MKGT 3231 Spring 2015 Mrs Tamara L Cohen

MKGT 3231 Spring 2015 Mrs. Tamara L. Cohen Global Marketing Management Global Distribution Decisions Class #22

REMINDER Guest Speaker: Wednesday, Apr. 8 • • • Attendance is mandatory (SIGN IN) Please be on time No screens No hats Bring (and display) your name tent • General principles discussed during guest speaker’s presentation will be included on next exam.

KEY TERMS • Wholesalers • Retailers • Hypermarket • Planogram

KEY CONCEPTS Distribution structure Passage of ownership Middlemen Channel length Just-in-Time Inventory Management E-commerce Walmart’s “RETAILINK”

Channel-of-Distribution Structures All consumer & industrial products go through a distribution process: • physical handling & distribution of goods • passage of ownership • buying & selling negotiations between producers & middlemen • buying & selling negotiations between middlemen & customers Each country market has distribution structure – goods pass from producer to user

Import-Oriented Distribution Structure Import-oriented = traditional distribution • importer controls fixed supply of goods • sells limited supply of goods at high prices to small number of affluent customers • demand > supply • customer seeks supply from limited number of middlemen • distribution systems are local • few countries fit this import-oriented model today • contrasts with mass distribution philosophy

Japanese Distribution Structure = most effective non-tariff barrier 4 distinguishing features: 1. dominated by many small middlemen dealing with many small retailers 2. channel control by manufacturers 3. business philosophy shaped by unique culture 4. laws protect foundation of system (= small retailer)

Japanese Business Philosophy • emphasizes loyalty, harmony, friendship • supports long-term dealer-supplier relationships • retail cost of Japanese consumer goods among highest in world • Japanese law gives small retailer huge advantage over development of larger stores

USA vs Japanese Distribution System e. g. auto parts

High Density of Middlemen in Japan • common for consumer goods to go through 3 -4 intermediaries before reaching consumer • large number of independent groceries & bakers – 95% of all retail stores are small stores – small stores do 59% retail food sales • U. S. emphasis on super-markets, discount food stores, & department stores – 90% of all retail stores are small stores – small stores do 36% food sales

Changes in Japanese Distribution System Ultimately only local merchants can make change happen. Changes due to: 1. Structural Impediments Initiative - remove impediments to trade between USA & Japan 2. Deregulation - helping remove impediments 3. Walmart (Seiyu) - overcome mgt resistance & consumers equating low price with low quality (recession helped), no appeal for bulk deals, increased direct importing, rearranged space, no more weekly specials rather every day low prices 4. “New” retailers - forcing change 5. Internet - suppliers & retailers can seek cheapest prices in global market, so harder for middlemen to retain control. Konbini (convenience stores) offer Internet features (pay bills, bank, purchase travel packages, music, & merchandise) at in-store terminals or from home.

Trends: From Traditional to Modern Channel Structures Pressure to change from INSIDE & OUTSIDE countries. • European retailers merging with former competitors & in other countries to form Europe-wide enterprises e. g. supermarkets Sainsbury + Esselunga; retailer Mango in NYC • foreign retailers attracted by high margins & prices • Internet is most important distribution trend • e-commerce e. g. Amazon. com, Dell. com, e. Bay, ALIBABA • 7 -Eleven competes with Fed. Ex & UPS (use convenience stores for pick-up points for Web orders)

Channel Control: WHOLESALERS Manufacturers depend on WHOLESALERS for services to other members of distribution network: o o o financing physical distribution warehousing o o o inventory promotion payment collection Manufacturers control wholesaler middlemen via: 1. Inventory financing – consignment, credit terms 2. Cumulative rebates – quantity, early payments, sales targets, services, specific inventory level maintenance, sales promo’s, loyalty, price policy maintenance, cooperation 3. 4. Merchandise returns – sale or return Promotional support – point of purchase (p. o. p. ), advertising layouts, management education, in-store demo’s, etc.

What is a Hypermarket? CHINA • concept pioneered by Carrefour • ultra-supermarket + department store USA FRANCE

DIRECT Marketing = selling directly to consumer through mail, phone, door-todoor • in markets where distribution systems are inadequate or irrelevant • good for entrepreneurs • good in very poor countries • good in affluent markets • mail order catalogs are form of direct marketing

Middleman Choices 1. home country middlemen 2. foreign-market middlemen 3. government-affiliated middlemen Agent middlemen Merchant middlemen § § § § § do not take title to goods represent principal arrange sales work on commission more manufacturer control take title to goods buy & sell on their own account less controllable often low brand loyalty

Home-Country Middlemen 1. Manufacturer’s retail stores 2. Global retailers 3. Export management companies 4. Trading companies 5. Complementary marketers - “piggybacking” 6. Manufacturer’s export agent

Foreign-Country Middlemen International marketers may work directly with middlemen in foreign market: • Manufacturer’s representatives - agents take responsibility for goods in specified area • Foreign Distributors - merchant middleman; often has exclusivity • Foreign-country brokers - agents deal usually with commodities & foods • Managing agents & compradors - exclusive contract • Dealers - middlemen selling industrial goods or durables directly to customers • Import jobbers purchase goods from manufacturer & sell to wholesalers, retailers & industrial customers. Wholesalers & retailers may import directly.

Government-Affiliated Middlemen • Marketers must deal with governments in every country of world • Government purchasing offices – procure products, services & commodities for government use – work at federal, regional & local levels • Efficiency of public sector versus private sector – Walmart delivered aid better than FEMA after Hurricane Katrina – Macquarie Capital built tunnel in Elizabeth River Crossing project

Channel Management Construction of the Middleman Network • Locating • Selecting – screening – agreement • Motivating • Terminating • Controlling

6 Cs of Channel Strategy 1. Cost = cost of developing channel + cost of maintaining it 2. Capital requirements e. g. initial inventories on consignment 3. Control - more involvement means more control (!) 4. Coverage e. g. significant penetration in major population centers 5. Character - compatibility of channel to type of goods 6. Continuity - middlemen tend to short-term relationships with vendors

Walmart suppliers have electronic links with network of individual stores Strength is internal Internet-based system = “RETAILINK” system consolidates orders for goods so Walmart can order full truckloads with minimal inventory costs makes transactions with suppliers highly efficient lowers cost of operations Supplier Performance Scorecard – Vendor Summary Page shows stocks at warehouse, store sales, store weeks on hand, markdowns, average lead time, replacement order fill rate

State POS Qty POS Sales POS Store Count Curr Traited Store/Ite m Comb. Avg Units per Store per Week MT 11, 462 $31, 836 13 12 17. 0 WY 7, 721 $21, 464 10 10 14. 8 ID 12, 197 $33, 906 19 19 12. 3 WA 29, 343 $81, 565 47 47 12. 0 UT 22, 291 $61, 887 36 36 11. 9 OR 16, 815 $46, 742 28 28 11. 5 CO 31, 337 $87, 100 63 61 9. 6 AK 2, 281 $7, 094 5 4 8. 8 CA 72, 336 $201, 047 165 162 8. 4 NE 12, 188 $33, 860 28 27 8. 4 RI 3, 035 $8, 437 7 7 8. 3 NV 16, 410 $45, 550 39 39 8. 1 AZ 36, 002 $100, 059 87 86 8. 0 NJ 10, 724 $29, 804 26 26 7. 9 PA 26, 790 $74, 474 66 63 7. 8 ME 5, 308 $14, 733 14 11 7. 3 KS 20, 443 $56, 829 56 56 7. 0 CT 6, 902 $19, 177 19 19 7. 0 NH 6, 825 $18, 971 19 19 6. 9 NY 23, 551 $65, 328 68 62 6. 7 MA 7, 826 $21, 747 26 24 5. 8 AR 9, 337 $24, 810 85 64 2. 1 MO 3, 955 $10, 881 44 8 1. 7 TN 8 $22 1 0 0. 2 395, 087 $1, 097, 325 971 890 7. 8 Grand Total RETAILINK Vendor Scorecard This is a breakdown of sales by state.

DISTRIBUTION STRATEGY • 85% of merchandise sold by Walmart is shipped through distribution system to stores (competitors < 50%) DISTRIBUTION CENTERS • strategically situated to serve 150 -200 Walmart stores within a day • operate 24 hours a day • use laser-guided conveyor belts & cross-docking techniques (receive goods on 1 side, simultaneously fill orders on other side) • Walmart trucks sometimes back-haul

Planogram

The Internet is challenging traditional channels, offering wider range of possibilities for entering foreign markets • E-commerce – B 2 B (business-to-business) services – consumer & industrial products • E-commerce more developed in U. S. than in rest of world, but this is changing • B 2 B enables companies to cut costs 1. reduces procurement costs 2. allows better supply-chain management 3. makes tighter inventory control possible

E-commerce issues 1. Culture - site & product must be culturally neutral (manner of expression; use of color; etc) 2. Adaptation - language translation; country-specific sites 3. Local content - ease of returning goods; local language engagement 4. Payment - very culture-specific 5. Delivery - costs of delivery options 6. Promotion - how to attract overseas visitors to your site

How much Internet Retail Sales? • 11. 6% = US online share of retail market • 7. 2% = ave. European online share of retail market • Growing fast • Japan

Just in Time (JIT) INVENTORY MANAGEMENT Goals of lean production/JIT: inventories waste of time waste of material carrying costs return on investment production efficiency product quality Simple philosophy of JIT: INVENTORY = WASTE History: - Henry Ford 1922 - Piggly Wiggly - Toyota

BMW Vision of lean development “Three Day Car”: 3 days from customer order to delivery • built-to-order strategy to produce cars • exactly meet customer expectations Customer visits BMW showroom & selects features, or customer may compile customized car on personal computer. Once order is placed, Spartanburg, SC, plant makes car within 10 days • waste of time & material in production process • production efficiency & product quality

Keys to success in Global Distribution Decisions Distribution is a distinct art and/or science. • variety of distribution channels • how they affect cost & efficiency in marketing • how distribution patterns affect international marketing • e-commerce as distribution enhancer or distribution alternative • middlemen

Next class: Global Communications Decisions