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MBA 713 - Chapter 16
- 1. Chapter 16 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 1 International Marketing
- 2. Learning Objectives • Characterize marketing management • Examine product policies and decisions • Characterize pricing issues and policies • Identify promotion issues and decisions • Discuss distribution issues and decisions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 2
- 3. International Marketing Management Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 3
- 4. International Marketing as an Integrated Functional Area Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 4 Human Resource Management Finance Accounting Operations Management Marketing
- 5. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 5 • Differentiation • Cost Leadership • Focus Strategy International Marketing and Business Strategies
- 6. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 6 The Marketing Mix Product PlacePromotion Pricing
- 7. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 7 • Ethnocentric • Polycentric • Geocentric Standardization versus Customization
- 8. Standardized International Marketing Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 8 Advantages Disadvantages •Lower Marketing Costs •Centralized Control •Efficient R&D •Economies of Scale •Global Marketplace •Different Product Uses •Local Legal Differences •Local Buyer Behavior •Local Marketing •Market Differences
- 9. Customized International Marketing Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 9 Advantages Disadvantages •Different Product Uses •Local Legal Differences •Local Buyer Behavior •Local Marketing •Market Differences •Higher Marketing Costs •Less Central Control •Inefficient R&D •Less Economies of Scale •Ignores Global Market
- 10. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 10
- 11. International Product Policies Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 11
- 12. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 12 • Target Customers • Legal Forces • Cultural Influences • Economic Factors • Brand Names Standardized Products or Customized Products?
- 13. Target Customers Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 13 Industrial Products Consumer Products
- 14. Legal Forces Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 14 Labeling Requirements Health Standards Technical Standards Product Design
- 15. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 15 Cultural Influences • Language • Ingredients • Packaging • Presentation
- 16. Economic Factors Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 16 Economic Development Local Infrastructure
- 17. •Packaging •Design •Advertising Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 17 Brand Names
- 18. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 18
- 19. International Pricing Issues and Decisions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 19
- 20. Pricing Issues Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 20 •Varying Costs of Doing Business •Transportation and Tariffs •Distribution Practices •Exchange-Rate Fluctuations
- 21. Pricing Policies Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 21 •Standard •Two-Tiered •Market Price
- 22. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 22 Conditions for Success •Demand •Costs •Arbitrage
- 23. Market Pricing Benefits Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 23 Match Local Costs to Local Sales Base Prices on Local Markets Monitor Conditions Delegate Authority
- 24. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 24 Market Pricing Risks Damage to Brand Names Gray Market Development Consumer Resentment
- 25. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 25
- 26. International Promotion Issues and Decisions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 26
- 27. The Promotion Mix Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 27 •Advertising •Personal Selling •Sales Promotion •Public Relations
- 28. Advertising Strategy Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 28 Three Decision Factors Global vs. Local MediumMessage
- 29. What Is Personal Selling? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 29 •Industrial Products •Consumer Products
- 30. Advantages of Personal Selling Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 30 Knowledge of Local Markets Close Contact with Customers Access to Valuable Market Information
- 31. Disadvantages of Personal Selling Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 31 Compensating Sales Representatives Making Contacts After the Sale Expenses of Regional Sales Offices
- 32. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 32 Sales Promotion •Retailers •Wholesalers •Consumers
- 33. Public Relations Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 33 The General Public Government Regulators Enhanced Reputation
- 34. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 34
- 35. International Distribution Issues and Decisions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 35
- 36. Mode Advantages Disadvantages Train Reliable, Low Cost Rail Routes Only, Slow Airplane Safe, Reliable Costly, Limited Access Truck Versatile, Low Cost Size Limitations Ship Low Cost, Large Items Slow, Indirect Online Fast Delivery Product Limitations Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 36 International Distribution
- 37. Transportation Mode Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 37 Inventory and Service
- 38. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 38 Channels of Distribution Manufacturer Manufacturer Manufacturer Import Agent Import Agent Import Agent Customer Retailer Customer Wholesaler Retailer Customer
- 39. Channel Length Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 39 Distribution Channel Stages Direct Sales to Customers Use of Retailers Use of Wholesalers
- 40. Distribution Strategy Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 40 Home-Country Methods Foreign Distributors Joint Ventures Local-Market Systems
- 41. Summary of Discussion Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 41
- 42. Chapter 16 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 42 International Marketing
- 43. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 16 - 43 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Editor's Notes
- Marketing is “the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.” International marketing is the extension of these activities across national boundaries. International marketing managers confront two tasks their domestic counterparts do not face: capturing synergies among various national markets and coordinating marketing activities among those markets. Synergies are important because they provide opportunities for additional revenues and for growth and cross-fertilization. Coordination is important because it can help lower marketing costs and create a unified marketing effort.
- This chapter’s learning objectives include the following:Characterizing the nature of marketing management in international business. Discussing the basic kinds of product policies and decisions made in international business. Identifying pricing issues and evaluating pricing decisions in international business.Identifying promotion issues and evaluating promotion decisions in international business.Discussing the basic kinds of distribution issues and decisions in international business.
- International marketing management encompasses a firm’s efforts to ensure that its international marketing activities mesh with the firm’s corporate strategy, business strategy, and other functional strategies.
- Often, an international firm’s marketing activities are organized as a separate and self-contained function within the firm. Yet that function both affects and is affected by virtually every other organizational activity—e.g., accounting, finance, operations management, and human resource management. These interrelationships make international marketing management a critical component of international business success.
- A critical element for a firm’s success is the congruency of its international marketing efforts with its overall business strategy. A differentiation strategy requires marketing managers to differentiate the firm’s products or services from those of its competitors. Differentiation can be based on perceived quality, fashion, reliability, or other salient characteristics. Alternatively, a firm may adopt an international business strategy that stresses its overall cost leadership. Cost leadership can be pursued and achieved through systematic reductions in production and manufacturing costs, reductions in sales costs, acceptance of lower profit margins, use of less expensive materials and component parts, or other means. A firm also may adopt a focus strategy. In this case marketers will concentrate their efforts on particular segments of the consumer market or on particular areas or regions within a market. Having adopted an overall international business strategy, a firm must assess where it wants to do business.
- After an international firm has decided to enter a particular foreign market, further marketing decisions must be made. In particular, international marketing managers must address four issues:How to develop the firm’s product(s)How to price those productsHow to sell those productsHow to distribute those products to the firm’s customersThese elements are known as the marketing mix and often referred to as the four Ps of marketing: product, pricing, promotion, and place (or distribution). International marketing-mix issues and decisions parallel those of domestic marketing in many ways, although they are more complex. Before we discuss these complexities, however, we need to focus on another important issue in international marketing—the extent to which an international firm should standardize its marketing mix in all the countries it enters.
- A firm’s marketers usually choose from three basic approaches in deciding whether to standardize or customize their firm’s marketing mix:The ethnocentric approach is relatively easy to adopt. The firm simply markets its goods internationally by using the same marketing mix it uses domestically. This approach avoids the expense of developing new marketing techniques to serve foreign customers. However, the firm may lose sales because it fails to consider the needs of its foreign customers. The polycentric approach is expensive, since international marketers attempt to customize the firm’s marketing mix to meet the needs of customers in each market. In spite of its increased costs, customization can increase the firm’s revenues, if marketers are successful. Often international firms that view themselves as multidomestic adopt this approach.The geocentric approach calls for standardization of the marketing mix. This approach allows the firm (1) to provide essentially the same product or service in different markets and (2) to use essentially the same marketing approach to sell that product or service globally. Standardization can create huge economies of scale (and competitive advantages) in production, distribution, and promotion.
- The trade-offs between standardization and customization are clear. In essence, standardization focuses on the cost side of the profit equation; by driving down costs, the firm’s profits are enhanced. As this table shows, the advantages of standardized international marketing include:Reducing marketing costsFacilitating centralized control of marketingPromoting efficient research and developmentResulting in economies of scale in productionReflecting the trend toward a single global marketplaceHowever, the standardized marketing approach also had some disadvantages:Ignoring different conditions of product useIgnoring local legal differencesIgnoring differences in the behavior patterns of buyersInhibiting local marketing initiativesIgnoring other differences in individual markets
- Customization focuses on the revenue side of the profit equation. By attending to the unique customer needs in each market, the firm is able to charge higher prices and sell more goods in each market. This table shows that the advantages of the customization approach are as follows:Reflecting different conditions of product useAcknowledging local legal differencesAccounting for differences in buyer behavior pattersPromoting local marketing initiativesAccounting for other differences in individual marketsThe customization approach also has some disadvantages:Increasing marketing costsInhibiting centralized control of marketingCreating inefficiencies in research and developmentReducing economies of scale in productionIgnoring the trend toward a single global marketplaceIn practice, successful firms have adopted a strategy of “think globally, act locally.” In doing so, they gain the economies of scale of a global marketing mix while retaining the ability to meet the needs of customers in different national markets.
- This section covered International Marketing Management. The discussion focused on international marketing and business strategies and the elements of the marketing mix. It also explored how marketers can use the ethnocentric, polycentric, and geocentric approaches when deciding whether to standardize or customize their firm’s marketing mix. The next section will explore International Product Policies.
- The first “P” of the international marketing mix is the product itself. Here, the term product represents both the set of tangible factors that the consumer can see or touch (the physical product and its packaging) and numerous intangible factors such as image, installation, warranties, and credit terms. In order to succeed, companies must create products with tangible and intangible features that meet the wants and needs of customers in diverse national markets.
- A key product policy decision facing international marketers is the extent to which their products should be standardized across markets or customized within individual markets. The extent of customization will vary according to the following factors: target customers, legal forces, cultural influences, economic factors, and brand names.
- One important factor is the nature of the product’s target customers—are they industrial users or individual consumers? Although some industrial products are customized and some consumer products are standardized, generally speaking, standardization is more common in industrial products than in consumer products.
- The laws and regulations of host countries also may affect the product policies adopted by international firms. Some countries, for instance, have imposed detailed labeling requirements and health standards on consumer products. International firms must adjust the packaging and even the products themselves to meet these consumer protection regulations. Countries also may regulate the design of consumer products to simplify purchase and replacement decisions. Furthermore, the wide variety of technical standards for such products as telecommunications equipment and electrical appliances also force firms to customize their products.
- International firms often must adapt their products to meet the cultural needs of local markets. One typical adaptation is to change the labeling on the product’s package into the primary language of the host country. In some cases, however, a foreign language may be used to connote quality or fashion.Culture may affect product policy in other ways. Often the ingredients used in food products must be modified for local tastes. Firms may find it necessary to adjust or modify their packaging in different countries, as well. Therefore, U.S. multinational corporations often package their “Americanized” products so that they blend more readily into foreign cultures. Culture may force changes in the way a foreign product is presented. For example, local morals and sensibilities will determine whether the content of movies, music, or other forms of artistic expression will be permissible.
- A country’s level of economic development may affect the desired attributes of a product. Consumers in richer countries often favor products loaded with extra performance features; more price-sensitive consumers in poorer countries typically opt for stripped-down versions of the same products. Sometimes, a firm may have to adjust the size or design of packaging to meet local conditions. The quality of a country’s infrastructure also may affect the customization decision. For instance, manufacturers may reinforce the suspension systems of motor vehicles sold in countries where road maintenance is poor. The availability and cost of repair services also can affect product design. Automobiles sold in poorer countries often use simpler technology, which allows more repairs to be done by backyard mechanics.
- International firms often like to standardize the brand name of a product. A firm that does this can reduce its packaging, design, and advertising production costs. It also can capture spillovers of its advertising messages from one market to the next. For example, Avon’s entry into the marketplace in China was expedited because millions of consumers had seen its products advertised on Hong Kong television. Sometimes, however, legal or cultural factors can force a firm to alter the brand names of its products. For instance, Coca Cola calls its low-calorie soft drink Diet Coke in North America, but the same product is known as Coca Cola Light in other markets.
- This section explored International Product Policies. International businesses must decide whether to standardize or customize their products in the global marketplace. The discussion explored how the following elements can help businesses make that choice: target customers, legal forces, cultural influences, economic factors, and brand names. The next section will explore International Pricing Issues and Decisions.
- The second “P” of the international marketing mix is pricing. Developing effective pricing policies is a critical determinant of any firm’s success. Pricing policies directly affect the size of the revenues earned by a firm. The policies also serve as an important strategic weapon by allowing the firm to shape the competitive environment in which it does business.
- Both domestic and international firms must strive to develop pricing strategies that will produce profitable operations, but the task facing an international firm is more complex. To begin with, a firm’s costs of doing business vary widely by country. Differences in the transportation charges and tariffs of various countries affect the landed price of goods. Differences in distribution practices also affect the final price the end customer pays. Exchange rate fluctuations also can create pricing problems. If an exporter’s home currency rises in value, the exporter could maintain its prices in the home currency. This would make its goods more expensive in the importing country. On the other hand, the exporter could maintain its prices in the host currency. This would cut its profit margins by lowering the amount of home country currency it receives for each unit sold.International firms must consider these factors when developing pricing policies for each national market they serve.
- International firms generally adopt one of three pricing policies—standard, two-tiered or market driven.An international firm following a geocentric approach to marketing will adopt a standard price policy. The firm will charge the same price for its products and services regardless of where they are sold. Firms that sell goods which are easily tradable and transportable often adopt this pricing approach out of necessity. An international firm that follows an ethnocentric marketing approach will use a two-tiered pricing policy. The firm will set one price for all its domestic sales and a second price to account for the marginal costs of its international sales. However, it is not a suitable long-run pricing strategy. A firm that views foreign customers as marginal—rather than integral—to its business is unlikely to compete successfully in the international marketplace. Furthermore, firms that adopt a two-tiered pricing policy also are vulnerable to charges of dumping their products in a foreign market. A firm that follows a polycentric approach to international marketing will use a market pricing policy. Because of the complexity of this pricing method, it will be covered on the next several slides.
- A firm utilizing market pricing customizes its prices on a market-by-market basis to maximize its profits in each market. Certainconditions must be met if a firm is to successfully practice market pricing.First, the firm must face different demand and/or cost conditions in the countries in which it sells its products. This condition usually is met because taxes, tariffs, living standards, competition, infrastructure, and other factors will vary from country-to-country.Second, the firm must be able to prevent arbitrage, a concept discussed in Chapter 8. In short, the firm’s market pricing policy will unravel if customers are able to buy the firm’s products in a low-price country and resell them profitably in a high-price country. Because of tariffs, transportation costs, and other transaction costs, arbitrage is usually not a problem if country-to-country price variations are small. If prices vary widely by country, however, arbitrage can upset the firm’s market pricing strategy.
- Assuming these conditions are met, the advantages of this polycentric approach are obvious. The firm can set higher prices where markets will tolerate them and lower prices where low prices are needed to remain competitive. It also can allocate relevant local costs against local sales within each foreign market, thereby allowing corporate strategists and planners to better allocate the firm’s resources across markets. Such flexibility comes with a cost, however. To capture the benefits of market pricing, local managers must closely monitor sales and competitive conditions within their markets so that appropriate and timely adjustments can be made. Also, corporate headquarters must delegate authority to local managers by allowing them to adjust prices within their markets.
- A market pricing policy can expose a firm to complaints about dumping (as discussed earlier), as well as to three other risks: (1) damage to its brand name, (2) development of a gray market for its products, and (3) consumer resentment against discriminatory prices.The firm needs to ensure that the prices it charges in one market do not damage the brand image it has carefully nurtured in other markets. Thus, any international firm that sells brand name products and adopts market pricing should review the prices charged by local managers to ensure that the integrity of its brand is maintained across all of its markets.A firm that follows a market pricing policy also risks the development of gray markets for its products as a result of arbitrage. A gray market can result when products are imported into a country legally, but outside the normal channels of distribution authorized by the manufacturer. (This is known as parallel importing.) If this happens, the price in one market may be significantly lower than the price the firm charges in another market. Then, entrepreneurs can buy the good in the lower-price market and resell it profitably in the higher-price market. A third danger lies in consumer resentment. Consumers in a country where the manufacturer charges a higher price may feel they are being cheated.
- This section examined International Pricing Issues and Decisions. The discussion began with an overview of the pricing issues that control international business. Then, it continued with a review of standard, two-tiered, and market pricing. The discussion closed by exploring the opportunities and risks associated with market pricing. The next section will explore International Promotion Issues and Decisions.
- Promotion, the third “P” of the international marketing mix, encompasses all efforts by an international firm to enhance the desirability of its products among potential buyers. Although many promotional activities are specifically targeted at buyers, successfulfirms must communicate with their distributors and the general public to ensure favorable sentiment toward themselves and their products.
- Because promotion relies on communication with audiences in the host country, it is the most culture bound of the four Ps. A firm must take special care to ensure that the message host country audiences receive is in fact the message the firm intended to send. International marketing managers must therefore effectively blend and utilize the four elements of the promotion mix—advertising, personal selling, sales promotion, and public relations—to motivate potential customers to buy their firms’ products.
- For most international firms, especially those selling consumer products and services, advertising is the most important element in the promotion mix. As a firm develops its advertising strategy, it must consider three factors:The message of an advertisement is the facts or impressions the advertiser wants to convey to potential customers. The message reflects the way the firm sees its products and services, and the way it wants them to be seen by customers.The medium is the communication channel used by the advertiser to convey a message. A firm’s international marketing manager must alter the media used to convey its message from market to market based on availability, legal restrictions, living standards, literacy rates, cultural expectations, and other factors.A firm also must evaluate global versus local advertising techniques; that is, whether its product or service can be advertised the same everywhere or must be tailored to each local market the firm serves. The choice of a standardized or a specialized advertising campaign also is a function of the message the firm wants to convey.
- The second element of the promotion mix is personal selling—making sales on the basis of personal contacts. The importance of personal selling as an element of the promotion mix differs for industrial products and consumer products. For industrial products (such as complex machinery, electronic equipment, and customized computer software) customers often need technical information about product characteristics, usage, maintenance requirements, and after-sales support. Well-trained sales representatives are needed to explain these elements of industrial products to customers. For consumer products, personal selling normally is directed toward wholesalers and retailers. Firms that sell consumer products often find that advertising is more efficient than personal selling at reaching customers. However, companies such as Avon and Amway have successfully exported to the Asian and European markets the personal selling techniques developed and perfected in the United States.
- Personal selling has several advantages for an international firm. Firms that hire local sales representatives can be reasonably confident that they understand the local culture, norms, and customs. Furthermore, personal selling promotes close, personal contact with customers who come to associate that contact with the firm. In addition, personal selling makes it easier for the firm to obtain valuable market information. Local sales representatives are an excellent source of information that can be used to develop new products or improve existing products for the local market.
- On the other hand, personal selling is a relatively high-cost strategy. Each sales representative must be adequately compensated, even though he or she may reach relatively few customers. An industrial products sales representative, for example, may need a full day or more to see just one potential customer. After a sale is closed, the sales representative may still need to spend large blocks of time with the customer, explaining how to operate or maintain a product and trying to generate new business. Furthermore, many international firms find it necessary to establish regional sales offices and then staff them with sales managers and other support personnel. The expenses associated these facilities and personnel must be deduced from gross sales revenue.
- Sales promotion comprises specialized marketing efforts such as coupons, in-store promotions, sampling, direct mail campaigns, cooperative advertising, and trade fair attendance. Sales promotion activities focused on wholesalers and retailers are designed to persuade them to increase their commitment to the firm and its products. In addition, companies may develop cooperative advertising campaigns or provide advertising allowances to encourage retailers to promote their products.Sales promotion activities may be narrowly targeted to consumers. They also may be offered for only a short time before being dropped or replaced with more permanent efforts. This flexibility makes sales promotions an ideal tool for tailoring a marketing campaign to fit local customs and circumstances.
- Public relations are intended to enhance a firm’s reputation and image with the general public, rather than to tout the specific advantages of an individual product or service. Savvy international firms recognize that money spent on public relations can be money well spent. Consumers are more likely to resist “buy local” pitches when the foreign firm also is perceived to be a “good corporate citizen.” Good public relations also can help the firm when it has to negotiate with a host country government for a zoning permit or an operating license. Furthermore, as “foreigners,” international companies often are appealing political targets; thus, effective public relations can reduce a firm’s exposure to political attacks.
- This section examined International Promotion Issues and Decisions. The discussion began with an overview of the promotion mix. Then, it continued with a review of how the message, medium, and location influence global advertising strategy. The discussion continued by defining personal selling and reviewing its advantages and disadvantages. This section closed by reviewing sales promotion and public relations as they pertain to international business. The next section will explore International Distribution Issues and Decisions.
- The fourth “P” of the international marketing mix is place—more commonly referred to as distribution. Distribution is the process of getting products and services from the firm into the hands of customers. An international firm faces two important sets of distribution issues: Physically transporting its goods and services from where they are created to the various markets in which they are to be sold.Selecting the means by which to merchandise its goods in the markets it wants to serve.
- The most obvious issue an international firm’s distribution managers must address is choosing a mode of transportation for shipping the firm’s goods from their point of origin to their destination. As this table shows, the choice entails a clear trade-off between time and money. Faster modes of transportation, such as air freight and motor carrier, are more expensive than slower modes, such as ocean shipping, railroad, pipeline, and barge. In addition, the transportation mode selected affects the firm’s inventory costs and customer service levels, as well as the product’s useful shelf life, exposure to damage, and packaging requirements.
- Consider the impact of transportation mode on the firm’s inventory expenses and the level of customer service. If the firm relies on slower modes of transportation, it can maintain a given level of inventory at the point of sale, only by maintaining higher levels of inventory in transit. If the firm selects unreliable modes that make it difficult to predict when shipments will actually arrive, the firm will have to increase buffer stocks in its inventory to avoid stock-outs that will lead to disappointed customers. Slower modes of transportation also increase the firm’s international order cycle time—the time between the placement of an order and its receipt by the customer. Longer order cycle times lower the firm’s customer service levels, which may cause its customers to seek alternative supply sources.
- An international firm’s marketing managers also must determine which distribution channels to use for merchandising the firm’s products in each national market it serves. Note that a distribution channel can consist of as many as four basic parts:The manufacturer that creates the product or service.A wholesaler that buys products and services from the manufacturer and then resells them to retailers.The retailer, which buys from wholesalers and then sells to customers.The actual customer, who buys the product or service for final consumption.Import agents also may be used as intermediaries, especially by smaller firms.
- An important factor is channel length, the number of stages in the distribution channel. A firm that sells directly to its customers (who then pay the business directly) bypasses wholesalers and retailers. Therefore, its distribution channel is very short. This approach is called direct sales. The advantage of this approach is that the firm maintains control over retail distribution of its products and retains any retailing profits it earns. Unfortunately, the firm also bears the costs and risks of retailing its products.A slightly longer channel of distribution involves selling to retailers, which then market and sell the products to customers. This is easiest to do when retailers in a given market are heavily concentrated. When there are relatively few large retailers, selling directly to each one is easier for manufacturers; when a larger number of smaller retailers are present, selling to each of them is more complex.The use of wholesalers is the longest distribution channel. Wholesalers are separate businesses that buy from manufacturers and then resell to retailers or, in some cases, to other wholesalers. The use of wholesalers makes it easier to market in countries with little retail concentration. It also allows the firm to maintain a smaller sales staff. On the other hand, profit margins tend to be smaller because there are more businesses involved, each of which expects to make a profit.
- The challenge for international marketing managers is to find the optimal distribution channel that matches the firm’s competitive strengths and weaknesses with the requirements of each national market it serves. In practice, most international firms develop a flexible distribution strategy—they may use a short channel in some markets and a longer channel in others.Some international firms, particularly producers of more specialized products, may hire a sales or import agent to distribute their goods. Firms should exercise caution when selecting a foreign distributor. As far as local customers are concerned, the distributor is the firm. As such, an inept distributor will jeopardize the firm’s reputation and performance in that market, often for a very long time. Some international firms attempt to transfer to international markets the distribution systems developed in their home countries. At other times, firms may adapt their distribution practices to match local customs. Local laws may affect distribution strategies. For many years the ability of foreigners to establish distribution systems was limited in India, Mexico, and China. As a result, most MNCs established joint ventures with local firms, in order to distribute their products in those countries.
- This section covered International Distribution Issues and Decisions. The discussion began with an overview of international distribution methods, and how transportation affects levels of inventory and service. It continued by reviewing distribution channels and concluded by exploring distribution strategies. This presentation will close by reviewing the chapter’s learning objectives.
- This concludes the PowerPoint presentation on Chapter 16, “International Marketing.” During this presentation, we have accomplished the following learning objectives: Characterized the nature of marketing management in international business. Discussed the basic kinds of product policies and decisions made in international business. Identified pricing issues and evaluated pricing decisions in international business.Identified promotion issues and evaluated promotion decisions in international business.Discussed the basic kinds of distribution issues and decisions in international business. For more information about these topics, refer to Chapter 16 in International Business.