healthcare system as a whole is in fact in transition and faces several ecosystem disruptions Challenging regulatory environments, tougher competition, pricing erosion, and aging business models all pose significant threats On the other side of the coin, we see several challenges To set the scene we can start by saying that it is one of the most complicated due to strict regulatory environments, manufacturing specificities, R&D challenges and multiform value chain structures Regulation is country specific and concerns every aspect of the business like intellectual property, research and development, pricing, distribution, commercial policy and advertisement (Fig A.1) # Springer International Publishing AG, part of Springer Nature 2019 L Moretti, Distribution Strategy, Management for Professionals, https://doi.org/10.1007/978-3-319-91959-1 203 204 Annex A: Case Study—The Pharmaceutical Industry Fig A.1 Pharmaceutical trends and implications The industry is also highly fragmented (Fig A.2) It includes various actors such as research laboratories, development centres, final dosage form manufacturers and active ingredients producers, distributors and wholesalers, prescribers and key opinion leaders, independent pharmacies and chains, payers (governments and insurances), regulators and governmental agencies, technology companies, healthcare providers (public or private hospitals and institutions), patients, patients associations and so on As we can easily imagine, the interplay among these entities involves a relevant element of complexity In addition, the cost of introducing new medicines in the market has skyrocketed over the last years and reached now astronomical figures, frequently exceeding two billion dollars At the same time, the uncertainties associated with the discovery, development, and approval stages have surged In particular, the risks associated with R&D have become more and more critical The FDA and EMA, the American and European agencies responsible for authorizing new drugs, are increasingly reluctant in granting national patents To add fuel to the fire, increasing competition and the race to the top in finding the next blockbusters exacerbate the Production and distribution Annex A: Case Study—The Pharmaceutical Industry Laboratory R&D, commercialization Drug development Pharmaceutical Laboratories 205 Distribution Sales Others Distributors Pharmacy Institution Agents Clinics Hospitals P a t i e n t s Financing Pharmaceutical industries Mutual Funds, Insurances, Healthcare Benefits, etc Charity Regulation Doctors Governments Regulation authorities Medicines Information Money Fig A.2 Illustrative value chain in the pharmaceutical sector commercial risks Genomics and new technologies are significantly accelerating the speed of innovation thus making product market-cycles shorter (as witnessed in other industries) The growing popularity of combination therapies (AIDS for example but also many types of cancers) is contributing to the healthcare R&D costs inflation If this was to gain momentum, authorities would most likely intervene and exert additional price pressure on the entire industry In today’s environment, with increased public funding constraint and with more savvy patients, both volume and prices are coming under pressure Governments and insurers are struggling to contain their expenses and healthcare benefits might soon start being reduced However, there is a rapid change in the source of future revenues as while governments in many emerging markets are making healthcare a priority, their budgets surge invoke legislation favoring local producers versus expensive multinational brands1 Overall with increasing life expectancy and an aging population, patients will have to finance more of their healthcare costs and will become more selective, informed and increase their preference for generics and self-medication This will impact directly manufacturers’ profitability and revenue mix Besides, with the In China with the QCE act, the government is not only increasing price pressure but also raising the quality standards of local production Russia grants easier access and price benefits to local products in public tenders, and operates an effective price freeze for imported medicines on the essential drugs list (EDL) 206 Annex A: Case Study—The Pharmaceutical Industry digital era and the increasing access to the diagnostic devices and deeper knowledge not to mention the power of real-world evidence, patients are starting to play a prominent role in decisions related to their health and finances Novel aspects of medical practice will also contribute to the cost pressure Physicians have never been more cost-conscious and their renewed focus on affordability, which is echoed by compliance, is bolstered by the abundance of benchmarking possibilities The Internet is, in fact, providing them with a wealth of information to prescribe drugs in a more cost/efficient manner The ecosystem changes have also increased Payers2 scrutiny Over the last years, private and public payers’ relevance has grown and has forced drug firms to reconsider their net pricing, i.e the Commercial Policies When products are not strongly differentiated from what already exists in the market and not bring a real value-added to patients, there are few chances that they will be reimbursed Moreover, pharmaceutical companies have to face new standards to evaluate the benefits of new drugs on patients’ life and health Many governments, target a decrease of the so-called “Burden of Disease” and are now even asking for a new development phase to evaluate the long-term economic, social and life improvement impact The emergence of the Real World Evidence (RWE) approach is a clear indication of the trend Thus, this new environment forces Laboratories to adapt to regulators’ and payers’ new requirements using value-based criteria to evaluate the potential of a new therapy and adapt their operating model where the patient value is at the core of drugs development and commercial decisions3 As an immediate imperative, they need to update obsolete clinical trial plans that are unlikely to meet new required standards In parallel, they focus on short-term performance and improve product commercialization capabilities The revenues growth will be originated in the future from different parts of the world Emerging markets will be an important contributor to pharma sales growth over the next few years Analysts expect around $200 billion sales growth in developing markets, of which almost half linked to innovative products The enthusiasm of the emergence of these new markets is however tempered by an equally rapid improvement of local drug makers R&D capabilities and quality standards, especially in China Another topic keeping awake at night CEOs and Authorities relates to counterfeited drugs trends Counterfeit puts patient safety at risk and lead to significant loss of sales for the original product’s manufacturer4 According to the international manufacturer association, it is estimated that, globally, drug out of 10 is produced illegally With the term “Payers” we indicate the entities that finance and reimburse the cost of health services such as insurances, social safeties or other third parties Accenture—Approval is nothing without Reimbursement: why Pharmaceutical Companies Need a Value Management Operating Model, 2015 Behner P and Dr Bünte Matthias – Getting to Grips with the supply chain Booz&Co, 2007 Annex A: Case Study—The Pharmaceutical Industry 207 Besides these challenges, the pharma industry faces also obstacles in decision making Data and analytical capabilities have become an evident competitive advantage in an industry which is becoming more competitive and digital The challenge ahead is to set up a consistent, homogeneous and structured data system on a global scale to convert its different datasets into decision-making tools through analytics capabilities Unsurprisingly though, data collection and performance measurement prove more difficult than in other industries particularly due to the regulatory environment and data protection laws which limit the deployment of basic performance KPIs found in other sectors It is therefore complicated, with a limited visibility, to measure sales reps performance, who are responsible for promoting prescription medicines to doctors and other healthcare professionals Therefore, senior managers in the industry face particular challenges in measuring performance5 and motivating their human capital A.2 Strategic Options and Distribution Strategy At the light of all these factors what are the changes most likely to occur and what are the effects on the Distribution Strategy of the strategic options available? Traditionally integrated Laboratories will have soon to redefine their business model and, if they don’t want to bail-out, they need to decide what role they intend to play: specialized players or industry orchestrators? Fundamentally we see three strategies: • Orchestrate: Orchestrators will increasingly purchase services or products from third parties It is already possible to build an entirely virtual company through strategic alliances, in-licensing and outsourcing Although most traditional Laboratories will not likely become virtual, increasing “orchestration” will be more common Those that decide to remain prominent research organizations will have to build a network of alliances and partnerships in order to compete Biotech companies in early research stages might benefit by accessing technologies, patent space and fill portfolio gaps through in-licensing CROs would extend their development reach and CSOs would take advantage of sales and marketing economies of scale Interestingly many third-party vendors have gained significant weight, for e.g., Quintiles has been recruiting more patients than any given Big Pharma • Focus on core areas: Others Laboratories instead might follow a more focused approach and specialize on product categories (OTC, generics, vaccines, biotech, bio-similars), R&D phase (e.g.: just Preclinical, early stage or late stage), technology (e.g.: Genomics), therapeutic area (e.g.: just cardio-vascular), disease Claire Dambrin and Keith Robson thoughts about how tracing performance in the pharmaceutical industry are inspiring Their research focuses on how inscribing sales representatives activities and linking them to drug 208 Annex A: Case Study—The Pharmaceutical Industry (e.g.: screening, prevention, genetic profiling, treatment, services for Breast Cancer), market segment (e.g.: elderly, children, rare disease .) • Bail-out: Diversified businesses might choose to opt out, focusing on other areas of the value chain (Marketing, Sales, Manufacturing, .) or in other areas of the corporation altogether (Chemicals, Agro, Consumer goods, Petrol ) thus spinning off their entire Pharma division This was the case of DuPont who announced it would exit the Pharma business in the year 2000 Most companies will probably follow an in-between scenario i.e “Orchestrate and Focus”: focusing on their key strengths and competitive assets while passing multiple alliances to fill their gaps and outsourcing non-core competencies Besides the challenges, it is worthwhile mentioning that the combination of the Biological and Digital revolution is offering new promising opportunities However, in the short run, it also brings additional strategic choices: significant investments in technology platforms, the emergence of new scientific skills, new and complex areas to explore (e.g Pharmacogenomics), process redesign of clinical trials to leveraging digital capabilities, redefinition of the scientific property space In most of these fields, smaller niche companies have taken a lead, initiating a phenomenon often referred to as the “deconstruction of the value chain” How these emerging scenarios are going to impact the Pharmaceutical Companies Distribution? The relationship between distributors and manufacturers seemed to be unchangeable but modifications of the economic environment over the last years, the boom of generics and the increasing pressure from regulators and payers have already put in motion a shift in the balance of power The consolidation among Pharmacies and Distributors and intensifying competition have sent prices of US generic medicines into a tailspin and Global Pharma is scrambling to adjust Emerging markets companies, in particular from India and China might gain consistent market share in the decade to come due to their competitive pricing and quality improvements In addition, two decades of Mergers, Acquisitions, spin-offs, carve-outs, alliances reinforced a trend of vertical and horizontal consolidations • Horizontal integration Through wholesalers M&A and alliances, the Distribution channel has been acquiring a dominant role in the industry Likewise, pharmacies witness a similar trend, the fact of being part of a buying group or a franchise allow independent outlets to be part of something larger and have a stronger negotiation standpoint Moreover, it allows them to get information and data from the “mother” company and provide a more accurate view of the market dynamics Since 2014, 1000 independent pharmacies have closed in Mexico each year In Russia, we expect market consolidation to increase from 50 to 70% in the retail segment The European and American markets have been for a long time on a consolidation trend with now few players controlling most of the share of wallet Horizontal pharmacy integration into buying group or vertical integration of wholesalers and chains decreases the Manufacturers’ bargaining power Annex A: Case Study—The Pharmaceutical Industry 209 Horizontally integrated entities are increasingly negotiating global contracts and cement their strong position This will notably increase their bargaining power and will force the Laboratories to find creative ways to rethink their Distribution Strategies in order to avoid marginalization • Vertical integration In addition to the horizontal integration, where allowed, wholesalers are acquiring pharmacy chains thus increasing their control on the value chain For example, McKesson–Celesio, the world leader in health service with over 100 billion euros turnover (which is higher than the revenues of the largest Pharma company), is the owner of the famous British pharmacy chain Lloyds In South Africa, the integrated wholesalers Dischem and Clicks are national market leaders and own distribution centres and pharmacy chains It is a win-win situation as Wholesalers can directly control the retail market and for pharmacies, it is an occasion to negotiate better terms with the manufacturers At the same time new operational models are emerging Pharmaceutical suppliers need to deal with large wholesalers which control the pipeline into hospitals or public tender markets, Therefore smaller competing laboratories are forced to unite forces if they are to sell their brands to large institutions New collaborations both vertical and horizontal are developing with regards to competition and other suppliers In this delicate transition, a more “enlightened” management of the Distribution Channels becomes a priority for Pharmaceutical Manufacturers Ensuring that patients interests are properly preserved, that profitability is fairly shared along the value chain and that their business objectives are well integrated into the Distribution Go-to-Market models is key This requires an increased focus on building proper capabilities and anticipating/mitigating risks Distribution risk management has become a top-of-mind issue for General managers around the world—nowhere more than in pharmaceutical companies Identifying the strategic partners and defining an effective Commercial Policy becomes an imperative even for the most traditionally managed laboratories A Final Remark An efficient distribution is the lifeblood of a business, it can radically bolster a vendor financial performance and stand between success and marginalization It can be achieved only by promoting inclusive leadership, cross-functional collaboration, lateral thinking and data-driven decision making The corporate culture is still one of the core predictors of a successful transformation initiative For this reason, we need to foster an environment where all stakeholders are incentivized to bring new ideas, develop sound business judgment, take risks (especially on reversible decisions), adopt a robust and action-oriented decision-making approach and privilege speed to bureaucracy Opinions might differ on several topics but the organization should be perfectly aligned on values, vision and business goals The goal, let’s not forget, is to create an environment where suppliers and their value-chain partners can thrive, where a win-win approach can create prospects for growth and profitability for all parties Well managed Distribution Channels not only improve the short-term financial performance, by reducing costs and increasing sales but also play a crucial role in shaping a dynamic and well-functioning ecosystem They lead to an enhanced competitive position, an effective execution of the go-to-market plan, an efficient allocation and use of resources and more enlightened and engaged teams # Springer International Publishing AG, part of Springer Nature 2019 L Moretti, Distribution Strategy, Management for Professionals, https://doi.org/10.1007/978-3-319-91959-1 211 Glossary Analytics The science of examining data in order to discover meaningful patterns, make conclusions and improve organizational performance Bucketing Analysing customers by groups and segments Channel A channel is defined as the set of interdependent organizations involved in the process of making a product or service available for consumption or use Consumer behaviours The attitudes and process used by customers, including individuals, groups, and organizations, when selecting, purchasing and disposing of goods and services Customer segment A group of customers defined according to the segmentation objectives Customers can have, but not necessarily, commonalities Customers’ perception The impression and/or awareness that a consumer has of an organization or of its products, services or brand(s) Dealer An independent reseller, generally authorized by a number of vendors to provide support to end users Distributor A company purchasing and reselling goods or services to subdistributors, retailers or directly to consumers Unlike agents, they take title of the goods In addition to this selling role, they generally provide support, logistics services, promotional activities, after-sale services and might grant credit to their clients, hence incurring in business risks In exchange for these activities, they apply a mark-up to their sales and receive discounts and rebates from their suppliers Distribution channel The chain of intermediaries, including individuals and organizations, which allow a product to reach the end consumer A distribution channel may include agents, wholesalers, distributors, sub-distributors, retailers and online channels Equilibrium price The point at which the amount of a product supplied and the amount of demand for the product are in balance Frustrated demand Demand for products and services which cannot be met by the supply Gross to Net As the term suggests, Gross-to-Net corresponds to the difference between gross sales and net sales Accounting-wise it can be calculated as the sum of sales allowances, discounts and returns; when expressed in relative terms # Springer International Publishing AG, part of Springer Nature 2019 L Moretti, Distribution Strategy, Management for Professionals, https://doi.org/10.1007/978-3-319-91959-1 213 214 Glossary it is divided by the Net Sales Some companies relate it to Gross Sales, we consider this not ideal It represents the portion of the product value, which is employed to remunerate the channel partners in order to promote and sell our product Key performance indicators Measures of performance used to benchmark and monitor the progress of an organization Price fences rules Rules established to prevent consumers to move from one segment to another in an attempt to pay a lower price Price sensitivity Degree to which changes in the price of a product affect the demand for the product Pricing tactics Pricing techniques, including short-term price variations, adopted by an organization in order to achieve a particular objective For example, offering a temporary discount, introductory free products, price-decoys, skimming, trip-wire Stocking reseller A company that carries inventory Most distributors and some independent rep carry inventory, but some distributors are non-stocking distributors Strategic planning Process of defining the long-term strategy, or direction of the organization, and making decisions 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Method for Sustainably Managing Networks and Channels. .. even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors... reshape the Distribution Channels The approach is based on the methodology adopted by Fortune 100 multinationals developed together with management consultancies and condenses the experience of hands-on