Channel Decisions

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Channel Decisions
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Two Global Channel Decisions

• 1 Development of the channel system
• gt these decisions are terminal
• 2 - Management of the channel system
• gt these decisions are ongoing, they relate
  to the functioning of the channel system

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Key Decisions

• What is the
• - availability
• - cost
• - function
• Strategic Choices are
• - how much control
• - extend domestic approach
• - direct or indirect
• - selective or intensive
• - short or long
• - single or multiple

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Middlemen Networks of Specialists
Source Adapted from Paul F. Nunes and Brian S.
Pappas, Der Vermittler auf der Suche nach
Reichtum und Glück, Outlook, Andersen
Consulting, Heft 1, 1998, p. 55
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International Channel Strategies

• Two forms of channel strategy
• direct involvement
• Own sales force, retail stores, etc.
• indirect involvement
• Independent agents, distributors, wholesalers

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Strategy for New Market Entry

• Use established channels, build own channels or
  abandon the market
• Must provide incentive to channel agents to take
  on a new product
• Either using existing channels or establishing
  their own direct distribution is expensive
• Direct distribution is most effective

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The Global Supply Chain is Changing

• Integration with - distribution/retail 62
• - customer 70
• Improve supply chain - via electronic links 65
• performance
• Outsourcing support - distribution 35
• services
• Adopting e-commerce - North America 45
• - Europe 37
• - Asia-Pacific 29
• - Latin America 25

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Customer and Product Influences

• Customer - if few, then direct channels
• - if many, then mass retailing
• Example Toys R Us faced strong opposition
  from manufacturers against direct
• Product - if perishable, then direct channels
• - if high value, then exclusive
• Example bakery shipping to retailers Chanel
  products in exclusive boutiques

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Perishable product in the channelAndersen
Consulting in Russia (1991)

• Problem
• Moscow Bread Company had problems with product
  freshness (stale) and spoilage (up to 1/3 of
  production was wasted

• Solution
• used plastic bags and extended shelf life by 600
• improved ability to distribute bread
• Overcame delivery of stale bread (excessive
  paperwork caused delays)
• Note 2 of food in Russia was packaged vs.
• 95 in developed countries

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Japans Channels

• Are they efficient?
• gt in Japan 68 people per store
• wholesale turnover is 3.9 times retail sales
• gt in Canada 195 people per store
• wholesale turnover is 1.3 times retail sales
• Small retailers are gradually losing protection
  of the Large Scale Retail Store Law

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Layers of Japanese Distribution
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Functions in the Japanese Cosmetics Industry

• Manufacturer - production
• - advertising
• - national sales promotion
• - dealer aids education of dealers
• - financing
• Intermediary - order taking
• - inventory maintenance
• - space control at retail level
• - product assortment
• - dispatching of sales support personnel
• - area marketing
• - financing
• Retail - selling
• - in-store promotion
• - organizing consumers
• Source Czinkota Ronkaiinen International
  Marketing, Drydeb, 1998, Table 12.2, p. 388

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Five Steps to a Japanese Channel Strategy

• Find a Japanese partner
• Seek distinctive market position
• Identify alternative distribution routes
• Focus resources not shotgun approach
• Cultivate personal relationships

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Expansion Waves in Global Retailing

• 1970s cross-border in Europe
• 1980s South America
• 1990s Asia and Central Europe
• 2000s consolidation?

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Entry Strategy Framework Global Retailing

• Culturally close
• easy Organic Chain difficult
• to Acquisition to
• enter enter
• Franchise Joint Venture
• Culturally distant

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Globalization in Retail

• Retailers follow CPG into global markets
• Global retailers demand single global pricing
  from CPG vendors
• CPGs still organized along national lines,
  exploiting price differentials in new markets
• Push and pull reasons for global expansion
• Power brands drive expansion (Body shop,
  Benetton, Wal-Mart)
• Non-power brands (Carrefour) offer cheap products
  on massive scale
• Source IBM UK Interests Industries,
  Diversification and Globalization in the Retail
  Industry, 2.18.1999

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Product Opportunities
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Special Retailing Issues door to door selling

• Consumer products
• Avon uses strategy in 50 countries
• Perfect strategy for China, Hungary, Czech
  Republic, Russia

• In China
• 518 domestic and foreign direct sellers
• 1500 businesses operating illegally
• 1.5 million sales people

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China banned door-to-door sales in 1998 because
of

• Immature market conditions
• Inadequate legislation
• Immature consumer psychology
• Companies false publicity campaigns
• Luring consumers to buy excessively high-priced
  goods

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Large US Direct Sellers in China

• Avon 75 million sales, 25,000 sales staff
• Amway Asia 178 million sales, 80,000 sales
  staff
• Mary Kay 22 million sales, 8,000 sales staff
• Their response
• Mary Kay set up counters in department stores
• Amway Asia changing distribution and service
  system

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International Channel Innovation

• Only in highly developed systems
• Directly related economic development
• Influenced by local demographic/geographic
  factors, social mores, government action,
  competitive pressures infrastructure
• Accelerated by actions of aggressive individual
  firms

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What does e-commerce mean?

• The Death of Distance
• Targeting the individual customer
• Relationship marketing
• Speed to market
• Changing rules of competition
• Components of the electronic value chain

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Barriers to Global e-commerce

• International rules on privacy, consumer
  protection, product liability vary
• Solid objects still delivered physically
• Cost of shipping abroad very high (due to customs
  costs, collection of import duties, national
  taxes)

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Summary

• Decisions relate to channel development and
  channel management
• Key are control, directness, intensity, length,
  coverage
• Customers and products shape channel structure
• Mgmt philosophy affects channel preference
• Japanese system evolved from cultural context
• Retail channels are globalizing
• E-business as new and positive influence