Chapter Eleven International Marketing Channel … 10, 2014 · –In international marketing, the...

Chapter Eleven

International Marketing Channel Management

Copyright 2012, SAGE Publications, Inc.

Learning Objectives 1. What are the essential elements of an international marketing channel?

2. What key marketing channel decisions must be made in order to efficiently and effectively reach customers in other countries?

3. How can the marketing team successfully manage international channels of distribution?

4. What international marketing channel functions do various intermediaries perform?

5. What are the 5 Cs of selecting channel members?



Learning Objective #1

1. What are the essential elements of an international marketing channel?


International Marketing Channels

• Marketing channel managements integrates two key areas in marketing strategy: distribution and logistics.

• International distribution is the process by which products and services flow between producers, companies that act as intermediaries, and consumers, and includes the transfer of ownership.

• International logistics refers to the strategic management of the flow of products and services among marketing channel members, including both upstream and downstream activities. – Upstream activities focus on bringing a product or supplies into

a company, while downstream activities concentrate on sending a product or supplies to another channel member for resale.



2. What key marketing channel decisions must be made in order to efficiently and effectively reach customers in other countries?


International Marketing Channel Decisions


Distribution Intensity

• The extent to which products are distributed throughout a country and the number of intermediaries utilized to carry a good constitutes the product’s distribution intensity.

• Strategic decisions pertaining to level of distribution intensity are made on a country-by-country basis, because demand for products can vary greatly across countries. – Marketing infrastructures differ greatly. – In developing countries, some products can only be

made available in limited locations.


• Intensive Distribution

International marketing strategy in which products are distributed through as many wholesalers and retailers possible in a particular market.

– Marketers prefer this approach when the company offers items that appeal to a mass market of consumers.

– Marketing efforts focus on making the product widely available.

– Usually, the items are low-price products that retailers sell with relatively high volume such as convenience products.


• Selective Distribution

A strategy of using only a limited number of channel intermediaries in the international marketing program is a selective distribution system.

– Producers normally exert fairly strong control over channels that utilize selective distribution because close relationships develop among channel members.

– Shopping products are often marketed worldwide using selective distribution methods.


• Exclusive Distribution

Exclusive distribution focuses on offering products through only one wholesaler or retailer in a particular market area.

– Prestigious products are often offered through an exclusive distribution strategy.

• Strategic distribution intensity choices rely primarily on the factors of price, quality, and competition. – In international markets, the same basic approaches

are viable, depending on the infrastructure of the host country and any mitigating factors, such as legal restrictions on imports.


Selection of Distribution Channels


Direct Marketing • A primary option for many international marketers, especially

those just entering a new host country, is to engage in direct marketing.

• A direct marketing channel relies on direct selling of a product or service to consumers or end users without the use of wholesalers, retailers, industrial agents, or industrial merchants.

• Consumers around the world are familiar with direct marketing. – In Germany, more than 80% of companies provide some form of

direct marketing. – Telemarketing, email, and direct marketing programs are popular

in Brazil.


Indirect Marketing When indirect channels are used, the goods and services move through one or more intermediaries or organizations that move products for producers to consumers and end users.

• Agent middlemen do not take title or ownership of the products.

Agents, or brokers, bring buyers and sellers together in a particular country. – These channel members generally work on a commission basis. – Agent wholesalers may or may not take physical possession of the

products.

• Merchant middlemen assume title and ownership of the products. – An import middleman purchases products from producers in one

country and sells them to established distribution system members in another country.

– Merchant retailers purchase goods for resale and then market those products to consumers.


• Consumer Channels • Many larger international companies , will ship products directly to

retail outlets, bypassing any local wholesale operations. • Trading companies are common in the Pacific Rim. These

organizations provide intermediary activities that include marketing services, financial assistance, and information flow. – The Japanese keiretsu trading companies act as a family of firms with

close relationships and, often, shared ownership. – The chaebols of South Korea are similar in many ways and play an

important part in South Korean politics and business culture.

• Other marketing teams may select the traditional international marketing channel, which consists of producers, wholesalers, and retailers. – In developed countries, distribution systems tend to be more

institutionalized and focus on the traditional roles of producer, wholesaler, and retailer.


• Business-to-Business Channels • Many countries house large industrial agent and merchant

companies. – The manufacturer’s marketing team selects those that reach the

company’s target market most effectively. – Local conditions and considerations, including legal restrictions,

the availability of delivery systems, and the potential to create quality partnerships, affect these decisions.

• International marketing channels may include a series of

different wholesalers and retailers.

• Facilitating agencies assist in various aspects of negotiation, financing, documentation, physical distribution, and warehousing of products internationally.


Types of Facilitating Agents


Channel Length • Marketing channel length refers to the number of intermediaries that

a product goes through before reaching the consumer. – In a traditional channel, there are two intermediaries: the wholesaler

and the retailer. – Direct marketing represents the shortest channel length, as the product

moves directly from the manufacturer to the retail customer.

• International marketing channels differ significantly in both length

and complexity. – The intricate Japanese distribution system utilizes a number of

wholesalers.

• Products that are intensively distributed tend to have longer international marketing channels.

• Exclusively distributed products often have shorter channels.


Selection Factors


Primary factors that affect distribution channel choices.

Existing Channels

• Managing international distribution networks means that companies utilize unique distribution structures in each country. A channel structure may work well in one country but not in another. – Understanding the distribution systems present in

target countries constitutes a crucial element in developing a successful international distribution system.

– In some situations, the company will establish an entirely new distribution system.


Existing Channels (Cont.)

• International marketing professionals work to ensure that the international distribution channel meets the needs of all parties involved.

– The system should effectively serve producers, wholesalers, retailers, and consumers.

– Channel members often use market research to more clearly understand distribution patterns in target markets.


Future Channels • Discussions about infrastructure in international

marketing often concentrate on the availability of road, rail, and air transport systems; water, electricity, and natural gas; and other physical features.

• Deliveries of products and even the availability of those products are often influenced by the presence or absence of highways and railroad cars along with other modes of transportation.




3. How can the marketing team successfully manage international channels of distribution?


Managing International Distribution Channels

• Managing the supply channel involves a series of strategic decisions and activities. – Each should concentrate on the ultimate goal, which

is reaching the target market effectively and efficiently.

• The key elements involved are 1. establishing international channel strategies, 2. selecting intermediary arrangements, 3. making channel arrangements and choosing channel partners, and 4. managing channel power.


1. Establishing International Channel Strategies • A pull strategy means that the producer concentrates on stimulating

consumer demand through extensive advertising and consumer promotions. – The goal, building demand, leads others in the marketing channel to

carry additional stock, because customers are asking for the product.

• A push strategy focuses on providing intermediaries with incentives that will lead them to cooperate in marketing the product. – Discounts, sales contests, training programs, and other methods entice

the wholesaler or retailer to order in greater quantities, thereby pushing the product through the channel to the consumer.

• In international markets, both push and pull strategies may be used.

– Push strategies can assist in overcoming intermediary resistance to foreign products.

– Pull strategies increase consumer demand by making an item seem desirable, easy to use, exotic, or in limited supply.


2. Selecting Intermediary Arrangements • The second strategic choice is whether to use

traditional intermediaries or to create an in-house distribution channel.

• Vertical integration means that one member of the market channel merges with or acquires another intermediary. – Backward vertical integration occurs when a retail

chain develops or acquires its own wholesale distribution system.

– Forward vertical integration strategies involve manufacturers establishing wholesale distribution systems or company-owned retail outlets.


2. Selecting Intermediary Arrangements (Cont.) • Acquiring or merging with another company at the same level of the

distribution channel, the strategy is horizontal integration. – These efforts include manufacturers joining with other manufacturers,

wholesalers acquiring other wholesalers, or retailers merging with or acquiring other retailers.

• A vertical marketing system distribution arrangement involves the producer, wholesaler, and retailer performing marketing activities as a unified system. – These systems are planned to the extent to which functions are

integrated throughout the system and often include partial ownership between cooperating companies.

• Some marketers have opted for what are known as international strategic alliances that, like vertical marketing systems, create enduring cooperative arrangements between firms that utilize resources.


• Gray Markets • A gray market is the practice of distributing products through

distribution channels that were not authorized by the marketer of the product. – In international marketing, the process is often referred to as parallel

importing, or the use of gray market tactics across international borders.

• With parallel importing, international distributors begin to sell a

product in either unauthorized countries or through unauthorized retailers. – Wholesalers buy a product in one country at a low price and resell it in

other markets, or to unauthorized retailers, for profit. – The producer may end up competing domestically against its own

brands that were imported into the country by overseas distributors.

• In general, gray marketing is legal, but it does violate channel

agreements.


3. Making Channel Arrangements and Choosing Channel Partners • A channel arrangement guides the administration of the

marketing functions that will be performed in the distribution system. – Channel partners are organizations with relationships that help

move products from producers to consumers. – Three forms of channel partner systems are contractual,

administered, and partnership.

• A contractual channel arrangement consists of a binding contract that identifies all of the tasks to be performed by each channel member with regard to production, delivery, sorting, pricing, and promotional support. – International contractual arrangements also specify legal

elements of the relationship, including the country with jurisdiction over disputes.


3. Making Channel Arrangements and Choosing Channel Partners (Cont.) • An administered channel arrangement includes one dominant

member in the distribution channel. – Channel captains coordinate the marketing tasks provided by the

channel members. – Powerful manufacturer brands often become channel captains.

• A partnership channel arrangement allows members of the

channel to work cooperatively for the benefit of all firms involved. – Sharing of information will be one key element of an effective

partnership channel arrangements. – Developing these arrangements in international markets can be

difficult due to the complications of the global environment, including differences in technology and infrastructure, legal restrictions, and cultural nuances.


http://agreements.realdealdocs.com/Distribution-Agreement/DISTRIBUTION-AGREEMENT-2835241/

4. Managing Channel Power • Two major types of channel conflict occur in international

distribution channels: horizontal conflict and vertical conflict.

• Horizontal channel conflict emerges when conflict occurs between members of a marketing channel at the same level, for example between retailers carrying the same product. – One retailer may be upset about unfair pricing between the

outlets.

• Vertical channel conflict occurs when there are disputes between channel members at different levels in the system, such as between a wholesaler and a producer, or between a producer and a retailer.


Power Bases in International Marketing Channels


Trust and Commitment in International Marketing Channels

• Power struggles and imbalance may lead to instability in the marketing channel.

• Effective marketing channels are based on mutual trust and commitment rather than on the display of any type of channel power. – Marketing channel trust refers to the willingness

to rely on other marketing channel members. – Marketing channel commitment reflects the

desire of channel members to continue channel relationships.


Cross-Cultural Negotiation and International Marketing Channels

• International marketing involves negotiation, which means the successful management of international marketing channels requires close attention to negotiation.

• International marketing cannot take place without at least two parties negotiating, each from a different country. – Cultural differences greatly impact the negotiation

process. International marketers work to control or at least limit the potentially negative effects of these differences.


Stages in the Negotiation Process


Cultural Influences on Negotiations

• Cultural variables influence international negotiations in many ways: 1. Interests, behaviors, and desired outcomes

2. Relationships, communication, and perceptions

3. Negotiation context

4. Hofstede’s dimensions

5. Thought processes

7. The overall negotiation culture.


Cultural Influences on Negotiations (Cont.)

• All individuals have interests and priorities, as will the organizations involved in the negotiation process. – Specific behaviors and patterns of interaction, such as

choice of direct/confrontational or indirect/cooperative interactions follow, and the negotiating parties choose tactics based on the cultural context.

• Relationships, Communication, and Perceptions

– In the area of relationships, negotiators need to know whether long-term connections are desirable.

– Will communication be high or low context? – Is the culture polychromic or monochromic? – Space perceptions involve the role of personal space in

interpersonal interactions.


Cultural Influences on Negotiation (Cont.)

• The overall negotiation context or climate is important, and research suggests that both the environmental context and the immediate context significantly influence the negotiation process. – The environmental context includes variables such as legal/political

developments, international economics, ideological differences, and culture.

– The immediate context includes variables such as the bargaining power of the participants, relationships, and the processes for conflict resolution.

• Hofstede’s cultural dimensions prove useful for the international

negotiator. – Regarding power distance, negotiators should carefully consider the

social class of their potential customers and show proper respect when it is expected.

– High uncertainty avoidance culture results in demands for roles and procedures for dealing with uncertain events.

– Buyers or partners in collectivist cultures value negotiating teams.


Cultural Influences on Negotiation (Cont.)

• People from various cultures perceive the world and think in different ways. – Thought processes are shaped heavily by culture,

tradition, and the educational system in play in the specific country, and are critical to negotiations.

• Western cultures tend to rely more heavily on logic

when arriving at conclusions than do Eastern cultures. – Eastern cultures tend to view negotiations holistically,

whereas Westerners tend to focus on specific parts of a problem.


The Overall Negotiation Culture



4. What international marketing channel functions do various intermediaries perform?


International Marketing Channel Functions


Warehousing, Inventory Control, and Materials Handling

• Warehousing is the process of storing products until they are sold.

• Marketing channel members also focus on inventory control. – Maintaining an optimal inventory of products that will meet

consumer demand without burdening the system with excessive stock constitutes a challenge for logistics managers.

• Materials handling includes all activities associated with moving products within the manufacturing and warehousing systems.


Address Discrepancies of Assortment

• One fundamental concern in all domestic and international marketing channels is the discrepancy of assortment problem.

• The problem results from the simple idea that producers generally desire to produce a large number of a limited variety of products, while consumers usually desire limited quantities of a wide variety of products.

• To remedy this discrepancy, channel members engage in what is known as the sorting function.


The Sorting Function


Secure Payment and Extend Credit

• Documentation plays an important role in order processing.

• A bill of exchange can be used to facilitate order processing and payments. – A bill of exchange represents an agreement between parties in

which one party, a drawer, directs a second party, a drawee, to issue a payment to yet another party, a payee.

– A bill of exchange creates a secure transaction for both parties.

• A letter of credit, is a document issued by a bank to signal the creditworthiness of a buyer to a seller. – The letter of credit ensures the seller of the buyer’s

creditworthiness by stating that the bank backs the buyer’s credit.


Transportation

• The global transportation of products will be an important part of international marketing channels.

• Products must be delivered reliably and effectively. – Deliveries are reliable when they are on time.

– Deliveries are effective when the shipments arrive in good quality, undamaged by the mode of transportation.



5. What are the 5 Cs of selecting channel members?


International Marketing Channel Structure


Cost • Some costs are incurred when establishing the channel and choosing

members.

• Some costs are associated with maintaining the system, which typically center on encouraging channel members to remain members of the system.

• International distribution expenses consist of more than just costs associated with moving products from country to country. – Costs associated with storing, packing, preparing, and documenting product sales are

also included in distribution costing.

• The task of transporting goods between countries presents additional

difficulties. – International distribution systems are often more expensive than those found in

purely domestic settings due to the costly nature of moving products between countries or continents.

– It has been estimated that as much as 30% of the price of a product can be directly attributed to distribution costs for products shipped between continents.


Coordination

• Coordinating the marketing efforts that must take place at each level of the system constitutes an important part of managing the international marketing.

• Decisions are made as to what promotional and logistical activities each member will perform. Marketing channel coordination requires an efficient international distribution process.


Coverage • Marketers examine questions pertaining to the extent

to which channel members cover certain territories. – Channel member roles differ according to the country

being served, and as a result, distribution strategies will likely vary from country to country.

• When addressing coverage, international marketers consider intensive, selective, and exclusive distribution strategies. – When intensive distribution is selected, channel members

will be expected to cover a wider and more intense territory than would be the case for an exclusive distribution strategy.


Cooperation • Although it is difficult to assess, channel leaders

attempt to assess the cooperation of potential channel members prior to the formation of a formalized marketing channel.

• The reputation of potential members, along with evidence of previous marketing success in targeted regions or countries, becomes critical.

• The extent to which marketing channel members simply trust one another becomes the primary determinant of cooperation between parties in a marketing channel.


Control • International marketers lose some control over the physical

movement of goods when goods are shipped domestically. – Monitoring the movement of goods and ensuring their safe delivery

brings about extra expenses.

• Marketing channel members are often apt to protect their own

interests rather than the well-being of the overall marketing channel. – Opportunism reflects the tendency for channel members to pursue self-

interests rather than those of other members of the marketing channel. – Monitoring and controlling the activities of channel members allows the

producer to ensure that marketing activities are carried out as planned.

• Channel leaders can consolidate international distribution systems in order to maintain better control and cooperation among channel members.


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Chapter Eleven International Marketing Channel … 10, 2014 · –In international marketing, the...

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