International Distribution

Decision
Week 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).

Channel-of-Distribution Structures

All consumer and industrial products eventually

go through a distribution process
Physical handling and distribution of goods
Passage of ownership
Buying and selling negotiations between
producers and middlemen
Buying and selling negotiations between
middlemen and customers

Each country market has a distribution structure

Goods pass from producer to user
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Import-Oriented Distribution Structure

In an import-oriented or traditional distribution

structure:
Importer controls a fixed supply of goods
Marketing system develops around the
philosophy of selling a limited supply of goods at
high prices to a small number of affluent
customers

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Import-Oriented Distribution Structure

Demand exceeds supply

The customer seeks the supply from a limited
number of middlemen
Distribution systems are local
Few countries fit the import-oriented model

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Japanese Distribution Structure

Four distinguishing features

High density of middlemen

Channel control

Business philosophy

Large-scale retail store law

Changes in the structure

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Japanese Distribution Structure

1. A structure dominated by many small

middlemen dealing with many small retailers
2. Channel control by manufacturers
3. A business philosophy shaped by a unique
culture
4. Laws that protect the foundation of the system

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High Density of Middlemen

Not unusual for consumer goods to go through

three or four intermediaries before reaching the
consumer
Japan has a large number of independent
groceries and bakers (94.7% or all retail stores)
Small stores account for 59.1% of retail food sales

U.S. emphasis is on supermarkets, discount food

stores, and department stores
Small stores generate 35.7% of food sales
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Channel Control

Inventory financing
Cumulative rebates
Merchandise returns
Promotional support

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Business Philosophy

Emphasizes loyalty, harmony, and friendship

Supports long-term dealer-supplier relationships
The cost of Japanese consumer goods are among
the highest in the world
Japanese law gives the small retailer enormous
advantage over the development of larger stores
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Large-Scale Retail Store Law and Its Successor

Daitenho the Large-Scale Retail Store Law
Large stores must have approval from the prefecture
government
All proposals first judged by the Ministry of International
Trade and Industry (MITI)
If all local retailers unanimously agreed, the plan was
approved
Could be a lengthy process
Applied to both domestic and foreign companies

Replaced by the Large-Scale Retail Store Location Act of

June 2000
MITI out of the process
Relaxed restrictions
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Alternative Middleman Choices

Seller must exert influence over two sets of

channels
One in the home country
One in the foreign-market country

Agent middlemen represent the principal

rather than themselves
Merchant middlemen take title to the goods
and buy and sell on their own account

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International Channel-of-Distribution Alternatives

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Channel Management
Locating middlemen
Selecting middlemen
Screening
The agreement

Motivating middlemen
Terminating middlemen
Controlling middlemen
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Criteria for evaluating Foreign Middlemen

Financial and Company Strength

Product Factor
Marketing Skills
Commitment
Facilitating Factors

Structure of the Channel

Market Coverage
Intensive Coverage
Selective Coverage
Exclusive Coverage

Channel Length
Control and Cost
Degree of Integration

Factors Affecting Channel Decisions

The 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 Related

i) 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 Related

i) 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 related
i) 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.

Other Factors Affecting Channel Choice

Cost

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?
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Factors Affecting Channel Choice

Coverage - 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?
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Direct Channels

Manufacture
r

Customer

 Direct 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 greater

Indirect Channels

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 Indirect 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.

Logistics
Logistics 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
consumption
The physical distribution system involves more
than the physical movement in goods; it includes
the location of plants and warehousing,
transportation mode, inventory quantities, and
packing
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Logistics
Substantial savings can result from the systematic
examination of logistics costs and the calculation
of total physical distribution costs
The concept behind physical distribution is the
achievement of the optimum (lowest) system cost,
consistent with customer service objectives of the
firm
One of the major benefits of the European Unions
unification is the elimination of transportation
barriers among member countries
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International Logistics

International 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 Management

Fixed facilities location,

Transportation
Inventory management
Order processing
Materials handling and warehousing

International Marketing
Communication

Introduction

Integrated 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 service
For most companies, advertising and personal selling are
the major components in the marketing communications
mix
The goal of most companies, large and small, is to
achieve the synergies possible when sales promotions,
public relations efforts, and advertising are used in
concert
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Sales Promotions in International Markets

Sales promotions
Marketing activities that stimulate
consumer purchases and improve retailer
or middlemen effectiveness and
cooperation
Short-term efforts directed to the consumer or
retailer to achieve specific objectives

In markets with media limitations the

percentage of the promotional budget allocated
to sales promotions may have to be increased
Product sampling
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International Public Relations

Public 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
regulators

Bridgestone/Firestone Tires safety recall

Global workplace standards
Building an international profile
Corporate sponsorships
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International Advertising

1. Perform marketing research

2. Specify the goals of the communication
3. Develop the most effective message(s) for the
market segments selected
4. Select effective media
5. Compose and secure a budget
6. Execute the campaign
7. Evaluate the campaign relative to the goals
specified
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Advertising Strategy and Goals

Marketing problems
Require careful marketing research
Thoughtful and creative advertising campaigns
In country, regional, and global markets

Increased need for more sophisticated

advertising strategies
Balance between standardization of
advertising themes and customization
Consumer cultures
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Product Attributes and Benefit Segmentation

Different cultures usually agree on the benefit of the

primary function of a product or service
Other features and psychological attributes of the
item can have significant differences
Cameras
Yogurt
Almonds

Blue Diamond
Assumes that no two markets will react the same
Each has its own set of differences
Each will require a different marketing
approach and strategy
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Regional Segmentation

Pan-European communications media highlights

need for more standardized promotional efforts
Costs savings with a common theme in uniform
promotional packaging and design
Legal restrictions slowly being eliminated

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Legal Constraints

Comparative advertising
Advertising of specific products
Control of advertising on television
Accessibility to broadcast media
Limitations on length and number of
commercials
Internet services
Special taxes that apply to advertising
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Linguistic Limitations

Language is one of the major barriers to effective

communication through advertising
Translation challenges
Low literacy in many countries
Multiple languages within a country
In-country testing with the target consumer
group avoids problems caused by linguistic
differences

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Media Limitations and Production and Cost

Limitations

Media limitations may diminish the role of

advertising in the promotional program
Examples of production limitations:
Poor-quality printing
Lack of high-grade paper

Low-cost reproduction in small markets poses a

problem in many countries

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Campaign Execution and Advertising Agencies

Managed by advertising agencies

Local domestic agency
Company-owned agency
Multinational agency with local branches

Compensation
Commonly 15 percent throughout the world
Some companies moving to reward-by-results

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International Control of Advertising Broader Issues

Consumer criticism
Deceptive advertising
Decency and blatant use of sex
Self-regulation
Government regulations

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Summary

An integrated marketing communications (IMC)

program includes coordination among
advertising, sales management, public relations,
sales promotions, and direct marketing
Currently companies are basing their advertising
strategies on national, subcultural, demographic,
or other market segments
The major problem facing international
advertisers is designing the best messages for
each market served
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Summary

The availability and quality of advertising media

vary substantially around the world
Advances in communication technologies are
causing dramatic changes in the structure of the
international advertising and communications
industries

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Viral Marketing

Social Media: What is Everyone doing?

The Social Web is About Life Experiences

Brands are using applications to engage their audience

They are using applications to entertain
They are not banner ads
They are not groups
They are the new Ad Unit
They are used to connect and drive interest
Social Media is now a major component of the Digital Buy

Brands are Going Where Consumers Play

What is Viral Marketing?

Marketing techniques that use preexisting social networks to produce

increases in brand awareness,
through self-replicating viral
processes, analogous to the spread
of pathological and computer viruses

Viral Marketing

This type of marketing often takes

the form of funny video clips, or
interactive Flash games, an
advergame, images, and even text
The internet is the primary setting for
the vast majority of this kind of
marketing, but does exist on TV,
print, cellphones, etc.

Advantages of Viral Marketing

Usually cheaper than traditional ad

campaigns
Easy way for smaller companies to
get their name out in the
mainstream
Has potential to become very
popular

Disadvantages of Viral Marketing

Typically has a short life span per

campaign
Low chance of being highly successful
Can often backfire
Fake advertising

InStyle Hollywood Hair Makeover Target Audience Women 18-40

Connecting with the Right Audience

250,000 installs over the course of the campaign

Average time on app: 5 minutes and 30 seconds
Average user tries on four different hairstyles per
visit
54,000 makeovers have been posted on the
InStyle Wall of Fame

Thank You