International Marketing Channels Chap 15

Competitive advantage - Aggressive Reliable Efficient Distribution

Channel Structures Distribution patterns Making channel decisions Middlemen Outline

All consumer and industrial products eventually go through a distribution process – Physical handling and distribution of goods – Passage of ownership – Buying and selling negotiations between producers and middlemen – Buying and selling negotiations between middlemen and customers Each country market has a distribution structure – Goods pass from producer to user Channel-of-Distribution Structures

In an import-oriented or traditional distribution structure : – Importer controls a fixed supply of goods – Marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers Import-Oriented Distribution Structure (1 of 2)

Demand exceeds supply The customer seeks the supply from a limited number of middlemen Distribution systems are local Few countries fit the import-oriented model Import-Oriented Distribution Structure (2 of 2)

Non tariff barrier to entry Four distinguishing features High density of middlemen Channel control by manufacturers Business philosophy shaped by culture Large-scale retail store law Japanese Distribution Structure

Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer Japan has a large number of independent groceries and bakers (94.7% or all retail stores) – Small stores account for 59.1% of retail food sales U.S. emphasis is on supermarkets, discount food stores, and department stores – Small stores generate 35.7% of food sales High Density of Middlemen

Inventory financing Cumulative rebates Merchandise returns Promotional support Channel Control

Emphasizes loyalty, harmony, and friendship Supports long-term dealer-supplier relationships The cost of Japanese consumer goods are among the highest in the world – lack of price competition Japanese law gives the small retailer enormous advantage over the development of larger stores Japanese consumer favors service over price and is loyal to quality brands Business Philosophy

Daitenho – the Large-Scale Retail Store Law – Large stores must have approval from the prefecture government – All proposals first judged by the Ministry of International Trade and Industry (MITI) – If all local retailers unanimously agreed, the plan was approved – Could be a lengthy process – Toys R us – 3 years – Applied to both domestic and foreign companies Replaced by the Large-Scale Retail Store Location Act of June 2000 – MITI out of the process – Relaxed restrictions Large-Scale Retail Store Law and Its Successor

Discounting Hypermarkets e.g. Wal-Mart, Costco Mass merchandising E-Commerce for business to business and business to customer e.g. Alibaba, Covisint.com, UPS- includes customs and brokerage. Future oil supplies? New channel structures

Size – in Italy one store for every 63 people, US is 322. In Italy stores are small and specialized. How can you reach the small retailers? Emerging economies, small stores, small inventory, e.g. sell cigarettes singly. Direct marketing e.g. US catalogues in Japan New retail stores, legislation. International Retail Patterns

Seller must exert influence over two sets of channels – One in the home country – One in the foreign-market country Agent middlemen – represent the principal rather than themselves Merchant middlemen – take title to the goods and buy and sell on their own account, more interested in profit, low brand loyalty. Advantages are less credit risk and less stress. Limited control VS minimal financial and management commitment. Alternative Middleman Choices

International Channel-of-Distribution Alternatives Exhibit 15.3

Global retailers e.g Walmart Export Management companies Trading companies Complementary Marketers e.g Gillete Export Agent Export associations e.g improve trade terms Government middle men e.g Netherlands 10,000 suppliers Middlemen

Research foreign markets Find best method of distribution and appointing distributors in the foreign country Exhibiting products at trade show Handling shipping and customs, insurance, banking etc. Prepare advertising. Granting finance Speaking the foreign language Advise on overseas packing and laws etc. Export Management companies

1. Identify specific target markets 2. Specify marketing goals – volume, market share, profit margin. 3. Specify financial and personnel commitments 4. Identify how much control of channel required and selling terms. Before selecting middlemen

Cost Capital requirements Control Coverage Character Continuity e.g agent retires 6 ‘c’s of middlemen

Locating middlemen, dept of commerce Selecting middlemen – Screening – The agreement Motivating middlemen Terminating middlemen Controlling middlemen Channel Management

Logistics management is a total systems approach to the management of the distribution process that includes all activities involved in physically moving raw material, in- process inventory, and finished goods inventory from the point of origin to the point of use or consumption The physical distribution system involves more than the physical movement in goods; it includes the location of plants and warehousing, transportation mode, inventory quantities, and packing Logistics (1 of 2)

Substantial savings can result from the systematic examination of logistics costs and the calculation of total physical distribution costs The concept behind physical distribution is the achievement of the optimum (lowest) system cost, consistent with customer service objectives of the firm One of the major benefits of the European Union’s unification is the elimination of transportation barriers among member countries Logistics (2 of 2)