In order for global marketers to be successful, the availability and accessibility of products and service to customers is imperative. Distribution channels make up the “place” in the 4 p’s of the marketing mix (along with product, price and promotion). How to best deliver your goods to their intended destination can change drastically across international markets. Understanding what factors influence global logistics and choosing the most reliable channel can be one of the most critical challenges faced by the global marketer. Supply and distribution chain management decisions pose large organizational and financial risks to any company. The following post lists and explains some important facts about international marketing channels.
What is meant by the distribution processes and structures?
No matter what type of country or market you are in, your products and services eventually go through a distribution process. The distribution process includes the handling and distribution of goods, the passage of ownership (title), and – – most important from the standpoint of marketing strategy – – the buying and selling negotiations between producers and middlemen and between middlemen and customers. Each country market also has a distribution structure, where goods pass from producer to the end-user. Within each structure are a variety of middlemen whose responsibilities and actions reflect the existing competition, the characteristics of the market, and resulting cultural factors. In summary, processes and structure change from those in emerging markets to those in highly developed nations.
Traditionally, import-oriented distribution structures existed, where importers controlled a fixed supply of goods, and the marketing system developed around the idea of selling a limited supply of goods at high prices to a smaller number of customers. It used to be a seller’s market, where market penetration and mass distribution were not necessary because demand exceeded supply. Additionally, distribution systems were local rather than national, and the importer-wholesaler traditionally performed most marketing activities. This left few opportunities for independent agencies that support a fully integrated distribution system to develop.
Today, few countries fit the import-oriented model used in the past, though it is understood that channel structures become more advanced with economic, political and social development. Traditional channel structures give way to modern forms, alliances, and processes. The pressures for a country to change come from inside and outside influences. Multinational marketers must look for new ways to profit from market segments whilst still occasionally paying the costs associated with traditional systems.
What is the goal achieved by understanding your distribution network?
Each industry and country has a distribution network with many channel choices and structures that are unique and fixed- – at least for the short term. It may be very difficult and complex to penetrate a new market due to existing distribution layers and conditions. On a global scale, there exists a mixture of traditional, new and evolving systems used. The goal of any multinational organization is to build the most efficient and effective channels among their alternatives, ultimately to establish a competitive advantage.
To better understand the distribution system used in a foreign country, marketers must never assume it is the same as what they practice domestically. There are many observed distribution patterns in retailing and wholesaling that can help explain the complexities of different distribution tasks. Size patterns, the use of direct marketing, and the resistance to change all affect how distribution channels and structures are composed. For example, in Italy, many small retailers specialize in different brands and product lines, while in Finland, most retailers sell more of the same products and services.
Retail size has a direct impact on how to distribute. In some markets company’s may sell to large, dominant retailers directly, whereas in other areas there may be no way to reach the same amount of customers by distributing to smaller retailers. Many underdeveloped countries pose similar challenges to Italy when it comes to distributing. If you are a global marketer you need to weigh out the costs and benefits from distributing to specific foreign markets.
One way that marketers are able to overcome the challenges posed by structures in place in underdeveloped nations is through direct marketing. Direct marketing occurs when consumers are targeted through mail, telephone, email, or door-to-door selling. This technique aims to bypass the complications that come along with choosing the right wholesalers and retailers. For example, direct sales through catalogs have proved largely successful for companies looking to enter a foreign market.
Despite the many advancements in technology and processes made possible to existing and emerging markets, resistance to change is still common in many locations. Ultimately, it is the consumer that either accepts or rejects a given distribution structure. Many cultures are accustomed to when and how their products and services are made available, and may not respond positively to adjustments. A countries resistance to change is demonstrated in my recent case study of Wal-Mart’s Expansion into Japan.
Choosing Your Middleman
Whether marketing domestically or internationally, your options range from taking control of the distribution process in its entirety (by establishing subsidiaries and marketing directly to the end user), or depending on one or more intermediaries for distribution of your products and services. For instance, McDonald’s is a global corporation that establishes restaurant subsidiaries that sell directly to the consumer. Thus, you cannot get a Big Mac at any other retailer besides McDonald’s. In contrast, Red Bull is a global corporation that relies heavily on intermediaries to package, transport and sell their energy drinks.
The channel process includes activities that start with manufacturing and end with the final sale to the customer. As a global marketer, you most likely will depend on a channel process that includes many different middlemen. In most cases it is advisable to have an organization or division in your company that directly communicates with each channel. These team members work to ensure goods and services move out of and into foreign countries successfully. Ideally, a company should control or be directly involved in selecting channel members that are practical, cost effective, and align with the company’s stated marketing objectives.
There are 3 types of middlemen involved in distribution structures.
- Home-Country Middlemen: Are located in the firm’s home country and provide marketing and distribution services from a domestic base. The parties relegate foreign-market distribution to others; such as manufacturer or global retailers, export management companies, or trading companies. Home-country middlemen are most helpful for companies with small international sales volumes, those inexperienced in foreign markets, those who do not want to get too involved with the complexities of international marketing, or those wanting to go global with minimal financial and managerial commitment.
- Foreign-Country Middlemen: For marketers desiring greater control over the distribution process, foreign-country middlemen are hired. Often times they are utilized temporarily or for special purposes, but can also be manufacturer reps or separate foreign distribution companies. An advantage of foreign-country middlemen is that they can create a shorter channel for the company and have more market expertise.
- Government-Affiliated Middlemen: Marketers must familiarize themselves with the governments that they operate in, as government-affiliated middlemen are often responsible in delivering products, services and commodities for the governments own use. These channel members may work on a federal, regional or local level. In some nations, the public sector has huge purchasing power and influence on suppliers and other middlemen.
Factors affecting choice of channels:
Before deciding on any channel of distribution or middlemen, the international marketer must understand the characteristics of their market and the established system most commonly used in the foreign market they are entering. Ask yourself the following questions prior to the selection process:
- Who is the specific target market within and across countries?
- What are my goals in terms of volume, market share, and profit margin?
- What are my financial and organizational commitments to the development of international distribution?
- How can I control the length and characteristics of my channels, the terms of sale and overall channel ownership?
Locating, Selecting and Motivating Channel Members
Remember, the actual process of building the channels for international distribution that you prefer is seldom easy. Many firms are unsuccessful at penetrating new markets because they are unable to construct an adequate system of channels. Locating middlemen should begin with the study of the market and determining evaluation criteria for those who can serve your market. Selecting prospective middlemen can be difficult; make sure you implement a screening process to avoid hiring those with a bad reputation or whom can’t be trusted. Once screening is completed, use your company’s legal resources to form a detailed agreement or contract that protects your company and its products and services. Finally, don’t forget the importance of the middleman’s effect on overall distribution success. Implement motivation techniques in order to maintain the channel member’s interest and support in your operations. Motivation can be achieved by financial rewards, psychological rewards, effective communication, company support or strengthen corporate relationships.
Cateora, Philip R., Mary C. Gilly, and John L. Graham. International marketing. 14th ed. New York: Mcgraw-Hill Irwin, 2009. Print.