Chapter 17 Marketing in the Global Firm International Business Strategy, Management & the New Realities by Cavusgil, Knight & Riesenberger International Business: Strategy, Management, and the New Realities

Global Strategy in Marketing Global Marketing Strategy: A plan of action that guides the firm in: positioning itself and its offerings, targeting global market segments, and devising marketing program elements, on a global basis. International Business: Strategy, Management, and the New Realities

Global Marketing Strategy and Positioning Global market segment: a group of customers that share common characteristics across many national markets. Firms target these buyers with relatively uniform marketing programs. E.g., the global youth segment who are customers to MTV, Levi’s. The global segment of jet-setting business executives. Global positioning strategy: strategy in which the firm’s offering is positioned similarly in the minds of buyers worldwide. E.g., Starbucks, Volvo, Sony. International Business: Strategy, Management, and the New Realities

Standardization and Adaptation Adaptation: company efforts to modify elements of the international marketing program to accommodate specific customer requirements in a particular market. E.g., publishing and software industries. Standardization: company efforts to make the marketing program elements uniform, with a view to targeting entire regions of countries, or even the global marketplace, with a similar product or service. However, “one offering – one world” strategy is not usually feasible. Management tries to strike some ideal balance between global integration and local responsiveness International Business: Strategy, Management, and the New Realities

Firms Prefer Standardization Adaptation is costly. May require substantial changes to products, manufacturing operations, (lower) pricing, distribution, and marketing communications. Costs add up across many national markets. Thus, managers usually err on the side of standardization, adapting marketing program elements only when necessary. Or, firms pursue a regional strategy, where marketing program elements are formulated to exploit commonalities across a geographic region, instead of across the world. International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities Global Branding Well-known global brands include: Hollywood movies (e.g., Star Wars), pop stars (Shakira), sports stars (David Beckham), personal care products (Gillette Sensor), toys (Barbie), credit cards (Visa), food (Cadbury), beverages (Heineken), furniture (IKEA), and electronics (Playstation). A strong global brand enhances the efficiency and effectiveness of marketing programs, facilitates the ability to charge premium prices, increases the firm’s leverage with resellers, stimulates brand loyalty, and inspires trust and confidence in the product. International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities

Designing Global Products with Global Teams Until 1990s, product development and design was a sequential process, usually based in a single country. Today, many more firms develop global products intended for world markets from the outset. Product designers work in virtual global teams, experts drawn from subsidiaries across the globe. Leveraging information and communications technologies to create virtual teams is key. For example, Boeing 777 was developed by design teams from Europe, Japan, and the United States. International Business: Strategy, Management, and the New Realities

Factors Affecting International Pricing Nature of the product or industry. A specialized or highly advanced product, or an industry with few competitors, can facilitate charging a higher price. Location of the production facility. Locating manufacturing near customers or in countries with low-cost labor facilitates lower prices. Type of distribution system. Channels in some countries are very complex. Some distributors mark up prices substantially. Foreign market considerations. Local purchasing power and distribution infrastructure are big factors. International Business: Strategy, Management, and the New Realities

Three Pricing Strategies Rigid cost-plus pricing. Set a fixed price for all export markets, by adding a flat percentage to the domestic price to compensate for the added costs of doing business abroad. Flexible cost-plus pricing. Set price to accommodate local market and competitive conditions, such as customer purchasing power, demand, and competitor prices. Incremental pricing. Set price to cover only variable costs, not fixed costs. Firm assumes that fixed costs are already paid from sales in the firm’s home country, or other countries. International Business: Strategy, Management, and the New Realities

Strategies to Combat International Price Escalation Shorten the distribution channel. That is, bypass some intermediaries in the channel. Redesign product to remove costly features. E.g., Whirlpool developed a no-frills, simplified washing machine for sale in developing economies. Ship products unassembled, as parts and components, qualifying for lower import tariffs. Do final assembly in the foreign market, often using low-cost labor; or assemble in Foreign Trade Zones. Have product re-classified using a different tariff classification to qualify for lower tariffs. Imported goods often fit more than one product category. Move production or sourcing to another country to take advantage of lower labor costs or favorable currency rates. International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities Transfer Pricing The pricing of intermediate or finished products exchanged among the subsidiaries and affiliates of the same corporate family located in different countries. May be used to repatriate profits from countries that restrict MNEs from taking their earnings out of the country. May be used to shift profits out of a high corporate tax county into a low corporate tax one, thereby increasing company-wide profits. International Business: Strategy, Management, and the New Realities

The Favored Subsidiary is Likely to be in a Country with: Lower corporate income-tax rates High tariffs for the product in question Favorable accounting rules for calculating income Political stability Little or no restrictions on profit repatriation Strategic importance to the MNE International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities Gray Marketing Legal importation of genuine products into a country by other than authorized intermediaries. Gray marketers buy the product at a low price in one country, import it into another country, and sell it there at a higher price. Causes: Large difference in pricing of same product between two countries, often the result of company strategy. Exchange rate differences of products priced in two different currencies. International Business: Strategy, Management, and the New Realities

Manufacturer Concerns over Gray Markets Risk of tarnished image when customers realize the product is available at a lower price through alternative channels. Strained manufacturer-distributor relations as authorized distributors lose sales. May disrupt regional sales forecasting, pricing strategies, merchandising plans, and other marketing efforts. International Business: Strategy, Management, and the New Realities

Strategies to Cope with Gray Markets Standardize pricing across the firm’s markets within the same region. Pursue illicit intermediaries; Fire intermediaries who break the rules. Reduce flow of products into markets where gray market brokers procure the product. E.g., Pfizer could reduce the shipment of drugs to Canada. Differentiate products in individual countries. Design products with exclusive features in each market. Publicize the limitations of products obtained from gray market channels. International Business: Strategy, Management, and the New Realities

Global Account Management Servicing a key global customer in a consistent and standardized manner, regardless of where in the world it operates. Wal-Mart is a key global account for P&G. Wal-Mart expects consistent service including uniform prices for the same product from P&G regardless of where in the world they are delivered. Emphasizes the use of cross-functional teams, specialized coordination activities for specific accounts, and formalized structures and processes. Each customer is assigned a global account manager, or team, which provides a coordinated marketing support and service worldwide. International Business: Strategy, Management, and the New Realities