(1) Be it product strategy, promotion strategy, pricing strategy, or distribution strategy, if there is an important issue that permeates our course it is whether firms should standardize or customize global marketing strategy. Thus, we once again revisit the issue of standardization-customization in Rosenbloom, Larsen, and Mehta’s article entitled “Global Marketing Channels and the Standardization Controversy,” but this time around we examine whether distribution/marketing channels strategy should be standardized or adapted.

(a) Provide a SUBSTANTIVE DETAILED summary of the article entitled “Global Marketing Channels and the Standardization Controversy.” In your summary, discuss EACH of the steps involved in the Global Channels Decision Making Process (as discussed in the article and Video Lecture Module).

“Global Marketing Channels and the Standardization Controversy” aims to revisit the issue of global

standardization versus adaptation as it applies to international channels of distribution. The authors adapted ideas from Keegan’s Multinational Product Planning framework for their presentation of a conceptual framework for the possible process standardization of global marketing channels.

The concept of global standardization has been considered to be an effective strategy for corporations entering international markets since the 1960s. In the 1990s, the global standardization model was gaining renewed attention and was one of the top three trends affecting international marketing. There was much discussion on the effectiveness of standardization as well as the significant advantages in adapting and tailoring market efforts to please local preferences. The extensive literature based on the debate of standardization versus customization has been going on for decades ─without a resolution. The authors reveal two points in their review of global standardization literature; “First, relative to other areas of marketing, channels of distribution are given short shrift in the standardization versus adaption debate. Second, of the existing literature on the standardization of global marketing channels that does exist, academicians and practitioners generally concur that marketing channels cannot be standardized.”

The standardization vs. adaptation debate asks if organizations should customize their domestic marketing strategies when they decide to enter international markets. The literature on the matter generally proclaims that standardized marketing strategy works best if the market is considered to be homogenous, and a customized marketing strategy is often recommended if the market is considered to be heterogeneous. Authors such as Levitt recommend global orientated marketing strategies in today’s world because technology, communication and travel make the world’s culture more homogenous than ever. While Kilough suggests that, “…the underlying basis of global strategy is to make local adjustment to global strategies, depending upon a variety of internal and external forces.” Such forces include; product and industry characteristics and exchange rates. Figuratively speaking, Quelch and Holf believe that the debate has been misrepresented as a black and white situation, when in fact the standardization models are made up of many shades of grey. A multitude of authors agree and believe that “…standardization may be more realistically placed on a continuum indicating the relative extent to which the degree of standardization is desirable and feasible.” Furthermore, authors Peebles, Ryans and Vernon assert that host country’s marketing infrastructure is well-developed and the economy is similar with the home market, than standardization should be employed.

Process and program standardization are two aspects of the global orientation marketing strategy that have been widely discussed in international marketing literature. Process standardization is defined as “…the development of uniform marketing management practices, including the sequencing of tasks, problem solving processes, decision making processes, and performance evaluation procedures.” Some ways Multinationals can execute process standardization is by creating an international career path for managers, standardizing training and education, and solidifying a common company language. The overall message of literature based on process standardization is that ” …it is more important and possible to standardize global marketing planning and decision making than it is to standardize the content of the entire marketing mix.

On the other hand, program standardization is defined as, “…the development of a uniform marketing mix for global markets…offering identical products at identical prices using identical means of promotion through the use of identical distribution systems for each country bring targeted.” A majority of research and literature on program standardization has been focused on the standardization of promotion, specifically advertising. The authors’ comment that based on that the consensus of international marketing literature, standardization of distribution channels is particularly difficult and usually not feasible. This is due to differing government regulations, marketing infrastructure, divergent character of markets, industry condition and other factors. The consensus of the literature concludes that multinationals therefore must adapt channels to the host country environment. Aspects of the marketing program that should be considered for standardization include; product design, product branding, packaging, pricing, advertising, sales promotions campaigns and media budget allocation.

In the context of global advertising, authors have made a distinction between prototype and pattern standardization. Multinationals who employ prototype standardization permit the exact same advertisement of a campaign across multiple markets, however, they do allow for one adaptation, which is the translating advertising copy in the language of the country market. Multinationals who utilize pattern standardization, however, prefer to adapt the executional elements of an advertising concept or theme when necessary. A universal theme is created for the advertising campaign, but specific details for campaign are decided on locally.

As previously stated in the fifth paragraph, many claim that the standardization of marketing channels is not possible, however, the authors of this article state that “…at the process standardization level, the standardization of marketing channel strategy is a viable and feasible alternative.” They believe that the process for marketing channel strategic decision making can be standardized, and suggest a total of six strategic distribution decisions that must be addressed by a multinational for distribution objectives to be achieved. A channel strategy should then be developed after decisions are made. The strategic distribution decisions given by the authors are listed below in the order in which they should be executed:

1. Determining the role of distribution in overall objectives and strategies. 2. Determining the role of distribution in the marketing mix 3. Designing marketing channels 4. Selecting channel members 5. Managing the channel 6. Evaluating channel member performance

The design of global channels and the management of global channels are the two basic areas of global channel strategy. The design of global channels is “…the development of new channels or the modification of exiting channel structures.” There are three major decisions that must be made in regards to design of global channels. When making these decisions a manufacturer must consider all variables that will affect its channel structure such as; markets served, product type the environment, and behavioral factors. The goal of the channel decision maker is to create a design mix that maximizes return for all channel members. Below are the three major decisions that must be determined by a channel decision maker:

1. The number of levels between the manufacturer and the ultimate user. 2. The intensity at the various levels. (e.g., intensive, selective or exclusive) 3. The type of intermediary used (e.g., agents, distributors, dealers, wholesalers and retailers).

Understandably, once the marketing channel is fully designed it needs to be managed, and the main goal of the administration of marketing channels is to secure cooperation of channel members. Motivation is used to encourage cooperation, and “…the product, price, promotion and logistical elements of the marketing mix also have to be managed and used as resource in fostering channel member cooperation.” Preferred management and leadership styles vary from country to country, and is up to the global marketer to determine when management styles and strategizes need to be customized so that cooperation is not hindered by standardization efforts.

Keegan’s Multinational Product Planning Framework:

Keegan originated five alternatives for product and communication strategy for firms entering foreign markets. “These strategic alternatives were a fiction of three factors: (1) the product’s function; (2) conditions of the product use; and (3) consumer’s ability to buy the product.” Depending on the need of the market regarding these three factors, Keegan gave a recommended product strategy, and communication strategy. Keegan aimed to help companies evaluate and satisfy their target market needs in regards to pricing, product design and promotion. Here are the various recommendations as outlined by Keegans Multinational Product-Communications Mix Strategic Alternatives:

1. When both product function and conditions of use are the same, the recommended strategy is to standardize both product and promotion strategy. This recommendation assumes the ability to buy a product.

2. When the product’s function is different and the conditions of the product use are the same, the product can remain standardized, however it is recommended that the communications regarding how the product meets the target market’s need should be customized. This recommendation assumes the ability to buy a product.

3. When the function across markets are the same, and conditions differ, it is recommended that communications concerning the function of the product be standardized. The product itself, however, should be adapted to appease environmental conditions. This recommendation assumes the ability to buy a product.

4. When both the product function and conditions of use differ, it is recommended to adapt both product and communication strategies. This recommendation assumes the ability to buy a product.

5. For markets where consumers do not have the ability to purchase the products, it is recommended to innovate backwards (develop a cheaper and simpler product), and develop new communications.

In Keegan’s original framework for Multinational Product Panning, his “…strategic alternatives were a fiction of three factors.” These factors include product function, conditions of product use, and ability to buy. The authors adapted Keegan’s framework to fit global channel strategy planning. In order to determine marketing channel strategic recommendations in their conceptual framework, the authors swapped the factors “product function” and “conditions of product use” with “channel functions to be performed” and “business culture.” Their validation for substitution is as follows, “In a marketing channel context these factors are analogous to the original factors of product function and the conditions of product use.” They completely removed the third factor “ability to buy” because it is not applicable in the context of marketing channels. The authors then provide recommendations on both channel design strategy and channel management strategy based on each result. They suggest to either adapt or employ process standardization, which is different from total standardization because it allows for specific details of the channel to be altered locally. Below is the four possible outcomes and recommendations provided by the authors’ conceptual framework for global channel strategy planning.

1. Dual Standardization: When the distribution function to be performed and market business culture are the SAME across target markets, the authors’ suggest that both channel design strategy and channel management strategy be considered for pattern standardization.

2. Dual Adaptation When the distribution function to be performed and market business culture are DIFFERENT across target markets, the authors’ recommend that both channel design strategy and channel management strategy should be adapted to appease local preferences.

3. Design Standardization and Management Adaptation: In this outcome, business culture is DIFFERENT, but the functions to be performed of the marketing channel are the SAME. Pattern standardization is suggested for the channel design strategy, while the adaptation of channel management is recommended.

4. Design Adaption and Management Standardization: In this outcome, business culture is the SAME, but the functions to be performed of the marketing channel is DIFFERENT. Adaptation is suggested for the channel design strategy, while the pattern standardization of channel management is recommended.

(b) What are the key channel design decisions?

The design of global channels is “…the development of new channels or the modification of exiting channel structures.” There are three major decisions that must be made in regards to design of global channels. When making these decisions a manufacturer must consider all variables that will affect its channel structure such as; markets served, product type the environment, and behavioral factors. The goal of the channel decision maker is to create a design mix that maximizes return for all channel members. Below are the three major decisions that must be determined by a channel decision maker:

1. The number of levels between the manufacturer and the ultimate user. A channel decision maker must determine how many intermediary levels there will be between the manufacturer and the product users. The lowest level is two, where the manufacturer sells directly to a product user, this is referred as a direct channel. There can be several levels between a manufacturer and the product users. For example, the chain can be as follows: Manufacturer agent wholesaler retailer consumer.

2. The intensity at the various levels. Channel decision makers need to determine the number of intermediaries at each level which could be intensive. (e.g., intensive(many), selective(few) or exclusive(one) )

3. The type of intermediary used must also be decided. There are several types of intermediaries, and the channel decision maker must select the one that will distribute the product most effectively and that will execute marketing strategy when applicable. (e.g., agents, distributors, dealers, wholesalers and retailers).

(c) Define and discuss the difference between international marketing channel PROGRAM standardization AND international marketing channel PROCESS standardization. Explain your position in SUBSTANTIVE DETAIL.

Process and program standardization are two aspects of the global orientation marketing strategy that have been widely discussed in international marketing literature. Process standardization is defined as “…the development of uniform marketing management practices, including the sequencing of tasks, problem solving processes, decision making processes, and performance evaluation procedures.” Some ways Multinationals can execute process standardization is by creating an international career path for managers, standardizing training and education, and solidifying a common company language. The overall message of literature based on process standardization is that ” …it is more important and possible to standardize global marketing planning and decision making than it is to standardize the content of the entire marketing mix.

On the other hand, program standardization is defined as, “…the development of a uniform marketing mix for global markets…offering identical products at identical prices using identical means of promotion through the use of identical distribution systems for each country bring targeted.” A majority of research and literature on program standardization has been focused on the standardization of promotion, specifically advertising. The authors’ comment that based on that the consensus of international marketing literature, standardization of distribution channels is particularly difficult and usually not feasible. This is due to differing government regulations, marketing infrastructure, divergent character of markets, industry condition and other factors. Multinationals therefore must adapt channels to the host country environment. Aspects of the marketing program that should be considered for standardization include; product design, product branding, packaging, pricing, advertising, sales promotions campaigns and media budget allocation.

(d) Does this article deal with the issue of international marketing channel program standardization or international marketing channel process standardization? Explain your position in SUBSTANTIVE DETAIL.

The article deals with international marketing channel process standardization. Process standardization is defined as “…the development of uniform marketing management practices, including the sequencing of tasks, problem solving processes, decision making processes, and performance evaluation procedures.” The consensus of international literature is that marketing channel standardization is extremely difficult to execute due to government regulations, marketing infrastructure among other factors. However, standardization can be looked at as having two components; program standardization and process standardization. The authors believe that “…at the process standardization level, the standardization of marketing channel strategy is a viable and feasible alternative.” They believe that the process for marketing channel strategic decision making can be standardized, and suggest a total of six strategic distribution decisions that must be addressed by a multinational prior to the development of a marketing channel strategy. The authors then use adapted ideas from Keegan’s Multinational Product Planning framework for a conceptual framework pertaining to Global Channel Strategy Planning. They give four outcomes and recommendations which suggest to either adapt or employ process standardization based on the outcomes of their framework.

(e) In your estimation, can international marketing channels (e.g., the design and structure of marketing channels) be standardized? Explain your position in SUBSTANTIVE DETAIL.

In the vast majority of cases, marketing channels cannot be standardized. There are two components of standardization; process and program standardization. It is extremely difficult to employ program standardization. Process standardization can be executed, but it is a pretty rare feat. Therefore, I conclude that the complete standardization of marketing channels, including both process and program standardization, can only occur in extremely rare cases.

(f) Do you agree with the authors’ contentions? If so why, if not, why not. Explain your perspective in SUBSTANTIVE DETAIL.

I agree to the author’s contentions to a certain extent. I do believe that standardization should be looked as just one entity. There are two facets of standardization, namely process and program standardization. I

agree that program standardization is very difficult and nearly impossible to achieve. I also agree the process standardization is much easier to achieve because there are less obstacles and variables to overcome, especially in nations with similar business cultures and distribution methods. However, I feel that the authors give a very cookie cutter framework that will not work in the real world. Words like “same” and “different” are very ambiguous, and I don’t think any two nations share the exact same business culture. How many dissimilarities between distribution functions to be performed and business culture constitute as being different. Just one? There aren’t enough choices, and I don’t think what they came up with is brilliant at all. It is clearly obvious that if two nations share IDENTICAL distribution functions to be performed and IDENTICAL market business culture than IDENTICAL design and management global channel strategy should be employed. It is also very obvious that adaptation should be employed for channel management strategy if business culture in a foreign market is different than business culture in a domestic market. All four of their revelations were obvious and did not impress to me. I also think the paper was pretty confusing to read. What could have been said simply and effectively was drawn out and it made understanding their key points difficult.

(2) The following questions are based on the article entitled “Seven Rules for International Distribution.”

(a) Provide a summary of the article in SUBSTANTIVE DETAIL. In your summary, identify and explain EACH of the seven rules of international distribution.

David Arnold starts off his article “Seven Rules for International Distribution” by proclaiming that most established corporations make the mistake of rushing and not strategically planning their distribution approach before entering emerging markets. These corporations hire independent local distributors, and see great results at first, however, a stagnation of sales occurs after a few years. Corporations usually blame low sales on the poor performance of local distributors. They rush in to make major changes, often firing or buying distributors to reacquire distribution rights so they will be able to start their own direct-sales subsidiary. A fast transition from indirect to direct sales is both pricey and disruptive. It also can create long-term issues, and “…executives may discover a few years later that they’ve gone too far…saddling the multinational with a dense and inefficient network of national distributors.”

The author believes that the cycle of hampered performance often seen in less-developed markets stems from multinationals and distributors not investing “…sufficiently in strategic marketing or in aggressive business development.” He goes on to say that multinationals unintentionally neglect these markets by not evolving the market strategy as time passes and the business grows. “The multinational’ product line and the distributors fit best at the point of market entry. As time passes the fit deteriorates. The distributor may be less able to deliver growth as the business moves away from its core customer base.” Arnold concludes that multinationals must prepare for predictable phases that arise within international distribution operations in order to succeed in developing markets. This preparation will work to evade the implementation costly and disruptive corrective measures.

Evidence concludes that multinationals treat independent local distributors as “merely…vehicles for market entry, temporary partners incapable of sustaining growth in the long term.” However, the author claims that many managers don’t admit to this fact and find fault in the distributor for various reasons including; not investing in business growth, not having the necessary skills to grow the market, and lack of ambition. There is always two sides to the story, and understandably local distributors have their own reasoning for the failed relationship such as; not receiving enough support for growth, unattainable expectations from the corporation and complicated company politics.

The author studied the “imbalance and correction” of international distributing operations in eight corporations from the consumer, industrial, and service sectors over a two-year period. His research revealed that the pattern of underperformance usually did not stem from poorly run independent local distributors. He found that corporations could avoid underperformance by coordinating and supervising

the marketing strategy from the onset of market entry. The author presents seven guidelines that circumvent problems which typically arise when corporations execute their international distribution strategies in emerging markets:

1. Select distributors. Don’t let them select you. Multinational corporations should make a strategic decision to enter markets only after careful market assessment. However, the author claims that mot companies in his study entered markets in reaction to proposals from potential distributors. Strong and eager distributors are often the wrong people to partner with because they may also serve competitors. The distributors may have desirable market contacts, however, they also have the power to control the market and keep competing multinationals in balance with each other. Arnold suggests having a systematic and thorough assessment of potential partners.

2. Look for distributors capable of developing markets, rather than those with a few obvious customer contacts. Multinationals frequently make the mistake of hiring a “market fit” distributor that has experience serving major customer prospects with similar product lines. This leads to an impressive sales at first, and then stagnation sets in. Arnold suggests that multinationals can make better choice in partners by seeking out a “company fit,” which is a partner with a culture and strategy that align with the multinationals initiatives. For long-term success, multinationals should bypass the obvious and tempting choice of going with a “market fit” distributor.

3. Treat the local distributors as long-term partners, not temporary market-entry vehicles. Multinationals should consider granting national exclusivity to a distributor or creating an

agreement that rewards the distributor with strong incentives when goals are achieved.

Multinationals should avoided drawing up short-term contracts that permit them to buy

back distribution rights after a few years.

4. Support market entry by committing money, managers, and proven marketing ideas.

Multinationals must make an early commitment of corporate resources in order to retain

strategic control, create better relationships with local partners, and enhance business

performance. They must go beyond sending in technical and sales personnel or offering

training to distributor employees. Many multinationals are now taking minority equity

stake in independent distribution companies in order to increase cooperative marketing

between the local partner and HQ.

5. From the start, maintain control over marketing strategy. Multinationals should employ

control over marketing strategies including budgeting, product portfolio and product

positioning, while still allowing independent distributors to adapt to local conditions.

6. Make sure distributors provide you with detailed market and financial performance

data. Multinationals should aim to collect quality data about the market from the

distributor. Any contract made with the distributor should include a clause that requires

them to provide frequent detailed market and financial performance data. If distributors

are not willing to provide this information, and consider price levels and customer

identification to be “key sources of power in their relationships with suppliers,” than this

should serve as a warning sign for multinationals to not enter business with this

distributor as the business relationship will likely fail in the future.

7. Build links among national distributors at the earliest opportunity. Multinationals

should encourage the flow of ideas within local markets in order to improve performance

and achieve greater consistency in the execution of their international initiatives. This can

be done by establishing a regional corporate office or a distributor council. This leads to

consistency across the region and decreases the variations between products.

In conclusion, multinationals should strive to enter developing markets with the

understanding that local distributors are not marketing departments, but rather they are

implementers of marketing strategy. “The result will be better working relationships,

fewer plateaus and crises, and more consistent growth in market share and sales

revenues.” The key to success in international markets is to invest in a long-term

relationship with local distributors by retaining control over marketing strategies and

collecting performance data to re-adjust strategies as the market evolves.

(b) Do you agree or disagree with the thesis of the article? If so why, if not, why not. Explain your opinion in SUBSTANTIVE DETAIL.

I do agree with the thesis of the article “Seven Rules for International Distribution.” David Arnold suggests that multinationals must prepare for predictable phases that arise within international distribution operations in order to succeed in developing markets. This preparation will work to prevent the implementation of costly and disruptive corrective measures. I agree with all seven guidelines he recommended which circumvent problems that typically arise when corporations execute their international distribution strategies in emerging markets.

I especially believe agree that multinationals should take their time when picking independent distributors they want to work with and resist the temptation of picking a local distributor with solely a “market fit,” which is distributor that has experience and current success selling similar

product lines. Although picking a “market fit” distributor will lend to short-term success, for long-term endurance multinationals should focus on building a relationship with independent distributors who have a “company fit” and aligns with the culture and strategy of multinational initiatives. Brands often evolve over time and it is important to work with a distributor that will be capable of growing with changing market. “Company fit” distributors have the capability, resources and motivations to adapt to growing markets, and they are also willing to both invest and learn.

Additionally, I agree with the author’s suggestions in regards to fortifying a successful long-term business relationship between multinationals and local distributors. Multinationals should consider this relationship to be a marriage (where MNC’s wear the pants of course), and should treat local distributors as long-term partners. I also agree that multinationals should reward local partners with strong incentives when goals are achieved, as well as make an early commitment of corporate resources in order to hold strategic marketing control.

(c) Are there any other “rules” that you can suggest in ADDITION to those identified by the authors? Explain each of your suggestions in SUBSTANTIVE DETAIL.

There are other “rules” that one can suggest in addition to those identified by David Arnold.

Rule #8: Formal research should be conducted before entering a developing

market. In Kashani’s article “Beware the Pitfalls of Global Marketing,” he drives the

point that companies should not assume that one market’s experience is transferable to

others, and that insufficient research is a costly shortcut. Multinationals should have a

clear idea of what their long-term marketing initiatives before picking a local distributor

so they can find their perfect fit.

Rule #9: Multinationals must always follow-up with their local partners and keep strong

communication flows in order to keep momentum levels high for any given campaign. There must be a presence of communication channels for sharing and building including effective solutions to problems, so that the wheel is not re-invented every time a similar problem arises.

Rule #10: Multinationals should employ a participative leadership style where they share

decision-making power with local partners. Multinationals should maintain control over marketing

strategies, however, local distributors should hold a decent level of decision-making capabilities since

they know the market best. Multinationals should consult with local partners, and take into account their

suggestions when making final decisions.

(3) The following questions are based on the HBS Fisher-Price BENELUX (FP) Case.

(a) Based on your assessment, what is the central problem facing FP?

(b) Explain in SUBSTANTIVE DETAIL the 3 alternative distribution alternatives being considered

by FP management.

There were three possible distribution alternatives in the Benelux as outlined by Stephen Muirhead. His

first recommendation was to continue with the present arrangement, which was to keep Tiamo as the

exclusive distributor in Holland, and Comptoir Boismanu as the exclusive distributor in Belgium and

Luxembourg. Muirhead believed that keep the strategy the same would have its advantages, including

“…low investment requirements, limited credit risks, and the ability to utilize the distributors’ market

knowledge and experience.” However, he also believed that keeping the strategy in its current state

would lead to slow growth for FP because of the following reasons; the distributors provided poor

customer service, distributors were often out of stock because they refused to carry sufficient amounts of

stock, distributors were unwilling to invest in promotion and that differences in pricing were likely to lead

to cross-border competition. Muirhead believed that the fundamental problem with using independent

distributors was that there was a conflict of interest. Distributors are looking to maximize short-term

profits, while FP is looking to maximize profits for the long-term. Distributors did not want to grow too big

for fear of the manufacturer stepping in and taking over the market.

Muirhead’s second option was for FP to launch a sales company for Benlux within about a year’s time.

Muirhead projected that running his own sales company in the region would result in much higher sales

and profits than sticking with an independent distributor would. However, it would be very expensive to

execute such an initiative. Furthermore, higher sales objectives would require larger marketing budgets

for activities such a field selling, advertising and merchandising. Not to mention the fact that FP would

have to budget the costs of salary, bonuses and expenses for eight field sales representatives and two

sales managers. There were also other perils involved with establishing sales company besides financial

risks. “A further risk of this strategy was that it relied on continued support from the distributors during

1978, even though Fisher-price would have to give notice of its intent to terminate them at the beginning

of that year.” On a positive note, customer service would be improved.

Muirhead’s third possibility was a compromise between two extremes; solely working with exclusive

independent distributors or creating an FP sales company to distribute product in the region. He

proposed a “phased takeover” where distributors would be requested to “…switch over to a commission

arrangement for services rendered during 1978.” In this plan, Muirhead desired FP would run 90

accounts in Benlux and service them directly after one year. After two years the company would begin

operating its own warehouse and office. Finally, after three years, the company would establish its own

sales force. Muirhead believed that there were a multitude of advantages for a gradual phase-out

including; immediate improvement in gross margin, the ability to control product line and pricing, time to

acquire insider market knowledge, and time to manage a build of expenses. Furthermore, Muirhead was

confident that customer service would be improved if this option was chosen.

A single sales company would need to be established in Belgium in both the “phased” takeover and

“immediate” launch options. This raises an issue because there is a risk of Holland consumers regarding

FP to be a “foreign” organization. Furthermore, Belgium is not a homogenous culture, and it has two

distinct regions; Flanders (Flemish speaking) and Walloon (French speaking). The proposed location of

the sales company would be in Flanders, which may hurt relationships with French-speaking retailers in

the region. Muirhead planned to nurture these relationships despite the location of the sales company by,

“… establishing showrooms in Brussels and Utrecht; by employing Dutch nationals as sales

representatives in Holland; and by using a French-speaking advertising agency in Belgium as a well as a

local agency in Holland.”

(c) Identify as exhaustively as possible the ADVANTAGES and DISADVANTAGES of EACH of the 3

alternative distribution alternatives being considered by FP management?

1. Continue the Present Arrangement

Advantages:

Low investment requirements.

Limited credit risks.

Ability to utilize insider market knowledge and experience.

Disadvantages:

Slow financial growth for FP.

o Poor customer service

o Distributors often out of stuck because they did not invest in adequate amounts of stock.

o Distributors unwilling to invest in promotion

o Differences in pricing would likely lead to cross-border competition.

Conflict of Interests

o Distributors are looking to maximize short-term profits, while FP is looking to maximize

profits for the long-term.

o Distributors did not want to grow too big for fear of the manufacturer stepping in and

taking over the market

2. Immediate Takeover Strategy

Advantages

Higher sales and profits.

Improved customer service because FP would control delivery systems.

Low investment requirement.

Limited credit risks.

Disadvantages:

Initially, the strategy would require reliance on independent distributor support for one year, and

FP would have to give notice of termination in advance.

Expensive

o Costs of salary, bonuses and expenses for 10 employees

o Higher sales objectives require larger marketing budgets

Field selling costs

Advertising costs

Merchandising activities costs

Legal Liabilities

o Belgium law required that a manufactures give “reasonable notice” when terminating a

distribution agreement.

Boismanu could sue for “just indemnity” in lieu of notice.

Boismanu could be entitled to “complimentary indemnity” and FP would have to

compensate the distributor losses incurred by termination beyond the

“reasonable notice” period.

The ongoing value of increases in clientele “resulting from the

distributor’s effort.”

Past expenditures by the distributor which would continue to benefit the

manufacturer.

Indemnities which the distributor would be required to pay to its

employees who were dismissed on account of the termination.

3. Phased Takeover

Advantages

Immediate improvement in gross margin.

Ability to control product line and pricing.

Time to acquire insider knowledge.

Time to manage the build-up of expenses.

Customer service will improve.

Disadvantages

Risk of being noted as a “foreign organization” by consumers and retailers in the region because

of the proposed sales company location in Belgium. This could strain relationships and hurt sale.

o Holland is entirely a different country.

o Belgium is not a homogenous country, with both Flemish-speaking and French-speaking

people in the same nation.

Although this option will be executed over time, it will still be financially more expensive than

keeping the current independent distributor method.

(d) What do the financial metrics indicate for each of the 3 options?

1. CURRENT OPTION:

2. IMMEDIATE OPTION:

- About 1.2 million to 1.5 million if Boismanu sued for damages and FP held liable.

- $708,000 for General and Administrative expenses.

- 1.96 million for first year marketing expenses.

- Roughly 8 million for salary, bonuses and expenses of 8 sales representatives and 4 million for two

sales managers.

3. PHASED OPTION:

- immediate improvement in gross margin in 1978, by reducing the distributors’ 33% gross margin to a

20% commission.

- same expenses as immediate option, however, phased option would permit more gradual build up of

expenses as volume increases materialized.

The first option would be the least expensive option to take on because the financial risk is mainly left to

the independent distributors. The second option has the most risky financial burden because expenses

will have to be spent right away. The third option is still expensive, but FP will have time to pay expenses

and will see a return in their investment during the three-year phase out. This will help ease financial

burden because at least they will be making money and spending money at the same time.

(e) Which option would you suggest be implemented by FP management? Why? Fully defend your

suggestion.

I would suggest the “Phased” option because clearly there are less risks involved in this possibility. I

believe that transitioning from an indirect to direct method of channel distribution is the way to go. It will

give time for FP to gain crucial and invaluable insider market information, as well as lesson the burden of

financial expenses. Furthermore, their independent distributors will be given a commission during the

phase-out which will motivate them to stay adequately involved in FP indicatives. It is clear that in order

for FP to grow in the Benlux market that a single sale company run by FP in the region must be

established. Rushing into direct-selling would be a mistake because it is too legally and financially risky.

Therefore, transitioning is the option I would recommend FP management to execute.

(f) Without the efforts of the BENELUX distributors, Fisher Price would not have been able to gain

a market presence. In your opinion, is it unethical to “use and then dump” the intermediaries that

have helped a company gain presence in international markets.

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(4) The following questions are based on the HBS MINOLTA Case.

(a) Based on your assessment, what is the central problem facing Minolta?

(b) As suggested in the case, identify several different strategies that Minolta can use to reduce

the gray market problem. Discuss the ADVANTAGES and DISADVANTAGES of each strategy.

(c) Other than those already considered in the case, identify further strategies which you suggest

that be used in ADDITION to curb the gray market problem faced by Minolta. Discuss the

ADVANTAGES and DISADVANTAGES of each strategy you suggest.

(d) Based on the identification and discussion of the ADVANTAGES and DISADVANTAGES of

various strategies in (b and c) above, which strategy(ies) would you recommend to be

implemented to resolve Minolta’s gray market problem? Why? Fully defend your suggestion.

(e) Based on the various readings do you think it is possible for firms to standardize pricing for all

the country markets they operate in? Identify and discuss some factors that prevent the

standardization of pricing.

INDIVIDUAL ASSIGNMENT 4 DISCUSSION QUESTIONS ON:

Chapters 15 and 18

Video Modules 7 and 8 on Moodle (Same as Lecture 6 and Lecture 7 on iTunes)

“Global Marketing Channels and the Standardization Controversy”

“Seven Rules for International Distribution” and

Fisher Price BENELUX and

Minolta Corporation