Products and Services for Consumers Lecture 9. 12 - 2 Learning Objectives The importance of offering...

Products and Services for Consumers

Lecture 9

12 - 2

Learning Objectives

• The importance of offering a product suitable for the intended market

• The relationship between product acceptance and the market into which it is introduced

• The importance of quality and how quality is defined• Country-of-origin effects on product image• Physical, mandatory, and cultural requirements for

product adaptation• The need to view all attributes of a product in order to

overcome resistance to acceptance

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Global PerspectiveHong Kong – Disney Rolls the Dice Again

• Tokyo Disneyland – successful• EuroDisney – disaster• Hong Kong Disneyland – open for business• The opportunities and challenges for international

marketers of consumer goods and services today is great and diverse.

- Market offerings- Business-to-consumer marketing

• Quality products and services that meet the needs and wants of consumers at an affordable price should be the goal of any marketing firm.

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Quality

• Shift to a customer’s market• Increased customer knowledge• The customer defines quality• The cost and quality of a product are among the most

important criteria by which purchases are made• Quality can be defined on two dimensions:

- Market-perceived quality- Performance quality

• Most consumers expect performance quality to be a given• In many industries quality is measured by objective third

parties- JD Power and Associates

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Maintaining Quality

• Damage in the distribution chain- Russian chocolate

• Quality is essential for success in today’s competitive global market

• The decision to standardize or adapt a product is crucial in delivering quality

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Physical or Mandatory Requirements and Adaptation

• Product homologation• Product adaptation dictated by the following

requirements:- Legal- Economic- Political- Technological- Climate

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Green Marketing and Product Development

• Critical issues affecting product development:- Control of the packaging component of solid waste- Consumer demand for environmentally friendly

products• European Commission guidelines for ecolabeling• Laws to control solid waste

Green marketing is a term used to define concern with the environmental consequences of a variety of marketing activities.

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Products and Culture

• A product is the sum of the physical and psychological satisfactions it provides the user.

- Primary function- Psychological attributes

• The need for cultural adaptation is often necessary, affected by how the product conforms with:

- Norms- Values- Behavior patterns

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Innovative Products and Adaptation

• Determining the degree of newness as perceived by the intended market

• Diffusion

• Established patterns of consumption and behavior• Foreign marketing goal: gaining the largest number of

consumers in the market in the shortest span of time- Probable rate of acceptance

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Diffusion of Innovations

• Crucial elements in the diffusion of new ideas:- An innovation- Which is communicated through certain channels- Over time- Among the members of a social system

• The element of time• Variables affecting the rate of diffusion of an object:

- The degree of perceived newness- The perceived attributes of the innovation- The method used to communicate the idea

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Five Characteristics of an Innovation

1. Relative advantage

2. Compatibility

3. Complexity

4. Trialability

5. Observability

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Production of Innovations

• Inventiveness of companies and countries• Expenditures• Japanese solutions

- American-style education programs- American design centers

• New ideas come from a growing variety of sources, countries, acquisitions, and even global collaborations

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Analyzing Product Components for Adaptation

• Insert Exhibit 12.1 – Product Component Model

Exhibit 12.1

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Marketing Consumer Services Globally

• Consumer services characteristics:- Intangibility- Inseparability- Heterogeneity- Perishability

• A service can be marketed both as an industrial (business-to-business) or a consumer service

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Services Opportunities in Global Markets

• Tourism• Transportation• Financial services• Education• Communications• Entertainment• Information• Health care

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Barriers to Entering Global Markets for Consumer Services

• Protectionism

• Restrictions on transborder data flows

• Protection of intellectual property

• Cultural barriers and adaptation

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Brands in International Markets

• Very important• Most valuable resource a company has

A global brand is defined as the worldwide use of a name, term, sign, symbol, design, or combination thereof intended to identify goods or services of one seller and to differentiate them from those of competitors.

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Top Twenty BrandsRank 2005/2004 2005 Brand Value

(millions)2004 Brand Value (millions)

Change (%)

Country of Ownership

1/1 Coca Cola $67,525 $67, 394 0% U.S.

2/2 Microsoft 59,941 61,732 -2 U.S.

3/3 IBM 53,376 53, 791 -1 U.S.

4/4 GE 46, 996 44,111 7 U.S.

5/5 Intel 35,588 33,499 6 U.S.

6/8 Nokia 26,452 24,041 10 Finland

7/6 Disney 26,441 27,113 -2 U.S.

8/7 McDonalds 26,041 25,001 4 U.S.

9/9 Toyota 24,837 22,673 10 Japan

10/10 Marlboro 21,139 22,128 -4 U.S.

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Top Twenty Brands (continued)Rank 2005/2004 2005 Brand Value

(millions)2004 Brand Value (millions)

Change (%)

Country of Ownership

11/11 Mercedes-Benz

$20,006 $21,331 -6 Germany

12/13 Citi 19,967 19,971 0 U.S.

13/12 HP 18,559 17,683 5 U.S.

14/14 Am Ex 18,534 16,723 5 U.S.

15/15 Gillette 17,534 16,723 5 U.S.

16/17 BMW 17,126 15,886 8 Germany

17/16 Cisco 16,592 15,948 4 U.S.

18/44 L Vuitton 16,077 NA NA France

19/18 Honda 15,788 14,874 6 Japan

20/21 Samsung 14,956 12,553 19 S. Korea

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Global Brands

• The Internet and other technologies accelerate the pace of the globalization of brands

• Ideally gives the company a uniform worldwide image

• Balance

• Ability to translate

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National Brands

• Acquiring national brand names

• Using global brand names

• Nationalistic pride impact on brands

• Use global brands where possible and national brands where necessary

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Country-of-Origin Effect

Country-of-origin effect (COE) can be defined as any influence that the country of manufacture, assembly, or design has on a consumer’s positive or negative perception of a product.

• Consumers have broad but somewhat vague stereotypes about specific countries and specific product categories that they judge “best.”

• Ethnocentrism

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Country-of-Origin Effect and Global Brands

• Countries stereotyped on the basis of whether they are industrialized, in the process of industrializing, or developing

• The more technical the product, the less positive is the perception of one manufactured in a less-developed or newly industrializing country

• Fads often surround product from particular countries or regions

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Private Brands

• Growing as challengers to manufacturers’ brands• Private labels:

- Provide the retailer with high margins- Receive preferential shelf space and in-store

promotion- Are quality products at low prices

• Must be competitively priced and provide real consumer value

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Summary

• The growing globalization of markets must be balanced with the continuing need to assess all markets for those differences that might require adaptation for successful acceptance.

• In spite of the forces of homogenization, consumers also see the world of global symbols, company images, and product choice through the lens of their own local culture and its stage of development and market sophistication.

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Summary

• Each product must be viewed in light of how it is perceived by each culture with which it comes in contact.

• Analyzing a product as an innovation and using the Product Component Model may provide the marketer with important leads for adaptation

Products and Services for Businesses

Lecture 10

12 - 28

Learning Objectives

• The importance of derived demand in industrial markets• How demand is affected by technology• Characteristics of an industrial product• The importance of ISO 9000 certification• The growth of business services and nuances of their

marketing• The importance of trade shows in promoting industrial

goods• The importance of relationship marketing for industrial

products and services

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Global PerspectiveIntel, the Boom and the Inescapable Bust

• In industrial markets, including global ones, what goes up must come down

• The majority of export sales for industrialized countries is technology

• Issues of standardization versus adaptation have less relevance to marketing industrial goods than consumer goods

• Factors accounting for greater market similarities in industrial goods customers versus consumer goods customers:

- The inherent nature of the product- The motive or intent for the user differs

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Major Categories U.S. Exports

• Insert Exhibit 13.1

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Demand in Global Business-to-Business Markets

• Demand in industrial markets is by nature more volatile• Stages of industrial and economic development affect

demand for industrial products• The level of technology of products and services make

their sales more appropriate for some countries than others

Derived demand can be defined as demand dependent on another source.

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The Volatility of Industrial Demand

• Cyclical swings in demand- Professional buyers tend to act in concert- Derived demand accelerates changes in markets

• Measures to manage volatility:- Maintain broad product lines- Raise prices faster and reduce advertising

expenditures during booms- Ignore market share as a strategic goal- Eschew layoffs- Focus on stability

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Derived Demand Example


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Stages of Economic Development

• Stage 1 – the traditional society

• Stage 2 – preconditions for takeoff

• Stage 3 – take off

• Stage 4 – drive to maturity

• Stage 5 – the age of mass consumption

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Technology and Market Demand

• Trends spurring demand for technologically advanced products:

- Expanding economic and industrial growth in Asia- The disintegration of the Soviet empire- The privatization of government-owned industries

worldwide• The companies with the competitive edge will be those

whose products are:- Technologically advanced- Of the highest quality- Accompanied by world-class service

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Quality and Global Standards

• Perception of quality rests solely with the customer- Level of technology reflected in the product- Compliance with standards that reflect customer

needs- Support services and follow-through- Price relative to competitive products

• Relevant quality features

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Quality is Defined by the Buyer

• How well a product meets the specific needs of the buyer• The price-quality relationship• Product design must be viewed from all aspects of use

- Climate- Terrain

• Total Quality Management (TQM)• Lack of universal standards• Country-specific standards• The metric system

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ISO 9000 Certification: An International Standard of Quality

• Positively affects the performance and stock prices of firms

• Certification of the existence of a quality control system a company has in place to ensure it can meet published quality standards

• Generally voluntary• EU Product Liability Directive• Now a competitive marketing tool in Europe and around

the world• The ACSI approach

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Business Services

• For many industrial products the revenues from associates services exceed the revenues from the products

- Cellular phones- Printers

• Leasing capital equipment• Services not associated with products

- Boeing at-sea-satellite-launch services- Ukrainian cargo company space rental on giant jets

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After-Sale Services

• Installation• Training• Spare and replacement parts

- Delivery time- Cost of parts

• Service personnel• Crucial in building strong customer loyalty• Almost always more profitable than the actual sale of the

machinery or product

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Other Business Services

• Client followers• Mode of entry

- Licensing- Franchising- Direct investment

• Protectionism• Restrictions on cross-border data flows

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Expansion of U.S. Law Firms in Selected Cities Worldwide


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Trade Shows: A Crucial Part of Business-to-Business Marketing

• Secondary methods for marketing:- Advertising in print media- Catalogs- Web sites- Direct mail

• Trade shows have become the primary and most important vehicle for doing business in many foreign countries

• Total annual media budget spent on trade events:- Europeans – 22 percent- Americans – 5 percent

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Trade Shows: A Crucial Part of Business-to-Business Marketing (continued)

• Trade shows:- Provide the facilities for a manufacturer to exhibit and

demonstrate products to potential users- Allow manufacturers to view competitors products- Are an opportunity to create sales and establish

relationships with agents, distributors, franchisees, and suppliers

• Online trade shows:- Become useful in difficult economic and/or political

circumstances- Are obviously a less than adequate substitute for live

trade shows

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Relationship Marketing in Business-to-Business Contexts

• It is not a matter of selling the right product the first time, but rather of continuously changed the product to keep it right over time.

• The objective of relationship marketing is to make the relationship an important attribute of the transaction, thus differentiating oneself from competitors.

• Using the Internet to facilitate relationship building and maintenance

- Cisco Systems- IBM

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Summary

• Industrial marketing requires close attention to the exact needs of customers.

• Industrial goods marketers must pay close attention to the level of economic and technological development of each market to determine the buyer’s assessment of quality.

• The demand for products and services in business-to-business markets is by nature more volatile than in most consumer markets.

• The demand also varies by level of economic development and the quality of educational systems across countries.

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Summary (continued)

• Product or service quality is defined by customers.• Global quality standards such as ISO 9000 are being

developed.• After-sale services are an important aspect of industrial

sales.• Trade shows are an especially important promotional

medium in business-to-business marketing.

International Marketing Channels

Lecture 11

McGraw-Hill/IrwinInternational Marketing, 13/e

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

12 - 49

Learning Objectives

• The variety of distribution channels and how they affect cost and efficiency in marketing

• The Japanese distribution structure and what it means to Japanese customers and to competing importers of goods

• How distribution patterns affect the various aspects of international marketing

• The growing importance of e-commerce as a distribution alternative

• The functions, advantages, and disadvantages of various kinds of middlemen

• The importance of middlemen to a product’s success and the importance of selecting and maintaining middlemen

12 - 50

Global Perspective A Single Stick of Doublemint Today – 18 Billion Tomorrow

• A product must be made accessible to the target market at an affordable price

• Getting the product to the target market can be a costly process

• Forging an aggressive and reliable channel of distribution may be the most critical and challenging task facing the international marketer

• Competitive advantage will reside with the marketer best able to build the most efficient channel from among the alternatives available

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Channel-of-Distribution Structures

• All consumer and industrial products eventually go through a distribution process.

- Physical handling and distribution of goods- Passage of ownership- Buying and selling negotiations between producers and

middlemen- Buying and selling negotiations between middlemen and

customers

• Each country market has a distribution structure through which goods pass from producer to user.

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Import-Oriented Distribution Structure

• Demand exceeds supply• The customer seeks the supply from a limited number of

middlemen• Distribution systems are local• Few countries fit the import-oriented model today

In an import-oriented or traditional distribution structure, an importer controls a fixed supply of goods and the marketing system develops around the philosophy of selling a limited supply of goods at high prices to a small number of affluent customers.

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Japanese Distribution Structure

1. A structure dominated by many small middlemen dealing with many small retailers

2. Channel control by manufacturers

3. A business philosophy shaped by a unique culture

4. Laws that protect the foundation of the system

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Comparison of Distribution Channels between the United States and Japan


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High Density of Middlemen

• Not unusual for consumer goods to go through three or four intermediaries before reaching the consumer

• In Japan, small stores account for 57.7 percent of retail food sales

• In the U.S., small stores generate 19.2 percent of food sales

• Japan has a large number of independent groceries and bakers, unlike America with an emphasis on supermarkets, discount food stores, and department stores

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Channel Control

1. Inventory financing

2. Cumulative rebates

3. Merchandise returns

4. Promotional support

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Business Philosophy

• Emphasizes loyalty, harmony, and friendship

• Supports long-term dealer-supplier relationships

• The cost of Japanese consumer goods are among the highest in the world

• Japanese law gives the small retailer enormous advantage over the development of larger stores

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Large-Scale Retail Store Law and Its Successor

• Daitenho – the Large-Scale Retail Store Law- Large stores must have approval from the prefecture

government- All proposals first judged by the Ministry of International

Trade and Industry (MITI)- Then, if all local retailers unanimously agreed, the plan

was approved- Could be a lengthy process- Applied to both domestic and foreign companies

• Replaced by the Large-Scale Retail Store Location Act of June 2000

- MITI out of the process- Relaxed restrictions

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Changes in the Japanese Distribution System

• Structural Impediments Initiative

• Deregulation

• Wal-Mart

• “New” retailers

• The Internet

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Trends: From Traditional to Modern Channel Structures

• European retailers merging with former competitors and other countries to form Europe-wide enterprises

• Foreign retailers attracted by the high margins and prices• The Internet may be the most important trend affecting

distribution• Covisint• GlobalNetXchange• E-commerce• 7-Eleven competes with FedEx and UPS

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Distribution Patterns

• General patterns- Middlemen services- Line breadth- Costs and margins- Channel length- Nonexistent channels- Blocked channels- Stocking- Power and competition- Retail patterns:- Size patterns- Direct marketing- Resistance to change

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Alternative Middleman Choices

• Seller must exert influence over two sets of channels:- One in the home country- One in the foreign-market country

• Agent middlemen – represent the principal rather than themselves

• Merchant middlemen – take title to the goods and buy and sell on their own account

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Home-Country Middlemen

• Manufacturer’s retail stores• Global retailers• Export management companies• Trading companies• U.S. export trading companies• Complementary marketers• Manufacturer’s export agent• Home-country brokers• Buying offices

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Home-Country Middlemen (continued)

• Selling groups• Webb-Pomerene export associations• Foreign sales corporation• Export merchants• Export jobbers

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Foreign-Country Middlemen

• Manufacturer’s representatives• Distributors• Foreign-country brokers• Managing agents and compradors• Dealers• Import jobbers, wholesalers, and retailers

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Government-Affiliated Middlemen

• Marketers must deal with governments in every country of the world

• Products, services, and commodities for the government’s own use are always procured through government purchasing offices at federal, regional, and local levels

• Efficiency of public sector versus the private sector

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Factors Affecting Choice of Channels

• Cost• Capital requirements• Control• Coverage• Character• Continuity

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Locating, Selecting, and Motivating Channel Members

• Locating middlemen• Selecting middlemen

- Screening- The agreement

• Motivating middlemen• Terminating middlemen• Controlling middlemen

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The Internet

• E-commerce is used to market:- Business-to-business (BSB) services- Consumer services- Consumer and industrial products

• E-commerce is more developed in the U.S. than in the rest of the world

• B2B enables companies to cut costs in three ways:- Reduces procurement costs- Allows better supply-chain management- Makes possible tighter inventory control

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Concerns for e-Vendors

• Culture• Adaptation• Local contact• Payment• Delivery• Promotion

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Global PerspectiveAn Export Sale: From Trade Show to Installation

• Specific export mechanics occur when goods are shipped from one country to another.

• The Internet has helped speed up this process• Most countries control the movement of goods

crossing their borders – imports and exports• The international marketer must meet the legal

requirements involved in moving goods from one country to another

- Export regulations- Import regulations

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Export Restrictions

• Controlled by the Bureau of Industry and Security (BIS) of the Department of Commerce

• Export Administration Regulations- Serve the national security, foreign policy, and

nonproliferation interests- Includes some export controls to protect the U.S. from

the adverse impact of the unrestricted export of commodities in short supply

• NLR (no license required)

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Determining Export Requirements

• The exporter must determine the appropriate license for the product (general or validated):

1. Select the proper classification number

2. Decide if the items have end-use restrictions

3. Determine the ultimate end customer and ultimate end uses of the product

• The details of exporting must be followed to the letter

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ELAIN, STELA, ERIC, and SNAP

• ELAIN ( Export License Application and Information Network)

• STELA (System for Tracking Export License Applications)

• ERIC (Electronic Request for Item Classification)• SNAP (Simplified Network Application Process)

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Import Restrictions

• Tariffs• Exchange permits• Quotas• Import licenses• Standards• Boycotts• Voluntary agreements• Other restrictions

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Terms of Sale

• CIF (cost, insurance, freight)• C&F (cost and freight)• FAS (free alongside)• FOB (free on board)• EX (named port of origin)

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Getting Paid: Foreign Commercial Payments

• Letter of credit- Afford the greatest degree of protection for the seller- Can be revocable or irrevocable- Not a guarantee of payment to the seller

• Bills of exchange- Also known as dollar drafts- The seller assumes all risk until the actual dollars are

received- Sight draft- Arrival draft- Date draft

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Getting Paid: Foreign Commercial Payments (continued)

• Cash in advance- Places unpopular burdens on the customer

• Open accounts- Not generally made in foreign trade- Leaves sellers at a disadvantage

• Forfaiting- The seller makes a one-time arrangement with a

financial institution to take over responsibility for collecting the account receivable

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Export Documents

• Export documents• Consular invoice of certificate of origin• Bill of lading• Commercial invoice• Insurance policy or certificate• Licenses• Other documents

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Packing and Marking

• Export packaging must consider:- Protection against rough handling, climate, pilferage- Effect of gross weight on import fees

• All countries regulate the marking of imported goods and containers

- All markings must conform exactly to the data on the export documents

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Customs-Privileged Facilities

• Foreign trade zones (FTZs)- Drawback

• Offshore assembly (Maquiladoras)- Originated in Mexico in the early 1970’s- NAFTA

Customs-privileged facilities are areas where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas.

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Logistics

• Logistics management is a total systems approach to management of the distribution process that includes all activities involved in:

- Physically moving raw material- In-process inventory- Finished goods inventory from the point of origin to

the point of use or consumption

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Interdependence of Physical Distribution Activities

• A physical distribution system involves:- Physical movement of goods- Location of plants and warehousing (storage)- Transportation mode- Inventory quantities- Packing

• Total cost of the system

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Benefits of a Physical Distribution System

• Cost advantages• Optimal inventory levels• Optimal production capacity• More dependable delivery service to the market• Can render the natural obstructions created by geography

les economically critical for the multinational marketer

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Export Shipping and Warehousing

• Common shipping modes: ocean shipping, airfreight, air express, and parcel post

• Containerization• Intermodal services• Intermodal marketing companies (IMCs)• Rail transportation• Complete logistics management services

- UPS- FedEx

• Merge-in-transit

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Foreign Freight Forwarder

• Licensed by the Federal Maritime Commission• Arranges for the shipment of goods as the agent for an

exporter- Arranges for complete shipping documentation- Provides information and advice on routing and

scheduling, rates and related charges, consular and licensing requirements, labeling requirements, and export restrictions

- Offers shipping insurance, warehouse storage, packing and containerization, and ocean cargo or airfreight space

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International Logistics and Supply Chain Management

• Information technology now allows communication with participants in real time via a single connection point

• NetLinx• Descartes• BLP providers or integrators

- UPS Logistics Group

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Terrorism and Logistics

• Cargo and container security initiative (CSI)- 24-hour rule

• Customs-Trade Partnership against Terrorism (C-TPAT)- Augments the 24-hour rule by extending security

procedures throughout the supply chain- Only applies to U.S. importers

• Electronic tracking (C-TPAT-Plus)- RFID Bar codes - GPS Optical character recognition- Cellular- Satellite- Ultra-wide-band- Bluetooth

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Summary

• The international marketer has a broad range of alternatives for developing a distribution system.

• Three primary alternatives for using agent middlemen:- Agent middlemen- Merchant middlemen- Government-affiliated middlemen

• Channel structure may vary from nation to nation or from continent to continent.

• Information and advice are available relative to the structuring of international distribution systems.

• Traditional channels are being challenged by the Internet, which is offering an ever-wider range of possibilities for entering foreign markets.

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Summary

• The mechanics of exporting require little room for interpretation or improvisation.

• The very nature of the regulations and restrictions surrounding importing and exporting can lead to frequent and rapid change.

- The manufacturer must keep abreast of all foreign and domestic changes in requirements and regulations.

• Foreign-freight-forwarders can handle many details for a nominal fee.• Transportation mode affects total product cost.• A physical distribution system determines everything from plant location

to final customer delivery in terms of the most efficient use of capital investment, resources, production, inventory, packaging and transportation.

• The continuous innovations in information technology, the Internet, and software programs can minimize much of the burden associated with global marketing.

Integrated Marketing Communications and

International AdvertisingLecture 12



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Learning Objectives

• Local market characteristics that affect the advertising and promotion of products

• The strengths and weaknesses of sales promotion and public relations in global marketing

• When global advertising is most effective; when modified advertising is necessary

• The effects of a single European market on advertising• The effect of limited media, excessive media, paper and

equipment shortages, and government regulations on advertising and promotion budgets

• The communication process and advertising misfires

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Global PerspectiveBarbie Versus Mulan

• Integrated marketing communications (IMC)- Advertising- Sales promotions- Trade shows- Personal selling- Direct selling- Public relations

• Objective: the successful sale of a product or service

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Sales Promotions in International Markets

• Sales promotions- Marketing activities that stimulate consumer

purchases and improve retailer or middlemen effectiveness and cooperation

- Short-term efforts directed to the consumer or retailer to achieve specific objectives

• In markets with media limitations the percentage of the promotional budget allocated to sales promotions may have to be increased

• Product sampling

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International Public Relations

• Bridgestone/Firestone Tires safety recall• Global workplace standards• Building an international profile• Corporate sponsorships

The role of public relations (PR) is creating good relationships with the popular press and other media to help companies communicate messages to customers, the general public, and governmental regulators.

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International Advertising

1. Perform marketing research.

2. Specify the goals of the communication.

3. Develop the most effective message(s) for the market segments selected.

4. Select effective media.

5. Compose and secure a budget.

6. Execute the campaign.

7. Evaluate the campaign relative to the goals specified.

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Top 20 Global Advertisers ($ millions)


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Advertising Strategy and Goals

• Marketing problems require careful marketing research and thoughtful and creative advertising campaigns in country, regional, and global markets, respectively.

• Increased need for more sophisticated advertising strategies.

• Balance between standardization of advertising themes and customization.

• Consumer cultures

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Product Attributes and Benefit Segmentation

• Different cultures usually agree on the benefit of the primary function of a product

• Other features and psychological attributes of the item can have significant differences

- Cameras- Yogurt- Almonds

• Blue Diamond – assumes that no two markets will react the same, that each has its own set of differences, and that each will require a different marketing approach and strategy

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Regional Segmentation

• Pan-European communications media highlighting need for more standardized promotional efforts

• Costs savings with a common theme in uniform promotional packaging and design

• Legal restrictions slowly being eliminated

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Global Advertising and the Communications Process

• If not properly considered, the different cultural contexts can increase the probability of misunderstandings

• Effective communication demands the existence of a “psychological overlap” between the sender and the receiver

• It can never be assumed that “if it sells well in one country, it will sell in another”

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The International Communications Process


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Legal Constraints

• Laws that control comparative advertising vary from country to country in Europe.

• Comparative advertising• Advertising of specific products• Control of advertising on television• Accessibility to broadcast media• Limitations on length and number of commercials• Internet services• Special taxes that apply to advertising

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Linguistic Limitations

• Language is one of the major barriers to effective communication through advertising

• Translation challenges

• Low literacy in many countries

• Multiple languages within a country

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Cultural Diversity

• Knowledge of cultural diversity must encompass the total advertising project

• Existing perceptions based on tradition and heritages are often hard to overcome

• Subcultures

• Changing traditions

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Media Limitations and Production and Cost Limitations

• Media limitations may diminish the role of advertising in the promotional program

• Examples of production limitations:- Poor-quality printing- Lack of high-grade paper

• Low-cost reproduction in small markets poses a problem in many countries

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Media Planning and Analysis – Tactical Considerations

• Availability

• Cost

• Coverage

• Lack of market data

• Newspapers

• Magazines

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Media Planning and Analysis – Tactical Considerations (continued)

• Radio and television• Satellite and cable TV• Direct mail• The Internet• Other media

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Campaign Execution and Advertising Agencies

• Managed by advertising agencies- Local domestic agency- Company-owned agency- Multinational agency with local branches

• Compensation- Commonly 15 percent throughout the world- Some companies moving to reward-by-results

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International Control of Advertising: Broader Issues

• Consumer criticism

• Deceptive advertising

• Decency and blatant use of sex

• Self-regulation

• Government regulations

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Summary

• An integrated marketing communications (IMC) program includes coordination among advertising, sales management, public relations, sales promotions, and direct marketing.

• Currently companies are basing their advertising strategies on national, subcultural, demographic, or other market segments.

• The major problem facing international advertisers is designing the best messages for each market served.

• The availability and quality of advertising media vary substantially around the world.

• Advances in communication technologies are causing dramatic changes in the structure of the international advertising and communications industries.

Pricing for International

MarketsLecture 13



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Learning Objectives

• Components of pricing as competitive tools in international marketing

• The pricing pitfalls directly related to international marketing

• How to control pricing in parallel imports or gray markets

• Price escalation and how to minimize its effect• Countertrading and its place in international marketing

practices• The mechanics of price quotations

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Global PerspectiveThe Price War

• Setting the right price for a product or service can be the key to success or failure

• An offering’s price must reflect the quality and value the consumer perceives in the product

• As the globalization of world markets continues, competition intensifies among multinational and home-based companies

• The marketing manager’s responsibility is to set and control the actual price of goods in different markets in which different sets of variables are to be found

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Pricing PolicyPricing Objectives

• Pricing as an active instrument of accomplishing marketing objectives

- The company uses price to achieve a specific objective

• Pricing as a static element in a business decision- Exports only excess inventory- Places a low priority on foreign business- Views its export sales as passive contributions to sales

volume

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Pricing PolicyParallel Imports

• Occurs whenever price differences are greater than the cost of transportation between two markets

• Major problem for pharmaceutical companies• Exclusive distribution

Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system.

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How Gray-Market Goods End up in U.S. Stores


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Approaches to International PricingFull-Cost versus Variable-Cost Pricing

• Variable-cost pricing – the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets.

• Full-cost pricing – companies insist that no unit of a similar product is different from any other unit in terms of cost and that each unit must bear its full share of the total fixed and variable cost

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Approaches to International PricingSkimming versus Penetration Pricing

• Skimming – a company uses when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received.

• Penetration pricing policy – used to stimulate market and sales growth by deliberately offering products at low prices.

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Price Escalation

• Costs of exporting- Price escalation

• Taxes, tariffs, and administrative costs- Tariff – fee charged when goods are brought into a

country from another country- Administrative costs include export and import

licenses, other documents, and the physical arrangements for getting the product from port of entry to the buyer’s location

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Price Escalation (continued)• Inflation

- In countries with rapid inflation or exchange variation, the selling price must be related to the cost of goods sold and the cost of replacing the items

• Deflation- In a deflationary market, it is essential for a company

to keep prices low and raise brand value to win the trust of consumers

• Exchange rate fluctuations- No one is quite sure of the future value of currency- Transactions are increasingly being written in terms

of the vendor company’s national currency

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Price Escalation (continued)

• Varying currency values- Changing values of a country’s currency relative to

other currencies- Cost-plus pricing

• Middleman and transportation costs- Channel diversity- Underdeveloped marketing and distribution channel

infrastructures

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Sample Causes and Effects of Price Escalation


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Approaches to Lessening Price Escalation

• Lowering cost of goods

• Lowering tariffs

• Lowering distribution costs

• Using foreign trade zones to lessen price escalation• Dumping

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Leasing in International Markets

• Opens the door to a large segment of nominally financed foreign firms that can be sold on a lease option but might be unable to buy for cash

• Can ease the problems of selling new, experimental equipment because less risk is involved for the users

• Helps guarantee better maintenance and service on overseas equipment

• Helps to sell other companies in that country• Revenue tends to be more stable over a period of time

than direct sales would be

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Countertrade as a Pricing Tool

• Why purchasers impose countertrade:- To preserve hard currency- To improve balance of trade- To gain access to new markets- To upgrade manufacturing capabilities- To maintain prices of export goods- To force reinvestment of proceeds from weapons

deals

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Countertrade as a Pricing Tool (continued)

• Types of countertrade- Barter- Compensation deals- Counterpurchase or offset trade- Product buyback agreement

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Countertrade as a Pricing Tool (continued)

• Problems of countertrading- Determining the value of and potential demand for the

goods offered- Barter houses

• The Internet and countertrading- Electronic trade dollars- Universal Currency/IRTA

• Proactive countertrade strategy- Included as part of an overall market strategy- Effective for exchange-poor countries

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Transfer Pricing Strategy

• Benefits:- Lowering duty costs- Reducing income taxes in high-tax countries- Facilitating dividend repatriation when dividend repatriation is

curtailed by government policy• Arrangements for pricing goods for intracompany transfer:

- Sales at the local manufacturing cost plus a standard markup- Sales at the cost of the most efficient producer in the company

plus a standard markup- Sales at negotiated prices- Arm’s-length sales using the same prices as quoted to

independent customers

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Price Quotations

• May include specific elements affecting the price:- Credit- Sales terms- Transportation- Currency- Type of documentation required

• Should define quantity and quality

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Administered Pricing

• Cartels- Exists when various companies producing similar products or

services work together to control markets for the types of goods and services they produce

- Example: OPEC

• Government-influenced pricing- Establish margins- Set prices and floors or ceilings- Restrict price changes- Compete in the market- Grant subsidies- Act as a purchasing monopoly or selling monopoly

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Summary

• Pricing is one of the most complicated decisions areas encountered by international marketers.

• International marketers must take many factors into account, not only for each country, but often for each market within a country.

• Market prices at the consumer level are much more difficult to control in international than in domestic marketing.

• Controlling costs that lead to price escalation when exporting products from one country to another is one of the most challenging pricing tasks facing the exporter.

• Countertrading is an important tool to include in pricing policy.• Pricing in the international marketplace requires a combination of intimate

knowledge of market costs and regulations, an awareness of possible countertrade deals, infinite patience for detail, and a shrewd sense of market strategy.

Negotiating with International Customers, Partners, and Regulators

lecture 14



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Learning Objectives

• The problems associated with cultural stereotypes• How culture influences behaviors at the negotiation table• Common kids of problems that crop up during international

business negotiations• The similarities and differences in communication behaviors in

several countries• How differences in values and thinking processes affect

international negotiations• The important factors in selecting a negotiation team• How to prepare for international negotiations• Managing all aspects of the negotiation process• The important of follow-up communications and procedures

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Global PerspectiveA Japanese Aisatsu

• Face-to-face negotiations are an omnipresent activity in international commerce.

• Executives must also negotiate with representatives of foreign governments.

• A crucial aspect of all international commercial relationships is the negotiation of the original agreement.

• If cultural differences are taken into account, business agreements can be made that lead to long-term, profitable relationships across borders.

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The Dangers of Stereotypes

• Negotiations are conducted between people, not national stereotypes

• Cultural factors often make huge differences• Negotiation behaviors are different across regions,

genders, and type of industry• Age and experience also make important differences• Consider the culture of customers and business partners,

but treat them as individuals

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The Pervasive Impact of Culture on Negotiation Behavior

• Regional generalizations very often are not correct• Cultural differences cause four kinds of problems in

international business negotiations:- Language- Nonverbal behaviors- Values- Thinking and decision-making processes

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Differences in Language and Nonverbal Behaviors

• Americans are near the bottom of the languages skills list

• Americans don’t like side conversations by foreigners in their native language

• The variation across cultures is greater when comparing linguistic aspects of language and nonverbal behaviors than when the verbal content of negotiations is considered

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Differences in Language and Nonverbal Behaviors (continued)

• Japan• Korea• China (northern)• Taiwan• Russia• Germany• United Kingdom

• Spain• France• Brazil• Mexico• French-speaking Canada• English-speaking Canada• United States

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Differences in Values

• Objectivity- “separating people from the problem”

• Competitiveness and equality- Japanese appear to be the best negotiators with the

highest profits- Japanese appear to be more equitable with buyers

• Time- The passage of time is viewed differently across

cultures- These difference most often hurt Americans

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Cultural Differences in Competitiveness and Equality


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Differences in Thinking and Decision-Making Processes

• Western approach: sequential• Eastern approach: holistic• Americans: business negotiation is a problem-solving

activity• Japanese: a business negotiation is a time to develop a

business relationship with the goal of long-term mutual benefit

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Implications for Managers and Negotiators

Four steps for more efficient and effective international business negotiations:

1. Selection of the appropriate negotiation team

2. Management of preliminaries, including training, preparations, and manipulation of negotiation settings

3. Management of the process of negotiations

4. Appropriate follow-up procedures and practices

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Negotiation Teams

• Willingness to use team assistance

• Listening skills

• Influence at headquarters (senior executive)

• Gender should not be used as a selection criterion for international negotiation teams

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Negotiation Preliminaries

Checklist for planning international negotiations:

1. Assessment of the situation and the people

2. Facts to confirm during the negotiation

3. Agenda

4. Best alternative to a negotiated agreement (BATNA)

5. Concession strategies

6. Team assignments

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Negotiation Preliminaries (continued)

Aspects of the negotiation setting that should be pre-manipulated:

1. Location

2. Physical arrangements

3. Number of parties

4. Number of participants

5. Audiences (news media, competitors, fellow vendors, etc.)

6. Communications channels

7. Time limits

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At the Negotiation Table

1. Nontask sounding

2. Task-related exchange of information

3. Persuasion

4. Concessions and agreement

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Nontask Sounding

• Learn the mood of the other side• Learn about the client’s background and interest for cues about

appropriate communication styles• Judgments about the “kind” of person in the negotiation

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Task-Related Information Exchange

• Let the foreign counterparts bring up business• Expect a large number of questions but little feedback• Allow periods of silence• Use multiple communication channels• Understand the lack of, or the bluntness of negative feedback• Meet aggressive first offers with questions, not anger

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Persuasion

• Task-related information exchange versus persuasion• Avoid threats, warnings, and other aggressive negotiation

tactics• Avoid emotional outbursts• Ask more questions• Use third parties and information channels of

communication

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Concessions and Agreement

• Write down concession-making strategies

• Understand differences in decision-making styles

• In many cultures, no concessions are made until the end of the negotiations

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After Negotiations

• In most countries other than America, legal systems are not depended upon to settle disputes

• Japan – contacts primarily contain comments on principles of the relationship

• China – contracts are more a description of what business partners view their respective responsibilities to be

• Many foreign CEOs expect a formal contract signing ceremony

• Follow-up communications are very important

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Conclusions

• Experience levels are going up worldwide

• Culture still counts

• Differences between countries and cultures, no matter how difficult, can be worked out when people talk to each other in face-to-face setting

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Summary

• It is important to take cultural differences into account when meeting clients, customers, and business partners across the international negotiation table.

• Negotiators’ personalities and backgrounds influence their behavior, making it important to get to know the individuals who represent client and customer companies.

• Four kinds of problems frequently arise during international business negotiations: level of language, nonverbal behaviors, values, and thinking and decision-making processes.

• Much care must be taken in selecting negotiating teams.• Situational factors such as the location for meetings and the

time allowed must be carefully considered and managed.

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Summary (continued)

• Business negotiations involve four steps: nontask sounding, task-related information exchange, persuasion, and concessions and agreement.

• The time spent on each step can vary considerably from country to country.

• Because Americans tend to be deal oriented, more care should be taken in follow-up communications with foreign clients and partners who put more emphasis on long-term business relationships.

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