International Marketing · International marketing channels •Marketing channel managements...

International

Marketing

© Daniel W. Baack, Barbara

Czarnecka & Donald Baack

Part Five

International place or

distribution

Chapter 13

International marketing

channel management

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?

4

Learning objective #1

• What are the essential elements of an international

marketing channel?

6

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.

7

International marketing channels

– 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.

8


• What key marketing channel decisions must be made in

order to efficiently and effectively reach customers in other

countries?

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International marketing channel decisions

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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.

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• Intensive distribution is an 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.

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• 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.

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• 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.

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Selection of distribution channels

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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.

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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.

17

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.

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Indirect marketing

• Merchant middlemen assume title and ownership of the

products.

– An import jobber 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.

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International trading channels

• 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.

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International trading channels

• 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.

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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.

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Types of facilitating agents

23

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.

24

Channel length

• Products that are intensively distributed tend to have longer

international marketing channels.

• Exclusively distributed products often have shorter

channels.

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Selection factors

26

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.

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Existing channels

• 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.

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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.

29


• How can the marketing team successfully manage

international channels of distribution?

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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

– establishing international channel strategies,

– selecting intermediary arrangements,

– making channel arrangements and choosing channel

partners, and

– managing channel power.

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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.

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– 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.

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• 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.

34

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.

35


• 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.

36


• 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.

37

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.

38

Gray markets

– 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.

39

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.

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– International contractual arrangements also specify legal

elements of the relationship, including the country with

jurisdiction over disputes.

• 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.

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• 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.

42

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.

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Power bases in international marketing channels

44

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.

45

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.

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Stages in the negotiation process

47

Cultural influences on negotiations

• Cultural variables influence international negotiations in

many ways:

– interests, behaviors, and desired outcomes;

– relationships, communication, and perceptions;

– negotiation context;

– Hofstede’s dimensions;

– thought processes; and

– the overall negotiation culture.

48


• 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.

49


• 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.

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Cultural influences on negotiation

• 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.

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• 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.

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• 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.

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The overall negotiation culture

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• What international marketing channel functions do various

intermediaries perform?

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International marketing channel functions

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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.

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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.

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The sorting function

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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.

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Secure payment and extend credit

• 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.

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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.

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• What are the 5 Cs of selecting channel members?

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International marketing channel structure

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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.

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Cost

• 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.

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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.

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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.

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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.

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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.

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Control

– 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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International Marketing · International marketing channels •Marketing channel managements...

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