7/31/2014. International Distribution Decisions Factors Influencing Distribution Decisions Internal External

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1 We are striving to achieve noticeable improvements for our customers and distribution systems. ( ) The various sales formats in all major markets will be adapted to new customer requirements. ( ) Every day is a chance to improve our service and make it more accessible. Michael Diekmann, Chairman of the Board of Management, Allianz Group McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. International Distribution Decisions Factors Influencing Distribution Decisions Internal External Managing and Controlling International Distribution Channels Direct and indirect channels Conventional versus vertical systems Multichannel strategies Types of channel intermediaries International Retailing Selection of channel partners Channel Management and Control Physical Distribution Summary 12-2 Internal International market strategy entry mode and degree of control Distribution strategy Intensive distribution in all possible outlets Selective fewer, selective intermediaries Exclusive limited number of intermediaries Product complexity Size and development of the firm s marketing organization External Characteristics of distribution system Local regulations Stage of PLC Consumer shopping habits and market size Competitive climate

2 Insert The distribution channel structure is strongly influenced by the country s economic development which creates the need for more efficient channels Distribution considerations include: Direct versus indirect Conventional versus vertical marketing systems (VMS) Different types of intermediaries 12-5 Direct Manufacturer sells directly to customer Indirect One or more intermediaries (agent, wholesaler, retailer, etc.) are involved Length of a distribution channel Determined by number and types of intermediaries Depth of a distribution channel Defined by number of intermediaries of the same typology

3 Figure Limited number of customers Internal, qualified staff Common in B2B Requisite for complex products Traditionally only for Door to door sales Mail orders Telephone selling Today: Internet selling 12-8 Relation between manufacturer and customer filtered by intermediaries: Agents Wholesalers Retailer Intermediaries perform different functions: Reduce number of exchanges Overcome cultural barriers Simplify the selling process

4 Conventional Channel: Intermediaries independent; act as if they run a separate business VMS: Intermediaries are linked in a unique integrated system which favors cooperation and synergies Beneficial when Complex products both in the sale and after sale phases No reliable distribution partner Channel partners operate with very high mark ups, making final price uncompetitive Retailing format available in the foreign country is not suitable for its goods Owned Stores Franchising Figure

5 Corporate VMS Contractual VMS Administrative VMS A vertical marketing system that combines successive stages of production and distribution under single ownership (examples are DOS directly owned stores). A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone (examples are wholesaler-sponsored voluntary chains, retailer cooperatives or franchise) A vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties Depending on the characteristics of the foreign market, companies usually define multiple channels (direct and indirect, with different types of intermediaries) and choose the more suitable channel organization (conventional or vertical) L Oreal is a prime example of this

6 Three types of intermediaries: 1. Agents Operate in the name of the company but do not take title to goods 2. Wholesalers 3. Take title to goods and sell to customers for resale or business use Full service Limited service 4. Retailers Are final link between provider consumer Intermediaries that sell directly to final customer Activities Ordering Storing Creating assortments Presenting goods in the most attractive way Packaging Financing Providing after sales services Differences in retail format may arise from local legislation

7 The prerequisite to manage the development of an international network is the creation of a brand value recognized by foreign consumers Value creation models are different for different retailers A key decision: standardization vs. adaptation The need to adapt to national cultures is strongly perceived by global retailers who are far from standardizing not only their retailing format but also their local offer Partner selection is a long process and each phase must be carefully evaluated Attributes for evaluation: Company strengths Financial resources Marketing skills Sales skills Commitment Relationship management is critical in foreign markets Maximum distributor commitment must be obtained Guarantee exclusivity Provide information technology Successful management practices are based upon four dimensions Performance management Coverage management Capability management Motivational programs

8 Performance management Identifies activities that are finalized to improve operating performances through the definition of roles, responsibilities and measurable goals Coverage management Focuses on channel structure efficiency and its coordination with the target market Capability building programs and motivational programs Include all those activities that support the operations of the channel members and increase partners motivation that strengthen the relationship Objective: manage the movement of finished products from the company to its customers Efficiency and quality achieved through effective logistics Logistics activities include: Handling Transport Inventory Labeling Storage

9 When a company plans to build its global market position, the most suitable distribution channels must be identified Several internal and external factors impact the decision, including Firm strategy Size and development of marketing and sales functions Financial strength Product complexity Distribution characteristics Local regulations Life cycle phase Consumer habits Competitive climate Distribution structures are strongly influenced by the country s economic development Successful channel management strategies take into account the benefits and disadvantages of direct vs. indirect channels and conventional vs. VMS systems Selecting channel partners requires an understanding of different agent and wholesaler typologies There are wide differences in retailing formats between countries When evaluating distributor partners it is important to define contractual and relationship development Successful channel management practices are based on Performance management Coverage management Capability building programs Motivational programs Decisions related to physical distribution are also a big issue