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7 March 2015

Place

Tag(s): Marketing
On my recent visit to Chile I checked the distribution of Mars products as I always do whenever I go there. I no longer have any contractual obligation to do so but it is satisfying to see that my efforts all those years ago were not in vain. In October 1982 after Chile had gone through the seventh deepest recession in modern world history I was forced to recommend the closure of Effem Chile Limitada, the Company I had set up to import and distribute Mars’ products in Chile. I went to meet Forrest Mars junior in Porto Allegre in Brazil where Mars had a plant. My boss, John Coady, Development Group President, and a senior finance manager were also present. We spent the best part of a day going through the situation and other options. Forrest, one of the three owners of the corporation, had only visited Chile with his wife and daughters a short time before and liked this new flag on the map. He was most reluctant to close it and kept asking “Have you tried this?” In every case I could say “Yes, I have tried that”. Eventually he agreed but had three conditions:
  1. “Keep the brands alive, because we’ll be back.
  2. Don’t lose any money.
  3. And look after the people you hired because I like them.”
1. I met this by selling my remaining stock on consignment to the warehousing company we used. That way the brands remained in distribution and that’s why I check that they still are. Forrest was as good as his word. They did come back.
2. I obviously lost money on the exchange rate. We were buying in dollars and selling in pesos. By the time we collected the pesos they had been devalued so that we could not pay for the dollars we had used. That’s why we had to close. But I didn’t lose any money in the market. I collected every peso of debt. That’s because I had been told by my lawyer that defaulting on a personal cheque was a serious crime and so I had only sold against personal cheques, even to companies. And I had a safe installed in my office to which only I had the key.
3. All of my staff were able to find work except my sales director who was an Argentinean. This had happened to him before so he decided to go back to Argentina. This was the year of the Falklands war and as a Brit I was very popular with the Chileans who also had disputes with Argentina over territory. My marketing manager and finance manager both went on to become very successful businessmen.
 
So I always see how Mars is doing against that first objective. The importance of physical distribution cannot be overstated. This is some of what I wrote on the subject in my book The 20 Ps of Marketing starting with franchising.
 
“Franchising agreements normally create a licence to use a predefined business model for the distribution of goods or services. An important part of this is a licence to use Intellectual Property Rights (IPRs) relating to trademarks, signs and know-how. The franchisor that provides the licence is paid a franchise fee or royalty by the franchisee for the use of the IPRs, the particular business concept and often a model business Plan. Such franchise agreements provide the franchisor with a low-cost method of establishing a uniform network of outlets for distributing its Products or services. Franchisees of a reputable, well-established franchisor have the advantage of access to a comparatively low-risk and well-tested method of starting a new business. Franchise agreements are frequently combined with vertical restraints that may include non-compete clauses and combinations of elements of selective distribution and exclusive distribution.

 Franchising is frequently applied in retail distribution systems and in fast-food catering. Companies like McDonalds and Burger King have built their huge chains of outlets on the back of franchisees’ capital. In return they have given the franchisee instant access to a proven business model with a strong brand image and Marketing support.

 In the case of Burger King that was a company owned by Pillsbury for a period and while I was on the Pillsbury UK Board we used to meet our opposite numbers from Burger King, although they reported separately through a different management line up to the Corporation’s main board. Burger King is now very well established in the UK but in the early days I think it is safe to say it had one or two teething problems. Its management was drawn from US-based managers with experience of managing groups of restaurants in the Mid-West but no previous overseas experience. So when they came to the UK their first restaurant was opened in a high profile location in London. A second one was opened close by. So far, so good. But then their ambitions got ahead of themselves and their third was opened in Birmingham, a fourth in Manchester, a fifth in Southampton and a sixth in Reading. To them the distances between all these cities would have appeared small but in fact they had now covered half the country’s TV regions and would have had to spend about 60% of the national weight to achieve an advertising campaign with only six restaurants.

Their cultural understanding also left something to be desired and they asked us why it was that large numbers of young men would come into their restaurants on a Friday evening about 11pm wanting a burger and fries, but with no beverage. The fact that these chaps already had about a gallon of lager sloshing around in them had escaped them.

 I have also had to deal with issues of cultural understanding in my career as I have done business in over 50 countries and much of that was to do with the management of Place. I studied Foreign Market Entry Strategies at the Wharton School in the USA and on the course met a man who was planning to bring Anheuser-Busch’s range of Products to the UK. Budweiser is now a very successful brand of beer in the UK but that is because its current management has learnt to sell it to the British in a British way, with humour and the occasional quirky approach. Young men learning to drink beer in Britain like to joke about their favourite tipple. However, this man was convinced that the American Way with strong links to sports would be the answer. I was not able to convince him of his mistake and Anheuser-Busch lost a lot of money in that first round.
 
 When I was managing Mars’ business in Chile I wanted to see the distribution of the Products throughout the country. Chile is a long thin country with duty-free zones at both ends and towns strung along its length. If Chile was placed in the northern hemisphere it would stretch from Edinburgh to Mauritania. I made it my business to visit every town of over 30,000 inhabitants and consequently know Chile better than many Chileans. On one visit to the south with our Concepçion based distributor, Emilio, we flew in his private plane to each of the towns in his territory staying overnight at the farthest based one. On the way back to Concepçion Emilio had now acquired a female companion. He took off, showed me how to keep the plane level and heading north and then went to canoodle in the back with his friend. I was now flying a plane for the first time in my life.
 
 Pillsbury had a very successful export business in the Middle East, largely based on huge sales of dessert Products during Ramadan. While the faithful fast during the hours of daylight in Ramadan, come nightfall the head of the family lays on a considerable spread for his dependents and fortunately for us this was quite likely to include significant quantities of dessert prepared from our Crème Caramel mix. As the General Manager responsible for this business I was keen to see the distribution of the Products and made a number of visits to all the relevant territories. While in Dubai I was changing my flight arrangements at a travel agency. The owner heard my name and introduced himself to me. He was also the owner of the distribution company who represented us as well as many other businesses. He kindly invited me and my export manager to dine at his home, an unusual offer of hospitality at a first meeting, and we became friends. In his palatial home a large rosewood table was covered in food for just four of us. After several courses he asked me why I had not had any of the chicken. I apologized and took a piece of chicken and somehow stuffed it in my mouth. I then noticed that my host had not had any chicken either so I asked him why not. He said, “I don’t like chicken.”

 I have always wanted to see the Products at the point of sale, the Place. To me it is an essential part of understanding a business. Every well run retailer understands this point and the senior management of most retailers will spend a considerable part of their time in visiting the stores and seeing how their strategies honed carefully in head offices are actually enacted on the ground. Suppliers need to take on the same attitude to the degree that they are allowed to do so. At Sony I always encouraged my management to spend as much of their time in the field as they could. Indeed I laid down a standard which I called 20:20. I expected that they spend a minimum of 20% of their time in the field and 20% coaching and training their staff. This still left three days a week for paperwork, sitting in meetings and staring at screens!”
 
This extract comes from Chapter Three on Place in The 20 Ps of Marketing. You can order a copy via the home page of this website.
 
Copyright David C Pearson 2015 All rights reserved



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