International Distribution and

Sales Policy
 The process of deciding how to get goods in
customer’s hands. One of the 4 P’s of marketing-
place.
 The channel of distribution is the path,

a product takes from its producer or

manufacturer to the final user.
 Distribution channels are intermediaries, used by

the producers to bring their products to the

market.
Benefit of using intermediaries is that they provide cost-cutting measure.
They reduce the amount of work that must be done by both producers and
consumers.

. There are a few specific reasons which show the need for channel
members.

 When a new product is launched.

 When an existing product is aimed to enter the new market.

 Where there is change in marketing environment.

 Channel Objectives
 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
desired by a customer
 Form utility - availability of the 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

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 Setting the Channel Objectives and Constraints
 The company must decide which segments to
target and the best channels to use in each
segment. Here, the objective of the company is to
minimize the total channel cost.
 Besides the target market, 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 be used…
 characteristics of intermediaries, intermediaries differ in their
abilities to handle promotions, customer contact, storage and
credit e.g. the company’s own sales force is more strong in
selling.

 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 near
McDonald’s

 environmental factors, economic conditions and legal

restriction affect channel design decisions e.g. in a depressed
economy, producers want to distribute their goods in the
most economical way, using shorter channels.
 Distribution Channel Functions
 A distribution channel moves goods from producers to
consumers. Therefore they;
 give information about the product and consumers
 promote the offer
 contact with the consumers
 match the offer with the consumer’s needs
 negotiate with the buyers about the price and offer
 physically distribute (transport) the product
 may finance the manufacturer to cover the costs of the channel
work therefore may take risk.
 All these functions can be carried out by the
manufacturers but they then increases their costs and
prices.
 Modifying Distribution Strategies

Modify when the following changes occur:

 Consumer markets and buying habits

 Customer needs

 Competitor’s perspectives

 Manufacturer’s financial strength

 Sales volume level of existing products, and

 The marketing mix

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 Number of Channel Levels

 The number of intermediary levels used by the

producers vary;

 A direct marketing channel; has no intermediary levels.

Here, the producer sells directly to consumers e.g.
Avon sells their products door to door or through
home parties.

 An indirect marketing channel; contains 1 (retailer) ,

2 (wholesaler + retailer) or 3 (wholesaler + jobber +
retailer) intermediary levels.
Types of Channels
 Direct Marketing Channel (or Zero Level)
This type of channel has no intermediaries. In this distribution system,
the goods go from the producer directly to the consumer, e.g., Eureka
Forbes. 0 L e ve l

P ro d u c e r C o n sum er

 Indirect Marketing Channel

1. One-level Channel: In this type of channel there is only one intermediary
between producer and consumer.1 Level This intermediary may be a retailer
or a distributor.
P ro d u c e r R e ta ile r C onsum er

If the intermediary is a distributor, this type of channel is used for specialty

products like washing machines, refrigerators or industrial products. Cont….

P ro d u c e r D is t r ib u t o r C onsum er
2. Two-level Channel: This type of channel has two intermediaries, namely,
wholesaler/distributor and retailer.
2 Level
P ro d u c e r W h o le s a le r /D i s t r ib u t o r R e ta ile r C onsum er

3. Three-level Channel: This type of channel has three intermediaries,

namely, distributor, wholesaler and retailer. This pattern is also used for
convenience products. 3 L e ve l
P ro d u c e r D is t r ib u t o r W h o le s a le r R e t a i le r C o n sum e r

4.Four-level Channel: This type of channel has four intermediaries, namely,

agent, distributor, wholesaler and retailer. This channel is similar to the
previous two. This type of channel is used for consumer durable
products also. 4 Level
P ro d u c e r Agent D is t r ib u t o r W h o le s a le r R e t a i le r C onsum er
 Channel Selection Criteria

Market Factors

Customer preference: The channel which is most preferred by customers.

Organizational customers: Organizational customers frequently have

buying habits that are different from those of other consumers.

Geography: Customer location is another important factor determining

the type of channel to be used.

Competitors

In some cases, the marketer may try to duplicate his competitors’

channel in order to have his products replace that of a competitors’.

Cont….
Nature and Availability of Intermediaries
We need to find intermediaries that can handle the products
competently and provide adequate service to final customers. For new
entrants, it is better to find the best available intermediaries in the
market.
Product Factors
 Life Cycle
 Nature of product/complexity
 Price
 Size and Weight
 Consumer Perceptions
 Other Product Factors
Marketing Intermediaries
The people and organizations that assist in the flow of goods and
services from producer to customer are known as marketing
intermediaries.

The following are the common types of intermediaries

 Agent or Broker
 Wholesaler
 Retailer
 Distributor
 Dealer
Wholesalers X are businesses that buy large quantities of
goods from manufacturers, store the goods, and then resell
them to other businesses.

Rack jobbers X are wholesalers that manage inventory and

products for retailers.

Drop shippers X sell bulk goods that require special handling

to customers, but have the producer ship directly to the
consumer.
Retailing
Importance/Role of Retailing in Marketing Channels
. It is important to manufacturers because it is the major connection in the
marketing channel between manufacturers and end-users. And it is
important because of its contribution to the economy.
Retailing and Economic Utility
•Retailers go beyond just selling products off the shelf.
•They add value to the goods and services that they sell by creating time,
place, possession and form utilities.
•Retailers’ create place utility by opening stores in suitable locations. News-
stand operators locate near train and bus stations because these are
convenient places for their customers to purchase magazines and
newspapers.
Retailing Functions in Distribution

Functions of Retailing

Collect product variety and

offer them for sale

Provide information

Retailers Mark prices and pay for

goods

Conclude transaction with

final consumer

Cont….
 Brokers and agents
 They do not take title to goods, and they perform only
a few functions. The generally concentrate by product
line or customer type.

 A broker brings buyers and sellers together and assists

in negotiation on commission basis. For eg, real estate
brokers, insurance brokers and stock brokers. Agent
represent buyers or sellers on a more permanent basis.
Examples of Marketing Channels
1. Vertical Marketing System (VMS); It is the result of failure of marketing
channels, where each – manufacturer, wholesaler, retailer – is one independent
separate identity seeking to achieve its own objectives.
Examples are BPL, ONIDA, Philips, BATA, DCM, etc.

2. Horizontal Marketing System: Here two or more businesses, which are

unrelated, put together their efforts to use an emerging marketing
opportunity. Examples are Maruti Udyog, HDFC Bank, GE Capital, Auto
Finance Ltd, Kotak Mahindra Finance Ltd.

3. Third Party “Delivery”: In which specialized agency is providing logistics

and distribution services. Examples are ACE which is providing door-to-door
service for Godrej and McDonald’s.

4. Multi-Channel Marketing System: In which distribution is performed by

company’s showrooms as well as channel members. Cont….

Examples are BATA, Philips, Raymonds.

 External Determinants of channel Decisions

 Customer Characteristics
 Nature of Product
 Nature of Demand/Location
 Competition
 Legal Regulations/local business practices
 Managing and controlling Distribution channels
1. Select distributors-do not let them select you:
2. Look for distributors capable of developing markets,
rather than those with a few obvious contacts
3. Treat the local distributors as long term partners not
temporary market entry vehicles:
4. Support market entry by committing money, manager and
marketing ideas:
5. Control over marketing strategy:
6. Make sure distributors provide you with detailed market
and financial performance data
7. Build links among national distributors at the earliest
opportunity;
Criteria for Selecting Foreign Distributors
 The structure of the channels Depends on

1. Market coverage

For market coverage three approaches are

available:
 Intensive coverage

 Selective coverage

 Exclusive coverage
 2. Channel length
3. Degree of Integration

There are two types of integration

 Vertical and Horizontal Integration
Three strategies for market coverage
 Exclusive Distribution
 Limiting the distribution to only one intermediary in the district

Advantages
 Maximize control over service level/output
 Enhance product’s image & allow higher markups
 Promotes dealers loyalty, better forecasting, better inventory and
merchandising control
 Restricts resellers from carrying competing brands

Disadvantages
 making a risk on one dealer in each market
 Only suitable for high price, high margin, and low volume products

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  Intensive distribution
Distribute from as many outlets as possible to provide
location convenience. Eg Newspapers, Most fast moving
consumer goods you see in the newsstand, photo processing
shops

Advantages:
 Increased sales, wider customer acknowledgment, and
impulse buying

Disadvantages:
 normally low price and low-margin products that require a
fast turnover
 Difficult to control large number of retailers

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Selective distribution-Appoint several but not all retailers
Daewoo have 2 distributors in Singapore
 Starsauto, part of a larger Indonesian group, represents Daewoo’s
traditional line of sedans.
 Homegrown family-owned JTA Motors market Daewoo’s off-road
vehicles like the Musso and Korando, and an upmarket model called
the Chairman.
Advantages:
 Better market coverage than exclusive distribution
 More control and less cost than intensive distribution
 Concentrate effort on few productive outlets
 Selected firms capable of carrying full product line and provide
the required service

Disadvantages:
 May not cover the market effectively
 Difficult to select dealers (retailers) that can match your
requirement and goals
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 Channel Conflicts
 Although channel members are dependent on one another, they
often concentrate on their short-term benefits. Channel conflict
occurs when disagreement among channel members on goals and
roles - who should do what and for what rewards.

 Horizontal conflict; occurs among firms at the same level of the

channel. In other words, one dealer may complain about the
other.

 Vertical conflict; occurs among different levels of the same

channel. In other words, the producer may complain about its
dealers or vise versa.
 Conflict may be healthy or damaging for the channel. Healthy
competition would encourage dealers to improve their services.
 Vertical Marketing Systems

 Vertical Marketing Systems (VMS) consists of

producers, wholesalers, and retailers acting as
a combined system - that seek to maximize
profits for the whole channel.
 Here, one channel members owns the others,
has contracts with them or use so much power
that they all cooperate.
 Such systems occur to control channel behavior
and manage channel conflict.
 There are three major types of VMSs which has
different means for setting up leadership and
power in the channel;
 Corporate VMS
 Contractual VMS
 Wholesaler-sponsored voluntary chains
 Retailer cooperatives
 Franchise organizations
 Administered VMS
 Corporate VMS
 In a corporate VMS, production and
distribution stages are combined under single
ownership, in order to manage cooperation and
conflict management e.g. AT&T markets its
products through its own chain of distributors.
 Contractual VMS
 A contractual VMS consists of independent
firms at different levels of production and
distribution who join together through
contracts to obtain more economies or sales
impact than each could achieve alone.
 Administered VMS
 A vertical marketing system that coordinates
production and distribution stages, not
through common ownership or contractual
ties, but through the size and power of one of
the parties e.g. Procter & Gamble, Kraft,
Campbell Soup (or retailers like Wal-Mart,
Toys `R` Us) are very strong that they can
command special displays, shelf space,
promotions and prices form the other parties.
 Horizontal Marketing Systems

 Horizontal marketing systems is a channel

arrangement in which two or more companies at one
level join together to follow a new marketing
opportunity.

 The major benefit is that companies combine their

capital, production capabilities, marketing resources
and therefore accomplish more.

 Companies might join forces with competitors or

noncompetitors. They might work with each other
on a temporary or permanent basis or they may
create a separate company.
 E.g. Coca-Cola and Nestle formed a joint
venture to market ready-to-drink coffee and
tea worldwide. Coke provided worldwide
experince in marketing and distribution
beverages and Nestle contributed two
established brand names - Nescafe and
Nestea.
 Hybrid Marketing Systems
 Hybrid marketing systems is also called
multichannel distribution systems where the
company uses several marketing channels (e.g.
direct mail - telemarketing, retailers, distributors,
dealers, own sales force) to sell its products to
different customer segments.

 E.g. IBM uses its own sales force + IBM direct which
is the catalog and telemarketing operation of IBM +
independent IBM dealers + IBM dealers for business
segments + large retailers like Wal-Mart.
 Distributor Agreement

Items to include in an agreement with a foreign distributors;

 Names and addresses of both parties
 Date when the agreement goes into effect
 Duration of the agreement
 Provisions for extending or termination the agreement
 Description of sales territory
 Establishment of discount and commission schedules
 Provisions for revising the commission or discount schedules
 Restrictions to prohibit the manufacture and sale of similar and
competitive products
 Designation of responsibility for patent and trade mark
negotiations and pricing
 Designation of the country and state of contract jurisdiction in the
case of dispute
 Reasons for Termination contract

Typical reasons for the termination of a channel

relationship are as follows:

 The international marketer has established a

sales subsidiary in the country.
 The international marketer is unsatisfied with
the performance of the intermediary.