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1. Mission – A strategic mission and vision that articulates the nature of the business and
focuses the energies of all parts of the organization toward the task of outperforming the
competition.
2. Market – A market orientation in which the beliefs and values that pervade the
organization emphasize the need to put the customer first.
3. Measurement – A process for formulating, choosing, and evaluating the best strategy
(Day, p. 20).
THOUGHTS ABOUT STRATEGY
Superior firm performance is generally attributed to its competitive advantage. Competitive
advantage arises from leveraging a firm’s unique skills and resources to implement value-
creating strategy that competitors cannot implement as effectively. A sustainable competitive
advantage occurs when the advantage is immune or not subject to erosion by competitor’s
actions.
Thus, a strategy is decisions and activities that enable a firm to achieve and sustain competitive
advantage and to improve its performance. It is a game plan for moving the company into an
attractive business position and building a sustainable competitive advantage (Thompson, p.43).
Strategy is a directional statement that serves as a central theme guiding and coordinating
integrated actions in the pursuit of competitive advantage. It is a compass, not a detailed road
map (Day, p21). Strategy is both
1. proactive (intended) deliberate and planned action
2. reactive (adaptive) as-needed reactions to unanticipated developments and fresh
competitive pressures. (Thompson, p.9)
Strategy is a guide how to pursue the company’s mission and strategic vision and how to achieve
it. A competitive strategy specifies how a business intends to compete in the markets it chooses
to serve (Day, p5). Strategy focuses on how to achieve performance targets, how to outcompete
rivals, how to achieve sustainable competitive advantage, how to strengthen the company’s long-
term position, how to grow the business, how to satisfy customers, how to respond to changing
market conditions, (Thompson, p.10, 42). Basically the central thrust of business strategy is how
to build and strengthen the company’s long-term competitive position in the marketplace.
Steps to Formulate a Competitive Strategy
Simply stated, strategy is an action plan that directs a firm in developing a competitive
advantage. A sustainable competitive advantage arises from leveraging a firm’s core
competencies to create value for the customer. For a strategy to be successful, it must be
consistent with the firm’s mission/vision, objectives/goals, with its internal and external
environment, and target market.
A pictorial representation of this process is as follows:
Formulating a competitive strategy is based upon the steps we have done thus far: (Porter, xix-
xx)
Core Competencies
• What customer needs is our company uniquely qualified to meet?
• What is the business doing now? What are our core competencies?
Identification
• What is the current strategy?
Implied Assumptions
• What assumptions about the company’s relative position, strengths and weaknesses,
competitors, and industry trends must be made for the current strategy to make sense?
Mission
• What is our business and what are we trying to accomplish on behalf of our customers?
Vision
• What will our business look like in 5-10 years from now?
Establish Objectives
• In what areas will our business continue being actively involved in the future?
SWOT
• What is happening internally and externally?
• What is happening in the environment?
• Industry Analysis – What are the key factors for competitive success and the important
industry opportunities and threats?
• Competitor Analysis – What are the capabilities and limitations of existing and potential
competitors, and their probable future move?
• Strengths and Weaknesses – Given an analysis of industry and competitors, what are the
company’s strengths and weaknesses relative to present and future competition?
Develop Goals
• What is to be accomplished?
• Goals are developed after being filtered through a SWOT analysis.
• What are our specific, measurable targets?
Segment/Target Market
• What customers are we targeting?
• How should the firm differentiate and position itself in the target market?
• What should the business be doing?
• What are the feasible strategic alternatives given the customer analysis?
• Which alternatives best relates the company’s situation to external opportunities and
threats?
Strategy – “How to Achieve the Targeted Results”
With these steps completed, we are now able to formulate a strategy to provide direction to the
company.
A company’s strategy should be market-driven and customer-driven using outside-in strategic
thinking aimed at boosting customer satisfaction and achieving sustainable competitive
advantage. The company must study market trends, listen to customers, enhance the company’s
competitiveness, and steer the company in whatever new directions are dictated by market
conditions and customer preferences. (revised Thompson, p.10)
A corporate planning director of a Fortune 500 MNC observes that “the process of strategic
marketing is coming to be defined as the management of competitive advantage – that is, as
process of identifying, developing, and taking advantage of opportunities that result in a tangible
business advantage.” Meeting these challenges requires developing market-driven strategies. The
process involves becoming market-oriented, matching customer value opportunities with
organization’s distinctive capabilities, and developing internal and external strategic
relationships. The basic initiative for guiding market-driven strategy begins by developing a
market-oriented culture and processes in the organization” (Excerpt from: “Competitive
Advantage in the Global Marketplace: a Focus on Marketing Strategy,” by Thomas Hult, David
Cravens, and Jagdish Sheth; Journal of Business Research, v51, 2001.)
Formulating a business strategy that yields sustainable competitive advantage requires some of
the following actions: (Thompson p.11,48-49).
• Actions to strengthen the company’s resource base and competitive capabilities
• Actions to strengthen the company’s long-term competitive position and secure a
competitive advantage (accelerate R & D, to broaden/narrow the product line, improve
product design, alter product quality or add new features, introduce new technologies,
modify customer service, outcompete rivals on the basis of superior resources and
competitive capabilities.
• Actions to respond to changing industry conditions and other emerging developments in
the external environment (shifting customer preferences, new government regulations,
the globalization of competition, entry or exit of new competitors)
• Actions to capitalize on new opportunities
• Defensive moves to counter the actions of competitors and defend against external threats
• Actions to merge with or acquire a rival company or form strategic alliances and
collaborative partnerships
• Efforts to alter geographic market coverage and degree of vertical integration
• Moves and approaches that define how the company manages key activities.
• Moves to unite strategic initiatives in the various functional area of business
(manufacturing and operations; marketing, promotion, and distribution; R&D technology;
human resources; financial) to build competitively valuable resource strengths and
capabilities to support the company’s competitive approach and overall strategy.
Representative Strategies
A company’s competitive strategy consists of its business approaches and initiatives to attract
customers and fulfill their expectations, to withstand competitive pressures, and to strengthen its
market position (Thompson, p.135). Having identified and evaluated its major competitors, the
company must design broad competitive marketing strategies by which it can gain competitive
advantage by offering superior customer value. Competitive strategies have been classified to
define marketing strategy in terms of a single-minded pursuit of delivering superior value to
customers.
An competitive advantage typically is based on:
1. lower costs
2. a differentiated product
3. a focused in-depth understanding of the consumer
Examples of competitive advantages for:
1. Lower costs – Walmart
2. Differentiated product – IMB provides technology products that many business
consumers would prefer to own. Harvard proves a business education that is truly unique.
3. Focused – Nordstroms provides products and services that exhibit a unique understanding
of the more affluent consumer.
Each company must determine which strategy makes the most sense given its position in the
industry, its objectives, opportunities, and resources (Kotler, p.685) Companies that pursue a
clear strategy are likely to perform well. The firm that carries out that strategy best will make the
most profits. Firms that do not pursue a clear strategy – “Middle-of-the-roaders” or stuck in the
middle and do the worst (Kotler, p.686)
Generic Competitive Strategies
A generic business strategy classifies business strategies and approaches toward obtaining a
sustainable competitive advantage into groups with a common thrust. There are a host of
strategic thrust available. Being innovative, global, entrepreneurial, information technology
based, or manufacturing could drive a strategy.
The basic differences among competitive strategies are:
1. whether a company’s market target is broad or narrow
2. whether it is pursuing a competitive advantage linked to low costs, product or
understanding your customer. Any complex strategy uses one of these as the basis.
Michel Porter, an influential strategy researcher, has classified competitive positioning
strategies: low cost, differentiation, and focus. The difference among the three generic
strategies are illustrated in the following chart: (Porter, p.39).
The following are the most basic strategies. We will be choosing one of these for each of your
segment/target markets.
Overall Low Cost Leadership Strategy This strategy focuses on appealing to a broad spectrum of
customers based on being the overall low-cost provider of a product or service. Overall low cost
does not refer solely to price. It refers to the delivered cost to the customer. The company works
to achieve the lowest costs of production and distribution so that it can price lower than its
competitors and win a large market share (Kotler, p.686).
This strategy is aimed at achieving low-cost leadership industrywide. It is based on achieving a
sustainable cost advantage in some important element of the product or service (Aaker, p.7). A
low-cost provider is a powerful competitive approach in markets where many buyers are price
sensitive. A low-cost leader’s basis for competitive advantage is lower overall costs than
competitors. Successful low-cost leaders are exceptionally good at finding ways to drive costs
out of their business (Thompson, p. 135, 136). Ex. Dollar Tree Store, Walmart, Dell Computer
A low-cost leader has two options for achieving superior profit performance:
1. To use the lower-cost edge to under price competitors and attract price-sensitive buyers.
2. To refrain from price-cutting altogether, be content with the present market share, and
use the lower-cost edge to earn a higher profit margin on each unit sold, thereby raising
the firm’s total profits and overall return on investment (Thompson, p. 136, 137)
The overall cost leadership position can be achieved through a high market share or through
other advantages, such as favorable access to raw materials or state-of-the-art manufacturing
equipment (Aaker, p.7). To achieve a cost advantage, a firm’s cumulative costs across its value
chain must be lower than competitors’ cumulative costs. Keys to success in achieving low-cost
leadership is to be proactive in restructuring the value chain, finding innovative ways to
restructure processes and tasks, cut out frills, and provide the basics more economically
(Thompson, p. 138, 145). A low cost strategy need not always be associated with low prices,
because lower cost could lead to enhanced profits or increased advertising or promotion instead
of reduced price (Aaker, p.7).
The more price sensitive buyers are and the more inclined they are to base their purchasing
decision on which seller offers the best price, the more appealing a low-cost strategy becomes. A
low-cost provider’s product offering must always contain enough attributes to be attractive to
prospective buyers. A low-cost leadership strategy works best when:
1. Price competition among rival sellers is especially vigorous.
2. The industry’s product is standardized or readily available from other sellers.
3. There are few ways to achieve product differentiation, thereby making buyers very
sensitive to price differences.
4. Most buyers use the product the same ways.
5. Buyers incur low switching costs. (Thompson, p. 146, 147)
Implementing:
Implementing overall low cost leadership strategy require different resources and skills. It also
implies differing organizational arrangements, control procedures, and inventive systems. Some
common implications are as follows: (Porter, p.40)
Defenses Against Five Competitive Forces: (Porter, p.36, 37) The low-cost position protects the
firm against all five competitive forces because bargaining can only continue to erode profits
until those of the next most efficient competitor are eliminated.
Risks: (Porter, p.45) Cost leadership imposes severe burdens on the firm to keep up its position,
which means reinvesting in modern equipment, ruthlessly scrapping obsolete assets, avoiding
product line proliferation and being alert for technological improvement. Some of these risks are:
• Technological breakthroughs can open up cost reductions for rivals that nullify a low-cost
leader’s past investments, learning, and gains in efficiency.
• Low-cost learning by industry newcomers or followers, through imitation or through their
ability to invest in state-of-the-art facilities.
• Inability to see required product or marketing change because of the attention placed on
cost.
• Inflation in costs that narrow the firm’s ability to maintain enough of a price differential
to offset competitors’ approaches to differentiation.
• Getting carried away with overly aggressively price-cutting and ending up with lower,
rather than higher, profitability.
• Not emphasizing avenues of cost advantage that can be kept propriety. Sustaining its cost
in ways difficult for rivals to copy or match.
• Becoming too fixated on cost reduction. It can be pursued so zealously that a firm’s
offering ends up being too frills-free to generate buyer appeal.
Differentiation Strategy
This strategy concentrates on creating a highly differentiated product/service line and marketing
program so that it is perceived to a broad spectrum of customers as being unique. The company
focuses on superior performance by targeting an important customer benefit valued by a segment
of market. Most customers would prefer to this product/service line if its price is not too high
(Kotler, p.686). Ex. Victoria Secret, Marriott, IBM
A differentiation strategy is one in which the product offering is differentiated from the
competition by providing value to the customer by product quality, perhaps by enhancing the
performance, quality, prestige, features, service backup, reliability, or convenience of the product
(Aaker, p.6,7). It seeks to differentiate the company’s product/service offering from rivals’ in
ways that will appeal to buyers. (Thompson, p. 135).
Sustainable differentiation usually has to be linked to unique internal skills, core competencies,
and capabilities. As a rule, differentiation yields a long-lasting and more profitable competitive
edge when it is based on new product innovation, technical superiority, product quality and
reliability, and comprehensive customer service. Such attributes are widely perceived by buyers
as having value (Thompson, p. 148)
The competitive advantage for a differentiation strategy is either a product/service offering
whose attributes differ significantly from the offerings of rivals or a set of capabilities for
delivering customer value. Successful differentiation strategy begins with a deep understanding
of what customers need and ends with building organizational capabilities to satisfy these needs
better than rivals (Thompson, p.149-151)
Differentiation strategies work best in markets where: (Thompson, p.152)
1. There are many ways to differentiate the company’s offering from that of rivals and many
buyers perceive these differences as having value.
2. Buyer needs and uses of the item or service are diverse.
3. Few rival firms are following a similar differentiation approach.
4. Technological chance is fast-paced and competition revolves around evolving product
features.
Implementing
Implementing differentiation strategy require different resources and skills. It also implies
differing organizational arrangements, control procedures, and inventive systems. Some common
implications are as follows: (Porter, p.41)
Defenses Against Five Competitive Forces: (Thompson, p.151, 152) Differentiation results in
enhanced buyer loyalty to a company’s brand or model and greater willingness to pay more for
it. It creates a defensible position for coping with the five competitive forces.
Investment strategies
For each product market four investment options are possible:
• Grow – invest to grow (or enter the product market.
• Maintain – invest only to maintain the existing position.
• Milk – Milk the business by minimizing investment.
• Withdraw – recover as many of the assets as possible buy liquidating or divesting the
business.
Functional Area Strategies
The development of a business strategy involves coordination of various function area:
• Product line strategy
• Pricing strategy
• Distribution strategy
• Communication messaging strategy
• Manufacturing strategy
• Information technology strategy
• Segmentation strategy
• Global strategy
• Internet strategy
The strategic assets or competencies that underlie the strategy and provide the sustainable
competitive advantage. Strategy formulation must consider the cost and feasibility of generating
or maintaining asset or competencies that will provide the basis for a sustainable competitive
advantage.
Strategic Positioning
Strategic positioning specifies how the business is to be perceived relative to its competitors and
market by its customers and employees/partners. It represents the essence of a business strategy
(Aakers). Positioning is the way the product/service is defined by consumers on important
attributes. The place the product/service occupies in the consumer’s mind in relation to its
competitors. (K&A, p.269)
Criteria For Strategy Selection (Aaker, p.30)
• Consider scenarios suggested by strategic uncertainties and environmental
opportunities/threats.
• Pursue a sustainable competitive advantage.
• Exploit organizational strengths or competitor weaknesses.
• Neutralize organizational weaknesses or competitor strengths.
• Be consistent with organizational vision/objectives.
• Achieve a long-term return on investment.
• Be compatible with vision/objectives
• Be feasible.
• Need only available resources.
• Be compatible with the internal organization.
• Consider the relationship to other strategies within the firm.
• Foster product portfolio balance.
• Consider flexible.
• Exploit synergy.
Competitive Strategies - Based on Competitive Positions
There are different competitive strategies based on the different competitive position the firm
plays in the target market. Based upon the company’s competitive position, there are specific
marketing strategies. The following are strategies for market leaders, challengers, followers, and
nichers: (Kotler, 687-689 and Thompson, p.200-207)
Strategy for Market Leader
The firm in an industry with the largest market share. It usually leads another firms in price
changes, new product introductions, distribution coverage, and promotion spending.
• Expand total market
• Protect market share
• Expand market share
Market Challenger
A runner-up firm in an industry that is fighting hard to increase its market share.
• Full frontal attack
• Indirect attack
Market Follower
A runner-up firm in an industry that wants to hold its share without rocking the boat.
• Follow closely
• Follow at a distance
Market Nicher
A firm in an industry that serves small segments that other firms overlook or ignore. The firm
knows the target customer group so well that it meets their needs better than other firms that
casually sell to this niche. The nicher can charge a substantial markup over costs because of the
added value. An ideal market niche is big enough to be profitable and has growth potential.
• By customer, market, quality-price, service
• Multiple niching
Additional Competitive Strategies
First-Mover Strategies/ Preemptive Strategy – (Thompson, p.170) – A preemptive strategic move
is the pioneering implementation of a strategy into a business area that, because it is first,
generates an asset or competency that forms the basis of an sustainable competitive advantage.
For a preemptive move to create “first-mover advantages,” competitors must be inhibited pr
prevented from duplicating or countering it (Aaker, p.7).
Synergy Strategy - (Aaker, p.8) Synergy strategy occurs when a business has an advantage
because it is linked to another business within the same firm or division. The two businesses,
may be able to share a sales force, office, or warehouse and thus reduce costs or investment.
They may be able to jointly offer a customer a combination of coordinating products.
Tactical Issues and Program Formulation
Studies have shown that a 5% increase in customer loyalty can produce profit increases up to
85%. (Peppers & Rogers Group Newsletter – Oct. 2, 2002)
“Marketing is the process of planning and executing the conception, pricing, promotion, and
distribution of ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.” (American Marketing Association, 1985) This is not based on
customer actions, but firm actions.
Connecting with Customers through Segmenting, Targeting, and Positioning
• Segmenting: determining distinct groups of buyers (segments) with different needs,
characteristics, and/or behaviors. Can’t serve all profitably.
• Targeting: process of evaluating each segments attractiveness and selecting.
• Positioning: arranging for a product to occupy a clear, distinctive, desirable place in
target’s mind relative to competitors.
Probably a critical aspect for marketers in future will be to focus on Niches.
• Shifting aging demographics
• Entertainment explosion
• High income consumers
• Convenience
• New media
• Importance of brands
• Quality, pricing, and service
• Cause-related marketing
Develop the Positioning through Marketing Mix or 4 PsThe Marketing Mix (4 Ps) is a set of
marketing tools/tactics that the firm uses to pursue its objectives.
• Product – goods &/or service combination that a company offers a target market; defined
as an offering not just physical characteristics
• Price – amount of money consumers have to pay to obtain the product
• Promotion – activities that persuade target customers to buy the product
• Place – activities that make the product available
Tactics are the specific actions that lead to implementing your strategies. The tactics are broken
down in to four areas (product, price, promotion, distribution) and will provide the framework
for creating action items to accomplish your strategic market objectives of reaching your target
market. Together, they are a set of tools that the firm blends to produce a response it wants in the
target market. There are different tactical positions for each functional area based on the selected
strategy. The tactical positions reinforce your strategy.
From a product-focused approach, the four areas are defined as:
• Product: The product or service you are offering to your target market
• Price: The amount of money customers have to pay to obtain your product.
• Promotion: The activities that communicate the merits of the product and persuade target
customers.
• Distribution: The company’s activities that make the product available to target
consumers.
From a customer-focused approach, the four areas are defined as:
• Customer Need
• Customer Cost
• Communication
• Convenience
Each tactical area contains numerous considerations and issues firms need to be aware of, and
sometimes address, when implementing strategies. This section addresses the considerations at a
high level and is meant to provoke further research if an issue pertains to your company. We will
provide you with a list of resources for each area.
Product
What is a product? A product is anything that can be brought to the market, which will provide
satisfaction. A product is more than just a physical object, which is why we refer to a product as
an offering. It includes physical objects, services, events, persons, places, organizations, ideas,
and any combination of these.
Are you offering a product or a service?
What is your customer “really buying” when he/she acquires your product?
Considerations for product/service identification Why do consumers buy products/services?
• Attributes- products are a “bundle” of attributes, which include quality, features, and
style & design.
• Branding- some type of designation that identifies the market or seller. Brand equity
management is critical for 21st century marketers.
• Packaging- it is used not just to contain the product, but has promotional value as well.
• Labeling- at least product identification, but can extend to in-depth descriptions and
promotion.
• Product support services – activities that augment the actual product.
Product life-cycle strategies Product life-cycle – estimation of a product’s revenues and profits
over the course of its life. This is another “tool” to assist a marketer in product/service strategies.
Provides a perspective to understand the aspects of the product. The five stages are:
• Product development begins when the company finds a new product. Sales are $0 and
heavy investment.
• Introduction provides a period of slow growth with nonexistent profits due to extensive
promotional costs.
• Growth is a period of rapid market acceptance and developing profits.
• Maturity is a period of slow growth, level profits, and increasing marketing expenditures
to defend the product’s position against competitors.
• Decline is a period of falling sales and profits.
Pricing Why is price important? Price is one of the major factors affecting buyer choice and
needs to be cohesive with the strategy you picked. Price is the only element of the four tactics
that produces revenues as the other areas represent cost areas. Common pricing mistakes include:
• Too cost-oriented rather than customer value-oriented.
• Not revised often enough to reflect market changes.
• Not taking the other 3 tactics into consideration.
• Not varying enough for different products (in the mix), market segments, or purchase
occasions.
Considerations for Pricing Decisions There are both internal and external factors to consider
when setting prices.
Internal factors include
• Looking at your strategic market objectives and associated goals
• Looking at the benefits you are providing your customer. Customers typically seek out
products and services that provide the best value in terms of benefits received.
• Consider your costs for “production.” Costs generally set the floor for pricing
considerations.
• Assess your company and decide who should set the price.
External factors include
• Reviewing your SWOT analysis. The nature of market demand will generally set the
upper limit for pricing considerations.
• Considering how price sensitive your customers are. o Customer are not price sensitive
when product is high in quality, prestige or exclusiveness. Substitutes are hard to find.
Product price is low compared to customer’s income. o Customer are price sensitive
when products are commodities, similar across companies, and the market is flooded with
substitutes.
Prices need to be set somewhere between product costs and market demand.
Pricing Strategies/Plans There are three ways to look at pricing decisions 1) costs, 2) value, 3)
competition.
Promotion
Customers do not distinguish between messages sources about a company and its products, thus
the necessity to manage the total promotional program and ensure it is sending a unified
consistent message. This idea is called “integrated marketing communications.”
Definition: Concept for carefully integrating and coordinating a company’s many
communication channels to deliver a clear, consistent and compelling message.
Considerations for Promotional DecisionsTo deliver the message, a mix of the following well-
known communication tools are used:
Advertising – Any paid form of nonpersonal presentation and promotion of ideas, goods or
services through print and broadcast ads, packaging outer and inserts, motion pictures, brochures,
booklets, posters, leaflets, directories, billboards, display signs, pop displays.
Direct Marketing – Use of mail and telephone to communicate with or solicit a response from
customers by using catalogs, mailings, telemarketing, electronic shopping, TV shopping
Sales Promotion – Short-term incentives to encourage trial or purchase of a product or service
through contests, games, premiums, samplings, trade shows, exhibits, demonstrations, coupons,
rebates, low-interest financing, trade-in allowances, stamps
Public Relations – A variety of programs designed to promote and/or protect a company’s
image or its individual products through the use of press kits, speeches, seminars, annual reports,
charitable donation, sponsorships, publications, community relations, lobbying events.
Personal Selling – Face-to-face interaction with one or more prospective purchasers for the
purpose of making sales by using sales presentations, sales meetings, incentive programs,
samples, fairs and trade shows.
Here are the six steps using the above tools to creating an effective communication plan.
Step One – Identify the target audience. In this plan you determined the customer segments,
which are your target audience. Step Two – Determine the communication goals. Your strategic
market goals have been identified, but you may consider adding a goal here that directly relates
to this communications plan and segment. Step Three – Design the message. A good message
gets a customer’s attention, holds interest, arouses desire, and obtains action. A message must
have content, structure, and a format. Step Four – Select the communication tools, as listed
above. Step Five – Identify the message source. How is the message being communicated and is
the source credible for the message being delivered? Step Six – Evaluate the results. Did the
message have the intended impact on the target audience? Measure the behavior of the target
audience.
Promotion Strategies/Plans There are two basic promotion strategies/plans:
Distribution/Place
Distribution channels are ways and the process of making a product or service available to the
customer. For many years, distribution was not given much priority within company strategies.
However, in the past decade distribution decisions have risen in importance because channel
activities impact all other marketing and promotional activities. Companies or people in your
distribution channels in many instances provide greater efficiency in making goods and services
available to your target markets because of contacts, experience, specialization, and scale of
operation.
Considerations for Distribution Decisions
Companies and people in your marketing channel perform many key functions. Some help to
complete transactions through:
Information – Gathering and distributing market research and intelligence information about
forces in the marketing environment needed for planning and aiding exchange. Promotion –
Developing and spreading persuasive communications about an offer or your company. Contact
– Finding and communicating with your customers. Negotiation – Reaching an agreement on
price and/or other terms of the offer so that ownership or possession can be transferred. Physical
distribution – Transporting and storing goods Financing – Acquiring and using funds to cover the
costs of the distribution