Chapter Eleven
International Marketing Channel
Management
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Learning Objectives
1. What are the essential elements of an international
marketing channel?
2. What key marketing channel decisions must be made in
order to efficiently and effectively reach customers in other
countries?
3. How can the marketing team successfully manage
international channels of distribution?
4. What international marketing channel functions do various
intermediaries perform?
5. What are the 5 Cs of selecting channel members?
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Learning Objective #1
1. What are the essential elements of an
international marketing channel?
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International Marketing Channels
• Marketing channel managements integrates two key areas in
marketing strategy: distribution and logistics.
• International distribution is the process by which products
and services flow between producers, companies that act as
intermediaries, and consumers, and includes the transfer of
ownership.
• International logistics refers to the strategic management of
the flow of products and services among marketing channel
members, including both upstream and downstream
activities.
– Upstream activities focus on bringing a product or supplies into
a company, while downstream activities concentrate on sending
a product or supplies to another channel member for resale.
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Learning Objective #2
2. What key marketing channel decisions
must be made in order to efficiently and
effectively reach customers in other
countries?
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International Marketing
Channel Decisions
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Distribution Intensity
• The extent to which products are distributed
throughout a country and the number of
intermediaries utilized to carry a good constitutes
the product’s distribution intensity.
• Strategic decisions pertaining to level of
distribution intensity are made on a country-by-
country basis, because demand for products can
vary greatly across countries.
– Marketing infrastructures differ greatly.
– In developing countries, some products can only be
made available in limited locations.
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• Intensive Distribution
International marketing strategy in which
products are distributed through as many
wholesalers and retailers possible in a
particular market.
– Marketers prefer this approach when the
company offers items that appeal to a mass
market of consumers.
– Marketing efforts focus on making the product
widely available.
– Usually, the items are low-price products that
retailers sell with relatively high volume such as
convenience products.
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• Selective Distribution
A strategy of using only a limited number of
channel intermediaries in the international
marketing program is a selective distribution
system.
– Producers normally exert fairly strong control
over channels that utilize selective distribution
because close relationships develop among
channel members.
– Shopping products are often marketed
worldwide using selective distribution methods.
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• Exclusive Distribution
Exclusive distribution focuses on offering products
through only one wholesaler or retailer in a
particular market area.
– Prestigious products are often offered through an
exclusive distribution strategy.
• Strategic distribution intensity choices rely
primarily on the factors of price, quality, and
competition.
– In international markets, the same basic approaches
are viable, depending on the infrastructure of the
host country and any mitigating factors, such as legal
restrictions on imports.
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Selection of Distribution Channels
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Direct Marketing
• A primary option for many international marketers, especially
those just entering a new host country, is to engage in direct
marketing.
• A direct marketing channel relies on direct selling of a product
or service to consumers or end users without the use of
wholesalers, retailers, industrial agents, or industrial
merchants.
• Consumers around the world are familiar with direct
marketing.
– In Germany, more than 80% of companies provide some form of
direct marketing.
– Telemarketing, email, and direct marketing programs are popular
in Brazil.
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Indirect Marketing
When indirect channels are used, the goods and services move
through one or more intermediaries or organizations that move
products for producers to consumers and end users.
• Agent middlemen do not take title or ownership of the products.
Agents, or brokers, bring buyers and sellers together in a particular
country.
– These channel members generally work on a commission basis.
– Agent wholesalers may or may not take physical possession of the
products.
• Merchant middlemen assume title and ownership of the products.
– An import middleman purchases products from producers in one
country and sells them to established distribution system members in
another country.
– Merchant retailers purchase goods for resale and then market those
products to consumers.
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• Consumer Channels
• Many larger international companies , will ship products directly to
retail outlets, bypassing any local wholesale operations.
• Trading companies are common in the Pacific Rim. These
organizations provide intermediary activities that include marketing
services, financial assistance, and information flow.
– The Japanese keiretsu trading companies act as a family of firms with
close relationships and, often, shared ownership.
– The chaebols of South Korea are similar in many ways and play an
important part in South Korean politics and business culture.
• Other marketing teams may select the traditional international
marketing channel, which consists of producers, wholesalers, and
retailers.
– In developed countries, distribution systems tend to be more
institutionalized and focus on the traditional roles of producer,
wholesaler, and retailer.
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• Business-to-Business Channels
• Many countries house large industrial agent and merchant
companies.
– The manufacturer’s marketing team selects those that reach the
company’s target market most effectively.
– Local conditions and considerations, including legal restrictions,
the availability of delivery systems, and the potential to create
quality partnerships, affect these decisions.
• International marketing channels may include a series of
different wholesalers and retailers.
• Facilitating agencies assist in various aspects of negotiation,
financing, documentation, physical distribution, and
warehousing of products internationally.
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Types of Facilitating Agents
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Channel Length
• Marketing channel length refers to the number of intermediaries that
a product goes through before reaching the consumer.
– In a traditional channel, there are two intermediaries: the wholesaler
and the retailer.
– Direct marketing represents the shortest channel length, as the product
moves directly from the manufacturer to the retail customer.
• International marketing channels differ significantly in both length
and complexity.
– The intricate Japanese distribution system utilizes a number of
wholesalers.
• Products that are intensively distributed tend to have longer
international marketing channels.
• Exclusively distributed products often have shorter channels.
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Selection Factors
Primary factors that affect distribution channel
choices.
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Existing Channels
• Managing international distribution networks
means that companies utilize unique
distribution structures in each country. A
channel structure may work well in one
country but not in another.
– Understanding the distribution systems present in
target countries constitutes a crucial element in
developing a successful international distribution
system.
– In some situations, the company will establish an
entirely new distribution system.
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Existing Channels (Cont.)
• International marketing professionals work
to ensure that the international
distribution channel meets the needs of all
parties involved.
– The system should effectively serve producers,
wholesalers, retailers, and consumers.
– Channel members often use market research
to more clearly understand distribution
patterns in target markets.
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Future Channels
• Discussions about infrastructure in international
marketing often concentrate on the availability
of road, rail, and air transport systems; water,
electricity, and natural gas; and other physical
features.
• Deliveries of products and even the availability
of those products are often influenced by the
presence or absence of highways and railroad
cars along with other modes of transportation.
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Learning Objective #3
3. How can the marketing team successfully
manage international channels of
distribution?
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Managing International
Distribution Channels
• Managing the supply channel involves a series of
strategic decisions and activities.
– Each should concentrate on the ultimate goal, which
is reaching the target market effectively and
efficiently.
• The key elements involved are
1. establishing international channel strategies,
2. selecting intermediary arrangements,
3. making channel arrangements and choosing channel
partners, and
4. managing channel power.
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1. Establishing International
Channel Strategies
• A pull strategy means that the producer concentrates on stimulating
consumer demand through extensive advertising and consumer
promotions.
– The goal, building demand, leads others in the marketing channel to
carry additional stock, because customers are asking for the product.
• A push strategy focuses on providing intermediaries with incentives
that will lead them to cooperate in marketing the product.
– Discounts, sales contests, training programs, and other methods entice
the wholesaler or retailer to order in greater quantities, thereby pushing
the product through the channel to the consumer.
• In international markets, both push and pull strategies may be used.
– Push strategies can assist in overcoming intermediary resistance to
foreign products.
– Pull strategies increase consumer demand by making an item seem
desirable, easy to use, exotic, or in limited supply.
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2. Selecting Intermediary
Arrangements
• The second strategic choice is whether to use
traditional intermediaries or to create an in-house
distribution channel.
• Vertical integration means that one member of the
market channel merges with or acquires another
intermediary.
– Backward vertical integration occurs when a retail
chain develops or acquires its own wholesale
distribution system.
– Forward vertical integration strategies involve
manufacturers establishing wholesale distribution
systems or company-owned retail outlets.
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2. Selecting Intermediary
Arrangements (Cont.)
• Acquiring or merging with another company at the same level of the
distribution channel, the strategy is horizontal integration.
– These efforts include manufacturers joining with other manufacturers,
wholesalers acquiring other wholesalers, or retailers merging with or
acquiring other retailers.
• A vertical marketing system distribution arrangement involves the
producer, wholesaler, and retailer performing marketing activities as
a unified system.
– These systems are planned to the extent to which functions are
integrated throughout the system and often include partial ownership
between cooperating companies.
• Some marketers have opted for what are known as international
strategic alliances that, like vertical marketing systems, create
enduring cooperative arrangements between firms that utilize
resources.
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• Gray Markets
• A gray market is the practice of distributing products through
distribution channels that were not authorized by the marketer of
the product.
– In international marketing, the process is often referred to as parallel
importing, or the use of gray market tactics across international borders.
• With parallel importing, international distributors begin to sell a
product in either unauthorized countries or through unauthorized
retailers.
– Wholesalers buy a product in one country at a low price and resell it in
other markets, or to unauthorized retailers, for profit.
– The producer may end up competing domestically against its own
brands that were imported into the country by overseas distributors.
• In general, gray marketing is legal, but it does violate channel
agreements.
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3. Making Channel Arrangements
and Choosing Channel Partners
• A channel arrangement guides the administration of the
marketing functions that will be performed in the distribution
system.
– Channel partners are organizations with relationships that help
move products from producers to consumers.
– Three forms of channel partner systems are contractual,
administered, and partnership.
• A contractual channel arrangement consists of a binding
contract that identifies all of the tasks to be performed by each
channel member with regard to production, delivery, sorting,
pricing, and promotional support.
– International contractual arrangements also specify legal
elements of the relationship, including the country with
jurisdiction over disputes.
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3. Making Channel Arrangements and
Choosing Channel Partners (Cont.)
• An administered channel arrangement includes one dominant
member in the distribution channel.
– Channel captains coordinate the marketing tasks provided by the
channel members.
– Powerful manufacturer brands often become channel captains.
• A partnership channel arrangement allows members of the
channel to work cooperatively for the benefit of all firms
involved.
– Sharing of information will be one key element of an effective
partnership channel arrangements.
– Developing these arrangements in international markets can be
difficult due to the complications of the global environment,
including differences in technology and infrastructure, legal
restrictions, and cultural nuances.
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4. Managing Channel Power
• Two major types of channel conflict occur in international
distribution channels: horizontal conflict and vertical conflict.
• Horizontal channel conflict emerges when conflict occurs
between members of a marketing channel at the same level,
for example between retailers carrying the same product.
– One retailer may be upset about unfair pricing between the
outlets.
• Vertical channel conflict occurs when there are disputes
between channel members at different levels in the system,
such as between a wholesaler and a producer, or between a
producer and a retailer.
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Power Bases in International
Marketing Channels
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Trust and Commitment in
International Marketing Channels
• Power struggles and imbalance may lead to
instability in the marketing channel.
• Effective marketing channels are based on
mutual trust and commitment rather than on
the display of any type of channel power.
– Marketing channel trust refers to the willingness
to rely on other marketing channel members.
– Marketing channel commitment reflects the
desire of channel members to continue channel
relationships.
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Cross-Cultural Negotiation and
International Marketing Channels
• International marketing involves negotiation, which
means the successful management of international
marketing channels requires close attention to
negotiation.
• International marketing cannot take place without
at least two parties negotiating, each from a
different country.
– Cultural differences greatly impact the negotiation
process. International marketers work to control or at
least limit the potentially negative effects of these
differences.
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Stages in the Negotiation Process
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Cultural Influences on Negotiations
• Cultural variables influence international
negotiations in many ways:
1. Interests, behaviors, and desired outcomes
2. Relationships, communication, and
perceptions
3. Negotiation context
4. Hofstede’s dimensions
5. Thought processes
7. The overall negotiation culture.
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Cultural Influences on
Negotiations (Cont.)
• All individuals have interests and priorities, as will the
organizations involved in the negotiation process.
– Specific behaviors and patterns of interaction, such as
choice of direct/confrontational or indirect/cooperative
interactions follow, and the negotiating parties choose
tactics based on the cultural context.
• Relationships, Communication, and Perceptions
– In the area of relationships, negotiators need to know
whether long-term connections are desirable.
– Will communication be high or low context?
– Is the culture polychromic or monochromic?
– Space perceptions involve the role of personal space in
interpersonal interactions.
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Cultural Influences on
Negotiation (Cont.)
• The overall negotiation context or climate is important, and research
suggests that both the environmental context and the immediate
context significantly influence the negotiation process.
– The environmental context includes variables such as legal/political
developments, international economics, ideological differences, and
culture.
– The immediate context includes variables such as the bargaining power
of the participants, relationships, and the processes for conflict
resolution.
• Hofstede’s cultural dimensions prove useful for the international
negotiator.
– Regarding power distance, negotiators should carefully consider the
social class of their potential customers and show proper respect when
it is expected.
– High uncertainty avoidance culture results in demands for roles and
procedures for dealing with uncertain events.
– Buyers or partners in collectivist cultures value negotiating teams.
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Cultural Influences on
Negotiation (Cont.)
• People from various cultures perceive the world
and think in different ways.
– Thought processes are shaped heavily by culture,
tradition, and the educational system in play in the
specific country, and are critical to negotiations.
• Western cultures tend to rely more heavily on logic
when arriving at conclusions than do Eastern
cultures.
– Eastern cultures tend to view negotiations holistically,
whereas Westerners tend to focus on specific parts of
a problem.
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The Overall Negotiation Culture
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Learning Objective #4
4. What international marketing channel
functions do various intermediaries
perform?
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International Marketing
Channel Functions
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Warehousing, Inventory Control,
and Materials Handling
• Warehousing is the process of storing products until
they are sold.
• Marketing channel members also focus on inventory
control.
– Maintaining an optimal inventory of products that will meet
consumer demand without burdening the system with
excessive stock constitutes a challenge for logistics
managers.
• Materials handling includes all activities associated
with moving products within the manufacturing and
warehousing systems.
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Address Discrepancies of
Assortment
• One fundamental concern in all domestic and
international marketing channels is the discrepancy
of assortment problem.
• The problem results from the simple idea that
producers generally desire to produce a large
number of a limited variety of products, while
consumers usually desire limited quantities of a
wide variety of products.
• To remedy this discrepancy, channel members
engage in what is known as the sorting function.
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The Sorting Function
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Secure Payment and Extend Credit
• Documentation plays an important role in order processing.
• A bill of exchange can be used to facilitate order processing
and payments.
– A bill of exchange represents an agreement between parties in
which one party, a drawer, directs a second party, a drawee, to
issue a payment to yet another party, a payee.
– A bill of exchange creates a secure transaction for both parties.
• A letter of credit, is a document issued by a bank to signal the
creditworthiness of a buyer to a seller.
– The letter of credit ensures the seller of the buyer’s
creditworthiness by stating that the bank backs the buyer’s
credit.
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Transportation
• The global transportation of products will be
an important part of international marketing
channels.
• Products must be delivered reliably and
effectively.
– Deliveries are reliable when they are on time.
– Deliveries are effective when the shipments arrive
in good quality, undamaged by the mode of
transportation.
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Learning Objective #5
5. What are the 5 Cs of selecting channel
members?
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International Marketing
Channel Structure
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Cost
• Some costs are incurred when establishing the channel and choosing
members.
• Some costs are associated with maintaining the system, which typically
center on encouraging channel members to remain members of the
system.
• International distribution expenses consist of more than just costs
associated with moving products from country to country.
– Costs associated with storing, packing, preparing, and documenting product sales are
also included in distribution costing.
• The task of transporting goods between countries presents additional
difficulties.
– International distribution systems are often more expensive than those found in
purely domestic settings due to the costly nature of moving products between
countries or continents.
– It has been estimated that as much as 30% of the price of a product can be directly
attributed to distribution costs for products shipped between continents.
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Coordination
• Coordinating the marketing efforts that must
take place at each level of the system
constitutes an important part of managing the
international marketing.
• Decisions are made as to what promotional
and logistical activities each member will
perform. Marketing channel coordination
requires an efficient international distribution
process.
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Coverage
• Marketers examine questions pertaining to the extent
to which channel members cover certain territories.
– Channel member roles differ according to the country
being served, and as a result, distribution strategies will
likely vary from country to country.
• When addressing coverage, international marketers
consider intensive, selective, and exclusive distribution
strategies.
– When intensive distribution is selected, channel members
will be expected to cover a wider and more intense
territory than would be the case for an exclusive
distribution strategy.
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Cooperation
• Although it is difficult to assess, channel leaders
attempt to assess the cooperation of potential channel
members prior to the formation of a formalized
marketing channel.
• The reputation of potential members, along with
evidence of previous marketing success in targeted
regions or countries, becomes critical.
• The extent to which marketing channel members
simply trust one another becomes the primary
determinant of cooperation between parties in a
marketing channel.
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Control
• International marketers lose some control over the physical
movement of goods when goods are shipped domestically.
– Monitoring the movement of goods and ensuring their safe delivery
brings about extra expenses.
• Marketing channel members are often apt to protect their own
interests rather than the well-being of the overall marketing channel.
– Opportunism reflects the tendency for channel members to pursue self-
interests rather than those of other members of the marketing channel.
– Monitoring and controlling the activities of channel members allows the
producer to ensure that marketing activities are carried out as planned.
• Channel leaders can consolidate international distribution systems in
order to maintain better control and cooperation among channel
members.
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