International Distribution

Management
Dr Monika Jain
• A channel of distribution or trade channel is the route or path along which
products flow from the point of production to the point of ultimate
consumption or use.

• It starts with the producer and ends with the consumer . In between there
may be several intermediaries or middlemen who operate to facilitate the
flow of the physical product or its ownership from the producer to the
consumer.

• In the words of STANTON “A distribution channel consists of the set of people

and firms involved in the transfer of title to a product as the product moves
from the producer to the ultimate consumer.”

• A channel of distribution shows three types of flows:

a) Products flow downwards from the producer to the
consumers.
b)Cash flows upwards from customers to the producer as payment
for products.
c) Marketing information flows in both directions.
 Different Channel Flows

01 02 03 04
There are There are There are There are
channels for the channels for the forward reverse
flow of flow of channels channels
information product/service
Important element of marketing mix

Influences sales volume and profits

Determines where and when the product will be

available to users

Helps in reducing the effects of

fluctuations in production
 Distribution Channels:
Terminology and Structure
Distribution is the physical flow of goods through channels

A distribution channel is a set of people and firms involved in

carrying out the distribution function.

A channel involves:

• A producer.
• Ultimate consumers.
• Business users.
• Iintermediaries.
 Definitions

A sequence of marketing organizations that directs a

product from the producer to the ultimate (or end)
user.

Systems of relationships among businesses that

participate in the process of buying and selling products
and services

Channels of May sometimes be referred to as a supply chain or

Distribution
marketing channel

Multiple Channels for Consumer Products

Manufacturers/Suppliers use different channels to

reach different market segments

Formal (contract-based) vs. Informal (Partnerships)

Channel Relationships
Distribution Channels – Consumer Products
CONSUMER PRODUCTS

Producer Consumer

• Producer  Consumer (Direct Channel)

• Includes no intermediaries.
• Used by services and consumer goods sold directly to the
consumer
Producer Retailer Consumer

• Producer  Retailer  Consumer

• Producers sell directly to large retailers (e.g., Wal-Mart)
• Used where shipping and handling costs are high, or with
perishable products and/or fashion products with short product
life cycles.
Distribution Channels – Consumer Products

Producer Agent Wholesaler Retailer Consumer

• Producer  Agent  Wholesaler  Retailer  Consumer

• Agents market products to wholesalers on commission basis.

Producer Wholesaler Retailer Consumer

• Producer  Wholesaler  Retailer  Consumer

• Traditional channel where the wholesaler services numerous
retailers for the producer.
Marketing Channels for Consumer Goods and
Services
Distribution Channels – Business Products
BUSINESS PRODUCTS
Business
Producer
customer

• Producer  Business user

• Direct channel
• Manufacturer’s sales force sells directly to the consumer.

Agent Business
Producer
middleman customer

• Producer  Agent middleman  Business user

• Independent intermediary represents the manufacturer
to the consumer.
Marketing Channels for Industrial Goods and Services
 • Country-specific logistics
requirements
• Complexity
• Costs
Domestic • Distances
• Intermediaries
vs. Global • Alternative channel structures
Channels • Time
• Control
• Information
• Decentralized decision making
Channel Flows
Products/Service
Ownership
Promotional Information
Supply Information

Producer Agent Wholesaler Retailer Consumer

Money
Market research Information
Demand Information
Products/Service (returns)
Channel Objective
 • Marketing channels exist to create
utility for customers
• Place utility - availability of a
product or service in a location
that is convenient to a
potential customer
• Time utility - availability of a
product or service when
Channel desired by a customer
• Form utility - availability of the
Objectives product processed, prepared,
in proper condition and/or
ready to use
• information utility - availability
of answers to questions and
general communication about
useful product features and
benefits
 • The company’s channel objectives are influenced
by
• The nature of its product, e.g. perishable
products require more direct marketing to avoid
delays and too much handling.
• Company characteristics, e.g. the company’s
size and financial situation determine which
functions it can handle, how many channels it can
use, which transportation can beused.
• Characteristics of intermediaries, intermediaries
differ in their abilities to handle promotions,

Channel customer contact, storage and credit e.g. the

company’s own sales force is more intense in
selling.
Objectives • Competitors’ channel, some companies may
prefer to compete in or near the same outlets that
carry competitors’ products, some may not e.g.
Burger King wants to locate nearMcDonald’s
• Environmental factors, economic conditions and
legal constraints affect channel design decisions
e.g. in a depressed economy, producers want to
distribute their goods in the most economical
way, using shorterchannels.
 Channel Objectives

Increase Satisfy Ensure Obtain Increase Maintain

Increase the Satisfy customer Ensure Obtain timely Increase cost- Maintain
availability of the requirements by promotional and detailed effectiveness. flexibility.
good or service providing high effort. market
to potential levels of service. information.
customers.
 Channel Objectives

• Product availability
• The most important objective for a channel.
• For consumer goods, two aspects of availability must be
considered.
• Attain the desired level of coverage in terms of appropriate
retail outlets.
• The item’s positioning within the store
 Channel Objectives

• Meeting customers’ service requirements

• Some the service requirements include:
• Order cycle time
• Dependability
• Communication between buyer and seller
• Convenience
• Postsale services
 Channel Objectives

• Promotional effort
• Obtain promotional support from channel members for
the firm’s product.
• Market information
• Middlemen are often relied on for fast and accurate
feedback.
• A high level of channel feedback is particularly
important for firms in highly competitive industries.
• Feedback is crucial for prospectors.
 Channel Objectives

• Cost-effectiveness
• Important to businesses pursuing low-cost analyzer or
defender strategies.
• Flexibility
• Firms pursuing prospector strategies in new or rapidly
growing or technically turbulent product categories,
consider this important.
• A flexible channel is one where it is relatively easy to
switch channel structures or add new types of
middlemen.
Supply Chains and the Value Delivery
Network

• This supply chain consists of upstream and

downstream partners.
Upstream from the company is the set of firms that supply the
raw materials, components, parts, information, finances, and
expertise needed to create a product or service.

Downstream marketing channel partners, such as wholesalers

and retailers, form a vital link between the firm and its
customers.
 Most businesses use third parties or intermediaries to
bring their products to market.

They try to forge a "distribution channel" which can be

defined as “All the organizations through which a

Nature and product must pass between its point of production and
consumption“

importance
of channels Why does a business give the job of selling its products to
intermediaries?

The answer lies in efficiency of distribution costs.

Intermediaries are specialists in selling. They have the
contacts, experience and scale of operation which means
that greater sales can be achieved than if the producing
business tried to run a sales operation itself.
 • For example,

• A Toyota dealer depends on the

Motor company to design cars that
meet consumer needs.

• In turn, Toyota depends on the

dealer to attract consumers, persuade
them to buy Toyota cars, and service
cars after the sale.

• The Toyota company also depends

on other dealers to provide good sales
and service that will uphold the
reputation of Toyota and its dealer
body.

• In fact, the success of individual

Toyota dealers depends on how well
the entire Toyota distribution channel

Channel behavior
compete with the channels of other
automobile manufacturers.

and Organization
 Distribution Channel Functions

Information

Transfer
Communication

Payments
Negotiation
Physical
Distribution
Ordering

Risk Taking
Financing
 Channel
Constraint
Channel Behavior and Conflict

each member is assigned

tasks it can do best.
The channel will be most
effective when:
all members cooperate
to attain overall channel
goals and satisfy the
target market.

Horizontal Conflict
occurs among firms at
the same level of the
channel.
Focus on individual goals
leads to conflict
Vertical Conflict occurs
between different levels
of the same channel.
 • Horizontal conflicts occurs among
firms at the same level of the channel.

• For example, some Ford dealers in

Chicago complained about other dealers
in the city who stole sales from them by
being too aggressive in their pricing and
advertising or by selling outside their
assigned territories.

• Vertical conflicts refers to conflicts

between different levels of the same
channel.

• For example, General Motors came

into conflict with its dealer some years
ago by trying to enforce service, pricing,
and advertising policies.

• Solution : “For ensuring good

performance of the channel, each

Channel Conflicts 
channel member’s role must be specified
and channel conflict must be managed.”

Horizontal and Vertical

Channel
Selection
Channel design decisions
 Analyzing customer needs

(a) Lot size (b) Waiting and delivery time (c) Spatial convenience
(d) Product variety (e) Service backup

 Establishing channel objectives

Channel objectives should be stated in terms of targeted service output levels.

Channel design must take into account the strengths and weaknesses of different
types of intermediaries.

 Identifying major channel alternatives

A channel alternative is described by three elements : (a)the types of available

business intermediaries, (b) the number of intermediaries needed, (c) and the terms
and responsibilities of each channel member.

 Evaluating major channel alternatives

Choice of Channels: Market

Type Number of
of potential
Market customers

Geographic Order
concentration size
Choice of Channels: Product

Perishability

Unit
Value

Technical
Nature
 Establishing channel objectives

 Channel objectives are a part of and result from the company‘s marketing
objectives that need to be stated in terms of targeted service output levels.

 Profit considerations and asset utilization must be reflected in channel objectives

and the resultant design.

 It should be the Endeavour of the channel members to minimize the total channel
costs and still provide with the desired level of service outputs.

 For example,
1. Perishable products require more direct marketing because of the dangers
associated with delays and repeated handling.
2. Products requiring installation and/or maintenance services are usually sold
and maintained by the company or exclusively branches dealers.
3. Custom-built machinery and specialized business forms are sold directly by
company sales representatives because middlemen lack the requisite
knowledge.
External (Environmental) Issues

Firms’ global presence  Increased channel

complexity, market diversity and cost

Government Regulatory Environment: Trade

Designing
Initiatives; Privatization; etc.
Effective
Corporate Reconfiguration: Vertical &
Horizontal; Integration
Channels -
Technological Innovations
I
TQM
 Internal (Marketing) Issues

Intensive 
Wide channels
e.g.,
Types of
Designing
commodities
Exclusive 
Distribution Narrow channels

Effective
e.g., cars
Strategies
Selective 
Mixed &
targeted

Channels - Product Characteristics: Value,

II Requirements, etc.

Customer Service Objectives:

Return policy, Delivery times
and schedules
 Flexible & Adaptable

Dynamic

Integrated Relationships

Characteristics
Global Management (+ Foreign Participation)
of Effective but region-specific
Channels
“No boundaries”

From Channel  Network

“Slim” (No excesses)

Responsibilities of
Channel Members
• The producer and the
intermediaries need to agree
on the terms and
responsibilities of each channel
member.
• They should agree on price
policies, conditions of sale,
territory rights, and the specific
services to be performed by
each party.
 Evaluating the Major Alternatives
• Suppose a company has identified several channel alternatives and
wants to select the one that will best satisfy its long-run objectives.
• Each alternative should be evaluated against economic, control, and
adaptability criteria.

• Finally, the company must apply adaptability criteria.

• Channels often involve long-term commitments, yet the company
wants to keep the channel flexible so that it can adapt to
environmental changes.
• Thus, to be considered, a channel involving long-term commitments
should be greatly superior on economic and control grounds.
Channel Management Decisions
• Marketing channel management calls for selecting,
managing, and motivating individual channel
members and evaluating their performance over
time. Marketing
channel
manageme
nt

Managing and
Selecting Evaluating their
motivating
members performance
members
Choice of Channels: Middleman

Services provided by
middlemen

Availability of desired
middlemen

Producer’s and
middlemen’s policies
Choice of Channels: Company
Desire
for channel control

Services provided
by seller

Ability
of management

Financial resources
Channel Design:

Decisions involving the development of

new marketing channels either where
none had previously existed or to the
modification of existing channels
 Who Engages in Channel Design?

Retailers
Firms Wholesalers

• Producers,
manufacturers, service • Look up
providers, franchisors • Look both up and the
down channel
• Look down the the channel to secure
channel suppliers
toward the market
Channel Design Paradigm

1. Recognize the need for

channel design decision

7. Select 2. Set & coordinate

channel members distribution objectives

6. Choose the “best” 3. Specify

channel structure distribution tasks

5. Evaluate 4. Develop alternative

relevant variables channel structures
 When to Make a Channel
Design Decision

 Developing a new product or  Dealing with changes in

product line
 Aiming an existing product at a
new market
 Making a major change in some
other component of the
marketing mix
 Establishing a new firm
 Adapting to changing
intermediary policies that may
inhibit attainment of distribution
objectives
availability of particular kinds of
intermediaries
 Opening up new geographic
marketing areas
 Facing the occurrence of major
environmental changes
 Meeting the challenge of conflict
or other behavioral problems
 Reviewing and evaluating
 Types of Intermediaries
• Until recently, Dell sold directly to final consumers and business
buyers only through its sophisticated phone and Internet
marketing channel.
• It also sold directly to large corporate, institutional, and
government buyers using its direct sales force.
• However, to reach more consumers and match competitors such
as HP and Apple, Dell now sells indirectly through retailers such
Best Buy, Staples, and Walmart.

• It also sells indirectly through value-added resellers, independent

distributors and dealers who develop computer systems and
applications tailored to the special needs of small- and medium-
sized business customers.
• For example, by selling through retailers and value-added
resellers in addition to its own direct channels, Dell can reach
more and different kinds of buyers.
Evaluating major channel
alternatives
Categories of Variables

1. Market Variables
2. Product Variables
3. Company Variables
4. Intermediary Variables
5. Environmental Variables
6. Behavioral Variables
MarketVariables

Market Geography Location, geographical size,

& distance from producer

Market Size Number of customers in a

market

Market Density Number of buying units

(consumers or industrial firms)
per unit of land area

Market Behavior Who buys, & how, when, and

where customers buy
 Bulk & Weight
Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness
 6

Size The range of options is

relative to a firm’s size

Financial The greater the capital, the

Capacity lower the dependence on
intermediaries

Managerial Intermediaries are necessary

Expertise when managerial experience
is lacking

Objectives Marketing & objectives may

& Strategies limit use of intermediaries
Intermediary 6

Variables
Availability Availability of intermediaries
influences channel structure.

Cost Cost is always a consideration in

channel structure.

Services Services that intermediaries

offer are closely related to the
selection of channel members.
 Competitive
Economic
Sociocultural

The impact of environmental forces is

a common reason for making
channel design decisions.

Technological Legal
Develop congruent roles for channel
members.

Be aware of available power

bases.

Attend to the influence of behavioral

problems that can distort
communications.
 • Channel management warrants :

• Selecting channel members :

• characteristics of intermediaries channel
member’s length of business, other
lines carried, growth and profit record,
cooperativeness and reputation.

• Motivating individual channel members :

Channel • Positive motivators higher margins, special
deals, premium, cooperative advertising

Management allowances, display allowances and sales

contests.
• Negative motivators threatening
decisions to reduce margins, to slow down
delivery, or to end the relationship
altogether.

• Evaluating their performance over time :

• Evaluating standards sales quotas, average
inventory levels, customer delivery time,
treatment of damaged and lost goods,
cooperation in company promotion and
training programs and customer service.
Channel Types
1) Manufacturer-consumer (Direct selling):
• Shortest and simplest channel
• No middleman between the producer and consumer
• Producers sell directly to customers through door-to-door
salesmen , direct mail , own retail stores, e.g.. BATA India Ltd.
• Used generally for selling shoes , clothes , books, etc.
• Very fast and economical
• Expert services of middlemen are not available
• Large investment is required

2) Manufacturer-retailer-consumer:
• Manufacturer sells to one or more retailers who sell to
consumers
• This channel is popular when retailers are big and buy in
large quantities ,e.g. departmental stores , super markets.
• Generally used for distribution of consumer durables and
products of high value like automobiles, home appliances,etc.
• Relieves manufacturer of the burden of selling and provides
control over distribution.
3) Manufacturer-wholesaler-retailer-consumer:
• Traditional or normal channel
• Suitable where producers have limited finance and narrow
product line
• Channel used in case of consumer durables which are not subject
to frequent changes in fashion.

4) Manufacturer-agent-retailer-consumer:
• Used when retailers are few or geographically concentrated
• Commonly used to sell agricultural products, machinery and
equipment, etc.

5) Manufacturer-agent-wholesaler-retailer-consumer:
• Longest channel
• Producer hands over entire output to the agent who sales them to
wholesalers
• In case of cloth this channel is widely used
• Results in wider distribution of products
 Evaluating major channel alternatives

 Economic criteria :- Each channel alternative will produce a different level of sales and
cost.
 Example : Company sales representatives are better trained to sell the company’s
products..
 A Sales agency could economically sell more than a company sales force due to more
sales guys and better knowledge of the geographical area..

 Control criteria :- Channel evolution has to include control issues. Using a sales
agency poses a control problem.
 Example : The agent might not master the technical details of the company’s product or
handle its promotion materials effectively.

 Adaptive Criteria :- Each channel involves some duration of commitment and loss of
flexibility.
 Example : A manufactures seeking a sales agency might have to offer a five year
contact. During this period, other means of selling such as direct mail might become
more effective, but the manufactures is not free to drop the sales agency
 • Most channel options involve at
least one marketing intermediary,
an organization that operates
between producers and
consumers or business users.
• A retailer owned and operated by
someone other than the
TYPES OF manufacturer of the products it sells.

MARKETING • A wholesaler who takes title to the

goods it handles and then
CHANNELS • distributes these goods to retailers,
other distributors, or sometimes
end consumers.
• Service firms market primarily
through short channels because they
sell intangible products and need to
maintain personal relationships
within their channels.
 • Direct channel—carries goods directly
from a producer to the business purchaser
or ultimate user.
• Direct selling—a marketing strategy in
which a producer establishes direct sales
contact with its product’s final users.

DIRECT • Internet and direct mail are also

potentially important tools for direct
selling.
SELLING • CHANNELS
USING
MARKETING
INTERMEDIARIES

• For some products, using intermediaries

may be more efficient, less expensive, and
less time-consuming.
 • DUAL DISTRIBUTION
• Movement of products through more
than one channel to reach the firm’s target
market.
• Used to maximize the firm’s coverage in
the marketplace or to increase the cost-
effectiveness of the firm’s marketing effort.
TYPES OF • REVERSE CHANNELS

MARKETING • Channels designed to return goods to their

producers.

CHANNELS • Growing importance because of rising

prices for raw materials, increasing
availability of recycling facilities, and passage
of additional antipollution and conservation
laws.
• Also used for recalls and repairs.
 • Vertical marketing system (VMS) Planned
channel system designed to improve
distribution efficiency and cost-effectiveness by
integrating various functions throughout the
distributionchannel.

• CORPORATE AND ADMINISTEREDSYSTEMS

• Corporate marketing system—single owner
runs organizationsat each stage of the
VERTICAL marketing channel.
• Administered marketing system—
MARKETING dominant channel member exercises
power to achieve channel coordination.
SYSTEMS • CONTRACTUAL SYSTEMS
• Contractual marketing system—
coordinates distributionthrough formal
agreements among channel members.
• Include wholesaler-
sponsored voluntary chains,
retail cooperatives, and
franchises.
 Types of
Intermediaries
 • A marketing organization that links
a producer and user within a
marketing channel.

• Merchant middleman—takes
title to products by buying
Middleman them, e.g. distributors.
• Functional middleman—helps
(or marketing in the transfer of ownership of
intermediary) products but does not take title
to the products, e.g., 3pls.
• Retailer—buys from producers
or other middlemen and sells
to consumers.
• Wholesaler—a middleman that
sells products to other firms.
 • Greater efficiency in making
goods available to target
markets.
• Intermediaries provide
Role of • Contacts
Intermediaries • Experience
• Specialization
• Scale of operation
• Match supply and demand.
 How Channel Members Add Value
Why do producers give some of the selling
job to channel partners?

From economic system’s point of view, the role Marketing channel members buy large
of marketing intermediaries is to transform the quantities from many producers and break
assortments of products made by producers them down into the smaller quantities and
into the assortments wanted by consumers. broader assortments desired by consumers.
 Efficiency Provided by an
Intermediary
The services of intermediaries reduce the number of contacts, or exchanges, between
producers and buyers, thereby increasing efficiency; especially across longer distances.
These intermediaries however ‘lengthen’ the supply chain.

Producer Buyer Producer Buyer

Producer Buyer Producer Buyer

Middleman or
intermediary
Producer Buyer Producer Buyer

Producer Buyer Producer Buyer

Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 2000e.
Copyright © 2000 by Houghton Mifflin Company, Adapted with permission. Figure 15.3
Efficiency Provided by an Intermediary

Retailer Retailer Retailer Retailer Retailer Retailer

Manufacturer

Initial manufacturer must arrange

for six interfaces or interactions
1X6=6
 Efficiency Provided by an Intermediary

Retailer Retailer Retailer Retailer Retailer Retailer

Manufacturer Manufacturer Manufacturer

As the industry grows, the number of

interfaces or interactions continue to grow
3 X 6 = 18
Retailer Retailer Retailer Retailer Retailer Retailer

Middle Man

Manufacturer Manufacturer Manufacturer

Eventually, it will be economical

for a middle man to improve
transaction efficiency
3+6=9
Number of Marketing Intermediaries

Intensive • A strategy in which they stock their products in

as many outlets as possible.
• These products must be available where and
Distribution when consumers want them.

• The producer gives only a limited number of

Exclusive dealers the exclusive right to distribute its
products in their territories.
Distribution • It’s often found in the distribution of luxury
brands.

• The use of more than one but fewer than all of

Selective the intermediaries who are willing to carry a
company’s products.
Distribution • Most television, furniture, and home appliance
brands are distributed in this manner.
Comparison of Intensive, Exclusive, and Selective Retail
Coverage Strategies
 Different types of intermediaries

Merchants Agents Facilitators

Retailers Wholesalers Brokers Sales Agents Banks Transport

Advertising
Agencies
Main function of intermediaries is to
convert
Potential Profitable
buyer customer
Managing intermediaries
 Used in case of HIGH BRAND
Used in case of LOW BRAND LOYALTY
LOYALTY
Choice is made before
Choice is made in store coming to store

Use of sales force Use of Advertisements

and promotion
and promotion
money

PUSH PULL
 Global
Retailing
Global Retailing
• Department stores • Hypermarkets
• Specialty retailers • Supercenters
• Supermarkets • Category killers
• Convenience stores • Outlet stores
• Discount stores and
warehouse clubs
Global Retailing

Top 25 Global
Retailers in
2002, sales in
Millions
 Global Retailing

• Saturation in the home country market

Environmental • Recession or other economic factors
Factors • Strict regulation on store development
• High operating costs

Critical • What advantages do we have relative to the

Question local competition?
Global Retailing Strategies
• Organic
• Company uses its own resources to open a store on a
green field site or acquire one or more existing retail
facilities
• Franchise
• Appropriate strategy when barriers to entry are low yet
the market is culturally distant in terms of consumer
behavior or retailing structures
Global Retailing Strategies
• Chain Acquisition
• A market entry strategy that entails purchasing a
company with multiple existing outlets in a foreign
country
• Joint Venture
• This strategy is advisable when culturally distant,
difficult-to-enter markets are targeted
Innovation in Global Retailing

Innovation takes place only in the most highly developed systems

The ability of a system to successfully adapt innovations is directly related to its

level of economic development

Even when the economic environment is conducive to change, the process of

adaptation may be either hindered or helped by local demographic factors,
geographic factors, social mores, government action, and competitive pressures

The process of adaptation can be greatly accelerated by the actions of

aggressive individual firms