New exporters may be inclined to use the same sales channels in the international market as they use in the domestic market. However, the methods that successfully reach customers and sell products and services in the domestic market may not work in the foreign market because of different political, economic and cultural influences.
The selection of sales channels is a balance between market coverage and costs. The more sales channels that organizations use, the better the coverage—but the higher the costs. Each additional channel not only adds costs, it can also attract sales from other pre-existing channels.
When selecting the right combination of channels for the sales and distribution of products and services, international trade practitioners consider several factors.
1. Target market buying behaviours
It is vital that an organization knows where and how customers want to buy its products and services. Market research is the key to answering these questions. During market research, demographic, psychographic, geographic and behavioural characteristics are considered to answer questions such as: where do customers in the target market buy similar products and services? In stores? Online? From sales representatives? The exporter must also consider the international sales and marketing plan and what the organization wants to achieve in that specific market.
2. Product and service characteristics
The characteristics of products and services are primary considerations when making decisions about how to sell and distribute products to an international market. Is the product light and small or is it a single piece of industrial equipment weighing several tonnes? Is the product perishable or hazardous, requiring special shipping and handling conditions? Can the service be delivered online or does it require face-to-face interaction?
Consider the product or service life cycle. New and unknown products and services are better sold by staff with the required technical knowledge. As the technology gets more widespread and standardized along with the knowledge of how to use it, technical expertise becomes less important. At this stage, using distributors makes sense. In fact, at the maturity stage in the life cycle, delivery time and price become more important than the need for specialized knowledge.
As products and services increase in value, exclusivity or price, exporters may prefer to use personal forms of selling. This can include the use of agents that are familiar with the target market. This is a good strategy for selling products and services that require a considerable degree of cultural awareness. Alternatively, staff from headquarters may be sent abroad to direct the sales effort. This is often the case for products requiring specialized technical knowledge that may not be available locally. Custom-designed products such as industrial machine parts are not good candidates for distributors because of the level of specialized knowledge required to handle them properly and to advise users. In contrast, inexpensive products that are easily stocked and simple to service are good candidates for distributors.
3. Market location
The location of the target market, including proximity to the export location, will influence the sales channels selected. Is it a neighbouring country accessible via a well-established road system or is it on the other side of the globe? Can the market be accessed by established shipping, rail or trucking routes? How long will it take to reach the market and restock supplies? What types of sales channels are available in this location? The geography of the target market, the distances between customers and the availability of different types of sales channels in that location all affect sales channel decisions.
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The sales, marketing and pricing strategies used by competitors can help organizations choose the best sales channels for their own products and services. If it has worked for competitors with similar offerings, it can also work for the organization. No matter whether the organization uses similar or different channels, it will strive to deliver and distribute its products and services as well as, or better than, the competition. It can gain competitive advantage by making it easier for customers to access its products and services, and by providing timely deliveries and inexpensive shipping.
5. Local business practices
Local business practices are another factor to consider when selecting sales channels. For example, when retailers make frequent purchases in small volumes, organizations need to find ways to warehouse and distribute products in the local market in response to that practice.
Take the example of agents and distributors in Latin America. In Latin America, agents and distributors are independent businesspeople who tend to look out for themselves. This tendency can be countered by having the organization’s executives build relationships with Latin American industry association leaders. Exporters using this approach are likely to find that new opportunities arise. These are opportunities that a local distributor or agent may not have access to, given the importance of power and status in the Latin American business culture. Even when agents and distributors are successful in visiting prospects and closing sales, their efforts can produce better results when the company executives are simultaneously building relationships and getting involved with senior industry leaders.
Organizations must consider how legislation influences the sale and distribution of products and services in domestic and international markets. For example, Scotland has restrictions on holding and using personal data. Japan has legal requirements concerning store size and the opening of new retail outlets. Until 2001, China prohibited the direct involvement of foreign companies in its distribution and retail sectors.
Countries may also have special packaging and labelling requirements. This may include determining a permissible number of units per package (single, in pairs, tens, dozens, etc.) as well as what materials can be used in the package—some jurisdictions specify that a certain type of material must be used or that a certain percentage of the packaging materials must come from recycled material. They may also specify what information must be included on product labels as well as the languages to be used.
Domestic governments also have requirements for goods and services being exported from their country. The requirements vary based on the nature of the products and services, but they likely include obtaining a business number, providing a detailed description of the goods including country of origin, and reporting the goods at a designated export office within the required time frame. In some cases, they require permits and export declarations as well.
7. Market coverage
The extent of market coverage—the percentage of the total market that may be reached through marketing or sales activities—is a crucial consideration for entering a market. This applies to both selling and distribution activities. If an agent or distributor only operates within a specific geographic jurisdiction within the market, the company must decide if that geographic market coverage is sufficient for its needs. In some cases, particularly when entering a large market for the first time, some companies may decide to limit market coverage due to supply concerns or as a way to test the market.
Market coverage also refers to the extent that selling and distribution activities will access the targeted customers or market segments. For example, an exporter of luxury products may not require their market coverage in a foreign country to extend beyond the major urban centres.
8. Customer support services
Regardless of the distance between headquarters and the international market, today’s communications systems enable parties to communicate almost instantaneously via telephone, instant messaging, text messaging and emails. Communication technology helps to avoid some of the constraints posed by earlier communication methods and allows agents, distributors and consumers to have their queries answered quickly.
International markets and customers may be several time zones removed from the source of the information or service. As a result, exporters find themselves under pressure from competitors to provide 24/7 services to international customers. Customers increasingly expect customer service agents and technicians to be available around the clock. The complexity and newness of products and services will determine whether exporters choose to have their own employees or intermediaries provide customer support services. If the exporter requires little to no customer service, they can use intermediaries such as agents or distributors. For complicated products, like computers and other equipment, exporters need to provide access to local technicians for repairs and maintenance.
An obvious consideration when developing a sales channel strategy is cost, particularly the cost-benefit analysis of one strategy versus another. Every link in the sales network implies a cost. The level of control and customer reach may be lower for certain distribution methods but could also be less expensive. Thereby offsetting loss in sales volumes.