ALESSI Evolution of an Italian Design Factory

1. ALESSIEvolution of an Italian Design Factory Marketing Management Team C EMBA ’06

2. How to control and expand distribution without compromising the brand image?

3. Distribution Structure Distribution and the Brand Image Challenges Next Step

4. Why Controlling Distribution? • Control Brand Image • Problem of heterogeneity in retailer strategies over product display • Diversity in distribution channels • Recovering from price and brand confusion of past ten years • Increase turnover

5. Distribution Structure • Use distribution as • A channel of distribution • Diversified channels: retail outlets, museum stores, gift shops, … • A place to increase brand equity • Luxury retail shops in Italy • Offering: between shopping and specialty • Design-oriented table and kitchen products • Shopping goods (not convenience goods!): about 50% purchases as gifts, wedding presents, Christmas: overall 25-30% of annual sales. • Specialty goods: best sellers like M.Suicide, Magic Bunny, etc… • Consumer side distribution structure • ~1983: Change into streamlined distribution system

6. Distribution Structure 1983: streamlined distribution system Manufacturer Manufacturer • Hybrid channel administration • Indirect for orders and direct for deliveries • Agents: independent or company-owned subsidiaries • Benefits: increase of control in distribution, reduction of functional discrepancies, reduction of delivery costs, economies of scale in order management, better mapping in assortment of goods and better services by company-owned subsidiaries orders - deliveries orders Independent Distributors Single Country Independent agents or subsidiaries deliveries orders orders - deliveries Retailers Retailers

7. Distribution Structure • Shift in market coverage strategy • From intensive distribution to selective distribution: • Agents as independent entities in exclusive geographical areas • From 9000 retailers in 1989 to 5000 in 2000. streamlined distribution system • PUSH strategy • Induce cooperation with retailers, keep inventory low, display products, and visibility on shelf spaces to win voluntary co-operation. Manufacturer orders Single Country Agent deliveries orders Retailers

8. Management of Power in Distribution Channels • Avoidance Strategy • Differentiation: design oriented and product naming • Focus: Table and kitchen, high-quality • Reduction in costs: Reduction in delivery costs by streamlined distribution system. • Lately: Resistance and confrontation strategy • Diversification of channels: selected retailers, own stores, licensing • Controlled distribution system

9. Management of Power in Distribution Channels • Power Management increased by streamlined distribution system • Better control over products and shorter delivery channels thus reduction of costs of opportunity. Services: support in merchandising, inventory risk, training service offering Coercive sources basic offering Threat of revocation Retailer churn=5% in ‘03 Power Trainings Merchandising Reference value Identification Non-coercive sources

10. Distribution and the Brand

11. Distribution on Brand Image • Consistent retail experience to strengthen the brand • Benefits: Customer Loyalty, more inelastic consumer response, greater trace cooperation and support, possible licensing opportunity • Shop-in-shop for control over product display, demanding retailer commitment: ask for minimal surfaces • Mono-brand stores: show rooms and flagship stores • ’03: 3 moves to expand distributionwhile increasing customer-based brand equity value: • Consistent retail experience • Increasing retail penetration in key markets • Licensing the Brand for newer types of products like watches and cars

12. Distribution Challenges on Brand Image • ~80s: Too intensive distribution system • Price discrepancy between luxury retailers and others • confusing brand image • Constant control challenge over product display, merchandising and pricing • Though selective approach, Licensing still putting at risk the brand image by partners controlling manufacturing and distribution. Other retailers Luxury

13. Next Step: Multiple Trademarks