Global Bussines
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Chapter18_Hill_IB12e.pptxChapter 18
Global Marketing and R&D
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Learning Objectives 1 of 2
LO 18-1 Explain why it might make sense to vary the attributes of a product from country to country.
LO 18-2 Recognize why and how a firm’s distribution strategy might vary among countries.
LO 18-3 Identify why and how advertising and promotional strategies might vary among countries.
LO 18-4 Explain why and how a firm’s pricing strategy might vary among countries.
LO 18-5 Understand how to configure the marketing mix globally.
©McGraw-Hill Education.
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What Is Marketing? Pulling It All Together
Source: Principles of Marketing (Arab World Edition) by Philip Kotler
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What Is The Marketing Mix?
The marketing mix (the choices the firm offers to its targeted market) is comprised of (4 Ps).
Product attributes (Product)
Pricing strategy (Price)
Distribution strategy (Place)
Communication strategy (Promotion)
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If you’ve ever been to another country, you may have seen some familiar products on the shelves at local shops.
Many companies today sell their products all over the world.
In fact, you probably buy imported products on a regular basis.
Have you ever thought about how international companies sell their products?
Does the product meet the same need in every country, or do companies have to develop different messages about their products depending on where they’re being sold?
International marketing is like domestic marketing in that it still involves the basic marketing elements of product attributes, distribution strategy, communication strategy, and pricing strategy, but because international marketing involves selling products in different countries, with different literacy rates, currencies, levels of economic development, and so on, international marketing can be far more complex.
Firms have to decide which elements of the marketing mix can be standardized, and which need to be adapted to the local market.
International Marketing: How it is different?
The process of International marketing remain same. However, it is more complex and differs from domestic marketing because it involves selling products in different countries, with different:
Consumer needs, wants, demand & preferences
PESTLE factors
literacy rates
Currencies and many more
Firms must decide which elements of the marketing mix can be standardized, and which need to customized.
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Should The Marketing Mix Be Changed For Each Market?
Question: Are markets and brands becoming global?
Theodore Levitt (in 1960) argued that world markets were becoming increasingly similar making it unnecessary to localize the marketing mix
Question: Is Levitt right? Probably not!
Levitt’s theory has become a lightening rod in the debate about globalization.
The current consensus is that while the world is moving towards global markets, global standardization is not possible because of
Cultural and economic differences among nations
Trade barriers and differences in product and technical standards
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So, can a firm sell the same product the same way everywhere? Theodore Levitt thought so!
In the 1960s, Theodore Levitt argued that world markets were becoming increasingly similar making it unnecessary for companies to localize the marketing mix.
According to Levitt, because of this convergence of markets, firms could simply avoid the costs of market adaptation, and sell standardized products around the globe instead. He argued that McDonald’s for example, sold the same thing everywhere.
Levitt’s theory quickly became a lightening rod in the debate about globalization.
Many people believed that he overstated his case, especially when it came to consumer products.
They argued that, for example, while McDonald’s is available around the globe, the company does make menu changes.
It sells a McArabia in the Middle East for example, and a Croque McDo in France. Similarly, as you might recall from the Opening Case, Microsoft, another global brand, has adapted its marketing mix to meet the needs of consumers in India.
The current consensus is that although the world is moving towards global markets, because cultural and economic differences continue to exist among nations, any trend toward global consumer tastes and preferences is limited.
In other words, while people around the world might drink Coke, how the brand is perceived, how it’s marketed, and so on, still differs from country to country.
Keep in mind too, that trade barriers and differences in product and technical standards also limit a firm’s ability to standardize its marketing mix.
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What is Market Segmentation?
Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
Markets can be segmented by
Geography (various locations)
Demography (gender, age, income level, education level)
socio-cultural factors (language, religion, traditions)
psychological factors (life style, activities, interest and opinion)
Two key market segmentation issues
The differences between countries in the structure of market segments.
The existence of segments that transcend national borders
when segments transcend national borders, a global strategy is possible .
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How do you figure out which elements in the marketing mix need to be customized to the local market and which can be standardized across markets?
You can start by segmenting markets.
Market segmentation involves identifying distinct groups of consumers whose purchasing power differs from others in important ways.
You can segment markets in many ways, by sex, age, income level, education level, and so on. Once you’ve identified different segments, you can adjust your marketing mix accordingly.
Toyota for example, sells its Lexus line to high-income consumers, but attracts lower income buyers with its Corolla.
Firms not only need to adjust their marketing mix from segment to segment, they also need to identify segments that transcend national borders, and understand differences across countries in how the segments are structured.
Sometimes segments that transcend national borders include consumers that are very similar, and have similar purchasing behavior.
When these types of similarities don’t exist though, firms need to customize the marketing mix if they want to maximize their performance in the market.
As you can see in the Management Focus in your text for example, the African Brazilian segment in Brazil is quite different from the African American segment in the U.S.
Yet, in contrast, we also see a segment of buyers across countries that we call the global youth segment that appears to behave in very similar ways.
Remember that global market segments are more likely to exist in industrial products than in consumer products.
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How Do Product Attributes Influence Marketing Strategy?
A product is like a bundle of attributes
Products sell well when their attributes match consumer needs
if consumer needs were the same everywhere, a firm could sell the same product worldwide.
But consumer needs depend on
Culture
tradition, social structure, language, religion, education
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Now, let’s look at each element in the marketing mix beginning with product attributes.
You already know that products sell well when their attributes match consumer needs, and you can probably guess that if consumer needs were the same everywhere, a firm could sell the same product everywhere.
But, what do you do when consumer needs vary from country to country because of cultural differences, or differences in levels of economic development?
Let’s explore these issues.
What are the cultural differences between countries?
Countries differ along a range of cultural dimensions including tradition, social structure, language, religion, and education.
To identify where standardization is possible and where the marketing mix must be customized, firms need to look for evidence of the globalization trends that Levitt identified.
Nestle, for example, sells frozen food in multiple countries, but offers different menus depending on local preferences.
Nestle sells fish fingers in Great Britain, but coq au vin in France, yet its able to sell Lean Cuisine dinners in the same way in both Europe and the U.S.
Coca-Cola builds on its brand name in Japan by offering a tonic drink that appeals to local consumers in addition to its traditional cola.
How Do Product Attributes Influence Marketing Strategy?
Level of economic development
consumers in highly developed countries tend to demand a lot of extra performance attributes
consumers in less developed nations tend to prefer more basic products
Product and technical standards
national differences can force firms to customize the marketing mix
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What does a country’s level of economic development mean to the marketing mix?
Firms that are based in highly developed countries tend to build lots of performance features into their products.
Think about your car for example.
You’ve probably got power steering and power windows, maybe a CD player or DVD player.
In contrast, we know that consumers in less developed countries tend to prefer more basic products, but want high product reliability.
Sometimes firms have to customize their marketing mix to meet national differences in product and technological standards.
For example, differences in technical standards between Great Britain and the U.S. mean that producers of DVD equipment have to adapt their product to each market.
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How Does Distribution Influence Marketing Strategy?
Distribution strategy refers to the means the firm chooses for delivering the product to the consumer.
How a product is delivered depends on the firm’s market entry strategy.
firms that manufacturer the product locally can sell directly to the consumer, to the retailer, or to the wholesaler
firms that manufacture outside the country have the same options plus the option of selling to an import agent
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Now, let’s move on to the next element in the marketing mix, distribution strategy.
How a firm delivers its product to the consumer is a critical element of the marketing mix.
Firms can sell directly to consumers, to retailers, or to wholesalers regardless of where the product is produced.
In a market economy, like the U.S., governments encourage free and fair competition and discourage monopolies.
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How Does Distribution Influence Marketing Strategy?
A Typical Distribution Strategy
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Here you can see a typical distribution system which consists of a channel that includes a wholesale distributor and a retailer.
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How Do Distribution Systems Differ?
There are four main differences in distribution systems
Retail concentration – concentrated or fragmented
In a concentrated retail system, a few retailers supply most of the market – common in developed countries
In a fragmented retail system there are many retailers, no one of which has a major share of the market – common in developing countries
Channel length - the number of intermediaries between the producer and the consumer
short channel - when the producer sells directly to the consumer – common with concentrated systems
long channel - when the producer sells through an import agent, a wholesaler, and a retailer – common with fragmented retail systems
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There are four main differences in distribution systems: retail concentration, channel length, channel exclusivity, and channel quality.
Let’s look at each of these beginning with retail concentration.
A country’s distribution system can be very concentrated where a few retailers supply most of the market, or very fragmented where there are many retailers, none of which has a significant share of the market.
You might think of the U.S. as an example of a country with a concentrated retail system. In the U.S., people go to large stores and shopping malls.
In contrast, Japan has a more fragmented system where stores serve the local neighborhood.
Usually, we think of greater retail concentration as being associated with developed countries because people have cars to drive to the stores, own large refrigerators to store food in, and many two income households.
However, we are seeing some concentration in developing countries.
In 2007, Wal-Mart for example, was doing a booming business in Mexico, a country that tends to rely on the Mom and Pop style retail establishment.
Distribution in a very fragmented market can be a real challenge for companies.
Unilever for example, has resorted to distributing its products by bike and cars in some parts of China. You can learn more about Unilever’s experiences in the Management Focus in your text.
The number of intermediaries between the producer and the seller is called channel length.
Channel length is short when the producer sells directly to the consumer.
In contrast, if the producer sells through an import agent, a wholesaler, and a retailer, the channel would be considered long.
Japan is often associated with long channels.
It’s not uncommon to have two or three wholesalers between the firm and the retail outlet.
Countries like Germany and the U.S. tend to have much shorter channels.
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How Do Distribution Systems Differ?
Channel exclusivity – how difficult it is for outsiders to access.
Japan's system is an example of a very exclusive system
Channel quality - the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses
the quality of retailers is good in most developed countries, but is variable at best in emerging markets and less developed countries
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Sometimes, companies have a hard time breaking into new markets because they can’t access the distribution system.
Sometimes, channels are exclusive because retailers like to carry well established brands rather than take a chance on something new.
You’ve probably seen examples of this at your grocery store.
We say that an exclusive distribution channel of one that is difficult for outsiders to access.
Japan is a country that often comes to mind when we talk about channel exclusivity. Relationships between retailers, wholesalers and manufacturers in Japan often go back decades, and it can be virtually impossible for foreign companies to break in.
Finally, when we talk about distribution, we need to consider channel quality or the expertise, competencies, and skills of established retailers in a country, and their ability to sell and support a foreign company’s products.
In other words, can you trust the retailer in the foreign country to do a good job of selling your product?
In general, channel quality in developed countries is better than in emerging or developing economies, but even in developed countries problems can prompt companies to develop their own channels.
Apple for example, is opening its own retail stores in countries like the UK to sell its iPods.
The company believes that product knowledge is essential to its success, and feels that relying on an outside firm could be detrimental to its sales.
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Why is Communication Strategy Important?
Communicating product attributes to prospective customers is a critical element in the marketing mix
How a firm communicates with customers depends partly on the choice of channel
Communication channels available to a firm include
Direct selling
Sales promotion
Direct marketing
Advertising
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Now let’s go on to the next element in the marketing mix, communication strategy.
You already know that it’s important to communicate product attributes to potential customers, but did you know that the communications channels that are available to a firm are determined partly by the choice of distribution channel?
There are four main ways to communicate with customers, direct selling, sales promotion, direct marketing, and advertising.
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What are the Barriers to International Communication?
The effectiveness of a firm's international communication can be endangered by
Cultural barriers - it can be difficult to communicate messages across cultures
A message that means one thing in one country may mean something quite different in another.
Firms need to develop cross-cultural literacy, and use local input when developing marketing messages.
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International communication occurs whenever a firm uses its marketing message to sell its products in another country.
However, international communication isn’t always easy.
Things like cultural barriers, source and country of origin effects, and noise can get in the way of the message.
Cultural barriers can prevent a firm from using a successful advertising campaign across countries.
What works well in one country might not work in another!
Firms can get around some of these problems by developing cross-cultural literacy, hiring a local advertising agency, and using a local sales force where possible.
Proctor & Gamble found that it had to take a very localized approach to selling Tampax tampons in some markets.
You can learn more about Proctor & Gamble’s experiences in the Management Focus in your text.
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What Are The Barriers to International Communication?
Source and country of origin effects –
Source effects occur when the receiver of the message evaluates the message on the basis of status or image of the sender.
Country of origin effects - the extent to which the place of manufacturing influences product evaluations.
Noise levels - the amount of other messages competing for a potential consumer’s attention
in highly developed countries, noise is very high
in developing countries, noise levels tend to be lower
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Similarly, source and country-of-origin effects can have implications for communications.
BP, for example, changed its name from British Petroleum after it made a big push into the U.S. so that customers wouldn’t think about the fact that one of the biggest gasoline companies in the U.S. is from Britain.
Where a product is made can also be a factor in people’s willingness to buy it.
You’d probably rather buy stereo equipment that’s made in Japan than in Brazil for example.
Finally, noise refers to the amount of other messages competing for a consumer’s attention.
Noise tends to be higher in developed countries like the U.S., than in developing markets.
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How Do Firms Communicate With Customers?
Firms have to choose between two types of communication strategies
A push strategy involves taking the product directly to the customer. It emphasizes personnel selling via: Trade show, Direct selling in showrooms, Negotiation with retailers to stock your product and increased points of displays.
A pull strategy involves motivating customers to seek out your brand in an active process. It emphasizes mass media advertising, word of mouth, CRM and Sales promotions and discounts
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How Do Firms Communicate With Customers?
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Which Is Better – Push Versus Pull?
In general, a push strategy is better
for industrial products and/or complex new products
when distribution channels are short
when few print or electronic media are available
A pull strategy is better
for consumer goods products
when distribution channels are long
when sufficient print and electronic media are available to carry the marketing message
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So, a push strategy will be best when the firm is selling industrial products or complex new products, when distribution channels are short, and when few print or electronic media are available, while a pull strategy will make sense for consumer products, when distribution channels are long, and when there are sufficient print and electronic media available to carry the marketing message.
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Should A Firm Use Standardized Advertising?
Standardized advertising makes sense when
Cultural differences among nations are minor.
it has significant economic advantages
creative talent is scarce and one large effort to develop a campaign will be more successful than numerous smaller efforts
brand names are global
Standardized advertising does not make sense when
cultural differences among nations are significant
advertising regulations limit standardized advertising
Some firms standardize parts of a campaign to capture the benefits of global standardization, but customize others to respond to local cultural and legal environments
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Once you’ve decided on whether to use a push or a pull strategy, you need to decide on the content of your promotion.
Should you try to use the same promotion everywhere?
Philip Morris did this with its hugely successful Marlboro campaign.
As you’ve probably guessed, there are arguments for and against standardized advertising.
Let’s look at the arguments for standardization first.
There are several reasons to go for a standardized promotion.
For one thing, it can be a lot cheaper than developing campaigns for individual markets. McCann-Erickson, Coca-Cola’s advertising agency believes that it’s been able to save Coca-Cola $90 million over 20 years by using standardized promotion.
Another reason to take a standardized approach to advertising is that creative talent is limited, and so it’s often better to make one large effort to develop a good campaign rather than numerous smaller efforts.
Finally, keep in mind that many brands are now global names.
Many companies take advantage of that by developing a single brand image, and avoid the confusion that could come from local campaigns.
Why should a firm consider localized campaigns?
Standardized advertising won’t be successful when there are significant cultural differences across countries.
In addition, firms may find that regulations on advertising in some countries limit the use of standardized campaigns.
France for example, doesn’t allow children to endorse products.
How can firms cope with country differences?
Instead of developing individual campaigns for each market, many companies try to use of the same features in each country where they do business.
Nokia, for example, uses the same slogan around the world, but includes local actors and locations.
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What Pricing Strategy Should Firms Use?
Firms need to consider
Price discrimination
Strategic pricing
Regulations that affect pricing decisions
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Now, let’s move on to the next element in the marketing mix, price.
How should a firm price its product in foreign markets?
Should prices be different in different markets?
Are there any regulations that might influence how a product should be priced?
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What Is Price Discrimination?
Price discrimination - occurs when firms charge consumers in different countries different prices for the same product .
For price discrimination to work
must be able to keep national markets separate.
countries have different demand for the products.
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A firm can maximize its profits by using price discrimination where consumers in different countries are charged different prices for the same product.
In other words, the firm charges whatever the market will bear.
You might be wondering why someone would be willing to pay more for a product in one country if they know they can get it cheaper elsewhere.
How can a firm get away with this strategy?
Why for example wouldn’t a German person who’s buying a new car simply go to France to buy it if it’s priced lower there?
For price discrimination to work, the firm has to be able to keep its national markets separate.
In other words, the car manufacturer might not be able to price the cars differently between France and Germany, but could charge a higher price in France and Germany than the price charged in Britain because right hand cars are sold in Britain, while left hand cars are sold in both France and Germany.
Firms can also use price discrimination when different price elasticities of demand exist in different countries. Tommy Hilfiger for example, in 2007 priced its jeans in Europe at roughly three times the price of its American jeans.
The price elasticity of demand is a measure of the responsiveness of demand for a product to changes in price.
We say that demand is elastic when a small change in price produces a large change in demand, but inelastic when a large change in price produces only a small change in demand.
In general, firms can charge higher prices when demand is inelastic.
What determines elasticity of demand?
Income level is one factor that determines demand elasticity.
When income levels are low, people tend to be more price conscious, and demand is more elastic.
In India for example, products like TVs that are considered necessities in the U.S. are still thought of as luxury items.
The other main factor that affects price elasticity is the number of competitors in a market.
The more competitors, the greater the bargaining power of consumers, and the greater the elasticity of demand.
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What Is Strategic Pricing?
In Strategic pricing firms set prices to achieve certain strategic goals. It has three aspects
Predatory pricing - use profit gained in one market to support aggressive pricing designed to drive competitors out in another market
after competitors have left, the firm will raise prices
Multi-point pricing - a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market
managers should centrally monitor pricing decisions
Experience curve pricing – lowering price worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially
firms that are further along the experience curve have a cost advantage relative to firms further up the curve.
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Now, let’s talk about strategic pricing.
Firms can set prices to achieve certain strategic goals.
There are three aspects of strategic pricing, predatory pricing, multi-point pricing, an experience curve pricing.
Let’s talk about each one.
Predatory pricing involves using profits earned in one country to support aggressive pricing in another market as part of a strategy to drive out competitors in that market. Once the competition leaves, the firm then raises its prices.
Matsushita allegedly used this type of strategy to gain market share in the U.S.
Multipoint pricing refers to the fact that a firm’s pricing strategy in one market may have an impact on how a rival prices products in another market.
For example, if a firm uses aggressive pricing in one market, its rival may resort to aggressive pricing in another market. Kodak and Fuji Photo have been playing this game for years.
When Fuji started a competitive battle in the U.S. in the late 1990s for example, rather than responding by dropping prices in its home market, Kodak dropped prices in Japan instead.
To avoid being in this type of situation, managers need to continually monitor prices around in the world.
Finally, firms using experience curve pricing will set low prices worldwide as a way of quickly building sales volume.
Firms using this type of strategy are willing to take a loss initially because they believe that in the future, once they’ve moved down the experience curve, they’ll have a cost advantage over less aggressive competitors.
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How Do Regulations Influence Pricing?
A firm’s ability to set its own prices may be limited by
Antidumping regulations –
dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it
antidumping rules set a floor under export prices and limit a firm’s ability to pursue strategic pricing
Competition policy –
most industrialized nations have regulations designed to promote competition and restrict monopoly practices
can limit the prices that a firm can charge
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As we mentioned earlier, sometimes firm have limits on how they can price their products because of regulations in the target market.
So, a firm that wants to use a price discrimination strategy or strategic pricing for example, may find that it can’t.
Two ways a firm’s ability to set its own prices can be limited are through antidumping regulations and through competition policy.
One type of regulation companies might encounter is antidumping legislation.
Recall that dumping occurs whenever a firm sells a product for less than what it cost to produce it.
So, both predatory pricing and experience curve pricing can both be problematic when antidumping regulations are in place.
Antidumping regulations set floors under export prices and limit a firm’s ability to pursue strategic pricing.
Many countries also have policies in place that are designed to promote competition and limit monopolies.
As with antidumping regulations, competition policies can limit the prices firms can charge for their products.
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How Should Firms Configure The Marketing Mix?
Standardization versus customization is not an all or nothing concept.
Most firms standardize some things and customize others.
Firms should consider the costs and benefits of standardizing and customizing each element of the marketing mix
Marketing mix may vary according to:
Local differences in culture
Economic conditions
Competitive conditions
Product and technical standards
Distribution systems
Government regulations
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Keep in mind that when you’re configuring the marketing mix, standardization versus customization is not an all or nothing concept.
Firms can standardize some elements of the marketing mix, but customize others. McDonald’s for example, standardizes many parts of its marketing mix, but changes its menu a bit from market to market to meet local preferences.
McDonald’s also changes its distribution strategy.
Levi’s also standardizes certain elements in its marketing mix, but localizes others. You can learn more about Levi’s in the Management Focus in your text.
