At the present time, with the development of economy, in order to make large profits, a growing number of enterprises pay much more attention on choosing distribution channels. Keegan and Schlegelmich (2001) explained that distribution channel can be considered as the method which is used for enterprises putting products into the market for consumers to use. The traditional distribution channel goes from supplier, manufacturer, distributor, wholesaler and retailer (Frazier, 1999). Indirect and direct are two different types of distribution channels (Wilkinson, 2001).
According to Silva (2008), “Well-chosen channels constitute a significant competitive advantage, while poorly conceived or chosen channels can doom even a superior product or service to failure in the market. ” This essay will first discuss the main features and roles of distribution channels, the channel numbers from manufacture to consumer. The advantages and disadvantages of the indirect and direct distributions, and factors which influence enterprises choose type of distribution channels will be mentioned.
And then, relate to the target market, control over channel members and costs involved in distributing the product, the channels of distribution used by Apple Iphone will be analyzed and use PEST to explain why it chose these. This paper aims to find out the reasons why different types of distribution are chosen for enterprises. This essay will argue that the factors, like product, target market, cost, channel member and PEST impact the choice of distribution channels in international marketing decisions. There are three main different types of distribution channels, indirect channel direct channel and multi-channel system.
Normally, goods and services need to pass through several middlemen before they reach the consumer for using (Keegan and Schlegelmich, 2001). However, manufacturers sell goods and services to the consumer without intermediaries in some cases, which can be defined as direct channel (ibid). Direct distribution channel is used while a manufacturer explores an overseas channel in addition to communicate directly with the foreign parts in the local country (Caughlan, 2001). The channel included online store and retail store, which are more efficiently and exploring the market actively.
Meanwhile, it could well-controlled the market and easy to find the needs of the consumer. However, it is difficult to control if the manufacturer is unfamiliarity the foreign market (Julian, 2008), and also cost a lot to monitor the goods in order to satisfy the consumer. Therefore, it is wasting time and more expensive. The indirect distribution channel is used for the company if the goods has a large scale or complex (EB, 2010). In this situation, intermediary is the best choice for manufacturer selling the goods, like wholesalers, retailers, distributors and so forth (Keegan and Schlegelmich , 2001).
Some advantages can be found when the indirect distribution channel is adopted. First, it is simple and cheap. The manufacturer does not need to pay start-up cost for the channel and if the goods is moving to foreign countries the risk is relieved, also the costs will be shared with intermediary (Frazier, 1999). The limitation of this distribution channel is clear. The right of controlling the market is handing over to the middlemen. Another one is the intermediary may give up handling the product suddenly if there is no profit in the market (Keegan and Schlegelmilch, 2001).
According to Keegan and Schlegelmich (2001), multi-channel can be defined as using both direct and indirect distribution channels. This channel can keep the profit balanced and expand target consumers, also easy for the company to find the potential market and consumer. However, it is not good for promoting the product and may raise the risk in some extents. There are some factors affect the companies to choose distribution channels which will use for their products, such the product itself, cost, consumers location and coverage and regulatory issues.
Firstly, the product characteristics can be considered as a factor which impacts the choice of distribution channels for the company. According to the above information, generally, direct distribution channel is used when the goods is large scale and complex. Because the company needs to reduce the cost which is spent during the distribution channels. In contrast, some other products, such as mobile phone, the company often choose indirect distribution channel. In this way, they shorten the channel of distribution. Therefore, the product can reach to consumer for use fast and make more profits.
The large number of population in a nation could influence the choice of distribution channels, because in order to reach consumer the channel members may be required to use a lot (ibid). In addition, Coughlan et al (2001) explained that costs must always be reduced in order to increase the pure profits. Fazier (1999) also noted that costs spend on different channels affecting costs of goods and services differently, “which also affects the margins demanded by the channel members thus increasing the price of products that pass through those channels”.
Regulatory issues can be considered as another fact which impacts the choice of distribution channels. For example, in China the administration of network is not perfect enough, when online store is used, company should think about the government policies and the media in China also can be made use of. When companies consider the channels of distribution, the nature of product, the target market, control over channel members, and cost involved in distributing the product also play an important role on it. The Apple Iphone in China can be considered as a special exam to explain.
According to Wang and Lee(2008), the mobile phone market in China grew rapidly in this period. The Apple company adapted mix distribution channel to reach consumers, which means direct and indirect distribution channels are used. It chose China Mobile as the operator and distributor to occupy a more favorable market share. In addition, Apple stores and online stores were owned in recent years. Apple Iphone is a kind of business mobile phone, the functional, practical, and design shows high taste, which is considered as the representative of high-tech and status symbol (Apple, 2010).
In order to attract more Chinese consumer, the design of IPhone was changed which based on the sights of Chinese people and made it unique (No Name, 2008). Meanwhile, the Apple online store accepts pre-purchase in order to attractive more potential customers. Recently, Chinese mobile phone market contains nearly 30 international brands, such as Motorola, Nokia, Samsung and the main local brands, like Bird, TCL and so on (ibid). Because of the high quality and price, the target market in China of Iphone focused on the consumers who had a high level of purchasing power, like businessmen.
In order to protect Iphone brand image, Apple company controlled over channel members strictly in China. In this way, Apple company reduced the conflict with distributor and defined the brand value of Apple. Also, it promoted other products which belonged to Apple (Krish, 2010). The Apple company also strongly pays attention on the costs involved in distributing the Iphone, which means focuses on logistics activities. Mobile phone is considered as the goods, which need to transport carefully, especially a long way to transport, much money and energy are spent in this linkage.
The Apple company cooperates with the distributor, in this way, the cost is reduced and the risk is separated with distributor. In addition, the costs of packaging and propagandize the Iphone are also shared. In order to analyze the reasons why Apple have chosen their particular way to distribute their IPhone product in China, the PEST which means political, economical, social and technological conditions of a particular country can be used to explain. First, political and legal factors, like the taxation and the rule which is made by Chinese Ministry of Information Industry impact the Apple company chooses the distribution channels.
Cooperate with the China Mobile, Apple company can share the tax with it. In addition, as the most important and successful relevant department of mobile phone, China Mobile gets supports from government. According to this point, Apple company can also make more profits and reduce the risk. Secondly, comparing with other countries, China has suffered the slightest impact when the recession influenced the world economic heavily. According to Wang and LEE (2008), the rapid economic growth could be considered as Chinese people had the strong purchasing power to buy the product.
Therefore, depend on the good image and brand value, Apple company chose the mixed distribution channels. In one hand, under the help of China Mobile, a large number of IPhone would be sold and occupied the market share fast. For another, the direct distribution channel, Apple store, it could well-controlled the market and avoided the conflicts with the distributor. Moreover, the social situation, there is a large number of population in China, and people depend on the mobile communication heavily. In addition, although local provider still exists, the market is relatively opened and the policy is not so strict than before.
It is easy for Chinese people to accept imported product and they enjoy buying it, especially the international famous brands. Therefore, the Apple IPhone chose many intermediaries to expand the sales and made more profits. Furthermore, to review the mobile phone market in China, international mobile phone brands occupy a huge market share. Because the local mobile phone manufacturer cannot produce such a mobile phone like Apple IPhone, which includes high quality, functions and the shapes and so forth. These factors show the status symbol and fashion.
All of these attract Chinese people heavily and cannot wait to own one. The Apple IPhone adopts direct distribution channel, Apple online store, in order to sell the goods fast and convenient. The Apple company makes huge profits and less costs involved in distributing product, while establish the brand value and also be prepared for launching other products. Different distribution channel strategies for different stages in the products life have been considered by Apple. According to Sameer and Williams (2006), product life cycle contains 4 stages, introductory stage, growth stage, maturity stage and decline stage.
During the introductory stage, like IPhone3 has been launched in China in 2008, intermediary was accepted and the company should try to persuade the middlemen to carry the product in order to establish good image and occupy the market share quickly. When the IPhone3 got into growth stage, which means the product has gained the acceptability in the market. Therefore, more distributors and retailers were interested in the IPhone, the company began to make some standards in order to choose the best patterns. In addition, IPhone opened own stores and made a great control of the market in China.
Furthermore, the direct channel avoided the conflicts between Apple and distributors and retailers. After that, the maturity stage, the market has already saturated and a large number of competitors entered into the market. Therefore, the most important thing is maintaining market share, the indirect still used to keep the profits. IPhone showed the discounts to distributors and online store was appeared. IPhone3 has not achieved the decline stage completely in China. However, with the IPhone4 has been launched, the distribution channels have also changed.
The retailers have disappeared and focused on the cooperation with China Mobile in order to keep up with the consumer demands. In conclusion, according to the above information, many factors impact the choice of distribution channels. The advantages and disadvantages of different distribution channels can be considered as the basic factors. The factors which mentioned above play an important role of influencing the choice of distribution channels in international decision. In addition, the final aim of choosing the distribution channel is making more profit.
Therefore, the best distribution channel is not exit, but the most available one. On the basis of different products and places, different distribution channels will be chosen by the company. The cost is the main thing which needs enterprise to pay much more attention. It can be considered as a reference point to examine whether the distribution channel fits or not, in order to promote distribution channels. As a result, the choice of distribution channels not only depends on analyzing these factors, but also depends on the marketing strategies.