INTERNATIONAL BUSINESS

Global Marketing and R&D

Global Marketing Global marketing decisions are central in a firm’s tradeoff between reducing costs vs. local responsiveness When is product standardization appropriate? When and how should customization occur? When and how will the marketing mix be adjusted?

Globalization of Markets and Brands

Globalization of Markets and Brands “A powerful force drives the world toward a converging commonality, and that force is technology.” Theodore Levitt, Harvard Business Review Is this an Overstatement?

Most Likely The continuing persistence of cultural and economic differences, along with trade barriers, act as a major brake on any trend toward global consumer tastes and preferences But we do have some global products and brands!

Market Segmentation

What factors should firms consider in order to target each market segment? Product attributes Distribution strategy Communication strategy Pricing strategy

Market Segmentation Identifying distinct groups of consumers whose purchasing behavior differs from other groups in important ways Segments can based on: geography demography socio-cultural factors psychological factors Marketing mix needs to be adjusted to reflect the differing purchasing behavior of each market segment

Two Related Issues….First Market Segmentation Two Related Issues….First What are the differences between countries in the structure of market segments? Might require adapting the marketing mix

Two Related Issues….Second Market Segmentation Two Related Issues….Second Are there existing market segments that transcend national borders? Some tastes and preferences are becoming cosmopolitan which might allow a standardized, global marketing mix Consumers in this transcending segment must have some compelling similarities among important dimensions that translates into similar purchasing behavior

Product Attributes

Constraints on Globalization of Markets Product Attributes Constraints on Globalization of Markets Cultural Differences most important aspect is probably the role of tradition Economic Differences consumer behavior is influenced by the level of economic development within and between nations Product and Technical Standards national differences exist as non-tariff barriers

Cultural Differences Countries differ along a whole range of dimensions: social structure language religion education Most important aspect is the role of tradition impact is greatest in foodstuffs and beverages

Economic Differences Consumers in highly developed countries tend to have extra performance attributes in their products Consumers are often unwilling to sacrifice preferred attributes for lower prices Consumers in less developed countries tend not to demand these extra performance attributes Consumers favor product reliability Be cautious! Avoid stereotypes Significant market niches may exist

Product and Technical Standards Global products and markets are impeded by different: government standards technical standards market characteristics

Distribution Strategy

Distribution Strategy Determining the optimal channel configuration for delivering a product to the consumer Optimal strategy is determined by the firm’s market entry strategy relative costs and benefits of each alternative Depends on differences between the countries: retail concentration channel length channel exclusivity channel quality

Typical Distribution System FIG 17.1

Retail Concentration Concentrated System Tend to exist in developed countries Few retailers supply most of the market Shift to large retailers from traditional small, local shops is due to the increases in : car ownership households with refrigerators and freezers number of two-income households

Retail Concentration Fragmented System Tend to exist in developing countries Many retailers supply market No single retailer has significant market share

The number of intermediaries between the producer and the consumer Channel Length The number of intermediaries between the producer and the consumer Partly determined by strategic choice by firm Mostly determined by degree to which the retail system is fragmented The more fragmented the retail system, the more costly for a firm to contact each individual retailer

Long Distribution Channel Channel Length Long Distribution Channel Fragmented retail systems tend to lengthen channels Greater aggregate markup and higher prices Cuts selling costs in a fragmented retail market Easier market access to exclusive channel

Short Distribution Channel Channel Length Short Distribution Channel Concentrated retail systems shorten channels Smaller aggregate markup and lower prices Channels are shortening due to the: Internet Entry of large discount superstores

Channel Exclusivity Degree to which it is difficult for outsiders to access the distribution channel Exclusive channels are often tradition bound distributors of a single manufacturer

Channel Quality The expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international firms The lack of high-quality channels may impede the entry of new or sophisticated products that need significant point-of-sale assistance and after-sales support May require the international firm to devote large amount of resources to upgrade the channel

Communication Strategy

Communication Strategy Communicating the attributes of its product to prospective customers Partly defined by the firm’s channel strategy Firms might use a mix of direct selling point-of-sale promotions mass advertising Effectiveness of communication can be affected by cultural barriers source effects noise levels

International Communication Cultural Barriers Difficult to communicate messages across cultures both verbal and non-verbal communication same message may not mean the same thing in different countries Firms must overcome cultural barriers by: developing cross-cultural literacy using local ad agencies and sales force

International Communication Source and Country of Origin Effects Occurs when the receiver (consumer) evaluates the message based on the status or image of the sender Country of origin effects can be positive or negative Country of origin is often used as a cue when evaluating a product if a consumer lacks more detailed knowledge Firms may emphasize or de-emphasize “foreign origin”

International Communication Noise Levels Amount of other messages competing for the potential consumer’s attention Tends to reduce the probability of effective communication Developed countries typically have high noise levels Less-developed countries typically have low levels

Push vs. Pull Communication Strategies

Push Strategy Emphasizes personal selling rather than mass media Requires intensive use of sales force Relatively costly

Pull Strategy Depends more on mass media advertising Can be cheaper for a large market segment

Push vs. Pull Communication Strategies The relative attractiveness of push and pull strategies depends on: product type and customer sophistication channel length media availability

Product Type and Consumer Sophistication Pull Strategies Favored by consumer goods firms that are selling to large segment of the market Mass communication has cost advantage over direct selling Push Strategies Favored by firms selling industrial products or other complex products Direct selling allows firm to educate the consumer

Channel Length Pull Strategies Favored by firms trying to pull product through long distribution channels to avoid costly push strategies requiring direct selling Push Strategies Favored by firms trying sell in long distribution channels but need to overcome low literacy rates and the lack of mass advertising Requires direct selling by distributors and sales force

Media Availability Pull Strategies Rely on access to advertising media Push Strategies Attractive in markets with limited media availability

Optimal Push-Pull Mix Push strategies tend to be emphasized: for industrial products and/or complex new products when distribution channels are short when few print or electronic media are available Pull strategies tend to be emphasized: For consumer goods When distribution channels are long When sufficient print and electronic media are available

Can We Standardize Global Advertising?

Arguments for Standardization Global Advertising? Arguments for Standardization Significant economic advantages by lowering costs Creative talent is scarce and a large coordinated effort is better than multiple smaller efforts Many brand names are global

Global Advertising? Arguments against Standardization Cultural differences exist between nations Messages in one country may fail in another Advertising regulations can be a restriction

Legal Regulations and Constraints

Pricing Strategy

International Pricing Strategy Three Key Aspects Price discrimination Strategic pricing Regulatory influence on prices

Price Discrimination Whenever consumers in different countries are charged different prices for the same product Firms charge what the market will bear to maximize its profits Two conditions must exist: must be able to keep its national markets separate due to different income levels and competitive conditions different price elasticities of demand in different markets Elastic demand: small change in price produces large change in demand Inelastic demand: large change in price produces small change in demand Creates opportunity for arbitrage Transshipments or Gray Markets

Strategic Pricing Predatory Pricing Using price as a competitive weapon to drive weaker competitors out of a national market After driving out the competitors, the firm can raise prices to enjoy higher profits Firms must normally have a profitable position in another national market to subsidize strategy

Multipoint Pricing Strategy Strategic Pricing Multipoint Pricing Strategy Two or more international firms compete against each other in two or more national markets A firm’s pricing strategy in one market may impact a rival’s pricing strategy in another market Pricing in one market may elicit a competitive response

Experience Curve Pricing Strategic Pricing Experience Curve Pricing Firms use low worldwide prices (even at a loss) to build global sales volume as rapidly as possible Initial losses are made up as the firm moves down the experience curve and makes substantial profits Creates cost advantage over less-aggressive competitors

Regulatory Influences on Prices Antidumping Regulations Occurs when selling a product for a price that is less than the cost of producing it Predatory pricing and experience curve pricing may violate regulations Antidumping rules place a floor under export prices and limit a firm’s ability to pursue strategic pricing

Regulatory Influences on Prices Competition Policy Most nations have regulations that: promote competition restrict monopolistic practices limit the prices a company can charge

Configuring the Marketing Mix

Configuring the Marketing Mix Firms vary the elements of it’s marketing mix from country to country to accommodate differences in: culture economic and competitive conditions product and technical standards distribution systems government regulations However, there are significant opportunities for standardizing some elements of their marketing mix Firms must evaluate the cost and benefits

Configuring the Marketing Mix ….and the central tradeoff is…. global standardization vs. local adaptation

New-Product Development

New Product Development Often critical for a firm’s success Competition often based on technological innovation “Creative destruction” is a major competitive driver A firm must: apply technology to developing products that satisfy consumer needs design products to be cost-effectively manufactured locate R&D at locations where expertise exists

Location of R&D Rate of new product development is greater in countries where: more money spent on basic and applied R&D underlying demand is strong consumers are affluent competition is intense Leading-edge R&D is carried out worldwide Centralization of R&D is no longer as important

Why Integrating R&D, Marketing and Production High failure rate in new product development Reasons for Failure Development of a technology with limited demand Failure to adequately commercialize technology Inability to manufacture product cost-effectively

Integrating R&D, Marketing and Production Insisting on tight cross-functional coordination and integration between R&D, production and marketing ensures that: project development is driven by customer needs new products are designed for ease of manufacture development costs are kept in check time to market is minimized

Cross-Functional Product Development Teams Objective of the team is to take a product development project from the initial concept to market introduction Effective teams must have “Heavyweight” project manager with status and power One member from each key function Physically co-located to facilitate communication Clear plan and goals with milestones and budgets Team process for communication and conflict resolution