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WorldTrade Magazine December 1999 By Marina Baldwin Keeping Time with the Global Market
Company: Geochron Enterprises, Inc. Headquarters: Redwood City, California Business: Designer and manufacturer of world time indicators Years in business: 35 Years in international
business: 15 Solution: requiring minimum sales, altering the product, and working with the distributors and having them cooperate with each other. Have you ever had the need to know what time it is in Japan but didn¡¯t know an easy, convenient way of finding out? Geochron Enterprises has just the thing: a global time indicator." It¡¯s a wall-mounted clock that displays night and day, time zones, and the actual time for any country around the world. There¡¯s even an updated world map offered for sale every year to keep up with constantly changing borders and time zones. Geochron is now owned and run by Jim Kilburg, the son of the founder, and his partner Robert Williamson. After purchasing the company, the two started supplying their products to distributors, such as Rand McNally and The Nature Company, [The Discovery Channel Stores] and foreign distributors with exclusive contracts. They soon discovered, however, that in different countries tariffs and distributors affected the end price of their product in different ways. Japan, for example, has high tariffs on items like the Geochron clock. In addition, the complicated and layered distribution system means that several hands must be paid out of profits. The mark-up is often over 400%, putting the price of a Geochron clock in Japan as high as US $3,800. And when the yen was sliding, the price went even higher. However, a Japanese tourist in Honolulu could find the exact same product for US$1,300. This significant price difference does not go unnoticed. Geochron found it had the same problem in Europe, despite supposedly uniform tariffs. In fact, since consumers travel within Europe so often, the problem was even worse. Geochron¡¯s distribution agreements are most often exclusive, so that if a customer in Germany wanted ten time indicators, for example, and tried to order directly through Geochron, Geochron would have to refer the customer to the German distributor. On the other hand, if that same customer were to come to the US and order ten time indicators from Rand McNally, Geochron would fill the order, because it originated in the US. As with most exclusive distribution arrangements, in exchange for exclusive distribution rights, Geochron distributors must agree to purchase a minimum amount of products per year. If the quota is not met, Geochron puts the company on probation, and eventually can allow other distributors to do business in the same territory. Before Kilburg took steps to lessen consumer price differentials, distributors were unhappy that consumers "country-shopped" for the Geochron clock. While competition among distributors would theoretically boost sales, it played havoc with distributors¡¯ being able to meet minimum required quantities and with their willingness to invest in marketing the product and could result in the territory¡¯s being abandons altogether. Plus, since Kilburg¡¯s price to distributors was uniform, he received nothing extra when the markup was high. To try to lessen price differentials, Kilburg tries to help distributors reduce their costs by offering reduced prices for bulk orders. This also allows them to save on shipping costs and on clearance fees. (Since clearance fees are fixed amount regardless of the size of the shipment, it is more economical to send a quantity of time indicators than to send them one or two at a time.) In addition, by loading distributors up with inventory, it encourages them to move the product which is better accomplished at lower prices. Lower prices mean there is less room for significant price differences between distributors. Plus, since distributors have minimum purchase requirements, they are contractually forced to price the product so that it will sell. Kilburg also tries to get distributors to work together to share leads and business. He says he doesn¡¯t try to police them, because that is a violation of the trust built within each relationship (and could be a violation of antitrust laws as well in Europe, for example, while exclusive distributors may, in certain cases, be restricted from soliciting business outside their country territory, they may not be restricted from filling unsolicited orders which now often come via the Internet see below). "If you have to resort to a piece of paper to enforce your relationship, there¡¯s something wrong with the relationship to begin with," Kilburg reasons. The Internet has only increased the problem of price differentials. Geochron has links on its web site to all it foreign distributors in 46 countries. From this web site, any customer with Internet access can shop around for a time indicator. To prevent too much shopping between countries, Kilburg asks his distributors not to post their prices on the site, and this strategy usually works. But because the time indicator is not considered by most an "impulse" buy, customers are more likely to shop around before purchasing. While distributors can be frustrated by this price shopping, it does help keep the prices within a narrower range. Kilburg has also attacked price differentials by altering the clock for different territories. The time indicator may be slightly changed in its appearance, there may be an alternate color scheme, or the design of the product housing may be varies. Other alterations can be ordered. For example, Geochron has signed a contract with a company in China to distribute time indicators that have specific political boundaries that the Chinese government felt should be displayed on it. Geochron does not use its minimum purchase requirements
as a hammer to force lower prices, though. The market in each territory
can only bear so much, and some of the distributor¡¯s costs
cannot be lowered (e.g., tariffs, or a layered distribution system).
As Kilburg says, "There is no point in having a built-in contract
that¡¯s doomed to failure." His advice to the exporter?
Keep good relations between you and your distributors. Make sure they
keep good relations with each other and you. Many pricing and other
problems can be attributed to growing pains, as they were with Geochron.
Finally, remember that "Everything always comes back to haunt you,
so you might as well do it the right and honest way to start with."
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