Onkvisit S., Shaw J. International Marketing: Analysis and Strategy

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To prevent the importation into the USA of

counterfeits and, to a lesser extent, gray market

goods, a trademark owner whose mark is accepted

for the Principal Register can register a mark with

the US Customs Service for the purpose of pre-

venting entry of goods from bearing an infringing

mark.The Customs Service distinguishes colorable

imitation from counterfeit trademark.A colorable

imitation is a mark so similar as to be confused

with a registered mark, whereas a counterfeit

trademark is basically indistinguishable from a

registered trademark. Colorable imitations are

treated more leniently in that they can still gain

entry as long as the objectionable mark is removed.

However, in the case of counterfeits, the Customs

Reform and Simpliﬁcation Act of 1978 allows the

seizure as well as forfeiture to the government of

any articles bearing a counterfeit trademark.

PACKAGING: FUNCTIONS AND

CRITERIA

Much like the brand name, packaging is another

integral part of a product. Packaging serves two

primary purposes: functional and promotional.First

and foremost, a package must be functional in the

sense that it is capable of protecting the product at

minimum cost.

If a product is not manufactured locally and has

to be exported to another country, extra protection

is needed to compensate for the time and distance

involved. A country’s adverse environment should

also be taken into account. When moisture is a

problem, a company may have to wrap pills in foil

or put food in tin boxes or vacuum-sealed cans.

However, the type of package chosen must be eco-

nomical. In Mexico, where most consumers cannot

afford to buy detergents in large packages, deter-

gent suppliers found it necessary to use plastic bags

for small packages because cardboard would be too

expensive for that purpose.

For most packaging applications, marketers

should keep in mind that foreign consumers are

more concerned with the functional aspect of a

package than they are with convenience. As such,

there is usually no reason to offer the great variety

of package sizes or styles demanded by Americans.

Plastic and throw-away bottles are regarded as being

wasteful, especially in LDCs, where the labor cost

for handling returnables is modest. Non-American

consumers prefer a package to have secondary func-

tions. A tin box or a glass bottle can be used after

the product content is gone to store something else.

Empty glass containers can be sold by consumers to

recoup a part of the purchase price.

From the marketing standpoint, the promotional

function of packaging is just as crucial as the func-

tional aspect.To satisfy the Japanese preference for

beautiful packaging, Avon upgraded its inexpensive

plastic packaging to crystalline glass. Similarly, BSR

packs its product into two cartons, one for shipping

and one for point-of-purchase display, because

Japanese buyers want a carton to be in tip-top con-

dition. The successful campaign for Bailey’s Irish

Cream in the USA included a fancy gold foil box

package that promotes this whiskey-based drink’s

upscale image. In any case, packaging does not have

to be dull. Novel shapes and designs may be used to

stimulate interest and create excitement.

MANDATORY PACKAGE MODIFICATION

A package change may be either mandatory or at the

discretion of the marketer. A mandatory change is

usually necessitated by government regulations.

Sometimes, it is for safety and other reasons. Some-

times, packaging regulations are designed more

for protection against imports than for consumer

protection.

Several countries require bilinguality (e.g.,

French and English in Canada, and French and

Flemish in Belgium). This requirement may force

the manufacturer to increase package size or shorten

messages and product name, since a bilingual pack-

age must have twice the space for copy communica-

tions. In some cases, modiﬁcation is dictated by

mechanical or technical difﬁculties, such as the

unavailability of certain typographic fonts or good

advertising typographers.

In many cases, packaging and labeling are

closely related. Packages may be required to

describe contents, quantity, manufacturer’s name

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BRANDING AND PACKAGING STRATEGIES

and address, and so on in letters of designated sizes.

Any pictorial illustration that is used should not be

misleading. In Singapore, certain foods must be

labeled to conform to deﬁned standards. When

terms are used that imply added vitamins or miner-

als (e.g., enriched, fortiﬁed, vitaminized), packages

must show the quantities of vitamins or minerals

added per metric unit. In addition, if the product is

hazardous in any way, marketers should adopt the

United Nations’ recommendations for the labeling

and packaging of hazardous materials.

Exporters of textile products must conform to

countries’ varying regulations. Spain has speciﬁc

and extensive requirements concerning ﬁber

content, labeling, and packaging. In addition to its

ﬂammability requirements, Sweden’s labeling regu-

lations include size, material, care, and origin.

Venezuela requires all packaged goods to be labeled

in metric units while speciﬁcally prohibiting dual

labeling to show both metric and nonmetric units.

Germany wants the description of ﬁber content to

be in German, but labeling for Denmark must be in

Danish or kindred. In the case of France, care label-

ing (if used) must meet an International Standard-

ization Organization (ISO) directive.

As discussed in Chapter 10, countries’ different

measurement systems may necessitate some form of

product modiﬁcation, and necessity applies to pack-

aging as well.Product,toiletries included, cannot be

sold in Australia in ounces. The Australian regula-

tions require products to be sold in metric numbers,

in increments of 25 mm. In Germany, liquid prod-

ucts must be bottled or packaged in standard metric

sizes. Interestingly, the USA, a nonmetric nation,

has the same requirement for liquor products.

The European Union’s Directive on packaging

and packaging waste, taking effect in 1994, harmo-

nizes the national measures on the management of

packaging waste among the member states while

ensuring that restrictions on packaging do not

create trade barriers. Setting targets for both recov-

ery and recycling of waste, the Directive requires

the member states to ensure that 50 to 65 percent

of all waste is recovered for waste stream and that

25 to 45 percent is recycled.

OPTIONAL PACKAGE MODIFICATION

Optional package modiﬁcation, although not

absolutely necessary, may have to be undertaken for

marketing impact or for facilitating marketing activ-

ities.Through accidents and history, users in many

countries have grown accustomed to particular

types of packages. Mayonnaise, cheese, and mustard

come in tubes in Europe, but mustard is sold in jars

in the USA. Orange bottles are popular in the

Netherlands. While non-Dutch beer drinkers all

over the world readily recognize a green Heineken

bottle, the domestic Heineken beer comes in a

brown bottle. Alfred H. Heineken designed the

famous green bottle and logo with the red star and

the black banner bearing the brand name.

In selecting or modifying a package, a marketer

should consider local conditions related to purchas-

ing habits. Products conventionally sold in packs in

the USA are not necessarily sold that way elsewhere

and may require further bulk breaking. This phe-

nomenon is partly the result of lower income levels

overseas and partly the result of a lack of unit

pricing, which makes it difﬁcult for buyers to see

any savings derived from the purchase of a bigger

package. Foreign consumers may desire to buy one

bottle of beer or soft drink at a time instead of

buying a six-pack or eight-pack. Likewise, one cig-

arette, not the whole pack, may be bought in a

purchase transaction.

For Unilever, the $50 billion Anglo-Dutch con-

sumer goods multinational has mastered the art of

selling products in tiny packages costing a few cents

each. Its Indian subsidiary, Hindustan Lever Ltd.,

began selling single-use sachets of Sunsilk shampoo

for 2 to 4 cents.These mini-packages now account

for half of Hindustan Lever’s $2.4 billion in sales in

India. Unilever’s Rexona brand deodorant sticks sell

for 16 cents and up, and are very popular in India,

the Philippines, Bolivia, and Peru. A nickel-size

Vaseline package and a tube containing enough

Close-Up toothpaste for twenty brushings sell

for about 8 cents each. In Nigeria, Unilever sells 3-

inch-square packets of margarine that don’t need

refrigeration.

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In addition to conditions of use, other cultural

factors should be taken into consideration since such

factors often determine and inﬂuence consumer

preference. Although the UHT (ultra-high temper-

ature) process for packaging milk and juices in unre-

frigerated cartons has long been popular in Europe

and Asia, it took quite a while for American con-

sumers who were accustomed to fresh products to

start accepting aseptic packaging.

Symbols and colors of packages may have to be

changed to be consistent with cultural norms. If

packages are offensive, they must be made more

acceptable if the product is to be marketed success-

fully. For example, the controversial Jovan pack-

ages, with their sexual connotations, can prove to

be too suggestive in some countries. In Japan, since

manufacturers of condoms have female customers

in mind, packaging tends to be cute.

Sometimes, it is difﬁcult to tell whether package

modiﬁcation is mandatory or optional.Take the case

of Germany’s “green dot” packaging laws. Since the

early 1990s, Germany has required manufacturers,

distributors, and retailers to take back sales pack-

aging (used packaging materials) either directly

from the consumer’s domicile or from designated

local collection points. Those manufacturers who

participate in the “green dot” program are exempted

from this requirement.The green dot is the symbol

which has been adopted by the Duales System

Deutschland GmbH (DSD – Dual System of

Germany), a corporation established in 1990, with

over 400 participating companies (shareholders).

The DSD collects a fee from the participating man-

ufacturers for the right to display the green dot

symbol on the products. The revenue is used to

ﬁnance local packaging waste collection and recy-

cling programs.The green dot tells consumers that

such packaging may not be returned to the retailer

but should be consigned to specially designated col-

lection containers or be taken to the local recycling

center.The symbol also indicates that the packaging

will be recycled or reused rather than dumped or

incinerated.While goods without the green dot are

not illegal, they are unlikely to be accepted by the

market – retailers, wholesalers, and importers.The

DSD estimates that over ten billion units currently

being marketed in Germany carry the green dot.

Most other European Union countries have ini-

tiated similar green dot programs. Japan’s Packaging

Recycling Law requires manufacturers to pay costs

associated with collection, sorting, transportation,

and recycling of all paper and plastic containers and

packaging. Importers are held responsible for paying

the recycling costs of imported products.

One helpful sign that should reduce packaging

confusion is the European Union’s standardization

attempt. Changes in the EU’s food packaging

requirements should allow foreign food manufactur-

ers and packaging agents to follow one uniﬁed EU

regulation. Although size requirements differ by

product, the EU has harmonized the sizes of sealed

packages and containers.The uniformity assists con-

sumers in comparing prices for the same quantity,

thus abolishing the need for unit pricing. EU packag-

ing regulations also help to promote conservation by

decreasing the amount of paper used in packaging.

Because there is no EU-wide general product-

labeling directive, manufacturers have to label their

products differently for each country, thus increas-

ing expenses.There is also a question about language

requirements.The EU suggests that most products

should have at least two EU ofﬁcial languages so as

to increase the marketability of the products. In

terms of what is to be placed on the product label,

EU ofﬁcials recommend the following: (1) the name

of the product, (2) a name of the manufacturer or

distributor within the marketing country, (3) any

care conditions, (4) special storage conditions, (5)

country of origin, especially where labels might

mislead, (6) metric requirements, and (7) list of

chemicals/ingredients included.

CONCLUSION

A product is a bundle of utilities, and the brand and

package are part of this bundle. There is nothing

unusual about consumers’ reliance on brand names

as a guide to product quality. As shown by the

perfume industry, the mystique of a brand name

may be so strong as to overshadow the product’s

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BRANDING AND PACKAGING STRATEGIES

physical attributes. When practiced and well exe-

cuted, branding allows a commodity to be trans-

formed into a product. In doing so with the aid of

product differentiation, brand loyalty is created, and

the product can command a premium price.

Branding decisions involve more than merely

deciding whether or not a product should be

branded. Branding entails other managerial deci-

sions. A manufacturer must decide whether to use

its own brand or that of its dealer on its product.A

marketer must also determine whether to use a

single brand for maximum impact or multiple

brands to satisfy the different segments and markets

more precisely. Regardless of the number of brands

used, each brand name must be selected carefully

with the international market in mind. Once

selected, the brand name must be protected through

registration, and other measures should be taken to

prevent any infringement on that name.

Like the brand name, which may have to be

varied from one country to another, packaging

should be changed when needed. Mandatory mod-

iﬁcation of packaging should not be considered a

problem because the marketer has no choice in the

matter – if a marketer wants to market a product,

the marketer must conform to the country’s stated

packaging requirements. Unilever, for instance, has

to conform to the French requirement of selling

cube-shaped, not rectangular, packs of margarine.

Its descriptions for mayonnaise and salad dressing

also have to vary from country to country.

Optional or discretionary packaging modiﬁca-

tion, in contrast, is a more controllable variable

within a marketer’s marketing mix. Usually, discre-

tionary packaging is related more to product pro-

motion, and it can take on the same importance as

mandatory packaging. Soft-drink containers are a

good example of how packaging requirements must

be observed. In many countries, bottles are manu-

factured in metric sizes because of government

requirements, and the containers must be made

of glass because consumers abroad regard plastic

throw-away bottles as being wasteful. Therefore,

both mandatory and optional packaging changes

should be considered at the same time.

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CASE 11.1 PLANET RALPH: THE GLOBAL MARKETING STRATEGY OF

POLO RALPH LAUREN

Deirdre Bird, Providence College, and Helen Caldwell, Providence College

Polo Ralph Lauren (PRL) is a highly successful US company. The thirty-ﬁfth anniversary of the company has

been covered in glowing terms across the globe. For example, Ralph Lauren was interviewed for the prestigious

British broadsheet,

The Sunday Times

, followed by a lecture at The British Museum in London.

Vogue

magazine

proﬁled Lauren as “The Man Behind the Mega-Brand” while making the cover of both

(as a Man of the Year)

and

Architectural Digest

Time

magazine presented Ralph Lauren as “A Bronx Cowboy in Europe,” outlining

Lauren’s rise from Bronx kid Ralph Lifschitz to world-famous designer Ralph Lauren.

Today’s world of luxury in fashion

The primary customers for luxury products tend to be women aged between 30 and 50 in the upper income brack-

ets, where the household earns over $100,000. In the USA, this categorization accounts for over ﬁfteen million

households. In the upper-middle category (with household incomes of $75,000 to $100,000), there are an addi-

tional twelve million households. However, in what has come to be termed the “democratization of luxury,” people

in all income brackets want to participate in the luxury market, even if that means buying nothing more than a

$4 chai latte at Starbucks, or a $20 scarf at Gucci. Ralph Lauren recognized this himself when he described the

desire for luxury as “aspirational.”

Approximately thirty-ﬁve companies share 60 percent of the luxury goods market. The six top competitors,

one of which is Polo Ralph Lauren, have annual revenues greater than $1 billion; ﬁfteen to twenty companies

have revenues between $500 million and $1 billion; and ten have revenues between $100 million and $500 million.

These companies tend to have a product focus and thus do not all compete on equal terms in the various luxury

categories. For instance, Richemont, a Swiss conglomerate, deals largely in watches, jewelry, and writing instru-

ments, with brands such as Cartier, Piaget, and Mont Blanc. Hermes focuses on leather goods, selling ladies’ bags

for upwards of $4000. LVMH is the industry leader in luxury goods, followed by Richemont, and Gucci Group.

Coming in fourth in the industry is Polo Ralph Lauren.

The Polo Ralph Lauren concept

PRL is a family-controlled company, in that its Chairman and CEO is designer and founder Ralph Lauren. However,

the company is quoted publicly on the New York Stock Exchange. The company derives its revenues from three

sources: retail, wholesale, and licensing.

The retail segment operates over 236 outlet and full-price stores, including the magniﬁcent ﬂagship stores in

Manhattan, London, Paris, Boston, and Brussels. Retail sales contributed almost $1 billion to revenue in 2002.

The wholesale segment consists of two units: Polo Brands and Collection Brands, with each unit selling its

own discrete brands to department and specialty stores, and to PRL-owned and licensed retail stores.This segment

is responsible for the majority of the corporation’s net sales (almost $1.2 billion in ﬁscal year 2002).

The licensing segment accounts for almost 10 percent of total sales, generating revenue from royalties through

licensing alliances, whereby the licensee is granted the right to use the company’s trademarks in connection with

manufacturing and sale of certain products in speciﬁc geographical areas. As a result of a corporate strategy of

increasing its global presence, PRL acquired its Italian licensee, Poloco S.A.S., thus allowing for greater inte-

gration of its European wholesale operations.

The Polo Ralph Lauren strategy

PRL intends to grow by brand extension and by globalization. In its brand extensions, the company aims to expand

by “creating luxury and lifestyle brands that inspire people to live their dreams.” The company has developed

apparel labels which segment the upper end of the luxury market into Purple Label, Women’s Collection and

Black Label, and in its home furnishings division it has developed the Ralph Lauren Home collection. At a lower

price point, Polo Blue Labels have been developed, and will be distributed exclusively in PRL stores in the USA,

and in specialty stores in Europe, Asia, and Australia. In arrangements with its licensees in department stores,

the company has developed Lauren for women and Lauren bedding and bath products.The recently acquired Club

Monaco concept (formerly a ﬁfteen-category Canadian company) has been rationalized to three categories of

men’s, women’s, and accessories.

This brand extension strategy has required, and will continue to require, a very large advertising budget.The

company uses a combination of television and multi-page magazine advertising, intended to illustrate the luxuri-

ous aspect of the brands. Advertising expenses in 2002 amounted to almost $80 million, or approximately 4

percent of net sales.

The global strategy

Based on a belief that there are enormous opportunities in Western Europe the company has plans to open

new Ralph Lauren stores in Europe through the next several years. Similarly, development is planned in Asia,

speciﬁcally in Japan, Hong Kong, and Korea, these latter countries being managed by licensed partners.

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BRANDING AND PACKAGING STRATEGIES

Currently, the USA accounts for almost 73 percent of company sales. Europe and Japan represent approxi-

mately 10 percent each, and Canada, Korea, Australia, and other small markets account for the remaining 7

percent of sales.Thus in the past Lauren has relied heavily on US sales. Much of this has come from department

stores.

Points to consider

As Lauren ponders his corporation’s future, the questions he needs to address are as follows:

1 Can an American brand built on the quintessential “American dream” succeed globally?

2 Will the PRL form of lifestyle marketing succeed globally?

3 Which brands would present the best global opportunities for PRL?

Sources:

“Every Cloud Has a Silver Lining,”

The Economist

, March 21, 2002; Rebecca Gardyn, “Oh,The Good Life,”

American

Demographics

, November 2002; Lauren Goldstein, “Lauren: A Bronx Cowboy in Europe,”

Time: Global Business

, September

2002; Claire A. Kent

et al

.,“Making the Sale,”

Morgan Stanley Dean Witter

, March 11, 1999; and Polo Ralph Lauren, Annual

Corporate Report, 2002.

CASE 11.2 MAJORICA S.A. VS. R.H. MACY

Majorca is a place well known for its pearls. One Spanish ﬁrm, Majorica S.A., has used Majorica, an ancient

name for Majorca, since 1954 as its trade name as well as a brand name to describe its pearls.

Majorica was alarmed to learn that R.H. Macy, a major US department store chain, was selling Majorca-

labeled pearls that were made by Hobe Cie. Ltd., a competitor of Majorica S.A. Contacts with Macy produced

no fruitful results in resolving the difﬁculty. Macy felt that it had a right to use the name in question because

Majorca was the name of an island and because the pearls in question were indeed made there.

Subsequently, Majorica ﬁled a lawsuit in a federal court, asking for a judgment to stop Macy using the name.

Majorica S.A. cited trademark infringement as the reason for seeking relief. It argued that Macy’s action caused

confusion among consumers as well as erosion of goodwill.

Points to consider

1 Is Majorica a valid brand name or just a generic trademark? Does the fact that it is the name of a place

(i.e., island) affect the registration eligibility and legal protection of Majorica S.A.?

2 Was Macy’s action legally defensible? Assuming that you are a federal court judge, do you think that Macy’s

use of the name could cause consumer confusion? Do you think that Macy’s labeling constituted trademark

infringement? Can the branding/labeling be somehow modiﬁed to prevent consumer confusion?

QUESTIONS

1 What are the requirements that must be met so that a commodity can effectively be transformed into a

branded product?

2 Explain the “least dependent person” hypothesis and its branding implications.

3 When is it appropriate to use multiple brands in (a) the same market and (b) several markets/countries?

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4 What are the characteristics of a good international brand name?

5 Explain these legal requirements related to branding: (a) registration, (b) registration eligibility, (c) use, (d)

renewal, and (e) generic trademark.

6 Distinguish colorable imitation from counterfeit trademark.

7 Cite the factors that may force a company to modify its package for overseas markets. Discuss both manda-

tory and optional modiﬁcation.

DISCUSSION ASSIGNMENTS AND MINICASES

1 Should farmers brand their exported commodities (e.g., soybean, corn, beef)?

2 Some retailers (e.g., Sears) and manufacturers (e.g., General Motors) place their trademarks on products

actually made by foreign suppliers. Discuss the rationale for these actions by these ﬁrms.

3 Discuss how certain English letters, preﬁxes, sufﬁxes, syllables, or words create pronunciation difﬁculties for

those whose native language is not English.

4 Is Hyundai a good name to use for an international brand? On what do you base your evaluation?

5 Go to the soft drink section of a supermarket. How many different types of soft-drink packages are there

(in terms of size, form, and so on)? Should any of them be modiﬁed for overseas markets?

NOTES

H.J. Heinz Company 2000

(second quarter), 9.

2 “In Business This Week,”

Business Week

, September 27, 1993, 50.

3 Martin S. Roth, “Effects of Global Market Conditions on Brand Image Customization and Brand

Preference,”

Journal of Advertising

24 (winter 1995): 55–75.

4 T.C. Melewar, John Saunders, and John M.T. Balmer,“Cause, Effect and Beneﬁts of a Standardised Corporate

Visual Identity System of UK Companies Operating in Malaysia,”

European Journal of Marketing

35 (No.

3, 2001): 414–27.

5 Peter C. Verhoef, Edwin J. Nijssen, and Laurens M. Sloot, “Strategic Reactions of National Brand

Manufacturers towards Private Labels: An Empirical Study in the Netherlands,”

European Journal of

Marketing

36 (No. 11, 2002): 1309–26.

6 Steve Burt, “The Strategic Role of Retail Brands in British Grocery Retailing,”

European Journal of

Marketing

34 (No. 8, 2000): 875–90.

7 “In Desktop PCs, IBM Clicks on ‘Quit,’”

Business Week

, January 21, 2002, 40.

8 “Quanta’s Quantum Leap,”

Business Week

, November 5, 2001, 79–81; “Don’t Be Fooled by the Name on

the Box,”

Business Week

, June 17, 2002, 18.

9 “Swatch: Ready for Net Time?”

Business Week

, February 14, 2000, 61.

10 “Breaking into the Name Game,”

Business Week

, April 7, 2003, 54.

11 Stuart J. Agres and Tony M. Dubitsky, “Changing Needs for Brands,”

Journal of Advertising Research

(January/February 1996): 21–30.

12 Dana L Alden, Jan-Benedict E.M. Steenkamp, and Rajeev Batra, “Brand Positioning Through Advertising in

Asia, North America, and Europe:The Role of Global Consumer Culture,”

Journal of Marketing

63 (January

1999): 75–87.

13 “Nivea, Nestlé (AAC) Extend Bounds in Global Mega Brand Survey,”

Bangkok Post

, April 3, 2003.

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14 Julie Snyder, “Promoting Consumer Goods and Services in Quebec, Canada’s Distinct, French-Speaking

Market,”

Business America

, November 1, 1993.

15 Shi Zhang and Bernd H. Schmitt, “Creating Local Brands in Multilingual International Markets,”

Journal

of Marketing Research

, 38 (August 2001): 313–25.

16 “Drastic Cuts Are in Store for Unilever,”

San José Mercury News

, February 23, 2000.

17 “Scott Rolls Out a Risky Strategy,”

Business Week

, May 22, 1995, 48.

18 “For Sale: Amoco Signs, Cheap,”

Business Week

, August 14, 2000, 8.

19 France Leclerc, Bernd H. Schmitt, and Laurette Dube, “Foreign Branding and Its Effect on Product

Perceptions and Attitudes,”

Journal of Marketing Research

31 (May 1994): 263–70.

20 “UK Queen Registers Trade Marks,”

The Nation

, July 8, 2000.

21 Sidney A. Diamond,

Trademark Problems and How to Avoid Them

, rev. edn (Chicago: Crain Books, 1981),

20–2.

22 Jim Golsen, “Packaging and Recycling Requirements,”

Export America

(May 2000).

23 “Ideas for a Changing World,”

Business Week

, August 26, 2002, 112–14.

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344

In a market system, all aspects of economic activity are interdependent, and the whole cannot

function properly if any major element is not in its place.

Michel Camdessus, Managing Director, International Monetary Fund

■ Direct and indirect selling channels

■ Types of intermediaries: direct channel

 Foreign distributor

 Foreign retailer

 State-controlled trading company

 End user

■ Types of intermediaries: indirect channel

 Export broker

 Manufacturer’s export agent or sales

representative

 Export management company (EMC)

 Cooperative exporter

 Purchasing/buying agent

 Country-controlled buying agent

 Resident buyer

 Export merchant

 Export drop shipper

 Export distributor

 Trading company

■ Channel development

■ Channel adaptation

■ Channel decisions

■ Determinants of channel types

 Legal regulations

 Product image

 Product characteristics

 Middlemen’s loyalty and conﬂict

 Local customs

 Power and coercion

 Control

■ Distribution in Japan

■ Selection of channel members

■ Representation agreement and termination

■ Black market

■ Gray market

 Causes

 Legal dimension

 Ethical dimension

 Product quality

 Manufacturers’ marketing strategies

■ Distribution of services

■ Conclusion

■ Case 12.1 The international record industry

■ Case 12.2 Schwarzkopf, Inc. distribution

network

Channels of distribution

Chapter 12

CHAPTER OUTLINE

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CHANNELS OF DISTRIBUTION

PURPOSE OF CHAPTER

All products need competent distribution. Unfortunately, the distribution of blood diamonds is relatively

competent. In any case, any products, no matter how good they are, are unlikely to gain market acceptance

without being made available at a time and place that are convenient to ﬁnal users.

The purpose of this chapter is to discuss the various channels of distribution that are responsible for

moving products from manufacturers to consumers. Both international and domestic channels are exam-

ined.The chapter describes the varieties of intermediaries (i.e., agents, wholesalers, and retailers) involved

in moving products between as well as within countries. The tasks and functions of the various intermedi-

aries will be examined. It should be kept in mind that certain types of intermediaries do not exist in some

countries and that the pattern of use as well as the importance of each type of intermediary varies widely

from country to country.

A manufacturer is required to make several decisions that will affect its channel strategy, including the

length, width, and number of distribution channels to be used.The chapter examines the various factors that

inﬂuence these decisions. For an operation to be a success, a good relationship among channel members

is vital. There is no one single distribution method that is always ideal in all markets. Thus this chapter

examines channel adaptation.

One needs money to wage war, and diamonds are just

as good as money. Diamonds are portable and anony-

mous. Most of Sierra Leone’s diamonds are smuggled

into Liberia for sale. It is practically impossible to

identify the origins of diamonds. As a result, diamonds

are a currency of choice for thugs and rebels in

Africa. At one time, diamonds from the African war

zones accounted for 10 to 15 percent of the world

supply.

In Angola, diamonds helped Unita, an Angolan

rebel group, to launch a civil war in the 1990s. Such

blood diamonds resulted in half a million Angolans

being killed and four million Angolans being dis-

placed. The Revolutionary United Front, a rebel unit

that barters diamonds for weapons, is unbelievably

brutal. Its soldiers chopped off limbs of innocent

people to cause fear. Unita’s cruelty led the USA to

impose a diamond embargo on the group in 1998.

While the United Nations Children’s Fund has

declared that Angola is the worst place on earth to

be a child, it took the United Nations six years before

imposing the embargo.

Unita does not act alone. It has many accomplices

to help it to use diamonds to ﬁnance its ruthless oper-

ations. Corrupt governments, pitiless rebels, and

porous borders in Angola, Congo, and Sierra Leone

have allowed diamonds to become agents of slave

labor, dismemberment, murder, mass exodus, and eco-

nomic collapse. Many diamond dealers in Antwerp

do not care to know where the stones are from, and

the world’s largest diamond bourse in Antwerp has

“extremely lax regulations.” At the same time,

Liberia, Uganda, Rwanda, and Zimbabwe have passed

off smuggled diamonds as their own by supplying false

but ofﬁcial certiﬁcates of origin.

Finally, governments and the diamond industry

have reached a global accord that stops trade in dia-

monds from the conﬂict zones. For rough diamonds

to be exported, they must be certiﬁed that they are

not from the territory held by the rebels. Any private

exporters or importers who break the rules will lose

their trading licenses. Countries that break rules will

be barred from selling diamonds, and they may face

international sanctions.

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