This research work is a copyright material protected under Berne Convention, the copyright Act 1999 and other International and National enactments, in that behalf, on Intellectual property. It may not be reproduced by any means, in full or part, except for short extracts in fair dealings, for research or private study, critical scholarly review or discourse with an acknowledgement without written permission of the Directorate of school of graduates, on behalf of both author and the Open University of Tanzania.
This dissertation is dedicated to my dear aunt Rose Karau Massawe for her parental love and assistance during my educational pursuit.
She has been the light of my life. This dedication is extended to my wife Herieth Thomas and son Maxwel for their patience and encouragement. First and foremost I thank the almighty God for giving me good health and resources to conduct this research work. His protection and blessings has been the light in accomplishing this work. I here express my thanks to SBC Tanzania – DSM Plant management; General Managers Mr.
Peet Brits and Mr. Anmar Elkhalil; Route to Market managers Mr. Promod Nair, Mr. Godlisten Mende, Mr. Niraj Navraj, Mr. Sanam Mahambrey and Mr. Bhavick Patwa; to Area Sales Managers, the whole sales team and to the SBC distributors for providing valuable information to me. The provision of the information and the knowledge is the foundation of this dissertation.
I also express my sincere gratitude to my supervisor Dr. Salum Mohamed for his good guidance and constructive criticism I received while working on this dissertation.
I also extend my thankfulness to Dr. Tumaini Katunzi for his guidance in this dissertation and to all academic staff of the Faculty of Business Administration of the Open University of Tanzania for the valuable assistance during the whole period of this study.
My deepest thanks go to my dear aunt Rose Karau for incalculable contribution in academics and life. Thanks to the family of Karau Massawe for their inspiration and encouragement, and to my lovely wife Herieth and son Maxwel not only for their endurance of my long absence from home, but also for their prayers and for giving me the requisite peace of mind and assistance.
Effective distribution has become a big challenge to Fast Moving Consumer Goods especially carbonated soft drinks manufacturers. SBC Tanzania (Pepsi bottler) shifted from direct selling to indirect selling model operating through the appointed distributors; termed as route-to-market model. The objective of this study was to assess the effectiveness of this strategy to FMCG – carbonated soft drinks category as implemented by SBC Tanzania Dar es Salaam Plant specifically investigating the stock availability/stock norm maintained by distributor, examining how effective is just in time stock supply, determining the extent to which customer service has been improved and examining the extent to which market feedback has been improved.
Stratified sampling of 50 respondents consisting of SBC Sales team and distributors was selected; using both qualitative and quantitative research approach in data collection. Questionnaires, interview, observation and documentary review were the tools used in collecting data before analysing them by SPSS.
Findings showed that route-to-market was somehow effective; market feedback was immediate, customer service was improved, and stock was available but not across the range. There were discrepancies noted on having enough warehouses, price was escalated by distributors’ salesmen, territories were not fully served and utilised as a result sales volume was not satisfactory leading into lost market share, decreased profits, and low products visibility in the market.
Global competition, a key aspect in today’s business boardrooms, has forced organizations to compete as demand chains as opposed to individual entities in order to outdo their rivals by improving the physical distribution and service quality of their products through provision of high customer service levels while minimizing the logistical related costs (Friday et al 2011). According to Deloitte Touche Tohmatsu review on soft drinks (2005), the beverage industry is extremely competitive, with private labels greatly influencing the environment. The beverage market includes several different products that can be grouped into two main categories: alcoholic (beer, wine, spirits) and non-alcoholic (carbonated soft drinks, juice, water, sports drinks, etc.) Within the soft drink sector, carbonated soft drinks (CSD) continue to dominate the market, encompassing traditional flavored beverages as well as sugar-free and caffeine-free drinks, which have soared in popularity. Simultaneously, manufacturers are focusing on innovation in order to maintain growth.
The global carbonated soft drinks industry is a tight oligopoly with Pepsi and its chief competitor Coca Cola, comprising 70% of the total market (Angelkov et al, 2003). Three leading companies have prominent presence in the soft drink industry; the Coca-Cola Company, PepsiCo, and Cadbury Schweppes. According to the Coca-Cola annual report (2004), it has the most soft drink sales with $22 billion (Deichert et al 2006).
While Coca-Cola Company (KO) has a higher worldwide share of carbonated soda beverages, PepsiCo has a more diverse product line and leads the industry in non-carbonated soft drink innovations (PepsiCo, 2008). PepsiCo’s revenues are substantially higher than Coca-Cola’s, due to PepsiCo’s snack and convenient foods business, a market in which KO does not participate. Global beverage sales for PepsiCo in 2000 were $7.6 billion; however, sales growth has averaged only three to four percent in mature markets such as North America (Angelkov et al, 2003). PepsiCo Annual report for the year 2010 reveal that more than 45 percent of its revenue come from outside the United States, with approximately 30 percent coming from emerging and developing markets. Globally, PepsiCo operates more than 100,000 routes, serves approximately 10 million outlets almost every week and generates more than $300 million in retail sales every day (Pepsi Co, 2010).
In recent years, the beverage industry globally has been faced with new opportunities and challenges. Changing consumer demands and preferences require new ways of maintaining current customers and attracting new ones. Amid ever-increasing competition, beverage companies are intensely urged to court customers, offer high-quality products, efficiently distribute them, ensure safety, and keeping prices low – all while staying nimble enough to exploit new markets by launching new products. In this environment, success depends on a company’s ability to quickly capitalize on emerging opportunities (Ray, 2012).
CSD in Africa is dominated by Coca Cola and Pepsi cola. Pepsi has distribution agents across Africa and operations in Nigeria, Ghana, Tanzania and Kenya (all under SBC Ltd), Uganda, and South Africa where it returned in 2006, after withdrawing in 1985 in protest over apartheid adhered to different social imperatives and suffered exceptional low market shares as a result (Spivey, J.K., 2009).
Beverages industry in Tanzania especially the CSD is experiencing ever growing stiff competition due to high quality brands, competitive prices, high integrated marketing communication, and new entrants to the core cola giants Coca-Cola and Pepsi. From year 2000 we have witnessed new companies and brands mushrooming in the market; Anjari, Sayona, Azam, Sippy soda, and latest launched MO Soda from Mohamed Enterprises Limited in 2014. However, the option for substitute products (juices, drinking water, tea, energy drinks etc), corresponds to the five competitive forces as propounded by Michael Porter (1985). In an interview with Aboubakar Bakhressa the Executive Director of Bakhressa Group conducted by Voices of Tanzania (www.voicesoftanzania.com) he says “…then back in the beverage side we now produce Uhai drinking water, Azam juice produced from the local fruits and as well as our new branch of business Azam Cola carbonated soda, which we are competing with the big boys Pepsi and Coke Cola”
Carbonated soft drinks manufacturers in Tanzania are however abiding to Kotler’s propounded marketing strategies; Product, price, promotion, and placement (Kotler, 2009) in implementing their marketing strategies and beat competition. However, the challenge lies on the effective distribution of their products keeping in mind the nature of consumers, infrastructure, economies of scale and creating job opportunities to others (in a distribution network). CSD consumers in Dar es Salaam Tanzania buy what is convenient and affordable to them simply because of the ever growing stiff competition, weather condition which favors consumption and the nature of the country’s economy (Michael, 2006).
This case is similar to Seven-up Bottling Company (SBC) Tanzania Limited the sole bottler of Pepsi-Cola range of products in Tanzania whereby the key problem in effective marketing goals lies on effective distribution of the soda to the final consumer; how to make the products available at the points of sale (POS), at the required time. For many years SBC Tanzania adopted the two models of distribution; direct selling and indirect selling (Michael, 2006) which were the most successful channels of distribution. Direct selling which involved company’s route sales truck selling to the retailers points, though costful was the most successful strategy in terms of opportunities exploitation, new product launching, customer service and accounts retention due to strong tie made between the company and its customers through salesmen. Indirect selling involved selling to retailers through middlemen; distributors and stockists/wholesalers (SBC Tanzania Annual Report, 2012).
However, Kottler and Keller (2009) urge that channel arrangements must be reviewed periodically and modified when distribution is not working as planned, consumer buying patterns change, the market expands, new competition arises, innovative distribution channels emerge, and the product moves into later stages in the product life cycle.
Distribution channels are probably the most visible aspect of any company’s marketing efforts. Distribution channel is defined as a chain of intermediaries through which the product is passed down the chain to the next organisation viz. distributor & retailer, before it finally reaches the consumer (Ray, 2012). The distribution network plays a vital role in maximising sales and market share of any FMCG company as a result of deeper market penetration, efficient product availability and promotion (Ray, 2012).
A documentary review from the Zambia Post Online on Tuesday 24th December 2013 authored by Chibamba Kanyama (www.postzambia.com) on Route-to-Market, postulates that the sales and distribution department enjoys more attention than any other department in a company because it links all departments in a company in achieving set goals. He further stresses that the products that Zambian Breweries produced were on the table of every Zambian household across the country, 24 hours a day, seven days a week and that every bottle that was accessed and consumed had been paid for. The principle being finance would only recognize a sale when money hit the account. Kanyama was stressing out how MNCs are ruthless on their business transactions, giving no chance of insolvency and any possibility of liquidity challenges by having a business distribution model called Route-to-Market.
A study by Friday (2007), recommends that in the quest to improve physical distribution service quality (PDSQ), other factors like; inadequate storage facilities, low electricity and information communication technology penetration rates among other factors, should be given an attention.
In Tanzania particularly Dar es Salaam the hub of the country’s economy, there are many carbonated soft drinks manufacturers operating in the region and the nearby regions. These include Bakhresa Food Products under Azam Group Ltd manufacturer of Azam soda, Anjari Soda Ltd manufacturer of Anjari soda from Tanga, Mohamed Entreprises Ltd manufacturer of MO Soda, SBC (T) Ltd manufacturer of Pepsi, Coca Cola Kwanza Ltd manufacturer of Coca cola, Sayona Drinks Ltd manufacturer of Sayona soda, and Super Sip Ltd manufacturers of Sippy soda. All these companies are registered by Tanzania Food and Drugs Authority (TFDA) (www.tfda.or.tz)
Due to stiff and mounting competition which has been eased among other issues, the favorable country’s trade policy, Coca-cola and Pepsi (who used to dominate the carbonated soft drinks market in Tanzania) have been opting short term and long term different marketing strategies to retain and gain more market share, earning profits, making the stock available meanwhile observing their role on paying their fees to their respective franchisors.
Effective distribution (meaning that making the stock available at the right time with the right quantity and or flavor to the point of sale) has become a big challenge to these giant CSD manufacturers. Both SBC and CCK used to distribute their soda to outlets (point of sale) directly by using their sales trucks (Michael, 2006). Due to challenges which were being experienced day to day such as high traffic, impassable narrow or rough roads, truck breakdowns, high risk of losing cash/money from sales, high stock demand in the market, and most of all high costs of operations, direct selling model was not a productive strategy. These companies slowly started looking for middlemen, whom they termed stockists to assist in distribution of stock in their areas, making the stock available to retailers (outlets) and consumers. Therefore both direct selling and the new model – indirect selling were used by these companies.
However due to low margin which was given to these stockists, plus shortage of unsporting logistics (enough warehouse and distribution trucks) these companies realised that yet distribution was not effective as expected. Stocks were not available to outlets as expected therefore these companies changed their models of distribution. CCK Ltd in 2004 June, opened depots in different areas of the city and upcountry and operated directly from there to the market. These depots were then given to people whom the company approached and narrated about the operational model. They were then called Manual Distribution Centres (MDCs) and Key Distribution Centres. This distribution strategy was termed as Route to Market whereby distributors were being facilitated by the company with conditions in hand; – given high margin, given a defined territory, personnel support, and distribution trucks. This model has been an effective strategy to CCK since then.
For SBC Tanzania Ltd, route to market started in April 2012 (SBC Sales &Marketing Operation Manual, 2012) with similar features to CCK Ltd’s. However, in the implementation process of RTM, SBC has witnessed different challenges with impact on dropped sales volume and dropped market share (putting new companies entering in the industry, and other factors aside). The author was interested to assess the effectiveness of the model in ensuring that effective distribution was being done; whether the appointed distributors comply with the outlined or set SBC RTM checklist, considering the nature of the economy, and the infrastructure available, and whether the company was prepared enough to support the implementation of the model. It was the intention of the researcher to investigate the applicability of this model of distribution from direct distribution and indirect distribution to modern businesses especially the fast moving consumer goods industry. This study was conducted at SBC Tanzania Limited – Dar es Salaam Plant to represent the FMCG sector especially the beverage industry; carbonated soft drinks in Tanzania for they are always purchased by many consumers.
This research work is beneficial to different stakeholders. First and fore most the study is important to any cost conscious, profit oriented company especially fast moving consumer goods industry which have an obligation to manufacture and or sell in order to excel in its business operations. In this case SBC Tanzania Limited can learn something from the outcomes of this study so that its RTM strategy can be meaningful in this stiff competitive carbonated soft drinks industry. This complies with Friday (2011) research work that the study provides more efficient distribution options that could be applied by the soft drinks manufacturing firms to increase customer services and satisfaction.
Also the study is relevant to third party operators; – distributors and wholesalers in deciding which bottler to work with if the checklist is compatible to their business plans. Some companies are forcing third party operators to be exclusive dealers meanwhile the margin is lower than its competitors’ and sometimes cash flow is slow compared to competitors’. The study has also gave a chance to policy makers in eyeing the effects of distribution strategy in means of alleviating poverty, and attain the Millennium Development Goals which calls for companies to assist women as they are the drivers of the economy (Source: United Nations Women, 2014) .
Moreover, this study is relevant to business consultants who are mostly working on distribution strategies. Findings in this study reveal how far companies can use RTM in excelling in their business operations meanwhile checking the challenges that may limit.
This study focused on effectiveness of route to market distribution strategy to fast moving consumer goods industry – carbonated soft drinks category. The study was conducted at SBC Tanzania Ltd the sole bottler for Pepsi products in Tanzania, basically the DSM Plant which looks after Dar es Salaam, Pwani, Unguja, Lindi, Mtwara, Morogoro, Dodoma and Tanga regions.
Other plants or areas were left out because Dar es Salaam is the hub for all the physical distribution operations, facing a lot of challenges considering the mounting competition and increasing population density meanwhile putting into consideration the likely limitations on funding, the time frame within which this study should have been completed, it was not possible that the whole country could be covered effectively. However, the findings from Dar es Salaam provide a true representation of RTM in different companies/plants in the country.
This study is organized in five chapters. The first chapter was on the background, preliminary issues on the objectives of the research, research questions, and the relevance of the study. Chapter two is about digging in the secondary data from different literatures; conceptualizing, reviewing theories, and the conceptual and theoretical frameworks.
In chapter three, the methodology used in this study is presented; the research design, sampling procedure, methods of data collection and tools for data analysis. Moreover, chapter four covers data presentation, data analysis, and data interpretation. Different analyses were done based on research questions which emanates from the specific objectives of this study. Presentation of the findings is done before recommendations and conclusion is drawn in chapter five. To supplement the study, list of references made is also presented to acknowledge the works of others.
This part will be based on literature review. Literature review is an important tool in demonstrating relevance and significance of the problem (Mbwambo, 2010). Different scholars, journals, books, newsletters, company documents and reports, web pages, dissertations review, and any other fruitful literatures will be used in the course of answering the research questions presented in the previous chapter.
Dutta (2011) defines a channel of distribution, or marketing channel as the structure of intra-company organization units and extra company agents and dealers, wholesale and retail through which a commodity, product or service is marketed.
Channels of distribution as defined by American Marketing Association are an organized network (system) of agencies and institutions which, in combination, perform all the functions required to link producers with end customers to accomplish the marketing task (AMA 2009, as cited in Dutta, 2011)
Kottler (2009) defines channel of distribution as a set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business. Kottler (2009) further insists that channel of distribution is an important element as every producer seeks to link together the set of marketing intermediaries that best fulfill the firm’s objectives. This set of marketing intermediaries is called the marketing channels also known as trades channel or channel of distribution.
Moreover, Stanton (1985) defines channels of distribution for product as the route taken by the title to the goods as they move from the producer to the ultimate consumer or industrial user. Similarly Cundiff, et al., (1985), lament that marketing channel are the distribution network through which producers’ produce, flow to the market. A marketing channel system is the particular set of marketing channels employed by a firm (Kottler and Keller, 2009). According to these authors, decisions about the marketing channel system are among the most critical facing management; – For instance, in the United States, channel members collectively earn margins that account for 30% to 50% of the ultimate selling price, whereas advertising typically accounts for less than 7% of the final price.
The current reorganization of distribution has been made possible through technical development progress in manufacturing technology, particularly in terms of shorter lead times, has made new distribution configurations available. Improvements in logistics efficiency have affected the conditions of physical distribution; Information technology – a key tool in the restructuring process, has been instrumental both to improvements in terms of joint coordination of activities and to companies’ strategies and operations, both on the selling side and the buying side ( Hulthén and Gadde, 2007).
Business dictionary (www.businessdictionary.com/definition) defines FMCG as frequently purchased essential or non-essential goods such as food, toiletries, soft drinks, disposable diapers. Majumdar (2004) defines Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods (CPG) as the products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, over-the-counter drugs, toys, processed foods and many other consumables.
Ray, (2012) defines fast moving consumer goods as low involvement products which are easily purchased by the customers interchangeably as per their convenience; Brand switching is very common, that is if a product is not available in one brand, the consumer would conveniently purchase the same product of another brand. Moreover, Çelen, et al., (2005) reveal that FMCGs constitute a large part of consumers’ budget, its supply to households attracting considerable interest from consumers and policy-makers in daily provision of the essential products at high quality and low cost. It is further stated that typical purchasing of these goods occurs at grocery stores, supermarkets, hypermarkets, lamenting that every one of us uses fast moving consumer products every day (www.fmcg.ws).
Carbonated Soft Drinks (CSD) are the sweetened, non-alcoholic drinks containing carbon dioxide, excluding tea-based products (included in iced tea drinks) and any products meeting specific sports or energy performance-enhancing claims included in sports drinks and energy drinks respectively (Canadean, 2008).
The soft drink industry is concerned with the production, marketing, and distribution of nonalcoholic, and generally carbonated, flavored, and sweetened, water-based beverages (Encyclopedia.com, 2014). Harvard Dialect Survey done by Vaux (2011) reveals that a soft drink (also called soda, pop, soda pop, fizzy drink, seltzer, mineral, lolly water or carbonated beverage) is a beverage that typically contains carbonated water, a sweetener and a flavoring. The sweetener may be sugar, high-fructose corn syrup, fruit juice, sugar substitutes (in the case of diet drinks) or some combination of these. It is further stressed that soft drinks may also contain caffeine, colorings, preservatives and other ingredients. Soft drinks are called ‘soft’ in contrast to ‘hard drinks’ (alcoholic beverages). Small amounts of alcohol may be present in a soft drink, but the alcohol content must be less than 0.5% of the total volume.
By the year 2001 in USA, the soft-drink industry included approximately 500 U.S. bottlers with more than 183,000 employees, and it achieved retail sales of more than $61 billion. Americans that year consumed an average of 55 gallons of soft drinks per person, up from 48 in 1990 and 34 in 1980 (Encyclopedia.com, 2014).
SBC Tanzania Limited is in Tanzania since 2001 (www.sbctz.com) producing, marketing and distributing carbonated soft drinks from PepsiCo (Pepsi, Diet Pepsi, Mirinda, Evervess, Mountain Dew, Seven Up) having plants (factories) in Dar es Salaam, Mwanza, Mbeya, and Arusha.
A route to market is the distinct process through which a product or service can be selected, purchased, ordered, and received by a customer. In other words, it represents a “format” for accessing a customer base (Jindal et al., 2006). Route to market is defined by encyclopedia online (May 2014) as the supply chain that a product follows to get to the final consumer.
Kohlmann, (2014) defines route to market as a ‘path’ or ‘pipeline’ through which goods flow in one direction (from supplier to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the supplier). For Tata Strategic Management Group in India (2014), route-to-market is defined as a mix of channels and type of channel intermediaries chosen by a company to facilitate the flow of its products/services from its warehouse or service delivery location to its multiple targets. A Route-to-Market (RtM) for a typical FMCG company (in India) could comprise a mix of the Company-Distributor-Retailer model in urban markets, the Company-Super Stockist/Substockist-Retailer model in rural markets and the direct-to-retail model for organized retailers. In India, companies have innovated their RtM to give themselves an edge over competition in both urban and rural markets (Tata Strategic Management Group, 2014)
Furthermore route to market is more than just the distribution of products and services; “it is a way of thinking, a way of making new connections with customers to exploit new commercial opportunities. It is the essence of the way customers and a business interact (Jindal et al., 2006)
From above scenarios, route to market is the way companies define its distribution strategy to ensure effective distribution is being done. While others rely solely on direct distribution from the plant/factory to the point of sale in this case retailers where final consumer can get it easily, other companies opt for indirect distribution by having middlemen who can either be agents, wholesalers, stockists/super stockists, before product is sold to retailers.
Market orientation is the extent to which a firm focuses deeply on the needs and preferences of end customers, as well as centering on competitor initiatives (Frazier, 1999). Frazier further stresses that while receiving considerable attention in the general marketing literature, market orientation had been ignored in the channels literature whereby it was found that the market orientation of the supplier organization is positively related to the market orientation of the distributor and distributor commitment to the dyadic exchange relationship. How distribution channels are organized and managed will likely influence the market orientation of entire industries as well as individual firms therein.
Channel bonding capabilities are valuable to market-driven organizations, as they promote market sensing and intelligence sharing within the channel system. However, Frazier (1999) is challenging that an empirical research into these possibilities would be valuable. Moreover, additional research is needed into the relationships examined by Siguaw et al. (Lee et al., 2008), including a better understanding of why and how one firm’s market orientation will affect the commitment of associated channel members.
Customer orientation is about creating customer value, understanding customer needs, and providing and measuring customer satisfaction (Narver and Slater, 1990). Usually, a firm creates value for its customers by either increasing the benefits or decreasing the cost of purchase. This orientation is manifested, for example, in the target marketing strategy followed by a firm, which influences customer value through criteria such as quality, price, and brand image (Treacy and Wiersema, 1993). This targeting strategy should influence the variety of routes to market a firm adopts. For example, a firm that offers a differentiated product or service creates value for only a few customer segments. To reach these specific segments, it likely will use only a narrow variety of routes.
Because the routes to market provide distinct customer contact formats for how a firm delivers customer satisfaction, it is likely to base its variety of routes on its knowledge of customer needs and its desire to fulfill them (Levy and Weitz, 2001). For example, a firm that believes it needs cooperation from its intermediaries for the satisfactory delivery of its product or service likely will use a narrow variety of routes to avoid increasing intrabrand competition. In addition, customers are becoming increasingly sophisticated in their information gathering and product search (Nunes and Cespedes, 2003). SBC Tanzania therefore must consider customer search behavior when it decides on the variety of its routes to market. For example, if customers are likely to search widely for a product, then the company should make its brand available through a broader variety of routes.
Social exchange theory, originates from sociology studies exploring exchange between individuals or small groups (Crotts and Pan, 2003). The theory mainly uses a cost-benefit framework and comparison of alternatives to explain how human beings communicate with each other, how they form relationships and bonds, and how communities are formed through communication exchanges. The theory states that individuals engage in behaviors they find rewarding and avoid behaviors that have too high a cost. In other words, all social behavior is based on each actor’s subjective assessment of the cost-benefit of contributing to a social exchange. The mutual reinforcement could be analyzed through a microeconomic framework, though the rewards are often not monetary but social, such as opportunity, prestige, conformity, or acceptance (Crotts and Pan 2003).
In addition Frazier (1999) stresses that, other theories, such as exchange theory and social network theory, need to be applied to the channel integration area to broaden the theoretical base and reduce likely specification error in channel integration. Such factors as the financial resources of the company, its core competencies, the importance of the product market in question to the firm, and customer characteristics (e.g., size, needs and preferences) are likely to affect reliance on direct or indirect channels. In fact, the fundamental determinant of channel integration will, in all likelihood, be the average order size from individual customers. Small to moderate-sized customers cannot be economically served by traditional direct channels because selling and operational costs would surpass the revenues. It is this theory which forces SBC (T) Ltd to consider mutual benefits between its stakeholders be it distributors or final consumers in ensuring that each is benefitting; consumer is satisfied and distributor get the stock and other facilitations as agreed in the RTM, while accomplishing his duty of selling the stock as required.
Coherent: It must be properly aligned and integrated with the company’s overall customer service framework. The decision and design parameters should flow down from the top, and support flows up from the bottom
Balanced: An effective RTM platform must enable identification and balancing of competing priorities in the design and operation of RTM models. There are three sets of priorities that must be considered: customer needs and preferences, which determine satisfaction and affect growth potential; revenue growth (which determines market share and volume) and total cost-to-serve, which determines the economic feasibility and profitability of serving both individual customers and customer segments.
Flexible: Finally, because FMCG companies must manage an increasingly diverse customer base with differentiated RTM models, a high-quality design platform must include a method for understanding RTM routes in functional terms, a full palette of design alternatives for constructing them, and a method for determining which alternatives are best suited to individual customers and customer segments.
Accenture, the global management consulting, technology services and outsourcing company (Gardener and Bockstaele, 2009) propounds that more than 60% of people in Africa live in rural areas and have limited access to transportation to reach the final consumer can be extremely costly and difficult, calling companies to build strong sales and distribution networks by leveraging a mix of third party, wholesale, and direct-distribution RTM models.
However, different authors and RTM consultants advocate the importance of RTM. According to The Paramarketing Group, a management consulting firm (Raulerson, et al 2009), world class companies use RTM as it provides a quick and proven methodology for aligning marketing, sales and distribution, and for optimising spending in these areas, which can total 30% or more of operating expenses. Optimizing spending in these areas provides the next step for profitable growth because most companies have already obtained as much benefit as they can from optimizing their supply chains, manufacturing and finance.
Moreover, RTM has the following prons to companies according to Paramarketing.com; – (1) can spend less and sell more (2) can get the right products and services to the right customers at the right time (3) can retain existing customers and secure profitable new customers, (4) can optimize marketing mix and sales and distribution channels to maximise revenue and profitability throughout the product life cycle. Furthermore, RTM can assist management to get everyone in product management, marketing, sales, customer service, and distribution partners aligned and working together to maximise results. Chibamba Kanyama (The Zambia Post, Tue 24 Dec. 2013) insists that defining a flexible route to market helps the company maximise revenue and profitability.
Kottler and Keller (2011), stress that today’s successful companies are multiplying the number of “go-to-market” or hybrid channels in any one area. They are giving an example of Hewlett-Packard that the company it uses its sales force to sell to large accounts, outbound telemarketing to sell to medium-sized accounts, direct mail with an inbound number for small accounts, retailers for still smaller accounts and consumers, and the internet to sell specialty items.
Navarro et al., (2010) address the need for RTM to companies that it is essential to sell and deliver products and to service trade accounts. RTM enable profitable growth, service excellence, and consumer engagement at the point of sale. But they are also alerting that the more diverse a company’s customer base and product portfolio and the more
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