Subject :- International Marketing

Course:- MBA(III)rd Sem

Faculty:- Ms. Parul Gupta

International Distribution Channel

A channel of distribution comprises a set of institutions which perform all of the activities utilised to
move a product and its title from production to consumption

Managing the marketing channels

• Firms are increasingly paying greater attention to how they manage their marketing channels, so that
products and services are delivered at the right time, right place and the right price.

• The marketing channel participants are vital partners in the value delivery network.
• Supply chains and the value delivery network

Upstream partners are the suppliers of raw materials, components, parts, information, finance and expertise
to the organisation.

Downstream partners are the wholesalers and retailers who connect the firm with the customer.
The nature and importance of marketing channels

The marketing or distribution channel is comprised of a set of interdependent organisations involved in the
process of making a product or service available for use or consumption by the consumer or an industrial
user.

Marketing Channel Functions or Tasks

These functions or tasks can be re-allocated among all
channel members, but that cannot be eliminated.
Risk Taking

Information

Promotion Contact
Financing
Distribution
Physical

Contracts/Title
Negotiation

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 How channel members add value

1. Transactional value: Risk moves to the intermediary, who also gets to know the specialist market.
2. Logistical value: Intermediaries assemble an assortment that is compatible with the needs of the
ultimate customers.
3. Facilitating value: Intermediaries often offer credit to customers, may offer training in the use of
products, and collect and deliver marketing information.

How a marketing intermediary reduces the number of channel transactions and raises
economy of effort

Key value adding functions

1. Information
2. Promotion
3. Contact with prospective buyers
4. Matching the offer to meet the needs of the customer
5. Negotiation
6. Physical distribution
7. Financing
8. Risk taking

Six basic channel decisions

1. Direct or indirect channels
2. Single or multiple channels
3. Length of channel
4. Types of intermediaries
5. Number of intermediaries at each level
6. Which intermediaries? Avoid intrachannel conflict

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Channel Design Decisions

Analyzing Consumer Service Needs

Setting Channel Objectives & Constraints
Identifying Major Alternatives

Designing International Distribution Channels

Evaluating the Major Alternatives
Distribution

Distribution

Distribution
Exclusive
Intensive

Selective

Channel organisation

• Historically channels have followed the conventional distribution channel format: comprised of
independent producers, wholesalers and retailers, with separate businesses and seeking to maximise
their own profit individually, even at the expense of the entire channel.

• Modern channel management has evolved to develop vertical marketing systems (VMS) that
provide channel leadership.

A conventional marketing channel versus a vertical marketing system

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Vertical marketing systems
Vertical marketing systems (VMS) are structured, interdependent producers, wholesalers and retailers that
act as a unified system.

There are also different constructs of VMS for various types of industries.

Main types of vertical marketing system

Corporate VMS
1. Combines successive stages of production and distribution under single ownership.
2. Breweries and petrol stations are examples.

Contractual VMS
Independent firms at different levels join contractually to create efficiencies and economies of scale that
could not be achieved alone. 3 types:

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Wholesaler-sponsored voluntary chains of independent retailers organised to help compete against large
organisations.
Retailer co-operatives
Franchise

Franchise VMS
Reduced set-up costs
1. Contractual relationship
2. Proven system and established brand name
3. Centralised buying power
4. Expertise in operational, managerial, legal matters
5. Forfeit some control
6. Performance against exacting standards
7. Aggressive targets

Administered VMS
VMS that co-ordinates successive stages of production and distribution through the size and power of one of
the parties.
Other channel variations

Horizontal marketing systems

Channel arrangement in which two or more companies at one level join together to follow a new marketing
opportunity.

Hybrid marketing systems

Multi channel distribution targeting different market segments.

Changing channel organisation

Major trend to disintermediation through elimination of intermediaries and traditional sellers and
replacement by radically new types of intermediaries.

International Distribution Channels

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Type of “Distance” that cause communication problem
Social Distance
o Culture Distance
o Technological Distance
o Time Distance
o Geographical Distance

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Case: Marketing Coca-Cola in China

• China major market for Coca-Cola

• Expected to surpass consumption in the US in the next decade
• To reach goals aggressive marketing campaign
• Market information helps define sales and distribution strategies
• Coca- Colas hurdle is distribution & pricing
• Coke only reaches 8% of population
• High transportation costs makes Coke most expensive where people are the poorest
• A typical distribution system

Channel intermediaries

Wholesalers
 Break down ‘bulk’
 buys from producers and sell small quantities to retailers
 Provides storage facilities
 reduces contact cost between producer and consumer
 Wholesaler takes some of the marketing responsibility e.g sales force, promotions

Agents
 Mainly used in international markets
 Commission agent - does not take title of the goods. Secures orders.
 Stockist agent - hold ‘consignment’ stock
 Control is difficult due to cultural differences
 Training, motivation, etc are expensive
Retailer
 Much stronger personal relationship with the consumer
 Hold a variety of products
 Offer consumers credit
 Promote and merchandise products

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  Price the final product
 Build retailer ‘brand’ in the high street
Internet
 Sell to a geographically disperse market
 Able to target and focus on specific segments
 Relatively low set-up costs
 Use of e-commerce technology (for payment, shopping software, etc)
 Paradigm shift in commerce and consumption
 Retail concentration

Concentrated system
common in developed countries
contributing factors: increase in car ownership, number of households with refrigerators and freezers and
two-income households
Fragmented system
common in developing countries
contributing factors: great population density with large number of urban centers e.g. Japan
uneven or mountainous terrain e.g. Nepal

Channel length
Refers to number of intermediaries between the producer and the consumer
Determined by degree to which the retail system is fragmented
Long distribution channel
Short distribution channel

Long distribution channel

Fragmented retail system promotes growth of wholesalers and retailers
Firms go through intermediaries such as wholesalers to cut selling costs

Short distribution channel

Concentrated retail system
Firms deal directly with retailers

Channel exclusivity
Degree to which it is difficult for outsiders to access distribution channels
Varies between countries
 Japan - exclusive systems because personal relations, often decades old play important role in
stocking products
 Difficult for new firm to get shelf space as compared to an old firm
Push versus pull strategy
Push strategy emphasizes
 personal selling
 Requires intense use of a sales force
 Relatively costly

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Pull strategy
 depends on mass media advertising
 Can be cheaper for a large market segment