Global Marketing and R&D CHAPTER 17 Global Marketing and R&D

Learning Objectives What are the limits of globalization? Factors affecting the marketing mix- Four P’s Why do firms charge two different prices for the same product? What are the conditions for successful price discrimination? Strategic pricing

Set of choices the firm offers to its targeted market. Chapter Focus Examine roles of marketing and R&D in international business. Reduce costs of value creation. Add value by better serving customer needs. Look at the relationship between marketing and R&D. Look at the marketing mix: Product attributes. Distribution strategy. Communication strategy. Pricing strategy. Set of choices the firm offers to its targeted market.

Globalization of Markets and Brands “A powerful force drives the world toward a converging commonalty (sic), and that force is technology.” Theodore Levitt, Harvard Business Review. CNN and MTV. Overstatement? Cultural and economic differences act as a major brake on any trend toward global consumer tastes and preferences.

Market Segmentation geography Identifying distinct groups of consumers whose purchasing behavior differs from other in important ways. geography demographics Social-cultural factors Psychological Marketing mix adjusted to reflect differing purchasing patterns in segments.

Market Segmentation Two main issues in the differences between countries Structure of their market segments. Segments that transcend national borders.

Product and technical standards. Product Attributes Cultural differences. Economic differences. Product and technical standards.

Cultural Differences Range of dimensions: Social structure. Language. Religion. Education. Most important - the impact of tradition. Impact is greatest in foodstuffs and beverages. Also, scent preferences differ from country to country. Some tastes and preferences becoming cosmopolitan: Coffee (Japan and Great Britain). American-style frozen dinners (Europe). Levitt’s global culture still a long way off.

Economic Differences Consumer behavior is influenced by economic development. Consumers in highly developed countries tend to have extra performance attributes in their products. Consumers in less developed countries tend not to demand these extra performance attributes. Cars: no air-conditioning, power steering, power windows, radios and cassette players. Product reliability is more important. Contrary to Levitt, consumers in the most developed countries are often unwilling to sacrifice preferred attributes for lower prices.

Product and Technical Standards Government standards can prevent the introduction of global products. Different technical standards impede global markets, as well. Come from idiosyncratic decisions made long ago. Video equipment. Television signals. Levitt’s prediction is still far off.

Distribution Strategy Concentrated Fragmented Short No Outsiders Long Channel Three different distribution systems: Retail concentration Channel length. Channel exclusivity. Choice of channel: Cost/benefit of each alternative vary from country to country. Longer the channel, the higher the price. But, cuts selling costs in fragmented market. Market access. Shorter channel, lower price. Concentrated market.

A Typical Distribution System Manufacturer Inside the Country Manufacturer Outside the Country Import Agent Wholesale Distributor Retail Distributor Final Customer Figure 17.1

Distribution Can Present Interesting Problems

Communications Strategy International communication occurs When a firm uses a marketing Message to sell its products in another country. Channels direct selling sales promotion direct marketing advertising

Communications Strategy Effectiveness of international communications can be impacted by: Cultural barriers. Need to develop cross-cultural literacy. Source and country of origin effects. Receiver of the message evaluates it based upon the status of the sender. Country of origin effects: Emphasize/de-emphasize foreign origin. Noise levels. Tends to reduce the effectiveness of a message. Developed countries - high. Less developed countries - low. Push versus Pull: Push emphasizes personal selling. Pull depends on mass media advertising.

Attractiveness of Push versus Pull Strategies Media Availability. Channel Length. Factors Product Type and Consumer Sophistication. Pull = selling to large market segments. Push = selling complex products. Pull = long distribution channel. Push = short Pull = access to advertising media. May be legal Restrictions.

Push-Pull Mix Push Pull consumer goods few print or electronic media sufficient print and electronic media available Push industrial or complex products short distribution channels few print or electronic media available consumer goods long Pull

Global Advertising Standardized: Significant economic advantages. Scarce creative talent. Many global brand names. Non-standardized: Messages in one country may fail in another. Advertising regulations can be a restriction. Dealing with Country differences: Select some features for standardization and others for localization. Saves some costs.

Advertising in New Delhi

Pricing Strategy Price discrimination. Different prices, different countries, same product. Strategic pricing. Regulatory factors: Price controls. Antidumping.

Pricing Strategy Using Arbitrage Price discrimination: Charging what the market will bear. Two factors: Must keep national markets separate Different price elasticities Arbitrage:Charging different prices in different countries for same product. Doesn’t always work. Ford in Germany and Belgium Sometimes it does. Ford in UK and Belgium Using Arbitrage

Determinants of Demand Elasticity Income level and competitive conditions determine elasticity. Elasticity (price) tends to be be greater in countries with low income levels. Elasticity (demand) tends to be greater in countries where there are many competitors.

Elastic and Inelastic Demand Curves $ Output Figure 17.2

Price Discrimination Japan United States World MR  j+u D Figure 17.3 Price Discrimination MR  10 - 20 - 30 - 40 - 50 - j+u 43.58 55 15 j D 60 - 70 - Revenue and Costs 110 - 100 - 90 - 80 - 110 - Japan MC United States World u Output Output Output

Strategic Pricing Predatory pricing: Using price as a competitive weapon. Multipoint pricing strategy: When 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. Experience curve pricing: Firms price low worldwide to build market share. Incurred losses are made up as company moves down experience curve.

Regulatory Influences on Prices Antidumping regulations: 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. Competition Policy: Promote competition. Restrict monopoly practices. Can limit the prices a company can charge in a given country.

Dumping: GATT and the U.S. GATT:Sale of an imported product at ‘less than fair value’ and causes ‘material injury to a domestic industry’. US: An unfair trade practice that results in injury, destruction, or the prevention of the establishment of an American industry.

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