Quiz 5 - Managing Global Distribution Channels, Intl. Mkt

The Structure of Global Distribution System

Marketers who develop distribution strategies must decide how to transport products from manufacturing locations to the consumer.

• Two basic settings: direct vs. indirect channel

Direct Channels

• Salesforce  In-house company personnel or export department

• Internet

• Websites constructed for a foreign buyer to easily access information. For example:

  • Make it easy for visitors to find what they're looking for using simple sentences.

  • Welcome international visitors prominently and highlight international shipping.

  • Emphasize when products are made in the US.

  • Provide detailed product descriptions, photos, and videos.

  • Make sure the pricing info is comprehensive and easy to understand.

    • The importance of listing shipping rates, duties, and taxes.

    • Focus on researching your target market instead of trying to sell to every country.

• Websites must be marketed appropriately to relevant search engines (e.g., Google, Baidu).

  • Improving website content, such as keywords and product descriptions, helps the site rank higher in online searches.

• Online marketplace  Country-specific platforms can be found at https://www.trade.gov/report/ecommerce-resource-guide

Indirect Channels

• Home-market channel members

  • Export management companies (EMCs)

  • Handle all aspects of export operations under a contractual agreement

• Export agents

  • Individuals or firms that assist manufacturers exporting goods

• Foreign-market channel members

  • Import intermediaries (e.g., trading companies)

  • Purchase goods in their own name, use own marketing strategies, keep close contact on markets they serve (i.e., businesses needing foreign goods).

• Local agents

  • Do not take title and work on commission (% of sales)

• Local wholesalers (dealers, distributors)

  • Take title to products, may receive exclusive distribution rights for a geographic area or country

  • Wholesale distribution structure varies by country

  • Denmark = 1 wholesaler to 1.3 retailers; Portugal = 1 wholesaler to 5.5 retailers

• Retailers

  • Size and accessibility vary greatly by country  Japan = 13 retailers per 1,000 people; Europe and U.S. = 6 retailers per 1,000 people

Analyzing National Channels (Distribution density)

• The number of sales outlets necessary to provide for adequate market coverage.

• It depends on consumer’s shopping behavior (search effort, purchase frequency, and where)

Analyzing National Channels (Channel length)

• The number of intermediaries involved in bringing a given product to the consumer.

Analyzing National Channels (channel alignment and leadership)

• Alignment is the structure of the chosen channel members to achieve a unified strategy.

Analyzing National Channels (distribution logistics)

• The physical movement of goods through the channel is managed through five key functions: (1) transportation management, (2) inventory control, (3) order processing, (4) materials handling and warehousing and (5) facility location management.

Factors Influencing the Selection of Channel Members

• Channel partner selection is important for the success of international efforts:

• The partner will often assume a portion of the marketing responsibility, or even all of it.

• The partner is usually involved in the physical movement (logistics) of products to the customers. A poor decision can lead to lackluster performance.

• Changing a distribution partner can be expensive or sometimes impossible because of local laws.

Costs

It is necessary to estimate the cost of various channel alternatives.

• Initial costs

  • Locating & selecting members

  • Contract negotiation

  • Capital costs of setting up the channel (e.g., inventory)

• Maintenance costs

  • Salespeople, sales managers, and travel expenses

  • Auditing and controlling channel operations.

  • Profit margin of intermediaries

• Logistics costs

  • Transportation expenses

  • Storage, cost of breaking bulk shipments

  • Customs paperwork

Nature of the product

• Perishable goods have a short shelf life → shorter channels

• Fragile or bulky goods require special handling → shorter channels

• Technical products require direct sales or highly technical channel partners

• A broader product line is easier to generate a high average order on each sales call

  • Channel members is more likely to stock.

  • The cost of more direct channel can be justified.

Control and coverage

• Longer channels often results in less control of price, promotion, and type of retail outlet used.

• Although coverage is usually easy to get in major metropolitan areas, gaining adequate coverage of smaller cities or sparsely populated areas can be difficult.

  • Selection may be influenced by the coverage that the channel member offers.

Locating and Selecting Channel Partners

• Several sources are useful in locating possible distribution partners:

  • National export portals

    •  E.g., trade.gov in the U.S.

• Banks

  • If the firm’s bank has foreign branches, they may be happy to help locate distributors.

• Directories

  • Country directories of distributors or specialized directories, such as those listing computer distributors, can be helpful.

• Trade shows

  • Expose managers to a large number of distributors and their salespeople.

• Competitors’ distribution partners

  • Sometimes a competitor’s distributor may be interested in switching product lines.

• Consultants

• Foreign consulates

• Associations

  • There are associations of international intermediaries or country associations of intermediaries

  • E.g., a firm looking for a representative or agent in the United States could contact the Manufacturer’s Agents National Association or www.manaonline.org.

Solicit the interest of distributors

• After compiling a list of possible distribution partners, the firm may contact each

  • providing product literature and distribution requirements.

• Prospective distributors with an interest can be asked to supply further information.

  • lines currently carried, annual volume, number of salespeople, geographic territory covered, credit and bank references, physical facilities, relationship with local government and knowledge of English or other relevant languages.

• Firms that respond should be checked against the selection criteria

Screening

• Check & evaluate available information.

• Visit the country and talk to ultimate users of your product to find whom they consider to be the best distributors.

• Visit each possible middleman

Agreement

• Specific responsibilities of the manufacturer and the middleman, including an annual sales minimum.

• Time limit for initial contracts (e.g., one year)

• The right of termination.

Managing Global Distribution

To ensure the flow of the firm’s products through the channel by gaining the full cooperation of all channel members.

• Motivating channel participants

  • Financial rewards

    • E.g., commissions, margins

  • Psychological rewards

    • E.g., recognition in annual conferences, trips, publicity

  • Communications

    • More and better contact → less conflict & a smoother relationship.

  • Company support

    • Extending help in areas such as inventory control, account collection and advertising

  • Corporate rapport

    • Periodic visits to distribution partners.

    • Conflicts should be handled skillfully and diplomatically.

Controlling channel participants

• Marketing objectives must be spelled out.

• Standards of performance should be included in the agreement

  • E.g., minimum annual sales volume, inventory turnover ratio, number of accounts per area, growth target.

• Termination of a channel member

  • When?

  • The middlemen do not perform up to standards.

  • The market situations change, requiring a company to restructure its distribution.

  • Termination can be a costly, painful process governed in nearly all cases by local laws that may tend to protect and compensate the local channel member.

    • Competent legal advice is vital when entering distribution contracts with middlemen.

gaining access to distribution channels

• The “locked-up” channel

  • A channel is considered locked up when a newcomer cannot easily convince any channel member to participate.

  • Distributors may have exclusive agreements (contractual or informal)

  • Distributors may be unwilling to take the risk of pioneering an unknown product

• Alternatives entry approaches

  • Piggybacking

    • Another company that sells to the same consumer segments takes on the new products

  • Joint ventures

    • Partnership typically between local firm with market access with a foreign firm with no local access

  • Acquisitions

    • Purchasing a local company with existing distribution system