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International Marketing

Czinkota & Ronkainen Spring 2010

Web Slides

Ch. 9-15, 17

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Chapter 9

Market Entryand Expansion

Chapter 9

Market Entry and

Expansion

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Why Firms go International

Proactive Stimuli

Profit advantage

Unique products

Technologicaladvantages

Exclusive information

Economies of scale

Market size

Reactive Stimuli

Competitive pressures

Overproduction

Stable or decliningdomestic sales

Excess capacity

Saturated domestic

markets Proximity to customers

and ports

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Foreign Market Entry Strategies1/2.

(A) Exporting (Casual, Indirect, Direct)(B) Contractual Agreements

Licensing (patents, technology, trade secrets)

Franchising (brand, managerial know-how)

Subcontracting (from prime contractors)

Contract manufacturing (for foreign brands)

Turnkey Operations

Co-production Agreements

Management Contracts(IK)

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Foreign Market Entry Strategies2/2.

(C) Joint Ventures (minority/majority equity)

(D) Wholly-Owned Subsidiaries Local Sales only

Local Assembly & Sales Local Production & Sales

Local Production, Sales & Export

Start-up of new operations

Merger with an existing enterprise Acquisition of an existing enterprise

Greenfield investment

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Exporting

Export management companies (EMCs)

Domestic firms that perform internationalmarketing services as commission

representatives or distributors for other firms. Two primary forms of operation

Take title to goods and operate

internationally. Perform services as agents.

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Exporting

Trading companies The most famous trading companies are the

sogoshoshaof Japan.

Reasons for the success of the Japanese sogoshosha:

gather, evaluate, and translate market informationinto business opportunities.

Their vast transaction volume provides them with costadvantages.

serve large markets around the world and havetransaction advantages.

access to capital, both within Japan and in theinternational capital markets.

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Exporting

Export trading companies Act (ETCs) Designed to improve the export performance

of small- and medium-sized firms.

Permits bank participation in tradingcompanies to allow better access to capital.

Reduces the antitrust threat to joint exportefforts to enable firms to share the cost of

international market entry. Must balance the demands of the market and

the supply of the members to be successful.

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Trading companies

Independent distributors that match up buyers andsellers. Do not represent a manufacturer but find manywho can supply a buyer. Most major trading companies are the sogoshoshaof

Japan.

Reasons for the success of the Japanese sogoshosha:

Are organized to gather, evaluate, and translatemarket information into business opportunities.

Cost advantages because of vast transaction volume

Serve large markets around the world and havetransaction advantages.

Have access to capital, both within Japan and in theinternational capital markets.

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Going International

E-commerce: Offering goods and services over theWeb: Corporate websites.

B-to-C and C-to-B forums.

Firms must: Provide 24-hour order taking and customer support

service (often outsourced)

Have the regulatory and customs-handling expertise

to deliver internationally. Understand global marketing environments for further

development of business relationships.

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Licensing and Franchising

Advantages of licensing Capital investment or knowledge or marketing strength is not

required.

Additional return on R&D investments already incurred.

Reduces the risk of R&D failures Ongoing licensing cooperation and support enables the Licensee

benefits from new developments.

Allows a firm to test a foreign market without major investment ofcapital or management time.

Preempts a market for competition, especially if the licensorsresources permit full-scale involvement only in selected markets.

Increases protection of intellectual property rights.

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Licensing and Franchising

Disadvantages of licensing

Licensor gets limited expertise.

Licensor creates its own competitor.

Allows multinational corporations (MNCs) tocapitalize on older technology.

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Foreign Direct Investment

Types of ownership - Joint ventures

Collaborations of two or more organizationsfor more than a transitory period.

Partners share assets, risks, and profits inproportion to ownership.

Governmental and commercial reasons for

joint ventures

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Advantages of jointventures Pooling of resources. Better relationships with

local organizations. The partners

knowledge of the localmarket.

Minimize exposure topolitical risk.

Tap local capitalmarkets.

Disadvantages of jointventures

Different levels ofcontrol are required. Difficulty in maintaining

the relationship. Disagreements over

business decisions. Disagreements over

profit accumulation anddistribution (profitrepatriation).

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Firms are categorized as: Resource seekers - Search for natural and

human resources.

Market seekers - Search for betteropportunities to enter and expand withinmarkets.

Efficiency seekers - Attempt to obtain the most

economic sources of production.


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Bring in capital, economic activity, and employment. Transfer technology and managerial skills.

Encourage competition, market choice, andcompetitiveness.

But, they: Drain resources from host countries.

Starve smaller capital markets.

Discourage local technology development.

Bring in outmoded technology.

Create new competition for local firms.

Foreign Direct Investors

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Chapter 10

ProductAdaptation

Chapter 10

Product Adaptation

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Product Variables

Products can be differentiated by theircomposition, country of origin, tangiblefeatures such as packaging or quality, or

augmented features such as warranty.

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Standardization vs. Customization:Decision Criteria

Nature of Product Technology Differences Weights & Measures Physical Environment Cost/Benefit Relationship Legal Requirements Competition Support Systems

Cultural differences Market Conditions

(IK)

TM 89 Product Design Strategy Standardization vs. Customization

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Exhibit 10.2 - Standardization versusAdaptation

Factors encouragingstandardization

Economies of scale inproduction

Economies in product R&D Economies in marketing

Shrinking of the worldmarketplace/economicintegration

Global competition

Factors encouraging adaptation

Differing use conditions

Government and regulatoryinfluences

Differing consumerbehavior patterns

Local competition

True to the marketingconcept

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Government Influences onAdaptation

Government regulations

Political agendas

Firms can influence these regulations by lobbyingdirectly or through industry associations.

Economic integration reduces discretionarygovernmental regulations to some extent.

Nontariff barriers

Include product standards, testing or approval

procedures, subsidies for local products, andbureaucratic red tape.

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Customer Variables

Customer characteristics, expectations, and preferences

Physical size, local behaviors, tastes, attitudes, andtraditions.

Consumption patterns, psychosocial characteristics,general cultural criteria

Product positioning - Consumers perception of abrand as compared with that of competitors brands.

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Economic Conditions

Economic development

Affects demand characteristics and helpsdetermine potentials for selling certain kinds

of products and services. Backward innovation of the product may be

required to meet local requirements.

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Competition, Environment

Competitive offerings - Monitoringcompetitors product features is critical inadjusting the product for competitive

advantage.

Climate and geography influence coreproduct; tangible elements (mainly packaging);

and the augmented features.

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Global Brand Development

Questions to ask when managementseeks to build a global brand:

Will anticipated scale economies materialize?

How difficult will it be to develop a globalbrand team?

Can a single brand be imposed on all markets

successfully?

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Global Brand Development

Create a compelling value proposition (warrantycan also be a value proposition)

Think about all elements of brand identity andselect names, marks, and symbols that have the

potential for globalization

Research the alternatives of extending anational brand versus adopting a new brand

identity globally Develop a company-wide communication

system

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Packaging Considerations

three major functions: protection, promotion, userconvenience.

Materials: vary by transportation mode, transit conditions,storage, display, length of time in transit, regulations...

The promotional aspect of packaging relates mostly tolabeling.

User convenience. Containers must withstand logisticschallenge, and yet must be easy for customers to open.

Package aesthetics: prudent choice of colors and package

shapes. Package size: varies by purchasing patterns and market

conditions.

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Country of Origin (COO)

The origin of a product may have a strongeffect on consumer perceptions and biases.

This effect reduces as: Customers become more informed.

Countries develop the necessary bases tomanufacture products.

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Product Counterfeiting

Counterfeit goods Goods bearing an unauthorizedrepresentation of a trademark, patented invention,or copyrighted work that is legally protected in thecountry where it is marketed.

The European Union estimates that trade incounterfeit goods accounts for 2 percent of totalworld trade.

The largest number of counterfeit goods are

sourced from China, Brazil, Taiwan, Korea, andIndia.

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Combating Counterfeiting

Some acts, agreements, and alliances that help combatcounterfeiting include:

The Omnibus Tariff and Trade Act of 1984

The Trademark Counterfeiting Act of 1984

The Trade-Related Aspects of Intellectual PropertyRights (TRIPS) agreement

The International Anti-Counterfeiting Coalition (1978)

Counterfeit Intelligence and Investigating Bureau

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Chapter 11

Export Pricing

Chapter 11

Export Pricing

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Price Dynamics

The alternatives strategies for first-time pricing: Skimming - Achieve the highest possible contribution

in a short initial time period, and then gradually lowerthe price as more segments are targeted and moreproducts are available.

Market pricing Determined based on competitiveprices; production and marketing is adjusted to theprice.

Penetration pricing Offer products at a low price togenerate volume sales and achieve high marketshare, to compensate for lower per unit return.

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The Setting of Export Prices

Export pricing strategy The standard worldwide price may be the

same regardless of the buyer ormay bebased on average unit costs of fixed, variable,

and export-related costs. Dual pricing differentiates between domestic

and export prices.

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Export pricing strategy Approaches to pricing products for exports:

Full cost method Fully allocating domestic and foreigncosts to the product; ensures profit margins but maycompromise the firms competitiveness

Marginal cost method Considers direct costs of

producing and selling products for export as the floorbeneath which prices cannot be set.

Market-differentiated pricing

based on the dynamic conditions of the marketplace.

prices change frequently due to changes in competition,exchange rate, or environment.

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The Setting of Export Prices

Export-related costs Unique export-related costs include:

Cost of modifying a product for a foreign market.

Operational costs of exporting.

Cost incurred in entering the foreign market. Price escalation

A combined effect of clear-cut and hidden costs

results in an increase in export prices over and above

the domestic prices.

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Price Escalation Thru Exporting(see Exhibit 11-4 in your text)

Domestic:- Shipping and insurance- wholesaler margin- retailer margin

Exported:

- higher shipping & insurance costs- Tariff- Importer, wholesaler and jobbers margins- VAT at each value-added level

If manufacturers price is $6.00 then domestic customersprice may be $12.00 to $14.00 and foreign customers pricemay be anywhere from $20.00 to $45.00

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Mitigating export-related costs

- Reorganize the channel of distribution(consolidate or go around certain middlemenand/or their functions)

- Product adaptation- Local sourcing of inputs

- Use new or more economical tariff or tax

classifications.- Assemble or produce overseas.

I t

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Incoterms(First issued by ICC in 1936, revised 6 times since then)

These delivery terms influence the quoted export price

EXW (named place)FCA FREE CARRIAGE (named place)

FAS (named port of shipment)

FOB (named port of shipment)

CFR OR C&F (named port of destination)

CIF (named port of destination)CPT CARRIAGE PAID TO (named place of destination)

CIP CARRIAGE AND INSURANCE PAID TO (named place of destination)

DAF DELIVERED AT FRONTIER (named place)

DES DELIVERED EX SHIP (named port of destination)

DDU DELIVERED DUTY UNPAID (named place of destination)

DDP DELIVERED DUTY PAID (named place of destination)

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Terms of Payment

Cash in advance

Relieves the exporter of all risks and allowsfor immediate use of the money.

Used for first time transactions or situationswhere the exporter doubts the importerssolvency.

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Terms of Payment

Letter of credit (lc) (Opener, Issuer, Beneficiary) An instrument issued by the bank at the request of

the buyer.

The bank promises to pay money on presentation ofspecified documents like the bill of lading, consularinvoice, and description of the goods.

Classified as irrevocable versus revocable, confirmed

versus unconfirmed, and revolving versus non-revolving.

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Terms of Payment

Drafts (Drawer, Drawee, Payee)

Similar to personal check; an order by one party topay another.

Buyer must obtain shipping documents beforeobtaining possession of the goods involved in the

transaction. Documentary collection

The seller ships the goods, and the shippingdocuments and the draft are presented to the

importer through banks acting as the sellers agent. The draft , also known as the bill of exchange, may beeither a sight draft, time draft orarrival draft.

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Terms of Payment

Bankers acceptance - A time draft drawn on andaccepted by a bank; it is sold in the short-term moneymarket.

Discounting - Selling a draft to the bank at a discountfrom face value; it can be with recourse or without

recourse. Open account - The normal manner of doing business in

the domestic market; also known as open terms.

Consignment selling Allows the importer to defer

payment until goods are actually sold.

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Payment Risks

Commercial risk Refers to the insolvency of, or protracted payment

default by, an overseas buyer.

Results from deterioration of conditions in the buyers

market, fluctuations in demand, unanticipatedcompetition, or technological changes.

Political risk

Can neither be controlled by the buyer nor the seller.

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Managing Foreign Exchange Risk

To prevent currency related risks, the exporter can:

Shift the risk through foreign currency contractualhedging.

Modify the risk by manipulating prices and other elementsof a marketing strategy.

Forward exchange market

The exporter gets the bank to agree to a rate at which itwill buy the foreign currency the exporter receives whenthe importer makes payment.

The rate is either a premium or a discount on the currentspot rate.

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Foreign Exchange Risk & Price Adjustments

Pass through Make no change in the price, resultingin a less favorable price in foreign currencies and,most likely, lower sales.

Absorption - Decrease the export price in conjunction

with increases in the value of the currency to maintainstable export prices in foreign currencies.

Partial pass-through only a portion of the increase.

Pricing-to-market - Destination-specific adjustment of

mark-ups in response to exchange-rate changes.

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Sources of Export Financing

Commercial banks Provide assistance to only first rate credit

risks.

Provide enhanced services which helpexporters monitor and expedite theirinternational transactions.

Marketers should assess the overseas reach

of banks to avail greater market coverage.

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Forfeiting Provides the exporter with cash at the time of

shipment.

The importer uses bills of exchange orpromissory notes to pay the exporter at thetime of shipment.

The exporter sells them to a third party at a

discount from their face value for immediatecash.

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Factoring houses

May purchase an exporters receivables for adiscounted price.

Provide the exporter with a complete financialpackage that combines credit protection,accounts-receivable bookkeeping, andcollection services.

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Differences between forfeiting and factoring: Factors usually want a large percentage of the

exporters business, while most forfeiters work on aone-shot basis.

Factors usually do not have strong capabilities in thedeveloping countries, forfeiters do.

Forfeiters work with capital goods, factors typicallywith consumer goods.

Forfeiterswork with medium-term receivables, whilefactors work with short-term receivables.

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Government Export Financing

Can be either a loan or a guarantee, including creditinsurance.

Advantages of trade financing by the government: Protection in the riskiest part of an exporters business. Protection against political and commercial risks over

which the exporter does not have control. Encouragement to exporters to make competitive offers by

extending terms of payment. Broadening of potential markets by minimizing exporter

risks.

Possibility of leveraging exporter accounts receivable. Opportunity for commercial banks to remain active in the

international finance arena.

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Price Negotiations

Pricing is the most sensitive issue in businessnegotiations; the exporter should discuss it as part of acomprehensive package and should avoid priceconcessions early on in the negotiations.

Carefully consider concessions that reduce price orprofitability; example: discounts, payment terms, productfeatures.

Revisit competitive prices to ascertain that the pricereflects market conditions accurately.

Focus negotiations first on substantive issues (qualityand delivery), then on price.

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Leasing

Trade liberalization has benefitted lessors boththrough expected growth in target economiesand eradication of country laws and regulations

hampering outside lessors. Allows market penetration for the firms products,

when outright sale is not possible.

Total net income from leasing is often higher than

it would be if the unit was sold.

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Dumping

Selling goods overseas at a price lower than in theexporters home market or below the cost of production,or both.

Ranges of dumping

Predatory dumping Intentionally selling at a loss inanother country in order to increase its market shareat the expense of domestic producers.

Unintentional dumping - Result of time lags between

the dates of sales transaction, shipment, and arrival.

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Remedies for Dumping

Antidumping duty - Levied on imported goods sold atless than fair market value.

Countervailing duties - Imposed on imports which aresubsidized in the exporters home country.

To minimize the risk of being accused of dumping, focuson value-added products and increase differentiation byincluding services in the product offering

Keep excellent records

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Chapter 17

Global Pricing

Chapter 17

Global Pricing

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Transfer Pricing Objectives

Transfer pricing is established to :

Be competitive in various markets

Reduce taxes and tariffs

Manage cash flows Minimize exposure to foreign exchange risks

Avoid conflicts with home and host governments

Internal concerns such as goal congruence and

motivation of subsidiary managers

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The three philosophies are cost-based, market-based,andarms-length price.

Transfer at cost to increase the profits of affiliates

Derive transfer prices from the local market conditions

Use arms-length pricing to ensure properintracompany pricing and to minimize governmentinterference

Transfer Pricing Philosophies

F t G i P i i Withi

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Corporate objectives: to undersell a major competitor. to improve their efficiency and/or shift production bases.

Costs: Easily measured, Varying inflation ratesWhen prices cannot be changed, try value pricing, stripping down

products, introducing innovative products at a modest premium, andgetting close to customers by using new technologies.

Demand and market factors: Price elasticity, customerperception of the product

Market structure and competition: Distribution structure, tradediscounts, etc.

Environmental constraints: Government policies. Try non-pricemeasures, emphasize other marketing mix elements

Factors Governing Pricing WithinIndividual Markets

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Countertrade

Countertradeis a sale that encompasses anexchange of goods, services, or ideas for othergoods, services, or ideas instead (or in addition

to) money. Conditions that support countertrade are lack of

money, lack of value of money, lack ofacceptability of money as an exchange medium,

or greater ease of transaction by using goods.

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Forms of Countertrade.

- Straight barter- Counterpurchase agreement (with the government,

smaller deals)

- Offset (with the government, larger, longer-term deals)

- Buyback (from plant output)- Triangular Compensation {A (goods) B (goods) C

(cash) A}

- Clearing agreements (Accounts cleared periodically)

- Switch trading(one company sells to another its obligation tomake a purchase in a given country)

Blocked currencies (Typically soft currencies)

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Merits: Permits the covert reduction of prices and thereforeallows firms and governments to circumvent price andexchange controls.

An excellent mechanism to gain entry into new markets. Provides stability for long-term sales.

Limitations:

Requires that accounts be settled on a country-by-

country or even transaction-by-transaction basis. Valuation of goods received in exchange can be difficult

Why Use Countertrade?

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Chapter 16

Global

Logistics and

Materials

Management

Chapter 16

Global Logistics and

Materials Management

A Definition of International

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A Definition of InternationalLogistics

International logistics - The design and managementof a system that controls the flow of materials into,through, and out of the international corporation.

The systems approach helps the firm explicitly recognizethe linkages among the traditionally separate logisticscomponents within and outside of the corporation.

Interaction with outside organizations, suppliers, andcustomers helps build on commonality of purpose in the

areas of performance, quality, and timing.

A Definition of International

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A Definition of InternationalLogistics

The systems approach also ensures

JIT - Just-in-time.

EDI - Electronic data interchange (more efficientorder processing).

ESI - Early supplier involvement.

ECR - Efficient customer response systems(tracks sales at retail level, allows manufacturer to coordinate

production to shelf-replacement needs).

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Logistics: major concepts

Systems concept - The extensive and complexmaterials-flow activities within and outside the firmmust be considered in the context of their interaction.

Total-cost concept - Minimize overall logistics cost by

identifying activity-based costs that impact after-taxprofits.

Trade-off concept - Recognizes the linkages withinlogistics systems that result from the interaction of

their components.

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Supply Chain Management

An integration of the three-system concepts.

1. planning and management of all activities involved insourcing and procurement, conversion, and logistics.

2. coordination and collaboration with channel partners.

3. Integration of supply and demand management withinand across companies.

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Basic differences between domestic and

international logistics Distance - Presence of firms in more than one

country.

Currency variations and exchange ratedifferences.

Transportation modes - Reliability of carriersmay be different; computation of freight rates

may be different.

International Shipping/Transportation

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1. Air:(wide body jets)2. Truck: Truck trains

3. Rail: Gauges, technology, unit trains

4. Inland Waterways: Barges (motorized, non-motorized)

5. Ocean:Container ships, Ro-Ro ships, Lighter aboardships, Supertankers, Ore carriers, LNG carriers

(Trades, Conferences, Lines, Liner/Tramp, rates, flags,Insurance: General/Particular average)

6. Pipelines: Liquid, gas, domestic, transnational7. Intermodal

IK

International Shipping/TransportationModes

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Choice of Transportation Modes

is influenced by:

Transit time

Predictability (Air is more predictable than

ocean) Cost

Noneconomic factors (government involvement)

Exhibit 16 6 - Documentation for an

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Exhibit 16.6 Documentation for anInternational Shipment

Trading regions such as theEuropean Union have greatlysimplified their documentation

requirements.

Documentation is sometimesconsidered to be a trade

barrier.

P k i f I t ti l Shi i

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Packaging for International Shipping

Customer Requirements Shipper Requirements

Distributor Requirements

Climate

Customs and traditions

Government Requirements

Cost (shipping, insurance, pilferage)

Physical hazards (acceleration, deceleration, dropping,pitching, rolling, vibrations, etc.)

Management of International

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Management of InternationalLogistics

Centralized logistics management - Headquarters retaindecision-making power and control over logistic activitiesaffecting international subsidiaries.

Decentralized logistics management

Each subsidiary is made a profit center which carriesresponsibility for its performance.

Leads to greater local management satisfaction and betteradaptation to local market condition.

Required by firms operating in a number of international markets

that are diverse in nature.

Management of International

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Management of InternationalLogistics

Contract logistics Outsourcing logistical management by employing

outside logistical expertise.

Helps firms to achieve improved service at equal orlower cost.

Allows marketers to take advantage of an existingnetwork, complete with resources and experience.

Leads to loss of the firms control in the supply chain.

The Supply Chain and the

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The Supply Chain and theInternet

Global net e-commerce revenue is expected to surpassthe $1 trillion dollar mark by 2012.

Companies enter e-commerce through hub sites (alsoknown as virtual malls or digital intermediaries) which

bring together buyers, sellers, distributors, andtransaction payment processors in a marketplace (e Bay,Priceline, Amazon etc.).

Companies using e-commerce need to be prepared for

24-hour order-taking and customer service.

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Logistics and Security

Logistics systems are vulnerable to terroristattacks and piracy; to prevent them,governments impose security measures(screening of shipments and shippers).

Security measures:

Affect the firms ability to plan their internationalshipments and distributions.

Increases the cost of supply chain activities.

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Logistics and Security

Strategies employed for reducing security costs: Replace international shipments with domestic.

Eliminate the use of vulnerable internationaltransportation.

Redesign the logistics strategies to incorporate theeffects of substantial and long-term interruptions ofsupplies and operations.

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Recycling and Reverse Logistics

The firms ability to develop reverse logistics is a keydeterminant for market acceptance and profitability.

Reverse distribution Ensures that a firm can retrieve a product from the market for

subsequent use, recycling, or disposal.

Is a complex customer service, inventory control, informationmanagement, cost accounting, and disposal process.

Reverse logistics management is highlyspecialized.

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Chapter 12

Marketing

Communication

Chapter 12

Marketing Communication

I i l N i i

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International Negotiations

The two biggest dangers faced ininternational negotiations:

Parochialism - The misleading perception that

the world of business is becoming ever moreAmerican and that everyone will behaveaccordingly.

Stereotyping - Generalizations about anygiven group, both positive and negative.

I t ti l N ti ti P

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International Negotiations Process

Five-stage negotiated selling process: Offer

Initiated by either the seller or the buyer . Allows the partiesto assess each others needs and commitment.

Informal meetings

To discuss the terms and get acquainted. It may be necessary to utilize facilitators (such as consultants

or agents) to establish the contact.

Strategy formulation Review and assess all factors to be negotiated, and

Prepare for actual give-and-take of the negotiation.

I t ti l N ti ti

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International Negotiations

Negotiations details Two approaches are used: competitive and

collaborative.

Depend on the cultural background and businesstraditions prevailing in different countries.

Outcomes

The choice of location for the negotiations and thenegotiator characteristics play a role in theoutcome.

N ti ti i th C t i

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Negotiating in other Countries 1/2

Approaches used for adjusting to the style of the host-country negotiators:

Team assistance (use specialists to allow all points to be considered)

Traditions and customs(status relations & business procedures)

Language capability (a culturally and linguistically competentinterpreter may be needed)

Determination of authority limits (US & European negotiatorshave much greater authority than Asians)

Patience

Negotiating in other Countries

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Negotiating in other Countries 2/2

Negotiation ethics (may be different and, sometimes, seemunethical to US & Europeans)

Silence(must be interpreted correctly. It not always negative)

Persistence(insisting on quick answers may be seen as a threat.Let things develop as per local culture)

Holistic view (concessions should come at the end of bargainingafter all other issues have been discussed)

The meaning of agreements (written, legal contracts may notbe needed or even be negative)

Th ti l i

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The promotional mix

Advertising

Personal selling

Publicity

Sales promotion

Sponsorship.

The choice of tools leads to either a push or a

pull emphasis in marketing communications.

P h & P ll St t i

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Push & Pull Strategies

Push strategies - Focuses on personal selling;considered useful for marketing industrial goodswhich have shorter channels of distribution.

Pull strategies - Depend on mass communications

to reach target audiences over long distributionchannels.

Integrated marketing communications -

Coordinated use of a broad range of promotionaltools to reach a target market.

Direct marketing

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Direct marketing

Establishes relationship with a customer in orderto initiate immediate and measurable responses.

Accomplished through direct-responseadvertising (direct mail literature and catalogs),

telemarketing (telephone via call centers), anddirectselling (database marketing to create individual relationships witheach customer).

All can be highly personalized tools if the targetaudience can be identified and defined narrowly.

T d Sh d Mi i

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Trade Shows and Missions

Trade shows may be general (horizontal) orspecialized (vertical). They provide: Opportunity to introduce, promote, and demonstrate new

products.

Goodwill and contacts. Locate trade intermediaries and suppliers.

Meet government officials and decision makers.

Collecting market research and competitive intelligence.

Reach sizable sales prospects in a brief time period at areasonable cost per contact.

R f t ti i ti i t d f i

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Reasons fornot participating in trade fairs

High cost. Difficulty in choosing the appropriate trade fairs

Coordination.

Other promotional events that the exporter canuse are trade missions, seminar missions, soloexhibitions, virtual trade shows, etc.

P l lli

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Personal selling

Involves high costs per contact.

Provides immediate feedback on customerreaction as well as information on markets.

Can be used for consumer selling in low-wagemarkets

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Chapter 13

DistributionManagement

Chapter 13

Distribution Management

Channel Structure

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Channel Structure

From direct (producer-to-consumer types) to elaborate(multilevel channels using many types of intermediaries).

Channel configurations for the same product will vary withinindustries, even within the same firm, because nationalmarkets quite often have unique features.

Channel structures are designed to manage multidirectionalconnections for:

Physical movement of goods and services.

Transactional title flows.

Information communications flows.

Foreign Wholesaling

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Foreign Wholesaling

1. Smaller

2. More numerous

3. More services, especially financing

4. Higher margins cf. U.S. wholesalers

5. Operate in permanent wholesale markets,fewer trade shows

IK

Foreign Retailing

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Foreign Retailing

1.Much smaller2. Fewer/smaller chains3. Varied operating hours

4. Limited offerings5. Nomenclature differences6. Government regulations7. Service level varies by country8. Less self-serviceIK

Channel Strategies

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The general distribution systems used bycompanies include:

Direct sales to customers through a firms own fieldsales force or through electronic commerce.

Indirect sales through independent intermediaries atthe local level.

Indirect sales through an outside distributionsystemhaving a regional or global coverage.

Channel Strategies

Channel Design Influences

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Customer characteristics The demographic and psychographic

characteristics of targeted customers form the

basis for channel design decisions. Focusing on customer needs: why, when, and

how they buy helps to generate a competitiveadvantage.


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Culture The existing channel structures or the

distribution culture.

The functions performed by the varioustypes of intermediaries.

Foreign legislation affecting distributors andagents


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Competition Channels used by competitors may be the only

product distribution system that is accepted by boththe trade and consumers.

If distribution channels used by competitors are notsatisfactory, the exporter can:

Form jointly owned sales companies with distributors toexercise more control.

Seek a good company fit in terms of goals and objectives.

Channel Design Criteria

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Channel Design Criteria

Company objectives: market share and profitability

Nature of the product: consumer, industrial

Capital: financial requirements for setting up a channel

system Cost: of maintaining a channel

Coverage:intensive, selective, exclusive

Control: depends on company plans for the future

Continuity: expressed thru visible market commitment

Communication: for channel coordination

Selection of Intermediaries

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Selection of Intermediaries

Two basic decisions: Determining the type of intermediary

relationship

Distributorship Agency relationship

Determining the type of exporting function

Indirect exporting

Direct exporting

Integrated distribution

The distributor agreement

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The distributor agreement

Some important terms to be included:

Contract duration.

Geographic and customer boundaries.

Method of compensation.

Products and conditions of sale. Means of communication between parties.

Process of dispute resolution/dissolution

Gray Markets

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Gray Markets

Gray markets (parallel importation) Authentic and legitimately manufactured trademark

items that are produced and purchased abroad butimported or diverted to the market by bypassing

designated channels. Fuelled by price segmentation and exchange rate

fluctuation.

They under-cut local marketing plans, erode long-

term brand images, eat up costly promotion funds,and sour manufacturerintermediary relations.

Gray Markets

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Gray Markets

Arguments for gray markets: The right to free trade.

Consumers benefit from lower prices.

Discount distributors find a profitable marketniche.

Gray Markets

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Gray Markets

Arguments against gray markets: Hurts the legitimate owners of trademarks.

Reduces incentive among trademark owners to

undertake product development. Take unfair advantage of the trademark owners

marketing and promotional activities.

Can deceive consumers by not meeting product

standards or their normal expectations of after-sale service.

Gray Markets

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Gray Markets

Solutions to the gray market problem:A contractual relationship that ties businesses

together.

A one-price policy. Producing different versions of products for

different markets.

Conducting educational and promotionalcampaigns.

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Chapter 14

Global ProductManagement

and Branding

Chapter 14

Global Product

Management and Branding

Global Product Development

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The goal of the product developmentprocess is to build adaptability intoproducts and product lines to achieve

worldwide appeal.


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Stages of the product developmentprocess

Idea generation

Screening Product and process development

Scale-up

Commercialization


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Sources for idea generation: Company

Customers

Lead users Procurement requisitions from governments

and supranational organizations

Facilitating agents, such as advertisingagencies or market research organizations

Screening Product Ideas

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Screening Product Ideas

Product ideas are screened on the basisofmarket, technical, and financial criteria.

A product idea that at some stage fails tomeet the specified criteria is not scrapped;data from these banks are used in the

development of other products.


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The use ofcomputer aided design (CAD)allows inexpensive adaptation of theproduct designs for future markets.

The product development process can beinitiated by any unit of the organization, inthe parent country or abroad.


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The assignment of product developmentresponsibility may be based on a combinationof special (market and technical) knowledge aswell as long-term or political considerations.

Though product development activity takesplace in the parent country, the affected unitsparticipate in the development and market

planning for a new product.


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p

Reasons for investing in R&D activities abroad: Aids technology transfer from parent to subsidiary.

Develops new and improved products for foreignmarkets.

Develops new products and processes forsimultaneous application in world markets of the firm.

Generates new technology of a long-term exploratorynature.

Curries favor with host-country governments


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Multidisciplinary teams in an organization Maximize the payoff from R&D by streamlining decision

making.

Reduce development time of a new product.

Reduce overall material costs.

Trim manufacturing processes.

Companies increase communication and exchange ofpersonnel to reduce language and cultural barriersamong R&D teams.

R&D consortiahave been established provide the

benefits and face the challenges of any strategicalliance.


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p Testing of new product concepts for performance

and customer acceptance Is the final stage of product development.

Ranges from reliability tests to mini-launches.

Is undertaken to avoid high rate of product failure.

Reasons for product failure: Relying on instinct or hunch rather than testing and

research.

Lack of product distinctiveness.

Unexpected technical problems.

International product testing

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p g Laboratory test markets - Captures consumer reactions

in a controlled environment. Micro test-marketing - Uses a permanent panel of

consumers and assesses their willingness to buy afterexposure to media and purchase incentives.

Forced distribution tests - Relies on the continuousreport of consumer reactions to new products already inthe market.

Global Product Launch

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Global Product LaunchGlobal Launch: Introducing the product into countries in

three or more regions within a narrow timeframe. Measures undertaken for successful launches:

Involvement of country managers.

Pre-launch attention to localization and translationrequirements.

Increased education and support of the sales channel.

Benefits of a successful global launch: Permits the company to showcase the product.

Removes old models at once.

Captures new products higher margins.

Management of the Product and BrandP tf li

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Portfolio

Should have a balanced product and market portfolioa proper mix ofnew, growing, and mature products toprovide a sustainable competitive advantage.

Product portfolio analysis

Is based on growth rates and market share positions.

Is used to analyze: Business entities, product lines, or individual products.

Market, product, and business interlinkages.

Management of the Product andB d P tf li

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Brand Portfolio

Advantages of productportfolio approach A global view of competitive

structures.

A guide for formulation of global

marketing strategy based onallocation of scarce resources.

A guide for formulation ofmarketing objectives based onthe role of product lines in themarkets served.

A convenient visualcommunication goal.

Disadvantages of product

portfolio approach Foreign competition does not

follow the same rules as

domestic competition. Relationships between market

share and profitability may vary.

Government regulations.

Local content laws.

Different production sites impactperceptions of risk and quality.

Branding Policies

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Branding Policies

Three choices of branding: Use of the corporate name.

Use family brands for a wide product line.

Use individual brands for each item in the product line.

Global brands are a key way of creating consistency and impact.

May be completely standardized or some elements of theproduct may be adapted to local conditions.

Characteristics of global brands Carry a strong quality signal and compete on emotion.

Cater to the need of feeling cosmopolitan.

Reflect the professional and personal status of the user.

Use their monetary and human resources to benefit society

Branding Policies

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Branding Policies

Private branding The intermediaries own branded products or store

brands.

Methods used for private branding:

Umbrella branding with the intermediarys name.

Separate brand names for individual products or productlines.

Private brand goods have achieved a significant

penetration in many countries due to increase in pricesensitivity and decrease in brand loyalty.

MKT-421 Spring 2010

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MKT 421 Spring 2010

End of Class Slides

421S10WebCh9-17x15Slides060410

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