Question 3.2-international business

MGMK 4710

INTERNATIONAL BUSINESS

Chapter 17. Global marketing

I. INTRODUCTION

Although basic marketing principles may be the same in both domestic and foreign markets, differences often require those principles be applied in different ways. This raises the issue of whether to standardize or adapt marketing strategies.

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II. MARKETING STRATEGIES

Marketing strategies are often known as the 4Ps (product, pricing, promotion, place). In international business, a fifth variable, branding, is added. Overall international marketing strategies should depend on the company’s marketing orientation and target market.

A. Marketing Orientations

1. Production Orientation. A production orientation indicates a firm is more concerned about production factors such as efficiency, quality, and/or capacity than it is about marketing. Firms assume customers want lower prices and/or higher quality.

2. Sales Orientation. A sales orientation indicates a firm assumes global customers are reasonably similar and it can therefore sell abroad the same product it sells at home. A firm will be aided in this approach when there is also a spillover of product information from one country to another.

3. Customer Orientation. A customer orientation indicates a firm is sensitive to customer

Needs. Firms therefore try to identify & serve the specific needs of the customer.

4. Strategic Marketing Orientation. A strategic marketing orientation indicates a firm is

committed to continuously serving foreign target markets and to making incremental product

adaptations to satisfy local customers.

5. Societal Marketing Orientation. The societal marketing orientation indicates a firm recognizes it must do business in a way that preserves or enhances the well-being of all its stakeholders, i.e., as it serves the needs of its customers it must also address the environmental, health, social, and work-related problems that may arise when or marketing its products abroad.

B. Segmenting and Targeting Markets

The most common way of identifying market segments within a country is through

demographic factors such as income, age, gender, ethnicity, and religion.

1. Approaches to Segmentation. When targeting and segmenting markets, firms have three

basic alternatives including segmenting by country, by global segment, or by multiple criteria.

- By Country. A firm may choose to segment its market by selecting a single country to enter.

There is little opportunity of gaining economies through standardization with this approach.

- By Global Segment. A company may identify some segments globally, such as segments

based primarily on income. Thus, each country may have some people within the same segment.

- By Multiple Criteria. A company can combine these approaches by looking first at countries

as segments, second by identifying segments within each country, and third by comparing these

within-country segments with those of other countries.

2. Mass Markets versus Niche Markets. Companies must decide when introducing their

products abroad to enter it with a mass market or niche market strategy. Because the percentage

of people that fall into any segment may vary substantially among countries, a niche market in

one country may be a mass market in another.

III. PRODUCT POLICIES

A key product policy consideration is whether to standardize product offerings or to adapt to

local requirements. Another factor to consider is the product mix to market in a foreign market.

A. Product Adaptation

Usually firms will choose to standardize basic components while adapting critical end-use characteristics. The primary reasons behind the tendency of firms to adapt their products to meet local conditions are legal, cultural, and/or economic in nature.

1. Legal Considerations. Explicit product-related legal requirements vary widely by country but are usually meant to protect customers, the environment, or both.

- Packaging Requirements. One of the more cumbersome product alterations for companies is adjusting to different laws on packaging and warning labels.

- Environmental-Protection Regulations. Some countries prohibit certain types of containers, others restrict the volume of packaging materials, and some have mandates on container reusability.

- Indirect Legal Considerations. Marketing managers must also watch for indirect legal

requirements such as higher taxes on heavy automobiles that may shift demand to lighter ones.

- Issues of Standardization. A recurring issue is the need to arrive at international product standards and eliminate some of the wasteful product requirements for alterations among countries.

2. Cultural Considerations. Cultural factors affecting demand may or may not be easily discerned. While religious beliefs may offer clear guidelines regarding product acceptability, other factors such as color, design, and artistic preferences may be much subtler.

3. Economic Considerations. Levels of income, differences in income distribution, and the extent and condition of available infrastructure can all affect demand for a particular product. Often, price-reducing alterations are required if a firm wishes to participate in a particular country market. Poor infrastructure may also require alterations as companies must deal with rough terrain, etc.

B. The Product Line: Extent and Mix

Although most firms produce multiple products, it is doubtful that all of these products could generate sufficient sales in a given foreign market to justify the cost of penetrating that market.

1. Sales and Cost Considerations. When making product line decisions, managers must consider the cost and effect on sales of offering just one or a few products internationally as opposed to an entire family of products. Whereas narrowing a product line allows for the concentration of effort and resources, the broadening of a product line may lead to distribution economies.

2. Product Life Cycle Considerations. Differences will likely exist across countries in both the shape and the length of a product’s life cycle. A product facing declining sales in one country may have growing or sustained sales in another.

IV. PRICING STRATEGIES

Price represents the value asked for a product. In the international arena, the determination of the prices to adopt can be extremely complex, for a number of reasons:

A. Government Intervention.

One way or another, every country has laws that either directly or indirectly affect prices. Price controls may set either maximum or minimum prices for designated products. The WTO permits a government to establish restrictions against any imports that enter the country at a price below the price charged to customers in the exporting country (dumping). However, a firm may charge different prices in different countries because of competitive and demand factors (e.g., a firm may choose to exclude fixed costs in the price calculation of products exported to developing countries in order to be price competitive in those markets.)

B. Market Diversity.

Country variations lead to many ways of segmenting the market. Consumers in some

countries simply like certain products more and are willing to pay more for them. Depending

upon market conditions, a firm may adopt any of the following pricing strategies:

- A skimming strategy sets a high price for a new product, which is aimed at market innovators.

Over time, the price will be progressively lowered in response to demand and supply conditions,

i.e., the presence of additional competitors.

- A penetration strategy sets an aggressively low price to attract a maximum number of

customers (some of whom may switch from other brands) and to discourage competition.

- A simple cost-plus strategy sets the price at a desired margin over cost. Cash versus credit

buying also affects demand.

C. Export Price Escalation.

In foreign markets, lengthening the channels or adding other expenses somewhere within the

network will further increase the delivered price of the product. Common reasons for price

escalation in export sales are tariffs and the often-greater distance to the market. To compete in

export markets, a firm may have to sell its products to intermediaries at a reduced price in order

to lessen the amount of price escalation.

D. Fluctuations in Currency Value.

Pricing in the case of highly volatile currencies can be extremely difficult, especially under

conditions of high inflation. This may result in the need for frequent price adjustments. Further,

currency fluctuations also affect pricing decisions for any product that faces foreign competition.

When a currency is strong, producers may have to accept a lower profit margin if they wish to be

price competitive.

E. Fixed versus Variable Pricing.

MNEs often negotiate export prices, while small companies frequently give price

concessions too quickly. This limits small companies’ ability to negotiate on a range of

marketing factors that affect their costs such as discounts for quantity or repeat orders, deadlines

that increase production or transportation costs, credit and payment terms, supply of promotional

materials, or training of sales personnel or customers.

The extent to which firms set prices at the retail level varies substantially by country. There

is also substantial variation in whether, where, and for what products customers prefer or expect

to negotiate an agreed-upon price. Local laws and customs may limit firms’ abilities to set prices.

In many cultures, prices are simply the starting point in the bargaining process.

V. PROMOTION STRATEGIES

Promotion consists of the messages intended to help sell a product or service. The types and direction of messages and the method of presentation may be extremely diverse, depending on the company, product, and country of operation.

A. The Push-Pull Mix

Promotion strategies may be categorized as push (uses direct selling techniques) or pull (which relies on mass media). Most firms use a combination of both. The factors that will determine the mix of push and pull strategies include the type of distribution system, the cost and availability of media, customer attitudes toward sources of information, and the relative price of the product as compared to disposable income. Push is more likely when self service is not predominant, advertising is restricted, and product price is a high portion of income.

B. Some Problems in International Promotion

One key question is whether to standardize promotion. Standardization can result in cost

savings and in better quality of advertising by preventing the confusion associated with different

national messages. For certain reasons, it is difficult to completely standardize promotion:

1. Translation. When a media transmission spans multiple countries, there is no opportunity to translate a message into other local languages. When messages are translated, numerous difficulties can be encountered with both language (content and meaning) and images.

2. Legality. What is deemed to be legal advertising in one country may in fact be illegal elsewhere. Differences result mainly from varying national views on consumer protection, competitive protection, standards of morality, and nationalism.

3. Message Needs. An advertising theme may not be appropriate everywhere because of national differences in how well consumers know a product, how they perceive it, who makes the purchasing decision, and what features are most important.

VI. BRANDING STRATEGIES

A brand is a name, term, sign, symbol and/or design that is intended to identify a product or product line and differentiate it in the marketplace. MNEs need to decide about whether to adopt either a worldwide brand or a variety of brands for different local markets.

1. Advantages of Worldwide Brands. A global image assists in the marketing to international

travelers and creates an international identity as a global player.

2. Problems with Uniform Brands. A number of problems are inherent in trying to use uniform

brands internationally:

- Language. Both the translation and pronunciation of brand names pose potential problems in

many markets. Often the problems are obvious, but other times they are quite subtle, yet critical.

In addition, brand symbols (shapes and colors) are culturally sensitive in many societies.

- Brand Acquisition. When an MNE acquires a (foreign) firm, it automatically acquires its

brands. In some cases, those brands will be kept; in others they are folded into a larger brand in

order to capture economies of scale & promote regional/global brand recognition.

- Country-of-Origin Image. Firms must determine whether to promote a local or foreign image

for their products. The products of some countries may be perceived as being particularly

desirable and of higher quality than products from other countries. A firm may be able to

enhance its competitiveness by effectively exploiting this perception.

- Generic and Near-Generic Names. While firms want their brand names to become household

words, they do not want those names to become so common they are considered to be generic

(e.g., Kleenex and Xerox). Generic names may either stimulate or frustrate the sales of the firm

from whom the name was expropriated.

VII. DISTRIBUTION STRATEGIES

Distribution refers to the physical and legal path that products follow from the point of production to the point of consumption. In the 4Ps, distribution is referred to as place.

B. Deciding Whether to Standardize

Distribution is often the marketing mix variable that firms find the most difficult to standardize. This is because each country has its own national distribution system that is historically intertwined with its cultural, economic, and legal environments. Other factors that influence standardization of distribution include restrictions on the size of stores and their hours of operation, the financial ability to carry large inventories, and the efficacy of the national postal system.

C. Choosing Distributors and Channels

Just as in the case of production, a firm may choose to handle the distribution function internally or outsource it to a specialized provider. When sales volume is low, it is usually more cost effective for a firm to contract with an external distributor. On the other hand, distribution may be handled internally when sales volume is high, when the firm has sufficient human, capital and financial resources, and when after-sales service is extensive and complex.

When a firm choose to contract with an external distributor, criteria for selecting distributors include financial strength, good relationships with their customers, the state of a distributor’s equipment, facilities and personnel, and trustworthiness.

C. Distribution Challenges

Distributors choose the products and firms they wish to represent and emphasize. A new

entrant must therefore convince a desired distributor of the viability of both its products and the

company itself. To do so it may need to provide extra incentives or be willing to enter into

exclusive arrangements provided a competitor does not already occupy that position.