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Sample Topic Web Site for BSAD 113 and 114

Introduction

Distribution is an area that is often overlooked by many small and large business that would like to market their products abroad.  Having a good product does not guarantee success in the market place.  Before consumers can be aware of products, they must be able to find them in stores where they shop for such products, and the stores must be committed to promoting the products through (1) making the products visible, (2) carrying sufficient inventory, and (3) providing required services. Just because you make a better mousetrap, people will NOT beat a path to your door--and especially not from abroad!

This site  first considers distribution through conventional channels (e.g., ordinary retailers and wholesalers) and then considers the specific case of electronic commerce (Internet marketing).

Distribution Through Conventional Channels

The impact of geography.  Geography has a surprisingly large impact on distribution in many areas.  While in the U.S., most communities are readily accessible through the Interstate freeway system (or at least from navigable roads that connect the freeways), many foreign areas are more difficult to reach.  A large proportion of the population of Latin America, for example, is concentrated at coastal areas due to the inhospitable terrain that predominates the continent.  In Europe, connections across mountains were achieved through aggressive tunneling, but this has not yet been affordable in most developing countries.  In some areas, the only way to bring most materials in may be air cargo, which is expensive.  Goods may be trucked to one relatively accessible retailer, which will then “re-wholesale” to one that can only be reached by jeep, which in turn will resell to a store that may only be reachable through pack animals.  Note that, in addition to physical transportation, reliable communication (e.g., mail, phone, fax, Internet) is also essential to allow for the flow of goods.

Evaluating modes of transportation.  Two main criteria in evaluating modes of transportation are cost and speed.  Air travel does very poorly on the first and very well the second, in contrast to ocean shipping, where the performance is reversed.  In general, with slower means of transportation, larger “buffer” stocks are required, and a greater risk of  exchange rate fluctuations between the time of shipping and delivery is incurred.  In some cases, different transportation venues are combined (intermodal), in which case cost is incurred and time spent in transferring the cargo.

Channel formats:  Wholesalers differ significantly in the amount and quality of services they perform, and it should be noted that it is essential for the wholesaler to be able to appeal to the retailers targeted by, for example, allowing for some time to pay for the merchandise.  Retail formats tend to differ somewhat between countries, sometimes because of legal constraints (e.g., until recently, only bookstores were allowed to sell hardcover books in Denmark).  Some countries have laws that favor small businesses (e.g., by restricting operating hours or advertising of larger ones).

Parallel distribution.  As we discussed in the pricing section, there is something a strong incentive to move a product from a market in which it is cheaper to one where it can be sold at a higher price.  This may compromise brand equity, draw strong pressure from authorized retailers who now have to compete with the lower priced channels, and raise questions on warranty service eligibility.  Manufacturers can attempt to limit this practice by steps such as (a) creating visible differences between products and packaging between countries, (b) limiting the amount of merchandise that distributors in low price markets can buy, or (c) raising prices in the lower priced markets, even though this will likely result in a severely diminished market share or size.  Note that, in general, diversion is a fact of life where solutions (other than differentiating products between markets) tend to be worse than the problem.  (In some cases, where products contain serial numbers, distributors that sell to unauthorized channels can be cut off, but this is feasible only for products valuable enough to warrant the cost of associating a serial number).

Direct marketing.  Most of the World runs behind the U.S. in the area of direct marketing for several reasons.  First, U.S. firms have been quicker to adopt the information technology necessary to compile effective lists.  Secondly, stringent privacy laws in many countries inhibit compilations—for example, in some European countries, individuals must consent before they can be put even on a mailing list; collecting this consent is prohibitively expensive.  Further, although some of the sources of names, such as vehicle registrations and magazine subscriptions might be available in principle, there is a bit of a “chicken-and-egg” paradox in that successful mailing lists are typically based on what people have bought through the mail before—since mail order purchases have been fewer, people have less of a purchase history and thus, prospects are more difficult to identify.

Electronic Commerce

Prospects for electronic commerce.  Electronic commerce—usually in the form of sales, promotion, or support through the Internet—is a hot topic at the moment, evidenced by the high market capitalization of firms involved in this kind of business.  Growth rates have been considerable over the last two years and are expected to persist, at least to some extent, for at least the next several years.  Yet, it should be recognized that so far, sales over the Internet account for only a small portion of sales—especially outside the U.S.

Obstacles to diffusion.  Obstacles to the diffusion of Internet trade come both from enduring sources and temporary roadblocks which may be overcome as consumer attitudes change and technology is improved.  Currently, Internet connections are slower than desired so that downloading pictures and other information may take longer than consumers are willing to wait.  “Glitches” in online ordering systems may also frustrate consumers, who are unable to place their orders at a given time or have difficulty navigating through a malfunctioning site.  The lack of non-English language sites in some areas may also be off-putting to consumers, and registering domain names in some countries is difficult.  Further, shipping small packages across countries may be inefficient due to high local postage rates and inefficiencies in customs processing.  Most of these obstacles may be overcome within next few years.

Other obstacles may, however, have considerably greater staying power.  First, there are legal problems, as several different countries may seek to impose their jurisdiction on advertising and laws of product assortment and business practices.  Further, the maintenance of databases, which are essential to delivering on the promises of e-commerce, may conflict with the privacy rules of some countries—this is currently a hot issue of contention between the United States and the European Union.  Finally, there are issues of taxation and collection.  While the Clinton Administration has sought to get the WTO to go along with a three year tax “moratorium” on Internet purchases much like the one observed in the U.S., strong opposition is expected.  A great attraction of e-commerce in Europe is that people may order from other countries and thus evade local sales taxes, which can be prohibitive (e.g., 25% in Denmark and 16% in Germany).  Some firms will ship to customers in neighboring countries without collecting sales taxes or duties, with the responsibility of paying falling on the consumer.  Although most consumers who order and do not arrange to pay for these taxes get away with it, fines for those caught through random checks can be severe.

Locus of the site.  Some firms have chosen to maintain a global site, with reference only to local sales or support offices; others, in contrast, have unique sites for each country.  In some cases, a global site will hyperlink surfers to a country or region relevant site.  Note that some confusion exists since many sites outside the U.S. maintain the “.com” designation rather than their countries’ respective suffix (e.g., “.de” for Germany, “.se” for Sweden, and “.au” for Australia).  Some firms have experienced problems getting their banks to accept credit card charges in more than one currency, and thus it may be difficult to indicate precise prices in more than one denomination (one site based in Britain offered its American customers to be as accurate as possible, based on current exchange rates, although the charge could be off “by a few pennies.”)

Lifecycle stages across the World.  It has been suggested that Europe runs some five years behind the U.S. in electronic commerce, but some sources dispute this, suggesting that lack of success among American retailers may have other origins, such as inadequate adaptation (for example, some British users are put off by American English).  There are, however, some factors which cause most countries run behind.  Even in Europe, Internet access penetration rates are lower than they are in the U.S., and the slower speed associated with downloading Asian characters is discouraging.  In some countries, credit card penetration is lower, and even in European countries with high penetration rates, consumers are reluctant to use them.  Further, the fact that consumers in most countries have to pay a per minute phone charge discourages the essential casual and relaxed browsing common in the U.S. so long as unlimited cable or hardwired access is not offered.