Download Chapter 16 Marketing Globally

PART SIX
MANAGING INTERNATIONAL OPERATIONS
CHAPTER SIXTEEN
MARKETING GLOBALLY
OBJECTIVES
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To understand a range of product policies and the circumstances in which they are
appropriate internationally
To grasp the reasons for product alterations when deciding between standardized
versus differentiated marketing programs among countries
To appreciate the pricing complexities when selling in foreign markets
To interpret country differences that may necessitate alterations 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
CHAPTER OVERVIEW
Marketing is a social and managerial process through which individuals and
organizations satisfy their needs and objectives via the exchange process. Chapter Sixteen
begins by examining the ways in which marketing managers analyze country market
potential in order to develop effective international marketing mix strategies. It reviews
the adaptation vs. standardization debate and also considers the rationale for selecting
nationally responsive vs. globally integrated marketing strategies. The chapter discusses
each of the marketing mix variables from an international perspective and concludes with
a note about international electronic commerce.
CHAPTER OUTLINE
OPENING CASE:
Avon
[See Map 16.1]
Founded in 1886, Avon is one of the world’s largest manufacturers and marketers of
beauty-related products. This case describes Avon’s push into foreign markets via a
combination of nationally responsive and globally standardized marketing strategies. The
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company markets in more than 120 countries through direct investments, licensing,
franchising and distributor arrangements. More than 70 percent of its sales come from
outside the U.S. Avon seeks to develop a global image of being a company that supports
women and their needs. It relies heavily on independent salespersons who sell directly to
individual customers. Avon emphasizes standardized products that carry its global brand,
but allows product lines and brand names to vary by country if needed. In addition, each
country operation sets its own prices to reflect local market conditions and strategic
objectives. Whenever possible, Avon transfers organizational learning and successful
practices from one country to another.
Teaching Tip: Review the PowerPoint slides for Chapter Sixteen and select those
you find most useful for enhancing your lecture and class discussion. For additional
visual summaries of key chapter points, also review the figures and tables in the text.
I.
FILLING GLOBAL NEEDS AND WANTS
Although basic marketing principles are the same in both domestic and foreign
markets, environmental differences often require those principles be applied in
different ways.
II. MARKETING STRATEGIES
International marketing orientations help determine the degree to which companies
follow either a globally integrated or locally responsive strategy.
A. Marketing Orientations
The international applications of five common product policies are highlighted
below.
1. Production Orientation. A production orientation indicates a firm is
more concerned about production variables such as efficiency, quality
and/or capacity than it is about marketing. Firms assume customers want
lower prices and/or higher quality. Such an approach is still used
internationally for selling commodities, for passive exports and for serving
foreign-market segments that resemble domestic markets.
2. Sales Orientation. A sales orientation indicates a firm assumes global
customers are reasonably similar and it can therefore sell abroad the same
product it sells at home. A firm will be aided in this approach when there is
also a spillover of product information from one country to another.
3. Customer Orientation. A customer orientation indicates a firm is
sensitive to customer needs, i.e., it thinks in terms of identifying and serving
the needs of the customer. Given a particular country market, what products
are needed?
4. Strategic Marketing Orientation. A strategic marketing orientation
indicates a firm is committed to continuously serving foreign target markets
and to making incremental product adaptations to satisfy local customers. It
draws upon elements of the production, sales and customer orientations, as
appropriate.
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5. Societal Marketing Orientation. The societal marketing orientation
indicates a firm recognizes it must conduct its activities in a way that
preserves or enhances the well-being of all its stakeholders, i.e., as it serves
the needs of its customers it must also address the environmental, health,
social, and work-related problems that may arise when producing or
marketing its products abroad.
B. Targeting and Segmenting Markets
Market size is not only a function of population in a given country, but is more
specifically related to how many people are likely to consume a particular
product. When targeting and segmenting markets, companies have three basic
alternatives including segmenting by country, identifying some segments on a
global basis, or combining the previous approaches by looking first at countries
as segments then identifying segments within countries. The most common way
of identifying market segments within a country is through demographic factors
such as income, age, gender, ethnicity, and religion.
III. PRODUCT POLICY
Although adopting marketing orientations that involve product adaptations for
foreign markets is often costly, many companies continue to make product alterations
for foreign markets for a variety of compelling reasons.
A. Reasons for Product Alterations
The primary reasons behind the tendency of firms to alter their products to meet
local conditions are legal, cultural, and/or economic in nature.
1. Legal Reasons. Explicit product-related legal requirements vary widely
by country but are usually meant to protect customers, the environment, or
both. Protective packaging laws and international product standards
represent two very complicated legal issues.
POINT--COUNTERPOINT:
Should First World Governments Regulate Their Companies’ Marketing in
Third World Countries?
POINT: International companies sell products in Third World countries for which there
are restrictions in their home countries. Often, the regulations in developing countries are
lax, and the consumers may not be able to make good decisions due to poor education and
low incomes. If First World governments don’t regulate to protect consumers in Third
World countries, no one will. In addition to selling potentially harmful products, many
MNEs also neglect to develop new products that consumers in Third World countries
actually need. Further regulation may help to improve the situation for consumers in less
developed countries.
COUNTERPOINT: Instead of regulating companies, efforts should be focused on
improving education and living standards in less developed countries. Even if First
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World countries limited their own companies from selling certain harmful products,
companies from developing countries would likely continue to sell those same products.
Again, education of individuals, rather than government intervention, is the only effective
long term solution to consumer protection.
2. Cultural Reasons. Cultural factors affecting product demand may or may
not be easily discerned. While religious beliefs may offer clear guidelines
regarding product acceptability, other factors such as color, design, and
artistic preferences may be much more subtle.
3. Economic Reasons. Levels of income, differences in income
distribution and the extent and condition of available infrastructure can all
affect demand for a particular product. Often, price-reducing alterations are
required if a firm wishes to participate in a particular country market.
B. Alteration Costs
Usually firms will choose to standardize basic components while altering critical
end-use characteristics. Certain alterations (such as packaging and color options)
may be inexpensive to make, yet they can have an important effect on demand.
C. Extent and Mix of the Product Line
When making product line decisions, managers must consider the cost and effect
on sales of offering just one or a few products internationally as opposed to an
entire family of products. Whereas narrowing a product line allows for the
concentration of effort and resources, the broadening of a product line may lead
to distribution economies.
D. Product Life-Cycle Considerations
Differences will likely exist across countries in both the shape and the length of
a product’s life cycle. A product facing declining sales in one country may have
growing or sustained sales in another. Such country differences can lead to an
extended life for a given product.
IV. PRICING
Price represents the value asked for a product. Although usually expressed as a
monetary value, in the case of barter transactions it may not be. In the long run, price
must be low enough to generate sufficient demand but high enough to yield a profit
to the firm. The complexities of pricing are exacerbated in the international arena.
A. Government Intervention
Every country has laws that either directly or indirectly affect prices to the final
customer. Price controls may set either maximum or minimum prices for
designated products. The WTO permits a government to establish restrictions
against any imports that enter the country at a price below the price charged to
customers in the exporting country (dumping). However, a firm may charge
different prices in different countries because of competitive and demand factors
(e.g., a firm may choose to exclude fixed costs in the price calculation of
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B.
C.
D.
E.
products exported to developing countries in order to be price competitive in
those markets.)
Greater Market Diversity
Country variations lead to many ways of segmenting the market for a particular
product. Depending upon market conditions, a firm may adopt any of the
following pricing strategies. A skimming strategy sets a high price for a new
product, which is aimed at market innovators. Over time, the price will be
progressively lowered in response to demand and supply conditions, i.e., the
presence of additional competitors. A penetration strategy sets an aggressively
low price to attract a maximum number of customers (some of whom may
switch from other brands) and to discourage competition. A simple cost-plus
strategy sets the price at a desired margin over cost.
Price Escalation in Exporting
If standard markups occur within distribution channels, either lengthening the
channels or adding other expenses somewhere within the network will further
increase the delivered price of the product. Common reasons for price escalation
in export sales are tariffs and the often greater distance to the market. To
compete in export markets, a firm may have to sell its products to intermediaries
at a reduced price in order to lessen the amount of price escalation (See Figure
16.3).
Currency Value and Price Changes
Pricing in the case of highly volatile currencies can be extremely difficult,
especially under conditions of high inflation. Pricing decisions must assure the
company of sufficient funds to replenish inventory. This may result in the need
for frequent price adjustments. Further, currency fluctuations also affect pricing
decisions for any product that faces foreign competition; when a currency is
strong, producers may have to accept a lower profit margin if they wish to be
price competitive. The longer-term viability of a distribution system can be
undermined in some cases by activities in the gray market, the selling and
handling of goods through unofficial distributors.
Fixed versus Variable Pricing
MNEs often negotiate export prices, while small companies frequently give
price concessions too quickly. This limits small companies’ ability to negotiate
on a range of marketing factors that affect their costs such as:
• Discounts for quantity or repeat orders
• Deadlines that increase production or transportation costs
• Credit and payment terms
• Service
• Supply of promotional materials
• Training of sales personnel or customers
Table 16.2 shows ways in which an exporter may deal more effectively in price
negotiations. The extent to which manufacturers can or must set prices at the
retail level varies substantially by country. There is also substantial variation in
whether, where and for what products customers prefer or expect to negotiate an
agreed-upon price. Local laws and customs may limit firms’ abilities to set
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prices as they choose. In many cultures, prices are simply the starting point in the
bargaining process.
F. Company to Company Pricing
Dominant retailers with substantial clout may get suppliers to offer them lower
prices, which in turn will enable them to compete as the lowest-cost retailer.
However, such clout may not exist in new foreign markets. In addition, many
industrial buyers are claiming large price reductions through Internet purchases.
V. PROMOTION
Promotion consists of the messages intended to help sell a product, i.e., direct and
indirect forms of communication designed to inform, persuade and/or remind a target
audience about an organization and its products. The promotion mix consists of
personal selling, advertising, sales promotion/support and publicity/ public relations
activities.
A. The Push-Pull Mix
Promotion strategies may be categorized as push (which use direct selling
techniques) or pull (which relies on mass media). Most firms use a combination
of both. Factors that will determine the mix of push and pull strategies include
the type of distribution system, the cost and availability of media, customer
attitudes toward sources of information and the relative price of the product as
compared to disposable income.
B. Standardization of Advertising Programs
Advertising represents any paid form of media (nonpersonal) presentation.
Although savings from the standardization of advertising are not as great as
those from product standardization, they can nonetheless be substantial.
However, in addition to reducing costs, standardized advertising may also
improve the quality of advertising at the local level, prevent the confusion
associated with different national messages and images and speed the entry of
products into new country markets. Standardization usually implies using the
same agency globally. However, it is difficult to completely standardize an
advertising campaign for a number of reasons.
1. Translation. When a media transmission spans multiple countries, there is
no opportunity to translate a message into other local languages. When
messages are translated, numerous difficulties can be encountered with both
language (content and meaning) and images.
2. Legality. What is deemed to be legal advertising in one country may in fact
be illegal elsewhere. Differences result mainly from varying national views
on consumer protection, competitive protection, standards of morality and
nationalism.
3. Message Needs. An advertising theme may not be appropriate
everywhere because of national differences in how well consumers know a
product, how they perceive it, who makes the purchasing decision, and what
features are most important.
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VI. BRANDING
A brand is a name, term, sign, symbol and/or design that is intended to identify a
product or product line and differentiate it in the marketplace. A trademark is a
brand, or a part of a brand, that is granted legal protection because it is capable of
exclusive appropriation. It protects the seller’s exclusive rights to use the brand name
and/or brand mark. MNEs must make four major branding decisions: brand vs. no
brand, a manufacturer’s brand vs. a private brand, one brand vs. multiple brands, and
a global brand vs. multiple local or regional brands.
A. Language Factors
Both the translation and pronunciation of brand names pose potential problems
in many markets. Often the problems are obvious, but other times they are quite
subtle, yet critical. In addition, brand symbols (shapes and colors) are culturally
sensitive in many societies.
B. Brand Acquisitions
When an MNE acquires a (foreign) firm, it automatically acquires its brands. In
some instances those brands will be maintained; in others they will be folded
into a larger brand in order to capture economies of scale and to promote
regional/global brand recognition.
C. Country-of-Origin Images
Firms must determine whether to promote a local or foreign image for their
products. The products of some countries may be perceived as being particularly
desirable and of higher quality than products from other countries. A firm may
be able to enhance its competitive advantage by effectively exploiting this
perception.
D. Generic and Near-Generic Names
While firms want their brand names to become household words, they do not
want those names to become so common they are considered to be generic (e.g.,
Kleenex and Xerox). Generic names may either stimulate or frustrate the sales of
the firm from whom the name was expropriated.
VII. DISTRIBUTION
Distribution refers to the physical and legal path that products follow from the point
of production to the point of consumption. In many instances, geographic barriers
and poor transportation infrastructure and facilities will divide a country into very
distinct viable and non-viable markets.
DOES GEOGRAPHY MATTER?
Is Necessity the Mother of Invention
Global marketing approaches need to take into account different climates and
seasons in order to be effective. Other natural conditions—such as mountains,
waterways, and deserts—can impact distribution plans. Identifying immigrant
subcultures can be important in some countries as well. The role of geography has
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been diminishing with the rise of the global economy as people from different parts
seek to buy the same kinds of goods—for example, people in tropical climates buy
winter clothes and skis because they travel to snowy areas for recreation.
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A. Difficulty of Standardization
Distribution is often the marketing mix variable that firms find the most difficult
to standardize. This is because each country has its own national distribution
system that is historically intertwined with its cultural, economic, and legal
environments. Other factors that influence the ways in which consumer products
are distributed within a given country include people’s attitudes toward
entrepreneurship, the ability to pay retail workers, restrictions on the size of
stores and their hours of operation, the financial ability to carry large inventories,
the efficacy of the national postal system.
B. Choosing Distributors and Channels
Just as in the case of production, a firm may choose to handle the distribution
function internally or outsource it to a specialized provider.
1. Internal Handling. When sales volume is low, it is usually more cost
effective for a firm to contract with an external distributor. On the other
hand, distribution may be handled internally when sales volume is high,
when the firm has sufficient human, capital and financial resources, when
after-sales service is extensive and complex, when customers are global and
when a firm can otherwise enhance its competitive advantage.
2. Distributor Qualifications. Common criteria for evaluating and
selecting distributors include financial strength, good relationships with
their customers, the extent of their other business commitments regarding
both complementary and competitive products and the state of a
distributor’s equipment, facilities and personnel. A final consideration is
how quickly start-up can occur.
3. Spare Parts and Repair. The more complex and expensive a product,
the more important that after-sales service will be. When after-sales service
is critical, firms may need to invest in service centers, which can in turn
become important sources of revenues and profits.
4. Gaining Distribution. Distributors choose the products and firms they
wish to represent and emphasize. A new entrant must therefore convince a
desired distributor of the viability of both its products and the company
itself. To do so it may need to provide extra incentives or be willing to enter
into exclusive arrangements provided a competitor does not already occupy
that position.
C. Hidden Costs in Distribution
Because of the differences in national distribution systems, the cost of getting
products to customers varies widely from one country to another. In many
countries, ports, roads, and warehouse facilities are so poor that getting goods to
customers in a timely fashion and at a reasonable cost, with minimal damage or
loss en route, is truly difficult. Many countries have multi-tiered, wholesale
systems through which a product must move before reaching the retail level.
Because each intermediary adds a markup, final delivered prices increase. In
some countries, low labor costs and a basic distrust by owners of all but family
combine to result in retail practices that raise consumer prices, especially when
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there is an insistence upon counter (as opposed to self) service. Many countries
have laws that protect small retailers, which in turn effectively limit the number
of large retail firms and the efficiencies they bring to their operations. Many
countries also limit operating hours. When retailers have little space for storing
inventory, distributors must incur the cost of making more frequent but smaller
deliveries to prevent retail-level stock-outs.
D. The Internet and Electronic Commerce
As electronic commerce increases, customers worldwide can quickly compare
prices from different distributors, thus intensifying price competition. However,
global Internet sales are not without problems. A firm cannot easily differentiate
its marketing program because the same Web advertisements and prices reach
customers everywhere. At the same time, however, a firm’s Internet ads and
prices must comply with the laws of each country where it markets its product.
VII. MANAGING THE MARKETING MIX
Once a company is operating in a country and estimates that country’s market
potential, it must calculate how well it is doing there. One tool that can be used to
accomplish this is gap analysis—a method for estimating potential sales by
identifying market segments a company is not serving adequately (see Figure 16.4).
LOOKING TO THE FUTURE:
Will the “Haves” and the “Have-Nots” Meet the “Have Somes”?
Most projections indicate the disparities between the “haves” and the “have-nots” of the
world will continue to grow throughout the foreseeable future, both within and across
countries. To serve the “haves,” firms will offer luxury products to customer niches that
cut across national boundaries. At the other extreme, companies will have numerous
opportunities to develop low-cost, standardized products designed to fit the needs of the
“have-nots.” For many firms, these two extremes present a serious dilemma. Moreover,
firms will find it increasingly difficult to charge different prices in different countries,
although they will be increasingly able to cut intermediaries out of the distribution
channels for their products.
CLOSING CASE: NeoPets
NeoPets is a web site targeting the youth market on the internet. Users can create virtual
pets and play games online with other members. The site earns the majority of its
revenue from advertisers on its web site, but also earns revenue from merchandise sales
based on its characters. Most advertising is immersive advertising, in which the
advertising message is embedded in the games on the site. NeoPets has begun translating
its sight into many languages and now can reach 89.9 percent of internet users in their
native language.
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QUESTIONS
1.
In the past, we’ve seen many types of children’s products, ranging from Ninja turtles
to Hula Hoops, that have turned out to be fads. How do you think NeoPets can
prevent its concept from becoming a fad?
To avoid becoming a fad with fading popularity, NeoPets will have to continue to be
innovative with content. By adding new games, puzzles, and characters, NeoPets
will be able to keep the attention of its users and will develop into a lasting
entertainment option rather than becoming just a passing fancy. Another way to
maintain interest is to constantly improve the technical quality of the site in order to
avoid being dated or technologically anachronistic.
2.
Although NeoPets has been successful thus far in gaining members by word of
mouth, should it turn to some more proactive promotion? If so, what should it be?
Word of mouth has proven to be a very effective way of gaining new members to
online communities. An active advertising campaign may result in new members but
will likely reduce the commitment of both new and existing members to the site.
Often, children’s products go through boom and bust cycles of popularity. Slower,
controlled membership growth is likely to lead to more long-term success than
sudden bursts of interest. NeoPets should invest its resources into continually
improving its product rather than spending large sums on mass advertising
campaigns. The only type of promotion NeoPets should pursue is in viral
marketing—providing existing users with incentives to recruit new members and
selectively creating and sustaining an online buzz about the site.
3.
What country-to-country differences in acceptability of NeoPets might exist? How
might NeoPets deal with them?
There could be significant country-to-country differences in acceptability of NeoPets,
but these are likely to be more a function of technological availability rather than
cultural or linguistic differences. NeoPets has done a good job in facilitating
participation in multiple languages and is poised to continue to expand its efforts in
that regard. Also, the idea of pet ownership is nearly universal, as is the interest
among children and teens in electronic gaming and the Internet. The main limitation
for NeoPets in many countries is likely to be the limited access that many children
and teens have to computers and Internet connections. As these become more
accessible in the developing world, however, then NeoPets is likely to find an even
bigger audience. There is not much that a company the size of NeoPets can do to
expand access to technology to children in developing countries, although they could
make some largely symbolic efforts by donating equipment to schools and other
entities to increase Internet use among young people in less developed countries.
4.
Examine each of the criticisms about NeoPets’ practices. What should NeoPets and
regulatory agencies do about each of them?
The lack of transparency in advertising on NeoPets is a serious criticism that needs to
be addressed. Something as simple as a message saying “this game is brought to you
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by Kellogg’s” would help in that regard. NeoPets needs to continue to be very
careful in protecting the privacy of its users and must make sure it complies to all
data privacy laws in all countries where it operates or hopes to operate. Parents’
criticisms that NeoPets takes up too much of their children’s time and directs their
attention away from their studies and other more important activities is a legitimate
concern. NeoPets could install a parental control feature that allows parents to limit
the amount of time their child can spend on NeoPets in any given day or week. More
customization of content by country and region to allow/disallow things such as
games of chance and religious content would address concerns that some have had.
NeoPets should try to meet or exceed all applicable regulations to preempt regulatory
bodies from passing special new rules directed exclusively at NeoPets.
5.
NeoPets depends mainly on a youth market. Can it extend its concept to an adult
market? If so, how?
NeoPets should strive to develop and maintain long lasting relationships with its
users that can transcend childhood and adolescence. The site has not been operating
long enough to have many of its original users move into adulthood, but should
continue to try to cater to the interests of older teens and twenty-somethings as the
user demographic changes. One possible way to do this would be to spin off a
related site with a more sophisticated gaming structure. On-line role playing games,
such as the Sims, are popular with many adults, due to the complexity, variety, and
sophistication that these games offer. A NeoPets Plus site could cater to an older
crowd by developing more complex situations and challenges for users. This would
also attract a different advertising base, which would open up new revenue streams
for the company.
WEB CONNECTION
Teaching Tip: Visit www.prenhall.com/daniels for additional information and
links relating to the topics presented in Chapter Sixteen. Be sure to refer your
students to the on-line study guide, as well as the Internet exercises for Chapter
Sixteen.
_________________________
CHAPTER TERMINOLOGY:
skimming strategy, p. 573
penetration strategy, p. 573
cost-plus strategy, p. 573
gray market, p. 575
push, p. 577
_________________________
pull, p. 577
distribution, p. 582
generic, p. 582
gap analysis, p. 587
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ADDITIONAL EXERCISES: International Marketing
Exercise 16.1. While many firms have moved to develop globally standardized
products, others have moved toward more product differentiation across countries.
Ask students to discuss the types of products for which they would expect to see
more global standardization, and those for which they would expect to see more local
differentiation. Be sure they consider both goods and services.
Exercise 16.2. A number of advertising agencies have expanded their operations to
the global level so they can offer their services on a worldwide basis. Ask students to
discuss the reasons an MNE might prefer to work with a single global advertising
agency rather than a series of local or regional agencies. Then ask students to explore
the challenges advertising agencies face when they choose to offer worldwide
services.
Exercise 16.3. When a firm is confronted with excess capacity but its national
currency is relatively weak, it may choose to export to markets with relatively
stronger currencies. Ask students to discuss the logic and wisdom of basing a longterm international marketing strategy on foreign currency swings. What would a firm
have to do to effectively position itself to maximize such “opportunities”?
Exercise 16.4. Ask students to identify a popular local product that is not widely
available in other countries. Have the students pick a country and develop a
marketing plan for the product in that country. What alterations might have to be
made to the product or its packaging for it to succeed in the target country? How
should they distribute the product? What about pricing? Is there a large potential
market for the product in the target country? Why or why not?
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