Francoise Gain, the directrice du marketing at Riva in Brussels, Belgium received astonishing results from the consumer panels and distributor panels for September and October 1999. It appeared that sales in Belgium and France of one of its main products, the crme base Riva, were 20% lower than the production level in the Belgian factory, which supplied both markets. No signs of excess inventories in France and Belgium were noticed by the sales force during visits to distributors.

Riva Belgium was the subsidiary of Riva Products Corporation, a large US-based multinational, whose main business lines were related to the cosmetics and beauty care industry. The Belgian subsidiary was in charge of both the French and the Belgian markets. In 1995 a scientific breakthrough by the corporate R&D laboratories had led to the development of a new skin care cream. Several patents had been filed and registered to protect the property.

In Europe, the industrial use of these patents had been licensed to Riva Belgium, which began producing and selling the new skin care cream in February 1996. Sales increased quickly and the new product was received favorably by Belgian and French consumers, who liked both its efficiency and good price-quality ratio. Following instructions from international headquarters, the output of Riva Belgium was intended exclusively to supply the Belgian and French markets as well as the markets of French-speaking Africa.

In January 1999 the English subsidiary of Riva, UK Riva Ltd., started producing the same crme base product. Hefty investments had been made in the English factory to ensure the best quality and a large production capacity. This product had been launched at the high end of the market for skin care cream. It was priced high and supported by heavy advertising and promotional expenses. After a promising start, deliveries had been falling off since August 1999. Actual deliveries to the English distributors steadily diverged from target sales.

Francoise Gain knew about this situation as she had been engaged as an internal consultant in the launching of crme base Riva in the UK. However, what worried her most in November 1999 was the gap between sales to consumer in France and Belgium and ex-works shipments. She informed Jacques Graff, CEO of Riva Belgium and a member of the international board.

At first he did not seem to be bothered by such a gap, and showed little interest in this problem: Francoise, you know: panel data, what does it really mean? Our product sells well and that is all that matters! Tell your panel company to reconsider their samples and their data collection procedures, and you will see that everything is in fact normal.

Francoise still made the decision to undertake an audit by an external consultant. His findings exactly confirmed those of the panels and brought evidence of no big excess inventory at the distribution level. Furthermore, it followed form the auditors investigations that deviations had to be ascribed mostly to deliveries to two large wholesalers, who ranked among the five largest customers of Riva Belgium.

One month after his talks with Francoise Gain, Graff received a confidential note, issued by the chief executive of Riva UK. It stated that a member of his sales force had accidentally seen at an English wholesaler, a carton containing crme base Riva with country-of-origin label Made in Belgium. The wholesaler had been evasive if not reluctant to tell the sales representative where it came from. Jacques Graff asked Francoise Gain to come to his office, and handed her the note without comment.

I am not surprised by this note, answered Francoise, on the contrary, it is evidence for my suspicions about parallel imports of our Belgian products to England. I have noticed that our sales which vanished from Belgium and France were precisely equal to the drop in deliveries of UK Riva. It is now quite clear that some of our wholesalers export to English distributors and that, before doing this, they did not warn our sales and marketing group. I examined the cost structure of UK Riva production and found that our product made in Belgium could be sold by Belgian wholesalers to English distributors at a profit. Belgian distributors may price it at 15% below the English price list, even though there are transport costs.

How is that possible? asked Graff, amazed.

The English crme base Riva was launched with heavy production and promotion costs, explained Francoise. It is positioned at the high end of the market. Its price is higher than any of the competing products. I told them before launching it that this retail price level was too high. But I faced disapproval. The finance department at UK Riva wanted a quick return on investment, taking into account the large cash outflows at the start. The marketing people, backed by the advertising agency, claimed the opportunity to seize a segment that was at the very top end of the market and which up to then had been neglected by competitors. Consequently my opinion was put aside.

Jacques Graff started to walk back and forth. As chief executive of the Belgian subsidiary, Im delighted. Our plant works at full capacity. But as a member of the international board, I cant let the English subsidiary plunge. What can we do?

One thing is certain, answered Francoise, We cannot prevent our customers, namely independent wholesalers, from exporting to England if they wish to. As for the English distributors, one cannot blame them for seizing a better-priced offer and simultaneously taking advantage of the promotional effort of UK Riva! I know it is more easily said than done, but you should have defined, a long time ago an international pricing strategy at the international board level.

It is never to late to do the right thing. Francoise, please prepare a report on your suggestions to cope with this problem of parallel imports of the crme base Riva. Said Graff in conclusion

Questions1.Where do the problems of parallel imports in this situation come from?

2. What can be done to stop wholesalers exporting to England? What do you recommend?

3. Is it necessary to change the marketing strategy of crme base Riva, and especially its price? Where and how?

4. How should the company organize for coordinating international marketing strategy across markets?