CHOOSING A DISTRIBUTION STRATEGY
A choice of distribution strategy determines which channel the firm will use to reach potential
consumers. Should the firm try to sell directly to the consumer or should it go through retailers; should it
go through a wholesaler; should it use an import agent; or should it invest in establishing its own channel?
The optimal strategy is determined by the relative costs and benefits of each alternative, which vary from
country to country, depending on the four factors we have just discussed: retail concentration, channel
length, channel exclusivity, and channel quality.
Because each intermediary in a channel adds its own markup to the products, there is generally a
critical link between channel length, the final selling price, and the firm’s profit margin. The longer a
channel, the greater is the aggregate markup, and the higher the price that consumers are charged for the
final product. To ensure that prices do not get too high as a result of markups by multiple intermediaries, a
firm might be forced to operate with lower profit margins. Thus, if price is an important competitive
weapon, and if the firm does not want to see its profit margins squeezed, other things being equal, the firm
would prefer to use a shorter channel.However, the benefits of using a longer channel may outweigh these drawbacks. As we have seen, one
benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Thus, it
makes sense for an international business to use longer channels in countries where the retail sector is
fragmented and shorter channels in countries where the retail sector is concentrated. Another benefit of
using a longer channel is market access—the ability to enter an exclusive channel. Import agents may have
long-term relationships with wholesalers, retailers, or important consumers and thus be better able to win
orders and get access to a distribution system. Similarly, wholesalers may have long-standing
relationships with retailers and be better able to persuade them to carry the firm’s product than the firm
itself would.
Import agents are not limited to independent trading houses; any firm with a strong local reputation
could serve as well. For example, to break down channel exclusivity and gain greater access to the
Japanese market, Apple Computer signed distribution agreements with five large Japanese firms,
including business equipment giant Brother Industries, stationery leader Kokuyo, Mitsubishi, Sharp, and
Minolta. These firms use their own long-established distribution relationships with consumers, retailers,
and wholesalers to push Apple computers through the Japanese distribution system. As a result, Apple’s
share of the Japanese market increased from less than 1 percent to 13 percent in the four years following
the agreements.
15.
If such an arrangement is not possible, the firm might want to consider other, less traditional
alternatives to gaining market access. Frustrated by channel exclusivity in Japan, some foreign
manufacturers of consumer goods have attempted to sell directly to Japanese consumers using direct mail
and catalogs. REI had trouble persuading Japanese wholesalers and retailers to carry its products, so it
began a direct-mail campaign and then a Web-based strategy to enter Japan that is proving successful.
Finally, if channel quality is poor, a firm should consider what steps it could take to upgrade the quality
of the channel, including establishing its own distribution channel.
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