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Chapter 7: Distribution in international

marketing

• Definition of distribution channel

• External determinants of channel decisions
• The structure of the channel
• Choosing a mix of distribution channels
• Managing and controlling distribution
channels
• Online retail sales

Channels and physical distribution (Place) are crucial aspects of the

total marketing program; without them, a great product at the right price
1 and effective communications mean very little. 2

The supply chain includes all the firms that perform support activities by
generating raw materials, converting them into components or finished
products, and facilitating their delivery to customers.
Logistics is the management process that integrates the activities of all
companies—both inbound and outbound- to ensure an efficient flow of
goods through the supply chain.
Definition of distribution channel
A distribution channel is “an organized network of agencies
and institutions that, in combination, perform all the activities
required to link producers with users to accomplish the
marketing task.”
American Marketing Association (AMA)

 Diversity of channels
 Wide range of possible distribution strategies
 Differentiated market-entry options
 Challenges to managers responsible for designing
Physical distribution consists of activities involved in moving finished
goods from manufacturers to customers. international marketing programs.
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External determinants of channel decisions External determinants of channel decisions

Customer characteristics Customer characteristics

Nature of product  Size, geographic distribution, shopping habits, outlet

preferences and usage patterns

Nature of demand/location  Consumer product channels tend to be longer than

industrial product channels
Competition
 Strongly influenced by sociocultural factors.

Legal regulations/local business practices

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External determinants of channel decisions

Nature of product

 Low-priced, high-turnover convenience products: an

intensive distribution network.

 Prestigious product: it is not necessary/desirable to have

wide distribution. Manufacturers can shorten and narrow its
distribution channel.

 Industrial goods (bulk chemicals, metals and cement):

transportation and warehousing costs are critical issues
Bulky products
 Industrial products (computers, machinery and aircraft):
direct selling, servicing and repair and spare parts
warehousing dominate.
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External determinants of channel decisions

Nature of demand (location)

 The geography of a country

 The development of its transportation infrastructure

can affect the channel decision.

Perishable goods

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External determinants of channel decisions External determinants of channel decisions

Competition
Legal regulations/local business practices
Use same channels with competitors
• Consumers generally expect to find particular products in  A country may have specific laws that rule out the use
particular outlets (e.g. speciality stores) of particular channels or intermediaries.
• Accustomed to buying particular products from particular
sources.
 Local business practices can interfere with efficiency
Use different channels with competitors
and productivity and may force a manufacturer to employ
• Local and global competitors may have agreements with a channel of distribution that is longer and wider than
the major wholesalers in a foreign country that effectively desired.
create barriers and exclude the company from key
channels.
• Desire to create a competitive advantage.
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Japanese distribution structure

Distribution in Japan has long been considered the most

effective non-tariff barrier to the Japanese market.

The Japanese distribution structure is different enough from

its U.S and European counterparts Local business
practices in Japan
It has 04 distinguish features:
1. A structure dominated by many small middlemen
dealing with many small retailers- high density of
middlemen
2. Channel controlled by manufacturers
3. A business philosophy (loyalty, harmony and
friendship) shaped by a unique culture
4. Laws that protect the foundation of the system –
the small retailer
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Nestlé’s in Brazil
Procter & Gamble in emerging markets
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The structure of the channel

Market coverage (Channel width)

Market coverage: Coverage can relate to geographical

areas or number of retail outlets.

1. Intensive coverage. Distributing the product through the

largest number of different types of intermediary and the
largest number of individual intermediaries of each type.

2. Selective coverage. Choosing a number of intermediaries

for each area to be penetrated.

3. Exclusive coverage. Choosing only one intermediary in a

market.
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The structure of the channel The structure of the channel

Control/cost
Channel length

The ‘control’ of one member in the vertical distribution

Channel length is determined by the number of levels or channel means its ability to influence the decisions and
different types of intermediary.
actions of other channel members.

 Longer channels tend to be associated with convenience

goods and mass distribution.
 Japan and China have longer channels for convenience
goods because of the historical development of their
systems. One implication is that prices increase
considerably for the final consumer.
 Channel control is of critical concern to international
marketers wanting to establish international brands and
a consistent image of quality and service worldwide.
 The use of firm’s own sales force/ intermediaries

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The structure of the channel

The structure of the channel
Control/cost
Degree of integration

 There is a trade-off between the desire to control global Channel integration is the process of incorporating all
marketing efforts and the desire to minimize resource channel members into one channel system and uniting them
commitment costs under one leadership and one set of goals.

 ‘You can eliminate the intermediary, but not the

functions of the intermediary.’
 Reducing intermediaries requires the supplier to
allocate more financial resources to activities such as
warehousing, shipping, credit, field selling or field
service.
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1. Vertical integration: seeking control of
channel members at different levels of
the channel, e.g. the manufacturer’s
acquisition of the distributor.
2. Horizontal integration: seeking control Control can also be
of channel members at the same level exercised through
of the channel, e.g. the manufacturer’s
acquisition of the competitor. integration.
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The structure of the channel

Degree of integration

Vertical integration can take 02 forms- forward and backward:

 The manufacturer can make forward integration when it seeks

control of businesses of the wholesale and retail levels of the
channel.

 The retailer can make backward integration, seeking control of

businesses at wholesale and manufacturer levels of the channel.

 The wholesaler has two possibilities: both forward and

backward integration.

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The internet retailer Amazon.com is aggressively moving into

the publishing domain.
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Choosing a mix of distribution channels Choosing a mix of distribution channels

Single- Single- channel distribution

• The customers are being reached by only
channel
one type of distribution channel
distribution  Advantage: minimize the company’s marketing expenses.
• All the channels are in principle available to
the customer but the channels are not  Disadvantage: it comes at the expense of missed
Multiple- integrated. opportunities in the huge variety of other channels
channel
distribution • Multiple channels may include the internet,
smartphone, sales force, distributors, call
centres, retail stores and direct mail.
• All the channels are available to the
Omni- customer, and the channels are also
channel integrated and connected.
distribution • The purpose is to deliver experiences and
value through the whole customer journey.
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Choosing a mix of distribution channels

Multiple-channel distribution

Advantages: Disadvantages:

• extended market • potentially disruptive

coverage and increased
sales volume;
• lower absolute costs;
• better accommodation
of customers’ evolving
needs;
• more and better
information.
problems: consumer
confusion;
• conflicts with
intermediaries and/or
internal distribution
units;
• increased costs;
• loss of distinctiveness;
• increased organizational
complexity.
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Choosing a mix of distribution channels

Omni-channel distribution

 Not about maximizing channel efficiency but to deliver

seamless and consistent experiences for the customer to
better engage and convert him or her (puts the customer at
the core of the strategy)

 All sales channels will be synchronized with each other on

management information as well as information about
products, customers, inventories, promotions and order
fulfillments, etc.

 Eliminates the limitations of multichannel strategy such as

Dell’s use of the multichannel distribution strategy
intermediaries conflicts, costs and complexity. 35 36

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Choosing a mix of distribution channels

Difficulties for companies to shift from multichannel to

omnichannel:

 Requires reorganization and change

in processes between several
departments.

 Level of e-business of the

organization: integrating an
omnichannel distribution system
requires integrated e-business
systems.

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Managing and controlling distribution channels

Screening and selecting intermediaries

Contracting (distributor agreements)

Motivating

Controlling

Termination

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Managing and controlling distribution channels

Screening and selecting intermediaries

 05 categories of criteria for selecting foreign distributors:

 Financial and company strength
 Product factors
 Marketing skills
 Commitment
 Facilitating factors

 After listing all important criteria, some of these must then be

chosen for a more specific evaluation.

 Potential candidates are then compared and contrasted against

determining criteria.

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Managing and controlling distribution channels

Contracting (distributor agreements)

 Contract duration

 Geographic boundaries

 Payment section: methods of payment, compensation, functional

discount, commission, currency to be used

 Product and conditions of sale: which party is to be responsible for

which expenses (e.g. marketing expenses), credit and shipment terms.

 Means of communication between the parties

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Managing and controlling distribution channels Managing and controlling distribution channels

Motivating Controlling

 Control should be sought through the common development of written

 Motivating channel members is difficult: not owned by the performance objectives such as:
company; geographic distance and cultural distance.  sales turnover per year
 market share growth rate
 Intermediaries easily lose interest in the product and  introduction of new products
concentrate on products with a more rewarding response to  price charged
 marketing communications support
selling efforts.
 Control should be exercised through periodic personal meetings.
 It is important to keep in regular contact with agents and
distributors.  Evaluation of performance has to be done against the changing
environment (economic recession or fierce competition activity prevents
the possibility of objectives being met)

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Managing and controlling distribution channels Online retail sales

Termination
 Online retailing is still one of the fastest-growing market
 Typical reasons for the termination of a channel relationship:
sectors in Europe, the US and Asia (China).
 Establishment of a sales subsidiary in the country.
 Dissatisfaction with the performance of the intermediary
 Worldwide, online retail sales will grow around 10–15%/
 Termination conditions are among the most important year as shoppers continue to shift their spending from
considerations in the distribution agreement (penalties, local physical stores (‘bricks’) to online ones (‘clicks’).
laws, experience)

 In some countries, terminating an ineffective intermediary can be

time-consuming and expensive.
In the EU, one year’s average commissions are typical for
termination without justification. A notice of termination has to be
given 3-6 months in advance.

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Online retail sales

Key drivers of growth

 Increased use of smartphones and tablet computers

 Greater merchandise selection online: consumers are now

more willing to consider purchasing a greater number of
categories of products online than before

 New business models

 The retailing industry evolves towards seamless

‘omnichannel retailing’ experience, the distinctions
between physical and online will vanish
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Online retail sales

The two-dimensional framework is based on basic questions:

Crate & Barrel is an
American chain of up-
1. Information delivery. How will the customers get the market retail stores,
information they need to facilitate their purchase decisions? functioning as showrooms,
02 options: specializing in
-will they visit the stores to obtain (offline) information? housewares, furniture and
-will they seek information online, through websites or online home accessories. Their
catalogues? customers typically come
to their showrooms after
2. Transaction fulfilment. How will the transactions be fulfilled? which the furniture will be
02 options: delivered to their homes
via central warehouses
-will the customers either visit the store to pick up the items?
-will the store come to them, when the products are being Amazon.com uses multiple third-party carriers
delivered? such as UPS, FedEx or DHL, to ship products to
customers. Amazom.com is even testing the use
of drones to ship products directly to customers’
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homes.