International distribution channel2

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International distribution channels

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INTERNATIONAL DISTRIBUTION CHANNEL BY: DEBANGSHU S. ROY DIVYA SHARAD LAVEENA SACHDEVA PREETI KUKREJA TANUJ KALRA VAIBHAV VISHNOI 10/20/2011 1

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Distribution channel: system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a Marketing channel. 10/20/2011 2

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The Role of Distribution Activities in Marketing:

Distribution Physically moving products and establishing intermediary relationships to support such movement. Physical Distribution (Logistics) The activities of distribution involved in the physical relocation of products. Channel of Distribution The system of intermediaries (business relationships) established to guide the movement of a product. The Role of Distribution Activities in Marketing 10/20/2011 4

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Functions of Intermediaries Perform the marketing function better. Provide efficient distribution of the product. Breaking bulk – sell to customers in smaller quantities. Assorting – bringing together similar lines of goods. Shifting risks. Merchant middlemen - take title to the goods distributed. Agents/brokers - distribute goods only. 10/20/2011 5

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Types of Distribution Channels Direct channel A distribution system without intermediaries Indirect channel A distribution system with one or more intermediaries. Dual distribution A distribution system with more than one channel. 10/20/2011 6

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Alternative Channels of Distribution 10/20/2011 7

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Dell Dell Computer: A Direct Seller of Computers 10/20/2011 8

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Global Perspective Global Perspective: “500 Million Sticks of Doublemint Today – Billions Tomorrow” Most challenging aspect of selling the gum for Doublemint is how to get the gum through China’s distribution channels: “Mastering the distribution system is the single most important challenge of China’s economic revolution” Finding reliable distributors is a challenge Many are state owned and have little incentive to push one brand over another Doublemint gum found a way to distribute their products effectively thru China Note: Doublemint has a 91% market share in China 10/20/2011 9

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Selection of channel The selection of distribution is affected by many of factors, which play significant role while choosing the channel for distribution. It may include the buying pattern of consumer, type of the product is perishable, or auto mobile, weight and bulk and it also depends on the company's resources. The main affecting factors are following: Organization objectives Mode of Transport Type of product Nature and extent of market Existing channel for comparable product Buying habit of customers Channel Availability 10/20/2011 10

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Alternative Middlemen Choices Classification of Middlemen Agent Middlemen Do not take title to the goods distributed Less risk (manufacturer assumes risk) Merchant Middlemen Take title of goods being distributed (manufactures have less control) Motivated by profit, tend to be less loyal to one brand Alternative Types of Middlemen : 1. Home-Country Middlemen 2. Foreign-Country Middlemen 10/20/2011 11

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International Channel-of-Distribution Alternatives Home Country Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Export management company or company sales force Exporter Importer Foreign agent or merchant wholesalers Foreign retailers Foreign consumer The foreign marketer or producer sells to or through Foreign Country 10/20/2011 12

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Alternative Middlemen Choices—Home Country Global Retailers Export Management Companies Manufacturers Export Agent Home-Country Brokers Export Merchants Piggy Back 10/20/2011 13 They’re located in Firm’s own country. Provide marketing services from a domestic base. Employed by marketers with less international sales volume and inexperienced with foreign markets.

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HOME COUNTRY MIDDLEMEN GLOBAL RETAILERS WAL-MART, ROEBUCK are booming domestic middlemen for international middlemen. Companies adhering to the laid requirements gain access to Overseas markets of Argentina, Brazil, canada , etc. EXPORT MANAGEMENT COMPANIES They work under name of manufacturers and function as a low cost, independent marketing department. For firms with relatively small international volume or which are unwilling to involve personnel in international function. A washington DC company marketing 10 US Orthopedics manufacturer products worldwide. 10/20/2011 14

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MANUFACTURER’S EXPORT AGENT An agent firm provides selling service for manufacturers. Operates on a straight commission basis and covers only one or two markets. Provides services similar to EMCs and does business in their own name. HOME COUNTRY BROKERS They perform low cost agent services. Perform function of bringing bringing buyers and sellers together. They specialise in one or more particular commodity and for the same maintain contact with major producers and purchasers. 10/20/2011 15

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10/20/2011 16 EXPORT MERCHANTS Intermediaries who take title to and possession of the products they carry Responsible for shipping and marketing the products in the target market Carry competing brands Examples: export jobber, who carries commodity goods, but does not take physical possession of the goods. PIGGYBACK MARKETING channel innovation that has grown in popularity One manufacturer distributes product by utilizing another company’s distribution channel Requires that the combined product lines be complementary and appeal to the same customer

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Alternative Middlemen Choices—Foreign Country Distributors Foreign Country Brokers Managing Agents Dealers Wholesalers and Retailers 10/20/2011 17

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10/20/2011 18 Distributor Is a merchant middlemen with close cooperation to the manufacturer Functions are- control over prices, inventories, servicing. Agent Conducts business within a foreign nation under contract arrangement with parent country. Compensation is on the basis of cost plus a specified % of profits of the managed company. Brokers Foreign brokers are part of small brokerage firms operating in a country. Function in good continuing relationships with customers and speedy market coverage at low costs

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10/20/2011 19 Dealers Independent merchant middlemen with the supplier company having equity in it. Ex- Massey fergusson and caterpillar tractor company Wholesalers and Retailers Engage in direct importing for their own outlets and for redistribution to smaller middlemen. Large retailers perform wholesaling to local shops and dealers.

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Factors that affect choice of Channels The “6 C’s” need to be considered: 1. Cost Investment cost of developing channel; and cost of maintaining channel 2. Capital requirements How much capital is required 3. Control How much control is desired Example: company’s own sales force exerts most control vs. using middlemen 10/20/2011 20

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Factors that affect choice of Channels (Cont.) The “6 C’s” need to be considered (cont): 4. Coverage Full market coverage, or targeted coverage to densely populated areas… 5. Character Channel of the distributions system must meet the “character of the company” seeking to do business 6. Continuity Will there be longevity issues How to build loyalty with middlemen is much more difficult than a company’s own sales force 10/20/2011 21

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Locating, Selecting, Motivating and Terminating Middlemen Factors affecting locating middlemen: Things to look for: Financial stability, managerial stability, productivity, reputation, etc. Sources to use: U.S. Dept. of Commerce, foreign consulates, commercially published directories Selecting Middlemen Two steps 1. Screening 2. Developing the “Agreement” 10/20/2011 22

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Locating, Selecting, Motivating and Terminating Middlemen (Cont.) Motivating Middlemen Common methods used to motivate middlemen: Financial rewards, psychological rewards, communications, company support and corporate rapport Terminating Middlemen Must consider things such as: Legal protection Control over middlemen Controlling Middlemen Control over the system (distribution network) Control over the middlemen Volume of sales, market coverage, services offered, pricing, advertisement, payment of bills and profitability. 10/20/2011 23

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