The international marketer needs a clear understanding of market characteristics and must have established operating policies before beginning the selection of channel middlemen. The following points should be addressed prior to the selection process:
1) Identify specific target markets within and across countries.
2) Specify marketing goals in terms of volume, market share, and profit margin requirements.
3) Specify financial and personnel commitments to the development of international distribution.
4) Identify control, length of channels terms of sale, and channel ownership.
Once these points are established selecting among alternative middlemen choices to forge the best channel can begin. Marketers must get their goods into the hands of consumers and must choose between handling all distribution or turning part or all of it over to various middlemen. Distribution channels vary depending on target market size competition and available distribution intermediaries.
Key elements in distribution decisions include the functions performed by middlemen (and the effectiveness with which each is performed) the cost of their services their availability and the extent of control that the manufacturer can exert over middlemen activities.
Although the overall marketing strategy of the firm must embody the company’s profit goals in the short and long run, channel strategy itself is considered to have six specific strategic goals. These goals can be characterized as the six Cs of channel strategy cost capital control coverage character and continually. In forging the overall channel of distribution strategy each of the six Cs must be considered in building as economical, effective distribution organization within the long range channel policies of the company. It should also be noted that many firms use multiple or hybrid channels of distributions because of the trade offs associated with any one option. Indeed both Dell selling computers at Kiosks inside Japan’s Jusco supermarkets and Toys R Us selling toys in food stores re good examples.
The two kinds of channel costs are (1) the capital or investment cost of developing the channel and (2) the continuing cost of maintaining it. The latter can be in from of direct expenditure for the maintenance of the company’s selling force or in the form of margins, markup, or commission of various middlemen handling the goods. Marketing costs (a substantial part of which is channel cost) must be considered as the entire difference between the factory of the goods and the price the customer ultimately pays for the merchandise. The costs of middlemen include transporting and storing the goods, breaking bulk, providing credit and local advertising sales representatives and negotiations.
Despite the old truism that you can eliminate middlemen but you cannot eliminate their functions or cost, creative efficient marketing does permit channel cost savings in many circumstances. Some marketers have found, in fact that they can reduce cost by eliminating inefficient, middlemen and thus shortening the channel. Mexico’s largest producer of radio and television sets has built annual sales of $36 million on its ability to sell goods at a low price because it eliminated middlemen established its own wholesalers and kept margins lows. Conversely many firms accustomed to using their own sales forces in large volume domestic markets have found they must lengthen channels of distribution to keep costs in line with foreign markets.
The financial ramifications of a distribution policy are often over looked. Critical elements are capital requirement and cash flow patterns associated with using a particular type of middleman. Maximum investment is usually required when a company establishes its own internal channels, that is, its own sales force. Use of distributors or dealers may lessen the capital investment but manufacturers often have to provide initial inventories on consignments loans, floor plans or other arrangements. Coca Cola initially invested in China with majority partners that met most of the capital requirements. However, Coca-cola soon realized that it could not depend on its local majority partners too distribute its product aggressively in the highly competitive market share driven business of carbonated beverages. To assume more control of distribution it had to assume management control, and that meant greater capital from Coca-Cola One of the highest costs of doing business in China is the capital required to maintain effective distribution.