Lc's Distribution Strategy & Comparison Between Different Distribution Channels

LC's Distribution Strategy & Comparison between different distribution channels:

LC's business was always built around its core industrial product lines i.e., anaerobic and industrial CA adhesives. Loctite's distribution strategy is to reach a worldwide sale capability in the chemical adhesives industry. Loctite wants to offer a full range of sealant and adhesive products which meet the different needs of its customers. The company provides a great support to distributors, training the distributor's salespeople, demonstrating new products in seminars, and explaining cases where the product has been used. The different distribution channels are through independent distributors, representative offices, exports agents, joint ventures, acquisitions of others distributors and subsidiaries.LC followed different distribution strategy was different for one country from other. They followed selective distribution that allowed them to provide superior levels of service. They had two or three distributors covering any market so that end users had a choice of suppliers.

In any market they enter, first step is to identify independent distributors based on their own criteria like previous experience, reputation among customers, reputation among other distributors existing distributors and their product lines. The entire process of identifying distributors took between two to three years. They also train the distributors to sell the product as LC followed value based pricing against common cost based pricing. LC also helped in developing the market at its nascent stage and helped in expanding the market beyond its core products. Over the period they buy stakes and completely own their distribution channel. This strategy was a success in many countries and failed in few countries for instance in Netherlands, the local distributor who handled for about 20 to 30 years failed to sell equity in his business to LC. Later LC went with a different distributor and finally the distributor started selling LC's competitor's product.

Their distribution channels differ in terms of products and nature of products. It is always better to have their own distribution channel as they have better control of the market, can handle end users professionally and better margin. But investment per se it is difficult to invest in multiple markets at its nascent stage. LC was expanding at a rapid face in 80s to 90s so investing in multiple countries at the same time was not a feasible choice. LC concentrated in Europe first and due to economic slowdown they are now targeting other emerging markets. The nature of North American, Europe and Europe are different in terms of customers, their needs and size hence cannot be compared.

How does LCs channel strategy differ between the domestic North American market and international markets?

In North America, Loctite sells approximately through 1,600 outlets across all over the country. Distributors ranged from small outlets to Loctite's biggest customers. Loctite focused in selective distribution that is the reason for not being represented in most of the 50,000 potential outlets. The selective distribution allows a superior level of service for its customers, adding more value to the product. Loctite always looked for two or three distributors representing the same market, so its customers had the choice of a different supplier. Distributor had an attractive return, ranging from 30% to 35% of margin. The industrial distributors were structured into 12 regions.

LC chose selective distribution strategy and the nature of distributors varied from distributors with single outlet to LC's largest customer - Bearings Inc., They had 2 to 3 distributors to cover any market such that its customers have choice of selection for distributors. They trained customers hoping that the distributors in future will be in a position to train their customers regarding usage of products. In case of maintenance market they followed intensive distribution with separate brand name "Permatex". When distributors apply for a region already covered sufficiently LC encourage these potential customers to sell Permatex, their aftermarket brand. They had 1600 outlets selling LC's mainline product and they may carry Permatex but the 5500 distributors can only carry Permatex and not Loctite branded products.

LC followed opportunistic export sales initially to Canada, Australia, UK and Japan. They also acquired few companies overseas to expand their market during 60s to 80s. Since 80s they had their manufacturing plant/ joint ventures in Europe, Australia, Chile and Venezuela. By 1992 about 40 % of sales of LC were from Europe with better earnings when compared to NA region. They acquired equity stakes in distributors since early 70s. They granted new distributors exclusive rights in its territory and provided extensive support. After initial support Loctite business personnel continued to visited every a distributorship at least monthly, while senior regional officers visited at least quarterly and Butterworth and/or Freeman visited at least once in a year.

The contracts were open ended and not for specific fixed term. They evaluate distributors on continuous basis and had the reserving right to renew the contract or terminate the contract with a notice of six months. However the right to terminate a contract was very rarely exercised by LC. In international development unlike NA region the customers have to be trained for usage and sellers have to be trained for selling on value pricing rather than cost pricing. LC took care of both and also they invested along with distributors in developing markets.

Loctite's strategy was to penetrate in a country market with a relationship with a distributor, and increasing stake in this market, and eventually getting the business ownership. They establish their core business and usually the distributors sit