Chapter 12

Global Marketing Channels and

Physical Distribution

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 Learning Objectives
12.1 Identify and compare the basic structure options for
consumer channels and industrial channels.
12.2 Compare and contrast agents and distributors
12.3 List the guidelines companies should follow when
establishing channels and working with intermediaries in
global markets.
12.4 Discuss factors which affect choice of channel
12.5 Describe the different categories of retail operations
that are found in various parts of the world.
12.6 Compare and contrast the six major international
transportation modes and explain how they vary in terms of
reliability, accessibility, and other performance metrics.
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Distribution Channels: Terminology
and Structure (1 of 2)
 Physical distribution is the physical flow of goods
through channels.
 A channel of distribution is “an organized network of
agencies and institutions that, in combination, perform all
the activities required to link producers with users to
accomplish the marketing task.”

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Channel Objectives & Utility
 Marketing channels exist to create utility for customers
 Place utility - availability of a product or service in a
location that is convenient to a potential customer
 Time utility - availability of a product or service when
desired by a customer
 Form utility - availability of the product processed,
prepared, in proper condition and/or ready to use
 Information utility - availability of answers to
questions and general communication about useful
product features and benefits

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The structure of the DC
The starting point, the end, and what is in between.
1. Starting point: production – factory, farm
2. End point: the consumer
3. In-between: middlemen / intermediaries: they include (not
limited to) distributors, agents,
brokers, wholesalers, payment
and retailers

Seller Buyer

goods

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The structure of the DC
• What flows from the starting point to the endpoint?
Product, information, manuals, ownership
• What flows from the end point to the starting point?
Money, feedback, product reviews, returns, orders
• Middlemen Services.
o Vary at the retail and wholesale levels from country to
country.
o Physical distribution only.
o Other may offer extra services like handling after-sales
services and promotional activities

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The structure of the DC: Length
• The number of intermediaries between production and
consumption
• The longer the distribution channel (many intermediaries and long
physical distance),
o potentially more costs associated with the distribution
o Less control the manufacturer has over the distribution,
pricing.
o It might lead to grey markets
• Normally, the larger geographical area of the country is, the longer
the DC is.
• Shorter channels for industrial goods and high-priced consumer
goods.
• The bigger the size of the purchase, the shorter the DC
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The structure of the DC: Length

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Length of B2B distribution channels

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The structure of the DC
Length
What implications does channel length have on
international marketing?
More middlemen will require higher costs

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The structure of the DC: Width
• the number of each type of intermediary in the channel
• The larger the number of similar intermediaries, the greater
the width of the channel and the higher the level of
competition.
• The more consumers in the market, potentially the wider the
DC should be.

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The structure of the DC

Width and Length

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Consumer Products Channels
Figure 12-1 Marketing Channel Alternatives: Consumer Products

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Distribution Channels: Terminology
and Structure
 Distributor - wholesale intermediary that typically carries
product lines or brands on a selective basis
 Agent - an intermediary who negotiates transactions
between two or more parties but does not take title to the
goods being purchased or sold

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Managing distribution: agent or
distributor selection
Manufacturers can rely on agents or distributors to export their products to
international markets.
Agents do not take ownership of goods
Act as a representative of the supplier / manufacturer
They are engaged by exporters / manufaturers of services to represent them
in overseas markets.
An agent is generally paid by the exporter based on a commission of sales
value generated.
The exporter receives orders for customers from the agent but then delivers
goods or services directly to customers, invoices the customers, and collects
payments from the customers.
The exporter is also responsible for setting the selling price, although the
agent will likely provide input on local market conditions to help the exporter
decide on pricing.
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The role of the agent
1. Agents are generally based in the export market and often represent
several complementary product or service lines
2. They may operate on an exclusive basis, as the sole agent for a
company’s goods or services in a specific export market, or as one of a
number of agents for the exporter in that market –that is, on a non-
exclusive basis.

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Advantages of working with an agent

1. You have control over branding, marketing and pricing.

2. Commission only-based agent agreements can be a good incentive for
higher sales volumes for your products.
3. Agents tend to have smaller product ranges than distributors, which
means that they can provide more focus on your products

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Disadvantages of working with an agent
1. A sales agent may have fewer resources than a distributor.
2. Working on a commission basis can mean that the agent is less
committed to your success.
3. Significant overseas marketing and management support is required for
a successful agent/client relationship. More effort is required from your
business, such as fulfilling orders directly to customers and obtaining
payment.
4. Close attention is required to monitor the effectiveness of the agent.
5. A poor agent can not only ruin your opportunities in the market but also
undermine your marketing efforts and reputation.
6. Working through agents (as opposed to distributors) provides less
protection from risk of non-payment, currency fluctuations, product
rejections, warranty claims, etc.
7. You risk losing market share if your agent is poached by a competitor.
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Tips to remember when working with an
agent

1. Schedule regular market visits.

2. Schedule regular training for them on your range.
3. Have a timetable for regular performance reviews.
4. Set realistic performance standards and revise regularly when market
conditions change.
5. Have a clear termination procedure.
6. Exporters can rely too heavily on their agent for useful feedback and
relevant information. Make sure you check local conditions and market
feedback yourself.

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The role of a distributor (merchant)
• A distributor buys goods – that is, the distributor ‘takes title’
of the goods – and then resells the goods to local end users
who may be retailers or consumers.
• the distributor may sell to other wholesalers who then sell to
local retailers or end users.
• Distributors may carry complementary and competing lines
and usually offer after-sales service.
• Distributors are paid fees by adding a margin to products,
and their fees are higher than those of agents. Why?
• They require a higher margin. Why?
• The manufacturer will probably need to absorb the distributor
margin otherwise your pricing to the end customer will be too
high.
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The role of a distributor (merchant)

1. Some exporters find that they are unable to use a distributor as their
profit margin is too small to provide enough margin for the distributor
and a competitive price for end users.

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Advantages of distributors
(merchants)
•The exporter has one large customer who supplies many smaller end
customers in the market.
• The exporter maintains some control over distribution.
• The distributor provides back-up service to clients.
• The distributor holds stock in the market to reduce order lead time for
customers.
• The distributor helps pay for and undertake marketing and promotion of
your product in the market.
• The distributor develops a customer base for your product.
• The distributor handles more of the in-market work, saving you both time
and costs.
• In-market risks are largely carried by the distributor.
• The distributor may provide warranty and product services.
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Disadvantages of distributors
(merchants)
1. You have no control over the selling process.
2. The costs of selling through a distributor can force the product out of
market competition: for example, a distributor may add up to a 50 per
cent mark-up, or more, on your product before it reaches a retailer.
3. The distributor and sales staff will be less knowledgeable about your
products than your own people.
4. You can become removed from the market and not have firsthand
knowledge of conditions.
5. You may not know who your customers are.
6. Because a distributor shares responsibility for marketing and promotion,
you may not retain total control over the branding of your product.
7. If the distributor is a wholesaler rather than a specialised master
distributor, they may not sell as effectively as other wholesalers.
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Disadvantages of distributors
(merchants)
1. The distributor may not have the sales force for new product
introductions in larger markets.
2. The distributor may represent multiple products, so attention and time
may be divided away from your product.
3. Sales-rights to your product are a valuable ‘right’ and should not be
surrendered without a full analysis of the available options.
4. Your distributor may be difficult to ‘disengage’ if you are unhappy with
their service.

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How to select your distributors
(merchants)
• Select your distributors – don’t let the distributors select you.
• Look for distributors capable of developing your markets, not
just selling your products.
• The skills, qualities and network which each distributor can
bring to your relationship may be different – make sure you
discuss your expectations so that these are clearly understood.
• Never assume a distributor will undertake a task without
discussing it first.
• Set clear performance criteria in your distributor’s agreement
and monitor these closely.
• Get to know the distributor well before signing an agreement.
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Managing distribution: agent or distributor
selection
• Important considerations:
o Image
o Size
o Experience
o Strong relationship
o Marketing approach

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Managing distribution: agent or
distributor selection sources
• Chambers of commerce
• Industry journals
• Trade commissioners (e.g. Austrade)
• Trade shows

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Peer-to-Peer Marketing
 The Internet and other related media are dramatically
altering distribution
 Interactive TV may become a viable direct marketing
channel in the future
 eBay pioneered P2P
 Helped Disney and IBM set up auction sites for B2C
auctions
 Interactive TV is coming when homes are wired for 2-way

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Door-to-Door Selling
 Mature form in the U.S.
 Tupperware has a sales force
of 200,000 in Indonesia, its
biggest market
 Growing popularity in China-
Avon, Mary Kay
 ½ of cars are sold door-to-door
in Japan with 100,000
salespeople
The U.S. accounts for only 10% of
Tupperware sales. Tricia Stitzel is
CEO of the company.

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Consumer Channels
 Manufacturer-owned stores
 Nike, Levi Strauss, Apple, Sony, fashion design
houses have flagship stores
 Independent franchise
 Independent retailers
 Walmart
 Flagship retail stores for Apple, Sony, well-known
fashion houses, Nike to build brand loyalty, showcase
products, and help gather marketing intelligence

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Distribution strategies: factors affecting

Factors affecting choice of channel
 Cost and capital investment and requirements
 Control
 Commitment (Continuity)
 Coverage
 Character
 Nature of the market
 Nature of product/service
 Objectives of the firm

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Factors affecting choice of channel: Costs

Costs can be split into
o Set-up: the capital / investment cost of developing the
channel.
o The continuing costs of maintaining the channel

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Factors affecting choice of channel: Costs

 Ongoing costs (other than capital investment)
 Maintaining inventory and selling force.
 Costs of middlemen: margins, commissions, transporting
and storing the goods, sales representation,
 Intermediary can reduce costs of set-up—but greater
power can lead to greater costs

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Factors affecting choice of channel

Capital investment and requirements
 Maximum investment may be required when a
company establishes its own internal channels.
 This is viable when the company is engaged in long

term / large scale marketing.

 Capital investment is also required to provide initial

inventories on consignment, loans.

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Factors affecting choice of channel

Control
 The more involved the company is with the distribution
(e.g. running its own sales subsidiaries, warehousing), the
more control it exerts.
 Ability to control price, promotion, and type of outlets
diminishes as the channel grows longer.
 If a company cannot sell directly to the end consumer or
final retailer, control becomes an important criterion when
selecting the middlemen.
 Intermediary—strength of relationship
 Work with an agent or a merchant (distributor)

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Factors affecting choice of channel

commitment / continuity
 Middlemen firms tend to be small institutions.
 If a middleman moves out, the company may find it has
lost its distribution in the area.
 Middlemen have little loyalty to their vendors.
 Distributors and dealers are the most loyal middlemen.

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Factors affecting choice of channel

Coverage
 Assessed by geographic segment.
 Coverage may be difficult to extend in
 Highly developed areas because of competition

 Sparse markets because of inadequate channels

 Seek penetration in major population centres (e.g. capital

and main cities)
 In developing countries, distribution inadequacies limit
international marketers in reaching all those who have
adequate incomes.

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Factors affecting choice of channel

Coverage
 If a firm wishes to attempt full market coverage it may
have to use several intermediaries. For example, in China
about four cities contain most of the country's most
affluent and viable market segments.
 There are three coverage strategies:
 Extensive strategy: to provide saturation coverage of the market by
using all available outlets. It is usually used where customers have a
range of acceptable brands to chose from
 Selective strategy: involves a producer using a limited number of
outlets in a geographical area to sell products. An advantage of this
approach is that the producer can choose the most appropriate or best-
performing outlets and focus effort on them.
 Exclusive strategy: an extreme form of selective distribution in which
only one wholesaler, retailer or distributor is used in a specific
geographical area.

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Factors affecting choice of channel

Character
• The distribution channel must match the character of the
company, its product / brand, and the markets in which it
is doing business.
• Character relates to such factors as the bulk of the
product and its value.
• Channel patterns may change. In the UK, specialty-type
middlemen have moved towards mass marketing.
• Neglecting the growth of self-service or discounting may
cause the loss of large segments.

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Factors affecting choice of channel

Nature of the market
 Whether the selected distribution channel is vulnerable to political change,
such as being outlawed or nationalised.
 In some countries (e.g. Libya), intermediaries are not allowed, while in others
they must be government undertakings
 retailing may be controlled by the government
 Opening hours
 Location of stores
 requirements governing health and safety (restrictions on selling
tobacco, liquor).

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Factors affecting choice of channel
Nature of the market
• Research on what customers need, why, when and how they buy
• Shopping patterns:
o In Japan, people are more likely to buy small quantities on a daily
basis due to space being at a premium in their small apartments
and refrigerators being small as a result.
o In the USA, accommodation is larger; Americans shop more
infrequently and have larger refrigerators.
• Market potential: the greater the potential, the greater the likelihood that
it will be worth investing resources to ensure control over the distribution
channel.

• Economic health/risk—agent versus FDI

• Structure and availability of channels—existence of, controlled,
sophisticated versus developing countries
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 Factors affecting choice of channel
Nature of the market
1. Sophisticated products may justify a more direct form of distribution than
fast-moving consumer goods
2. Luxury products: products with a high price per unit are more likely to be
sold direct to the end-user/customer.
3. Complex products: such as computers, require intermediaries to provide
installation and after-sales service.
4. Perishable products: need direct channels of distribution because of their
limited lifespan
5. bulk products: usually require channels that minimise the number of
intermediaries
6. Intangible products: such as information or entertainment in digital formats
can be distributed online via direct channels from producers.
7. consumer goods: the channels tend to be longer and include more
intermediaries 42
Factors affecting choice of channel
Objectives of the firm
• Profitability and market share
• Product positioning strategy

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Retailing in Developing Countries
 Consumers purchase food, soft drinks, and other items at
“Mom & Pop” stores, kiosks, and market stalls in single-use
packages
 70% of Mexicans shop at these stores
 P&G aids stores that carry at least 40 P&G products with
displays, promo materials through a golden store program
 Nestlé has a floating supermarket that sails the Amazon
River to reach remote areas

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Industrial Products Channels
Figure 12-2 Marketing Channel Alternatives: Industrial Products

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Establishing Channels
 Direct involvement - the company establishes its own
sales force or operates its own retail stores
 Indirect involvement - the company utilizes independent
agents, distributors, and/or wholesalers
 Channel strategy must fit the company’s competitive
position and marketing objectives within each national
market

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Working with Channel Intermediaries (1 of 2)
1. Select distributors - don’t let them select you
2. Look for distributors capable of developing markets,
rather than those with a few good customer contacts
3. Treat local distributors as long-term partners, not
temporary market-entry vehicles

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Working with Channel Intermediaries (2 of 2)
4. Support market entry by committing money, managers,
and proven marketing ideas
5. From the start, maintain control over marketing strategy
6. Make sure distributors provide you with detailed market
and financial performance data
7. Build links among national distributors at the earliest
opportunity

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Intermediaries
 Be realistic about the intermediary’s motives
 May maximize its profit rather than the manufacturer’s
 May engage in cherry picking-only taking products with
known demand
 Manufacturer may need to establish its own distribution
channel although it will have high costs
 Or the manufacturer can supplement the cost of the sales
force of the distributor

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Global Retailing (1 of 2)
 Department stores
 Specialty retailers
 Supermarkets
 Convenience stores
 Discount stores and warehouse
clubs
 Hypermarkets
 Supercenters
 Category killers
The LP12 Mall of Berlin opened in
 Outlet stores 2014 with 270 stores as well as
apartments.

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Global Retailing (2 of 2)
 European retailers spread to colonies in the 19th, early
20th centuries
 Global retailers serve developing nations with more
products & better prices
 Organized retail refers to modern, branded chain stores
 Only 5% of India’s total market
 Sector will have double-digit growth

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Table 12-1 Top Five Global Retailers, 2017

Rank Company Country Formats Sales ($ millions)

1 Walmart Stores United States Discount store, wholesale club $485,873

2 Carrefour France Hypermarket 82,996 (2016 data)

3 Tesco PLC United Kingdom Supermarket/hypermarket 69,501

4 Metro AG Germany Diversified 43,828

5 Aldi Germany Discount store NA

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Types of Retailers (1 of 5)
 Department stores have a product mix under one roof
 Expansion outside of the home market is usually limited to a few countries
 Two views:
 “It’s quite difficult to transfer a department store brand abroad. You have to
find a city with the right demographic for your offer. If you adapt your offer to
the locality, you dilute your brand name.”

Maureen Hinton, London Retail Analyst

 “Conceptually, department stores are global brands already because we live in
a world with an enormous amount of travel between cities and continents.”

Marvin Traub, former CEO, Bloomingdales

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Types of Retailers (2 of 5)
Specialty Retailers Supermarkets
 Less variety than  Between 50,000 & 60,000
department stores sq . f t.
uare ee

 Offer merchandise depth &  Grocers haven’t spread

high levels of service outside the US b/c market
 The Body Shop, size is vast
Victoria’s Secret,  UK Tesco is global
Starbucks

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Types of Retailers (3 of 5)
Convenience Stores
 High-turnover convenience & impulse goods
 Prices 15-20% higher than grocery stores
 7-11 is the world’s largest
 64,000 locations
 Trend towards locating in malls, airports, office buildings,
and college & universities

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Discount Retailers
 Full-line Discounters
 Wide variety of merchandise; Ex. Walmart
 Warehouse Clubs
 Memberships fees; Ex. Sam’s, Costco
 Dollar Stores
 Sell at a single low price; Ex. in U.S. Family Dollar,
Dollar Tree; Internationally, My Dollarstore has rapid
growth
 Hard Discounters
 Limited assortment, rock bottom prices

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Types of Retailers (4 of 5)
 Hypermarkets are hybrid retailers combining the
discounter, supermarket & warehouse club; 20,000-30,000
sq . f t.
uare ee

 Supercenters have lower priced groceries plus general

merchandise; half the size of a hypermarket; Walmart
operates 3,275 stores plus 100s in Mexico, Argentina, and
Brazil
 Superstores aka Category Killers & Big-Box sell vast
assortments of a product category
 Toys ‘R’ Us, Home Depot, IKEA

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Types of Retailers (5 of 5)
Shopping Malls
 Groups of stores in one
place
 Enclosed or outdoor
 Leisure destinations offer
entertainment &
convenience
 Trend towards outdoor
“lifestyle centers” with food
courts & entertainment
Outlet Stores
 Shops that offer excess
inventory, out-of-date
merchandise or factory
seconds
 Popular in the US,
expanding into Europe &
Asia
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Global Retailing Trends
 Environmental Factors that cause retailers to look outside
the home country
 Saturation in the home country market
 Recession or other economic factors
 Strict regulation on store development
 High operating costs
 Critical Question
 What advantages do we have relative to the local
competition?

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Figure 12-3 Global Retailing Categories

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Figure 12-4 Global Retailing Market
Entry Strategy Framework

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Global Retailing Strategies (1 of 2)
 Organic Growth
 Company uses its own resources to open a store on a
greenfield site or acquire one or more existing retail
facilities
 Franchise
 Appropriate strategy when barriers to entry are low yet
the market is culturally distant in terms of consumer
behavior or retailing structures

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Global Retailing Strategies (2 of 2)
 Chain Acquisition
 A market entry strategy that entails purchasing a
company with multiple existing outlets in a foreign
country
 Joint Venture
 This strategy is advisable when culturally distant,
difficult-to-enter markets are targeted

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Supply Chain Definitions
 Supply Chain
 Includes all the firms that
perform support activities
by generating raw
materials, converting them
into components or
finished products, and
making them available to
customers
 Logistics
 The management process that integrates the activities of all
companies to ensure an efficient flow of goods through the
supply chain
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Physical Distribution, Supply Chains,
and Logistics Management (1 of 2)
 Order Processing
 includes order entry in which the order is actually entered
into a company’s information system; order handling, which
involves locating, assembling, and moving products into
distribution; and order delivery.
 Warehousing
 Warehouses are used to store goods until they are sold
 Distribution centers are designed to efficiently receive
goods from suppliers and then fill orders for individual stores
or customers.

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Physical Distribution, Supply Chains,
and Logistics Management (2 of 2)
 Inventory Management
 Ensures that a company neither runs out of manufacturing
components or finished goods nor incurs the expense and
risk of carrying excessive stock of these items
 Social media can play an important role by connecting social
media followers with the brand
 Transportation
 Method or mode a company should utilize when moving
products through domestic and global channels; the most
common modes of transportation are rail, truck, air, and
water

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Figure 12-5 Supply Chain, Value Chain,
and Logistics

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Transportation
Table 12-4 Comparison of Major International Transportation Modes
Mode Reliability Cost Speed Accessibility Capability Ease of
Tracing
Rail Average Average Average High High Low

Water Low Low Slow Low High Low

Truck High Varies Fast High High High

Air High High Fast Low Moderate High

Pipeline High Low Slow Low Low Moderate

Internet High Low Moderate Moderate; Low High

to fast increasing

 Channel Strategy - analyzing each shipping mode to determine which

mode, or combination of modes, will be both effective and efficient in
a given situation

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