Unit 4

International distribution

4.1 International Distribution: Distribution channels and logistics decisions; Selection and appointment of foreign sales agents.

Distribution channel is an important element of marketing-mix. The ultimate objective of every firm is making product available to its target customers and execution of this objective is distribution.

According to Richard M. Cleweett, - “Channel is the pipe line through which a product flows on its way to the consumer. The manufacture puts his product into the pipe line or marketing channel and various marketing people move it along to the consumer at the other end of the channel.”

Channel of distribution is a route to deliver goods from the producer to ultimate consumer or industrial users. Channels of distribution provide smooth flow of goods or products from centre’s of production to centres of consumptions.

Important characteristics of distribution channel

1. It is an important element.
2. It is a route through which a product is flow to customers
3. It’s ultimate destination is customers
4. It is like middlemen.
5. It role is connecting link between producer and consumer in case of indirect distribution.
6. It is may be without middlemen. It will happen in direct distribution policy, where producer himself selling a product.
7. It does not include shipping/ railway companies, road transporters/ Banks, insurance co. Etc. It provides their valuable role but they are not the part of channels of distribution.
8. Distribution cost does not increase the marketability of firm’s productions. Thus, every marketing company tires to minimize the cost of distribution order to earn more profit.

Role and function

1. Channels of distribution create various utilities, like- place, time & title.

• Place utility for flow of production to the customers.

• Time utility for available of production in sufficient quantities.

• Title utility for transfer of ownership of goods the retailers create this utility.

2. Channels of distribution. Functions as a vital instrument of marketing information system. Actually, the retailers face real music of the market. Wholesalers’ collets information regarding customer opinion about product. Marketing examines the information and takes necessary actions.

3. Role of financing is also important by distribution channels.

4. Distribution channels reduces considerable administrative burden of the marketing company.

5. The channel member knows the pulse of market and their suggestions becomes very important in correct price determination of products.

6. Distribution channel play very significant role in promotion of firm’s product.

7. If firm is successful in convincing to channel of distribution about its product the product may get settled in the market very quickly.

8. In the reduction of distribution cost, the channels of distribution play its important role.

Important policies of distribution

1. Intensive/ Comprehensive Distribution policy- Under this policy the firm tries to take services of maximum middlemen(Retailers) in order to provide best exposure to its products. This policy is best; suited for convenience goods and industrial supplies. It is very useful when firm’s products are effectively branded. That’s why length of channel is larger.

2. Selective distribution Policy- Few dealers are appointed in a particular market to the products by the firm. These dealers cannot deal in competitive brands. The policy of selective distribution is suitable for the marketing of shopping products, durable consumer products industrial accessories and fabricated materials. Under this policy marketing company can transfer some portion of promotional expenditures on dealers/ middlemen.

3. Exclusive Distribution Policy- Under this policy only a single dealer (may be two dealer) to sell the company’s product in a specified sales territory this policy frequently used in the marketing of consumer speciality products, industrial products, automobiles, highly technical products & reasonable portion of promotional expenditure may be shifted to dealers.

Method of export distribution channels

The suitable distribution channel should be selected by the firm for marketing of its product in foreign market effectively. Many channels are available for distribution, every channels has it advantages & disadvantages. That’s why marketing company should select appropriate channel with very careful consideration on it.

I. Direct Distribution Channel- under this channel the firm does not take the help of middlemen to sell its products. The firm sets its own distribution channel in its foreign markets to directly sell its products to the consumers. If the firm is having sound financial resources & intensive knowledge then this method may be very appropriate.

Advantages

1. Shortage’s channel
2. Beneficial in highly technical product
3. Appropriate if product selling on very high price.
4. Appropriate number of customers is limited.
5. Profit is increase because profit margin of middleman is nil
6. Full control may be established.
7. Firm may take optimum use of its spare financial resources.
8. Products may be quickly delivered.
9. It is the best method to sell the product.
10. The firm remains in direct touch of the foreign customers.

Disadvantages

1. Increase the distribution costs.
2. Firms bear all promotional expenditure
3. It requires huge financial resources so it is unappropriate
4. It increases responsibilities of management.
5. It is very difficult tasks to perform manufacturing & selling simultaneously

II. Indirect channel of distribution- Under this channel the marketing company utilizes the services of middlemen to distribute its products to consumers of foreign markets. The role of middlemen becomes very significant in indirect channel. These middlemen may be further divided into two categories1. Merchant middlemen 2. Agent middlemen

Advantages

1. It is most appropriate for new entrant in the international market.
2. It is appropriate for those firm’s having limited financial resources.
3. Distribution cost may be reduced
4. Middlemen may provide better services to customers.
5. Customers acceptance may be increased
6. Marketing company can take full advantage of goodwill & established image itself

Disadvantages

1. It increases the selling price of products.
2. Middleman may not be loyal to marketing company.
3. It reduces the profit of exporter.
4. It is not appropriate for very high priced.
5. International marketing company remains ignorant about foreign market. So role of firms becomes limited.

III. Mixed channels of distribution- The present trade is in favour of mixed distribution channels. It is a combination of direct and indirect channels in order to attain the advantages to both the channels. Even in a single country at some places the firm may directly sell its products to customers and for other places the services of middlemen can be used.

IV. Co-operation distribution channel- It is based on basic principles of co-operation. This type of distribution system in order to avoid unnecessary competition, the exporting firms dealing in the same product category want to co-operate becomes the member of this body. Governing board is constituted on the democratic basis. All the products being manufactured by the member firm are exported in foreign markets under common brand name. Tie-ups are established in foreign markets with co-operative societies to market the product.

Advantages

1. It is appropriate for the small exporting firms
2. It eliminates unnecessary competition.
3. Common branding & collective marketing provide more profit to member.
4. Distribution cost may be substantially reduced
5. Services of talented persons may be used in board.

Disadvantages

1. The longevity of co-operative distribution remains always under question mark.
2. Firms have to bear unnecessary losses due to in competent board.
3. Quality control becomes a very challenging issue in co-operative distribution.
4. Effective company may depart form it & may be start their operation separately.

V. Vertical Marketing System- In recent times vertical marketing system is becoming popular the wholesalers and retailers were more interested in maintaining their freedom than in coordinating their activities with producer. This type of channels designed specifically to improve operating efficiency & marketing effectiveness. There are 3 types of vertical marketing distribution channel

1. Corporate vertical marketing distribution channels
2. Contractual vertical marketing distribution channels
3. Administered vertical marketing distribution channels
   

Logistics decision

Logistics/ physical distribution task is more challenging and complicated in international marketing, in comparison to domestic marketing.

According to W.J. Shmton, “Physical distribution is the management of physical flow of products and the establishment and storage of goods after they are produced and before they are consumed.”

It is clear that logistic distribution involves the movement of goods from producing centers to centers of consumption. It is closely related with channel management of the company. In a wider sense, logistics is the function responsible for moving materials through their supply chain where a supply chain is the series of activities and organization that materials move through on their journeys from initial suppliers to final customers.

Characteristics

1. It is a science of supply
2. It is closely related with management of distribution channel
3. It is important linking pin between production and consumption centers.
4. Logistics play same role in marketing system like blood supply.
5. It is the management of flow/ movement of product.
6. It is a managerial activity, it involves management of storage of products at specified centers.

Objectives

1. Prime object of logistic is to provide maximum customer satisfaction by delivering goods at desired places at right time in desired quantity.
2. An important objective is to ascertain the smooth flow of goods
3. Profit maximization is another important objective.
4. Another objective is to strike optimum balance between distribution cost and maximum customer satisfaction.

Philip kotler suggests to follow this equation to strike optimum balance the two contradictory objectives (reduction of distribution cost & maximum customer satisfaction). The formula in this regard is as underD = T + Fw + Vw + S

Meaning of above words is as underD = Total cost of physical distribution system

• T = Total transportation Cost
• Fw = Fixed costs of warehouse
• Vw = Variable cost of Warehouse
• S = The quantum of profit/ loss due to average delay in supply

5. Creation of place utility and time utility is another objective of logistics.

Advantages & significance of Logistics Distribution

Logistics distribution management functions as an important installment for getting success in international marketing. It is not a easy task to manage effective, smooth, economical and regular supply of required raw material and other things to every places where the customer are happened.

1. Reduction in distribution cost
2. Optimum use of financial resources
3. Exploitation of market opportunities
4. Price stabilization
5. Market expansion
6. Boosts morale and motivation of middlemen
7. Maintenance of market share
8. Elimination of middlemen
9. Maximum customer satisfaction.

Selection and appointment of foreign agent

An agent is a person employed by another person to do any act for him or to represent him in dealing with third parties so as to and himself by the acts of such another person.

According to Indian Contract Act – “An agent is a person employed to do any act for another or to represent another in dealing with third persons.”

Relationship between the two persons appointing person and the person who is acting on behalf of him is called agency. Appointment of selling agent is very important decision in international marketing. Marketing company which is appointing him shall be liable from the acts of agent and all the contracts made by the agent with the third parties shall be having legal binding on it. For the trusted relations and longivity of agency the following factors should be taken in to due consideration

1. Study of the foreign market
2. Legal provision of both countries
3. Eligibility to become agent
4. Number of agent
5. Financial position
6. Line specialization
7. Sharing of expenses
8. Payment of commission
9. Place of order
10. Delivery of goods
11. Dealing in competitive product
12. Credit sales
13. Comprehensive
14. Language of the contract
15. Opinion of the legal experts.

Identifying foreign sales agents. How can you find foreign agent? There are so many way for finding agent. Following are the way of foreign sales agent

1. Indian Embassies and high commission office
2. Foreign chamber of commerce
3. Import promotion centers
4. International union of commercial agent and brokers
5. Visit of fairs exhibitions
6. Advertising

Contents of agency agreement

1. Types of agreement
2. Geographic coverage
3. Product coverage
4. Exporters obligations
5. Agent’s obligation
6. Duration and termination of agreement
7. Arbitration
8. Remuneration of agent

Key takeaways –

Distribution plays an important role in the implementation of the international marketing programme as it enable the products and services to reach the ultimate customer

References:

1. Bhattacharya R.L. And Varshney B: International Marketing Management; Sultan Chand, New Delhi.

2. Bhattacharya B: Expert Marketing Strategies for Success: Global Press, New Delhi.

3. Keegan W.J. Multinational Marketing Management; Prentice Hall, New Delhi.

4. Kriplani V: International Marketing; Prentice Hall New Delhi.