1. Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. INTERNATIONAL MARKETING 6e Channels and Distribution Strategies Chapter 13

2. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-2 In International Distribution u The firm sells to its customers: directly through its own sales forcedirectly through its own sales force indirectly through independent intermediariesindirectly through independent intermediaries indirectly through an outside distribution system with regional or global coverageindirectly through an outside distribution system with regional or global coverage

3. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-3 Channel Structure u How to structure the distribution channels is the most important long-term marketing mix decision a firm may make. u Channel structures are designed to manage multidirectional (horizontal and vertical) connections in physical movement of goods and servicesphysical movement of goods and services transactional title flowstransactional title flows information communications flowsinformation communications flows

4. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-4 Channel Configurations ManufacturerManufacturerOriginator Consumer Industrial User Consumer / Industrial User Agent Agent Agent Agent Agent Agent Agent Wholesaler Wholesaler Retailer Retailer Retailer Retailer Industrial Distributor Consumer Products Industrial Products Services

5. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-5 Channel Design Considerations u Customer characteristics What do they need, why, when, and how?What do they need, why, when, and how? u Distribution culture The structural linkages and functional characteristics of existing channelsThe structural linkages and functional characteristics of existing channels u Competition What channels does the competition use?What channels does the competition use? u Company objectives Determined by company objectives for market share and profitability.Determined by company objectives for market share and profitability.

6. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-6 Channel Design Considerations u Character The nature of the product impacts the design of the channel. The channel must match the positioning of the product in the market.The nature of the product impacts the design of the channel. The channel must match the positioning of the product in the market. u “Capital”... describes the financial requirements for setting up a channel system.... describes the financial requirements for setting up a channel system. u “Cost” … is the expenditure incurred in maintaining a channel once it is established.… is the expenditure incurred in maintaining a channel once it is established.

7. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-7 Channel Design Considerations u Coverage the number of areas in which a product is represented and the quality of that representation.the number of areas in which a product is represented and the quality of that representation. u Types of coverage IntensiveIntensive SelectiveSelective ExclusiveExclusive

8. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-8Control u The use of intermediaries will result in some loss of market control. u Control correlates with the type of product or service being marketed. u The marketer’s ability to exercise power determines the extent of control. u Types of power reward, coercive, legitimate, referent, expertreward, coercive, legitimate, referent, expert u Careful communication with foreign intermediaries is needed to make them aware of the marketer’s control intentions.

9. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-9Continuity u Channel decisions are the most long-term of the marketing mix decisions. u Care must be taken in choosing the right type of channel. u Establishing continuity is the marketer’s responsibility u Continuity is expressed through visible market commitment.

10. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-10Communication u...provides the exchange of information that is essential to the functioning of the channel. u Types of “distances” that cause communication problems: Social distanceSocial distance Cultural distanceCultural distance Technological distanceTechnological distance Time distanceTime distance Geographical distanceGeographical distance

11. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-11Intermediaries u Types of intermediary relationship DistributorshipDistributorship AgencyAgency u Type of exporting function Indirect exportingIndirect exporting Direct exportingDirect exporting Integrated distributionIntegrated distribution

12. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-12Intermediaries u Sources for Finding Intermediaries Distributor inquiresDistributor inquires Governmental agenciesGovernmental agencies –Commerce Department’s Trade Opportunities Program –U.S. Exporters Yellow Pages Private sourcesPrivate sources –Trade directories u Screening Intermediaries PerformancePerformance ProfessionalismProfessionalism

13. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-13 Selection of Intermediaries Agents u Foreign (Direct) BrokersBrokers Manufacturer’s RepsManufacturer’s Reps FactorsFactors Managing agentsManaging agents Purchasing AgentsPurchasing Agents u Domestic (Indirect) BrokersBrokers Export AgentsExport Agents EMCsEMCs Webb-PomereneWebb-Pomerene Commission agentsCommission agentsDistributors u Foreign (Direct) Distributors/dealersDistributors/dealers Import jobbersImport jobbers Wholesalers/retailersWholesalers/retailers u Domestic (Indirect) Domestic wholesalersDomestic wholesalers EMCsEMCs ETCsETCs Complementary marketersComplementary marketers

14. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-14 The Distributor Agreement u Typical terms include Contract durationContract duration –Typically short periods initially Geographic and customer boundariesGeographic and customer boundaries –Well-defined territories and channels CompensationCompensation –Methods for determining payment amounts and how and in what currency payment is to be made. Products and conditions of saleProducts and conditions of sale –Products to be sold; terms and conditions of sales Means of communication between partiesMeans of communication between parties

15. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-15 Channel Management u Coordinating two independent entities with shared goals u The relationship needs to be managed for the long term u Factors complicating channel management OwnershipOwnership Geographic, cultural, and economic distanceGeographic, cultural, and economic distance Different rules of lawDifferent rules of law

16. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-16 Channel Adjustment and Termination u Typical reasons for channel adjustment Growth and changes in the international marketer’s distribution approach may eliminate a channel.Growth and changes in the international marketer’s distribution approach may eliminate a channel. Conflict of interest and a lack interest or performance by the intermediary may require a channel modification.Conflict of interest and a lack interest or performance by the intermediary may require a channel modification. u Termination conditions are the most important considerations in the distribution agreement and must be spelled out clearly.

17. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-17 Gray Markets (Parallel Importation) Arguments for: u The right to “free trade” u Consumers benefit from lower prices u Discount distributors have found a profitable market niche Arguments against: u Gray marketers take unfair advantage of trademark owner’s marketing and promotion u Parallel imports deceive consumers by not meeting product standards or expectations of after- sale service

18. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-18 The Solution to the Gray Market Problem? u A contractual relationship that ties businesses together.

19. Copyright © 2001 by Harcourt, Inc. All rights reserved. 13-19E-Commerce u Any worldwide web strategy must be tied closely to the company’s overall growth strategy in international markets. u Companies must come to terms with issues related to security, privacy, and access to global networks, at the same time, promoting global commerce over the Internet.