D’Amore-McKim School of Business

Global Distribution Channels

Prof. Ravi Sarathy

Week 3 L2

1
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A Model for Choosing Global Distribution Channels

Channel Issues:
Relevant Factors 1.Channel Design
2. Channel Member Selection Criteria
•Product Specific 3. Channel Tasks
Aspects • Product Adaptation/Homologation
• Warehousing
• Environment • Installation and Training
• Advertising and Promotion
• Customer
• Pricing and Discounting
• Characteristics
• After-sales Service
• Marketing: Customer Prospecting
• Firm Characteristics • Information Gathering and Feedback
4. Channel Performance
• Market Share
• Competitive Factors • Economic and Financial Results
• Strategic Goals
5. Channel Evolution
• Free-riding Potential

2
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A Model for Choosing Product Specific Aspects

Global Distribution
Channels
Variables affecting choice:
• Proprietary product/process
• Differentiated versus Commodity
• Specific know-how needed to use
• Specific salesforce sales skills needed
• Standard versus Customized
• Core versus Peripheral Product
• Complex training and service required

Environment
• Extent of political and economic stability
• Uncertain market size—possible lack of
• scale economies
• Local govt. pressure to use local agents
• Legal restrictions on parent firm control
• Socio-cultural distance—culture, geography
• Multiplicity of markets

3
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A Model for Choosing

Global Distribution
Channels (cont.)
Variables affecting choice:
Customer Characteristics
• Relative Importance of Customer
• Help with Installation and Use
• Frequent Upgrades
• Involvement in New Product Development
• (Beta Site)
• Expectations

Firm Characteristics
• Size, Financial, and Managerial Resources
• International Experience
• Current Channels Used
• Satisfaction with Existing Channel Choices

4
 D’Amore-McKim School of Business

A Model for Choosing

Global Distribution Variables affecting choice:
Channels (cont.)
Competitive Factors
Competitors’ Choice of Entry Mode, Channels
Competitors’ Success with Channel Choice
Time Pressure: Short Product Life Cycle

Free-riding Potential
Value of Brand Name, Reputation
Ease of Appropriability
Difficulty in Restraining Distributor

5
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A Model for Choosing Wholly Owned Sales Subsidiaries

Global Distribution
Channels (cont.) Greater
CONTROL Controlled Joint Ventures

Original Equipment Manufacturer

(OEM) Agreements
Channel Issues:
Private Branding
1. Channel Design
Minority Joint Ventures

Franchises

Exclusive Distributors
Less
CONTROL “Piggybacking”

Nonexclusive Distributors 6
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Channel Issues: (cont.)

A Model for
Choosing 2. Channel Member Selection: Criteria
Global
Distribution 3. Channel Tasks
Channels Product Adaptation/Homologation
(cont.) Warehousing
Installation and Training
Advertising and Promotion
Pricing and discounting
After-Sales Service
Marketing: Customer Prospecting
Information Gathering and Feedback

4. Channel Performance
Market Share
Economic and Financial Results
Strategic Goals

5. Channel Evolution
7
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Key Issues in Global Distribution

Channel layers vary across markets
Implications for total cost of distribution; cascade effect of margins at each layer
Impact on end-user price; limits affordability, can affect net margins earned
Channel performance: channel reach, meeting targets, price
discounting, ethical behavior
Distribution territories and exclusivity
Buying-out distributors
Distributor interests and firm interests
Post-sale activities: Service, parts supply, training, customer support,
customer feedback