UNIT – I

Global marketing

Definition: Globalization is the shift towards more integrated and interdependent world economy. Globalization has
two main components the globalization of markets and the globalization of production. ‘’Charles hill’’

Scope of globalization:

1) Human resource
2) Growing entrepreneurship
3) Growing domestic market
4) Expanding market
5) Transnatonalization of the world economy
6) Competition
7) Economic liberalization

Human resource: Globalization facilities the availability of human resource to countries that are facing labor shortage
.country’ like India have availability of labor resources which in the right environment.
Growing entrepreneurship: In the recent years there has been a consideration growth in the number of new end
dynamic entrepreneurs who could make significant contribution to the globalization of international business.
Growing domestic market: The growing domestic market enables the companies in various consultative their
position and gain more strength to make entry into foreign markets
Expanding market: The growing population and disposable income and expanding international market provide more
business opportunities to various manufactures.
Transnationalisation of the world economy: It is due to the growing and interdependence and globalization of
markets.
Competition: The growing competition both from within the country and abroad provokes many companies to look to
foreign markets.
Economic liberalization: The economic liberalization such as relicensing on industries, removal of trade
restrictions ,privatization would encourage globalization of business.

Trends in Globalization

There are several major trends pertaining to globalization, which consist of: demographic, scientific, governance,
economic interdependence.

 Population trends - Decreasing population in developed countries, while increasing population in developing
countries, and increased life expectancy

 Science and technology - Includes the Internet and other computer components as well as GPS, genetically
modified food, etc.

 Increasing integration and interdependence - Includes all areas of economic life as well as an increasing
exchange of products and services across national borders through trade

 Governance - How national and international laws govern the economic activity and transnational institutions.

Types of Foreign Exchange Market

Broadly, the foreign exchange market is classified into two categories on the basis of the nature of transactions. These
are:
 1. Spot Marketing

2. Forward Marketing

1. Spot Market: A spot market is the immediate delivery market, representing that segment of the foreign
exchange market wherein the transactions (sale and purchase) of currency are settled within two days of the
deal. That is, when the seller and buyer close their deal for currency within two days of the deal, is called as
Spot Transaction. Thus, a spot market constitutes the spot sale and purchase of foreign exchange. The rate at which
the transaction is settled is called a Spot Exchange Rate. It is the prevailing exchange rate in the market.

2. Forward Market: The forward exchange market refers to the transactions – sale and purchase of foreign
exchange at some specified date in the future, usually after 90 days of the deal. That is, when the buyer and
seller enter into a contract for the sale and purchase of foreign currency after 90 days of the deal at a fixed
exchange rate agreed upon now, is called a Forward Transaction.

Thus, the forward market constitutes the forward transactions in foreign exchange. The exchange rate at
which the buyers or sellers settle the transactions in the forward market is called a Forward Exchange Rate.

Thus, the spot and forward markets are the important kinds of foreign exchange market that often helps in stabilizing
the foreign exchange rate.

TARRIF AND NON TARRIF BARRIERS:

Trade barriers are restrictions imposed on movement of goods between countries. Trade barriers are imposed
not only on imports but also exports

Tariff Barriers:

It is a customs duty or a tax on products that move across borders. The most important of tariff barriers is
the customs duty imposed by the importing country.
1. Specific duty
2. Combined duty
3. Sliding scale duty
4. Protective tariff

Non-tariff Barriers:

A Non-tariff barriers is any barrier other than a tariff that raises on obstacles to free flow of goods in overseas
market. It does not affect the price of the imported goods, but only the quantity of imports.
1. Quota System
2. Product standards
3. Product labeling
4. Packaging requirements
5. State trading
6. Other non-tariff barriers(like health and safety)

STAGES OF GLOBAL MARKETING:

Stage 1: Local market

Local marketing—also referred to as local store marketing or neighborhood marketing—specifically
targets the community around a physical store or restaurant. Promotional messages are directed to the local
population, rather than the mass market In practice, local marketing can take several forms. Many local businesses
directly contact consumers through mail, in-town events, local team sponsorships, or advertisements in the town
paper. Hoping to not only attract new customers but to drive repeat business, a successful local marketing push
allows a store to stake out a significant presence in local consumers’ mental maps of their communities.
Stage 2: Regional market
Regional marketing as the name suggest focuses on all sorts of marketing corresponding to a particular
region or place. This then involves the use of all the basic tactics and techniques used for any sort of successful
marketing for the promotion of a particular company's services or products. Regional Marketing has now been
considered to be one of the useful aspects of marketing. Regional marketing is one of those marketing techniques
which are emerging yet again to mark their impact.

Stage3: National Market:

The domestic marketplace for goods and services operating within the borders of and governed by the
regulations of a particular country. The health of its home country's national market in terms of the supply and demand
for the product that a business offers can be a strong determinant of its success.

Stage4: International Market:

International marketing is simply the application of marketing principles to more than one country.
However, there is a crossover between what is commonly expressed as international marketing and global marketing,
which is a similar term. For the purposes of this lesson on international marketing and those that follow it,
international marketing and global marketing are interchangeable.

Stage5: Multinational Market:

Multinational marketing is the process of advertising and selling products and services to customers around the
world. It is sometimes called global marketing because it allows companies, even smaller-sized ones, to
expand into new markets via the Internet, international distribution and competitive pricing. Four key strategies
underlie a business' approach to multinational marketing.

Stage6: Global Market:

Global marketing is “marketing on a worldwide scale reconciling or taking commercial advantage of
global operational differences, similarities and opportunities in order to meet global objectives".

FACTORS TO CONSIDER FOR INTERNATIONAL MARKETING

International marketing is very different from domestic marketing. There are a whole host of issues when marketing
internationally that a business does not normally have to deal with when marketing in their own country. The
following are some key things to consider when making any international marketing decision.

Cultural Factors:
A. Language

Language, more specifically translation, needs to be paid very close attention to when doing international marketing.
There have been some embarrassing mistakes in international advertising that most likely did not help companies sell
their product.
B. Taste

Entering international markets can be very difficult for some companies because of some countries’ eating habits.
McDonald’s had to totally make over its image when it came to marketing itself in a country like India that sees beef
consumption as being ‘off limits’; they ended up being successful there by introducing vegetarian and regional choices
to the menu selection.
C. Regional Values

Many times a country to which you would like to sell a product has extreme regional differences that must be
accounted for when marketing. A perfect example of this is Canada; they have large French speaking populations
around Montreal and Quebec that are culturally much different than the English speaking communities found
throughout the rest of the country.
D. Consumer Habits
Culture and personality combine to shape consumer behavior in every particular region of the world or country. When
you want to market a product to a foreign country you need to first determine whether it is an individualistic society
(free-thinking culture) or a collective society (the peer group has the most influence on buying decisions).
E. Age/Demographics

Age and other demographics play a key role in international marketing just as they do in domestic marketing;
companies have to pay very close attention to them. Your company is probably not going to want to market laptops to
senior citizens in a third world country where there is very little internet and where a large percentage of the citizens
over 60 are computer illiterate.

Economic Factors

A. Per Capita Income

Then again you don’t always need an overwhelming number of people in a certain income bracket in a foreign market
if your product is considered high end. Say your company sells luxury automobiles that are in the $60,000 – $80,000
range, maybe less than 1% of the people in a country such as Estonia can afford a car in that price range, but if that
group numbers 10,000 people and you think you can get 5000 to buy your product, that country is still relevant as far
as potential sales go.
B. Relevant Class Structure

When you are marketing your product or service internationally you must also take into consideration class structure
because it varies widely from country to country. Most countries have an upper, middle and lower class, but the
numbers of people in these classes can be significantly different from country to country.
C. Supply and Demand

Of course supply and demand will play a major role in trying to market your products anywhere in the world. These
days a company has to take a deeper look at potential markets than ever before because just about anything will sell if
you market it the right way and in the right place.
D. Financial Transactions and Banking

Considering how you will get paid for the products and services you market and sell internationally is important too.
In the more prosperous countries it is taken for granted that you can buy goods internationally and pay for them with
such things as credit cards, debit cards, online payment processors and cash transfer businesses, but that is clearly not
the case everywhere in the world. These types of financial realities will greatly impact your marketing strategy.
Political and Legal Factors

A. Laws

There are laws in some countries that will greatly affect your ability to do business in them or prohibit it altogether.
One such example is Thailand which has specific laws stating no foreign person or company can own more than 49%
of a business in Thailand, so you must be willing to take on a Thai partner in order to do business there. You must be
aware of laws like this if part of your product marketing strategy includes manufacturing or distributing your wares in
a foreign target market country.
B. Licensing and Permits

There is a chance that the only way you can do business in a foreign country is to give out an expensive permit or
license of another business in that country to manufacture and sell your product for you. Governments do these things
as a way of making sure a larger percentage of income from sales stays in the home country. An example of this is
Pepsi’s license to Heineken to bottle and sell Pepsi products in the Netherlands.
C. Taxes

Taxes are another way that governments can cash in on foreign businesses operating and selling products in their
country, so their citizens’ spending does not allow much money to leave the country. Taxes can and do impact your
ability to make a profit selling goods and services in a foreign country and will shape your international marketing
strategy because of that.
D. Fees

When you market your products for sale in a foreign country, you may be subject to pay certain fees for the right to do
that. These fees can be a one-time deal or recurring, and they can also be quite high in some circumstances if they
involve what might be considered luxury items.
E. Tariffs

Tariffs have long been used to balance trade between countries and to protect national companies from losing business
to foreign competitors. This can be a big factor when it comes to international trade and marketing your company’s
products or services for sale. An example of this is China’s 105.4% tariff on chicken that is shipped from the USA; it
is easy to see how a high tariff like this can push a country’s citizens toward buying domestically raised chicken.
F. Currency risks

There are always risks when doing business in the currency of a foreign country that you are marketing your product
or services to. If you have your money tied up in a foreign currency and economic events fall just right, your company
could stand to lose millions. From September 24, 2012 – October 2, 2012 Iran’s Rial dropped almost 60% from 24,600
for one US$ to 39,000 for one US$; these types of currency events can and do happen.
H. Stability

These days the stability of a country has to be considered very strongly before you market your product in a foreign
country.
 Wars: Wars can have a very large impact on your business in a foreign country. There were many businesses
and business customer bases that became extinct almost overnight when war broke out in Libya.
 Political Unrest: Political instability in a foreign country can affect your ability to market a product or service
to a foreign country too. If you were to invest in marketing products or services in a country such as Egypt
now, you would run the risk of losing your customer base if a war breaks out because of the current political
instability in the country.
Intangibles

A. Environmental

Environmental factors will play a role in international marketing and they can have both a positive and negative effect
on your international marketing strategy. If you manufacture a product that does not hold up well when constantly
subjected to periods of high heat, you might want to consider that carefully before marketing your heat sensitive
product internationally to such places as Saudi Arabia.
B. Regional Partnerships

Sometimes companies know it will be difficult to break into a foreign market without the help of other companies that
know the nuances of marketing a product to the people there well. This is why so many companies choose to partner
with other companies that are based out of the country whose market they are trying to get into.
C. Product Adaptation

While a “one size fits all” marketing strategy may work in a fairly homogenous country like the US, this same type of
strategy would most likely be a huge failure in countries like those in the Middle East that are separated by cultural,
historical and religious divides. Any prudent international marketing strategy needs to take things like this into
account.
 UNIT-2
Selection of foreign markets
MEANING:

Market Selection is the process of deciding which markets to invest in and pursuing. One of the major
criteria to be kept in mind while doing a market selection is the growth potential of the market i.e. what is the potential
for a company's revenue to grow by investing in a particular market.

The exporter has to make an important decision in respect of entry in overseas markets. The exporter needs
to follow a certain procedure in the selection of overseas markets. The market selection process is as follows:

1. Determine Export Marketing Objectives:

Before entry in overseas market, the exporter must list out export marketing objectives. The export marketing
objectives may be as follows:

• Increase in market share

• Building firm’s goodwill, etc.

2. Collection of Information:

The exporter must collect relevant information from the overseas markets. The information may be in respect of
the following:

• Demand for the product.

• Competition.

• Nature of consumers.

• Political situation.
 • Import regulations.

• Infrastructure facilities, etc.

3. Analysis of Information: The exporter has to analyze the collected information in respect of overseas
markets. Such analysis is required to shortlist the overseas markets. For instance, the exporter has to analyze the likes
and dislikes of the buyers, the purchasing power, buying pattern, etc.

4. Short Listing of Markets: After analysis of the overseas markets, the exporter must shortlist the markets.
The main objective of short listing is to arrive at a list of few markets/ countries, which promise good returns not only
in the short term but also from the long term point of view.

5. Detailed Investigation of Short Listed Markets: The exporter should undertake detailed investigation of
the short listed markets. The detailed investigation is in respect of competition, demand, consumers, government
policies, availability of intermediaries, etc. The exporter may even visit the short listed overseas markets to conduct
detailed investigation.

6. Selection of Markets: After detailed investigation of the short listed markets, the exporter would then
proceed to select the overseas markets. The exporter should eliminate such markets which are subject to high rate of
inflation, government instability, high trade barriers, and so on. The exporter may select only those markets or
countries, which would provide a good return investment not only in the short run but also from the long term point of
view.

7. Entry in Overseas Markets: The exporter then makes necessary arrangements to enter in the overseas
markets. He-may appoint the required sales people, and intermediaries. He should complete all other formalities
regarding the entry in overseas markets. He would then produce the goods as per the requirements of overseas buyers.

8. Follow-up: The exporter should undertake a review of the performance in the overseas markets. Such review
would enable the exporter to know which markets are performing well, and which ones are not. He would then find
out the reasons for the same, and if there are problems, he would try to resolve such problems, or exit from such
markets that do not provide good potential.

MODES OF ENTERING GLOBAL MARKETS:

Foreign market entry modes or participation strategies differ in the degree of risk they present, the control
and commitment of resources they require, and the return on investment they promise.

Exporting
Exporting is the process of selling of goods and services produced in one country to other countries.
There are two types of exporting: direct and indirect.
Direct Exports
Direct exports represent the most basic mode of exporting made by a (holding) company, capitalizing
on economies of scale in production concentrated in the home country and affording better control over distribution.
Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism. The main
characteristic of direct exports entry model is that there are no intermediaries.
Passive exports represent the treating and filling overseas orders like domestic orders.
Types
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local markets for an established
commission on sales. Provide support services to a manufacturer regarding local advertising, local sales
presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or
products such as production machinery, benefit the most from sales representation.

Importing distributors
 Importing distributors purchase product in their own right and resell it in their local markets to
wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that are carried in
inventory, such as toys, appliances, prepared food.
Advantages

 Control over selection of foreign markets and choice of foreign representative companies

 Good information feedback from target market, developing better relationships with the buyers

 Better protection of trademarks, patents, goodwill, and other intangible property

 Potentially greater sales, and therefore greater profit, than with indirect exporting.[7]
Disadvantages

 Higher start-up costs and higher risks as opposed to indirect exporting

 Requires higher investments of time, resources and personnel and also organizational changes

 Greater information requirements

 Longer time-to-market as opposed to indirect exporting.

Indirect exports
Indirect export is the process of exporting through domestically based export intermediaries. The exporter
has no control over its products in the foreign market.
Types
Export trading companies (ETCs)

These provide support services of the entire export process for one or more suppliers. Attractive to
suppliers that are not familiar with exporting as ETCs usually perform all the necessary work: locate overseas trading
partners, present the product, quote on specific enquiries, etc.

Export management companies (EMCs)

These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely
take on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade on
behalf of their suppliers as their export departments.
Export merchants
Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers
for resale overseas under their own brand names. The advantage of export merchants is promotion. One of the
disadvantages for using export merchants result in presence of identical products under different brand names and
pricing on the market, meaning that export merchant’s activities may hinder manufacturer’s exporting efforts.
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product requirements from
their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers. An opportunity here arises in
the fact that if the client likes the product it may become a trade representative. A potential disadvantage includes
supplier’s unawareness and lack of control over what a confirming house does with their product.

Nonconforming purchasing agents

These are similar to confirming houses with the exception that they do not pay the suppliers directly –
payments take place between a supplier/manufacturer and a foreign buyer.

Advantages
 Fast market access

 Concentration of resources towards production

 Little or no financial commitment as the clients' exports usually covers most expenses associated with
international sales.

 Low risk exists for companies who consider their domestic market to be more important and for companies
that are still developing their R&D, marketing, and sales strategies.

 Export management is outsourced, alleviating pressure from management team

 No direct handle of export processes.

Disadvantages

 Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting

 Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback affecting the
international success of the company.

 Potentially lower sales as compared to direct exporting (although low volume can be a key aspect of
successfully exporting directly). Export partners that incorrectly select a specific distributor/market may hinder a
firm's functional ability.
Companies that seriously consider international markets as a crucial part of their success would likely consider direct
exporting as the market entry tool. Indirect exporting is preferred by companies who would want to avoid financial
risk as a threat to their other goals.

Licensing
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to manufacture a
proprietor’s product for a fixed term in a specific market.
In this foreign market entry mode, a licensor in the home country makes limited rights or resources available to the
licensee in the host country. The rights or resources may include patents, trademarks, managerial skills, technology,
and others that can make it possible for the licensee to manufacture and sell in the host country a similar product to
the one the licensor has already been producing and selling in the home country without requiring the licensor to
open a new operation overseas. The licensor earnings usually take forms of one time payments, technical fees and
royalty payments usually calculated as a percentage of sales.
As in this mode of entry the transference of knowledge between the parental company and the licensee is strongly
present, the decision of making an international license agreement depend on the respect the host government show
for intellectual property and on the ability of the licensor to choose the right partners and avoid them to compete in
each other market. Licensing is a relatively flexible work agreement that can be customized to fit the needs and
interests of both, licensor and licensee.
Following are the main advantages and reasons to use an international licensing for expanding internationally:

 Obtain extra income for technical know-how and services

 Reach new markets not accessible by export from existing facilities

 Quickly expand without much risk and large capital investment

 Pave the way for future investments in the market

 Retain established markets closed by trade restrictions

 Political risk is minimized as the licensee is usually 100% locally owned

 Is highly attractive for companies that are new in international business.

On the other hand, international licensing is a foreign market entry mode that presents some disadvantages and reasons
why companies should not use it as:

 Lower income than in other entry modes

 Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality

 Risk of having the trademark and reputation ruined by an incompetent partner

 The foreign partner can also become a competitor by selling its production in places where the parental
company is already in.

Franchising
The franchising system can be defined as: "A system in which semi-independent business owners (franchisees) pay
fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to
sell its products or services, and often to use its business format and system."
Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader package of rights
and resources which usually includes: equipment, managerial systems, operation manual, initial trainings, site
approval and all the support necessary for the franchisee to run its business in the same way it is done by the
franchisor. In addition to that, while a licensing agreement involves things such as intellectual property, trade secrets
and others while in franchising it is limited to trademarks and operating know-how of the business.
Advantages of the international franchising mode:

 Low political risk

 Low cost

 Allows simultaneous expansion into different regions of the world

 Well selected partners bring financial investment as well as managerial capabilities to the operation.
Disadvantages of franchising to the franchisor:

 Maintaining control over franchisee may be difficult

 Conflicts with franchisee are likely, including legal disputes

 Preserving franchisor's image in the foreign market may be challenging

 Requires monitoring and evaluating performance of franchisees, and providing ongoing assistance

 Franchisees may take advantage of acquired knowledge and become competitors in the future

Turkey projects
A turnkey project refers to a project when clients pay contractors to design and construct new facilities and train
personnel. A turnkey project is a way for a foreign company to export its process and technology to other countries
by building a plant in that country. Industrial companies that specialize in complex production technologies normally
use turnkey projects as an entry strategy.
One of the major advantages of turnkey projects is the possibility for a company to establish a plant and earn profits in
a foreign country especially in which foreign direct investment opportunities are limited and lack of expertise in a
specific area exists.
Potential disadvantages of a turnkey project for a company include risk of revealing companies secrets to rivals, and
takeover of their plant by the host country. Entering a market with a turnkey project CAN prove that a company has
no long-term interest in the country which can become a disadvantage if the country proves to be the main market for
the output of the exported process.

Wholly owned subsidiaries (WOS)

A wholly owned subsidiary includes two types of strategies: Greenfield
investment and Acquisitions. Greenfield investment and acquisition include both advantages and disadvantages. To
decide which entry modes to use is depending on situations.
Greenfield investment is the establishment of a new wholly owned subsidiary. It is often complex and potentially
costly, but it is able to provide full control to the firm and has the most potential to provide above average return.
[18]
"Wholly owned subsidiaries and expatriate staff are preferred in service industries where close contact with end
customers and high levels of professional skills, specialized know how, and customization are required." [19] Greenfield
investment is more likely preferred where physical capital intensive plants are planned. [20] This strategy is attractive if
there are no competitors to buy or the transfer competitive advantages that consists of embedded competencies, skills,
routines, and culture.
Greenfield investment is high risk due to the costs of establishing a new business in a new country. [22] A firm may
need to acquire knowledge and expertise of the existing market by third parties, such consultant, competitors, or
business partners. This entry strategy takes much time due to the need of establishing new operations, distribution
networks, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new
market.
Acquisition has become a popular mode of entering foreign markets mainly due to its quick access . Acquisition
strategy offers the fastest, and the largest, initial international expansion of any of the alternative.
Acquisition has been increasing because it is a way to achieve greater market power. The market share usually is
affected by market power. Therefore, many multinational corporations apply acquisitions to achieve their greater
market power, which require buying a competitor, a supplier, a distributor, or a business in highly related industry to
allow exercise of a core competency and capture competitive advantage in the market.
Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition can be estimated
more easily and accurately. In overall, acquisition is attractive if there are well established firms already in operations
or competitors want to enter the region.
On the other hand, there are many disadvantages and problems in achieving acquisition success.

 Integrating two organizations can be quite difficult due to different organization cultures, control system, and
relationships. Integration is a complex issue, but it is one of the most important things for organizations.

 By applying acquisitions, some companies significantly increased their levels of debt which can have negative
effects on the firms because high debt may cause bankruptcy.

 Too much diversification may cause problems. Even when a firm is not too over diversified, a high level of
diversification can have a negative effect on the firm in the long-term performance due to a lack of
management of diversification.

Difference between international strategy and global strategy:

However, some industries benefit more from globalization than do others, and some nations have a
comparative advantage over other nations in certain industries. To create a successful global strategy, managers first
must understand the nature of global industries and the dynamics of global competition, international strategy (i.e.
internationally scattered subsidiaries act independently and operate as if they were local companies, with minimum
coordination from the parent company) and global strategy (leads to a wide variety of business strategies, and a high
level of adaptation to the local business environment). Basically there are three key differences between them. Firstly,
it relates to the degree of involvement and coordination from the Centre. Moreover, the difference relates to the degree
of product standardization and responsiveness to local business environment. The last is that difference has to do with
strategy integration and competitive moves.

Joint venture:

There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing
and joint product development, and conforming to the government regulations. Other benefits include political
connections and distribution channel access that may depend on relationships. Such alliances often are favourable
when:

 The partners' strategic goals converge while their competitive goals diverge

 The partners' size, market power, and resources are small compared to the Industry leaders

 Partners are able to learn from one another while limiting access to their own proprietary skills
The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology
transfer, local firm capabilities and resources, and government intentions. Potential problems include.

 Conflict over asymmetric new investments

 Mistrust over proprietary knowledge

 Performance ambiguity - how to split the pie

 Lack of parent firm support

 Cultural clashes

 If, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete.

 Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also
want to maximize their own competitive position.

 The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own
proprietary resources.

 The joint venture is controlled through negotiations and coordination processes, while each firm would like to
have hierarchical control.
 UNIT-3: PRODUCT SELECTION OF GLOBAL MARKETS

Product Policy :

Definition: Product Policy

Product policy is defined as the broad guidelines related to the production and development of a product. These
policies are generally decided by the top management of a company i.e. board of directors. It is like a long term
planning with respect to the product-mix of the company in order to deliver maximum customer satisfaction.

Product policy of a company has certain objectives

1. Survival: - The main objective of any company is to stay in the market profitably.

2. Growth: - Based on the long term goals of the company the policies are defined to get a good growth in the market.

3. Flexibility: - The product policy needs to be flexible to the changing needs of the customers, government
regulations, global trends and economy.

4. Scalability: - The companies should use its resources properly to make the most of its valuable resources. With time
the company needs to develop economies of scale to improve profits.

Product life cycle plays a very important while defining product policies.

When a product is in introduction stage the company needs to decide upon its pricing strategy whether it wants
penetration pricing or skimming. To achieve quick breakeven the companies use skimming technique otherwise use
penetration to keep the competition out of the market. Also the focus should be on creating awareness about the
product and building the brand.

In growth stage the company needs to maintain its profit by improving the product quality. It takes some time to
recreate the advertising strategy.

In maturity stage the very few firms are left in the business. The product’s sales growth slows down and the company
needs to target its loyal customers. A product change or communication changes is required at this stage.

In decline stage the sales for the product begin to fall and very few firms are left in the industry.

Product standardisation

Product standardisation (also called globalisation) involves making one global product in the belief the same
product can be sold across markets without significant modification. This concept has become more meaningful
because of the growing trend by multinational corporations to outsource components in order to gain economies of
scale.

Product adaptation

Product adaptation is the process of modifying an existing product so it is suitable for different customers or
markets. An adaptation strategy is particularly important for companies that export their products because it ensures
that the product meets local cultural and regulatory requirements. Adaptation is also important for companies that want
to introduce new products but do not have the funds or resources to develop completely new items.
 Difference between product adaptations and standardization

Basis of Adaptation Standardisation

Difference
1) Application It is supported Companies should
in Marketing by strong market apply the four basic
Means variety especially marketing instruments
by market (4P5) in the same way
individualism and world wide and ignore
market uniqueness. national specialties in
individuals markets.
2) Reason for Almost every MNC should think
Application international globally and apply
company takes into integration access
account (in higher world wide.
or lower level),
regional or local
conditions which
are typical to the
differentiation.
3) Product Altering Complete
Offered relevant feature of standardization would
the product in involve designing a
significant ways for product that is identical
each and every in every relevant way
individual for geographical
geographical market in which the
market in the product will be sold.
product is sold.
4) A product is A standard product
Characteristics differential from does not need to have
competitor’s all the characteristics of
product and further the other products
the products buyer requires.
produced by
particular company.
5) Approach Adaptation is an Standardization of
approach of product is the approach
detailing the for increasing
differentiation that commonality of
exists between product in the supply
products and chain management.
services.
6) Economics Unique aspects Commonality in
of Scale in product result in products results in
different in quality higher productivity due
thus increasing cost to higher demand,
of production and having an impact on
lower economies of economies of scales
scale. which lowers the total
cost.
 7) Need Satisfy a Satisfy the
particular need of heterogeneous needs of
buyer. the buyer.
8) End Result Show sense of Benefits buyer by
value to the buyer lowering price.
but they have to pay
more for such
product.

International Product life-cycle

Here are four stages in a product's life cycle in respect to the Product Life Cycle Theory:

 NPD
 Introduction
 Growth
 Maturity
 Decline

The location of production depends on the stage of the cycle.

Stage 1: NPD –New Product Development

Steps in NPD:

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic search for
new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of
good ones in the end.

 Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from
employees.

 External idea sources: the company finds new ideas externally. This refers to all kinds of external sources, e.g.
distributors and suppliers, but also competitors. The most important external source are customers, because the
new product development process should focus on creating customer value.

2. Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means nothing else than
filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and drop
poor ones as soon as possible. While the purpose of idea generation was to create a large number of ideas, the purpose
of the succeeding stages is to reduce that number. The reason is that product development costs rise greatly in later
stages. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable
products. Dropping the poor ideas as soon as possible is, consequently, of crucial importance.

3. Concept Development & Testing

The third step of the new product development includes concept development and testing. A concept is a detailed
strategy or blueprint version of the idea. Basically, when an idea is developed in every aspect so as to make it
presentable, it is called a concept. All the ideas that pass the screening stage are turned into concepts for testing
purpose. You don’t want to launch a product without its concept being tested, right? The concept is now brought to the
target market. Some selected customers from the target group are chosen to test the concept. Information is provided to
them to help them visualize the product. It is followed by questions from both sides. Business tries to know what the
customer feels of the concept. Does the product fulfil customer’s need or want? Will they buy it when it’s actually
launched? Their feedback helps the business to develop the concept further.

4. Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a promising
concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on
the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

 A description of the target market, the planned value proposition, and the sales, market share and profit goals
for the first few years

 An outline of the product’s planned price, distribution and marketing budget for the first year

 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of
the proposed new product. The fifth step in the new product development process involves a review of the sales, costs
and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they
do, the product can be moved on to the product development stage. In order to estimate sales, the company could look
at the sales history of similar products and conduct market surveys. Then, it should be able to estimate minimum and
maximum sales to assess the range of risk. When the sales forecast is prepared, the firm can estimate the expected
costs and profits for a product, including marketing, R&D, operations etc. All the sales and costs figures together can
eventually be used to analyse the new product’s financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many new
product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product
concept passes the business test, it must be developed into a physical product to ensure that the product idea can be
turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a
huge jump in investment. The R&D department will develop and test one or more physical versions of the product
concept. Developing a successful prototype, however, can take days, weeks, months or even years, depending on the
product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself
or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work
with pre-release products. Their experiences may be very useful in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage of the
new product development process, the product and its proposed marketing programme are tested in realistic market
settings. Therefore, test marketing gives the marketer experience with marketing the product before going to the great
expense of full introduction. In fact, it allows the company to test the product and its entire marketing programme,
including targeting and positioning strategy, advertising, distributions, packaging etc. before the full investment is
made. The amount of test marketing necessary varies with each new product. Especially when introducing a new
product requiring a large investment, when the risks are high, or when the firm is not sure of the product or its
marketing programme, a lot of test marketing may be carried out.

8. Commercialisation

Test marketing has given management the information needed to make the final decision: launch or do not launch the
new product. The final stage in the new product development process is commercialisation. Commercialisation means
nothing else than introducing a new product into the market. At this point, the highest costs are incurred: the company
may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and
other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until the following year to
launch the product. However, if competitors are ready to introduce their own products, the company should
push to introduce the new product sooner.

 Introduction place. Where to launch the new product? Should it be launched in a single location, a region, the
national market, or the international market? Normally, companies don’t have the confidence, capital and
capacity to launch new products into full national or international distribution from the start. Instead, they
usually develop a planned market rollout over time.

In all of these steps of the new product development process, the most important focus is on creating superior
customer value. Only then, the product can become a success in the market. Only very few products actually get the
chance to become a success. The risks and costs are simply too high to allow every product to pass every stage of the
new product development process.

Stage 2: Introduction
This is where the new product is introduced to the market, the customers are unaware about the product. To create
demand, producers promote the new product to stimulate sales. At this stage, profits are low and there are only a few
competitors. As more units of the product sell, it enters the next stage automatically.

For example, a new product invented in the United States for local consumers is first produced in the United States
because that is where the demand is, and producers want to stay close to the market to detect consumer response.
Characteristics of the product and the production process are in a state of change during this stage as firms familiarize
themselves with the product and the market. No international trade takes place.

Stage 3: Growth

In this stage, demand for the product increases sales. As a result, production costs decrease and profits are high. The
product becomes widely known and competitors enter the market with their own version of the product. To attract as
many consumers as possible, the company that developed the original product increases promotional spending. When
many potential new customers have bought the product, it enters the next stage

Stage 4: Maturity

In the maturity stage of the Product life cycle, the product is widely known and many consumers own it. In the
maturity phase of the product life cycle, demand levels off and sales volume increases at a slower rate. There are
several competitors by this stage and the original supplier may reduce prices to maintain market share and support
sales. Profit margins decrease, but the business remains attractive because volume is high and costs, such as for
development and promotion, are also lower. In addition, foreign demand for the product grows, but it is associated
particularly with other developed countries, since the product is catering to high-income demands. For instance, in the
case of the newly invented product, this rise in foreign demand (assisted by economies of scale) leads to a trade pattern
whereby the United States exports the product to other high-income countries. Other developments also occur in the
maturing product stage. Once the American firm is selling to other high-income countries, it may begin to assess the
possibilities of producing abroad in addition to producing in the United States. With a plant in France, for example, not
only France but other European countries can be supplied from the French facility rather than from the U.S. plant.
Thus, an initial export surge by the United States is followed by a fall in U.S. exports and a likely fall in U.S.
production of the good.

Stage 5: Decline

By this time in the product’s life cycle, the characteristics of the product itself and of the production process are well
known; the product is familiar to consumers and the production process to producers. This occurs when the product
peaks in the maturity stage and then begins a downward slide in sales. Eventually, revenues drop to the point where it
is no longer economically feasible to continue making the product. Investment is minimized. The product can simply
be discontinued, or it can be sold to another company. Production may shift to the developing countries. Labor costs
again play an important role, and the developed countries are busy introducing other products. For instance, the trade
pattern shows that the United States and other developed countries have now started importing the product from the
developing countries.

On costs and revenues: Low production costs and a high demand ensures a longer product life. When production costs
are high and demand is low, it is not offered on the market for a long time and, eventually, is withdrawn from the
market in the '‘decline'’ stage Note that a particular firm or industry (in a country) stays in a market by adapting what
they make and sell, i.e., by riding the waves.

Global Product Strategy

Definition
Product strategy is often called the roadmap of a product and outlines the end-to-end vision of the product and what
the product will become. Companies utilize the product strategy in strategic planning and marketing to identify the
direction of the company's activities.

Product Strategy Flow

Chart

The product strategy is composed of a variety of sequential processes to effectively achieve the vision. The company
must know where they would like the product to take them in order to identify and plan for the necessary activities to
reach that destination. This is similar in nature to a strategic vision of how a company wants to achieve its goals.

Elements of Product Strategy

As your business moves through the stages of product development, you must plan for what to do with the product
when development ends. Making a good or even superior product cannot ensure that anyone will buy it. An
understanding of the elements of product strategy can help you position your product to reach the right customers.

Target Market

Your target market is that group of consumers that appears most likely to buy your product. To some extent, the
product itself determines the appropriate demographic. Perfume, for example, defines a general target market of
women, where interior paint defines a target market of property owners. Demographic categories can range from age
and gender to occupation and income. Researching how competitors market similar products can provide you with a
shortcut to determining the correct target market for your product.

Distinctiveness

Products do not enter the marketplace in a vacuum. Your product must compete with a range of similar items on the
shelf. This means your marketing and advertising must convey to customers what makes this product unlike the others.
If your interior paint won’t fade for twice as long as your competitors’ paint, that feature is a way to differentiate your
product and enhance its value in customers' minds. Without a well-defined, distinctive product feature, consumers
have no reason to deviate from their normal brands and choose yours.

Pricing Strategy

When bringing a new product to market, your pricing strategy can vary depending on a variety of factors. You must
take account of the legal restriction in places where you sell, as well as the total production costs and how long you
can afford to wait to see a profit. You will have to determine what represents an acceptable level of profit, in both the
short and long term, and set a price that reflects those goals. If you want to maximize market share, you might set a
price that produces a small profit above total production and marketing costs rather than aiming for high short-term
profit by setting a higher price.
Considerations

Unless you run a startup company that seeks to produce a single product, you need to consider new products in the
context of your larger business goals. If you seek to dominate a luxury market, offering a low-cost product will
damage your brand. If you have built your reputation on service, product strategy should incorporate this as an integral
feature to solidify your customers’ perceptions of your business. Products should also be developed with a mind
toward the core business. If your business has produced automotive paint for 15 years, an abrupt move into exterior
house paint will seem strange to your core customers while simultaneously pushing you into competition with
established brands.

Differentiation

Your competition figures into many elements of your product strategy. One element that will guide product advertising
is differentiating your product from the competition's. Determine what your product offers that the competition does
not and use that information in your advertising and marketing materials. It can be easier to focus in on one or two
significant differences rather than trying to fill advertising material up with a comprehensive comparison chart.

Schedule

A product strategy has a beginning and an ending. Create the strategy time line and develop milestones for measuring
the progress of the campaign. A schedule makes it easier to create deadlines for items such as product improvements,
development of marketing materials and reaching revenue projections.

Global Product and Promotion Strategies:

Promotion of global products:

The globalization of business has caused multinational companies to spend considerable time assessing their global
product and promotion strategies. A dilemma with both is whether to present a universal product offering or to
customize the product or promotional efforts to each country of operations.

Product Standardization

A standardized product strategy is when your business decides to produce and market the same basic product in all
markets. This approach has economies of scale benefits, as it is much less expensive to design one product and mass
produce it to meet global demand. Standardization works best when your product has the same uses and benefits in
each country or culture. Inability to differentiate to meet different uses or preferences is a challenge with
standardization, especially if your product has variable uses in each market.

Product Customization

Customization as a global product strategy means that you offer product variations or customized versions of your
product in each country or market. A simple example of this is when movies are presented with subtitles or dubbed
voice-overs in markets with different languages. In other cases, certain features or traits of a product are altered to
match the needs or desires of customers in a given market.

Global Promotion

A global promotion strategy is when your company presents the same basic message of brand or product value around
the globe. This approach ties closely with the standardized product strategy. The general idea is to present a universal
product with benefits that apply to customers in each targeted marketplace. An advantage of a globalized approach is
consistency, in that customers in each market can identify with your brands as they travel the world. While the
company tailors menus and messages in some instances, McDonald's has benefited from a consistent commitment to
its global message of efficient, family-friendly fast food.

International Promotion

An international promotion strategy is when promotional messages vary from one country to the next or where
campaigns are tailored to different regions. This strategy is used with either the standardized or customized product.
With a standardized product that has different uses, variations in marketing project different benefits or value
propositions based on the uses in each market. With the customized product strategy, promotions are tailored to
emphasize the value of the customized offering in each market. This can generate stronger loyalty in markets where
brands are perceived differently, though the costs are usually greater with customized promotion.

Promotional tools. Numerous tools can be used to influence consumer purchases:

 Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.

 Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g.,
toothbrush with a package of toothpaste) is being offered for free.

 Sponsorships

 Point-of-purchase—the manufacturer pays for extra display space in the store or puts a coupon right by the
product
 UNIT – IV GLOBAL PRICING

Definition: Pricing is the method of determining the value a producer will get in the exchange of goods and
services. Simply, pricing method is used to set the price of producer’s offerings relevant to both the producer and the
customer.

***FACTORS INFLUENCING PRICING:

The influencing factors for a price decision can be divided into two groups:
(A) Internal Factors and
(B) External Factors.

(A) Internal Factors:

1. Organizational Factors:
Pricing decisions occur on two levels in the organization. Over-all price strategy is dealt with by top executives.
They determine the basic ranges that the product falls into in terms of market segments. The actual mechanics of
pricing are dealt with at lower levels in the firm and focus on individual product strategies. Usually, some combination
of production and marketing specialists are involved in choosing the price.
2. Marketing Mix:
Marketing experts view price as only one of the many important elements of the marketing mix. A shift in any one
of the elements has an immediate effect on the other three—Production, Promotion and Distribution. In some
industries, a firm may use price reduction as a marketing technique.
 Other firms may raise prices as a deliberate strategy to build a high-prestige product line. In either case, the effort
will not succeed unless the price change is combined with a total marketing strategy that supports it. A firm that raises
its prices may add a more impressive looking package and may begin a new advertising campaign.
3. Product Differentiation:
The price of the product also depends upon the characteristics of the product. In order to attract the customers,
different characteristics are added to the product, such as quality, size, colour, attractive package, alternative uses etc.
Generally, customers pay more prices for the product which is of the new style, fashion, better package etc.
4. Cost of the Product:
Cost and price of a product are closely related. The most important factor is the cost of production. In deciding to
market a product, a firm may try to decide what prices are realistic, considering current demand and competition in the
market. The product ultimately goes to the public and their capacity to pay will fix the cost, otherwise product would
be flapped in the market.
5. Objectives of the Firm:
A firm may have various objectives and pricing contributes its share in achieving such goals. Firms may pursue a
variety of value-oriented objectives, such as maximizing sales revenue, maximizing market share, maximizing
customer volume, minimizing customer volume, maintaining an image, maintaining stable price etc. Pricing policy
should be established only after proper considerations of the objectives of the firm.
(B) External Factors:
1. Demand:
The market demand for a product or service obviously has a big impact on pricing. Since demand is affected by
factors like, number and size of competitors, the prospective buyers, their capacity and willingness to pay, their
preference etc. are taken into account while fixing the price.
A firm can determine the expected price in a few test-markets by trying different prices in different markets and
comparing the results with a controlled market in which price is not altered. If the demand of the product is inelastic,
high prices may be fixed. On the other hand, if demand is elastic, the firm should not fix high prices, rather it should
fix lower prices than that of the competitors.
2. Competition:
Competitive conditions affect the pricing decisions. Competition is a crucial factor in price determination. A firm
can fix the price equal to or lower than that of the competitors, provided the quality of product, in no case, be lower
than that of the competitors.
3. Suppliers:
Suppliers of raw materials and other goods can have a significant effect on the price of a product. If the price of
cotton goes up, the increase is passed on by suppliers to manufacturers. Manufacturers, in turn, pass it on to
consumers.
Sometimes, however, when a manufacturer appears to be making large profits on a particular product, suppliers
will attempt to make profits by charging more for their supplies. In other words, the price of a finished product is
intimately linked up with the price of the raw materials. Scarcity or abundance of the raw materials also determines
pricing.
4. Economic Conditions:
The inflationary or deflationary tendency affects pricing. In recession period, the prices are reduced to a sizeable
extent to maintain the level of turnover. On the other hand, the prices are increased in boom period to cover the
increasing cost of production and distribution. To meet the changes in demand, price etc.
5. Buyers:
The various consumers and businesses that buy a company’s products or services may have an influence in the
pricing decision. Their nature and behaviour for the purchase of a particular product, brand or service etc. affect
pricing when their number is large.
6. Government:
Price discretion is also affected by the price-control by the government through enactment of legislation, when it is
thought proper to arrest the inflationary trend in prices of certain products. The prices cannot be fixed higher, as
government keeps a close watch on pricing in the private sector. The marketers obviously can exercise substantial
control over the internal factors, while they have little, if any, control over the external ones.
***INTERNATIONAL PRICING TERMS:
 **export Pricing:

“Price fixed for the export products or services which the exporter intends to sell in the overseas market is called
export pricing.”

Export price of a given product is determined by many factors. There are a number of methods used for the
purpose of costing in exports. These methods are divided into three groups.

a. Job or Batch costing;

b. Process costing; and

c. Standard costing.

Marginal cost approach is also an important approach to export pricing.

Objectives of Export Pricing

Export pricing is a technique of fixing the prices of goods and services which are intended to be exported and sold
in the overseas markets.The success of an export firm largely depends on its effective pricing policy.
The principal objectives of export pricing are as follows.
1. Survival
An exporter faces competition not only from his fellow-exporters, but also from other country exporters. In much
competitive markets, one of the marketing tools which can make the exporter survive the competition is pricing.
Making price competitive, thereby earning less profit in order to survive, could be one of the objectives of pricing.
Keeping prices competitive and maintaining low prices is a short-term objective, as every exporter aims at increasing
profits at a later stage.
2. Maximum Sales Growth
As an exporter survives the competition, the objective shifts to having maximum sales growth. Depending upon
competition and sensitivity of market to price, the final pricing decision needs to be taken. There are two alternatives
available for this purpose.
1. Setting lower prices to overseas buyers leads to higher sales volume, thereby earning more profits. For this
purpose, market should be highly price sensitive. Such low prices discourage competition, thereby further increasing
sales.
2. Setting higher prices to indicate the superior quality of the product. Such indications lead consumers to rate
products higher compared to that of competitors. Due to this perception, sales volume of the product increases.
3. Maximum Current Profit
 An exporter may determine his object of securing maximum Profits. A price which would generate such a profit is
to be established. For this purpose, it is necessary to have complete information of cost and demand. A price which can
generate maximum cash flows or a higher rate of return is determined. But this objective is more of a short term nature
and bases its performance on profits which may turn out to be dangerous in export markets.
4. Establishing Leadership
Another objective behind pricing is to establish not only a superior quality image, but also emphasize on
leadership or number one position in the export markets. By charging a higher price and making a noticeable
difference in the price as compared to that of competitors, this objective can be fulfilled.

Importance of Export Pricing

Price is one of the important elements in marketing mix and this is a delicate area of export marketing. It is rightly
treated as an important factor in successful export strategy. The importance of export pricing can be summarized as
follows:
1. Consumers are extremely sensitive about quality and price of the product. If the price is not properly set, success
of the firm in the international market becomes doubtful.
2. The volume of sales and market demand depends on pricing policy.
3. Competitive capacity in foreign market depends on the price fixed.
4. It decides the success and failure of export efforts.
5. Export pricing builds goodwill in the market.
6. Export pricing helps in capturing foreign market.
7. Develops brand image and product differentiation.
8. Pricing helps in penetration of market by keeping them low initially and gradually raising them.
9. Pricing not only helps in increasing profit and raising revenue, but also in enhancing market share of the
product.
10. Pricing helps by having good profitability to undertake diversification, research and development etc.
 CHANNELS OF DISTRIBUTION IN SELECTED FOREIGN COUNTRIES
5th unit

The distribution function of marketing is comparable to the place component of the marketing mix in that both center
on getting the goods from the producer to the consumer. A distribution channel in marketing refers to the path or
route through which goods and services travel to get from the place of production or manufacture to the final users. It
has at its center transportation and logistical considerations.

Direct vs. Indirect

In marketing, goods can be distributed using two main types of channels: direct distribution channels and indirect
distribution channels.
Direct Distribution
A distribution system is said to be direct when the product or service leaves the producer and goes directly to the
customer with no middlemen involved. This occurs, more often than not, with the sale of services. For example, both
the car wash and the barber utilize direct distribution because the customer receives the service directly from the
producer. This can also occur with organizations that sell tangible goods, such as the jewelry manufacturer who sells
its products directly to the consumer.
Indirect Distribution
Indirect distribution occurs when there are middlemen or intermediaries within the distribution channel. In the wood
example, the intermediaries would be the lumber manufacturer, the furniture maker, and the retailer. The larger the
number of intermediaries within the channel, the higher the price is likely to be for the final customer. This is because
of the value adding that occurs at each step within the structure.
Distribution Intermediaries

It is common for a business to use one or more kinds of intermediary when it comes to getting a product or service to
the end customer. Here are the main kinds of distribution intermediaries.

Retailers

The most popular distribution channel for consumer goods, retailers operate outlets that trade directly with
household customers. Retailers can be classified in several ways:

 Type of goods being sold (e.g. clothes, grocery, furniture)

 Type of service (e.g. self-service, counter-service)

 Size (e.g. corner shop; superstore)

 Ownership (e.g. privately-owned independent; public-quoted retail group)

 Location (e.g. rural, city-centre, out-of-town)

 Brand (e.g. nationwide retail brands; local one-shop name)

Retailers enable producers to reach a wider audience, particularly if broad coverage by the major retail chains can be
obtained. The big downside to using a retailer is the loss of profit margin. A high street retailer will typically look to
take at least 40-50% of the final consumer price.

Wholesalers

Wholesalers stock a range of products from several producers. The role of the wholesaler is to sell onto retailers.
Wholesalers usually specialise in particular products – for example food products.

Distributors and dealers

Distributors or dealers have a similar role to wholesalers – that of taking products from producers and selling them on.
However, they often sell onto the end customer rather than a retailer. They also usually have a much narrower product
range. Distributors and dealers are often involved in providing after-sales service.

Franchises

Franchises are independent businesses that operate a branded product (usually a service) in exchange for a licence fee
and a share of sales. Franchises are commonly used by businesses (franchisors) that wish to expand a service-based
product into a much wider geographical area.

Agents
Agents sell the products and services of producers in return for a commission (a percentage of the sales revenues).
You will often find agents working in the service sector. Good examples include travel agents, insurance agents and
the organisers of party-based selling events (e.g. Tupperware and Pampered Chef).

Main function of a distribution channel

Information: Gathering and distributing market research and intelligence - important for marketing
planning

Promotion: Developing and spreading communications about offers

Contact: Finding and communicating with prospective buyers

Matching: Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging

Negotiation: Reaching agreement on price and other terms of the offer

 Physical Transporting and storing goods
distribution:

Financing: Acquiring and using funds to cover the costs of the distribution channel

Risk taking: Assuming some commercial risks by operating the channel (e.g. holding stock)

Factors Affecting the Channels of Distribution

(A) Considerations Related to Product

When a manufacturer selects some channel of distribution he/she should take care of such factors which are related

to the quality and nature of the product. They are as follows:

1. Unit Value of the Product:

When the product is very costly it is best to use small distribution channel. For example, Industrial Machinery or

Gold Ornaments are very costly products that are why for their distribution small distribution channel is used. On the

other hand, for less costly products long distribution channel is used.

2. Standardised or Customised Product:

Standardised products are those for which are pre-determined and there has no scope for alteration. For example:

utensils of MILTON. To sell this long distribution channel is used.

On the other hand, customised products are those which are made according to the discretion of the consumer and

also there is a scope for alteration, for example; furniture. For such products face-to-face interaction between the

manufacturer and the consumer is essential. So for these Direct Sales is a good option.

3. Perishability:

A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product

which is of highly perishable nature. On the contrary, a long distribution channel can be selected for durable goods.

4. Technical Nature:

If a product is of a technical nature, then it is better to supply it directly to the consumer. This will help the user to

know the necessary technicalities of the product.

(B) Considerations Related to Market

 Market considerations are given below:

1. Number of Buyers:

If the number of buyer is large then it is better to take the services of middlemen for the distribution of the goods.

On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.

2. Types of Buyers:

Buyers can be of two types: General Buyers and Industrial Buyers. If the more buyers of the product belong to

general category then there can be more middlemen. But in case of industrial buyers there can be less middlemen.

3. Buying Habits:

A manufacturer should take the services of middlemen if his financial position does not permit him to sell goods
on credit to those consumers who are in the habit of purchasing goods on credit.

4. Buying Quantity:

It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity.

5. Size of Market:

If the market area of the product is scattered fairly, then the producer must take the help of middlemen.

(C) Considerations Related to Manufacturer/Company

Considerations related to manufacturer are given below:

1. Goodwill:

Manufacturer’s goodwill also affects the selection of channel of distribution. A manufacturer enjoying good

reputation need not depend on the middlemen as he can open his own branches easily.

2. Desire to control the channel of Distribution:

A manufacturer’s ambition to control the channel of distribution affects its selection. Consumers should be

approached directly by such type of manufacturer. For example, electronic goods sector with a motive to control the

service levels provided to the customers at the point of sale are resorting to company owned retail counters.

3. Financial Strength:

A company which has a strong financial base can evolve its own channels. On the other hand, financially weak

companies would have to depend upon middlemen.

(D) Considerations Related to Government

 Considerations related to the government also affect the selection of channel of distribution. For example, only a

license holder can sell medicines in the market according to the law of the government.

In this situation, the manufacturer of medicines should take care that the distribution of his product takes place

only through such middlemen who have the relevant license.

(E) Others

1. Cost:

A manufacturer should select such a channel of distribution which is less costly and also useful from other angles.

2. Availability:

Sometimes some other channel of distribution can be selected if the desired one is not available.

3. Possibilities of Sales:

Such a channel which has a possibility of large sale should be given weight age.

SALES AGENT

A 'sales agent' is a self-employed, commission-only, business-to-

business salesperson. Agents tend to specialize by market, not by product (with a few exceptions). Most agents will

build a portfolio of products and/or services that suit a particular type of client.

Types of agents

 Wholesaler/Distributor

 Direct/Internet

 Direct/Catalog

 Direct/Sales Team

 Value-Added Reseller (VAR)

 Consultant

 Dealer

 Retail

Control Over Distribution Channels

Before a product reaches a consumer, it makes a journey. Raw goods flow to a producer, which transforms the
materials into products that move on to retailers, often passing through wholesalers first. From retailers, finally, the
product comes to rest in the hands of the consumer. Those working within this channel of distribution are marketing
intermediaries, and they’re important. The retailer, for instance, has expertise in dealing with consumers that a
manufacturer likely lacks. Without such expertise, it’s understandable that a business would work with marketing
intermediaries. Yet, there are also reasons to instead control the distribution channel.
Vertical Integration

One way to control a channel of distribution is through vertical integration. A business must replace some or all of the
marketing intermediaries down the line by taking over their activities. The range of intermediaries between producer
and consumer includes wholesalers, retailers, agents and brokers. Some of their activities include representation,
transportation, storage, customer service and advertising. Besides adding these jobs to an existing organization, a
business can achieve integration by merging with or acquiring the middlemen within the channel. Doing this may
remove competitors’ available channels, thus hampering their distribution efforts.
Reduce Cost

Intermediaries add costs. After all, each must make money on the product or service. Just because intermediaries add
costs, though, doesn’t mean a business can automatically save through eliminating an intermediary. However, if a
business does find that it can take over the activities of an intermediary and save, controlling that part of the
distribution channel might be advisable. The end consumer might enjoy a less expensive product, while the business
gains expertise and control over the process. For instance, some businesses would rather sell directly to consumers via
the Internet than go through a retailer.
Cooperation

Structuring the distribution channel so that all the intermediaries work as a unified system results in a vertical
marketing system. One part of the system exerts control over the others, either through ownership of the rest, contracts
or power and market influence. By controlling the system, a business can ensure cooperation among the
intermediaries. Additionally, no one intermediary can put its own self-interest ahead of the good of the whole system.
The resulting stability and cooperation benefits the business.
Protection

Without controlling the channels of distribution, a business owner has no way of knowing how any of the
intermediaries will treat the product. A retailer intermediary, for instance, with an assortment of goods to sell, might
not even properly display the product. Protecting a brand’s image and its relationships with consumers also becomes
easier to regulate if a business controls distribution.