Distribution Channels in International Marketing (IM 17 Dec 2020)

Distribution Channels in International Marketing

The sole objective of production of any commodity is to help the goods reach the ultimate consumers. In the era of modem large scale production and specialization it is not possible for the producer to fulfill this work in all circumstances. The size of market has become quite large. Therefore, the producer has to face numerous difficulties if he undertakes the distribution works himself.

Besides, in the age of specialization it is not justified on the part of a single person or organization to entertain both production as well as distribution work. Thus, the producer has to take help of many distribution channels to transfer the goods to the ultimate consumers. In other words, many different distribution channels are needed between producers and consumers for effective distribution of products.

 

Definitions:

According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firm’s objectives. This set of marketing intermediaries is called the marketing channel.”

According to William J. Stanton, “A channel of distribution for a product is the route taken by the title to the goods as they move from the producer to the ultimate consumers or industrial user.”

According to McCarthy, “Any sequence of institutions from the producer to the consumer, including none or any number of middlemen is called a channel of distribution.”

 

After studying the definitions, the appropriate definition of distribution channel can be given as follows:

“Distribution channel is that path which includes all individuals and institutions which work to make goods reach the consumers from producers without interruption.” Thus, distribution channel helps in the transfer of goods in original form from producers to consumers.

 

The Types of International Distribution Channels

Buying and selling are part of everyday operations. Consumers are an imperative part of commerce. Manufactures’ will use a variety of methods to be able to reach them. The type of method used will be determined by availability, cost and success of both the product and method. Local and international distribution methods are used by the manufacturer to find the most effective and productive way for their product to reach their consumer. These are very different types of distribution methods that manufacturers will decide to use.

 

Zero Level Channel

Zero level channel or direct channel distribution is when a manufacturer sells a product directly to the consumer. The transactions are done directly with manufacturing company. This can be done as a local distribution or an international distribution. The complexity of it will be determined by the method of sales used along with the location of the customers. The increased use of the internet has made direct channel distribution more popular in the last few years. Consumers can now buy directly from manufactures online, among other options. This is great for consumers as they are not paying a markup from a third party. A great example of local direct channel distribution would be Amazon & Flipkart.

 

Level One Channel

Much as it sounds, level one channel distribution occurs when a manufacturer uses a middle man to sell their product to a consumer. This is a great option for simple transactions for international distribution. It is also convenient for consumers who like to see a product first hand before purchasing. Examples of this include retail stores. With retail, a manufacturer creates the product and sells it to the retail outlet, the retail outlet turns around and sells it to the consumer. With level one channel distribution, the retail store is in direct contact with the product manufacturer.

 

 

Level Two Channel

Level two channel distribution is seen regularly with large wholesale companies. These companies produce very large volumes of products and do not have the resources or desire to deal directly with the retail outlets that sell the product for them. In these instances, the manufacturer creates a very large volume of an item, this item is then sold to a wholesaler, the wholesaler sells it to the retail store and then the retail store sells it to the consumer. This works especially well with international distribution as many wholesale items are created in one location and then sold around the world. One example of this would-be children’s toys. Many toy stores will sell the same type of toy. These toys were all purchased from a wholesale provider; this provider purchased the toys from the manufacturer.

 

Level Three Channel

Level three channel distribution is extremely common with the most popular products we use. Soft drinks, brand name foods, hair and body products and many more use a three-level channel international distribution system. The third level of this system incorporates a sales agent. Consumers purchase from a retail store, that retail store will purchase from a wholesale company, the wholesale company orders their purchases from a sales agent, this sales agent will deal with the manufacturer directly.

 

The best distribution method will depend on a large number of factors. The consumer, the manufacturer, the volume produced, the volume purchased, and the location of the product, along with the manufacturer and the budget needed to inform the public about the manufactured product. Creating an item is only half the task; the other half is finding the best way to put it into your consumer’s hands.

 

Types of Distribution Channels:

There are different types of channels of distribution and a manufacturer may select any one of these channels.

 

 

These channels may be broadly divided into two parts:

A. Distribution Channel of Consumer Goods:

The channels of distribution for consumer products may be as follows:

 

1. Manufacturer → Agent → Wholesaler → Retailer → Consumer:

In this method of distribution channel, product reaches the agent from the manufacturers and from the agent to wholesaler and then to consumers through retailers. In India, most of the textile manufacturers adopt this method of distribution.

 

2. Manufacturer → Agent → Retailer → Consumer:

In this method of distribution, the wholesaler is eliminated and goods reach from manufacturer to agent and then consumers through retailers only. Manufacturers who want to reduce cost of distribution adopt this method.

 

3. Manufacturer → Agent → Consumer:

As per this method of distribution channel, there is only one middleman that is the agent. In India, for the distribution of medicines and cosmetics, this channel of distribution is commonly adopted.

 

4. Manufacturer → Wholesaler → Retailer → Consumer:

A manufacturer may choose to distribute his goods with the help of two middlemen. These two middlemen may be wholesalers and retailers.

 

5. Manufacturers → Retailer → Consumer:

In this method of distribution channel, manufacturers sell their goods to retailers and retailers to consumers. In India, Gwalior Cloth Mills and Bombay Dyeing adopt this channel of distribution to sell textiles.

 

 

 

 

6. Manufacturers → Consumers:

A producer of consumer goods may distribute his products directly to consumers. The goods may be sold directly to consumers through vending machines, mail order business or from mill’s own shops.

 

TRPES OF DISTRIBUTION CHANNEL OF CONSUMER GOODS :-

1. ZERO LEVEL : Producer ------- Ultimate User e.g Bata showroom, Liberty showroom, Eureka Forbes.

 

2. ONE LEVEL : Producer ------ Retailer ------- Ultimate User e.g Titan showroom, Usha swing machine showroom

 

3. TWO LEVEL : Producer ------ Wholeseller ------------ Retailer ------- Ultimate User e.g Bajaj products, Kwality Wall’s ice cream.

 

4. TWO LEVEL : Producer ------ Agent ------------ Retailer ------- Ultimate User e.g LML scooter, Sentro car.

 

5. THREE LEVEL : Producer ----- Agent ----- Wholeseller ----- Retailer ---- Ultimate User e.g Colgate, Different soaps.

 

B. Distribution Channel of Industrial Products:

The channels for industrial products are generally short as retailers are not needed.

However, following methods may be adopted:

 

1. Manufacturer → Agent → Wholesaler → Industrial Consumer:

Under this method, product reaches from manufacturer to agent and then to industrial consumer through the wholesaler.

 

 

 

2. Manufacturer → Agent → Industrial Consumer:

Under this system, goods reach industrial consumer through the agent. Thus, there is only one middleman.

 

3. Manufacturer → Wholesaler → Industrial Consumer:

This distribution channel is the same as above, the only difference is that in place of agent, there is wholesaler.

 

4. Manufacturer → Industrial Consumer:

Under this channel there is no middleman and goods are directly sold to industrial consumer. Railway engines, electric production equipment is sold by this system.

Direct channel is popular for selling industrial products since industrial users place orders with the manufacturers of industrial products directly.

 

TRPES OF DISTRIBUTION CHANNEL OF INDUSTRIAL GOODS :-

1. ZERO LEVEL : Producer ------- Ultimate User e.g Railways .

 

2. ONE LEVEL : Producer ------ Industrial Distributer ------- Ultimate User e.g Small size tool manufacturer.

 

3. ONE LEVEL : Producer ------ Agent ------- Ultimate User e.g Small size enterprises introducing new products

 

4. TWO LEVEL : Producer ------ Agent ---------- Industrial Distributer ------- Ultimate User e.g New product or existing products.

 

 

 

 

 

To plan about an export distribution, knowledge on two different aspects are a must:

(i) The marketing channel that is available in the Foreign Market.

(ii) The most appropriate channel is to link the domestic operations to the overseas channels.

The principal forms of penetrating exports markets are selling to local export houses or buying organisations for indirect exporting and appointing agents or distributors for direct exporting.

 

If these forms are combined with the domestic channel of distribution in the importing country, the export distribution channel can be identified as follows:

a. Direct Distribution Channel:

This figure is illustrative of distribution of channel of consumer goods. In case of industrial products, the channel will be shorter because there is no need of retailers. In fact, in many cases, there may not be any wholesaler.

Producer → Agent → Industrial buyer

 

b. Indirect Distribution Channel:

In indirect exporting, the firm delegates the task of selling products in a foreign country to an agent or export house.

This figure is illustrative of distribution channel of goods. In case of industrial products, the channel will be shorter because there is no need of retailers. In fact, in many cases, there may not be any wholesaler.

The channels of distribution may differ from country to country, market to market and product to product. So, the first task of the producer is to find out the possible distribution channel through which he wants to reach the consumers on the foreign market, keeping in view the characteristics of his product and the marketing strategy he wants to follow in the market.

 

While selecting a distribution channel for foreign markets, the management of the exporting company should consider the following aspects:

(i) Who are the consumers? Which are the available retail outlets to reach them?

(ii) Which type of market coverage is required, keeping in view the product and consumer characteristics?

(iii) Are there any internal constraints for the exporter like finance which will influence the decision regarding choice of the distribution channel?

(iv) What are the expectations from the channel members? Are there some specific expectations?

(v) What is the required support system to satisfy the expectations of the channel members?

It should be realized that the distribution channel is the mechanism through which the seller reaches the consumers and, therefore, the selected channel must be suitable to the company’s operations and marketing strategy.

 

Export Distribution Channels:

The distribution process for international marketing involves all those activities related to time, place and ownership utilities for industrial and end consumers. The selection, operation and motivation of effective channels of distribution often turn out to be important factor in firm’s differential advantage in international markets. The diverse cultural differences play an important role in formulation of distribution strategies for any exporter entering foreign markets.

International marketing distribution is similar to that in domestic marketing. Main difference is in environmental effects. The exporter, therefore, needs to understand how environmental factors affect the distribution policies. Using this knowledge, the exporter must use the most appropriate channels on a country-to-country basis.

The distribution system available in a country is also influenced by the economic development of the country, the personal disposable income of consumers and as well as some other factors such as culture, physical environment and the legal/political system. Exporters, while developing a distribution strategy must focus on how the goods can be transported from the manufacturing locations to the consumer most effectively.

Although distribution can be totally handled by the manufacturer, often the goods are moved through middlemen such as wholesalers, distributors, retailers or agents. An understanding of the available distribution system in a particular county is extremely important in the development of a sound distribution strategy.