Avvocato in Milan and Turin
In the third chapter of our ABC on international distribution, we will focus on how to distribute products or services. It is known that products must be placed on the market through a distribution system which essentially represents the way to put the producers of the goods in contact with the market that uses/consumes them.
To distribute products or services, usually it is possible to use direct distribution or indirect distribution (or a mix of the two), depending on the product/service, the related company marketing plan and the country where to operate.
1. The direct distribution of products and services occurs when there are no intermediaries between the producer and the market. In this case the producer uses its own subsidiaries or employees to distribute and has excellent control of the market, but the organizational structure is inevitably rather expensive, as it requires large investments in structure and personnel.
For example, the sales of luxury products such as yachts or high fashion tailoring clothes could be made in the company through qualified personnel or in its own stores.
The use of internet represents an effective channel for direct distribution of products and services but in any case it is necessary, at least in support, the presence of physical distributors, which takes place either through a subsidiary created for the purpose of selling online or involving the network of distributors already existing. A further method of direct distribution may be to sell a single product or some products only on the internet channel, excluding it from physical distribution.
Other possible forms of direct distribution are those of home sales (door to door), by mail (perhaps someone still remembers Postalmarket?) and by telephone.
2. Indirect distribution, on the other hand, occurs when there are intermediaries between the producer/supplier and the buyers’ market.
In these cases the supply chain can be more or less long and be constituted, for example, by the producer, wholesaler and retailer, or shorter, producer and retailer, in which case the former must have a structure capable of supporting financially the customer (credit concessions, reduced inventory of the shopkeeper who can count on fast deliveries from the producer who instead has an important stock of goods to serve the market).
In these hypotheses of the presence of intermediaries, which is by far the most frequent for Italian exporting companies (see the case of the classic foreign importer), it must then be pointed out that it is possible to opt for a more appropriate one (in the opinion of the writer) form of indirect distribution with integration of intermediaries. This means that the producer/supplier will be able to issue marketing directives on the methods of distribution to the commercial intermediary in charge.
For example, in franchising, the franchisor can issue directives to the franchisee on the furnishing of the product sales areas, on the clothing of the staff and on the presentation of the brand.
The advantages of indirect distribution with integration are given by the following aspects:
– production is optimized;
– distribution management is more efficient (less costs for producer stocks);
– the brand image is homogeneous towards all customers;
– many commercial costs are passed on to the intermediary;
– the marketing plan and commercial strategy are implemented more efficiently.
The most used intermediation figures in Italy and abroad belong, on the one hand, to the category of franchising and the distribution/concession of sale contract (commercial companies that buy from a supplier and resell to their customers) and, on the other hand, to the category of agency, mediation and business procurement (these are usually para-subordinate collaborators of companies that usually operate on commission on sales concluded directly by the principal with the end customer).
The choice between direct or indirect distribution or a mixed form of distribution between the two, also taking into account the reference markets in which products and services are to be distributed, is always made by companies on the basis of a marketing plan appropriate to the size and resources of the company that wants to export.
The international commercial contracts that follow the marketing plan of the company and allow it to be implemented must take into account the practice of international business and some clauses that have now become standard, but above all they must be tailor made for the exporting company through careful collaboration between the business managers and the business lawyer in charge of writing the contract, taking into account the company marketing and the client’s specific business strategy which cannot be taken from a standard contract template copied online.
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