© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 13 Distribution Management

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channels of distribution provide the essential linkages that connect producers and consumers. The general distribution systems used by companies include: – –Indirect sales through independent intermediaries at the local level. – Channel Structure

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Structure Channels can vary from ______ (producer-to- consumer types) to _________ (multilevel channels employing many types of intermediaries). Channel configurations for the same product will vary within industries, even within the same firm, because national markets quite often have unique features. Channel structures are designed to manage multidirectional connections for:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Wholesaler Exhibit Channel Configuration Consumer / Industrial User Retailer Producer Originator ConsumerIndustrial User Agent Wholesaler Retailer Industrial Distributor Consumer Products Industrial Products Services Retailer

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Channel design –Refers to the length and width of the channel employed. Length - Width - –Is determined by factors that are integral to the development of new marketing channels as well as modification and management of the existing ones.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Determinants of Channel Structure and Relationships Internal –Company objectives – –Capital – –Coverage – –Continuity – External –Customer characteristics – –Competition

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Customer characteristics –The demographic and psychographic characteristics of targeted customers form the basis for channel design decisions. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Culture –While planning the distribution system, the firm needs to analyze: –Foreign legislation affecting distributors and agents is an essential part of the distribution culture of a market.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 13.4 – Internationalization of Retailers

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Competition –Channels used by competitors may be the only product distribution system that is accepted by both the trade and consumers. –If distribution channels used by competitors are not satisfactory, the exporter can:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Company objectives – –The distribution channel must comply with the overall company objectives for market share and profitability.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Character –The nature of the product impacts the channel design. – –Distributions channels change to reflect changes in overall market conditions, such as currency fluctuations. Capital –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Cost –The expenditure incurred in maintaining a channel once it is established. – –Incurred for protecting the company’s distributors against adverse market conditions.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Coverage –Describes the number of areas in which a product is represented and the quality of that representation. – –The area to be covered depends on the dispersion of demand in the market and the time elapsed since the product’s introduction in the market. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Control –Determined by the use of intermediaries, product type, and the marketer’s use of power. – –The degree of control a marketer wishes to have is reflected in the cost incurred in securing that control. Continuity – –Is expressed through visible market commitment.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Design Communication –Provides the exchange of information that is essential to the functioning of the channel. – –Assists the international marketer in conveying the firm’s goals to the distributors, in solving conflict situations, and in marketing the product. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Selection of Intermediaries Two basic decisions are involved in choosing the type of intermediaries to serve a particular market. –Determining the type of intermediary relationship –Determining the type of exporting function

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 13.8 – International Channel Intermediaries

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Sources for Locating Foreign Intermediaries

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Selection of Intermediaries Screening intermediaries –The potential candidates must be compared and contrasted against an exporter’s list of determined criteria. – –Some of these criteria can be quantified while others are qualitative and require careful interpretation and confidence in the data sources providing the information.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit – Criteria for Choosing an International Distributor

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Selection of Intermediaries The distributor agreement –After a suitable intermediary is found, the international marketer draws up a foreign sales agreement. –Some important terms to be included in the agreement are:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management Coordinating two independent entities with shared goals. Exporters establish distributor advisory councils to help address reactive or proactive measures. Factors which complicate channel management are: – – –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit – Performance Problems & Remedies When Using Overseas Distributors

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management Gray markets (parallel importation) – –They are fuelled by price segmentation and exchange rate fluctuation. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management Arguments for gray markets: –The right to “free trade.” – –Discount distributors find a profitable market niche.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management Arguments against gray markets: –Hurts the legitimate owners of trademarks. – –Take unfair advantage of the trademark owners’ marketing and promotional activities. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management Solutions to the gray market problem: –A contractual relationship that ties businesses together. – –Producing different versions of products for different markets. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Channel Management The channel relationship can be terminated due to: –Changes in the international marketer’s distribution approach. – –Market expansion program undertaken by the producer. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. E-Commerce Web services not only serve as a communication tool but also act as a builder of interactive relationships and a device to sell products and services. Companies must come to terms with issues related to security, privacy, and access to global networks, while at the same time promoting global commerce over the Internet.