Local Marketing in New Growth Markets Chapter 9 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Outline Basic Marketing in New Growth Markets Marketing in Latin America Major Country Markets in Latin America Marketing in New Asian Growth Markets Major Country Markets in Asia Takeaways.

1.Those rich in NATURAL RAW MATERIALS but where most people have suffered under authoritarian political regimes & colonial domination (e.g. Latin American countries, South Africa) 2.Those rich in LOW COST LABOR have turned to Western- style capitalism recently, with the help of FOREIGN DIRECT INVESTMENT (e.g. Asian countries, Israel) Two Kinds of New Growth Markets

1.Membership in trade blocs makes the country more attractive to foreign investors (e.g. Malaysia & Thailand through ASEAN) 2.Trade blocs enlarge market potential for members (e.g. Argentina & Brazil through MERCOSUR) Marketing in New Growth Countries 2 REASONS WHY MEMBERSHIP IN TRADE BLOCS IS IMPORTANT

New growth markets are in the growth phase of the product life cycle Certain markets may be mature but there is a lot of room for new variants & international offerings As incomes rise people demand variety & experiences offered by more mature markets MARKET SEGMENTATION PRODUCT POSITIONING Core middle class emerges Well known brand names are favored Foreign capital and technology fuels economic growth, hence foreign brands are considered the “real thing” Neo-colonialism emerges as consumers shun domestic products New Growth Markets: MSPP

MASS MARKET FOCUS NICHE MARKET FOCUS EMERGING MARKETS NEW GROWTH MARKETS MATURE MARKETS Few strong segments Strong core middle class One-to-one marketing The Importance of a Middle Class

Basic localization to ensure that the product functions well Being positioned as a “foreign” brand attracts certain segments Brand name must be strongly supported. PRODUCTPRICING Status positioned products must be high- priced Price must not be too limiting, despite increase purchasing power of consumers Pricing must foster brand loyalty New Growth Markets: The 4Ps

Firms must think long- term, setting up service centers and more outlets Expansions are suggested in order to counter competitive threats Cash flow is sacrificed in the short-term, awaiting long-term gains DISTRIBUTIONPROMOTION Products must communicate their future potential benefits Strong brand images must be created Good relations with local sales/staff should foster brand equity New Growth Markets: The 4Ps (cont’d)

Marketing in Latin America

Large geographical area, Indian background with Spanish, Portuguese, and Catholic influences,varied ethnicities, relatively poor, monetary and price instability, political upheavals. Language is Spanish, except for Brazil’s Portuguese. Total population is 537 million people, with Brazil largest at 176 million followed by Mexico at 102 million. Marketing in Latin America MARKET BACKGROUND

Growth fueled by regional trading blocs, a political shift toward increased democracy, and a gradual emergence from a large debt burden in several of the countries. Free trade is surging. A movement toward pan-regional marketing. Marketing in Latin America MARKET BACKGROUND (CONT’D)

REGIONAL TRADE AGREEMENTS LAIA - Latin American Integration Association. ANCOM - Andean Common Market. MERCOSUR - Southern Cone Common Market. NAFTA - North American Free Trade Area. FTAA - Free Trade Area of the Americas Marketing in Latin America

Urban versus rural (80% purchasing power in urban areas). Age and income level. Large young, style-conscious segment. Religious, tradition-bound, family-oriented. MARKET SEGMENTATION Marketing in Latin America: MSPP

PRODUCT POSITIONING Status-conscious urban markets means brand names matter. Upgrading quality of life with consumer durables. Successful mass marketing through creative packaging (small volume, low-price units), taking new product roll-outs incrementally, and spending heavily on advertising. Marketing in Latin America: MSPP (cont’d)

Continuous upgrading of products and services because of increased competition from foreign producers and new trade agreements between Latin American countries. Localization changes but only limited product adaptations. Pent-up demand for global brands. Increase in pan-regional products. PRODUCTPRICE Foreign companies price higher than locals. Top-to-midrange for global brands (not only skimming prices), low-end local brands. Midrange core market increasing as middle class expands. Plans for a common Mercosur currency. Marketing in Latin America: The 4Ps

Towards larger units, hypermarkets, integrated chains. Rural areas have weak infrastructure. Foreign entrants investing (including joint ventures) to help improve efficiency. Some regulatory barriers. DISTRIBUTIONPROMOTION Brand TV advertising high, sponsorship of daytime soap operas. Religions, political, ethnic, and cultural issues are sensitive. Detailed product information, with colorful and lively presentation, including popular music. Many retailers do not handle manufacturers' coupons. Marketing in Latin America: The 4Ps (cont’d)

After WWII, was one of the 10 riches countries in the world on a per capita income basis Population = 38 million Peso devaluation led to a crisis situation, now improved Highly sophisticated industrial & agricultural sector Consumers oriented toward western/global products/brands ARGENTINA Major Country Markets: Argentina

BRAZIL Largest Latin American country, population = 176 million Generates a third of South America’s economic output, & is a major consumer of its exports Highly attractive to foreign investors 10% of exports are manufactured goods Major Country Markets: Brazil

Population = 15 million Most vigorous growth, booming consumer markets Credit card issuers have lowered application requirements, encouraging spending Shopping mall boom CHILE Major Country Markets: Chile

MEXICO Population = 102 million 2 nd largest market in Latin America Home to many foreign manufacturing plants Mexico City: major market for global brands & upscale consumer goods NAFTA membership encourages economic come-back Major Country Markets: Mexico

Marketing in Asian Growth Markets

Annual growth rates between 5-10% (China is at 10% plus, see ch.10). Size: from Indonesia's almost 200 million people to Singapore's 3 million. Ethnic Chinese with economic leadership. Love-hate relationship with Japan: WWII vs. FDI. Output from raw materials and apparel to technology products. MARKET BACKGROUND Marketing in Asian Growth Markets

REGIONAL TRADE AGREEMENTS ASEAN (The Association of South East Asian Nations) APEC (Asia-Pacific Economic Cooperation) ARF (ASEAN Regional Forum) AFTA (ASEAN Free Trade Area) Marketing in Asian Growth Markets

Basics: cultural, ethnic, and religious roots. Significant middle class ("have some’s"). Large metropolitan areas. Poor rural areas. Demographics: Age, marital status. Pan-regional marketing via trading blocs. MARKET SEGMENTATION Asian Growth Markets: MSPP

PRODUCT POSITIONING Global luxury brands ("if you've got it, flaunt it") Imports: globally standardized products. Pent-up demand for Western products. Less affluent segments: less advanced, adapted products. Use of acquired local brand names. Asian Growth Markets: MSPP (cont’d)

Product design. Localized by offering smaller packages. Style and finish important. Product line. Achieve "a harmonious whole". Full-line policies with interrelated products. Material possessions clearly signify one's worth. New Products. Not lead markets, but followers (except for emerging markets and selected electronics products). Endorsement of brand's success elsewhere is important. PRODUCT Asian Growth Markets: The 4Ps

PRICE Natural positioning of a global brand entering is at the upper end (skimming). Lower-end products alternatives through acquired local or adapted brands (penetration pricing). In Asia, the entry price will lock in the brand's positioning ("harmony"). Risks of gray trade are high. Asian Growth Markets: The 4Ps (cont’d)

Dynamic urban retail sector. Rural areas have weak infrastructure. Underdeveloped transportation networks. DISTRIBUTION Asian Growth Markets: The 4Ps (cont’d)

PROMOTION Advertising minimally adapted from elsewhere (pattern standardization). Local language and native endorsers, including local sports heroes and television stars. Sales promotion tools adapted to local regulations and culture. Ex: Few sales calls to the home -- meet in the offices, and offer family conveniences in dealerships. Asian Growth Markets: The 4Ps (cont’d)

Population = 45 million Per capita income on par with many European countries (as of 1995) Market entry barriers are high Pent-up demand for western goods as preferred over domestic products Distribution regulations gradually eased SOUTH KOREA Major Country Markets: South Korea

TAIWAN ( aka REPUBLIC OF CHINA) Population = 23 million Political struggle with mainland China Vigorous export industry, through skilled labor & high technology Entry barriers going down Large MNC activity Particularly exacting consumers, used to test market products before Asian roll- out Major Country Markets: Taiwan

Population = 6 million Most affluent of S. East Asian nations Geographic central hub for firms entering Asian markets Very international consumers, trendsetters for the rest of Asia High-end/luxury brands thrive HONG KONG Major Country Markets: Hong Kong

As western markets have matured, new growth markets in Asia, Latin America, and elsewhere have become the new sources of growth for global companies – and for their own domestic firms as well. Takeaway

Despite recent global turmoil, many of these countries still have strengths as markets and producers, and sustained potential for the longer run. Takeaway

Trading blocs are good for these economies because as stand-alone markets they tend to be too small for targeting - & blocs provide advantages for their own exports. Takeaway

Marketing in a high-growth market in a newly industrialized economy is not the same as marketing in a high growth market in a mature economy. There is less stress on new product development and more on generic market development for existing products. Takeaway

Standardized global products & brands can be successful due to pent-up demand in many of these markets. As markets evolve and affluence grows, customers quickly become fickle consumers requiring adaptation & customization, much like consumers in mature markets. Takeaway