International Distribution PDF

TUTORIAL N°6: International Launch STAKES OF INTERNATIONAL DISTRIBUTION @NathalieBrimberg20242025 FUNCTION OF DISTRIBUTION Most visible activity...

TUTORIAL N°6: International Launch STAKES OF INTERNATIONAL DISTRIBUTION @NathalieBrimberg20242025 FUNCTION OF DISTRIBUTION Most visible activity undertaken by a REACH company to make the offer reach the customers LAST FRONTIER Wherever, ACCESSIBILITY The LINK with whenever the « End -User » Fierce competition: EXPERIENCE variety of choices and places 2  DISTRIBUTION IS ONE OF THE 4PS OF THE MARKETING MIX that provides essential services to an end-customer. Provides services Channels are the company’s customers Channels have needs and expectations Channels often distribute competitors 3 EVALUATE THE END- CUSTOMER BEFORE SELLING A PRODUCT Does the end-user need personalized service? If it is the case, which is the best distribution channel to provide that service? Is the end-user more likely to purchase the product online or at a physical store? Does the end-user need to be educated on the product? In which case which distribution channel is in the best position to educate the end customer? And what are the needs of the different potential distribution channels? 4  A CHANNEL can be: @NathalieBrimberg20242025 a direct transaction from the Brand to the end- customer: B2C Or include intermediaries such as: wholesalers, distributers, agents, retailers: B2B @NathalieBrimberg20242025 Source: Mc Kinsey – Omnichannel: the path to value MARKET COVERAGE Indirect Distribution means distributing products using marketing intermediaries such as retailers or wholesalers Direct distribution : brands who remove intermediaries will make higher profit margins Intensive Distribution : placing a product in as many outlets as possible Selective Distribution : distribute the product in selected outlets according to their commercial capacities and qualities Exclusive Distribution : grant a very limited number of sellers the exclusive right to distribute its products. 7 INTERNATIONAL DISTRIBUTION CHANNELS Forming an international distribution strategy involves: The assessment the various channels Identifying which aligns best with the business objectives, resource availability, and risk tolerance. A successful strategy often involves a combination of different channels. REMINDER: each market is unique, so the strategy should be flexible and adaptable. @NathalieBrimberg20242025  INDIRECT DISTRIBUTION Wholesalers, retailers, consultants and agents already have resources and relationships to quickly bring a Brand’s product to market. If the Brand sells through these groups instead of (or in addition to) selling direct, it should consider the entire channel as a group of customers They are buying the Brand’s products and reselling them. In indirect distribution the customer isn’t the end-client but the channel CopyrightFABS 9 INDIRECT DISTRIBUTION DISTRIBUTORS Distributors are links in the distribution channel chain that deliver products to retailers. Distributors may either be: dedicated to one Brand as a captive representative or represent several Brands and wholesalers. Distributors are often used with high volume products when retailers must be consistently supplied with product. CopyrightFABS 10  INDIRECT DISTRIBUTION WHOLESALERS The wholesaler purchases products from the Brand at a deeply discounted price. The wholesaler will then: deliver products in bulk to retailers Or offer products directly to consumer. In wholesale relationships the Brand’s role is to: privilege a quality wholesaler relationships and find the best fit with the company's strategic vision. CopyrightFABS 11 INDIRECT DISTRIBUTION RETAILERS Retail distribution is the most traditional form of distribution channel. The common model includes a Brand using an intermediary such as a wholesaler or distributor to deliver products directly to retailers, then ultimately to the consumer. This model delays delivery to the consumer increases consumer cost as each participant in the distribution channel must take possession of the product and receives compensation for its individual role in distribution. CopyrightFABS 12  DIRECT DISTRIBUTION Brands may use a direct sales strategy to deliver products to consumers. Brands who choose this distribution channel often deliver higher priced products with lower sales volume Direct sales enable the Brand to: do market research choose their customers Set the selling price Brands who remove intermediaries will make higher profit margins Brands using direct sales take on full responsibility for direct consumer communications and marketing. CopyrightFABS 13 THE BRAND End Agent / Master Customer Distributor / Wholesalers Licensee Retailers Franchise (own stores Broker – online) B2C = Business End to Customer Wholesalers Retailers Retailer Franchisees Customer Retailers End End End POTENTIAL Customer Customer Customer CHANNEL End STRUCTURES Brick & Mortar as well as Customer Click & Mortar B2B = Business to Business 14 Distribution: Indirect distribution Agents & Distributors The Brand can choose between two types of in-market representation: An agent, who is a representative of the Brand A distributor, who is a customer of the Brand The choice of an agent or a distributor will depend on the market size, the type of product, the degree of control that the Brand wants to exercise in the market 15 INDIRECT DISTRIBUTION Key differences between Agent - Distributor Agent Distributor Is the representative of the Brand – The Brand sells A customer of the brand – the Brand sells to the through an agent distributor The agent doesn’t purchase products from the The distributor buys for his account: the distributor Brand thus no financial involvement in the sales purchases the product from the Brand and then sells to the customer Can be involved in facilitating import if required Imports the Brand’s products Works for the Brand and is paid by the Brand Marks up « supply price » to cover in-market costs through a sales commission. Payment is usually of ownership, distribution and invoicing / debt made following delivery and after the Brand has recovery been paid Customer ownership is the Brands. In some cases, The distributor has a strong relation with the well established agents have their own customer customers in the retail / wholesale base and some wholesalers may only buy through a named agent Usually, not involved for after sale service Responsible for after sales service and in some cases warranty and guarantee issues 16 INDIRECT DISTRIBUTION Key differences between Agent - Distributor Agent Distributor The Brand is responsible for distribution costs Distibution responsibility incurred by the agent Not involved in the promotional activity except in Has name and contact details on the Brand’s the US where agents are actively involved in promotional support material introducing new products to customers No control of resale price Controls selling price Does not accept credit risk for the Brand Accepts credit risks In large markets such as the US, China… separate In large markets such as the US, separate agents may be required distributors may be required thus given separate defined territories Some markets only have agents A distributor may be the only option for certain products in certain markets Represents the Brand in the market and must do so If the market is big there may be many links in the to the best advantage for the Brand distribution chain, e.g in Japan, the Brands product may go through an importer, a distributor, a wholesaler. 17 Distribution: Advantages & Disadvantages of in-market representation The Brand must be aware of the advantages & disadvantages offered by an agent or a distribution partner Selecting: an agent enables a Brand to retain greater control of the product in the market A distribution partner enables the Brand to take up less responsibilities – consequently the supplier carries more risk for the selling process The choice of either of them depends of the commercial strategy of the Brand therefore the “Corporate Strategy” The choice will depend on how much control the Brand is prepared handing over CopyrightFABS 18 INDIRECT DISTRIBUTION Advantages / Disadvantages Agent Advantages of an Agent Disadvantages of an Agent Agents have an important role in some markets The Brand bears the cost of deliveries with wholesalers – they are independent Agents can be interesting for exports of large goods No stock is held in the market – thus the or one-foo items distribution process can become complex if the Brand supplies a range of customers Agents can have very good market know how, The agent doesn’t take responsibility of customer technical expertise and a good customer base care The normal charges agreed are around 7 to 15% of The agent does not fund promotional activity and all sales depending on the sector – the selling costs does not undertake marketing or promotion of the are negotiated in advance and must be Brand (it can vary according to the market) incorporated to the Brands price (maintain the margin). Payment of the agent takes place after the buyer has paid the Brand. The Brand remains responsible of all the marketing The Brand carries the credit risk on any transaction, and promotion thus keeps control of the branding. but as the Agent is paid after the Brand, there is an incentive to follow payment for the Brand 19 INDIRECT DISTRIBUTION Advantages / Disadvantages Distributor Advantages of a Distributor Disadvantages of a Distributor The Brand has only got one customer who takes all The Brand has no control over the selling process the credit risks The distributor holds the stock in-market The selling costs can significantly increase the price (50% mark-up prior the product reaches the retailer) The distributor provided service and after-sales The distributor may not communicate the service to the customer customer’s names The distributor helps pay for marketing and Less control over the branding of the product promotion of the Brand in the market The distributor develops a customer base and The distributor is a wholesaler (rather than a handles more the in)market work therefor saves the master distributor) – and may not have the sales Brand time and costs force. The distributor may represent multiple Brands and has to share his time between the different Brands 20 INDIRECT DISTRIBUTION Franchising A franchise is a « Distribution Agreement » A commercial franchise or a distribution franchise is: a temporary and exclusive contract to market products or services on a defined territory to use certain rights of industrial property such as the brand’s name, logo Two parties are involved: The Franchisor The Franchisee With a franchise contract, the franchisor grants to a franchisee an exclusive right on a defined geographical zone, to use certain rights of industrial property such as the brand’s name, logo. @NathalieBrimberg20242025 INDIRECT DISTRIBUTION Franchisor’s Obligations educates the franchisee before the beginning of the activity supplies a commercial and technical continuous assistance help to the sale ease in an implementation of the after-sales service, assists in the research and the merchandising of the point of sale supplies administrative and financial documentation gives management consulting. @NathalieBrimberg20242025  INDIRECT DISTRIBUTION Franchisee’s Obligations A franchisee is a sole trader who manages the business and runs it at its own risks. He must fulfil several obligations Finance the creation of the point of sale means he has to pay for the rent of the point of sale which will be chosen according to the validation of the “Brand” Take a part of the distribution costs means he has to pay for the personnel, the products, the marketing tools Respect the interests and the image of the brand Respect the commercial policy Pay the remuneration planned in the contract. This one can consist of: fixed entrance fees which will only be paid once an annual fee of exploitation of the rights of industrial property of the franchisor called “royalties” The “royalties” are a % proportional to the @NathalieBrimberg20242025 figures of the turn-over INDIRECT DISTRIBUTION Master Franchise A master Franchise is an agreement between the Franchisor and a Master Franchisee The “Master Franchisee” commits to develop the network of Franchisees on a given territory for which he has been granted. This solution is often adapted to export to distant markets or markets which are difficult to handle for: economic Cultural or political reasons. Entering a franchise requires an initial investment The benefits of an entire organization supporting you are powerful. You’re granted access to: A proven “Brand concept” An established customer base An on-going product and service innovation In addition, there is a lower statistical risk of failure compared to opening an independent company of your own. It will also be easier to obtain financing from banks when the franchisee has the backing of a franchisor. @NathalieBrimberg20242025  A Licence agreement is: a temporary and exclusive contract to produce and market products or services on a defined territory to use certain rights of industrial property such as the brand’s name, logo INDIRECT Two parties are involved: The Brand DISTRIBUTION The Licencee Licence Agreement THE BRAND: does not control the operations of the licensee in terms of distribution But provides a significant amount of support and guidance for the: designs of the products the points of sale he wishes or does not wish to develop @NathalieBrimberg20242025 INDIRECT A licensee pays: an upfront fee DISTRIBUTION an on-going royalty payments to the licensor that owns the brand or intellectual property. Licencees The Licensee takes the financial risks by: Developing and manufacturing a product Obligations Stocking the product Developing a commercial team dedicated to the Brand” to target the distribution network @NathalieBrimberg20242025 INDIRECT DISTRIBUTION Licence vs. Franchise Brand Franchisee (distributes) End Customer Retailer 1 End Customer Licencee (produces – Retailer 2 markets – distributes) End Customer Retailer 3 CopyrightFABS 27 DIRECT & INDIRECT ALL AT THE SAME TIME A « Brand » can decide to have all at the same time On its own territory (for example France) a “Multi-Channel” distribution strategy through: Its own stores “Multi-Brand » shops such as Department stores A « Franchise » strategy on « unknown » territories: new cities on its own territory, or / and in new countries, etc. A « Licensee » for: specific products which are not it’s « core-business » (whether it’s on its “core-territory” or not) « core-business » on new territories for which they don’t have the expertise, the financial back-up @NathalieBrimberg20242025  EXPECTED HOMEWORK FOR TUTORIAL N°7 Review your course for MCQ N°4 Identify the distribution chosen channels of the company local vs international summarise and explain your choices CopyrightFABS ANY QUESTIONS? Nathalie BRIMBERG Mail to: [email protected] OBJECT: EFAP 2 – FE / International Marketing / …