ALLW International CHANNELS OF DISTRIBUTION B2C Customer wants detergent and goes to Supermarket...

ALLW International

CHANNELS OF DISTRIBUTION

B2C Customer wantsdetergent and goes

to Supermarket

B2C Customer wantsdetergent and goes

to SupermarketManufacturerManufacturer

Channels are sets of interdependent organizations that transfer ownership of products as they move from producer to business consumer or consumer.

Companies are learning that modern channel management may have a large positive impact on increasing sales and profitability. They are creating a new position for a channel manager.

B2B Customer purchases from

Dealer or Distributor

B2B Customer purchases from

Dealer or Distributor

ManufacturerManufacturer

ALLW International

CHANNELS OF DISTRIBUTION: SIX KEY FACTS – #1

•

– Every channel decision was made by your organization!

– Every channel decision can be changed! If something is not working as well as you would like you can fix it.

ALLW International

• The need to control channels has increased because of:

– Intensified competition and struggle for market share – – Demand may not only be unstable, but may be

declining– Capital shortages may exist– Need for personal selling and post-transaction service– Growth requirements– Supply and demand rules [economy of scale]


ALLW International


• It is very hard to sell what is not there. If your product is not readily available, a consumer will likely

– go somewhere else to find the product [B2B or B2C], or

– buy a competitors product [B2B or B2C], or– buy a substitute product [B2B or B2C], or– not buy anything [B2C].

ALLW International


• Effective channels of distribution have a multiplicative effect on sales!

1. A firm has 10 sales people that can each handle 40 accounts.

10 * 40 = 400 Accounts

2. A firm has 10 sales people that each handle 40 distribution accounts. Each of the distribution sales people can handle 60 small accounts.

10 * 40 * 60 = 24,000 Accounts

3. Even if the distribution sales people only give you 10% of their time you sell to

10 * 40 * 60 * .1 = 2,400 Accounts

ALLW International


• A firm must have strong channels of distribution that align with, and are the preferred channels for, their markets [segments] if they are going to have high market share.

– The channel of distribution must efficiently make the product available to the types of resellers B2B consumers want to use.

– The strongest resellers in the channel sell the most branded material.

– There is a bias toward purchasing from a specific type of reseller for a product class.

ALLW International


•

– There are many different types of resellers, intermediaries, and others involved in channels of distribution. What they often call themselves and what they really do are often different things. For example, look at the roles dealers and distributors have in different industries.

ALLW International

• Perhaps the best way to understand channel relationships is to provide an analogy to various types of friends.– Initial

• Early, testing each other, building some trust, beginning the relationship

– Growing• Trust and the quality of the relationship grows ever more

rapidly

– Maturing• Trust and the relationship are at a maximum

– Declining• Trust is sometimes questioned. The future is uncertain.

– Ending • Hopefully on a respectful note.


ALLW International

CHANNELS OF DISTRIBUTION:You must understand their functional level!

Manufacturer

B2B Consumers

DistributorsWholesalers

DealersRetailers

B2C Consumers

Company Sales Force

Manufacturer’s Reps

DIRECTINDIRECT

This is an example of a channel map. It is the best way to explain and show your channels of distribution.

ALLW International

MARKETS /

SEGMENTS

TECHNOLOGIES /

PRODUCTS / SERVICES APPLICATIONS

Business Consumer Government

Trucks

Cars

Tanks

Delivery

Transportation

War

CHANNELS OF DISTRIBUTION:How do they fit with an SBU model?

Thus, the automotive market is composed of the business market segment providing technologies/products [trucks]/services for fulfilling applications [delivery].You can complete this for the consumer and government segments for practice.

ALLW International

PRODUCTS &

SERVICES

APPLICA-TIONS

CHANNELS

MARKET[S]

SEGMENT[S]

CHANNELS OF DISTRIBUTION:They are the link that ties everything else together!

Channels enable the flow of products and services to the marketplace. So they build on the previous slide to make the products and services available where the customer wants to purchase them.

Channel maps become increasingly complex as your offering is made available to more segments as you can see on the next slide.

ALLW International

• Understanding the economy and the types of entities is critical to building a really good set of channels of distribution.

• North American Industrial Classification System [NAICS] for use in NAFTA– SUPPLY-ORIENTED SYSTEM– 20 SECTORS– Around 1,200 INDUSTRIES [and growing]– NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE– COMPATIBLE WITH ISIC Rev. 3 [UN]

THE ECONOMY AND NAICS:BUSINESS CLASSIFICATION

ALLW International

Agriculture

11

Mining

21

Utilities

22

Construction

23

Manufacturing

31-33

Wholesale

42

Retail

44-45

Transportation

48-49

Information Finance

51 52

Real Estate Professional

53 54

Management Administration

55 56

Entertainment Health

61 62

Education Accommodation

71 72

Other

81

Public Administration

92

SELLGROW OR MAKE SERVICE GOV’T

An economy includes the four basic functions at the top. NAICS breaks those down into sectors that are below the sector name. It goes on to finer classifications to accurately measure the activity of a specific type of entity as you see on the next slide.

THE ECONOMY AND NAICS:What does an economy look like?

ALLW International

• 51 Economic sector » Information

• 511 Economic sub-sector» Broadcasting and Telecommunications

• 5111 Industry group» Telecommunications

• 51111 Industry group» Wireless Telecommunications Carriers

• 511111 U. S. Industry [specialized id – optional]

» Paging

THE ECONOMY AND NAICS:READING NAICS TABLES

ALLW International

• B2B CHANNELS – TYPES OF DISTRIBUTORS – You can find complete NAICS data at www.census.gov

• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Power distribution• Medical instruments / Medical supplies• Chemical / Food / Grocery / … many more

THE ECONOMY AND NAICS:READING NAICS TABLES

ALLW International

• Level of entity– Vertical

• Between entities at two different levels of the channel.

– Lateral• Between entities at the same level in the channel.

• Type of entity– Consumer– Reseller– Sales force extension– Shareholders– Other vested interests– …

CHANNEL MEMBERS:TYPES OF RELATIONSHIPS

ALLW International

• Resellers– purchase products, put them in their inventory, and

hope to resell them at a profit.• EXAMPLES: Distributor, wholesaler, dealer, retailer, VAR, …

• Sales force extensions– Add to your sales efforts. They are independently

owned and function under the direction of your sales management.

• EXAMPLES: Manufacturer’s representatives, brokers, [sales] agents, commission merchants, …

• …

CHANNEL MEMBERS: TYPES

ALLW International

Entity Role Inventory? Financing?

Broker Bring buyers and sellers together

No No

Manufacturer’s representative

Represents several manufacturers

No No

Sales agent Negotiates on the producer’s behalf

No No

Manufacturer Products finished goods or components for sale

Yes Yes

OEM Manufacturers and assembles products into a final unit

Yes Yes

Distributor or Wholesaler

Provides goods to other resellers

Yes Yes

Dealer or Retailer

Carries goods for purchase by consumers

Yes Yes

CHANNEL MEMBERS: TYPESResellers and Sales Force Extensions

ALLW International

• Intermediaries– are entities that provide assistance in a channel of

distribution.• EXAMPLES: Order entry services, break-bulk and other

services, 3PLs, return-rework-repackage- relabel, fulfillment, …

• Alternative entities – Include many different types of alliances and

ventures. They may or may not include reselling and being an extension of your sales force.

• EXAMPLES: Partnership [formal and informal], alliance, affiliation, joint venture, subsidiary, …

CHANNEL MEMBERS: TYPES

ALLW International

CHANNEL MEMBERS:RESELLERS

• Manufacturers or importers or primary providers

MANUFACTURER

ALLW International


• Large resellers generally servicing smaller resellers– DISTRIBUTOR to DEALER for B2B– WHOLESALER to RETAILER for B2C

• Can also be dealer direct, club, mail order / catalog, …

MANUFACTURER

DISTRIBUTORor

WHOLESALER


ALLW International


• Significant purchasing power for multiple brands / stores– Department store, mass merchandiser,

specialty store, category killer, convenience store, off-price retailer, supermarket, …

– Potentially club, mail order / catalog, co-op, licensees, …

MANUFACTURER

NATIONALor REGIONALRETAIL CHAIN


ALLW International


• Large resellers generally servicing smaller resellers

• Generally smaller resellers– Smaller retailers, franchisees, VARs,

…– Rack jobbers– Potentially licensees– Beware of the DEALER label – is does

not always mean a small reseller!

MANUFACTURER

DISTRIBUTORor

WHOLESALER

DEALERor

RETAILER


ALLW International


• Large resellers generally servicing smaller resellers

• Generally smaller resellers although there are very large retailers

• Business [B2B] consumers of various types

MANUFACTURER

DISTRIBUTORWHOLESALER

DEALERor

RETAILER

[BUSINESS]CONSUMER


ALLW International

CHANNEL DECISIONS:ELEMENTS OF SUCCESS

• Interdependency – Weakest link concept – The channel is only as strong as its

weakest member.

• Shared objectives – Channel coordination – The channel embraces coordination as a

way to gain efficiency and improve overall performance.

• Sets of normal behavior– Understanding each other’s roles, cooperation and participation

are elevated. Less time is spend on conflict minimization, and minor day-to-day issues.

ALLW International

• Increase effectiveness [sales] in multiple market segments

• Increase market [segment] coverage

• Fill channel gaps

• Improve service levels

CHANNEL DECISIONS: DESIGNWhy use various types or multiple channels?

ALLW International

• LIKELY– Product requires local inventory– Product has horizontal market[s] or market

segment[s]– Small product offering, unable to support a

direct sales force– Product tends to have a low unit value [under

a few thousand dollars each]– Customers are widely dispersed– Local repackaging, sizing, or fabrication is

required

CHANNEL DECISIONS: DESIGNWhen should I use resellers?

ALLW International

• Key Issues– Quality [preferred], control, cannibalization, …

• Multi-channel [dual] distribution– Essentially the same item under a different

brand name [or model number]• Tires, power tools, pc’s, paint, …

– It would be more appropriate to call this multiple distribution or multiple channels.

CHANNEL DECISIONS:HOW MANY CHANNELS?

ALLW International

• Corporate financial resources– You cannot afford certain options [e.g., direct sales].

• Competitive strategies– Competitors channel[s] may force certain options.

• Customer dispersion– Customer size, support, and type of distribution

network are factors.– Geographically dispersed customers usually require a

network of resellers.

CHANNEL DECISIONS:B2B DECISION FACTORS

ALLW International

• Availability of good intermediaries– The best ones are already committed to competitors.– What is their receptiveness to new product lines?

• Do they believe another line would dilute their efforts?

• Traditional channel patterns– It is very difficult to go around established channels.– Large customers are usually direct sales.

• Product characteristics– Do they require technical competence in distribution?– What are the warranty, repair, and service

requirements?

CHANNEL DECISIONS:B2B DECISION FACTORS

ALLW International

CHANNEL DECISIONS: DESIGNRoles, Expectations, Controls

• One way of improving performance of the resellers is to have a comprehensive set of roles and expectations. This will included what each channel member should do, what you will do in return, and what you expect of each other.

• This typically includes1. a definition of the qualifications for each type of reseller, and,

2. the structure of the price schedules with special attention paid to the terms and conditions of sale section.

• Completing the example on the next slide will get you started. A good program will have fair expectations.

ALLW International

MANUFACTURER “M” EXPECTS OF RESELLER

“R”

RESELLER “R” EXPECTS OF MANUFACTURER “M”

PRODUCT Inventory for _____________ Large inventory—__________ out

of stock

PRICE • Market price ______________ • Volume _____________

PLACE • Field ______________ • Expert assistance when ___________

PROMOTION • Training of _____________ • Collateral such as _____________

PROFITABILITY • _________________________ • ____________________

CHANNEL DECISIONS: DESIGNRoles, Expectations, Controls

ALLW International

• Will include – market segmentation, gap analysis, and

target market segment[s], and– Positioning of the firm / brand.

• Design the channel to meet segment demands.• Define optimal performance.• Select the best type[s] of channels.• Minimize conflict between and in channels of

distribution.

CHANNEL DECISIONS:DESIGN – EXAMPLES

ALLW International

CHANNEL DECISIONS:STRUCTURE

Corporate

Subsidiaryor JV

Corporate

Subsidiaryor JV

Contractual

Resellers Licensees [Franchisees]

Contractual


Administered-Open-

No agreement

Administered-Open-

No agreement

What type of VMS would best fit my situation?

Or should I use some combination of these?

ALLW International

• What types of channel members are needed?– Resellers– Licensees– Franchisees– Company-owned– Some combination of these?


ALLW International

CHANNEL DECISIONS:STRUCTURE: TYPE OF SYSTEM

• Open system– Allows members to enter or leave with relative ease

• This has a lot of training costs as well as customer perceived turmoil in the sales representation.

• Closed system– It is difficult to get in and those that are in rarely want to leave.

• This generally evolves into strong relationships and strong representation in the marketplace.

ALLW International

• Distribution intensity– Between firms– Between market[s] segment[s]


ALLW International

IntensiveDistribution[Frito-Lay]

IntensiveDistribution[Frito-Lay]

Exclusive Distribution

[Lexan / Jaguar]

Exclusive Distribution

[Lexan / Jaguar]

SelectiveDistribution[Panasonic]

SelectiveDistribution[Panasonic]

•What type of product fits best?

•What type of sales people are required?

•What support is required?

•What is the total system cost?

This is good for a product that needs to be sold in as many places as possible.

This is good for a product that needs to be sold in a [set of] highly qualified outlet[s].

This is good for a product that needs to be sold a lot of places but the brand owner needs to control the number and quality of outlets.

CHANNEL DECISIONS:DISTRIBUTION INTENSITY

ALLW International

Mass MerchandiserDistribution Center

Mass Merchandiser

Candy Company

Candy & TobaccoWholesaler

Small Retailer[Convenience Store]

B2B MARKET SEGMENT

Mass MerchandiserRetail Store

Ordering & receipt

Goods

CHANNEL DECISIONS:

A channel map is very effective in showing the flow of products/services to the market.

B2C MARKET SEGMENT

ALLW International

• This is a defined process using qualitative and quantitative analysis of each reseller applicant. It reviews their– Management skills– Financial characteristics– Physical facilities– Objectives and policies– Marketing skills / strengths– And other considerations

CHANNEL DECISIONS:SELECT THE BEST MEMBERS

ALLW International

• is the ability of one channel member [A] to get another channel member [B] to do something B otherwise would not have done.

CHANNEL POWER

ALLW International

• Requires– a clear position in the market.

• Use competitive maps and perceptual maps

– understanding the various types of channels of distribution you employ and how they fit together to attack the market segments.

• Dual [multiple] channels of distribution• Non-traditional channels• Channels to specialized [niche] markets

– Using technology to your advantage.– Continually improving your cost position.– …

CHANNEL POWER:GAINING COMPETITIVE ADVANTAGE

ALLW International

• DEPENDENCE– the degree to which one channel member depends

on the other, and/or

• INTERDEPENDENCE– Pooled Interdependence

• Channel members operate independently, but their pooled resources contribute to each partner's overall success.

– Cooperatives– Sequential Interdependence

• Technology is pushed through a channel system from one member to the next.

CHANNEL POWER:BASES

ALLW International

• COERCIVE POWER is based on a member's belief that another channel member has the ability and willingness punish him if he fails to yield to the influence attempt.

• NONCOERCIVE POWER uses reward-oriented bases to influence channel partners.

CHANNEL POWER:TYPES

ALLW International

Horizontal Conflict

Occurs at the same level in a channel.

Two dealers disagree in whose territory an account actually resides.

Vertical Conflict

Occurs between levels in a channel.

The manufacturer disagrees with a particular dealer's service policies.

CHANNEL DECISIONS:RESOLVING CONFLICT

ALLW International

• Channel entropy – wasted efforts in the channel of distribution.

• Use a proactive system versus a defensive system for better– Competitive interactions,– Information sharing,– Decision support systems and systems

integration, and/or– Introduction of new products into existing

channels.

CHANNEL DECISIONS:PROACTIVE STRATEGIES

ALLW International

• Product differentiation– Exclusive features for appeal to target markets

• Strategic pricing– Larger price differentials, more exploitation

• Intermediary development– Give intermediaries less incentive to cheat

• Marketing information systems– Better unit tracking to identify sources of leaks

CHANNEL DECISIONS:PROACTIVE STRATEGIES

ALLW International

• A distributor calls to complain another distributor is getting a better deal.

– Answer = You explain that there is only one program for distributors. If another distributor is doing or saying something that is inconsistent with the program that is on them. Your sales representative may need to speak with that distributor.

• You own a company and call to complain the manufacturer is selling around you to a small account. [disintermediation]

– Answer = The manufacturer should ask why you [the reseller] are not selling to the small account in your territory since you have local sales representation, local inventory, etc.

• A distributor has many returns due to a bad lot.– Answer = You should quickly determine the problem area so it does not recur. Then

apologize for the inconvenience and exchange the inventory as soon as possible at your expense.

• A dealer wants to run an ad in a special supplement that doubles their coop advertising allowance.

– Answer = Explain you will need to get approval from the marketing department as this is not covered in the cooperative advertising program.

CHANNEL DECISIONS:PROACTIVE POSITIONS

ALLW International

• You should probably not consider changing channel members in any of these situations.– The member[s] is[are] doing a good job.– The risk of changing a specific channel

member is too great.– The channel members work well together,

their teamwork is evident.– …

CHANNEL DECISIONS:RETAINING CHANNEL MEMBERS

ALLW International

• One should consider making changes in existing channels of distribution for any of the following reasons.– Increase efficiency [lower [marginal] costs]– Improve effectiveness [increase sales volume]– Power: Minimize conflict; improve coordination,

increase cooperation, …– Gain greater control over the channel[s]– Increase our flexibility with channel members– Improve the channel infrastructure– Split and rebuild a channel– …

CHANNEL DECISIONS:MAKING CHANGES

ALLW International

• Channel efficiency analysis– is the ability to perform a function with a minimum of

expense and/or effort.• An efficient channel would positively respond to

requests.

• Channel effectiveness analysis– considers the strategic fit of a channel design with a

channel member’s overall marketing strategy.• Do the ultimate customers prefer to purchase our

products from this type of reseller?

CHANNEL DECISIONS:CHANNEL ANALYSIS

ALLW International

• Should have provable and well documented valid reasons– Important in Wisconsin, Louisiana, and

potentially Oklahoma– Especially important in international business

• You should have a written track record of issues and under-performance so you have documentation over time.

• Understand the costs of replacement

CHANNEL DECISIONS:TERMINATING CHANNEL MEMBERS

ALLW International

• When should I consider adding a channel of distribution?– Expand into new markets or market segments– Add service capabilities– Increase efficiency [lower [marginal] costs]– Improve effectiveness [increase sales volume]

CHANNEL DECISIONS:CREATING A NEW CHANNEL

ALLW International

• Increased outsourcing to 3PLs.• Firms want to reduce the number of suppliers.• Qualification of suppliers is becoming more and

more sophisticated.• JIT and similar systems are required.• Firms need to be electronically interconnected.• Problem-solving teams are customary.• Increased focus on strategic alliances of all

types including ventures, partnerships, …

TRENDS AFFECTING CHANNELS:B2B RESELLERS

ALLW International

• Have a positive attitude: satisfy the customer!• Plan and implement work with your partners -

Successful partners work closely in goods times and bad. – Never abandon a partner at the first sign of trouble.

• Never abuse power in negotiations.• Having a limited number of channel members

usually increases trust and builds stronger relationships. It is like joining a club!

• Set high ethical standards.

CHANNEL MANAGEMENT: BEST PRACTICES

ALLW International

ALLW International

SUPPLY CHAIN MANAGEMENT

SECTION 4CHANNEL OF DISTRIBUTION RELATIONSHIPS

2 – CHANNELS OF DISTRIBUTION AND THE MARKETING MIX

ALAN L. WHITEBREAD

ALLW International

• Channels of distribution greatly affect the composition of the marketing mix [4 P’s].– PRODUCT– PLACE– PROMOTION– PRICE

CHANNELS & THE MARKETING MIX

ALLW International

Time

Profits

INTRODUCTION

Sales

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Evaluate rolesStudy successes

Complete channel of distribution

THE PRODUCT LIFE CYCLE [PLC]Product development and the INTRODUCTION stage

What happens to …

Watch the notes and each line as you go through stages in the PLC.

in this stage of the PLC?

ALLW International

Time

Profits

INTRODUCTION

Sales

GROWTH SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Reevaluate coverageChannel fit

THE PRODUCT LIFE CYCLE

What happens to …

There are two points of inflection in the growth stage to help you know where you are in the PLC. Notice the things you should do in the growth stage.


ALLW International


Time

ProductDevelopment

INTRODUCTION

Sales

GROWTH MATURITY DECLINESalesSales

CostsCosts

ProfitsProfits

MarketingObjectivesMarketingObjectives

ProductProduct

PricePrice

PlacePlace

PromotionPromotion

What happens to …

Most new product introductions generally occur in the growth stage as everyone fights for market share in the new product market. As the market matures, products are dropped from the line.

ALLW International

Time

ProductDevelopment Profits

INTRODUCTION

Sales

GROWTH MATURITYSalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Reevaluate coverage,lines, new segments, P/L


What happens to …

Competition is at a maximum in the maturity stage of the PLC. Extreme price and promotion pressures exist. There may be a lot of brand switching if there are not obvious customer benefits.


ALLW International

Time

ProductDevelopment

INTRODUCTION

Sales

GROWTH MATURITY DECLINE

Profits

SalesSales

CostsCosts

ProfitsProfits


ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Reduce channel membersDiscontinue products


What happens to …

There are two key questions. 1. When should you get out of the product line. 2. How should we exit – divest or dissolve?

ALLW International

• What is our corporate strategy?–

• is often talked about as a great advantage. Initially you have 100% of the market and can reap the benefits of the growth. However, the challenge is to keep as much market share as possible over time. There are few examples of first movers keeping >30% market share in the maturity stage of the PLC.

– – not first, but will quickly introduce a product with additional features.

– and will only introduce new products when we are sure it is not a fad.

NEW PRODUCTS

ALLW International

• Obtaining reseller cooperation comes from a great marketing program that energizes the channel and provides above average rewards for all.

• Depending on the channel[s] you use, you may have some difficult issues.– Slotting allowance equivalent– Failure fee– OEM sales– Private label sales

NEW PRODUCTS

ALLW International

BrandName

QualityLevel

Packaging

Design

Features

Delivery& Credit

Installation

Warranty

After-Sale

Service

CoreProduct

orService

CoreProduct

orService

BrandedProduct

BrandedProduct

CoreProduct

CoreProduct

AugmentedProduct

AugmentedProduct

THE PRODUCT CONCEPTThis simple version of the product concept has three distinct parts.

ALLW International

CHANNEL MAP – FOR DISHWASHERBasic purpose – clean dishes.

RETAILER FOR CORE PRODUCT ONLY

The simplest product model.

RETAILER FOR BRANDED PRODUCT

RETAILER FOR AUGMENTED PRODUCT

PRODUCT DEFINITION[S]

Plain metal, one cycle, washer with only an on button

CORE PRODUCT

Very low selling price to maximize volume for this market segment

BRANDED PRODUCT

DO NOT COMPLETE

AUGMENTED PRODUCT

DO NOT COMPLETE DO NOT COMPLETE

CORE – BRANDED – AUGMENTED PRODUCT/CHANNEL MAP

ALLW International

CHANNEL MAP – FOR DISHWASHER



The product you would expect to find in an outlet.

RETAILER FOR AUGMENTED PRODUCT



FEATURES include multiple wash rinse cycles, porcelain finish, multiple colors, ergonomic, and functionalVarious DESIGN and load styles, aestheticQuality parts and construction, some warrantyBrandedPackaging to protect promote, and reduce cognitive dissonance

CORE PRODUCT

Very low selling price to maximize volume for this market segment

Not available

BRANDED PRODUCT

DO NOT COMPLETE Push brand, product knowledge and sales training are required,Promotes the product line

AUGMENTED PRODUCT

DO NOT COMPLETE DO NOT COMPLETE


ALLW International

CHANNEL MAP – FOR DISHWASHER



RETAILER FOR AUGMENTED PRODUCTThe product/service set that will make the customer the

happiest over the life of the product.



FEATURES include multiple wash rinse cycles, porcelain finish, multiple colors, ergonomic, and functionalVarious DESIGN and load styles, aestheticQuality parts and construction, some warrantyBrandedPackaging to protect promote, and reduce cognitive dissonance

Everything in the ACTUAL / BRANDED product plus Credit Delivery Installation After-sale service Extended warranty and service

CORE PRODUCT Very low selling price to maximize volume for this market segment

Not available Not available

BRANDED PRODUCT

DO NOT COMPLETE Push brand, product knowledge and sales training are required,Promotes the product line

These brands / models are not available

AUGMENTED PRODUCT

DO NOT COMPLETE DO NOT COMPLETE Excellent product knowledge, mandatory sales training, retailer has a strong local reputation, full service retailer providing credit, delivery, installation, after-sale and extended warranty service, spare parts inventory, participates vigorously in all promotions, excellent locations, frequently asks to run local promotions, …


ALLW International

• PUSH STRATEGY– The most common approach goes to and

through channels to consumers.

Manufacturer Reseller(s) Consumers

Advertising, personal selling, promotions, and publicity.

DEVELOPING THE PROMOTION MIX

ALLW International

• PULL STRATEGY– A seldom-used approach goes to consumers

and comes back through channels hoping to force resellers to carry the product.

Manufacturer Reseller(s) Consumers

Advertising, coupons, and sweepstakes.

DEVELOPING THE PROMOTION MIX

ALLW International

• Stimulate Sales

• Stabilize Sales

• Differentiate Offerings

• Accentuate Value

• …

There are many different types of channel promotions. Some of them are on the following slides.

DEVELOPING THE PROMOTION MIXPROMOTION OBJECTIVES

ALLW International

• CONSIGNMENT – manufacturer financing of reseller inventory

• INVENTORY ADJUSTMENT

• SLOTTING ALLOWANCES– one-time fees for initial product placement [grocery]

• STREET MONEY – lump sum promotion payments [LEGAL?]

• COOPERATIVE ADVERTISING ALLOWANCES

DEVELOPING THE PROMOTION MIX TYPES OF CHANNEL PROMOTIONS

ALLW International


• – Manufacturers frequently pay for at least a portion of resellers

advertising of the manufacturers products through a cooperative advertising program.

– A common program would be to pay for 10% of the pro-rated space.

• For example, displays two manufacturers products equally on a full page ad for $10,000. The reseller would apply for co-op advertising from both manufacturers using the following formula.

– 10% * $10,000 * 50% = $500

– There are many special advertising allowances that function like co-op advertising for market penetration, new product introduction, new resellers, etc.

ALLW International

• SLOTTING ALLOWANCES [LEGAL?]

• STREET MONEY – lump sum promotion payments [LEGAL?]

• SALES PERSONNEL PROMOTIONS


ALLW International

• What are the sources of value the provide meaningful customer benefits?

• Customer value affects– Channel success rate– Price strategy selection– Pricing objective[s]

• Sales-based – increase volume or market share

• Profit-based – profits, ROI, EBITDA, …

• Status quo-based – competitive, market

CUSTOMER VALUE:THE VALUE PROPOSITION

ALLW International

NET PRICE

List priceLess: discounts

QuantitySeasonalCash / couponPromotion

Less: AllowancesTrade-in value

PRODUCTBENEFITS +

ServiceQualityBrand / warrantyRepairPackagingCredit / financingDelivery / availabilityIncentives

Must be

less than the

CUSTOMER VALUEAS SEEN BY THE B2C CONSUMER

ALLW International

NET PRICE

List priceLess: Volume discounts

QuantitySeasonalCash / couponSpecial

Less: AllowancesTrade-in value

PRODUCTBENEFITS +

ProductServiceQualityBrandAvailabilityInventoryPromotional activity

Must be

less than the

CUSTOMER VALUEAS SEEN BY THE B2B RESELLER

ALLW International

• Select strategic positioning, price objective[s], and price strategy.

• Estimate demand and its price elasticity.• Examine the cost-volume relationship.• Examine competitive prices and strategies for

comparable and functionally similar products.• Set the price schedule[s]. Remember the

market sets price ranges. You do not set price based on costs as it may not provide a realistic value equation for the consumer!

PRICE STRATEGY & TACTICS:THE PRICE-SETTING PROCESS

ALLW International

2

4

6

8

10

12

200 400 600 800 1,000

Total Revenue

Total Cost

Target Profit($2 million)

Sales Volume in Units [thousands]

Co

st i

n

Do

llar

s (m

illi

on

s)

Fixed Cost

Variable Cost

A break-even analysis basically says you should make a certain amount of profit at a certain volume level if you know your revenue, fixed and variable cost schedules. It is good for analysis to see if you can make enough money to make it worth your time.

PRICE STRATEGY & TACTICS:BREAK-EVEN ANALYSIS

ALLW International

• PROVIDES A SET MARKUP OR MARGIN

• It has all of the following.– You understand cost structure in depth.– The Seller perceives price fairness.– The Seller perceives less price competition.– It is unrelated to market conditions.– There is no customer orientation.– There is no confidence in the acceptance rate.– There are dangerous volume assumptions.

PRICE STRATEGY & TACTICS:COST-PLUS PRICING

ALLW International

• Going-rate Price Strategy– Sets a price schedule to keep you in the same

relative position to your competitors based on industry price schedules.

PRICE STRATEGY & TACTICS:MARKET-ORIENTED PRICING

ALLW International

• –

• Set a low price to maximize sales. What would you do if one of your competitors did this?

– • Sets a high initial price that can generally decline slowly due

to intellectual property protection. This allows a quick recovery of the new product development expense.

– • This has planned and regular price reductions which occur

generally as new models are introduced. It places a heavy burden on have new products on a regular schedule.

PRICE STRATEGY & TACTICS:MARKET-ORIENTED PRICING

ALLW International

• – Published– Volume [Plotted]

• Use the Freedom of Information Act to get competitive volume pricing data.

• – Provided for services performed by the

customer

• – Advertising, display, promotion

• Incentives

PRICE STRATEGY & TACTICS:RELATIONSHIP-ORIENTED PRICING

ALLW International

• Price guarantees– Price schedule[s]

• Prices per volume purchase• Terms and conditions of sale for each customer

type

• Retail price posting – Visible prices for consumers to see and

compare if they so desire.

• – Pizza Hut delivery vs. take-out

PRICE STRATEGY & TACTICS:OTHER PRICE ISSUES

ALLW International

PRICE STRATEGY & TACTICS:COMPETITIVE PRICE RESPONSE• Market share leaders – number one or two

in market share.– The relative price positions of these two firms

is usually not going to change so they react quickly to each other’s moves.

– If the market share leader initiates price changes all competitors will follow.

– If smaller companies initiate price changes, the market share leaders will generally wait and see what happens before making a change.

ALLW International

PRICE STRATEGY & TACTICS:COMPETITIVE PRICE RESPONSE• If you are not a market share leader then

the following is likely to be appropriate.– If the market share leader initiates price

changes you must follow quickly.– But, if non-leaders make changes, the best

approach is to wait and see what happens.• The price change may not hold so you did not need to

change yours.• The prices change is with much smaller firms so it really

does not impact you.• The price change is limited to very few firms so you, and

others, do not need to change.

ALLW International

Domestic Mfgs.Foreign Mfgs. + subs.

Wholesalers (also V. Large End-Usersmajor importers) (auto assembly, …)

53% of consumption

Distributors <(20-30% MU)(11,000) brands

Retailers or Dealers(20,000)

(20-30% MU)Major End-Users(few in number)

Sm. & Med. End-Users(???)

Copyright A. Whitebread 3/1/98, updated 12/1/00

$1.00

$1.25

$1.56

$1.95

Reseller Price Level

MEXICO BEARING INDUSTRY - 2000

STRUCTURING CHANNELS: TERMS & CONDITIONS OF SALE

ALLW International

ACCOUNT TYPE PAYMENT TERMS DELIVERY TERMS SPECIAL TERMS PROMOTION & INCENTIVES

Regional distributor Net _ daysPrompt pay

discount

FOB [Ex works]TimeSpecial chargesShipping feesDrop ship

Inventory adjustment

Minimum order size

Co-op advertisingSales promotions

Distributor

Retailer

Dealer

Consumer

STRUCTURING CHANNELS: TERMS & CONDITIONS OF SALE

ALLW International

DIRECT SALES

NATIONAL ACCOUNTS

OEM

GOVERNMENT

HOUSE

These all have face-to-face sales contact.

TELESALES

DIRECT MAIL

CATALOG

INTERNET

These have no face-to-face sales contact but there may be other forms of customer interaction.

RESELLER PARTNERSHIPS

MANUF. REP’S

FRANCHISES

LICENSEES

JOINT VENTURESThese can have any combination of field and direct marketing sales forces.

Copyright A. Whitebread, 2001-2011

TYPES OF SALES FORCES

ALLW International

• CHARACTERISTICS OF OEM and NATIONAL ACCOUNT SALES PEOPLE.

• Manage multiple projects• Extensive contacts throughout the client firm• Politically astute• Equally comfortable on the factory floor and in the

boardroom• Highly respected by their organization• Extensive product knowledge• Very self-sufficient• Organize and manage resources• Need little help with RFP and RFQ requests

TYPES OF SALES FORCES:LARGE ACCOUNT MANAGEMENT

ALLW International

• CHARACTERISTICS OF B2B RESELLER SALES PEOPLE– Good product knowledge – some technical– Sound sales skills learned in sales training– Provider of information, sales and product

training– Well-liked motivator– Provide various types of assistance

• Customer issues• Problem resolution• Delivery schedules


ALLW International

• CHARACTERISTICS OF B2C RESELLER SALES PEOPLE– Good basic knowledge of products, planograms,

and retailing– Sound sales skills through sales training– Provider of information and training– Well-liked motivator that is really good with

consumers– Provide various types of assistance

• Customer issues• Problem resolution• Delivery schedules


ALLW International

SALES

TYPE CONTROL COST

EFFEC-

TIVENESS

LEARNING

CURVE

FIELD ? PRIMARILY LARGE

ACCOUNTS

RESELLER Some portion of their

activities.

Controllable ?

DIRECT MARKETING PRIMARILY SMALL

ACCOUNTS

ALTERNATIVE ? ? ? ?

TYPES OF SALES FORCES:ISSUES

There are several issues with structuring sales forces. One is the amount of accounts to be covered by a field sales force which usually has a high cost. So they handle the large accounts. What is a large account? Another issue involves the roles of resellers and of direct marketing. How are accounts assigned? Who gets credit for the account? When, why, and how does it get transferred to a reseller? And so on.

ALLW International

• Team selling to large accounts has given the market leaders a tremendous sales advantage.

• The use of technology [some form of sales force automation] can dramatically impact the role and number of sales personnel whether they are– direct sales people employed by your firm, or– manufacturer’s representatives.

• The sales force mix is becoming more inside and less outside people to handle the large number of smaller accounts.

TYPES OF SALES FORCES:SALES TRENDS

ALLW International

CHANNELS OF DISTRIBUTION:You must understand their functional level!

Manufacturer

B2B Consumers

DistributorsWholesalers

DealersRetailers

B2C Consumers

Company Sales Force

Manufacturer’s Reps

DIRECT SALES TO CONSUMERSINDIRECT SALES TO CONSUMERS

This is an example of a channel map with the sales function at the correct level.

Firms may use either or any combination of these sales groups.

The type of sales force must be

compatible with your channels and market

segmentation.

ALLW International

ALLW International



3 – CHANNELS: LEGAL AND ETHICAL ISSUESPower, Conflict, and Resolution

ALAN L. WHITEBREAD

ALLW International

• Larger Companies know there is a fine line between being competitive and preventing competition.

• Smaller Companies need to understand their options – antitrust laws can be a competitive tool.

• – Actions are OK if they are not anticompetitive.

• No bribery or coercion.• Involve very small amounts or small market share• Competition is now between intrabrand [resellers of the

same brand] vs. interbrand [resellers of different brands].

ANTI-TRUST LAWS

ALLW International

• – The reseller will not sell outside of its assigned territory.

• Lesser restrictions– Limiting which products resellers may sell.

• Area of primary responsibility – The reseller not restricted to its primary territory.

• Profit pass-over arrangement – A reseller reimburses another reseller for selling in their territory.

• – Specifies the primary site of business and natural market area.

• Required investments• Support activities• Sales coverage

ANTI-TRUST LAWS:RANGE OF RESTRICTIONS

ALLW International

• – Section 1-Eliminated restraint of trade and activities

that result in the interstate restraint of trade• CASE LAW clarifies price fixing; pooling output [like

OPEC] and sharing markets.

– Section 2-Outlawed monopolization except where patents provide a monopoly

ANTI-TRUST LAWS: LEGISLATION

ALLW International

• – Section 1

• Added to antitrust practices

– Section 2• Prohibited price competition that substantially lessens

competition [broader than the Sherman Act]

– Section 3• Outlawed tying clauses and exclusive arrangements that

substantially lessens competition

– Section 7• Forbid mergers that substantially lessen competition

– Section 8• Prohibited interlocking Boards of Directors [interlocking

directorates] among competing firms, some M&A activity [see also Cellar-Kefauver Act of 1950]


ALLW International

• – Established the FTC to investigate and judge

practices in the Sherman and Clayton Acts.• Section 5

– Outlawed unfair methods of competition or deceptive practices


ALLW International

• – “goods of like [grade and] quality”,

• case law recognizes brand price differentials;

– where the effect “may substantially lessen competition or tend to create a monopoly”;

– slotting allowances • paid by manufacturers to get the product on the

retail shelf;

– in any line of commerce; or to– injure, destroy, or prevent competition

ROBINSON-PATMAN [1936]

ALLW International

• “…with any person who either grants or knowingly receives benefit of such discrimination.” –

–

– Promotional allowances, …

ROBINSON-PATMAN:AND PURCHASING

ALLW International

• Meeting the competition– –

• Buyer incentives are at least an ethical issue and may also be a legal one [especially in some countries].

ROBINSON-PATMAN:AND PURCHASING

ALLW International

• Price discrimination must have a significant effect on sales or market share to be illegal.

• It does not require you to have proof you did not violate its intent!

• Permits the rationalization of quantity discounts.

• Allows you to offer different prices to different types of resellers if there is a significant difference in selling them.

ROBINSON-PATMAN:CASE LAW

ALLW International

• Escape provisions for items that are not subject to this law– 1-obsolete or perishable merchandise– 2-differences in the cost of manufacture, sale,

or delivery– 3-effected in good faith to meet a competitors

price

ROBINSON-PATMAN:ESCAPE PROVISIONS

ALLW International

• Tying arrangements– 1-TYING CONTRACT

• If you buy this, you must also buy that.

– • You must buy every item in the [product] line [only

illegal if the reseller cannot purchase competitive products].

– • Legal under the Sherman act, but be careful!

– 4-FRANCHISE AGREEMENTS • With territories are legal.

U.S. LEGAL ISSUES:TYING ARRANGEMENTS

ALLW International

• Incentives for resellers’ employees are illegal where any of the following are true.– The employer does not consent.– Some type of lottery is involved.– Competitive products are severely affected

and/or competition is lessened.– The incentives are not available to competing

retailers’ personnel.

U.S. LEGAL ISSUES:RESELLER EMPLOYEES

ALLW International

• – Selection criteria –

• You have the right to sell to whom you choose.

– Not to sell to criteria • You have the right to not sell to anyone.

U.S. LEGAL ISSUES:SPECIAL ATTENTION NEEDED

ALLW International

• Selection and termination policies.• You can not pay an uninvolved party for

the transaction! • Designated product policies are usually

legal. – Different terms, conditions, and access for

different product lines.

U.S. LEGAL ISSUES:SPECIAL ATTENTION NEEDED

ALLW International

• Federal Trade Commission is responsible for antitrust civil cases.– The Bureau of Competition [U.S. antitrust]– Office of International Affairs [international

antitrust]

• Department of Justice is responsible for criminal cases.

U.S. LEGAL ISSUES:ENFORCEMENT

ALLW International

• – Let the buyer beware

• – Let the seller beware

ETHICS

ALLW International

DISTRIBUTION AGREEMENTS:TYPES OF LEGAL SYSTEMS

• The general rule for which legal system counts most in rank order follows.– – – – This is not always true. You need expert legal advice for your

specific situation.

• There are different types of legal systems around the world which are the basis for nearly all countries laws. Their implementation varies greatly from country to country. Just because some place used to be a colony does not mean their current laws are like the former occupier of the country.

ALLW International

CHANNEL ISSUE: COMPARATIVE LEGAL SYSTEMS• There are a few major legal systems around the world as well as

some mixed systems. –

• is Roman based where laws passed by the legislature are codified, and judges have little [if any] freedom to interpret the law or adjust the penalty prescribed by law.

– • employs judges to interpret the executive and legislative

branches and form revised laws base on their rulings [opinions] based on statutes, legal precedent, written documents, and oral agreements. Judges have considerable freedom to interpret the laws, actions, and penalties. This is the U.S. legal system.

ALLW International

CHANNEL ISSUE: COMPARATIVE LEGAL SYSTEMS• There are a few major legal systems around the world as well as

some mixed systems. –

• is based on knowledge revealed by a God describing human behavior. It often includes a code of ethics, morals and customs.

– • is a system of [generally unwritten] laws formed by custom

over time which describe acceptable behavior within the group.

ALLW International

DISTRIBUTION AGREEMENTS

• Probably the great majority of your international business will be conducted with some type of contract.

• Your knowledge of the law process will serve you well in dealing with contracts. Remember, it is only a base and you may have to do something different in another country.

ALLW International


•

• Some of the many types of contracts in channels of distribution include– Reseller contracts for

• distributors, dealers, wholesalers, retailers, …– Representative contracts for

• any extension of your sales organizations– Licensees and Franchises.

ALLW International


• – Representative contracts for

• any extension of your sales organizations– Manufacturer’s representatives, brokers, agents [be

very careful], freelance, …

– Direct employees

ALLW International

DISTRIBUTION AGREEMENTS:

• UN Convention for the International Sale of Goods [CISG]– Effective January 1, 1988 CISG replaced the

United Nations Commission on International Trade Law [UNCITRAL]

– It• Involves places of business in different nations• Is based on French Civil Code• Is approved by ~62 member nations, ~ 8

organizations

ALLW International

DISTRIBUTION AGREEMENTS:TYPES OF CONTRACTS

• There are many types of channel of distribution contracts including– Distributor / Dealer– Wholesaler / Retailer– Manufacturer’s representative

• Tying [franchises: full line purchases]

ALLW International

• – It can invalidate some [or all] of the contract.– It will likely affect all of the following.

• Imports

• Exports

• Types of business ownership and entities by foreign nationals and corporations

• Maximum ownership per cent

• Board of Director composition

• Methods of conducting business

• Packaging and labeling

• …


ALLW International

DISTRIBUTION AGREEMENTS:PARTIES AND APPOINTMENT

• Parties must include full legal names and addresses.

• • Territory• Product / Service Offering• Limits• Term• Termination• The Reseller will usually get the benefit of the doubt if

you are not very specific with the appointment items.

ALLW International

DISTRIBUTION AGREEMENTS:THE TERRITORY

• A detailed description of the “territory” [geographic, product line, channel, account(s) or other] to which the agreement applies. This should include any logical extensions like new products or new programs. It may also address expansion and/or contraction of the territory.

•

• What are the rights of the exporter to add resellers of other types in the defined territory?

ALLW International

DISTRIBUTION AGREEMENTS:EXCLUSIVITY

• Some statement is virtually required about the territory and exclusivity.

– Indonesia allows only one distributor.• So what do you do?

– Some countries imply exclusivity unless the contract specifies differently.

– In some countries, exclusivity is not allowed.

ALLW International

DISTRIBUTION AGREEMENTS:EXCLUSIVITY

• Exclusivity demands– Loyalty

• No competitive products may be purchased• Limited specified competitive products may be

purchased• Conditions

– Performance• Continually better

–

ALLW International

DISTRIBUTION AGREEMENTS:STATUS OF THE RESELLER

•

• Beware of the reseller being an —this is very sensitive on a country-by-country basis—most are not. In general, the only right to bind your company should be with your express written approval.

ALLW International

DISTRIBUTION AGREEMENTS:PRODUCT / SERVICE OFFERING• Products and / or Services

– All, extensive, or limited product accessibility– Supplier’s rights– Reseller’s rights

– Distributors, dealers, wholesalers, retailers, jobbers,

– Various types of agents, brokers, representatives, …

ALLW International


• – The part of an agreement or contract that

specifies what each party will do.• Duties of the Reseller

– Are there any reporting obligations? Be specific and show examples.

– There should be a provision in the contract that the reseller and its employees know about and will comply with all requirements of the Foreign Corrupt Practices Act [FCPA] and other applicable U.S. laws.

– The reseller and its employees will comply with the laws of all countries where they will conduct business on behalf of your company. Why?

.

ALLW International

DISTRIBUTION AGREEMENTS:PRICES AND TERMS

• PRICES– What? How long are they good? How can they be

revised?–

–

– Payment terms• Where? When? How?

–

ALLW International


• PRICE ADJUSTMENT CLAUSE

The part of the contract that allows prices to be adjusted based on some point in time,

event, or other condition that has been met.

ALLW International


• Duration, Terms, and Conditions of Sale– What is the initial duration of the contract and how

can it be extended in time?

–

– If there are any payments, commissions, or other financial amounts due the reseller enclose specific details. Note: some countries prohibit payment to foreign bank accounts or other indirect methods.

ALLW International

DISTRIBUTION AGREEMENTS:BASIC REQUIREMENTS

• TRANSACTIONS– Processes

• Ordering • Shipping

– Responsibilities of the parties– Taxes, government filings or approvals

• Who is responsible?

ALLW International


• PERFORMANCE CLAUSE– This contract section specifies certain actions

must be accomplished [sometimes in a certain manner] to fulfill the contract. It is generally a condition of continuation or for renewal of the agreement.

– Performance requirements• Initial goals• Subsequent targets• Remedial measures

ALLW International


• – where Buyer is provided assurances Seller

will repurchase slowly moving or dead [non-moving] inventory using some predetermined formula.

–

ALLW International


• INTELLECTUAL PROPERTY RIGHTS– You own the intellectual property rights and

must make sure they are protected.• Copyrights, patents, trademarks [brands and

marks], trade secrets

– This goes to a broader topic of licenses, approvals, and registrations and who must hold them in a country. Generally speaking, you want them to be your property [for lack of a better word] but want the reseller to file for you.

ALLW International


• COMPLIANCE– All agreements virtually must include the

agreement to comply with U.S. laws and regulations. At a minimum that would include all of the following.

• Federal Corrupt Practices Act [FCPA]• International Anti-Bribery Act of 1998• Export and import laws and regulations

ALLW International

DISTRIBUTION AGREEMENTS:TERMINATION

• TERMINATION CLAUSE– A legal clause that specifies duties and

obligations [if any] of each party at once a contract is concluded or ended.

– Options• With or without cause• Special circumstances

ALLW International


• TERMINATION– Varies greatly by country

• Belgium = normal costs + goodwill

• “Agent” – acting on behalf of the company [usually binds the company]

• “Distributor” – acting independently with the right to promote and sell the company’s products

ALLW International


• BASIC REQUIREMENTS

– See the cost of enforcing contracts [World Bank]

– Post-termination rights

– Dispute resolution• • •

ALLW International

ALLW International



4 – UNDERSTANDING AND MANA

ALAN L. WHITEBREAD

ALLW International

INTERNATIONAL DISTRIBUTION

• Channel Structure

• Distribution Patterns

• Types of Resellers

• Channel Selection

• Channel Relationships

ALLW International

CHANNEL STRUCTURE

PRODUCERS

AND

PROVIDERS

CONSUMERS

CHANNELS PROVIDE UTILITY OF PLACE, TIME, POSSESSION, & INFORMATION

ALLW International

CHANNEL STRUCTURE: WHOLESALING INTERMEDIARIES

Distributors - WholesalersDealers - RetailersExporterExport Trading Company [possibly state controlled]

AgentBrokerExport BrokerExport Management CompanyManufacturer’s Rep.Freelance Sales Person

-Independently owned

-Never take Title to Goods-Help negotiate business

arrangements-Be careful of payments !

-Take Title to Goods

-Independently owned-Distributors / Dealers

-Fairly standard arrangements

There are two basic types of intermediaries. Merchant wholesalers or resellers that carry inventory and representatives [sales agents] that are extensions of your sales forces.

ALLW International

CHANNEL STRATEGY:VERTICAL MARKETING SYSTEMS [VMS]

CORPORATECommon Ownership at Different Channel Levels

CONTRACTURALContractual Agreements Among Channel Members

ADMINISTEREDLeadership is Assumed by One or a Few Dominant Members; Contracts are not common

ALLW International

CHANNEL STRATEGY:VERTICAL MARKETING SYSTEMS [VMS]

Corporate

Subsidiaryor JV

Corporate

Subsidiaryor JV

Contractual


Contractual


Administered

No agreement

Administered

No agreement

International Vertical Marketing Systems [VMS]

Degree ofDirect

Control

Degree ofDirect

ControlMore Less

International channels of distribution may use any possible combination of the above systems. There is frequently significant region-to-region variation and sometimes major country-to-country differences. Each business must build the best combination for their needs.

ALLW International

CHANNEL STRATEGY

• Channel strategy describes the approach to the target markets and/or target market segments. The following are some of the items to consider when creating your channel strategy.– Market share / Market coverage [density of distribution]– Channel [Distribution] strategy– Channel roles, expectations, and controls– Others

• Presence and continuity• Channel alignment, control, length, and leadership• Distribution and channel logistics• Profitability

ALLW International

CHANNEL STRATEGY

• To build good channels of distribution one needs to understand the buying choices and preferences of every channel level.– For example, what choices do you have for

where to purchase a digital camera?

ALLW International

CHANNEL STRATEGY

• Use the market segments to determine which sets of channels of distribution may be the optimum one.– One often finds that channel sets are not

optimized.– This requires significant discussion with

existing channel members.

• Build a new channel of distribution– Risky and expensive– Consider an acquisition

ALLW International

CHANNEL STRATEGY:DISTRIBUTION INTENSITY

INTENSIVEFrito-Lay:

we need to have potato chips available everywhere.

EXCLUSIVEJaguar:

we need a single strong dealer in every territory.Be careful – successful country exclusives are quite

rare!

SELECTIVEPanasonic:

we need to select technically competent resellers.

ALLW International

CHANNEL MAP: Understanding the channel flow

• A channel map provides a picture of the flow of goods and/or services through the various functional channel members.

• It is a great tool for explaining your system, or system changes and why they are needed. It is especially good for explaining changes or new channels to your sales organizations.

ALLW International

B2B [INDUSTRIAL] CHANNEL MAP:Simple direct distribution

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

ALLW International

B2B [INDUSTRIAL] CHANNEL MAP:Simple indirect distribution

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

Many Types of Industrial Distributors [See NAICS]

May Resell to Many Types of Industrial Dealers

ALLW International

CONSUMER CHANNEL MAP:Simple complex distribution

Manufacturer’sInternet Site

Wholesaler

Manufacturer

CONSUMERS

MassMerchandiser’s

Internet Site

Retail Store

Indirect distributionDirect distribution

ALLW International

Domestic Mfgs.Foreign Mfgs. + subs.

Wholesalers (also V. Large End-Usersmajor importers) (auto assembly, …)

53% of consumption

Distributors(11,000) brands

Retailers or Dealers(20,000)

Major End-Users(few in number)

Sm. & Med. End-Users(???)

Copyright A. Whitebread 3/1/98, updated 12/1/00

1

3

4

2

Steps [arrows] are the number of vertical lines between levels. It is possible to have paths to the market with different numbers of steps and levels.

Levels [entities] are the number of types of entities at various functional levels.

1

2

3

4

5

CHANNEL MAP:STEPS AND LEVELS

3

By reducing the number of steps and levels you may lower consumer cost.

ALLW International

• Distribution in Japan is very different from that in the U.S. because it has not evolved as rapidly. A typical example would include the following.– High density middlemen

• There is a usual average of 5-7 levels of distribution between the manufacturer and consumer.

– High level of channel control• Market access is restricted by national law.

– Business philosophy• Full employment, life long employment [changing]

– Large-Scale retail store law• Restricts construction of types of stores

CHANNEL MAP:COMPLEX DISTRIBUTION

ALLW International

Automobile makers affiliated parts firms

Independent parts firms

Repair parts firms

Automobile makers

1st-level Wholesalers

Special agents

Dealers

Sub-dealers

Cooperatives 2nd-levelWholesalers

Small

Retailers

Large users

Gas Stations

Automobile Repair Shops

Small and Medium Size End users

1

2

3


This complex channel example has a lot of conflicts. This type of conflict where one level is bypassing another one to make a sale is called disintermediation. One way to improve it would be for the independent parts firms to restructure their channels to look like the next slide.

This is a lateral relationship and is frequently a

problem!

ALLW International


Independent parts firms unbranded

Automobile makers brand

1st=level Wholesalers

Dealers

Sub-dealers

2nd-levelWholesalers

Small

Retailers

Large users

Gas Stations

Automobile Repair Shops

Small and Medium Size End users

Independent parts firms brand

This is much less complex and much more manageable. It could be done by having clearly defined roles and responsibilities , territory definitions, and structured terms and conditions of sale. There are still some issues. But you should have much less channel conflict and more control over the channel members.

ALLW International

CHANNEL ISSUE:SELECTING CHANNEL MEMBERS• SCREENING AND SELECTING CHANNEL

MEMBERS: CRITERIA – Must fit the customer profile [characteristics] – Meet minimum qualifications – Use and acceptable sales style– Possess product and market segment

knowledge– Possess industry experience – The product[s] will fit with existing product lines– They are willing and able to perform all specified

channel role[s]

ALLW International

CHANNEL ISSUE:SELECTING CHANNEL MEMBERS• SCREENING AND SELECTING CHANNEL

MEMBERS: CRITERIA [continued] – Must be a team player– Sales strategy: existing and potential fit– Make some sales calls with their people to verify

sales skills– Administrative / management fit– Management orientation [long vs. short] and

chemistry– Risk assessment– Check references [industry, suppliers]

ALLW International

PROACTIVE CHANNEL STRATEGIES

• Product differentiation– Exclusive features for appeal to target markets

• Strategic pricing– Larger price differentials, more exploitation

• Intermediary development– Give intermediaries less incentive to cheat

• Marketing information systems– Better unit tracking to identify sources of leaks

ALLW International

TYPES OF CHANNEL PROMOTIONS

• FREE GOODS• CONSIGNMENT - manufacturer financing of

reseller inventory• CONTESTS - for reseller and sometimes their

sales people• COOPERATIVE ADVERTISING ALLOWANCES• RESELLER LISTING - reseller listed in

manufacturer’s ad[s]• DISPLAYS AND/OR DISPLAY ALLOWANCE• TERMS OR INVENTORY FINANCING• SALES PERSONNEL PROMOTIONS

ALLW International

CHANNEL ISSUE:POWER & DIFFERENTIAL ADVANTAGE

• –

• DIFFERENTIAL ADVANTAGE or SUSTAINABLE COMPETITVE ADVANTAGE CAN BE ANY OF THE FOLLOWING.– Physical / experiential– Psychological [communication / perception]– Purchase environment– Total cost including price and terms of sale– Post-purchase satisfaction [cognitive dissonance]

ALLW International

CHANNEL ISSUE:

• – For products purchased and shipped direct to

U.S, resellers are considered domestic sales, even if ultimately destined for export.

– The U.S. Reseller is responsible as the USPPI when forwarding product to any foreign destination.

– This applies to shipments to any• • • •

ALLW International

• A source of supply--a wholesaler usually in another country.

• Low barriers to movement from market to market—shipping costs, tariffs, quotas, …

• A significant price differential—pricing policies of producers, exchange rates, acceptable margins.

• Manufacturer has not cleanly structured its channels of distribution.

CHANNEL ISSUE:GRAY MARKETS

ALLW International

• • Channel members offering unauthorized lower prices

in another country.

50 Euros

COUNTRY A Manufacturer

Dealer’s New Price to Customers is 66 Euros

55 EurosManufacturer

Price to Dealer 80 Euros

CHANNEL ISSUE: CHANNEL PRICING

COUNTRY B

Master Distributor with a low contract price.

ALLW International

CHANNEL ISSUE: TRANSFER PRICING

• The price paid by another part of the organization when the product crosses a national border. There are three tests to meet.

– •

–

–

ALLW International

Standard cost Cost plus Marginal cost

LANDED COST: Goods, transportation, & insurance

10.00 12.14 9.29

Tariff (complete)

(18%)

1.80 2.19 1.67

TLC (complete) 11.80 14.33 10.96

Tariff (parts)

(6%)

0.60 0.73 0.56

TLC (parts) 10.60 12.87 9.85

TLC Difference -1.20 -1.46 -1.11

CHANNEL ISSUE: TRANSFER PRICE CALCULATIONS

ALLW International

CHANNEL ISSUE: U.S. LAWS APPLY WORLD-WIDE•

–

• Anti-boycott Laws– Cuba …

•

• –

ALLW International

FOREIGN CORRUPT PRACTICES ACT [FCPA] - 1977

• Prohibits American companies from making payments [anything of value] to foreign officials knowing some or all of the funds will be used for the purpose of obtaining, keeping, or directing business [to themselves or an affiliated party] and it applies to all

• Employees and Agents• Distributors• Consultants• Contractors

For current information see U. S. Department of Justice web site.

ALLW International

FCPA - DETAILS

• Also applies to foreign customers selling to a government.

• Any attempt to bribe is illegal.

• BEWARE OF ANYONE THAT– does not want to keep records or has poor records, or– is an agent and a government official, or– has other third parties involved in the transaction [especially the

payments].

ALLW International

FCPA UPDATE• The FCPA was amended by the International Anti-Bribery Act of

1998 to implement the anti-bribery conventions of the Organization for Economic Cooperation and Development [OECD] Convention on Combating Bribery of Foreign Officials in International Business Transactions.

• The Act expands the FCPA's coverage to include all foreign persons who commit an act in furtherance of a foreign bribe while in the U.S.

• See the U.S. Department of Justice web site for more details.

ALLW International

ALLW International



5 – INTERNATIONAL CHANNELS AND CHANNEL CONTRACTS

ALAN L. WHITEBREAD

ALLW International

• International channels of distribution may be longer and thus require a larger number of intermediaries [wholesalers, distributors, retailers, and others].

•

•

INTERNATIONAL CHANNEL CHARACTERISTICS

ALLW International

INTERNATIONAL COMMERCE:INCOTERMS 2010

• To successfully conduct business around the world a company needs to gain a good understanding of INCOTERMS 2010, documentation requirements, key channel issues in international business, and a host of other items dealing with international marketing.

ALLW International

• 11 terms, 8 are common• The 3 “D” terms should be used only with

experienced expert assistance!• This is usually part of the Buyer – Seller

agreement• To include in the Buyer – Seller agreement be

sure to state “INCOTERMS 2010” in the contract.

• INCOTERMS 2010 is recognized by most nations

• It is updated every 10 years .

INTERNATIONAL COMMERCE:INCOTERMS 2010

ALLW International

•

– – – –

INTERNATIONAL COMMERCE:INCOTERMS 2010 – 4 CATEGORIES

ALLW International

• Ex Works (EXW)

• Free Carrier, Named Place (FCA)– Seller's Premises or Named Place of Origin (FCA)

• Free Alongside Ship, Named Port (FAS) • Free on Board, Named Port (FOB)

• Cost and Freight, Port of Destination (CFR) • Cost, Insurance and Freight, Port of Destination (CIF) • Carriage Paid To, Named Place of Destination (CPT) • Carriage and Insurance Paid To, Named Place of Destination (CIP)

• Delivered at Terminal (DAT) • Delivered at Place (DAP) • Delivered Duty Paid, Named Place of Destination (DDP)

INTERNATIONAL COMMERCE:INCOTERMS 2010 – 4 CATEGORIES

ALLW International

INCOTERMS

• INCOTERMS do not– – – – Specify details of transfer, transport, and/or

delivery

•

ALLW International

EXPORT INTERMEDIARIES:

• At the beginning of the sales cycle they can provide the exporter with guidance for– INCOTERMS– Freight costs and port charges– Insurance costs– Freight forwarder’s fees– And if applicable the cost of special documents and

fees

• Once the sales is made, they prepare all the documents necessary to get the shipment to your customer with minimal [if any] issues.

ALLW International

EXPORT INTERMEDIARIES:CUSTOMS BROKER

• A customs broker can do everything a freight forwarder can do and more.– “… a Customs Broker prepares and files the necessary Customs

entries, arranges for the payment of duties found due, takes steps to effect the release of the goods in Customs custody, and represents their clients in custody matters. ” http://www.itds.treas.gov/broker.html

•

ALLW International

INTERNATIONAL DOCUMENTATION

• The only acceptable way to complete international documentation is to dot every “i” and cross every “t”. Many items are subject to proofreaders that charge fees to correct discrepancies.

• Mistakes cost time, money, and customer unhappiness.

ALLW International


• Sarbanes-Oxley requires publicly traded companies and their vendors to keep import and export documents for up to

• GUIDELINES: – [1] Keep all transaction records and correspondence.

This will help you if there is ever an issue about an illegal or questionable diversion, re-export, or transshipment of your product[s].

– [2]

ALLW International


• – [1] is a receipt for the items, – [2] provides a detailed content of the

shipment, and – [3] provides title to the items under certain

circumstances.

• – Is a receipt for goods, – evidence of the contract of carriage, and – a document of title to the goods.

ALLW International


• – An offer to sell at the prices, terms, and

conditions listed on the document.– The Buyer needs this invoice to prove intent

to purchase and arrange payment by Letter of Credit [L/C] or similar financial instrument.

–

ALLW International


• – For payment. Layout and content may be specified by

importing country.– The Commercial Invoice looks like the Pro Forma invoice but

acts as a Bill for Goods from Seller to Buyer. – The Buyer needs this invoice to prove ownership and arrange

payment. Customs examines the Commercial Invoice at the time of delivery and may use it to assess import tariffs based on the transaction value. It is signed.

– Check with the U.S. Department of Commerce for specific requirements [especially if you are shipping to a country for the first time].

– Be sure to include a statement about compliance with U.S. laws and regulations on this document.

–

ALLW International

• Commercial invoice trap example – Your customer asks you to provide two different

Commercial Invoices. One is to go with the shipment and mail the other one with a smaller value to the customer.

• WARNING: – The customer knows the mail copy will arrive

before the shipment. So they can use the mailed copy to pay less duty.

– This is illegal. Never provide invoices at different amounts for the same goods!


ALLW International


• Certificate of Origin [simple]– A simple attest that the product was made in that country.– It is issued by the local Chamber of Commerce.

•

ALLW International


• – Filed through the Automated Export System

[AESDirect]– Required for every shipment of $2,500 or more.– Identifies types and quantities of product being

shipped.– Used by the Bureau of the census for statistics.– Always include the following statement.

• “The commodities, technology or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. laws is prohibited.”

ALLW International


• – “No license required” [NLR]–

• Required for specific goods [ECCN] and/or specific destinations.• Contact the BIS Exporter Counseling Staff at U.S. Department of

Commerce for details.

ALLW International


• Export Packing List – This document itemizes your product in imperial and

metric weights, unit of measure, quantity of each package, and how it is carried; i.e., box, crate, drum, etc.

– Units of measure on all international documents should always be the same. Never mix terms as that may delay the shipment and cost to correct it.

• – It must be

• negotiable in the same currency as the transaction and • specifically identify the insurance coverage concerning all risks of

the credit it covers.

ALLW International

• WAIT TIMES– For a complete set of order documents– Inserting the order into the production

schedule and producing it

• EXTENDED TRANSPORTATION TIMES– Ports– Ship arrival, loading, transit, and unloading

INTERNATIONAL CYCLES:ARE AFFECTED BY

ALLW International

• VERIFICATIONS AND INSPECTIONS– Customs– Other inspections required by the importing

country or customer

• POLITICS– Fall, 2005– 80,000,000 clothing items were impounded at

EU entry points because import limits were exceeded.

INTERNATIONAL CYCLES:ARE AFFECTED BY

ALLW International

For additional information see http://www.cbp.gov/xp/cgov/border_security/international_activities/csi/

Container Security Initiative [CSI]Participating

Port

Manifest goes to Homeland Security

24 hours before loading.

U.S. Customs and Border Protection at

participatingport

verify information and provide an OK to

load.

At sea, the manifest is sent to the U.S.

Coast Guard.≥96 hours before

entering the U.S. the ship identifies itself

and all crewmembers

Coast Guard allows entry or intercepts ship far offshore

Coast Guard inspects the ship.

Customs verifies only U.S. bound containers are

offloaded.

Container is loaded onto a truck which passes through at least one detection

device.

INTERNATIONAL CYCLES:AN OCEAN SHIPMENT TO THE U.S.

ALLW International

• Dollar cost vs. Total cost• Distance• Density

– Cube out or weigh out?• Handling

– Refrigeration, cranes, …• Liability

– Susceptibility to damage, perishability, theft, HAZMAT, value per pound

TRANSPORTATION:COST FACTORS

ALLW International

• Dry freight– General purpose container

• High cube– 9’6” high vs. standard 8’6” for additional volume

• Reefer or insulated or refrigerated– For cooling, freezing, or heating of foods or

chemicals

TRANSPORTATION:CONTAINER TYPES

ALLW International

• • There is a fixed minimum liability.

– The air carrier liability is a fixed minimum of $20 per kilogram [$9.07 per U.S. pound]. The shipper must declare and pay for the higher value to receive additional insurance protection.

– Williams Dental v. Air Express: The plaintiff [Williams Dental] declared a higher value of the shipment and is entitled to collect.

TRANSPORTATION:

ALLW International

TRANSPORTATION:

• – Sets a $75,000 death or personal injury limit

[expressed in national currency equivalents of an amount of gold].

• Awards may be exceeded if the airline is found to be “reckless”.

ALLW International

• All motor carriage in Europe and into Asia is subject to the Convention on the Contract for International Carriage of Goods by Road [CMR] Convention.

• The CMR establishes documentation requirements for the motor carrier Bill of Lading.

• Liability is limited to 8.33 Special Drawing Rights [SDRs] per kilogram [~ $5 per U.S. pound].

TRANSPORTATION:MOTOR TRANSPORT

ALLW International

• – Currently 20 nations and 44 ports including all 20 of the

world’s largest ports.• Read some articles of interest on http://www.cbp.org or details about

the CSI program.

• Review the slide presentation on http://www.cbp.org .

– Identify and pre-screen high-risk U.S. inbound containers at the port of departure or the U.S. port for

• physical examination or • non-intrusive inspectional [NII] equipment [gamma-ray

or X-ray imaging] and radiation detection equipment

FEDERAL SECURITY DEVELOPMENTS

ALLW International

• U.S. Customs Trade Partnerships Against Terrorism [C-TPAT]– Provide the highest level of security through close

cooperation with the owners of the supply chain, importers, carriers, brokers, warehouse operators and manufacturers through a detailed self-assessment process.

–

– For C-TPAT details see http://www.cbp.org .


ALLW International

• – All aircraft entering or operating within the

U.S. with a take-off weight of 12,500 pounds or more must

• provide for screening of all property, cargo, carry-on and checked baggage, and other articles, that will be carried aboard a passenger aircraft operated by a domestic or foreign air carrier; and

• establish a system to screen, inspect, or otherwise ensure the security of freight that is to be transported in all-cargo aircraft as soon as practicable.


ALLW International

• Liability determines the dollar value of the claim.

• The claim is the process for recovering compensation for a loss.

INSURANCE:LIABILITY VERSUS CLAIM

ALLW International

• MARINE / CARGO INSURANCE – The shipper may obtain insurance policies

tailored to their specific needs. The standard policy provides only some protection!

– The most common insurance is an "all-risk“ policy. Coverage begins when transportation commences and continues until the goods are delivered at the destination.

INSURANCE:TYPES

ALLW International

• –

• All risks except standard war, strike, and other clauses. • The next slide contains the items that are usually not

covered by an all-risk policy.• Make sure you understand what is not covered by your

particular policy!

– • Covers a partial or total loss by sea.

– • Covers a total loss only!

INSURANCE:TYPES

ALLW International

• A standard all-risk marine insurance policy usually does not cover the following.– Delay– Vice, willful misconduct, or other illegal activity– War– Strikes, riots, civil disobedience, terrorism– Use of atomic or nuclear weapon– Ordinary loss or wear– Insufficient or unsuitable packaging– Unseaworthy vessel at the time of loading– Insolvency or default of the vessel owners / operators

– You can always get additional coverage through attaching riders to you policy. See your insurance carrier.

INSURANCE:TYPES

ALLW International CHANNELS OF DISTRIBUTION B2C Customer wants detergent and goes to Supermarket...

Documents

Transcript of ALLW International CHANNELS OF DISTRIBUTION B2C Customer wants detergent and goes to Supermarket...