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Copyright 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following

address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.

INTERNATIONAL MARKETING 6eINTERNATIONAL MARKETING 6e

Channels and DistributionChannels and DistributionStrategiesStrategies

Chapter 13Chapter 13


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Copyright 2001 by Harcourt, Inc. All rights reserved.Copyright 2001 by Harcourt, Inc. All rights reserved. 1313--22

In International DistributionIn International Distribution

The firm sells to its customers:The firm sells to its customers: directly through its own sales forcedirectly through its own sales force

indirectly through independent intermediariesindirectly through independent intermediaries

indirectly through an outside distribution systemindirectly through an outside distribution system

with regional or global coveragewith regional or global coverage


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Channel StructureChannel Structure

How to structure the distribution channels isHow to structure the distribution channels isthe most important longthe most important long--term marketing mixterm marketing mix

decision a firm may make.decision a firm may make.

Channel structures are designed to manageChannel structures are designed to manage

multidirectional (horizontal and vertical)multidirectional (horizontal and vertical)connections inconnections in

physical movement ofphysical movement of

goods and servicesgoods and services

transactional title flowstransactional title flows

informationinformation

communications flowscommunications flows


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ChannelConfigurationsChannelConfigurations

ManufacturerManufacturer ManufacturerManufacturer Originator Originator

ConsumerConsumer Industrial User Industrial UserConsumer /Consumer /

Industrial UserIndustrial User

AgentAgent

AgentAgent

AgentAgent

AgentAgent

AgentAgentAgentAgent

AgentAgent

WholesalerWholesaler

WholesalerWholesaler

RetailerRetailer

RetailerRetailer

RetailerRetailer

RetailerRetailerIndustrialIndustrial

DistributorDistributor

IndustrialIndustrial

DistributorDistributor

ConsumerConsumer

ProductsProducts

IndustrialIndustrial

ProductsProducts

ServicesServices


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Channel Design ConsiderationsChannel Design Considerations

Customer characteristicsCustomer characteristics What do they need, why, when, and how?What do they need, why, when, and how?

Distribution cultureDistribution culture

The structural linkages and functionalThe structural linkages and functional

characteristics of existing channelscharacteristics of existing channels

CompetitionCompetition

What channels does the competition use?What channels does the competition use?

Company objectivesCompany objectives

Determined by company objectives for marketDetermined by company objectives for market

share and profitability.share and profitability.


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CharacterCharacter The nature of the product impacts the design ofThe nature of the product impacts the design of

the channel. The channel must match thethe channel. The channel must match the

positioning of the product in the market.positioning of the product in the market.

CapitalCapital ... describes the financial requirements for setting... describes the financial requirements for setting

up a channel system.up a channel system.

CostCost

is the expenditure incurred in maintaining a is the expenditure incurred in maintaining achannel once it is established.channel once it is established.


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CoverageCoverage the number of areas in which a product isthe number of areas in which a product is

represented and the quality of that representation.represented and the quality of that representation.

Types of coverageTypes of coverage

IntensiveIntensive SelectiveSelective

ExclusiveExclusive


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ControlControl

The use of intermediaries will result in someThe use of intermediaries will result in someloss of market control.loss of market control.

Control correlates with the type of product orControl correlates with the type of product or

service being marketed.service being marketed.

The marketers ability to exercise powerThe marketers ability to exercise powerdetermines the extent of control.determines the extent of control.

Types of powerTypes of power

reward, coercive, legitimate, referent, expertreward, coercive, legitimate, referent, expertCareful communication with foreignCareful communication with foreign

intermediaries is needed to make them awareintermediaries is needed to make them aware

of the marketers control intentions.of the marketers control intentions.


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ContinuityContinuity

Channel decisions are the most longChannel decisions are the most long--term ofterm ofthe marketing mix decisions.the marketing mix decisions.

Care must be taken in choosing the right typeCare must be taken in choosing the right type

of channel.of channel.

Establishing continuity is the marketersEstablishing continuity is the marketersresponsibilityresponsibility

Continuity is expressed through visibleContinuity is expressed through visible

market commitment.market commitment.


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CommunicationCommunication

...provides the exchange of information that is...provides the exchange of information that isessential to the functioning of the channel.essential to the functioning of the channel.

Types ofdistances that causeTypes ofdistances that cause

communication problems:communication problems:

Social distanceSocial distance

Cultural distanceCultural distance

Technological distanceTechnological distance

Time distanceTime distance

Geographical distanceGeographical distance


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IntermediariesIntermediaries

Types of intermediary relationshipTypes of intermediary relationship DistributorshipDistributorship

AgencyAgency

Type of exporting functionType of exporting function

Indirect exportingIndirect exporting

Direct exportingDirect exporting

Integrated distributionIntegrated distribution


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IntermediariesIntermediaries

Sources for Finding IntermediariesSources for Finding Intermediaries Distributor inquiresDistributor inquires

Governmental agenciesGovernmental agencies

Commerce Departments Trade Opportunities ProgramCommerce Departments Trade Opportunities Program

U.S. Exporters Yellow PagesU.S. Exporters Yellow Pages Private sourcesPrivate sources

Trade directoriesTrade directories

Screening IntermediariesScreening Intermediaries

PerformancePerformance ProfessionalismProfessionalism


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Selection of IntermediariesSelection of Intermediaries

AgentsAgents Foreign (Direct)Foreign (Direct)

BrokersBrokers

Manufacturers RepsManufacturers Reps

FactorsFactors

Managing agentsManaging agents

Purchasing AgentsPurchasing Agents

Domestic (Indirect)Domestic (Indirect)

BrokersBrokers

Export AgentsExport Agents EMCsEMCs

WebbWebb--PomerenePomerene

Commission agentsCommission agents

DistributorsDistributors Foreign (Direct)Foreign (Direct)

Distributors/dealersDistributors/dealers

Import jobbersImport jobbers

Wholesalers/retailersWholesalers/retailers

Domestic (Indirect)Domestic (Indirect)

Domestic wholesalersDomestic wholesalers

EMCsEMCs

ETCsETCs

ComplementaryComplementarymarketersmarketers


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The Distributor AgreementThe Distributor Agreement

Typical terms includeTypical terms include Contract durationContract duration

Typically short periods initiallyTypically short periods initially

Geographic and customer boundariesGeographic and customer boundaries

W

ellW

ell--defined territories and channelsdefined territories and channels

CompensationCompensation

Methods for determining payment amounts and how andMethods for determining payment amounts and how and

in what currency payment is to be made.in what currency payment is to be made.

Products and conditions of saleProducts and conditions of sale

Products to be sold; terms and conditions of salesProducts to be sold; terms and conditions of sales

Means of communication between partiesMeans of communication between parties


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Channel ManagementChannel Management

Coordinating two independent entities withCoordinating two independent entities withshared goalsshared goals

The relationship needs to be managed for theThe relationship needs to be managed for the

long termlong term

Factors complicating channel managementFactors complicating channel management OwnershipOwnership

Geographic, cultural, and economic distanceGeographic, cultural, and economic distance

Different rules of lawDifferent rules of law


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Channel Adjustment andTerminationChannel Adjustment andTermination

Typical reasons for channel adjustmentTypical reasons for channel adjustment Growth and changes in the internationalGrowth and changes in the international

marketers distribution approach may eliminate amarketers distribution approach may eliminate a

channel.channel.

Conflict of interest and a lack interest orConflict of interest and a lack interest orperformance by the intermediary may require aperformance by the intermediary may require a

channel modification.channel modification.

Termination conditions are the mostTermination conditions are the most

important considerations in the distributionimportant considerations in the distributionagreement and must be spelled out clearly.agreement and must be spelled out clearly.


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Gray Markets (Parallel Importation)Gray Markets (Parallel Importation)

Arguments for:Arguments for: The right to free tradeThe right to free trade

Consumers benefit fromConsumers benefit from

lower priceslower prices

Discount distributorsDiscount distributorshave found a profitablehave found a profitable

market nichemarket niche

Arguments against:Arguments against: Gray marketers takeGray marketers take

unfair advantage ofunfair advantage of

trademark ownerstrademark owners

marketing andmarketing and

promotionpromotion

Parallel imports deceiveParallel imports deceive

consumers by notconsumers by not

meeting productmeeting product

standards orstandards orexpectations of afterexpectations of after--

sale servicesale service


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The Solution to the Gray Market Problem?The Solution to the Gray Market Problem?

A contractual relationship thatA contractual relationship thatties businesses together.ties businesses together.


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EE--CommerceCommerce

Any worldwide web strategy must be tiedAny worldwide web strategy must be tiedclosely to the companys overall growthclosely to the companys overall growth

strategy in international markets.strategy in international markets.

Companies must come to terms with issuesCompanies must come to terms with issues

related to security, privacy, and access torelated to security, privacy, and access toglobal networks, at the same time,global networks, at the same time,

promoting globalpromoting global

commerce overcommerce over

the Internet.the Internet.

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