Export Distribution Channels

INTERNATIONAL MARKETING

Section 2 –G

Export Distribution Channels

         How the product will reach the end-user in the right place, at the right time and in the right condition, requires knowledge of alternative channels of distribution and the different ways of handling the physical distribution of the goods.

Distribution Defined

Distribution involves all the activities concerned with the transfer of good from manufacturer to the consumers. The aim of distribution is to ensure the availability of products to people who want these items whenever and wherever they want to acquire them.

Two Basic Distribution Activities:

1. Commercial Distribution – deals with trade contacts and the choice of wholesale and retail channels that involve finding good markets and demand stimulation. This is often referred to as the marketing and trade channels.

2. Physical Distribution – deals with the problem of space and time, specifically how to effect the transport and storage of goods. It basically answers the question “How should orders be handled?”

Channels of Distribution

Any exporter or trader can reach a buyer through either of these two ways:

a. Direct Export Sales - which means developing a firm’s own sales force, and offering products directly to the retailers without resorting to intermediaries.

b. Indirect Export Sales Through Intermediaries – which means relying on importers and commission agents both here and abroad who, in turn, distribute or serve major buyers directly.

 Common Distribution Functions of Different Trade Channels

1. Producer – Exporter

· manufactures the goods

· sells and promotes the goods

· pack the goods

· weighs and inspect the goods

· arranges for the transportation

· delivers at agreed destination

2. Agent

· does not keep stock

· is not responsible for the payment

· works on the basis of a sole agency

· puts the buyer and seller together

· receives commission

3. Importer/Wholesaler

· buys at his own risk

· keeps stock

· will not disclose the names of his clients

· might handle other competing products

· might be willing to pay some promotional expenses

· sets his own profit margin

· may work on the basis of exclusivity

· gives credit

· delivers goods to retailers

4. Retailer

· buys from wholesalers or purchases from associations

· buys from agents-importers

· may import directly through his own purchasing department

· keeps stock

· may insist on exclusive contracts

· promotes the items

· stores and displays

· can be powerful marketer if the product interests him

· sells to end-consumers

5. Special Wholesaler

· may work regionally

· does not cover the whole country

· often specializes in food and household products for specific industries like hotels, restaurants

· does not insist always on an exclusive contract

6. Consumer

· ultimately buys and processes the goods

· may store the goods

· consumes the goods

· pays in cash or credit

· includes industries, hotels, airlines, etc.

Specific trade channels posses certain characteristics which can guide you as to the right approach im marketing and selling your products.

· Department Stores

- large number of styles but low volume

- moderate to reasonable prices

- do not provide specific design direction, but rely on manufacturers for actual design

· Discount Stores

- Few styles/high volume

- low price

- provide design of a successful product to be copied

- shorter lead time compared to that given by department stores

· Specialty Stores

- few styles/low volume

- high price per style

- provide design

- shorter lead time

· Mail-order Companies

- many styles/low volume

- moderate to high prices

- frequent reorders

- develop their own design

- designs run for about two years

- average lead time

· Wholesalers/Distributors

- few styles/high volume

- low to moderate prices

- provide design of a successful product to be copied

- short lead time

Given the features of the different channels, your choice will depend most likely not only on the nature of these marketing channels but more on the following factors:

a. type and nature of the product

b. market segment you are aiming at

c. available quantities

d. delivery and payment terms

Shipping the Goods

There are several choices in transporting the goods. Goods can be transported by sea, land, or air.

Organization of Ocean Transport

Four Types of Ocean Vessels

1. Conference Line Vessels – These ships belong to a line which is a member of a shipping conference. Conferences are groups of shipping lines bound together for the purpose of adopting common rules and regulations, and charging uniform freight rates for particular routes. They also provide international liner services for the carriage of cargo on specific routes.

2. Non- Conference Line Vessels – These are operated by shipping companies that offer scheduled services but quote freight rates independently from one another.

3. Tramp Ships – These ships do not follow regular routes but travel where cargoes are available.

4. Carter Ships – These ships can be hired to transport products for a particular purpose or time.

Ocean Freight Rates

Freight rates are mostly depend on the nature of the goods shipped, weight or volume of the goods and destination and sometimes on the type of shipping vessel used.

          Freight Costs consists mainly of Two Components:

a. Basic Rate per cubic meter or metric ton

b. Surcharges such as currency adjustment factor, bunker adjustment factor, container service charge, port congestion surcharge, war risks, arbitrary charge, etc.

Containerization

Most shipments today use freight containers. The International Organization for Standardization (ISO) defines container as:

“An article of transport equipment which is single, rigid, non-disposable cargo box, ventilated, insulated, reefer, flat rack, vehicle rack, or open top with or without bogies and attached not less than twenty (20) feet in length, and having a closure or permanently hinged door that allows ready access to the cargo. Containers have partitions, fittings, and fastenings able to withstand without permanent distortion all the stresses that may be applied in normal service of continuous transportation.”

Two Types of Container Shipment:

a. Full Container Load (FCL). This implies that the shipper will have a container at his disposal and that he will normally have enough cargo with which to fill the container.

b. Less Container Load (LCL). This implies goods in any quantity intended for carriage in a container, but the goods are delivered to the carrier for containerization. The cargo may be consolidated with the cargo of the consolidator to fill a container.

The container’s available for our trade at present are as follows:

Container Size 20 ft. 40 ft. 40 ft. high cube 40 ft. jumbo 45 ft.

Capacity 33 cbm 67 cbm 76 cbm 76 cbm 86 cbm

The formula to compute the loadability is:

Box Size     =

                    =

                     = cbm per box

Total cbm   = cbm per box  X number of boxes

Air Transport

Air transport is a good choice for goods which are highly perishable and valuable. These goods have a high ratio to weight, which means, they are light but expensive.

Advantages of using air transport:

a. Speedy delivery of goods

b. Less pilferage and damage

c. Less need of costly protective packaging since the packing needs is much lighter.

Air Transport Freight Rates

Air transport freight rates are based on the actual weight in kilograms or volumetric weight (dimensions) in kilograms whichever is higher.

        Volumetric Weight(VW) is computed by multiplying the three dimensions: length, width, and height.

If the dimensions are in centimeters, the divisor should be 6,000. If the dimensions are in inches, the divisor should be 366. The divisor of 6,000 or 366 is established by the International Air Transport Association (IATA).

Formula:

VW in kilograms =

or

VW in kilograms =