Distribution decisions
Distribution channels:
market coverage, channel length,
control/cost, integration
Maia Maziashvili
INTERNATIONAL MARKETING 2025
Distribution channel – definitions
A distribution channels are:
• the means by which goods are distributed from the
manufactures to the end user
• a path by which all goods and services must travel
to arrive at the intended consumer
• a process in a chain of networks for
the distribution of goods and services. Depending
on the chain of distribution, distribution channel
includes a producer, distributor, wholesaler, retailer
and consumer.
[Link]
Distribution – why?
The producers need the intermediaries in foreign markets for
the following reasons:
• They do not have or limited marketing background.
• They do not have or limited financial background.
• They do not have or limited market knowledge.
• They do not have or limited market network and
relationships.
• They do not have or limited market experiences.
• They do not have or limited labour forces.
[Link] et al., Marketing within and beyond Visegrad borders, 2014, p.194
Distribution functions
The assembly of an
The purchase of Holding stocks or
atractive assortment
goood and service inventory
of goods
Promoting the sale
The physical
of goods or services Sharing Risks
movement of goods
to the end costumer
Distribution channels functions
to sell more,
more often,
to more people,
more efficiently
(Garrison, 2006).”
Developing distribution strategy
Selection of foreign country intermediaries
Distribution strategy
How to build a relashionship with intermediaries
How to deal with the varying types of retailing
infrastructure across international markets
How to maximize new and innovative forms of
distribution
How to manage the logistic of physically distributing
products across foreign markets
Distribution decisions
Onkvist&Shaw 2004, [Link], [Link].
Selecting foreign market intermediaries –
direct vs indirect channels
• Direct Channels-decision to sell directly to
customers abroad by using its own local
salesman or internet. Direct control is typical
for industrial goods
• Indirect Channels- decision to use the
resources of independent intermediaries,
mostly at the local level.
Direct
channels -
example
• Walmart -direct sales channels for
distribution and sales.
Channel decisions
▪ Channel length – number of times a
product changes hands among
intermediaries
▪ Channel width – number of middleman
at particular point in the channel
▪ Number of channels – single channel
vs dual/multiple channels
What are the factors that affect the length, witdh
and number of marketing channels?
• Factors affecting channel length:
• product type (longer channels are associated with convenience
goods and mass distribution)
• culture/history
• price sensitivity of products (more price escalation for longer
channels).
• Factors affecting channel width: product type, PLC stage, price etc.
• Factors affecting number of marketing channels: product programme.
Selection criteria – channel members
• Financial reliability FMCG
• Marketing expertise market
• Compatible offer
industrial
• Personnel know-how market
• Service equipment
• Other…
Integration in the international value chains
Forward integration involves buying part of the Backward integration involves buying part of the
process that occurs after the company's supply chain that occurs prior to the company's
manufacturing process. manufacturing process
Integration in the international value chains
Forward
integration
Manufacturer
Wholesaler
Retailer
Backward
integration
Consumer
Forward integration-example
• The acquisition of Whole Foods by Amazon makes it possible to combine two
leading brands, both focused on a customer-centred approach. Partnering with
Whole Foods will allow Amazon to expand its multichannel offering and further
enhance the customer experience
Backward Integration-example
• Netflix Inc., which started out as a DVD rental company
• IKEA pourchased 83,000 hectares of
supplying TV and film content, used backward
forests in romania to supply its timber
integration to expand its business model by creating
requirements
original content
When would it be feasible and advisable for a
global company to centralize the coordination of
its foreign market distribution systems?
• If the distribution systems are similar in many countries,
centralization/coordination of the international
distribution activities would be relevant.
• Example of Bosch – reduction from 36 to 10 distribution
centers in Europe
The management of the physical distribution of
goods
Export processing zones (EPZs)
• The concept of EPZ
• duty-free manufacture or processing of products for export purposes
within a customs-controlled environment
• Advantages
• All goods entering the EPZ are exempted from customs duties and
import permits
• Firms can use foreign currency to settle transactions
• EPZs can be used for assembly of products and so help reduce
transportation costs
• EPZs give greater flexibility, and help avoid unwanted bureaucracy of
customs and excise
Implications of the internet for international
distribution
• Disintermediation – increasing direct sales through the internet,
leading to bypassing resellers and competition of manufacturers with
their resellers (channel conflict)
• Most companies tend to stay with their declining distribution networks
too long
Disintermediation and reintermediation
Online retail sales
• Online worldwide sales amounts to USD 3.53 trillion, representing 14.1% of all retail sales
worldwide.
• UK and China are the countries with the highest percentage of e-commerce retail sales on total
retail sales
• Comparing developed and emerging markets, consumers shopping behavior is different.
• In the past, brick-and-mortar retail stores were unique in allowing consumers to touch and feel
merchandise and provide instant gratification. As the retailing industry evolves towards
seamless ‘omnichannel retailing’ experience, the distinctions between physical and online will
vanish, turning the world into a showroom without walls (Brynjolfsson et al., 2013).
Trends in retailing in international markets
Impact of COVID Pandemic on eCommerce
Current distribution trends in the world markets
• Increasing vertical integration with a lower number of
intermediaries.
• An increasing part of retailing activity crosses
national boundaries
• More negotiating power to the large international retail chains
compared with the manufacturers of consumer goods.
• Growing popularity of discount stores
• Growing significance of cooperation between trade enterprises
and banks, insurance agencies
• Gartner predicts that by 2025, 80% of sales interactions
between suppliers and buyers will occur over digital channels.
Directly
Operated Stores
• Armani- 500 Directly Operated Stores in 46
countries worldwide.
From single-
channel to
omnichannel
strategy
Nike's Omnichannel
Strategy
• In 2017, 81% of Nike’s business came
from wholesale (30 000 retailers)
• In 2019 40 strategic retail partners
Thank You!