International Distribution

1. International Distribution Class 8. International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

2. Introduction • The marketplace is becoming increasingly global • Customers want smaller quantities of more customized products, and they demand to be treated individually • The changing global competitive and technological environments are transforming the way products are produced and moved around the world • Globalization of retailers and wholesalers drives globalization of manufacturing companies International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

3. Place - Marketing Channels • What is a marketing channel (or distribution channel)? • “Marketing channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user” (Kotler) • “an organized network of agencies and institutions which, in combination, perform all the activities required to link producers with users to accomplish the marketing task” (AMA) • They perform functions that add utility to a product or service: • Place utility: availability of a product or service in a location that is convenient to a potential customer • Time utility: availability when desired by a customer • Form utility: availability of the product processed, prepared, in proper condition and/or ready to use • Information utility: availability of answers to questions and general communication about useful product features and benefits • What about international marketing channels? these interdependent organizations allow goods and services to cross national boundaries International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

4. International Channels Channels within foreign countries Channels between countries Final buyers Seller • Channels between countries: gets the products to the borders of the foreign market; decisions concerning types of intermediaries (agents, trading companies, etc…), types of transport, financing and risk management… • Channels within foreign countries: gets the products from entry point to final buyers and users; decisions concerning types of retailers (franchising, supermarkets, etc…), local channels Channels of distribution vary considerably among countries. Distribution, by its nature, is a marketing activity that is performed close to the market. International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

5. Channel Management • Channel design: types of intermediaries, number of intermediaries (exclusive, selective, intensive), contractual arrangements… • Managing retailing, wholesaling and market logistics… • Selecting, motivating and evaluating channel members (cooperation, conflict, competition) • Channel dynamics: traditional, VMS, HMS, multi-channel marketing systems… • Most difficult part of the mix to standardize International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

6. Approach to Managing Supply Chains and Distribution International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

7. Global Retailing Market Entry Strategy Framework Culturally close Easy to enter Difficult to enter Culturally distant International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

8. Factors that influence the choice of distribution channel • Country Characteristics • Access to low-cost labor or raw materials • Availability of specialist skills/expertise/ infrastructure • Government Incentives and Regulations • Market factors: • Cultural variations • Buyer behaviour • Buyer needs for product information, installation and servicing • The willingness of channel intermediaries to market product • Intermediary cost: "mark-up" or "commission“ • Producer factors: • Resources • Customer-based skills • Extend of control • Product factors: FMCG vs Medicine International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

9. B2C vs. B2B Channels • Business-to-consumer channels • Designed to put products in the hands of people for their own use • Alternatives: direct marketing, franchising, sales force, agents/brokers, internal sales force, wholesalers, retailers… • Business-to-business channels • Deliver products to manufacturers that use them as inputs in the production process or in day-to-day operations • Alternatives: internal sales force, distributors, wholesalers… International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

10. Marketing Channel Alternatives for Consumer Goods M M M M M M Agents, brokers MSF MSF MSF Internet, mail order, door-to-door, house party, etc… Company-owned, franchising W W R R R R Consumers International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

11. Conclusion – 7 Rules of International Distribution • Select distributors. Don’t let them select you. • Look for distributors capable of developing markets, rather than those with a few good customer contacts. • Treat local distributors as long-term partners, not temporary market-entry vehicles. • Support market entry by committing money, managers, and proven marketing ideas. • From the start, maintain control over marketing strategy. • Make sure distributors provide you with detailed market and financial performance data. • Build links among national distributors at the earliest opportunity. Source: D. Arnold, HBR, 2005 International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

12. Problems in International Marketing Channels • Global retailing • Case of hypermarkets • Multi-channel strategies • Case of franchising-Internet • Market-specific channels • Case of wine distribution International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

13. Global Retailing • Global retailing since 1970s, but many variations… • Differences in the importance and types of retailing channels: shopping malls, department stores, discount stores, wholesale clubs, outlet centers, hypermarkets… • Factors affecting the success of hypermarkets: culture, income, market fragmentation, traditional stores, locations, demography… • Global retailing market entry Wal-Mart case International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

14. Concept of Multi-Channel Strategies – Franchising and Internet BRICK AND MORTAR CLICK AND MORTAR Coexistence of traditional and virtual marketing channels “brick and click” Antagonostic or complementary? International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

15. Some Practical Advice… • Brand structure rather than channel structure (reduce risk of network competition) • Sell all products on-line • Ensure multi-channel coherency • Back-office motivation • Use Internet to increase visits (locations, maps) • Limit use of e-mail… • … But does this apply to franchising? International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

16. Multi-Channel Strategies in Franchising • Franchising firms are « plural form networks » • Internet is another distribution channel • Internet seems to be a priority • Internet is « revolutionizing » franchising … • But, franchisors offering on-line sales are limited • 32% in the US • 30% in the UK • Less than 20% in France International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

17. Opportunities and Threats of Multi-Channel Strategies (Franchising-Internet) International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

18. E-commerce advantages • Reduction in intermediation costs associated with wholesale and retail activities • The ability to lower costs associated with purchasing by curbing the time and effort involved in supply and logistics operations • Improved information gathering and processing that permit improved management of the supply chain • The prospect of expanding market share and/or developing new markets by lowering the cost of gathering and processing information on the wants of existing and potential customers • New customers’ segments International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

19. Distribution Intensity • Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another. • Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best performing outlets and focus effort (e.g. training) on them. Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply. • Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area. International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

20. Supply chain relationships and approaches International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.

21. Modes of collaboration: example Ekaterina Buzulukova. International marketing. Last lecture

22. Successful global marketing strategy Factors: • Deliver products of high quality to customers • Price competitively through careful cost management • Operate within short lead times • Provide excellent after-market supporting services • Sources: • Understanding a nature of the markets • Infrastructure for transportation • Level of technology • Financial management • Organization behaviour and human resources International Marketing, 2013. Buzulukova E.V., Sheresheva M.U.