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1International Distribution DecisionWeek 6: 13th December, 2013
The true definition of Marketing is matching supply and demand? That's one of the major reasons channels of distribution are used - to match the supply of product in one place with the demand for it in another.Global marketing has become an established fact of life for more and more businesses. Along with the large multinational corporations that have been operating on a global scale for decades, many middle market or even relatively small firms have already or will soon need to enter the global marketplace to enhance their long-term viability (Czinkota et al 1995). The growth of Internet-based e-commerce has accelerated this global trend.
Todays channel managers need to think globally, but they must also act locally in terms of providing the appropriate array of channels desired by heterogeneous markets all over the world (Rosenbloom 2004).
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Channel-of-Distribution StructuresAll consumer and industrial products eventually go through a distribution processPhysical handling and distribution of goodsPassage of ownershipBuying and selling negotiations between producers and middlemenBuying and selling negotiations between middlemen and customersEach country market has a distribution structureGoods pass from producer to user6Roy Philip 6Import-Oriented Distribution Structure In an import-oriented or traditional distribution structure:Importer controls a fixed supply of goodsMarketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers
7Roy Philip 7Import-Oriented Distribution StructureDemand exceeds supplyThe customer seeks the supply from a limited number of middlemenDistribution systems are localFew countries fit the import-oriented model 8Roy Philip 8Japanese Distribution StructureFour distinguishing featuresHigh density of middlemenChannel controlBusiness philosophyLarge-scale retail store lawChanges in the structure
9Roy Philip 9Japanese Distribution StructureA structure dominated by many small middlemen dealing with many small retailersChannel control by manufacturersA business philosophy shaped by a unique cultureLaws that protect the foundation of the system10Roy Philip 10High Density of MiddlemenNot unusual for consumer goods to go through three or four intermediaries before reaching the consumerJapan has a large number of independent groceries and bakers (94.7% or all retail stores)Small stores account for 59.1% of retail food salesU.S. emphasis is on supermarkets, discount food stores, and department storesSmall stores generate 35.7% of food sales11Roy Philip 11Channel ControlInventory financingCumulative rebatesMerchandise returnsPromotional support
12Roy Philip 12Business PhilosophyEmphasizes loyalty, harmony, and friendshipSupports long-term dealer-supplier relationshipsThe cost of Japanese consumer goods are among the highest in the worldJapanese law gives the small retailer enormous advantage over the development of larger stores13Roy Philip 13Large-Scale Retail Store Law and Its SuccessorDaitenho the Large-Scale Retail Store LawLarge stores must have approval from the prefecture governmentAll proposals first judged by the Ministry of International Trade and Industry (MITI)If all local retailers unanimously agreed, the plan was approvedCould be a lengthy processApplied to both domestic and foreign companiesReplaced by the Large-Scale Retail Store Location Act of June 2000MITI out of the processRelaxed restrictions14Roy Philip 14Alternative Middleman ChoicesSeller must exert influence over two sets of channelsOne in the home countryOne in the foreign-market countryAgent middlemen represent the principal rather than themselvesMerchant middlemen take title to the goods and buy and sell on their own account15Roy Philip 15International Channel-of-Distribution AlternativesRoy Philip 16
16Channel ManagementLocating middlemenSelecting middlemenScreeningThe agreementMotivating middlemenTerminating middlemenControlling middlemen17Roy Philip 17Criteria for evaluating Foreign MiddlemenFinancial and Company StrengthProduct FactorMarketing SkillsCommitmentFacilitating FactorsStructure of the ChannelMarket CoverageIntensive CoverageSelective CoverageExclusive CoverageChannel LengthControl and CostDegree of IntegrationFactors Affecting Channel DecisionsThe choice of the channel to use is a fundamental decision for the manufacturer where a number of factors and objectives have to be considered as a basis for such decision. The international marketer needs a clear understanding of market characteristics and must have established operating policies before beginning the selection of channel middlemen. The following points should be addressed prior to the selection process:1) Identify specific target markets within and across countries.2) Specify marketing goals in terms of volume, market share, and profit margin requirements.3) Specify financial and personnel commitments to the development of international distribution.4) Identify control, length of channels, terms of sale, and channel ownership.
Factors Relating to Product Characteristics:
Product manufactured by a company itself is a governing factor in the selection of the channel of distribution. Product characteristics are as follows:i) Industrial/Consumer Product: When the product being manufactured and sold is industrial in nature, direct channel of distribution is useful because of the relatively small number of customers, need for personal attention, salesmans technical qualifications and after-sale servicing etc. However, in case of a consumer product indirect channel of distribution, such as wholesalers, retailers, is most suitable.ii) Perishability: Perishable goods, such as, vegetables, milk, butter, bakery products, fruits, sea foods etc. require direct selling as they must reach the consumers as easily as possible after production because of the dangers associated with delays in repeated handling.iii) Unit Value: When the unit value of a product is high, it is usually economical to choose direct channel of distribution such as companys own sales force than middlemen. On the contrary, if the unit value is low and the amount involved in each transaction is generally small, it is desirable to choose indirect channel of distribution, i.e. through middlemen.
iv) Style Obsolescence: When there is high degree of sty obsolescence in products like fashion garments, it is desirable to sell direct to retailers who specialize in fashion goods.v) Weight and Technicality: When the products are bulky, large in size and technically complicated, it is useful to choose direct channel of distribution.
vi) Standardized Products: When the products are standardized, each unit is similar in shape, size, weight, colour and quality etc. it is useful to choose indirect channel of distribution. On the contrary, if the product is not standardized and is produced on order, it is desirable to have direct channel of distribution.vii) Purchase Frequency: Products that are frequently purchased need direct channel of distribution so as to reduce the cost and burden of distribution of such products.
viii) Newness and Market Acceptance: For new products with high degree of market acceptance, usually there is need for an aggressive selling effort. Hence indirect channels may be used by appointing wholesalers and retailers as sole agents. This may ensure channel loyalty and aggressive selling by intermediaries.
ix) Seasonally: When the product is subject to seasonal variations, such as woolen textiles in India, it is desirable to appoint sole selling agents who undertake the sale of production by booking orders from retailers and direct mills to dispatch goods as soon as they are ready for sale as per the order.
x) Product Breadth: When the company is manufacturing a large number of product items, it has greater ability to deal directly with customers because the breadth of the product line enhances its ability to clinch the sale.
Company Relatedi) Financial Strength: A company which is financially sound may engage itself in direct setting. On the contrary, a company which is financially weak has to depend on intermediaries and, therefore, has to select indirect channel of distribution, such as Wholesalers, retailers, with strong financial background.ii) Marketing Policies: The Policies relevant to channel decision may relate to delivery, advertising, after-sale service and pricing, etc. For example, a company which likes to have a policy of speedy delivery of goods to ultimate consumers may prefer direct selling and thus avoid intermediaries and will adopt a speedy transportation system.
iii) Size of the Company: A large-sized company handling a wide rang of products would prefer to have a direct channel for selling its products. On the contrary, a small-sized company would prefer indirect selling by appointing wholesalers, retailers etc.iv) Past Channel Experience: Past Channel experience of the company also influences the choice of selection of channel distribution. For instance, an old and established company with its past good experience of working with certain kinds of intermediaries will like to opt for the same channel. However, different will be the case in reverse situation.
v) Product Mix: The wider is the companys product mix, the greater will be its strength to deal with its customers directly. Similarly, consistency in the companys product mix ensures greater homogeneity or uniformity and similarity in its marketing channels.vi) Reputation: It is said that reputation travels faster than the man. It is true in the case of companies also who wish to select channel of distribution. In case of companies with outstanding reputation like Tata Steel, Bajaj Scooters, Hindustan Levers etc indirect channel of distribution (wholesalers, retailers, etc.) is more desirable and profitable.
Market or Consumer Characteristics:i) Consumer Buying Habits: If the consumer expects credit facilities or desires personal services of the salesman or desires to make all purchases at one place, the channel of distribution may be short or long depending on the capacity of the company for providing these facilities. If the manufacturer can afford those facilities, the channel will be shorter, otherwise longer.ii) Location of the Market: When the customers are spread over a wide geographical area, the long channel of distribution is most suitable. On the contrary, if the customers are concentrated and localized, direct selling would be beneficial.
iii) Number of Customers: If the number of customers is quite large, the channel of distribution may be indirect and long, such as wholesalers, retailers, etc. On the contrary, if the number of customers is small or limited, direct selling may be beneficial.iv) Size of Orders: Where customers purchase the product in large quantities, direct selling may be preferred. On the contrary, where customers purchase the product in small quantities frequently and regularly, such as cigarettes, matches, etc., long (wholesalers, retailers, etc.) of distribution may be preferred.
Middleman Relatedi) Sales Volume Potential: In selecting channel of distribution, the company should consider the capability of the middlemen to ensure a targeted sales volume. The sales volume potential of the channel may be estimated through market surveys.ii) Availability of Middlemen: The company should make efforts to select aggressively oriented middlemen. In case they are not available, it is desirable to wait for some time and then to pick up. In such cases, the company should manage its own channel so long the right types of middlemen are not available.
iii) Middlemens Attitude: If the company follows the resale price maintenance policy, the choice is limited. On the contrary, if the company allows the middlemen to adopt their own price policy, the choice is quite wide. Quite a large number of middlemen would be interested in selling companys products.iv) Services Provided by Middlemen: If the nature of product requires after-sale services, repair services, etc., such as automobiles, cars, scooters etc, only those middlemen should be appointed who can provide such services, otherwise the company will adopt direct selling channel.v) Cost of Channel: Direct selling generally is costlier and thus distribution arranged through middlemen is more economical.
Environment relatedi) Economic Conditions:When economic conditions are bright such as inflation, it is desirable to opt for indirect channel of distribution because there is an all-round mood of expectancy, market tendencies are bullish and favourable. On the contrary, if the market is depressed (such as deflation), shorter channel may be preferred.ii) Legal Restrictions: The legislative and other restrictions imposed by the state are extremely formidable and give final shape to the channel choice. For example, in India M.R.TP. Act, 1969 prevents channel arrangements that tend to substantially lessen competition, create monopoly and are otherwise prejudicial to public interest. With these objectives at the backdrop, it prevents exclusive distributorship, territorial restrictions, resale price maintenance etc.
iii) Competitors Channel: This also influences the channel choice decision. Mostly, in practice, similar types of channels of distribution used by the competitors are preferred.iv) Fiscal Structure: Fiscal structure of a country also influences the channel choice decision. For example, in India, State Sales Tax rates vary from state to state and form a significant part of the ultimate price payable by a consumer. As a result, it becomes an important factor in evolving channel arrangements.
36Other Factors Affecting Channel ChoiceCost - financial, time, effort, learning, Capital - investment by home office - will your business venture be supported in the long-term? Control - will you need to maintain charge, or can you afford to give control to another firm to sell your product correctly? Will you be expected to give up control?
3637Coverage - will your product be distributed throughout the country as you had planned? Will your product be handled in the right way? Character - does the distribution system match the image you want for your product? Continuity - will you be able to maintain this structure for the long-term? Factors Affecting Channel Choice37Direct ChannelsDirect channel Selling of goods directly to market intermediary or end user in the overseas market.Closer relationship, Insight into foreign market, Control over the export process is greater40Indirect Channels
40Indirect Channels Has to deal with domestic agent/ without any dealing with foreign based firm.Less investment No marketing experience required Low cost opportunity, Limited feedback, Commissions have to be paid ,Little insight into the market.LogisticsLogistics management is a total systems approach to the management of the distribution process that includes all activities involved in physically moving raw material, in-process inventory, and finished goods inventory from the point of origin to the point of use or consumptionThe physical distribution system involves more than the physical movement in goods; it includes the location of plants and warehousing, transportation mode, inventory quantities, and packing42Roy Philip 42LogisticsSubstantial savings can result from the systematic examination of logistics costs and the calculation of total physical distribution costsThe concept behind physical distribution is the achievement of the optimum (lowest) system cost, consistent with customer service objectives of the firmOne of the major benefits of the European Unions unification is the elimination of transportation barriers among member countries43Roy Philip 43International LogisticsInternational logistics defined as the designing and managing of a system that contracts the flow of materials into, through, and out of the international corporation. It encompasses the total movement concept by covering the entire range of operations concerned with product movement. Components Of Logistics ManagementFixed facilities location,Transportation Inventory management Order processing Materials handling and warehousingInternational Marketing CommunicationIntroductionIntegrated marketing communications (IMC) are composed of advertising, sales promotions, trade shows, personal selling, direct selling, and public relations All these mutually reinforcing elements of the marketing mix have as their common objective the successful sale of a product or serviceFor most companies, advertising and personal selling are the major components in the marketing communications mixThe goal of most companies, large and small, is to achieve the synergies possible when sales promotions, public relations efforts, and advertising are used in concertRoy Philip 47Opening Side47Sales Promotions in International MarketsSales promotionsMarketing activities that stimulate consumer purchases and improve retailer or middlemen effectiveness and cooperationShort-term efforts directed to the consumer or retailer to achieve specific objectivesIn markets with media limitations the percentage of the promotional budget allocated to sales promotions may have to be increasedProduct sampling4848International Public RelationsPublic relations (PR) is creating good relationships with the popular press and other media To help companies communicate messages to customers, the general public, and governmental regulatorsBridgestone/Firestone Tires safety recallGlobal workplace standardsBuilding an international profileCorporate sponsorships49Roy Philip 49International AdvertisingPerform marketing researchSpecify the goals of the communicationDevelop the most effective message(s) for the market segments selectedSelect effective mediaCompose and secure a budgetExecute the campaignEvaluate the campaign relative to the goals specified50Roy Philip 50Advertising Strategy and GoalsMarketing problems Require careful marketing research Thoughtful and creative advertising campaigns In country, regional, and global marketsIncreased need for more sophisticated advertising strategiesBalance between standardization of advertising themes and customizationConsumer cultures51Roy Philip 51Product Attributes and Benefit SegmentationDifferent cultures usually agree on the benefit of the primary function of a product or serviceOther features and psychological attributes of the item can have significant differencesCamerasYogurtAlmondsBlue Diamond Assumes that no two markets will react the sameEach has its own set of differencesEach will require a different marketing approach and strategy52Roy Philip 52Regional SegmentationPan-European communications media highlights need for more standardized promotional effortsCosts savings with a common theme in uniform promotional packaging and designLegal restrictions slowly being eliminated53Roy Philip 53Legal ConstraintsComparative advertisingAdvertising of specific productsControl of advertising on televisionAccessibility to broadcast mediaLimitations on length and number of commercialsInternet servicesSpecial taxes that apply to advertising54Roy Philip 54Linguistic LimitationsLanguage is one of the major barriers to effective communication through advertisingTranslation challengesLow literacy in many countriesMultiple languages within a countryIn-country testing with the target consumer group avoids problems caused by linguistic differences55Roy Philip 55Media Limitations and Production and Cost LimitationsMedia limitations may diminish the role of advertising in the promotional programExamples of production limitations:Poor-quality printingLack of high-grade paperLow-cost reproduction in small markets poses a problem in many countries56Roy Philip 56Campaign Execution and Advertising AgenciesManaged by advertising agenciesLocal domestic agencyCompany-owned agencyMultinational agency with local branchesCompensationCommonly 15 percent throughout the worldSome companies moving to reward-by-results57Roy Philip 57International Control of Advertising Broader IssuesConsumer criticismDeceptive advertisingDecency and blatant use of sexSelf-regulationGovernment regulations58Roy Philip 58Summary An integrated marketing communications (IMC) program includes coordination among advertising, sales management, public relations, sales promotions, and direct marketingCurrently companies are basing their advertising strategies on national, subcultural, demographic, or other market segmentsThe major problem facing international advertisers is designing the best messages for each market served
59Roy Philip 59Summary The availability and quality of advertising media vary substantially around the worldAdvances in communication technologies are causing dramatic changes in the structure of the international advertising and communications industries60Roy Philip 60Viral Marketing61
Social Media: What is Everyone doing?
62The Social Web is About Life ExperiencesBrands are using applications to engage their audienceThey are using applications to entertain They are not banner adsThey are not groups They are the new Ad UnitThey are used to connect and drive interestSocial Media is now a major component of the Digital Buy
Brands are Going Where Consumers Play
What is Viral Marketing?Marketing techniques that use pre-existing social networks to produce increases in brand awareness, through self-replicating viral processes, analogous to the spread of pathological and computer viruses65Viral MarketingThis type of marketing often takes the form of funny video clips, or interactive Flash games, an advergame, images, and even textThe internet is the primary setting for the vast majority of this kind of marketing, but does exist on TV, print, cellphones, etc.66Advantages of Viral MarketingUsually cheaper than traditional ad campaigns
Easy way for smaller companies to get their name out in the mainstream
Has potential to become very popular67Disadvantages of Viral MarketingTypically has a short life span per campaign
Low chance of being highly successful
Can often backfire
Fake advertising68InStyle Hollywood Hair Makeover Target Audience Women 18-40Connecting with the Right Audience
250,000 installs over the course of the campaignAverage time on app: 5 minutes and 30 secondsAverage user tries on four different hairstyles per visit54,000 makeovers have been posted on the InStyle Wall of Fame
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