312MKT International Marketing Lecture Fourteen

Learning objectives To consider distribution channel management in international marketing To explore international retailing

Distribution Channels 1/19/2015 Distribution Channels M01SMM - Week 4

Distribution Channels “Are the means by which goods are distributed from the manufacturer to the end user” (Doole and Lowe, 2012)

Distribution – why is it critical? It is a significant decision because other marketing mix decisions are dependant on the distribution channel decision. It is a long term decision as once established it is difficult to alter for different reasons (e.g. legal agreement, long term successful relationships) For this reason that the chosen channels have to be appropriate for today and flexible enough to adopt to long-term market developments (Doole and Lowe, 2012)

Distribution – why is it critical? The long-term nature of distribution decisions forces a careful analysis of future developments The comparative inexperience of managers in the channel selection process in international markets. In foreign market channels managers may underestimate the barriers to entry erected by local competitors or even government regulations. (Doole and Lowe, 2012)

Distribution – why is it critical? It is the bases for building a competitive advantage (e.g. speed, effective distribution). Key areas to consider to develop a distribution strategy that delivers an effective distribution is: Selection of foreign country intermediaries How to build a relationship with intermediaries How to deal with the varying types of retailing infrastructure across international markets How to maximize new and innovative forms of distribution How to manage the logistics of physically distributing products across foreign markets (Doole and Lowe, 2012)

Indirect vs direct channels Direct (integrated) Channels Supplier have more control High level of customer service (before or after sale) Higher level of responsibility – risks (e.g. cost) Indirect (independent) Channels Using outside sales agents and distributors in foreign country Less Investments Overcoming fright rate/negotiation disadvantages Lower the cost of exporting and allowing higher profit margins (Doole and Lowe, 2012)

Indirect vs direct channels Indirect Channels Companies can rely of distribution services companies for services such as: The purchase of goods The assembly of an attractive assortment of goods Holding stock or inventory Promoting the sale of goods to the end consumer The physical movement of goods (Doole and Lowe, 2012)

Distribution Channels for Business goods – (B2B) Supplier of Business goods Indirect channels (home country channel members Domestic Purchasing Piggyback Operations Export houses Trading Companies Direct channels (home country channel members Company-owned Sales force Agents Buyer intranet Distributors Business Buyer (Doole and Lowe, 2012)

Channel Selection Considerations 11 elements to consider (Czinkota and Ronkainen, 2009) Customer characteristics Culture Competition Company objectives Character of the market Cost Capital required Coverage needed Control issues Continuity provided Communication Effectiveness (Doole and Lowe, 2012)

External factors (Hollensen) Customer characteristics Nature of product Nature of demand/location Competition Legal regulations/local business practices (Hollensen, 2007)

International Channel-of-Distribution Alternatives 1/19/2015 M01SMM - Week 4

On Distribution.. “Distribution Is Key in Value Proposition" Dr Douglas Stayman Johnson Graduate School of Management Cornell University “Distribution Is Key in Value Proposition" Weblink: https://www.youtube.com/watch?v=NAX4M4b--bs

Large Distribution Centers How Amazon's Largest Distribution Centre Works? Weblink: https://www.youtube.com/watch?v=bfFsqbIn_3E

Parts Distribution Center TOYOTA Parts Distribution Center Weblink: https://www.youtube.com/watch?v=TiWmCnMxNGs

Converse Automated Distribution Center Weblink: https://www.youtube.com/watch?v=q1-mzwOjkaU

The Internet 1/19/2015 E-commerce: Buying and selling through the Internet or comparable systems Involves direct marketing from manufacturer, retailer, service provider or other intermediary to final user For small and middle-sized firms Overall costs are reduced by bulk buying through an online intermediary Placing and processing orders online is cheaper and faster than the traditional way M01SMM - Week 4

The Internet For service-oriented firms Makes them globally accessible 1/19/2015 The Internet For service-oriented firms Makes them globally accessible Outsourcing of traditional in-house services has become more popular E-commerce facilitates cost savings by: Reducing procurement and transaction processing costs Enabling better supply-chain management Enabling tighter inventory control M01SMM - Week 4

The Internet 1/19/2015 M01SMM - Week 4

Trends in International Retailing Countries differ with regards to their histories, geography and politics. Due to these differences retailing structures also differ. Retailing varies across the different levels of economic development and is influenced by cultural differences For example the French approach relies on small scale production by the retail proprietor. The US approach encourages mass production, branding and sophisticated distribution systems to handle inventory and freshness issues. (Doole and Lowe, 2012)

Retailers Differences Between Developed and Developing Countries Retailing Issues Traditional Retailing in Developing countries Advanced retailing structures in mature economies Concentration of retail power Low Often High Site selection and retail location Limited to the immediate locality Very important often sophisticated techniques to pinpoint the most valuable assets Size of outlet Limited Large and Tending to get larger Retailer initiation of product assortment Limited to the buy/no buy decision Wide range of stock possible. Use of won label and store-specific sales promotions Retail concepts images and corporate identity Rarely used Very important (Doole and Lowe, 2012)

Retailers Differences Between Developed and Developing Countries Retailing Issues Traditional Retailing in Developing countries Advanced retailing structures in mature economies Retailer-initiated sales promotions Rarely used. Reliance on manufacturer and wholesaler-developed sales promotion and point of sale material Very important Use of retail technology Limited Vital e.g. EDI, EPOS Service Mainly counter service Mass customization, sophisticated CRM systems (Doole and Lowe, 2012)

The Globalization of Retailing The expansion of international activity of retailers around the world has given rise to 4 different types of international retailers: The hyper market The power retailers The nich retailer The designer flagship stores (Doole and Lowe, 2012)

‘Push’ Factors (reactive) The globalization of retailing is attributed to a number of push factors such as: Saturation of the home market or over-competition Economic recession or limited growth in spending A declining or aging population Strict planning policies on store development

‘Push’ Factors (reactive) The globalization of retailing is attributed to a number of ‘push’ factors such as: High operating cost, labour Shareholder pressure to maintain profit growth

‘Pull’ Factors (proactive) The globalization of retailing is attributed to a number of ‘pull’ factors such as: The underdevelopment of some markets Poor competition Strong economic growth and rising standards of living High population growth or high concentration of young adults A relaxed regulatory framework Favourable operating costs, labour, rents, taxation

‘Pull’ Factors (proactive) The globalization of retailing is attributed to a number of ‘pull’ factors such as: The geographical spread of trading risks The opportunity to innovate under new market conditions

Marketing implications for development of international distribution strategies The internationalization of retailing is attributed to a number of implications for the development of the distribution strategies of international firms, such as: Power shift in supply chain towards retailers Intense concentration competition with significant buyer power across country market Rapidly advancing technology facilitating global sourcing and global international transactions Unrelenting performance measures being demanded of suppliers by international retailers

Largest Food Retailers Wal-Mart Carrefour Tesco

Retailing Success Story Lush Cosmetics: 100th Shop Opening Weblinks https://www.youtube.com/watch?v=AZ7YVHy1z-I https://uk.lush.com/

International Retailers Consumer and Retail Trends 2018 Weblink https://www.youtube.com/watch?v=Kp1--_jR30M

Onkvisit & Shaw: Chapter 16 Readings: Doole & Lowe: Chapter 10 Onkvisit & Shaw: Chapter 16 Hollensen: Chapter 16 Additional Readings: Verhage, B. (2014). Marketing: A Global Perspective. Cengage Learning (Read Chapter 13)