Optimizing International Distribution Strategies for Success
International Distribution Strategy:
When discussing international distribution, a company must optimize its investment in this strategy. Key factors to consider include:
- Number of intermediaries involved in each channel.
- Profit margins applied to the product.
If these elements are poorly managed, the company may become “mispositioned” relative to its target consumer price level.
Evaluating Distribution Costs and Reach:
The company needs to assess and adjust:
- Consumer reach: How widely the product is distributed.
- Costs: The expenses associated with achieving this reach.
This evaluation ensures the strategy aligns with financial goals.
Strategic Distribution Goals:
A company should strategically define its distribution objectives in connection with other marketing mix variables. These goals typically include:
- Numerical distribution: The number of sales points where the product is available.
- Weighted distribution: The sales volume achieved by each point of sale.
By setting these objectives, the company can measure the effectiveness of its distribution strategy and the return on investment (ROI).
Return on Investment (ROI): This is a financial metric used to measure the profitability or efficiency of an investment. It is calculated by comparing the net profit of an investment to its initial cost.
Classification of Market Access Channels:
Choosing the ideal channel for marketing the company’s products is a challenging task. This decision should align with the company’s market penetration strategy when entering international markets.
Direct: Selling directly to the consumer without intermediaries.
- Local Agents: Independent professionals in the target country who sell your products for a commission.
- Direct Sales: Traveling sales representatives. Company staff directly visit customers or distributors abroad.
- Subsidiary: Own sales channels. The company sets up its own office or team in the target market.
Indirect: Using intermediaries to reach the market.
- Purchasing Agents or Exporters: They act as helpers for a buyer. They don’t buy the goods themselves but find and negotiate with suppliers for the buyer. They work on commission.
- Trading Companies: Large firms that manage export/import for many companies. They don’t own the goods.
- Export Merchants: Intermediaries buy goods outright and resell them internationally. An export merchant buys Italian leather bags to sell in Asia.
Mixed/Hybrid: Combining direct and indirect approaches.
- Export Consortiums: Groups of small companies collaborate to export together. Small fashion brands share export resources to reach U.S. buyers.
- Piggybacking: One company uses another’s distribution network to sell abroad. A Spanish jam producer partners with a larger cheese exporter to access France.
- Joint Ventures: Two companies collaborate to operate in a foreign market. Sony and Ericsson formed a joint venture to produce phones.
- Licensing: A foreign company gets rights to produce and sell your product for a fee. Disney licenses its brand to clothing manufacturers in Europe.
- Franchising: A company grants the right to operate under its brand. McDonald’s franchises its restaurants worldwide.