/37-43_files/37-4300001im.jpg" width="693" height="1060" useMap="#Map">

International Marketing MKT630

Lesson # 43

ITERNATIONAL MARKETING CHANNELS

`Place' in marketing mix:

"place" refers to the availability of the product to the customer at the time and the location where it is

desired

· Most producers do not sell their goods directly to the final users

· Between producers and the final users stands a marketing channel, a host of marketing intermediaries

performing a variety of functions and bearing a variety of names

Marketing-channel decisions are among the most critical decisions facing management

The company's chosen channels intimately affect all the other marketing decisions

The company's channel decisions involve relatively long-term commitments to other firms

There is also a powerful inertial tendency in channel arrangements

Distribution channels go beyond simple convenience they also affect the product's meaning

International channel function and flows:

A marketing channel performs the work of moving goods from producers to consumers. It overcomes

the time, place, and possession gaps that separate goods and services from those who need or want

them. Members of the marketing channel perform a number of key functions

Collection of information

Promotion of the products

Negotiation with customers

Ordering

Financing of inventories

Risk sharing

Delivery and physical transfer of the products to customers

Payment collection

Title taking & transfer

The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using

intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods

manufacturers could never justify the cost of selling direct to their consumers, except by mail order. In

practice, if the producer is large enough, the use of intermediaries (particularly at the agent and

wholesaler level) can sometimes cost more than going direct.

Many of the theoretical arguments about channels therefore revolve around cost. On the other hand,

most of the practical decisions are concerned with control of the consumer. The small company has no

alternative but to use intermediaries, often several layers of them, but large companies 'do' have the

choice.

However, many suppliers seem to assume that once their product has been sold into the channel, into the

beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a

part of the supplier's responsibility; and, if he has any aspirations to be market-oriented, his job should

really be extended to managing, albeit very indirectly, all the processes involved in that chain, until the

product or service arrives with the end-user. This may involve a number of decisions on the part of the

supplier:

Channel membership

Channel motivation

131

/37-43_files/37-4300002im.jpg" width="693" height="1060" useMap="#Map">

International Marketing MKT630

Monitoring and managing channels

Channel membership

Intensive distribution - Where the majority of resellers stock the `product' (with convenience products,

for example, and particularly the brand leaders in consumer goods markets) price competition may be

evident.

Selective distribution - This is the normal pattern (in both consumer and industrial markets) where

`suitable' resellers stock the product.

Exclusive distribution - Only specially selected resellers (typically only one per geographical area) are

allowed to sell the `product'.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service support.

Motivating the owners and employees of the independent organizations in a distribution chain requires

even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is

`bribery': the supplier offers a better margin, to tempt the owners in the channel to push the product

rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they

are tempted to push the product. At the other end of the spectrum is the almost symbiotic relationship

that the all too rare supplier in the computer field develops with its agents; where the agent's personnel,

support as well as sales, are trained to almost the same standard as the supplier's own staff.

Monitoring and managing channels

In much the same way that the organization's own sales and distribution activities need to be monitored

and managed, so will those of the distribution chain.

In practice, of course, many organizations use a mix of different channels; in particular, they may

complement a direct salesforce, calling on the larger accounts, with agents, covering the smaller

customers and prospects.

Vertical marketing

This relatively recent development integrates the channel with the original supplier - producer,

wholesalers and retailers working in one unified system. This may arise because one member of the

chain owns the other elements (often called `corporate systems integration'); a supplier owning its own

retail outlets, this being 'forward' integration. It is perhaps more likely that a retailer will own its own

suppliers, this being 'backward' integration. (For example, MFI, the furniture retailer, owns Hygena

which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that

offered by McDonald's hamburgers and Benetton clothes) or simple co-operation (in the way that Marks

& Spencer co-operates with its suppliers).

Alternative approaches are `contractual systems', often led by a wholesale or retail co-operative, and

`administered marketing systems' where one (dominant) member of the distribution chain uses its

position to co-ordinate the other members' activities. This has traditionally been the form led by

manufacturers.

The intention of vertical marketing is to give all those involved (and particularly the supplier at one end,

and the retailer at the other) 'control' over the distribution chain. This removes one set of variables from

the marketing equations.

Other research indicates that vertical integration is a strategy which is best pursued at the mature stage

of the market (or product). At earlier stages it can actually reduce profits. It is arguable that it also

diverts attention from the real business of the organization. Suppliers rarely excel in retail operations

132

/37-43_files/37-4300003im.jpg" width="693" height="1060" useMap="#Map">

International Marketing MKT630

and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities (Marks

& Spencer, for example, very deliberately provides considerable amounts of technical assistance to its

suppliers, but does not own them).

Horizontal marketing

A rather less frequent example of new approaches to channels is where two or more non-competing

organizations agree on a joint venture - a joint marketing operation - because it is beyond the capacity of

each individual organization alone. In general, this is less likely to revolve around marketing synergy

Effectiveness of international distribution channels:

The Five C's Framework can be used by international marketers to determine the effectiveness of their

international distribution channels;

· Coverage

Ability of channel to reach targeted customers to achieve market share and growth objectives

Character

Compatibility of channel with the firm's desired product positioning

Continuity

Loyalty of the channel to the firm

Control

Ability of the firm to control total marketing program for the product or service

Cost

Investment required to establish and maintain the channel-variable associated with sales level.

Fixed costs required to manage the channel: inventories, facilities, training of sales force

Control over distribution:

· Worldwide the trend is toward shorter distribution channels and closer links, if not direct

relationships, with those active participants in the channel.

· Some would argue that the only way to internationalize is to move closer and closer to full control by

means of wholly owned subsidiary. This is quite erroneous.

· First, we have to consider industry characteristics, the value-added of the business and what the

customer actually want. Second, it is often possible to achieve close control through a commission

agent or a joint venture. Control should not be equated directly with ownership.

133