1. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-1 A Framework for International Business by Cavusgil, Knight, & Riesenberger Chapter 14: Marketing in the Global Firm

2. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-2 In this chapter, you’ll learn about: 1.Global marketing strategy 2.Standardization and adaptation of international marketing 3.Global branding and product development 4.International pricing 5.International marketing communications 6.International distribution Learning Objectives

3. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-3 Organizing Framework for Marketing in the International Firm

4. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-4 Market Segmentation Process of dividing the firm’s customer base into clusters, allowing management to formulate unique marketing strategies for each group Within each market segment, customers exhibit similar features, including income level, lifestyle, demographic profile, or desired product benefits Internationally, common market segment variables include income level, culture, legal system, etc. Example Caterpillar targets its earth-moving equipment by applying distinct marketing approaches to several major market segments. Which segments does Caterpillar target?

5. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-5 Global Market Segment A group of customers that share common characteristics across many national markets Firms target these buyers with relatively uniform marketing programs, regarding product, pricing, communications, and distribution Such segments often follow global media, embrace new fashions or trends, and have much disposable income Examples Young people worldwide (e.g., MTV, Levi’s) The global segment of jet-setting business executives People worldwide with elevated cholesterol (e.g., Pfizer & Lipitor)

6. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-6 Global Market Segment

7. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-7 Standardization and Adaptation Adaptation: Modifying elements of the marketing program to accommodate specific customer requirements in individual foreign markets - E.g., industries in automaking, publishing, furniture Standardization: Efforts to make marketing program elements uniform, so as to target entire regions of countries, or even the global marketplace, with a similar product or service - Targeting the same product everywhere not usually feasible Goal: To strike some ideal balance between adaptation and standardization

8. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-8 Tradeoffs Between Standardization and Adaptation

9. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-9 Standardization & Adaptation: A Balancing Act Adaptation is costly and may require substantial changes to the marketing mix, especially when many national markets are involved Thus, managers err on the side of standardization, adapting marketing mix only when necessary Or, firms pursue a regional strategy, in which marketing elements are formulated across a geographic region Dell strikes a balance between standardization and adaptation. The basic machines are identical worldwide, while the keyboards and software are varied to suit local conditions

10. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-10 Global Branding Well-known global brands include: electronics (i-Pod), personal care products (Gillette), toys (Wii), food (Cadbury), beverages (Heineken), credit cards (Visa), movies (e.g., Mission Impossible), pop stars (Shakira), and sports stars (David Beckham) A strong global brand enhances:  Efficiency and effectiveness of marketing programs  The ability to charge premium prices  The firm’s leverage with resellers  Brand loyalty  Trust and confidence in the product

11. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-11 Top Global Brands by Region

12. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-12 Global Product Development In developing international products, managers emphasize their commonalities across countries rather than the differences between them A basic product incorporates only core features that are then varied at the margins for individual markets A global new-product planning team is a group within a firm that determines which product elements will be standardized and which will be adapted locally, and how products will be launched

13. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-13 International Pricing Pricing is complex in international business, due to multiple currencies, trade barriers, added costs, and typically longer distribution channels Prices affect sales and profits. An inverse relationship often exists between profits and market share Firms face pressure to lower prices abroad, mainly due to lower income levels Conversely, prices can escalate due to tariffs, taxes, transportation, intermediary markups, and after-sales service € ₤ ¥ $

14. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-14 Factors That Affect International Pricing Nature of the market: Local purchasing power and distribution infrastructure are important factors Nature of the product or industry: A specialized or highly advanced product, or an industry with few competitors, may necessitate charging a higher price Type of distribution system: Channels are complex in some countries, which pushes prices up Location of the production facility: Locating manufacturing near customers or in countries with low-cost labor facilitates lower prices

15. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-15 Factors That Affect International Pricing

16. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-16 Steps in Setting the Price of a Product Abroad

17. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-17 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 conditions, such as customer purchasing power, demand, and competitor prices Incremental pricing: Set price to cover only variable (not fixed) costs. This assumes that fixed costs are already paid from sales in the home or other countries (carried to extreme can lead to dumping)

18. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-18 International Price Escalation The problem of end-user prices reaching high levels in the export market Caused by multilayered distribution channels, intermediary margins, tariffs, and other added costs associated with the foreign market May result in an excessively high retail price in the target market, creating a competitive disadvantage for the exporter Various strategies to reduce price escalation

19. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-19 Strategies to Combat International Price Escalation 1.Shorten the distribution channel: That is, bypass some intermediaries in the channel 2.Redesign product to remove costly features: Whirlpool, for example, developed a no-frills washing machine 3.Ship products unassembled, as parts and components, qualifying for lower import tariffs: Do final assembly in the foreign market, using low-cost labor, or in Foreign Trade Zones 4.Have product reclassified using a different tariff classification to qualify for lower tariffs 5.Move production or sourcing to another country to take advantage of lower labor costs or favorable currency rates

20. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-20 Strategies for Dealing With Varying Currency Conditions

21. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-21 Transfer Pricing The pricing of intermediate or finished goods 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 country into a low corporate tax one, thereby increasing companywide profits

22. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-22 Possible Effects of Transfer Pricing Manipulating transfer pricing makes it tough to determine true profit Morale problems at subsidiary could result from profit performance looking worse that it should Legal problems could arise if this practice is not accepted by local governments

23. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-23 Gray Marketing Legal importation of genuine products into a country by those other than authorized intermediaries 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/government strategy - e.g., Canada’s price controls on drugs Exchange rate differences of products priced in two different currencies

24. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-24 Manufacturer Concerns Over Gray Markets Risk of tarnished image when customers realize the product is available at a lower price through alternative channels Strained relations between the manufacturer and its distributors, as the latter lose sales Disrupted company planning, forecasting, and marketing Legislation has not prevented parallel markets; firms often must act on their own

25. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-25 Firm Strategies to Cope With Gray Markets 1.Aggressively cut prices in countries and regions targeted by gray market brokers 2.Hinder the flow of products into markets where gray market brokers procure the product 3.Design products with exclusive features that strongly appeal to customers 4.Publicize the limitations of gray market channels

26. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-26 International Advertising Firms conduct advertising via media, which includes direct mail, radio, television, cinema, billboards, transit, print media, and the Internet Advertising spending on major media amounted to $100 billion in both Western Europe & Asia in 2009 In the United States, advertising expenditures totaled over $160 billion Advertising is influenced by local factors, such as availability of media, literacy, regulations, culture, and local customs, as well as the goals of the firm

27. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-27 Media Characteristics in Selected Countries

28. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-28 The Largest Global Ad Agencies

29. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-29 International Distribution Distribution is the most inflexible of the marketing program elements—once chosen by a firm, it may be difficult to change The most common international distribution approaches are via independent intermediaries (for exporters) and establishing a subsidiary directly in the market (FDI) Both types of channels must perform a range of downstream marketing activities The firm should seek to minimize channel length in order to minimize final prices and decrease complexity

30. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-30 Bypassing Traditional Distribution Channels Direct marketing – selling directly to end users Reducing channel length – decreasing the number of distributors or intermediaries it takes to get a product to market Japan is an example of a country with long distribution channels; increased costs to pay intermediaries escalates prices

31. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-31 Global Account Management (GAM) Under globalization, foreign customers seek uniform and consistent prices, quality, and customer service GAM means serving a key global customer in a consistent and standardized manner, regardless of where in the world it operates. For example, Walmart is a key global account for Procter & Gamble, purchasing many P&G products Each global customer is assigned a global account manager, or team, which provides the customer with coordinated marketing support and service across various countries

32. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 14-32 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.