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
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-2
In International Distribution
The firm sells to its customers:
directly through its own sales force
indirectly through independent intermediaries
indirectly through an outside distribution
system with regional or global coverage
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-3
Channel Structure
How to structure the distribution channels is
the most important long-term marketing mix
decision a firm may make.
Channel structures are designed to manage
multidirectional (horizontal and vertical)
connections in
physical movement of
goods and services
transactional title flows
information
communications flows
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-4
Channel Configurations
Manufacturer Manufacturer Originator
Consumer Industrial User Consumer / Industrial User
Agent
Agent
Agent
Agent
AgentAgent
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Retailer IndustrialDistributor
Industrial
Distributor
Consumer
Products
Industrial
Products
Services
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-5
Channel Design Considerations
Customer characteristic:
What do they need?
why do they need?
when do they need?
How do they need?
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-6
Channel Design Considerations
Distribution culture
The structural linkages and functional
characteristics of existing channels
Competition
What channels does the competition use?
Company objectives
Determined by company objectives for market
share and profitability.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-7
Channel Design Considerations
Character
The nature of the product impacts the design of
the channel,The channel must match the
positioning of the product in the market.
“Capital”
,.,describes the financial requirements for setting
up a channel system.
“Cost”
… is the expenditure incurred in maintaining a
channel once it is established.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-8
Channel Design Considerations
Coverage
the number of areas in which a product is
represented and the quality of that representation.
Types of coverage
Intensive
Selective
Exclusive
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-9
Control
The use of intermediaries will result in some
loss of market control.
Control correlates with the type of product or
service being marketed.
The marketer’s ability to exercise power
determines the extent of control.
Types of power
reward,coercive,legitimate,referent,expert
Careful communication with foreign
intermediaries is needed to make them aware
of the marketer’s control intentions.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-10
Continuity
Channel decisions are the most long-term of
the marketing mix decisions.
Care must be taken in choosing the right type
of channel.
Establishing continuity is the marketer’s
responsibility
Continuity is expressed through visible
market commitment.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-11
Communication
...provides the exchange of information that is
essential to the functioning of the channel.
Types of,distances” that cause
communication problems:
Social distance
Cultural distance
Technological distance
Time distance
Geographical distance
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-12
Intermediaries
Types of intermediary relationship
Distributorship
Agency
Type of exporting function
Indirect exporting
Direct exporting
Integrated distribution
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-13
Intermediaries
Sources for Finding Intermediaries
Distributor inquires
Governmental agencies
– Commerce Department’s Trade Opportunities Program
– U.S,Exporters Yellow Pages
Private sources
– Trade directories
Screening Intermediaries
Performance
Professionalism
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-14
Selection of Intermediaries
Agents
Foreign (Direct)
Brokers
Manufacturer’s Reps
Factors
Managing agents
Purchasing Agents
Domestic (Indirect)
Brokers
Export Agents
EMCs
Webb-Pomerene
Commission agents
Distributors
Foreign (Direct)
Distributors/dealers
Import jobbers
Wholesalers/retailers
Domestic (Indirect)
Domestic wholesalers
EMCs
ETCs
Complementary
marketers
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-15
The Distributor Agreement
Typical terms include
Contract duration
– Typically short periods initially
Geographic and customer boundaries
– Well-defined territories and channels
Compensation
– Methods for determining payment amounts and how and
in what currency payment is to be made.
Products and conditions of sale
– Products to be sold; terms and conditions of sales
Means of communication between parties
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-16
Channel Management
Coordinating two independent entities with
shared goals
The relationship needs to be managed for the
long term
Factors complicating channel management
Ownership
Geographic,cultural,and economic distance
Different rules of law
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-17
Channel Adjustment and Termination
Typical reasons for channel adjustment
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.
Termination conditions are the most
important considerations in the distribution
agreement and must be spelled out clearly.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-18
Gray Markets (Parallel Importation)
Arguments for:
The right to,free trade”
Consumers benefit from
lower prices
Discount distributors
have found a profitable
market niche
Arguments against:
Gray marketers take
unfair advantage of
trademark owner’s
marketing and
promotion
Parallel imports deceive
consumers by not
meeting product
standards or
expectations of after-
sale service
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-19
The Solution to the Gray Market Problem?
A contractual relationship that
ties businesses together.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-20
E-Commerce
Any worldwide web strategy must be tied
closely to the company’s overall growth
strategy in international markets.
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.
the following address,Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.
INTERNATIONAL MARKETING 6e
Channels and Distribution
Strategies
Chapter 13
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-2
In International Distribution
The firm sells to its customers:
directly through its own sales force
indirectly through independent intermediaries
indirectly through an outside distribution
system with regional or global coverage
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-3
Channel Structure
How to structure the distribution channels is
the most important long-term marketing mix
decision a firm may make.
Channel structures are designed to manage
multidirectional (horizontal and vertical)
connections in
physical movement of
goods and services
transactional title flows
information
communications flows
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-4
Channel Configurations
Manufacturer Manufacturer Originator
Consumer Industrial User Consumer / Industrial User
Agent
Agent
Agent
Agent
AgentAgent
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Retailer IndustrialDistributor
Industrial
Distributor
Consumer
Products
Industrial
Products
Services
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-5
Channel Design Considerations
Customer characteristic:
What do they need?
why do they need?
when do they need?
How do they need?
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-6
Channel Design Considerations
Distribution culture
The structural linkages and functional
characteristics of existing channels
Competition
What channels does the competition use?
Company objectives
Determined by company objectives for market
share and profitability.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-7
Channel Design Considerations
Character
The nature of the product impacts the design of
the channel,The channel must match the
positioning of the product in the market.
“Capital”
,.,describes the financial requirements for setting
up a channel system.
“Cost”
… is the expenditure incurred in maintaining a
channel once it is established.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-8
Channel Design Considerations
Coverage
the number of areas in which a product is
represented and the quality of that representation.
Types of coverage
Intensive
Selective
Exclusive
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-9
Control
The use of intermediaries will result in some
loss of market control.
Control correlates with the type of product or
service being marketed.
The marketer’s ability to exercise power
determines the extent of control.
Types of power
reward,coercive,legitimate,referent,expert
Careful communication with foreign
intermediaries is needed to make them aware
of the marketer’s control intentions.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-10
Continuity
Channel decisions are the most long-term of
the marketing mix decisions.
Care must be taken in choosing the right type
of channel.
Establishing continuity is the marketer’s
responsibility
Continuity is expressed through visible
market commitment.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-11
Communication
...provides the exchange of information that is
essential to the functioning of the channel.
Types of,distances” that cause
communication problems:
Social distance
Cultural distance
Technological distance
Time distance
Geographical distance
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-12
Intermediaries
Types of intermediary relationship
Distributorship
Agency
Type of exporting function
Indirect exporting
Direct exporting
Integrated distribution
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-13
Intermediaries
Sources for Finding Intermediaries
Distributor inquires
Governmental agencies
– Commerce Department’s Trade Opportunities Program
– U.S,Exporters Yellow Pages
Private sources
– Trade directories
Screening Intermediaries
Performance
Professionalism
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-14
Selection of Intermediaries
Agents
Foreign (Direct)
Brokers
Manufacturer’s Reps
Factors
Managing agents
Purchasing Agents
Domestic (Indirect)
Brokers
Export Agents
EMCs
Webb-Pomerene
Commission agents
Distributors
Foreign (Direct)
Distributors/dealers
Import jobbers
Wholesalers/retailers
Domestic (Indirect)
Domestic wholesalers
EMCs
ETCs
Complementary
marketers
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-15
The Distributor Agreement
Typical terms include
Contract duration
– Typically short periods initially
Geographic and customer boundaries
– Well-defined territories and channels
Compensation
– Methods for determining payment amounts and how and
in what currency payment is to be made.
Products and conditions of sale
– Products to be sold; terms and conditions of sales
Means of communication between parties
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-16
Channel Management
Coordinating two independent entities with
shared goals
The relationship needs to be managed for the
long term
Factors complicating channel management
Ownership
Geographic,cultural,and economic distance
Different rules of law
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-17
Channel Adjustment and Termination
Typical reasons for channel adjustment
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.
Termination conditions are the most
important considerations in the distribution
agreement and must be spelled out clearly.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-18
Gray Markets (Parallel Importation)
Arguments for:
The right to,free trade”
Consumers benefit from
lower prices
Discount distributors
have found a profitable
market niche
Arguments against:
Gray marketers take
unfair advantage of
trademark owner’s
marketing and
promotion
Parallel imports deceive
consumers by not
meeting product
standards or
expectations of after-
sale service
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-19
The Solution to the Gray Market Problem?
A contractual relationship that
ties businesses together.
Copyright? 2001 by Harcourt,Inc,All rights reserved,13-20
E-Commerce
Any worldwide web strategy must be tied
closely to the company’s overall growth
strategy in international markets.
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.
