7 - distribution of foreign markets Flashcards
Types of channel decisions
- External decisions
2. Internal decisions
External decisions (channel decisions)
- customer characteristics
- nature of product
- nature of demand
- competition
- legal regulations/local business practices
DIRECT
MANUFACTURER TO FINAL CONSUMER
INDIRECT
ONE LEVEL
manufacturer to retailer to final consumer
TWO LEVEL
manufacturer to wholesaler to retailer to final consumer
THREE LEVEL
manufacturer to agent to wholesaler to retailer to final consumer
Main characteristics of SHORT DISTRIBUTION CHANNELS
- the offering is targeted at business users
- the customers are geographically concentrated
- customers require extensive technical knowledge
- regular servicing is required for the offering to operate
- the order quantity is larger
Main characteristics of LONG DISTRIBUTION CHANNELS
- the offering is targeted to consumers and non-business users
- the customers are geographically dispersed
- customers don’t require extensive technical knowledge
- regular servicing is not required for the offering to operate
- the order quantity is small
product characteristics SHORT CHANNEL
- product is perishable
- product is complex
- product is expensive
product characteristics LONG CHANNEL
- product is durable
- product is standardized
- product is cheap
factors determining the choice of distribution channel
- market characteristics
- product characteristics
- competition characteristics
- company characteristics
competition characteristics SHORT CHANNEL
- the competitor uses the direct channels & the manufacturer is satisfied with its performance
- the competitor uses indirect channels & the manufacturer thinks choosing short channels would be more beneficial
competition characteristics LONG CHANNEL
- the competitor uses indirect channels & the manufacturer is satisfied with its performance
- the competitor uses the direct channel & the manufacturer thinks choosing indirect or long channels would be more beneficial
company characteristics SHORT CHANNEL
- company believes that it’s important to control the channels
- company has a broad product line
- company has adequate resources to perform channel functions
company characteristics LONG CHANNEL
- company believes that channel control isn’t important
- company has a narrow product line
- company lacks adequate resources to perform channel functions
Managing and controlling distribution channels
- select distributors: do not let them select you
- look for distributors capable of developing markets rather than those with a few obvious contacts
- treat the local distributors as long-term partners, not temporary market-entry vehicles
- support market entry with committing money, managers and proven marketing ideas
- from the start, maintain control over marketing strategy
- make sure distributors provide you with detailed market & financial performance date
- build links among national distributors at the earliest opportunity
before designing your channel
- analyze your customer segments
- answer some questions:
✦How much information has to be delivered to the client?
✦Market Size
✦Product characteristics
✦How much control do you need as a company about the process?
design of the distribution channel (steps)
- market coverage
- channel length
- control/cost
- degree of integration
on channel length
- determined by numbers of layers
- differences depending on the development of the company
- long channels = mass distribution
- prices are higher if the channels are long
on control / cost
- ability to influence channel members
- decision on how much control a company wants
- with more intermediaries, level of control decreases
- intermediaries have different functions
- goals
* try to control enough parts of your channel
* minimize resources costs
degree of integration
- vertical & horizontal
- control through integration
- acquisitions or cooperative relationships to achieve it
- vertical integration can be forward or backward
differences between B2B & B2C channels
B2B
- Direct distribution is more observed than in B2C companies → volume of sales is lower
- Important to have direct contact with the customer
B2C
- Higher sales volume but margin is less
- Many times via retailers → product placed in as many shelves as possible
- More sales over the Internet - direct and by online intermediaries
- Emotions are more important
criteria to evaluate foreign distributors
- financial and company strengths
- product factors
- marketing skills
- commitment
- facilitating factors
Legal regulations: Culture affects distribution and also local practices on how to do business: It can affect
- What products we can sell
- Where we can sell them
- The entry barriers to a market
Which distribution strategy should a company choose when entering a foreign market?
1 SELLING DIRECTLY TO CONSUMERS → Producer to Consumer
2 SELLING THROUGH RETAILERS → Producer to Retailer to Consumer
3 SELLING THROUGH WHOLESALERS → Producer to Wholesaler to Retailer to Consumer
main methods of distribution (teacher’s slides)
- distribution is how the company makes their products or services available for the consumers in the foreign market
- there are two different strategies for distribution channel: direct and indirect
- DIRECT DISTRIBUTION: the company sells their products directly to the consumer in the foreign market (through a website, catalog, telephone sale or a store owned and operated by the company)
- INDIRECT DISTRIBUTION: the company manufactures the product but sells it to a wholesaler or distributor who again sells it to the retailer (involves intermediaries or middlemen who assists with logistics and placement of products)
Pros and cons with direct strategy
+ More control over how goods are delivered and with adding new services and changing prices
+ Better communication with customer
+ Shorter and less costly channel when it is first set up
- Big capital investment to set up the channel and in the beginning
Pros and cons with indirect strategy
+ Can benefit from intermediaries being experts on logistics and shipping
+ No investment costs
+ The manufacturer can focus on their core business, instead of shipping
- Many layers in the channel results in higher costs, many vendors and more bureaucracy
- Less control and slower delivery
- Need to trust the intermediaries with the delivery of products and communication with customers
Examples of direct distribution
Netlix & Victoria’s secret
Examples of indirect distribution
Coca-Cola & Colgate
Types of intermediaries
If a company chooses indirect distribution they need intermediaries:
- WHOLESALER sources the products and sells them to retailer
- RETAILER is the final step before the customer purchases the item
- DISTRIBUTOR is similar to the wholesaler, but they are obligated to only work with the specific company
- FRANCHISER is when an owner is licensed to use a company’s name to sell products and services
What type of intermediary are McDonalds?
Franchisor
What type of intermediary are Carrefour?
Retailer
What type of intermediary are Sysco?
Wholesaler
What type of intermediary are Coca-Cola?
Distributor
Market coverage (channel width) Definition
When a company has decided to use a indirect strategy, their channel width can both explain the geographical area and number of stores they will provide their products and services
There are three different approaches to market coverage:
- Intensive: As many retail-locations as possible. This will result in several wholesalers/distributors.
- Selective: A number of retailers in each area.
- Exclusive: Sells just in one specific type of retailer in the market. Just one wholesaler, but it also possible for the products to transport directly from manufacturer to the retailer.
Factors influencing which channel width to choose
1 Product type 2 Product life cycle stage 3 Product price 4 Brand loyalty 5 Purchase frequency 6 Product uniqueness 7 Selling requirement 8 Technical complexity 9 Service requirements
Which uses intensive, selective and exclusive market coverage? Nike, Palmolive, Ferrari
Ferrari: Exclusive
Selective: Nike
Palmolive: Intensive
Control and degree of integration
- Control is about in which degree you can influence the decisions of the other members of the channel vertically
- The company will lose control when using an intermediary, since the intermediary performs important functions like: carrying of inventory, selling product, physical distribution and after-sales service
- To achieve control it is possible to increase the degree of integration
- Channel integration is a process that connects all channel members (vertically or horizontally) into one system with the same goal, and can be achieved by cooperation between channel members
