International Distribution Channel 66b3q

INTERNATIONAL DISTRIBUTION CHANNEL

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 Distribution channel: system of

marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business ; also called a Marketing channel. 2

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The Role of Distribution Activities in Marketing  Distribution  Physically moving products and establishing intermediary relationships to such movement.  Physical Distribution (Logistics)  The activities of distribution involved in the physical relocation of products.  Channel of Distribution  The system of intermediaries (business relationships) established to guide the movement of a product.

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Functions of Intermediaries • Perform the marketing function better. • Provide efficient distribution of the product. • Breaking bulk – sell to customers in smaller

quantities. • Assorting – bringing together similar lines of goods. • Shifting risks. • Merchant middlemen - take title to the goods

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distributed. • Agents/brokers - distribute goods only.

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Types of Distribution Channels  Direct channel  A distribution system without intermediaries  Indirect channel

 A distribution system with one or more

intermediaries.  Dual distribution  A distribution system with more than one channel.

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Alternative Channels of Distributio n

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Dell Dell Computer: A Direct Seller of Computers

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Global Perspective Global Perspective: “500 Million Sticks of Doublemint Today – Billions Tomorrow”  Most challenging aspect of selling the gum for

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Doublemint is how to get the gum through China’s distribution channels:  “Mastering the distribution system is the single most important challenge of China’s economic revolution”  Finding reliable distributors is a challenge  Many are state owned and have little incentive to push one brand over another  Doublemint gum found a way to distribute their products effectively thru China 7/18/2013  Note: Doublemint has a 91% market share in

Selection of channel The selection of distribution is affected by many of factors, which play significant role while choosing the channel for distribution. It may include the buying pattern of consumer, type of the product is perishable, or auto mobile, weight and bulk and it also depends on the company's resources.

The main affecting factors are following: Organization objectives Mode of Transport Type of product Nature and extent of market Existing channel for comparable product Buying habit of customers 10 Channel Availability

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Alternative Middlemen Choices  Classification of Middlemen  Agent Middlemen  Do not take title to the goods distributed  Less risk (manufacturer assumes risk)

 Merchant Middlemen  Take title of goods being distributed (manufactures have less control)  Motivated by profit, tend to be less loyal to one brand

 Alternative Types of Middlemen:  1. Home-Country Middlemen  2. Foreign-Country Middlemen

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International Channel-of-Distribution Alternatives Home Country

Foreign Country The foreign marketer or producer sells to or through Foreign consumer

Domestic producer or marketer sells to or through

Open distribution via domestic wholesale middlemen

Exporter

Importer

Foreign agent or merchant wholesalers

Foreign retailers

Export management company or company sales force

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Alternative Middlemen Choices— Home Country • They’re located in Firm’s own country. • Provide marketing services from a domestic base. • Employed by marketers with less international sales volume and inexperienced with foreign markets. • Global Retailers • Export Management Companies • Manufacturers Export Agent • Home-Country Brokers • Export Merchants • Piggy Back 13

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HOME COUNTRY MIDDLEMEN GLOBAL RETAILERS WAL-MART, ROEBUCK are booming domestic middlemen for international middlemen. Companies adhering to the laid requirements gain access to Overseas markets of Argentina, Brazil, canada, etc.

EXPORT MANAGEMENT COMPANIES They work under name of manufacturers and function as a low cost, independent marketing department. For firms with relatively small international volume or which are unwilling to involve personnel in international function. A washington DC company marketing 10 US Orthopedics manufacturer products worldwide.

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MANUFACTURER’S EXPORT AGENT •An agent firm provides selling service for manufacturers. •Operates on a straight commission basis and covers only one or two markets. •Provides services similar to EMCs and does business in their own name. HOME COUNTRY BROKERS •They perform low cost agent services. •Perform function of bringing bringing buyers and sellers together. •They specialise in one or more particular commodity and for the same maintain with major producers and 7/18/2013 15 purchasers.

EXPORT MERCHANTS •Intermediaries who take title to and possession of the products they carry •Responsible for shipping and marketing the products in the target market •Carry competing brands Examples: export jobber, who carries commodity goods, but does not take physical possession of the goods. PIGGYBACK MARKETING • channel innovation that has grown in popularity • One manufacturer distributes product by utilizing another company’s distribution channel • Requires that the combined product lines be complementary and appeal to the same customer 16

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Alternative Middlemen Choices— Foreign Country • Distributors • Foreign Country Brokers • Managing Agents • Dealers • Wholesalers and

Retailers

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• Distributor

Is a merchant middlemen with close cooperation to the manufacturer Functions are- control over prices, inventories, servicing. • Agent

Conducts business within a foreign nation under contract arrangement with parent country. Compensation is on the basis of cost plus a specified % of profits of the managed company. • Brokers

Foreign brokers are part of small brokerage firms operating in a country. Function in good continuing relationships with customers and speedy market coverage at low costs 18

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• Dealers Independent merchant middlemen with the supplier company having equity in it. Ex- Massey fergusson and caterpillar tractor company

• Wholesalers and Retailers Engage in direct importing for their own outlets and for redistribution to smaller middlemen. Large retailers perform wholesaling to local shops and dealers.

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Factors that affect choice of Channels  The “6 C’s” need to be considered:  1. Cost  Investment cost of developing channel; and cost of maintaining channel

 2. Capital requirements  How much capital is required  3. Control  How much control is desired  Example: company’s own sales force exerts most control vs. using middlemen

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Factors that affect choice of Channels (Cont.)  The “6 C’s” need to be considered (cont):  4. Coverage  Full market coverage, or targeted coverage to densely populated areas…  5. Character  Channel of the distributions system must meet the “character of the company” seeking to do business  6. Continuity  Will there be longevity issues  How to build loyalty with middlemen is much more difficult than a company’s own sales force

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Locating, Selecting, Motivating and Terminating Middlemen  Factors affecting locating middlemen:  Things to look for:  Financial stability, managerial stability, productivity, reputation, etc.

 Sources to use:  U.S. Dept. of Commerce, foreign consulates, commercially published directories

 Selecting Middlemen  Two steps  1. Screening  2. Developing the “Agreement” 22

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Locating, Selecting, Motivating and Terminating Middlemen (Cont.)  Motivating Middlemen  Common methods used to motivate middlemen:  Financial rewards, psychological rewards, communications, company

and corporate rapport

 Terminating Middlemen  Must consider things such as:  Legal protection  Control over middlemen

 Controlling Middlemen  Control over the system (distribution network)  Control over the middlemen  23

Volume of sales, market coverage, services offered, pricing, ment, payment of bills and profitability. 7/18/2013

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