For most manufacturers, success or failure is determined by how effectively and efficiently their products are sold through their marketing channel members (e. g. , agents, wholesalers, distributors, and retailers). Given this situation, considerable marketing channel research has focused on organizational responsibility for managing channel how interrelationships among a firm and its channel members can be managed better (Achrol and Stern 1988; Anderson et al 1997).
Globalization of markets is a phenomenon that has received much attention and been extensively debated both at general societal/institutional/cultural levels and at market and business levels. In any globalization process, distribution of goods and services between and within local industrial and consumer markets is of great importance. A marketing channel is a set of interdependent organizations involved in the process of making a product or service available for consumption.
Globalization of markets and reorganization of distribution are mutually dependent processes that involve changes in market structures. Mattsson & Wallenberg, 2003) As national markets expand and as new opportunities arise for satisfying consumer demand, greater specialization in distribution is evident both in the level of distribution and in goods and services handled (Mallen, 1996). Moreover, as the global marketplace expands, many multinational firms have been influenced by mounting pressures to develop a worldwide communication, distribution and information network that facilitates the free flow of information and goods across national boundaries (Min & Eom, 1994).
Distribution channels excellence has become a powerful source of competitive differentiation. In the 1980’s and 1990’s, companies began to view distribution channels as more than simply a source of cost savings and recognize it as a source of enhancing product or serve offerings as part of the broader supply chain process to create competitive advantage. (Mentzer et al, 2004). International distribution channels In international marketing the manufacturer doesn’t sell products directly, it goes through several parties-before reaching the consumer. It involves various channels and variety of intermediaries.
In order to sustain the growth of the international marketplace and the integration of the world’s economic activities it is vital to conduct efficient and cost-effective distribution according to Ross (1996). The challenge to global distribution management is to structure a supply chain that is responsive and flexible enough to cope with differences in customers’ requirements and yet enable the benefits of focused manufacturing to be achieved. According to Black et al (2002) the past decade has seen some of the most rapid and substantive changes in channels of distribution for goods and services in developed economies.
What companies must remember is that the choice of distribution channel is quite complicated in the home market of a company but even more complicated when going international and starting to export. It is vital for companies who are about to establish abroad that they realize that the choice of distribution channel is crucial for future success and growth. There are many alternative distribution channels to choose from and the conditions may vary from different companies and markets.
Furthermore, the choice of distribution channel is often complex and expensive if changing it subsequently. Therefore, it is central that the decision is given the attention and acknowledgement, which is called for due to the fact that it has such a long-term outcome of the export investment’s success. (Anderson et al, 1997). Distribution builds stable competitive advantages, since marketing channels have a long-run character and to build them it is necessary to have a consistent structure; and due also to the fact that they are focused on people and relationships.
With channels of distribution changing rapidly studies of consumers will need to focus not just on understanding product choice but also on understanding the reasons for channel choice. Distribution channel intensity Another channel strategy according to Jobber (2001) is the intensity of the distribution channel. According to Kotler (2000) and Fein and Anderson (1997) companies have to decide on the number of intermediaries to use at each channel level. Three approaches are available: intensive distribution, selective distribution and exclusive distribution.
Mallen (1996) states that intensive distribution is at one end of the scale where the policy is to distribute to as many outlets as possible, and that exclusive distribution is at the other end of the scale, where the policy is to distribute only to one intermediary at a given level in a given geographic area. The broad middle ground is normally referred to as selective distribution. Intensive distribution consists of the manufacturer placing the goods or services in as many outlets as possible.
This approach is generally used for everyday goods such as milk, bread, tobacco products and soap, products for which the consumer requires a great deal of location convenience. Manufacturers are constantly tempted to move from exclusive or selective distribution to more intensive distribution to increase coverage and sales. Intensive distribution may help in the short term but often hurts long-term performance. (Kotler, 2000) According to Mallen (1996) intensive distribution tends to maximize sales for the simple reason that more outlets increase the possibilities of consumer contact.
Yet, this approach means a more elaborate marketing operation at the manufacturer level. Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. It is used by established companies and by new companies seeking distributors. The company does not have to dissipate its efforts over too many outlets; it enables the producer to gain adequate market coverage with more control and less cost than intensive distribution. Kotler, 2000) Selective distribution is generally applied on rarely bought goods such as DVDs, computers and cameras according to Fein and Anderson (1997). Exclusive distribution means severely limiting the number of intermediaries. It is used when the producer wants to maintain control over the service level and service outputs offered by the resellers. (Kotler, 2000) While minimizing costs, exclusive distribution tends to maximize channel goodwill and channel control. It is easier for the manufacturer to have completely satisfactory relationships with a few intermediaries than with many in a given area according to Mallen (1996).
Often it involves exclusive dealing arrangements, in which the resellers agree not to carry competing brands. By granting exclusive distribution, the producer hopes to obtain more dedicated and knowledgeable selling. (Kotler, 2000) Exclusive distribution is often used on capital goods such as cars according. Importance of distribution Distribution is a key component of any international marketing strategy. To successfully deliver products and services to customers spread across different geographies, you’ll have to develop an international marketing strategy with special emphasis on supply chain, which includes distribution.
If your business has entered various markets, it may not be possible for you to single-handedly manage the overseas operations. You’ll have to develop an effective distribution channel. This channel will consist of channel intermediaries, who will make sure that the product reaches the end user. Distribution is critical to your overseas operations because: 1. It has a direct effect on sales. If you don’t have a good distribution network, your products may stack up in a warehouse and won’t reach your target customers. 2. It affects your profits as well. As distribution costs can make up to 50 percent of the final selling price of some products, an efficient distribution network can increase your profit margins. 3. It has an influence on customer satisfaction. As the long-term success of your overseas operations depends on satisfying your customers, choose your dealers and retailers carefully as they will be responsible, to a large extent, what your customers think about your product and if they will recommend your product to others. 1. 4 Types of distribution channels
To gain competitive advantage in the market, you need to identify the right distribution channel that is familiar with your target consumer and segment. Also make sure that the distribution channel that you choose shares similar policies and strategies as your company and has a proven track record in the market. You can choose from among several channels of distribution. Your chosen distribution channel will directly affect all your other marketing decisions. Here are some options: Direct marketing: In this method, the company interacts with its customers directly without any intermediaries.
Mail orders, the Internet and phone calls are some of the ways your potential customers can learn about your products and make purchases. Agents: Agents operate on a commission basis. You’ll have to pay these agents on the volume of sales they generate. Agents do not accept any legal ownership of the product. This kind of channel is usually expensive, as an agent is expensive to train and the physical distance makes his progress difficult to track. Distributors: Distributors buy the goods directly from you and will then sell it to retailers.
Since they take title to the goods, they are free to determine the prices of the goods themselves and develop their own marketing strategies. They usually have storage facilities. Retailers: Retailers sell to the end customers and are, therefore, able to develop a better bond with them. The retailer takes on the responsibility of promoting the products and often decides the price of the product. Manufacturing-owned intermediaries: This is a capital-intensive option, as your business will directly set up sales and service units in the markets that it has a presence. 2. 0 Channel Management Strategies
Channel Management is yet another sales and marketing phrase that is thrown around like everyone knows what it means. But so few companies really comprehend channel management in a way that really helps them. Sales channels being the conduits by which we distribute our products to the end-user come in many shapes from direct, to the web, to the traditional retail environment. Channel Management Strategies (CMS) provides the latest research, benchmarking data, analytic models, and thought leadership necessary to align and enhance your existing channel management initiatives.
Channel Management Strategies delivers objective data and intelligence to compare and contrast your efforts with peer organizations, and provides thought-provoking research on industry trends, best-practice models and tactics, budget and resource allocation and measurement strategies. Channel management is a process by which a company creates formalized programs for selling and servicing customers within a specific channel. it can impact businesses in a positive way. First segment channels by like characteristics (their needs, buying patterns, success factors, etc. and then customize a channel management program that includes:
1. Goals: Define the specific goals you have for each channel segment. Consider your goals for the channel as a whole as well as individual account. And, remember to consider goals for both acquisition and retention. 2. Policies: Construct well defined polices for administering the accounts within this channel. Be sure to keep the unique characteristics of each segment in mind when defining policies for account set up, order management, product fulfillment, etc. 3. Products: Identify which products in your offering are most suited for each segment and create appropriate messaging. Also, determine where to upsell opportunities lie. 4. Sales/Marketing Programs: Design support programs for your channel that meet their needs, not what your idea of their needs are. To do this, you should start by asking your customers within this segment, “how can we best support you in the selling and marketing of our products? ” That being said, the standard considerations are product training, co-op advertising, seasonal promotions, and merchandising.
Again, this is not a one-size fit all, so be diligent about addressing this segment’s specific needs in these areas. Defining a channel management strategy for each segment allows the organization to be more effective within each segment, while gaining efficiency at the same time. Still, maintaining brand consistency across all channel segments is critical to your long-term success. So it has to find a good balance between customization and brand consistency for a successful channel management.