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PART SIXMANAGING INTERNATIONAL OPERATIONS

International Business

Chapter Sixteen

Marketing Globally

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Chapter Objectives

To understand a range of product policies and thecircumstances in which they are appropriate internationally

To grasp the reasons for product alternations when decidingbetween standardized versus differentiated marketingprograms among countries

To appreciate the pricing complexities when selling in foreignmarkets

To interpret country differences that may necessitatealterations in promotional practices

To comprehend the different branding strategies companies

may employ internationally To discern complications of international distribution and

practices of effective distribution To perceive why and how emphasis in the marketing mix may

vary among countries

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Marketing Strategies

Marketing: the performance of a wide range ofbusiness activities directed at satisfying needsand wants through the exchange process

Marketing strategies depend upon a firms: marketing orientation target market(s)

When firms select target markets, they may choosemarket segmentsthat exist in more than one country.

Ways of identifying consumer market segmentswithin and across countries include demographics(income, age, gender, religion) and psychographics(attitudes, values, lifestyles).

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Marketing Orientations

production orientation: emphasizes production variablessuch as efficiency, quality, and/or capacity [used internationallyfor selling commodities and passive exports and for serving foreignmarket segments that resemble domestic markets]

sales orientation: assumes that global customers are reason-ably similar and that the same product can be sold at home

and abroad customer orientation: stresses sensitivity to customer needs,i.e., identifying and serving the needs of the customer

strategic marketing orientation: commits to continuouslyserving foreign markets and to making incremental adapta-tions to satisfy local customers [draws upon elements of theproduction, sales, and customer orientations, as appropriate]

societal marketing orientation: requires that activities be con-ducted in a way that preserves or enhances the well-being ofall stakeholders [addresses the environmental, health, social, andwork-related problems that arise in foreign operations]

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Fig. 16.1: Marketing in

International Business

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Product Policy:Reasons for Making Alterations

Legal reasons: explicit product-related legal requirementsvary widely by country but are usually meant to protectcustomers, the environment, or both. [Protective packaging

laws and product standards are very complicated legal issues.] Cultural reasons: cultural factors affecting product demand

may or may not be easily discerned [While religious beliefs offerclear guidelines regarding product acceptability, other factors suchas color, design, and artistic preferences are more subtle.]

Economic reasons: levels of income, differences in income distri-

bution, and the extent and condition of available infrastructure canall affect demand for a given product [Price-reducing alterationsmay be required if a firm expects to enter an emerging market.]

Firms usually prefer to standardize basic componentswhile altering critical end-use characteristics.

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Product Policy:

Other Considerations Extent and Mix of the Product Line

Whereas narrowing a product line allows for the

concentration of effort and resources, the broadeningof a product line may capture distribution economies.

Product Life-cycle ConsiderationsA product facing declining sales in one country may

have growing or sustained sales in another; suchcountry differences can lead to an extended life fora specific product.

Differences will likely exist across countriesin both the shape and the length of a products life cycle.

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Pricing

Price: the value asked for a product[Although usually expressed as a monetary value,

in countertrade transactions, it might not be.]

The complexities of pricing are exacerbated inthe international arena.

Pricing decisions must assure the firm ofsufficient funds to replenish inventory.

In the long-run, price must be lowenough to generate sufficient demandbut high enough to yield a profit.

The Internet is causing more firms to compete for the same business ascustomers gain increasing access to global products and global prices.

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Pricing Complexities

Government Intervention Every country has laws that either directly or

indirectly affect prices to the final customer.

Price controlsmay set either maximum or minimumprices for designated products.

The WTO permits a government to establish restric-tions against any imports that enter the country at aprice below the price charged to customers in the

exporting country (dumping).A firm may charge different prices in different regions

or countries because of differing competitive anddemand factors.

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Pricing Complexities

Market diversity, i.e., country variation, leads tomany ways of segmenting the market for a givenproduct. Depending upon market conditions, a firmmay adopt any of the following pricing strategies:

skimming price: sets a high price for a new productaimed at market innovators [Over time, the price will beprogressively lowered in response to demand and supplyconditions, i.e., the presence of additional competitors.]

penetration price: sets an aggressively low price (i) to

discourage competition and (ii) to attract a maximumnumber of customers (some of whom will hopefully switchfrom competitors brands)

cost-plus price: sets the price at a desired margin overcost

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Pricing Complexities

Price Escalation in Exporting Common reasons for price escalation in export sales are

(i) tariffs and (ii) the often greater distance to the market.

If standard markups occur within a distribution channel,either lengthening the channel or adding expenses atadditional points within the network will increase thedelivered cost of a product.

To compete in export markets, a firm may have to sellits products to intermediaries at reduced prices in orderto lessen the amount of price escalation.

A firm may choose to exclude fixed costs in the pricecalculation of products exported to developing countriesin order to be price competitive in those markets.

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Fig. 16.3: Price Escalation in Exportingif Companies Use Cost-plus Pricing

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Pricing Complexities

Currency Values and Inflation Rates Currency fluctuations:affect a firms

competitiveness and, ultimately, its profitability[Sales contracts may specify that payment

be made in a given currency.]

High inflationin a host country: negativelyaffects the value of a firms foreign receipts

[A firm may need to adjustits margins downward in order to remain competitive.]

High inflationin a home country: negatively af-fects the costs of a firms foreign-sourced inputs

[A firm may need to source locally in orderto remain competitive.]

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Effect of Taxes and Inflation onPricing: An Example

Assumptions: beginning cost = $1,000; inflation = 36%;tax rate = 40%; after-tax profit goal on replacement cost = 30%

IF STOCK IS SOLD AND FUNDS IF STOCK IS SOLD AND FUNDSARE COLLECTED WHEN STOCK ARE COLLECTED ONE YEARIS PURCHASED AFTER STOCK IS PURCHASED

Cost $1,000 Replacement cost $1,360

+ Mark-up 500 + Replacement mark-up 320

Sales price 1,500 Sales price 1,680

- Cost 1,000 - Original cost 1,000Taxable income 500 Taxable income 680

- Tax @40% 200 - Tax @ 40% 272

After-tax income 300 After-tax income 408

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Pricing Complexities

Fixed-cost vs. Variable-cost Pricing The extent to which producers can set prices at the

retail level varies substantially by country.

There is substantial variation in whether, where, andfor which products customers expect to be able tonegotiate a price.

Local laws and customs may limits firms abilities toset optimal prices.

In many cultures prices are simply the starting pointin the bargaining process.

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Import-Export Price Negotiations:An Example

Goal: to delay a pricing commitmentwhile discussing a whole package of other commitments

IMPORTERS REACTION EXPORTERS RESPONSE

1. Offer is too expensive What is meant by expensive?Determine what price is acceptable.

2. Budget is insufficient How large is the importers budget?Determine the time frame and explore

payment alternatives.

3. Offer does not fit needs Insist on specific details of real needs.Repackage offer in light of new info.

4. Offer is not competitive Determine details of competitors offers.Reformulate offer in non-comparative

ways; stress uniqueness of offer.

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Promotion

Promotion: the presentation of messagesintended to help sell a product

[direct and indirect forms of communication designed to

inform, persuade, and/or remind a target audience aboutan organization, its products, and/or its positions]

Promotion Mix: the particular combinationof elements used in a promotion strategy

personal selling advertising

sales promotion activities

publicity/public relations activities

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Promotion: The Push-Pull Mix

Push strategy: direct marketing techniques designedto create immediate demand, i.e., personal selling

[primarily used when a product is relativelyexpensive and distribution is tightly controlled]

Pull strategy: indirect marketing techniques designedto create final demand, i.e., advertising, salespromotion, and publicity/public relations

The cross country push-pull mix is determined by: types of distribution systems the cost and availability of media customer attitudes toward sources of information the relative price (affordability) of a product

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Promotion: The Standardization ofAdvertising Programs

Advertising: any paid form ofmedia (nonpersonal) presentation

The advantages of standardized advertising include: substantial cost savings improved quality (effectiveness) at the local level rapid entry into new country markets

The challenges of standardized advertising include: translation [content, meaning, images] legality [differing views on consumer protection, compe-

titive protection, standards of morality, and nationalism] message needs [national differences in perceptions and

product demand]

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Branding

Brand: a name, term, symbol, and/or designintended to identify a product or product line anddifferentiate it in the marketplace

Trademark: a brand, or part of a brand, i.e., a

mark, that is granted legal protection because it iscapable of legal appropriation MNEs must consider the following branding options:

brand vs. no brand manufacturers brand vs. private brand

one brand vs. multiple brands worldwide brands vs. local brands

Overall, the portion of local brands to international(regional or global) brands is decreasing.

[continued]

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Challenges to regional and global brands include: language factors[the translation and pronunciation of

brand names; the cultural sensitivity of shapes, symbols,and colors]

brand acquisitions[local brands may be well-known butexpensive and strategically difficult to maintain]

country-of-origin images[products from particularcountries may be perceived as being particularly desirable

and of relatively high quality] generic and near-generic names[generic names mayeither stimulate or frustrate the sales of the firm fromwhom a name is expropriated]

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DistributionDistribution: the physical and legal path that products

follow from the point of production to the point ofconsumption

Distribution channel: the set of interdependent individualsand organizations that take title to or assist in thetransfer of a title to a product from producer to finalcustomer [banks --- transportation companies]

[producers --- wholesalers --- retailers][agents & brokers]

Often, geographic barriers and poor transport infrastructuredivide a country into distinctly viable and non-viable markets.

The selling of goods through unauthorized distributors,i.e., the gray market,causes a firms operations in different

countries to complete with one another, thus preventingthem from pricing according to local market conditions.

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Distribution:The Difficulty of Standardization

Each country has its own national distribution systemthat is historically intertwined with its cultural, economic,and legal environments.

Factors that influence the distribution of consumerproducts within a country include: citizens attitudes towards their own retailers the ability (or inability) to pay retail workers retailers trust in their employees legislation affecting chain and individually-owned stores restrictions on the size of stores and their hours of

operation the financial ability of retailers to carry large inventories the efficacy of the national postal system

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Distribution:Distributor and Channel Selection

Firms should handle the distribution function internally if: sales volume is high human, capital, and financial resources are sufficient

the nature of the product demands that the producer dealdirectly with customers customers are global it is possible to gain a competitive advantage

The more complex and expensive a product, the greaterthe importance of after-sales service. Firms may need to invest in service centers, which in turn

can become important sources of revenues and profits.[continued]

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Criteria for the selection of potential distributors include: financial strength quality of connections the extent of a distributors other commitments regarding

both complementary and competitive products the state of a distributors equipment, facilities, andpersonnel

trustworthiness and contract enforcement issues

A new client must convince a desired distributor of the

viability of its firm and its products. A new client may need to offer distributors extra incentivesor be willing to enter into exclusive arrangements.

Firms may choose a combination of internal distributionand outsourced distribution services.

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Distribution:

Hidden Costs Differences in national distribution systems that

may contribute to increased costs include:

poor infrastructure [port, roads, warehouse facilities] levels within a distribution system [multi-tiered

wholesale systems]

retail inefficiencies [an insistence upon counter service]

government restrictions [laws protecting small retailersor limiting hours of operation]

lack of retail storage space [more frequent, smallerdeliveries required to prevent stock-outs]

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The Internet and ElectronicCommerce

Opportunities E-commerce offers firms a unique opportunity

to market their products worldwide.

The Internet permits suppliers to dealmore quickly with their customers.

Challenges Customers worldwide can quickly compare prices from

different distributors, thus intensifying price competition.

Differentiation is difficult because the same web adsand prices reach customers everywhere.

Internet ads and prices must comply with the lawsof each country where a firm markets its products.

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Internet Usage by Region, 2005

WORLD % OF WORLD INTERNET % OF POP. % OF WORLD

REGIONS POPULATION USAGE [USAGE RATE] USERS

Africa 900,465,411 13,468,600 1.5% 1.5%

Asia 3,612,363,165 302,257,003 8.4% 34.0%Europe 730,991,138 259,653,144 35.5% 29.2%

Middle East 259,499,772 19,370,700 7.5% 2.2%

North Amer. 328,387,059 221,437,647 67.4% 24.9%

Latin Amer. 546,917,192 56,224,957 10.3% 6.3%Oceania 33,443,448 16,269,080 46.6% 1.8%

WORLD 6,412,067,185 888,681,131 13.9% 100.0%

Source: Miniwatts International, Ltd.

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Managing the Marketing Mix:Gap Analysis

Gap analysis: a method for estimating a firms potential sales ofa given product by determining the difference between the totalmarket potential and gaps in usage, competition, product lineoffers, and distribution

Total market potential: the total potential sales of allcompetitors within a given product market (category) The difference between total market potential and current

sales, i.e., the gap, is due to: usage patterns

product line characteristics distribution coverage strategies the effect(s) of competitors strategies

Gap analysis helps managers determine both the size of and thereasons for the differences between market potential and actual sales.

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Fig. 16.4: Gap Analysis

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A variety of legal, cultural, and economic con-ditions may cause firms to alter their marketingstrategies, but the cost of adaptation must bemeasured against the potential gain in sales.

Gap analysis is a tool that help firms deter-mine (i) why they have not yet maximized

their market potential in given countries and(ii) what parts of the marketing mix to empha-size in which countries and regions.