Global Marketing Chapter 17

Extra credit opportunity Presentations on a country or a region (even a town/city in U.S.) some other subject in global business An especially good chance to discuss your home or your ancestors’ home Up to 16 points extra on class participation grade Details available on web site

Nike debate A ‘Town Hall’ meeting May 6 One group of people at front are Nike executives Second group is activists critical of Nike The question: Should Nike change its approach to global sourcing? Audience plays roles of stakeholders

Your group should pick one or two of the following roles Nike employees Stockholders U.S. labor leaders (or ordinary union members) Human rights activists (maybe rivals of the debaters) Asian workers flown to the U.S. by human rights activists Economic development officials of Asian countries Ordinary concerned citizens In this role, it’s fine to just be yourself

2-4 people required for each team (executives and activists) Preference given to people whose midterm essays showed good critical thinking Extra credit – up to 7 extra points on final exam midterm The rest of us will prepare questions for the debate

What is ‘Marketing?’ The process by which the firm’s abilities, products, and services are brought to the attention of customers, then sold and delivered

Global marketing requires thinking through the complete process Even people who have done well in a marketing class tend to oversimplify it Global marketing involves complexity at each step

‘4 Ps’ of Marketing Product Place (=‘Distribution Strategy’ in text) Promotion (=‘Communication Strategy’ in text) Price (Pricing Strategy) Put on board

Choosing a Strategy How do differences in the strength of pressures for cost reductions versus those for local responsiveness affect the firm’s choice of strategy? Firms typical choose among four main strategic postures when competing internationally. These can be characterized as a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy.31 The appropriateness of each strategy varies given the extent of pressures for cost reductions and local responsiveness. Figure 12.7 illustrates the conditions under which each of these strategies is most appropriate. p.427

The Globalization of Markets and Brands Important to determine when product standardization is appropriate in an international market Firms may need to vary marketing mix in each different country Globalization may be the exception rather than the rule in marketing, especially in consumer goods markets

Product Attributes Cultural differences Levels of economic development Product and technical standards Mostly standards set by governments

Distribution (Place) Definition – “The course that goods take between production and consumption” physical path and legal title – Who buys the product from the maker and sells it to others closer to the final customer? Today we’re mostly interested in how products get to final customer once they’re in a particular country

Shipping is one part of distribution But the core of the distribution challenge is identifying the people and companies you will work with and the process through which you will sell it to retailers, and through them to the final customer These people, companies, and processes for distribution are called marketing “channels” Draw on board – US Discount store channel Drug store channel Specialty store channel

Distribution Strategy (Place) Choice of the optimal channel for delivering a product to the consumer Depends on differences between countries Retail concentration – How many companies have major stores relevant to your product? Channel length – Do you sell directly to the retailer or through intermediaries? How many intermediaries? Channel exclusivity- Will people in the channel consider buying from you

Direct Selling Selling direct to foreign retailers or end users Often difficult But gives you control of the process Avoids risk of a lazy distributor 17-10

A distributor – a firm that buys from maker or a larger distributor and sells to a retailer or a smaller distributor (or sometimes to the final customer)

Selling is complex everywhere – but even more so abroad Need to provide a sales program Promotional materials, services, training of sales people, discounts for quantity, credit Don’t be quick to cut the base price Sales program includes – discounts for quantity credit services promotional materials training of sales people rush orders Now – let’s take a nice global product like replacement heart valves. Suppose you’re in Japan or Finland and you need a replacement heart valve. What kind do you want? The best.

St. Jude Medical – replacement heart valves etc.

Communication Strategy (Promotion) Defines the process the firm will use in communicating the attributes of its product to prospective customers Cultural barriers Source effects Noise levels

Push Versus Pull Strategy Push strategy emphasizes personal selling Requires intense use of a sales force Relatively costly Pull strategy depends on mass media advertising Can be cheaper for a large market segment Determining factors of type of strategy Product type and consumer sophistication Channel length Media availability

Product Type and Consumer Sophistication – in U.S. Pull strategy Consumer goods Large market segment Long distribution channels Mass communication has cost advantages Push strategy Industrial products or complex new products Direct selling allows firms to educate users Short distribution channels

Channel Length Pull strategy Combination of pull and push Common in U.S. consumer goods Combination of pull and push Needed for long or exclusive distribution channels e.g. Japan Mass advertising to generate demand to pull product through various layers Push Strategy In countries with low literacy levels to educate consumers

Media Availability Pull strategy Push strategy Relies on access to advertising media Common in developed nations Push strategy Media availability limited by law All electronic media state owned with ‘no commercials’ policy

Pricing is much more complex in international business Changing values of currency Diversity of markets Costs of transportation, warehousing Tariffs, quotas Government regulations Distribution methods have to differ from one country to the next How many have ever discussed pricing in any other course? Values of currency – you can’t adjust every time currencies change. You have to guess what you think the level will be in the long run, keep it there. Diversity – If you’re selling sneakers there may be lots of competition in Japan but you may be the only strong competitor in Portugal.

Distribution systems result in ‘price escalation’ U.S., Canada, much of Europe have concentrated system It is impossible to build huge stores in many countries So many buyers must be reached through long, complex channels – a ‘fragmented’ system They typically buy at small stores within walking or public transit distance from home Small distributors serve the small stores If you’re selling sneakers or oranges or cranberries, you really can’t send a truck to every little store that carries your product in Japan or India or even Italy.

Price escalation Sell to retailer for $1.50 US production cost = $1 U.S. retailer sells for $2.25 Ship & sell to retailer in Canada for $1.60 Ship & sell to distributor in Japan Canada retailer sells for $2.40 Tariff = .05 Shipping = .20 Your cost=$1.25 Draw US, Japan maps on white board Store in Japan has high costs, adds 60%, sells for $4.32 Big distributor buys for $1.875, takes 20% markup, sells for $2.25 Small distributor adds 20%, sells for $2.70

Government involvement – no consistency Some laws set minimum prices – to prevent ‘monopoly,’ Japan, Germany protect small stores Many prohibit selling below ‘cost’ Others set maximum prices

Material below here is not required unless specifically mentioned in study guide

Choosing a Distribution Strategy Benefits of a longer distribution channel Cuts selling costs when the retail sector is fragmented Longer channels can provide increased market access If channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel This may include establishing its own distribution channel

Pricing Strategy Three aspects of international pricing strategy Price discrimination Strategic pricing Regulatory influence on prices

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 in another market Kodak and Fuji

Strategic Pricing Experience curve pricing Firms price low worldwide to build market share Incurred losses are made up as company moves down experience curve, making substantial profits Cost advantage over its less-aggressive competitors

Regulatory Influences on Prices Antidumping regulations Selling a product for a price that is less than the cost of producing it Antidumping rules vague, but place a floor Competition policy Regulations designed to promote competition and restrict monopoly practices

Configuring the Marketing Mix Standards Differences Here Competition Distribution Economy Culture Gov’t Regs Product Attributes Pricing Strategy Requires Variation Here Communications Strategy Distribution Strategy