Marketing-Case Study

MBLNTopic 4 – Overview

International Marketing Mix Strategies

Learning Objectives

· Examine marketing strategies employed for marketing products in the international market

· Evaluate the international channel structure and design for international marketing

· Discuss in depth the determinants of international pricing

· Examine the nature of integrated international communication

· Comprehend the process and requirements of strategic segmentation and positioning

Introduction

As we discussed in the previous Topics, marketing touches all aspects of an organisation and helps shape and direct corporate strategy. Topic 4, discusses a central element in the strategic orientation of a company, namely, the marketing mix (or in other words the 4ps – Product, Price, Place, Promotion). Having examined the internal and external forces that have an impact on marketing strategy (Topics 2 & 3), this topic presents and examines the strategies relating to marketing products, channels, pricing and communication at the international level. For example, think of the corn-flakes company Kellogg Co.

As shown in the photograph below (and maybe from your personal experience), Kellogg is constantly developing new breakfast cereals. This is the product element. Then, getting the price right involves examining customer perceptions and rival products as well as costs of manufacture. Afterwards, promotion involves engaging in a range of promotional activities e.g. competitions, product tasting etc. Finally, the place involves using the best possible channels of distribution such as leading supermarket chains.

Moreover, the product is the central point on which marketing energy must focus. Marketing plays a key role in determining such aspects as: the appearance of the product - in line with the requirements of the market, and the function of the product - products must address the needs of customers as identified through market research. Within this framework, this Topic examines marketing strategies employed for marketing products in the international market; evaluate the international channel structure and design for international marketing; discuss in depth the determinants of international pricing; and examine the nature of integrated international communication.

Main Body

The marketing mix or ‘4Ps’

The marketing mix is the set of operating decisions that the firm makes to gain and retain target customers and pursue its differential advantage. It is often called the four, or five, Ps. The first P refers to the products the firm will offer. This includes decisions about the variety of products, brand names, quality, design, packaging and guarantees. People refers to the service and support the firm offers customers. Price concerns not only decisions about the list price but also discounts, allowances and credit terms. Promotion concerns advertising, sales force, direct marketing, web sites, PR and sales promotions. Place refers to how the firm distributes its offer, and includes choices about channels, coverage, locations, transport and stock levels.

According to Doyle 2008:63), the key point about the marketing mix is that all the decisions are derived from earlier choices about strategic objectives, target customers and the differential advantage. For example, if the business unit is targeted for rapid growth, management may be more aggressive in pricing and invest more in product variety, promotion and distribution. It may be prepared to sacrifice near-term cash flow for market share gains. The reverse will be the orientation for a mature business where current profitability and cash flow are the objectives. The target customers and differential advantage also shape decisions. Distribution and promotional decisions are governed by the characteristics and usage patterns of customers. The business will want to sell through distribution channels that fit the customer and promote through vehicles that they will use. Similarly, the differential advantage is the primary determinant of the opportunity to gain premium prices. In competitive markets, the firm will only be able to charge higher prices if customers believe its offer to be significantly better value than those of competitors.

The four Ps, or in other words, Marketing Mix, are defined immediately below:

· Product refers to the tangible offer the firm makes to the market and includes quality, range, design and branding. It also includes services such as delivery, leasing, repair and training. The product range can be enhanced to bring in more customers. For example, smaller pack sizes may attract more low-income customers.

· Price is the amount of money that customers pay for the product. It includes discounts, allowances and credit terms. The firm could attract more customers by lowering the price or offering distributors more allowances to push the product.

· Promotion consists of all those activities used to communicate and promote the product, including the sales force, advertising, public relations, promotions, and direct and online marketing. For example, advertising and public relations can be used to increase awareness and comprehension of the firm’s product and service range.

· Place refers to the activities and partners involved in distributing the product and making it available to customers. It may include wholesalers, retailers, web sites and transport. Increasing the numbers of retailers and distributors carrying the product might attract new customers.

At this point, the following analysis discusses each component of the marketing mix in relation to International Business. The analysis, however, adds another 3 components of the marketing mix, namely 7 Ps, or ‘Extended Marketing Mix

1. Product: International Product Policy

A product is a collection of attributes including physical, service and symbolic aspects, which yield satisfaction to the consumer. A product can also be defined in relation to the different marketplaces in which it is sold (de Burca et al, 2004):

· Local Products: have potential in only one market.

· International Products: have potential to be extended from the domestic market to a number of international markets

· Multinational Products: are those offered to many international markets but which are adapted to suit the needs of each market.

· Global Products: are those designed to meet the needs of market segments that are the same throughout the world.

A product, according to Kotler, is usually considered in a narrow sense as something intangible that can be described in terms of its shape, dimensions, colour and form (2006). This misunderstanding of the true nature of a product could apply in international marketing, and many consumers may have the idea that a product only refers to a physical item. A product may include intangible items, for example an insurance service, civil service, shipping and tourism. More specifically, a product is a good, service, idea, place, person, or whatever is offered for sale in the exchange. The product includes the design and packaging of a good, its physical features, and associated services.

For instance, Michael Jackson and Elvis Presley are both dead but still generate money out of their record sales. Also, David Beckam sells like a product, and Ibiza is a tourist destination that carries the characteristics of a brand. Also, product strategies include product design, packaging, branding, support services, and product variations/features.

When firms first go international, they usually market their domestic products with minimal adaptation to foreign conditions (Omar, 2009). Another approach is to acquire a foreign firm which has products designed for its own market. Either of these approaches may be satisfactory as an initial method of getting products for foreign markets. For the long-term, however, a more sophisticated business and product development plan is desirable. In its planning process, the firm must decide what businesses and what market it wants to pursue. Ideally, this planning and scanning should be on a worldwide-scale. Product strategy is an important part of this plan, and that includes a strategy of product development. Customer needs are the starting point for product development, whether for domestic or international markets. In addition to customer needs, conditions of use and ability to buy the product from a framework for decisions on new product development for international markets.

2. Place: International Channel Structure

Place refers to the availability of the product to the customer at the desired time and location. Place is related to a channel of distribution, which is the set of firms working together to get a product from a producer to a consumer. Distribution strategies are linked to how, when, and where the product is available to targeted customers.

Within the marketing mix the distance between the manufacturer and the consumer are submerged into ‘place’. This analysis expands upon the spatial dimensions of marketing through an analysis of the channel issues that arise with the distribution, wholesaling, and retailing of goods and services.

Place or distribution strategy concerns the routes by which marketers of products and services can ensure that these reach their intended market. We normally refer to these routes as marketing channels, which include those intermediaries that products and services pass through from the point of production to the point of final use. It can include any physical store as well as virtual stores on the TELEPHONE or Internet such as e-bay and AMAZON. Some of the recent major changes in business have come about by changing Place.

Remember: you can find a bottle or tin of coca-cola in every kiosk’s fridge around the globe. This is simply because of their perfect distribution channel!

Moreover, it is important to understand the impact of international channels of distribution on the firm’s international marketing operations and strategies. Identifying the factors that are influential in distribution channel design is also significant, which is especially important with the movement towards an international competitive environment. However, marketing literature suggests that international distribution channels are one of the most neglected areas. Owing to the vast environment differences from country to country, and the numerous external and internal factors that come to bear on channel structure, generalizations about international channel design are difficult to make.

It is important to note that an international marketing manager may not be able to utilize the same channel design throughout the world because of individual country differences. As the number of channel designs across countries increases, managerial complexity increases (Omar, 2009). The inability to standardize channel structure is the result of a number of factors. These component factors can be classified as internal and external variables.

· Internal variables are those that are under the control of the firm (for example, corporate elements or product). The combination of corporate and product elements defines the strategically determined international channel structures.

· External variables are those factors to which the firm must adapt (for example, market and customer). The external factors determine the relative market-effective international channel structured.

3. Price: Determinants of International Pricing

Price is the assignment of value, or the amount the consumer must exchange to receive the offering. Price is often used as a way to increase consumers’ interest in a product. Pricing strategies include setting prices for final consumers, wholesalers, and retailers based on costs, demand, or competitors’ prices.

Price is important because it is the only revenue generating element of the marketing mix (the other elements consume resources only). It is sometimes assumed that, compared with decisions about the other elements of the marketing mix – product, price, place – that pricing decisions are relatively simple. For example, if we know the costs of producing and marketing a product, and also have a specific percentage amount which is to be added to these costs for profit, we can ‘easily’ calculate the required selling price. However, the first principle to be observed is that pricing strategy, objectives and plans must be consistent with, and related to, corporate and marketing objectives. Thus many factors should affect price and pricing policy including:

· The PLC (Product Life Cycle)

· New Product Development

· The Product portfolio

· Segmentation and Positioning

· Branding.

Although competing on price is as old as mankind, the consumer is often still sensitive for price discounts and special offers. Price has also an irrational side: something that is expensive must be good. Permanently competing on price is for many companies not a very sensible approach.

The obligation of international marketing strategy is to match the organization with its environment. If the business environment extends internationally then national environments become significant in its development. Thus, as March (2000) cited, in its domestic market, Heineken is positioned as an average-price beer, which in restaurants and bard can almost be compared with the price of soft drinks and mineral water. Internationally, however, it uses a global positioning strategy of premium price and high quality. Similarly, Kronenbourg and Stella Artois are premium price exclusive drinks in the UK, whereas in Belgium and France, they are low priced drinks.

According to Terpstra and Sarathy (1997, cited in Omar, 2009:337), price setting in international strategic marketing is influenced on three levels:

· The internal level: which takes into consideration objectives for return on investment, required sales volume and cost factors. The structure of the company is also a significant internal influence. For example, a company that has chosen an ‘umbrella’ structure is likely to have central price control. The core element of international viability is the cost of producing and marketing the product, which inevitably has to be considered. For example in the case of Chinese rice exports, when high production and distribution costs are associated with Chinese’s remote geographic location and distance from the major importing countries, the profitability or rice export is reduced.

· The macro level incorporates elements such as government restrictions. Consider the pricing in the Chinese rice industry – an increase in Tax to 15 percent might prompt producers to increase prices in an attempt to retain profitability.

· The business cycle stage, incorporating exchange rate and cultural factors, also influence pricing decisions. For example, China’s market has now entered the growth stage of its life cycle, and market share in Chinese markets will be increasingly dependent on competitive pricing strategies.

Also, several factors are making it difficult to sustain major price differences between countries. These include:

1. Elimination of trade barriers between countries. This makes it easier to ship the product from a cheap country to a dear one.

2. Decreasing transportation costs. This makes it more profitable to undertake arbitrage transactions.

3. Growth of arbitragers. Information agents and grey importers have been established to capitalise on opportunities from country price differences.

4. Superior information availability. The information revolution has greatly enhanced the ability of companies to obtain up-to-the-minute data on international prices.

5. Increased globalisation of brands. With brand names and packaging increasingly standardised, it becomes much easier for customers to accept grey imports.

6. Growth of international sourcing. Corporate purchasing departments have increasingly focused on identifying the lowest regional and global prices and demanding them from suppliers (Doyle, 2008:290).

4. Promotion

Promotion includes all the activities marketers undertake to inform consumers about their products and to encourage potential customers to buy these products. Promotion strategies: advertising, sales promotion, public relations, direct marketing, personal selling.

Business Enterprises, ranging from the smallest retailers to the largest manufacturers –as well as non-profit organisations – continuously promote themselves to their customers and clients in an effort to accomplish a variety of purposes:

· Informing prospective customers about their products, services and terms of sale

· Persuading people to prefer particular products and brands, shop in certain stores, attend particular entertainment events and perform a variety of other behaviours

· Inducing actions from customers.

These and other objectives are achieved by using advertisements, salespeople, store signs, point-of-sales (purchase) displays, product packages, direct-mail literature, free samples, coupons, publicity releases and other communications and promotional devices. Collectively, the preceding activities are called Marketing Communications and/or promotion management. Below, is an indicative table (1.1) of the Marketing Communication tools that are available to marketing managers.

(Source: Shimp, 2010: 7)

However, apart from using each tool of marketing mix separately, (for instance TV advertising only for month March and newspaper advertising for month April), there is another method available, namely, Integrated Marketing Communication (IMC). The revolutions in technology and the increasing challenges and opportunities within the marketplace have forced a re-conceptualisation of the manner in which marketers approach the promotions component of the marketing mix. Integrated Marketing Communication (IMC) is a communications process that entails the planning, creation, integration, and implementation of diverse forms of marketing communication tools such as advertisements, sales promotions, publicity releases, events, etc. that are delivered over time to a brand’s targeted customers and prospects. The goal of IMC is ultimately to influence or directly affect the behavior of the targeted audience. IMC considers all touch points, or sources of contact, that a customer/prospect has with the brand as potential delivery channels for messages and makes use of all communications methods that are relevant to customers/prospects. IMC requires that all of a brand’s communication media deliver a consistent message. The IMC process further necessitates that the customer/prospect is the starting point for determining the types of messages and media that will serve best to inform, persuade, and induce action. Traditionally within discussions of the marketing mix, the term promotion has been used in a narrow sense to refer to the tools used to elicit a response from the customer. The revolutions in technology and the increasing challenges and opportunities within the marketplace have forced a re-conceptualisation of the manner in which marketers approach the promotions component of the marketing mix (Higgins, 2004).

5. People

All people that are directly or indirectly involved in the consumption of a service constitute an important part of the Extended Marketing Mix. Knowledge workers, employees, management and consumers often add significant value to the total product or service offering. An essential ingredient to any service provision is the use of appropriate staff and people. Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organization wants to obtain a form of competitive advantage. Consumers make judgments and deliver perceptions of the service based on the employees they interact with. Staff should have the appropriate interpersonal skills, attitude, and service knowledge to provide the service that consumers are paying for. For instance, many organizations aim to apply for the ‘Investors In People’ accreditation, which tells consumers that staff are taken care of by the company and they are trained to certain standards.

People, however, including consumers, do not exist in a vacuum. They are characterised by a particular culture, religion, beliefs, values and nationality. For instance, when the popular Kentucky Fried Chicken (KFC) entered the Chinese market in 1973, to their horror they discovered that their slogan and brand messaging "finger lickin' good" came out as "eat your fingers off". Well, this is certainly not good for chicken sales isn’t it!

As soon as KFC entered Hong Kong in 1973, it quickly grew to 11 restaurants in the following year. But it misjudged the local market and failed to develop a suitable business model. By 1975, all 11 restaurants were forced to close their shutters. Companies build their brands around a small set of carefully chosen words that they believe embody the true essence of the brand. Everyone in the company gets behind it. It’s like the gospel. And then it’s time to branch out, so we get people to translate this cornerstone of the brand.

Ten years later (1987), KFC return to China, eventually franchising its operations to a company called Birdland, which was backed by a group of local investors. During this 2nd attempt, the company paid better emphasis to the Chinese local conditions and cultural differences. KFC has also done a lot of work to continuously invent and launch new products; products that better fit the Chinese consumer’s taste preference. Also, although KFC’s original recipe was accepted by most Chinese, KFC China did not stop there. The highly localised menu includes congee or Chinese-style porridge for breakfast; Beijing Chicken Roll (à la Beijing Duck) served with scallion and seafood sauce; Spicy Diced Chicken resembling a popular Sichuan-style dish. This has allowed them to keep the competition at bay. Within 20 years they opened more than 2000 stores throughout China, becoming one of Chinese’s favour quick service restaurants. It got a 2:1 ratio over McDonald’s in China, whereas outside China it's the other way around (online at http://knowledge.insead.edu/leadership-management/strategy/kfc-chinas-recipe-for-success-1706 , accessed 10/03/2012).

Apparently, the impact that the right or wrong words can have on the success of a campaign and the overall reputation of a brand is immense. Also, taking into consideration Peoples’ local cultural conditions, including the local norms, ethics, beliefs, values and general behaviour can make the difference between success and failure. Following this line of thought, in this Topic we discuss the importance of culture in international business.

6. Process

Procedure, mechanisms and flow of activities by which services are consumed (customer management processes) are an essential element of the marketing strategy. Processes are basically systems used to assist the organization in delivering the service. Imagine one walk into Burger King and orders a Whopper Meal and gets it delivered within 2 minutes. What was the process that allowed him to obtain an efficient service delivery? Banks that send out Credit Cards automatically when their customer’s old one has expired again require an efficient process to identify expiry dates and renewal. An efficient service that replaces old credit cards will foster consumer loyalty and confidence in the company.

7. Physical Evidence

Physical Evidence is the ability and environment in which the service is delivered. Both tangible goods that help to communicate and perform the service, and the intangible experience of existing customers and the ability of the business to relay that customer satisfaction to potential customers. Physical Evidence is the element of the service mix which allows the consumer again to make judgments on the organization. If one walks into a restaurant his expectations are of a clean, friendly environment. On an aircraft if one travels first class he expects enough room to be able to lie down! Physical evidence is an essential ingredient of the service mix; consumers will form perceptions based on their sight of the service provision which will have an impact on the organisation’s perceptual plan of the service.

Strategic Segmentation & Positioning

Summary

This topic explains that when marketing their products firms need to create a successful mix including the right product, sold at the right price, in the right place, and using the most suitable promotion. With the 4ps, Marketing becomes central in the formulation and implementation of corporate strategy. To understand in full the application of 4Ps (or the extended Marketing Mix 7Ps), we used a number of examples. To investigate in more depth the importance and use of the marketing mix, you can access the annual reports of companies and examine published information towards establishing links between the Mix and corporate strategies.

At this point you are required to access our ebook and read Chapter 3.

Think Theory...

Explain how your company uses marketing communications to find customers

Think Theory...

Access the Kellogg’s annual report here � HYPERLINK "http://www.annualreport2011.kelloggcompany.com/" �http://www.annualreport2011.kelloggcompany.com/� and spend 5 minutes investigating how the 4ps are cternal in the company’s operations and strategy