ITERNATIONAL MARKETING CHANNELS
‘Place’ in marketing mix:
“place”
refers to the availability of the product to the customer at the time and the
location where it is
desired
• Most producers do
not sell their goods directly to the final users
• Between producers
and the final users stands a marketing channel, a host of marketing
intermediaries
performing a variety of functions and bearing a variety of names
• Marketing-channel
decisions are among the most critical decisions facing management
• The company’s
chosen channels intimately affect all the other marketing decisions
• The company’s
channel decisions involve relatively long-term commitments to other firms
• There is also a
powerful inertial tendency in channel arrangements
• Distribution
channels go beyond simple convenience they also affect the product’s meaning
International channel function and flows:
A marketing channel performs the work of moving goods from
producers to consumers. It overcomes
the time, place, and possession gaps that separate goods and
services from those who need or want
them. Members of the marketing channel perform a number of key
functions
– Collection of
information
– Promotion of
the products
– Negotiation
with customers
– Ordering
– Financing of
inventories
– Risk sharing
– Delivery and
physical transfer of the products to customers
– Payment
collection
– Title taking &
transfer
The channel decision is very important. In theory at least,
there is a form of trade-off: the cost of using
intermediaries to achieve wider distribution is supposedly
lower. Indeed, most consumer goods
manufacturers could never justify the cost of selling direct to
their consumers, except by mail order. In
practice, if the producer is large enough, the use of
intermediaries (particularly at the agent and
wholesaler level) can sometimes cost more than going direct.
Many of the theoretical arguments about channels therefore
revolve around cost. On the other hand,
most of the practical decisions are concerned with control of
the consumer. The small company has no
alternative but to use intermediaries, often several layers of
them, but large companies 'do' have the
choice.
However, many suppliers seem to assume that once their product
has been sold into the channel, into the
beginning of the distribution chain, their job is finished. Yet
that distribution chain is merely assuming a
part of the supplier's responsibility; and, if he has any
aspirations to be market-oriented, his job should
really be extended to managing, albeit very indirectly, all the
processes involved in that chain, until the
product or service arrives with the end-user. This may involve a
number of decisions on the part of the
supplier:
Channel membership
Channel motivation
Monitoring and managing channels
Channel membership
Intensive distribution - Where the majority of resellers stock
the `product' (with convenience products,
for example, and particularly the brand leaders in consumer
goods markets) price competition may be
evident.
Selective distribution - This is the normal pattern (in both
consumer and industrial markets) where
`suitable' resellers stock the product.
Exclusive distribution - Only specially selected resellers
(typically only one per geographical area) are
allowed to sell the `product'.
Channel motivation
It is difficult enough to motivate direct employees to provide
the necessary sales and service support.
Motivating the owners and employees of the independent
organizations in a distribution chain requires
even greater effort. There are many devices for achieving such
motivation. Perhaps the most usual is
`bribery': the supplier offers a better margin, to tempt the
owners in the channel to push the product
rather than its competitors; or a competition is offered to the
distributors' sales personnel, so that they
are tempted to push the product. At the other end of the
spectrum is the almost symbiotic relationship
that the all too rare supplier in the computer field develops
with its agents; where the agent's personnel,
support as well as sales, are trained to almost the same
standard as the supplier's own staff.
Monitoring and managing channels
In much the same way that the organization's own sales and
distribution activities need to be monitored
and managed, so will those of the distribution chain.
In practice, of course, many organizations use a mix of
different channels; in particular, they may
complement a direct salesforce, calling on the larger accounts,
with agents, covering the smaller
customers and prospects.
Vertical marketing
This relatively recent development integrates the channel with
the original supplier - producer,
wholesalers and retailers working in one unified system. This
may arise because one member of the
chain owns the other elements (often called `corporate systems
integration'); a supplier owning its own
retail outlets, this being 'forward' integration. It is perhaps
more likely that a retailer will own its own
suppliers, this being 'backward' integration. (For example, MFI,
the furniture retailer, owns Hygena
which makes its kitchen and bedroom units.) The integration can
also be by franchise (such as that
offered by McDonald's hamburgers and Benetton clothes) or simple
co-operation (in the way that Marks
& Spencer co-operates with its suppliers).
Alternative approaches are `contractual systems', often led by a
wholesale or retail co-operative, and
`administered marketing systems' where one (dominant) member of
the distribution chain uses its
position to co-ordinate the other members' activities. This has
traditionally been the form led by
manufacturers.
The intention of vertical marketing is to give all those
involved (and particularly the supplier at one end,
and the retailer at the other) 'control' over the distribution
chain. This removes one set of variables from
the marketing equations.
Other research indicates that vertical integration is a strategy
which is best pursued at the mature stage
of the market (or product). At earlier stages it can actually
reduce profits. It is arguable that it also
diverts attention from the real business of the organization.
Suppliers rarely excel in retail operations
Page
133
and, in theory, retailers should focus on their sales outlets
rather than on manufacturing facilities (Marks
& Spencer, for example, very deliberately provides considerable
amounts of technical assistance to its
suppliers, but does not own them).
Horizontal marketing
A rather less frequent example of new approaches to channels is
where two or more non-competing
organizations agree on a joint venture - a joint marketing
operation - because it is beyond the capacity of
each individual organization alone. In general, this is less
likely to revolve around marketing synergy
Effectiveness of international distribution channels:
The Five C’s Framework can be used by international marketers to
determine the effectiveness of their
international distribution channels;
• Coverage
– Ability of
channel to reach targeted customers to achieve market share and growth
objectives
• Character
– Compatibility of
channel with the firm’s desired product positioning
• Continuity
– Loyalty of the
channel to the firm
• Control
– Ability of the
firm to control total marketing program for the product or service
• Cost
– Investment
required to establish and maintain the channel-variable associated with sales
level.
Fixed costs required to manage the channel: inventories,
facilities, training of sales force
Control over distribution:
• Worldwide the
trend is toward shorter distribution channels and closer links, if not direct
relationships, with those active participants in the channel.
• Some would argue
that the only way to internationalize is to move closer and closer to full
control by
means of wholly owned subsidiary. This is quite erroneous.
• First, we have to
consider industry characteristics, the value-added of the business and what the
customer actually want. Second, it is often possible to achieve
close control through a commission
agent or a joint venture. Control should not be equated directly
with ownership.
|