Global Marketing Management Global Distribution Decisions

1. Global Marketing ManagementGlobal Distribution Decisions MKGT 3215-001 Spring 2013 Mrs. Tamara L. Cohen Class #21

2. KEY CONCEPTS Distribution structure Passage of ownership Middlemen Channel length Just-in-Time Inventory Management E-commerce Walmart’s “RETAILINK”

3. Channel-of-Distribution Structures All consumer & industrial products go through a distribution process: • physical handling & distribution of goods • passage of ownership • buying & selling negotiations between producers & middlemen • buying & selling negotiations between middlemen & customers Each country market has distribution structure • goods pass from producer to user

4. Import-Oriented Distribution Structure Import-oriented or traditional distribution structure: • importer controls fixed supply of goods • sells limited supply of goods at high prices to small number of affluent customers • demand > supply • customer seeks supply from limited number of middlemen • distribution systems are local • few countries fit this import-oriented model today • contrasts with mass distribution philosophy

5. Japanese Distribution Structure = most effective non-tariff barrier 4 distinguishing features: • dominated by many small middlemen dealing with many small retailers • channel control by manufacturers • business philosophy shaped by unique culture • laws protect foundation of system (=small retailer)

6. Japanese Business Philosophy • emphasizes loyalty, harmony, friendship • supports long-term dealer-supplier relationships • retail cost of Japanese consumer goods among highest in world • Japanese law gives small retailer huge advantage over development of larger stores

7. USA vs JapaneseDistribution Systeme.g. auto parts

8. common for consumer goods to go through 3-4 intermediaries before reaching consumer large number of independent groceries & bakers 95% of all retail stores are small stores small stores do 59% retail food sales U.S. emphasis on super-markets, discount food stores, & department stores 90% of all retail stores are small stores small stores do 36% food sales High Density of Middlemen in Japan

9. Changes in Japanese Distribution System Ultimately only local merchants can make change happen. Changes due to: • Structural Impediments Initiative - remove impediments to trade between USA & Japan • Deregulation - helping remove impediments • Walmart (Seiyu) - overcome mgt resistance & consumers equating low price with low quality (recession helped), no appeal for bulk deals, increased direct importing, rearranged space, no more weekly specials rather every day low prices • “New” retailers < 5% retail sales - forcing change • Internet - suppliers & retailers can seek cheapest prices in global market, so harder for middlemen to retain control. Konbini (conven-ience stores) offer Internet features (pay bills, bank, purchase travel packages, music, & merchandise) at in-store terminals or from home.

10. Trends: From Traditional to Modern Channel Structures Pressure to change from INSIDE & OUTSIDE countries. • European retailers merging with former competitors & in other countries to form Europe-wide enterprises e.g. super-markets Sainsbury + Esselunga; retailer Mango in NYC • foreign retailers attracted by high margins & prices • Internet may be most important distribution trend • Covisint - purchase automotive parts from suppliers for $15 instead of old $150 • GlobalNetXchange (GNX) - Sears + Carrefour - retail exchange for retailers & suppliers to conduct transactions on line • e-commerce e.g. Amazon.com, Dell.com, eBay • 7-Eleven competes with FedEx & UPS (use convenience stores for pick-up points for Web orders)

12. Channel Control: WHOLESALERS Manufacturers depend on WHOLESALERS for services to other members of distribution network: • financing • physical distribution • warehousing • inventory • promotion • payment collection Manufacturers control wholesaler middlemen via: • Inventory financing – consignment, credit terms • Cumulative rebates – quantity, early payments, sales targets, services, specific inventory level maintenance, sales promo’s, loyalty, price policy maintenance, cooperation • Merchandise returns– sale or return • Promotional support– p.o.p., advertising layouts, mgt education, in-store demo’s, etc.

13. Retail Distribution Patterns • Size patterns - who do you sell to when there are 931,000 retail stores in Italy, 1:63 Italians ? In South Africa, there is high concentration: 31,000 stores, of which 1,000 control 60% of all grocery sales • Direct marketing - selling directly to consumer via mail, phone, door-to-door - works well in underdeveloped distribution systems & also in affluent markets e.g. Unilever in India • Resistance to change - change is threatening therefore often resisted

14. What is a Hypermarket? • concept pioneered by Carrefour • ultra-supermarket + department store CHINA USA FRANCE

15. = selling directly to consumer through mail, phone, door-to-door in markets where distribution systems are inadequate or irrelevant good for entrepreneurs good in very poor countries good in affluent markets mail order catalogs are form of direct marketing DIRECT Marketing

16. Middleman Choices • home country middlemen • foreign-market middlemen • government-affiliated middlemen Agent middlemen • do not take title to goods • represent principal • arrange sales • work on commission • more manufacturer control • Merchant middlemen • take title to goods • buy & sell on their own account • less controllable • often low brand loyalty

17. Home-Country Middlemen • Manufacturer’s retail stores e.g. Disney, Benetton • Global retailers e.g. IKEA, Costco, Walmart, Sears, Toys“R”Us • Export management companies - services include: researching foreign markets, assessing suitability of goods according to legal, trade and cultural norms, appointing distributors, exhibiting at int’l trade shows, export formalities, insurance, financing services, preparation of materials for foreign market. • Trading companies - accumulate, transport and distribute goods from many countries. Japanese trading companies (sogo sosha) since early 1700s, handle >$1 trillion annually (20% Japan’s GDP) • U.S. export trading companies - Export Trading Act lets producers of similar goods to form cooperative export trading companies • Complementary marketers - “piggybacking” - companies with extra capacity take on extra lines for international distribution • Manufacturer’s export agent - agent providing selling service for manufacturers; straight commission; similar service to export management company.

18. Foreign-Country Middlemen International marketers may work directly with middlemen in foreign market: • Manufacturer’s representatives - agents take responsibility for goods in specified area • Foreign Distributors - merchant middleman; often has exclusivity • Foreign-country brokers - agents deal usually with commodities & foods • Managing agents & compradors - exclusive contract • Dealers - middlemen selling industrial goods or durables directly to customers • Import jobbers purchase goods from manufacturer & sell towholesalers, retailers & industrial customers. Wholesalers & retailers may import directly.

19. Government-Affiliated Middlemen • Marketers must deal with governments in every country of world • Government purchasing offices • procure products, services & commodities for government use • work at federal, regional & local levels • Efficiency of public sector versus private sector • Walmart delivered aid better than FEMA after Hurricane Katrina • Macquarie Capital building tunnel in Elizabeth River Crossing project

20. Channel ManagementConstruction of the Middleman Network • Locating • Selecting • screening • agreement • Motivating • Terminating • Controlling

21. 6 Cs of Channel Strategy • Cost = cost ofdeveloping channel + cost of maintaining it • Capital requirements e.g. initial inventories on consignment • Control - more involvement means more control (!) • Coverage e.g. significant penetration in major population centers • Character - compatibility of channel to type of goods • Continuity - middlemen tend to short-term relationships with vendors

22. Walmart suppliers have electronic links with network of individual stores Strength is internal Internet-based system = “RETAILINK” system consolidates orders for goods so Walmart can order full truckloads with minimal inventory costs makes transactions with suppliers highly efficient lowers cost of operations Supplier Performance Scorecard – Vendor Summary Page shows stocks at warehouse, store sales, store weeks on hand, markdowns, average lead time, replacement order fill rate

23. RETAILINK Vendor Scorecard This is breakdown of sales by state.

24. Planogram

25. DISTRIBUTION STRATEGY • 85% of merchandise sold by Walmart is shipped through distribution system to stores (competitors < 50%) DISTRIBUTION CENTERS • strategically situated to serve 150-200 Walmart stores within a day • operate 24 hours a day • use laser-guided conveyor belts & cross-docking techniques (receive goods on 1 side, simultaneously fill orders on other side) • Walmart trucks sometimes back-haul

26. The Internet Internet is challenging traditional channels, offering wider range of possibilities for entering foreign markets • E-commerce • B2B (business-to-business) services • consumer services • consumer & industrial products • E-commerce more developed in U.S. than in rest of world, but this is changing • B2B enables companies to cut costs • reduces procurement costs • allows better supply-chain management • makes tighter inventory control possible

27. E-commerce issues • Culture - site & product must be culturally neutral (manner of expression; use of color; etc) • Adaptation - language translation; country-specific sites • Local content - ease of returning goods; local language engagement • Payment - very culture-specific • Delivery - costs of delivery options • Promotion - how to attract overseas visitors to your site

28. Just in Time (JIT) INVENTORY MANAGEMENT Goals of lean production/JIT: inventoriesreturn on investment waste of timeproduction efficiency waste of materialproduct quality carrying costs Simple philosophy of JIT: INVENTORY = WASTE History: - Henry Ford 1922 - Piggly Wiggly - Toyota

29. BMW Vision of lean development “Three Day Car”:3 days from customer order to delivery • built-to-order strategy to produce cars • exactly meet customer expectations Customer visits BMW showroom & selects features, or customer may compile customized car on personal computer. Once order is placed, Spartanburg, SC, plant makes car within 10 days • waste of time & material in production process • production efficiency & product quality

30. Keys to success in Global Distribution Decisions Distribution is a distinct art and/or science. • variety of distribution channels • how they affect cost & efficiency in marketing • how distribution patterns affect international marketing • e-commerce as distribution enhancer or distribution alternative • middlemen

31. Next class:GUEST: Michael Raffler Kuehne & Nagel Homework: Kuehne & Nagel web site UEST:

32. Next-next class: Global Communication Decisions Preparation: Course Pack, reading #10 Homework: #10 Unconventional Communications