1. Global Business Today 8e
by Charles W.L. Hill

2. Global Marketing and R & D
Chapter 16
Global Marketing and R & D

3. Introduction
Question: How can marketing and R&D be performed so they reduce the costs of value creation and add value by better serving customer needs?
Answer:
The marketing mix (the choices the firm offers to its targeted market) is comprised of:
Product attributes
Distribution strategy
Communication strategy
Pricing strategy

4. Globalization of Markets and Brands
Levitt – suggested world markets were becoming increasingly similar making it unnecessary to localize the marketing mix
Most experts believe that while there is a trend towards global markets, cultural and economic differences among nations limit any trend toward global consumer tastes and preferences
Trade barriers and differences in product and technical standards also limit the ability of firms to sell a standardized product to a global market
Levitt’s remarks have become a lightening rod in the debate about globalization.
Internet Extra: Mars operates in many countries around the world. The company sells some products in virtually the same way in some markets, but sells entirely different products that fill a similar need in other markets. Go the company’s site { Click on Visit our Local Sites.
Choose a couple of countries and explore the local sites.
Next, to see when new brands were developed or acquired, and to see how the company has changed some product names, go Brands. Pick a brand. Then go to a couple of countries and explore the sites for the brand. For example, compare the site for Mars in the U.S. to Mars in the U.K. How are the sites the same? How are they different? Is the product line the same in both countries? How about packaging? What do your findings imply about pressures to be locally responsive?

5. Putting it into Practice
Was Levitt right?

6. Question: What is market segmentation? Answer:
Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
Global market segments are more likely to exist in industrial products than in consumer products
Management Focus: Marketing to Black Brazil
Summary
This feature explores how companies are marketing to Brazil’s black population. Although Brazil is home to a sizable racial minority, to date companies have essentially ignored the market segment. Now however, companies are beginning to target the group using products and promotions specifically developed for the market. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. Describe the differences between the black population in the United States and the black population in Brazil. What are the implications of these differences for the Brazilian culture as a whole?
Discussion Points: Racial discrimination in the United States has made the country’s black population an identifiable subculture. In contrast, in Brazil racism has been more subtle, and the black population has not been excluded in the manner found in the United States. In fact, Brazil has encouraged marriages between blacks and whites. In the end, most African-Brazilians think of themselves as part of a culture that transcends race, rather than as black or white. Most students will probably suggest that this attitude promotes a more cohesive culture where biases toward or against certain groups are not prevalent.
2. How has Unilever targeted the black population in Brazil? How does the company’s strategy in Brazil differ from its strategy in other countries? What does your response tell you about Unilever’s overall global marketing strategy?
Discussion Points: Because Brazil’s blacks think of themselves as falling into a range of skin tones, rather than being simply black, Unilever’s approach to the Brazilian market has been to target the entire population rather than certain segments. The company’s advertisements show people with different skin tones, not just blacks or whites, and its products are labeled as being for tan and black people so as to cover a greater range of consumers. Students will probably note that this strategy indicates that Unilever is using a localization approach for its marketing.
Teaching Tip: Unilever’s web site { is an interesting one to visit. You can click on countries and brands to see how the company sells its products in different markets.
Lecture Note: To extend this discussion to include some of Unilever’s other efforts in foreign markets, consider { { and {

7. Market Segmentation Firms must:
Adjust their marketing mix from segment to segment
Consider the existence of segments that transcend national borders and understand differences across countries in the structure of segments
Customize the product, the packaging, or the way in which the product is marketed in order to maximize performance in market where there are no cross-national segments

8. Product Attributes
Products can be thought of as a bundle of attributes
Products sell well when their attributes match consumer needs
Consumer needs vary from country to country depending on:
Culture
Levels of economic development
So, the ability of firms to sell the same product worldwide is limited
Internet Extra: Food products firms and fast food restaurants are examples of companies that standardize some elements of the marketing mix, and customize others. For example, Kraft sells its products in several markets around the world. In some markets, Kraft sells virtually identical products, in others, products have been adapted to meet local needs. Go to the web site { Click on Brands.
Pick a few products and look at how they are sold in other markets. Are product names the same? What differences do you see in product packaging? Are there differences in the products themselves? What do your answers tell you about Kraft’s international marketing strategy?

9. Cultural Differences Countries differ along cultural dimensions:
Tradition
Social structure
Language
Religion
Education
While, there is some evidence that tastes and preferences are becoming more cosmopolitan, the global culture that Levitt proposed is still a long way off

10. Economic Development
Question: How does a country’s level of economic development influence marketing?
Answer:
Consumers in highly developed countries tend to demand a lot of extra performance attributes in their products
Consumers in less developed nations tend to prefer more basic products

11. Product and Technical Standards
Question: How do differences in product and technical standards impact marketing decisions?
Answer:
National differences in product and technological standards force firms to customize the marketing mix
Government mandated product standards can make mass production difficult
Idiosyncratic decisions made in the past on technical standards can influence future marketing strategies

12. Distribution Strategy
A firm’s distribution strategy (the means it chooses for delivering the product to the consumer ) is a critical element of the marketing mix. If the firm manufacturers its product in the particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler. The same options are available to a firm that manufactures outside the country, or the firm could sell to an import agent.
A Typical Distribution System

13. Differences between Countries
Question: How do distribution systems differ between countries?
Answer:
The main differences between distribution systems are:
Retail concentration
Channel length
Channel exclusivity
Channel quality

14. Differences between Countries
Retail Concentration
In some countries the retail system is very concentrated, while in other countries it is fragmented
In a concentrated system, a few retailers supply most of the market
In a fragmented system there are many retailers, no one of which has a major share of the market

15. Differences between Countries
Channel Length
Channel length refers to the number of intermediaries between the producer and the consumer
When the producer sells directly to the consumer, the channel is very short
When the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists
Fragmented retail systems tend to have longer channels

16. Differences between Countries
Channel Exclusivity
An exclusive distribution channel is one that is difficult for outsiders to access
Japan's system is an example of a very exclusive system

17. Differences between Countries
Channel Quality
Channel quality refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses
The quality of retailers is good in most developed countries, but is variable at best in emerging markets and less developed countries
A poor quality channel can impede market entry

18. Putting it into Practice
Need to adapt distribution

19. Choosing a Distribution Strategy
Question: Which distribution strategy should a firm choose?
Answer:
The choice depends on the relative costs and benefits of each alternative
Each intermediary adds its own markup to the products, there is a link between channel length and profit margin
If price is important, a shorter channel is better
If a retail sector is very fragmented, a long channel is better

20. Communication Strategy
Question: How should a firm communicate the attributes of its product to prospective customers?
Answer:
Communication channels available to a firm include:
Direct selling
Sales promotion
Direct marketing
Advertising
Lecture Note: Ask the class to think of some positive and negative source effects (German autos vs. German wine, Italian cuisine vs. British cuisine).

21. Barriers to International Communication
Question: What factors affect the success of a firm’s international communications?
Answer:
International communication occurs whenever a firm uses a marketing message to sell its products in another country
The effectiveness of the communication can be affected by:
Cultural barriers
Source and country of origin effects
Noise levels

22. Barriers to International Communication
Cultural Barriers – can make it difficult to communicate messages across cultures
Source and Country of Origin Effects –
Source effects - occur when the receiver of the message evaluates the message on the basis of status or image of the sender
Country of origin effects - the extent to which the place of manufacturing influences product evaluations
Noise Levels – refer to the amount of other messages competing for a potential consumer’s attention

23. Push versus Pull Strategies
Firms must choose between a push strategy (emphasizes personnel selling) and a pull strategy (emphasizes mass media advertising)
The choice between the strategies depends upon:
Product type and consumer sophistication
Channel length
Media availability
Management Focus: Unilever—Selling to India’s Poor
Summary
This feature explores Unilever’s innovative global marketing strategy. Unilever maintains a substantial presence in many of the world’s poorer nations where low-income levels, unsophisticated consumers, illiteracy, a fragmented retail distribution system, and unpaved roads make marketing difficult. Still, the company has managed to succeed thanks to its efforts to customize its marketing strategy to the local market. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. Discuss the effects of India’s culture on each of the components of Unilever’s marketing strategy. What can Unilever learn from its experiences in India?
Discussion Points: In India, Unilever faces numerous challenges to its marketing strategy. Income levels are low, consumers are unsophisticated and illiterate, the retail distribution system is fragmented, and the road system is poor. However, by adapting to the environment, Unilever has built a small, but successful business in the country. Because most consumers do not have access to television, the company posts advertisements in common meeting areas such as village wells and marketplaces. The company also takes part in weekly markets where it not only sells its products, but it also gives away free samples. Unilever has also made a strong effort to fit in with the country’s retail system, and stocks its products in small size packages in about 3 million stores, many of which are very tiny.
2. Is Unilever’s strategy in India a push strategy or a pull strategy? Explain.
Discussion Points: Most students will suggest that Unilever’s strategy in India is a push strategy. The country has few mass media options, and consequently has been forced to take a unique approach to developing awareness of its products among consumers. Unilever representatives frequently establish a presence in locations where people tend to congregate such as riverbanks where clothes washing takes place, or the village well or marketplace.
Teaching Tip: As noted earlier, Unilever’s web site { worth a visit. Go to the company’s Indian site by selecting it from the list available on the homepage and compare the company’s marketing efforts there to the strategy used in other countries.
Lecture Note: To learn more about Unilever’s efforts in India consider {
Video Note: While India has been enjoying greater prosperity recently, the country’s rural citizens are still very poor. To explore the gap between India’s rich and poor, consider the iGlobe India's Economy Remains Robust Despite Global Downturn.

24. Push versus Pull Strategies
Product Type and Consumer Sophistication
Consumer goods firms trying to sell to a large segment of the market tend to prefer a pull strategy
Industrial products firms or makers of other complex products favor a push strategy
Management Focus: Unilever—Selling to India’s Poor
Summary
This feature explores Unilever’s innovative global marketing strategy. Unilever maintains a substantial presence in many of the world’s poorer nations where low-income levels, unsophisticated consumers, illiteracy, a fragmented retail distribution system, and unpaved roads make marketing difficult. Still, the company has managed to succeed thanks to its efforts to customize its marketing strategy to the local market. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. Discuss the effects of India’s culture on each of the components of Unilever’s marketing strategy. What can Unilever learn from its experiences in India?
Discussion Points: In India, Unilever faces numerous challenges to its marketing strategy. Income levels are low, consumers are unsophisticated and illiterate, the retail distribution system is fragmented, and the road system is poor. However, by adapting to the environment, Unilever has built a small, but successful business in the country. Because most consumers do not have access to television, the company posts advertisements in common meeting areas such as village wells and marketplaces. The company also takes part in weekly markets where it not only sells its products, but it also gives away free samples. Unilever has also made a strong effort to fit in with the country’s retail system, and stocks its products in small size packages in about 3 million stores, many of which are very tiny.
2. Is Unilever’s strategy in India a push strategy or a pull strategy? Explain.
Discussion Points: Most students will suggest that Unilever’s strategy in India is a push strategy. The country has few mass media options, and consequently has been forced to take a unique approach to developing awareness of its products among consumers. Unilever representatives frequently establish a presence in locations where people tend to congregate such as riverbanks where clothes washing takes place, or the village well or marketplace.
Teaching Tip: As noted earlier, Unilever’s web site { worth a visit. Go to the company’s Indian site by selecting it from the list available on the homepage and compare the company’s marketing efforts there to the strategy used in other countries.

25. Push versus Pull Strategies
Channel Length
The longer the channel, the more intermediaries involved
Can be expensive to use direct selling to push a product through many layers of a distribution channel
A firm may try to pull its product through the channels by using mass advertising to create consumer demand

26. Push versus Pull Strategies
Media Availability
A pull strategy relies on access to advertising media
A push strategy is more attractive when there is limited access to mass media

27. Push versus Pull Strategies
Push strategies are common:
For industrial products and/or complex new products
When distribution channels are short
When few print or electronic media are available
Pull strategies tend are common:
For consumer goods products
When distribution channels are long
When sufficient print and electronic media are available to carry the marketing message

28. Global Advertising
Question: Should a firm standardize its advertising worldwide?
Standardized advertising makes sense when:
It has significant economic advantages
Creative talent is scarce and one large effort to develop a campaign will be more successful than numerous smaller efforts
Brand names are global
Standardized advertising is not appropriate when:
Cultural differences among nations are significant
Country differences in advertising regulations block the implementation of standardized advertising
Management Focus: Dove’s Global ‘Real Beauty’ Campaign
Summary
This feature explores how Unilever’s reconfigured its marketing mix for its Dove brand. Historically, Unilever had customized its products and marketing campaigns for each market, a strategy that not only resulted in duplication of effort, but also in organizational complexity. In 2003, Unilever shifted its strategy to develop a more globally standardized approach for Dove. The company now uses a basic message for the brand, and allows some customization at the local level. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. How would you describe Unilever’s approach to international markets prior to 2003? What were the advantages of this strategy? What were the drawbacks of this approach?
Discussion Points: Prior to 2003, Unilever more or less approached each market individually. The company often developed entirely different products and marketing campaigns for each market. In India for example, the company developed a shampoo designed to clean hair that had been oiled. But it also developed entirely different products for both Hong Kong and China. This strategy of customizing products, packaging, and messages to individual markets while allowing the firm to cater to the individual needs of customers also led to high costs, complexity, and confusion within the organization.
2. In 2003, Unilever adopted its Real Beauty strategy. Explain how this new strategy differed from its traditional approach to foreign markets? How should this new approach help Unilever’s international sales?
Discussion Points: Unilever’s Real Beauty strategy involved establishing a basic product and message that could be used across several markets, but that allowed for tweaking at the local level. So, rather than developing a Dove shampoo and message for the Indian market, and for the Chinese market, and so on, the company used a basic message that Dove stood for the beauty of all women, and then the product and message was adapted to local markets. So, while the basic message is the same, in the Latin America, ads might show women touching each other, but in the United States, the ad might show women standing apart from each other. Moreover, the Real Beauty message was carried through other products like body gels and skin creams allowing Unilever to further reduce its costs. So far, the new strategy seems to be working. Dove is now a leading brand in the global market place.
Teaching Tip: To see learn more about Unilever’s international operations and its Real Beauty strategy, go to {
Lecture Note: To extend this discussion to Unilever’s efforts to market a new shampoo in several countries, go to {

29. Global Advertising
Some firms try to capture the benefits of global standardization while responding to individual cultural and legal environments
Firms can use some features in advertising campaigns worldwide, and then localize other features

30. Government-mandated price controls
Pricing Strategy
Question: How should a firm price its product or service in foreign markets?
Answer:
Firms must consider:
Price discrimination
Strategic pricing
Government-mandated price controls

31. Price Discrimination
Question: Should a firm charge the same price everywhere, or price its product on a market by-market basis?
Answer:
Firms can maximize profits through price discrimination - charging consumers in different countries different prices for the same product
For price discrimination to work:
The firm must be able to keep national markets separate
Different price elasticities of demand must exist in different countries

32. Putting it into Practice
Where would you buy this doll?
USA
$11.99
China
229 yuan or $36.68
Source: “Toys ‘R’ Us Grows in China, With ‘Tiger Moms’ in Mind,” The Wall Street Journal, 11/20/12, B1.
Toys ‘R’ Us, online price

33. Price Discrimination
Price elasticity of demand - measure of the responsiveness of demand to changes in price
Demand is elastic when a small change in price produces a large change in demand
Demand is inelastic when a large change in price produces only a small change in demand
Elasticity of demand is determined by income level and competitive conditions
Price elasticities tend to be greater in countries with lower income levels and greater numbers of competitors

34. Strategic Pricing Strategic pricing has three aspects:
Predatory pricing - the profit gained in one market is used to support aggressive pricing designed to drive competitors out in another market
Multi-point pricing - a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market
Aggressive pricing in one market can prompt a competitive response from a rival in another market
Central monitoring of pricing decisions around the world is important
Strategic pricing involves pricing aimed at giving a company a competitive advantage over its rivals.

35. Strategic Pricing
Experience curve pricing - pricing low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially
Firms believe that several years in the future, after moving down the experience curve, they will be making substantial profits and have a cost advantage over less aggressive competitors

36. Regulatory Influences on Prices
The use of either price discrimination or strategic pricing may be limited by national or international regulations
Antidumping rules set a floor under export prices and limit firms’ ability to pursue strategic pricing
Many developed nations have regulations promoting competition and restricting monopoly practices
Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it.

37. Configuring the Marketing Mix
Question: How should a firm configure its marketing mix?
Answer:
Standardization versus customization is not an all or nothing concept
Most firms standardize some things and customize others
Decisions about what to standardize and what to customize should be made after exploring the costs and benefits of each option
Management Focus: Levi Strauss Goes Local
Summary
This feature explores how Levi Strauss, the manufacturer of blue jeans, changed its international marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its sales fall from $7.1 billion in 1996 to just $4 billion in The company had failed to keep up with changes in the fashion market, and was out of touch with its consumer. A three part turnaround strategy was implemented, and by 2009, the company was beginning to see some improvements. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
Please see Critical Thinking and Discussion Question 6 for more on this feature.
NEW PRODUCT DEVELOPMENT
A) Firms that successfully develop and market new products can earn enormous returns. Firms to need build close links between R&D, marketing, and manufacturing.
Video Note: One issue which firms must contend with is protecting their proprietary property. The iGlobe China Rising: Intellectual Piracy in China explores how many companies have been negatively affected by intellectual piracy by China.

38. New Product Development
Firms need to develop and market new products
Technological innovation is important in new product development
Product life cycles are shorter than in the past because technological innovation generates creative destruction
Firms need to invest in R&D and apply the technology to developing products that meet consumer needs, and that can be manufactured in a cost-effective way.

39. The Location of R&D Question: Where should a firm locate R&D? Answer:
New product ideas come from the interactions of scientific research, demand conditions, and competitive conditions
New-product development is greater when:
More is spent on basic and applied research and development
Demand is strong
Consumers are affluent
Competition is intense

40. Integrating R&D, Marketing, and Production
Question: How can a firm ensure that its new product development is successful?
Answer:
Commercialization of new technologies in international firms may require different versions of a new product to be produced for different countries
New product development efforts should be closely coordinated with the marketing, production, and materials management functions
This integration will ensure that customer needs are met and that the company performs all its value creation activities efficiently

41. Cross-Functional Teams
Question: How can a firm achieve cross functional integration?
Answer:
Effective cross functional teams should:
Be led by a heavyweight project manager with status in the organization
Have members from all the critical functional areas
Have members located together
Have clear goals
Have an effective conflict resolution process
Cross-functional integration is facilitated by cross-functional product development teams.

42. Building Global R&D Capabilities
Question: How should a firm build global R&D capabilities?
Answer:
R&D and marketing need to be integrated to adequately commercialize new technologies
Many firms establish a global network of R&D centers to develop the basic technologies that will become new products
These technologies are then applied by local R&D groups in regional or country units