International distribution and sales promotion

International distribution and sales promotionChapter 11 Marketing Across CulturesAnh Le, Zhou Qinglan, Zhou QingqingTable of ContentsIntroduction (3)Japanese keiretsus system (3)Selection of foreign distribution channels (4)11.2 Criteria for choosing foreign distribution channels (9Cs) (3)11.3 Role of distribution as a “culture filter” (4)a. Culture at the interface between shoppers and stores (5)b. Influence of culture on relationship between channel members (6)IntroductionInternational distribution and sales promotion are two important elements in global marketing. They help to …push‟ the products to customers. In this report, the distribution channels and sales promotion on multicultural point of view and their application will be defined and discussed based on the summary of chapter 11 in the textbook Marketing across Cultures (2009) and two practical cases, Amway and McDonald‟s. In the summary of the chapter, the first part is the introduction of the typical Japanese distribution system. The second part is the selection of distribution channels and the third part is the role of distribution as a …cultural filter‟. The forth part is about direct marketing worldwide, and the last part is sales promotion across cultures. In the two cases, Amway will be the example of application of direct marketing worldwide, and McDonald‟s will be the example of application of international distribution and sales promotion.Japanese keiretsus systemThe decisions of choosing distribution channels might be influenced by the differences of culture in different countries. There is a special kind of distribution system called keiretsus in Japan, which depends on the particular characters in Japan. And the so called keiretsus system might be a barrier to the entry of the foreign products.Because of the heavy population and the scarce land resource, the Japanese distribution system is developed as a highly fragmented one. In history, influenced by the cultural and legal factors, the wholesalers have the central control power in the market with very fragmented retailers. The obvious character of keiretsus system is vertical control (wholesalers→retailers→consumers). This is so called integrated marketing and leads to the strong relationship with trust between retailers and consumers. It may be caused by the high purchasing power of Japanese consumers and the high competition of retailers. Then the retailers pay more attention to the quality of service. There are two examples of keiretsus system, the discount (Rebate) and payment (Tegata) system. Discounts and the permission of delaying the payment time are regarded as rewards and means of sales promotion and control of loyalty. But sometimes it may cause financial troubles.There are four main aspects of Japanese distribution system. The first is that the wholesalers and retailers learn from the consumers‟ advisor. The next is high frequency of delivery, which maylead to higher delivery cost but lower hold cost of goods. So price is regarded as a highly flexible marketing instrument. The third aspect is that setting the initial price is one of the key decisions when entering the market. In addition, Producers often give support to distribution channels for sales promotion.Some people argue there are some disadvantages of the Japanese system. The first is that the Japanese government tries to protect local companies. Then the vertical control decreases the normal competition. Businesses pay more attention to long-term benefit personal relationship rather than innovation. And the market seems inefficient. The trades last a long time and are costly. Nevertheless, it should be mentioned that the system is changing because of the economy globalization.To overcome the barrier of entering the Japanese market, foreign business should try to adapt to local conditions. These foreign businesses can firstly find a local partner and an original position, and then identify alternative opportunities for choosing a distribution channel. In addition, they can have mental preparation to be patient with long-term and turnover orientation, and have the awareness of adapting Japanese conditions.Selection of foreign distribution channelsThere are 9 criteria that are important to choose foreign distribution channels, which are called (9)Cs‟. The first criterion is consumers and their characteristics. As some segments in foreign markets are more import oriented, distribution channels in these areas are more attractive. The second criterion is culture. Distribution network is based on culture that relate to daily life and relationship. The third criterion is character. That is to say, distribution channels should keep up a correspondence to the character of the product itself.The forth criteria is capital. Capital is the necessity to start and maintain a channel, as fixed capital, working capital and some initial losses may need to be financed. The fifth criteria is cost. Cost is strongly related to capital but more on trade margins. The sixth criteria is competition. Competition arises in the following two situations. The first situation can be two similar and competitive products being put next to each other on the shelves in the shops, and the secondsituation can be some producers refusing their competitors to have access to similar distribution channels.The seventh criterion is coverage. Coverage is mainly about product range, size and options. As demand affects supply, the position of complementary product and share parts are important. Product coverage is different across cultures. For instance, French drugstore would not sell the same products as they sell in America and Germany.The eighth criteria is continuity. Continuity is also important in distribution, while it can be held back by competitors. For example, an American company lost large amount of market share in South America, 2 of its EU competitors agreed to force the company out of that market. However, one of them forced the distributors to stop corresponding to the wide range of products of the American company while the other one bought the shares which distributed the American products. The ninth criteria is control. Companies can control the market by using their own distribution network.Distribution as a ‘cultural filter’In distribution systems, culture can account for some parts of differences, while the other differences can be explained by the socio demographic characteristics and economic conditions in different countries. Shopping behavior is the first to be considered. Shopping behavior is not only influenced by culture, but also by economic conditions. The opening hours are totally different in northern and southern Europe, which showed the impact of culture in distribution system. In northern Europe, there are almost no shops open on Sunday.Religious and social beliefs may even lead to some legal issues. An example can be beer distribution in Turkey. Turkey is a Muslim country, and before 1984, beer is not considered as an alcoholic drink, and they can be bought in coffee houses. While the consumption of beer increased incredibly, the government classified again that beer is an alcoholic drink, which led to an impressive drop in beer sales.The opinion of waiting and services are different according to cultural influences. Theft by customers or store employees is a phenomenon in distribution which can also be explained by cultural difference. The relationship of producers and distributors largely depends on the culture in the country.The study of Hofstede which focus on cultural dimensions can explain some situations in different cultures. Companies from high uncertainty avoidance cultures tend to look for partners with high reputations and with written guarantees. Companies whose cultural background is high individualist and masculine cultures, such as America, will choose their partners by objective criterion, while companies in collectivist and feminine societies, such as China, will focus more on relationship and harmony. Leadership styles are not manageable in different cultures.Direct marketing worldwideThere are many issues concerning about worldwide direct marketing. Logistics issues are the first to be mentioned. It is about where the direct mail can be sent from, from within the domestic country or through a third country to reduce the costs and keep speed and security. Regulation is also important because different countries have different regulations in posting and customs. The third major issue is the mailing lists and mailing address, these need to be update regularly. Language and cultural differences can have an impact in direct marketing as the companies have to avoid misunderstanding. An example can be Germany‟s Bertelsmann, it changes the name to …France Loisirs‟, as the former name has a negative definition in culture in France. Ethics are concerned by many countries, which is about privacy and the false using of mailing lists.The Internet has been increasingly used by direct marketing. There are some websites, such as and , which allowed people to sell and buy their things on it. However, there are some limitations of Internet. First of all, the network communications are not perfect, because the Internet was firstly built for US national protection and academic using, the increasing number of users on Internet can cause delay. The second is safe credit card payment, as there are growing number of theft online. The third limitation is not all goods can be bought online, because some goods should be viewed by the customers before they really buy them. Thelast limitations is about the different regulations of Internet in different countries, these regulations are mainly on contracts, taxes, protecting intellectual property, etc.Sales promotion across culturesSales promotion techniques are used universally, which can be discounts, competitions, collection tools of different kinds, free samples and gifts. For different consumers, sales promotion techniques are different.Regarding cross-national using of sales promotion, the following questions are to be concerned. The initial question is the target. The target is not only the end user, but also can be the purchaser and the store workers. The second question is whether the technique is considered ethical. In some countries, people are worried that some sales promotion techniques may result in over pricing of certain products. Competitions, gifts and cross-product offers are the ones which is mostly considered as unethical techniques. Regulations in some countries forbid gifts or at least limit the value of gifts. For instance, in France, the price of the promotional reward cannot be higher than 7 percent of sell price. Anyhow, there are still some techniques widely accepted, such as free samples and discount on the next purchase.Apart from the questions, there are socio cultural factors that have an influence on the achievement of sales promotion techniques. When there are important texts in the promotion, whether consumers can understand can obviously influence on the completion of promotion. Therefore the level of education should be tested before a particular text promotion being launched. Meanwhile, if a prize is given, it is necessary to make sure that it suit the tastes of consumers in that market. The retailer needs good persuading techniques so that the promotion have larger opportunity to attract more consumers. The control of retailers are also needed to avoid them remove the samples or sell free gifts. Promotion techniques can also be correlated with social status, for instance, in Thailand, the use of stamps can be very popular while in Hong Kong, coupons are widely accepted. Promotion which stated a price reduction may not be useful in some countries as people used to bargain there and there is no initial price displayed. Some promotional techniques call for expande d participation, such as collectors‟ devices and stamps. It is necessary to check if the technique is understood by the local people.Case 1. Amway and direct sellingIntroduction of AmwayAmway is one of the largest global direct selling companies in the world. It was established in 52 years ago. There are more than 450 kinds of products, for foods, health and beauty, and house-cleaning, which are produced from China, India, Brazil, Mexico, United States and some other countries. And it includes many famous sub brands such as Nutrilite,Artistry,eSpring, Atmosphere and so far. These products are sold in about 90 countries with over 20,000 employees all over the world. (Wikipedia, 2012)And what should be mentioned is that the sales of Amway global exceed 10.9 billion US dollars in 2011.(Amway US, 2012)Besides the large scale, the independent, high-tech Research and Development and the unique distribution system so called networking selling also make Amway well-known. This report will detail in the distribution system of Amway.Direct selling in AmwayAmway is famous for its distribution channels, which are direct selling. Direct selling is the selling directly to the consumers without the activities of wholesalers and retailers.(Wikipedia, 2012)In the distribution system of Amway, there are 2 main distribution channels, network marketing, or called multi-level marketing, and e-commercial business.How the network of Amway worksThe network of Amway is called multi-level marketing. Instead of asking the wholesalers and retailers to sell the product, Amway directly sells the products to consumers through Independent Business Owners (IBO). When a new product comes to the market, the IBOs can buy the products directly from the manufacturers on the Internet. And then they can call their friends and families (so called downlines) to buy the new products. And their friends and families can also call their friends. This means in this network, everyone is not only the consumer of Amway, but also a kind of the sales people. Some experts argue that the effect of the network is more efficient than the traditional model. There is a more detailed explanation. If there is a person who find 7 downlines, who will also fine 7 downlines, the network will have totally 57(1+7+49) consumers, and this net work can be further developed. In addition, there is another advantage.Instead of just waiting for the consumers to see the advertisement and go to the shop, the direct selling distribution model of Amway tries to make consumers receive the information from the people who they trust. This makes Amway become a trustable brand. It seems a more active business model. It is reported that, in the early 2000s, the number of distributors working for Amway is more than 3.6 million. (Business 2000 7th edition, 2003-2004)The criticism of Amway networkHowever, some people pointed some critics against this distribution model. They suggest the model can be easily misled as a pyramid selling rather than direct selling, due to the special bonus system and cultural difference. There is a bonus system that Amway encourage the employees to sell their products. In the bonus system, there are 4 kinds of monthly bonus and 5 levels of annual bonus. Employees can get more rewards if they effort more or their downlines effort more. (Amway, 2012) This system can have a positive effect in the culture which has less tradition of social status level, and has more individualism, or in the countries which has a smaller population density. For instance, Amway Australia, the first market of Amway out of North America, was very successful in 1971. Nevertheless, Amway China landed itself in deep trouble in the late 1990s, because most of the people misunderstood direct selling as pyramid selling. And many uplines gave the illusory promise to their downlines: “You must be successful if you join us.” The government banned the direct selling of all the direct selling companies until 2005. (DuBois, 2010)This situation did not just happen in China, but also in some other countries, such as India.Regulation and AmwayTo deal with the negative situation, Amway tries to negotiate with the local government to create a fair environment for direct selling. In 2005, Amway China negotiated with Chinese government. And then the government set a new direct selling law and allowed some companies including Amway to do the direct selling in mainland. And Amway also set a behavior standardof employees and distributors to avoid the generation of pyramid selling. It was reported last year in The Economic Times (2011) that Amway also asked for the regulation of direct selling in India,The e-commercial business of AmwayUnlike , an e-commercial platform, the e-commercial of Amway is a part of its direct selling. This e-commercial strategy is used to reinforce the relationship between the companies and IBOs and improve the quality of personalized service to consumers by interacting with them on the internet. First, Amway establishes the special website for IBOs to provide higher-quality service, and to do the market research to receive a larger range of feedbacks of the products and services. Then, Amway can develop the new business relationship by targeting a special consumer base. This might be an important part of marketing. In addition, the websites also help the IBOs to do a more efficient plan of their jobs. Finally, it is also very important that the new technology helps reducing the cost of trading. For example, Amway UK tried to establish the e-commercial business since 1999. And it is reported that, in 2000, there were more than 30% of the turnover was made by e-commerce. (Business 2000 7th edition, 2003-2004)Case 2. McDonald’s: distribution and sales promotionIntroduction of McDonald‟sMcDonald‟s, whose headquarter is in America, is the world‟s largest and most popular chain of fast food restaurant. Millions of customers are served everyday around the world. McDonald‟s was actually seen as a best known representation of American culture (Investigating American Icons, n.d). In the huge success of McDonald‟s business around the world, distribution and sales promotion play important roles.Distribution in McDonald‟sAs stated in the summary of this chapter, the changes of distribution in different cultures can be explored in the following aspects. The first aspect is shopping behavior. McDonald‟s is a fast food restaurant. In western countries, fast food is widely accepted, because of the development of the society and the fast pace of life. Most McDonald‟s restaurants offered drive-through service and counter service. Western people truly benefit from the speed of their services. While in many eastern countries, the pace of life was not so fast when McDonald‟s was first introduced there.The second aspect of distribution is opening hours. In America and also some other countries, McDonald‟s opened for 24 hours, 7 days a week. However, still in many other countries, due to law and traditions, McDonald‟s restaurants are not allowed to open for such a long time. For example, in Vietnam, they should close at 11 pm.The third aspect of distribution is product range. Originally, McDonald‟s represented American food culture. The main menus in the restaurant are hamburgers, cheeseburgers, chicken, French fries, soft drinks and deserts, which are typical American food. As a result of criticisms that the food they provided is unhealthy and is the reason of obesity in America, they expanded their menu to add more vegetables and fruits to have much more balanced food range, meanwhile, reduce the size of their food (Investigating American Icons, n.d). While entering the markets in other countries, McDonald‟s changed some of their menu to adapt the cultures there (stated in lecture). For instance, in India, eating beef is forbidden owing to religion, so McDonald‟s do not serve food with beef in India, instead, they provide some traditional Indian food.The forth aspect of distribution is willingness to serve customers. McDonald‟s is in food and service industry, high quality of service is necessary for this restaurant. McDonald‟s has the goal to have 100 percent customer satisfaction (Goldman etc, 2008). The company employed local people in different countries to ensure that local customers‟ needs can be fully understood.The fifth aspect of distribution is the concept of waiting line. In some countries, it is common rule that while paying at the cashier, customers will stand in a queue consciously. The sixth aspect of distribution is the perception of thefts by customers or personnel. This phenomenon is largely differentiated by cultures. In some cultures, it is acceptable to steal in a shop if the shop is representing another different culture. As McDonald‟s is a represent of American culture, it is not difficult to assume that in countries which are against American culture, both customers and employees may steal stuffs from the restaurant.The last aspect of distribution is self service. Self service is widely admitted in western countries, after finishing eating, customers would put the stuff back to certain area. In eastern countries, such as China, there would be some employees to clean the stuff for customers.Sales promotion in McDonald‟sSales promotion is another key to success of McDonald‟s all over the world. Sales promotion is used to attract customers. McDonald‟s defined its sales promotion strategy as …brand globally, act locally‟ (Clifford, 2003).Discounts are the most commonly used sales promotion techniques. McDonald‟s also used discounts as a promotion technique. Customers can download vouchers freely from the Internet and get discounts. In addition, McDonald‟s provide special discounts for certain groups of customers, for example, students and senior citizens.McDonald‟s would offer free gifts, mainly for children. McDonald‟s even supply play places for children. Furthermore, children can have parties in the restaurant, which can help build networks with other children and also attract other children to consume in the restaurant. McDonald‟s now offer free Wi-Fi in many of their restaurants. Customers can work, check emails, and chat with their friends on Facebook on their computers. This can benefit those working people if they urgently need to work while they are in the restaurants. Along with the 24 hours opening time, many people may be willing to stay in McDonald‟s for the whole night (McDonald‟s, 2012).The advertisements made by McDonald‟s are different in every other country. Here is one example. During the time of Olympic Games in the year of 1996, McDonald‟s made advertisements of babies. In America, the content is that, a baby sitting in a cradle would stop crying every time he saw the sigh of McDonald‟s when his cradle shake to a higher position. After the cradle stop shaking, he tried himself to shake it again. McDonald‟s made a similar one in China. A Chinese baby in cradle would stop crying when he saw the sigh. But in this advertisement, there is no content of the baby shake the cradle, instead, there is an adult came out to see why the baby stop crying. These differences are because American children are considered to be more individual than Chinese children.ConclusionAs the development of economy globalization, the role of international distribution and sales promotion becomes more important. The case in the Chapter 11, Japanese distribution system, shows that distribution channels and methods of sale promotion which are suitable in some countries might not be accepted easily. So changing the distribution model to adapt the local cultural and political environment, to a large extent is very important. This paper analyzes the method of choosing a suitable distribution channel, then pays attention to the detail of direct selling, and finally talks about the sales promotion in different cultures. There are two cases in the paper. One is Amway and direct selling. It shows that, sometimes, direct selling might be seen as pyramid selling in some cultures. In order to provide a fair environment of direct selling, setting strict regulation is very important. In addition, e-commerce is an efficient path of direct selling. In the second case, MacDonald‟s has different aspects of distribution in the global market. And its sales promotion all over the world is very successful due to the adaption of different cultures. This paper aims to show that cultural and political factors need to be considered when designing the marketing mix.。