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2015-03-25 International Marketing Management Part 4 Deciding Which Markets to Enter Macro environmental analysis 1 2015-03-25 Preliminary screening • Sources: - desk research - personal knowledge&experience Macro Environmental Analysis • • • SLEPT PEST PESTEL 2 2015-03-25 SLEPT Approach • Socioculural • Legal • Economic • Political • Technological factors Deciding Which Markets to Enter Micro Environmental Analysis 3 2015-03-25 Micro Environmental Analysis • Customers • Competitors • Potential demand • Distribution chains • Suppliers What Influences the Buyer? • Cultural factors – values, attitudes, beliefs, ideas, artefacts and symbols • Social factors – – – – primary membership groups (family ..) secondary member groups (union, cim ..) aspirational groups (MBA…!) dissociative groups (hell’s angels…??) • Personal factors – age, life cycle, occupation, lifestyle, personality ... • Psychological factors – motivation, perception, learning (& beliefs), attitude 4 2015-03-25 Source:Webster and Wind, 1972 The Buyer ‘DMU’ Initiator first suggests buying product or service User Influencer whose comments affect the decision Help define spec, help in evaluation of alternatives Decider Product requirements and suppliers Ultimately make all or part of buying decision Buyer Formal authority to select supplier - negotiate terms Physically makes purchase User Initiate process / define specs Consumes product or service Source:Assael, 1987 Does Behaviour Change in Relation to What is Purchased? Degree of involvement Significant difference between brands low few many HABITUAL VARIETY (seeking) high DISSONANCE (differing of views) COMPLEX 5 2015-03-25 Source: Porter, 1985 Porter’s Industry Analysis: The 5 Forces Model POTENTIAL ENTRANTS Threat of rivalry Bargaining power SUPPLIERS Bargaining power INDUSTRY Competitive rivalry BUYERS Threat of substitution SUBSTITUTES Bargaining Power of Suppliers • the strength of the supplier brand • the source of supply spans only a small number of suppliers • switching supplier • substitute products of suppliers • forward integration 6 2015-03-25 Bargaining Power of Buyers • where few buyers control a large volume of the market • where there are a large number of smaller suppliers fighting for a share of the market • the cost of switching supplier is low • the supplier’s product is a mass-market product and not necessarily differentiated • strong customer power • threat of backward vertical integration The Threat for Potential Entrants • economies of scale • access to new distribution channels • brand loyalty • capital investment • competitor retaliation • regulatory influence 7 2015-03-25 Threat of Substitutes • a new product or service equivalent • a new product replacing an existing product • consumer substitution Key Factors Influencing Competitive Rivalry • stage of product life cycle of competing product • use of specialized production techniques • liquidity of competitor • ability to achieve differentiation and brand loyalty • competitor intentions • the relative size of the competitor • barrier of exit from the industry • number of sellers & degree of products differentiation 8 2015-03-25 Industry’s Competitive Structure One seller Undifferentiated product Few sellers Many sellers Pure oligopoly Pure competitive Pure monopoly Differentiated product Differentiated oligopoly Monopolistic competitive ....How does it matter? Roles in the Target Market • market leader • market challenger • market follower • market nicher .... and main implications..... 9 2015-03-25 Designing International Marketing Plan Market Segmentation & Targeting Marketing Plan • S–T–P • Marketing mix: product, place, price, promotion • Marketing budget 10 2015-03-25 Companies that operate on one or more foreign markets must decide how to adapt their strategy to local conditions. At one extreme are companies that use a standardized marketing-mix (world-wide). At the other extreme is adapted marketing-mix, where s producers adjusts marketing-mix to each target market. Determinants of standardization •Legal regulations & world-wide standards •Common customers needs & preferences •Economies of scale in R&D, production & marketing •Learning effects in production & marketing •Characters of products (industrial vs. customer goods) 11 2015-03-25 Determinants of adaptation •Better adjustment of company’s strategy to local preferences •Better adjustment of company’s strategy to local competition •Better adjustment of product usage conditions •Character of product (customer vs. industrial goods) •More coincide approach with marketing concept Benefits from standardization •Lower costs production & marketing costs •Clear & common communication message world-wide •Easier decision-making process •Improve marketing program effectiveness •Improve company’s competetive position world-wide 12 2015-03-25 Benefits from adaptation •Better adjustment marketing-mix elements to local conditions •Less formal decision-making procedures •More elastic strategy and its implementation •Local initiative & resources are used more efectively •Each country (market) is important Global Standardisation or Adaptation? Easier to standarize More difficult to standarize 1. Target markets 1. Services for the customers 2. Positioning 2. Distribution 3. Physical product attributes (features) 3. Price 4. Brand name 4. Advertising media 5. Packaging 5. Sales promotion 6. Guarantee (warrantee) 6. Sales approach 7. After sales service 7. Salespeople training 8. Advertising theme 13 2015-03-25 Market Segmentation The act of dividing the market into specific groups of consumers who share common needs and who might require separate marketing mixes. In international marketing: The same target segment on different markets Group of markets and then target segments Different target segment, Different markets Product the same Speciffic target segment on each foreign market The same target segment on different markets Examples: • • • • Individual clients with high incomes Hobby products International companies High-tech companies Segments & markets with high level of globalization! 28 14 2015-03-25 The same target segment on different markets High end Market segments Low end A B C D countries 29 Different target segment, Different markets - the same product Major goal – cost reductions due to product standardization • • • • Needs: adapted targeting, positioning, price, promotion & place 30 15 2015-03-25 Different target segment, Different markets - the same Product High end Market segments Low end A countries B C D 31 Group of markets and then target segments Entire process consists of two parts: – Countries groups identification – Targeting based on segmentation procedure 32 16 2015-03-25 Group of markets and then target segments High end Market segments Low end Group A countries Group B 33 Speciffic target segment on each foreign market • Segmentation - separately for each market • Marketing mix - adapted to local requirements 34 17 2015-03-25 Speciffic target segment on each foreign market High end Market segments Low end A B C D countries 35 Designing International Marketing Plan International Positioning and Branding 18 2015-03-25 Positioning • positioning is how the product is perceived and evaluated by the target audience relative to competitor products • companies must differentiate products or services • positioning must promise the benefit the customer will receive • should be believable Positioning To standarize To adapt 19 2015-03-25 International positioning Purchase motivation Consumption pattern Market position Market similiarity Level of industry globalization Positioning – level of standardization Country of origin image 39 Steps in Positioning • identify differentiating factors in product or services in relation to competitors • select the most important differences • communicate the position to the target market 20 2015-03-25 Positioning Strategies … Overall Focus Options • attribute • customer benefit • price and quality • use / application • product user • product class (disassociation) • competitor Developing a Successful Positioning Strategy • How many ideas to promote? - one - two - more...? • What to choose? 21 2015-03-25 Major Positioning Errors • underpositioning - brand does not have a clear identity in the eyes of the customer • overpositioning - buyers may have too narrow image of a brand • confused positioning - too many claims might be made for a brand • doubtful positioning - positioning may not be credible in the eyes of buyer International Brand Decisions 22 2015-03-25 Single market – single brand Advantages: Disadvantages: • Marketing efficiency • Assumes market homogenity • Permits more focused marketing • Limitted shelf space • Eliminates brand confusion • Good product with good reputation (halo effect) Single market – multiple brands Advantages: Disadvantages: • Market segmented for varying needs • Higher marketing cost • Creates competitive spirit • Avoids negative connotation of existing brand • Higher inventory cost • Loss of economies of scale • Gains more retail shelf space • Does not harm existing brand’s image 23 2015-03-25 Multiple markets – local brand Advantages: Disadvantages: • Meaningful names • Higher marketing cost • Local identification • Higher inventory cost • Avoidance of taxation on international brand • Loss of economies of scale • Allows variations of quantity and quality across markets • Diffused image Multiple markets – global brand Advantages: Disadvantages: • Maximum marketing efficiency • Assumes market homogenity • Reduction of advertising costs • Elimination of brand confusion • Good for culture-free product • Good for prestigious product • Easy identification/recognition for international travellers • Uniform worldwide image •Problems with black and grey markets • Possibility of negative connotation •Requires quality and quantity consistency •Legal complications 24 2015-03-25 Designing International Marketing Plan Product Decisions Product decisions 25 2015-03-25 International Product Strategies Straight product Extension (product transfer) Product adaptation Product invention Backward Forward global Straight product extension • Standard product (the same as on domestic market) without any changes in it’s attributes beside really necessary • Limited number of geograpgical markets • Similiariry of foreign markets • Low costs • Low level of commitment to new markets • Typical startegy of standardization • Hidden champion or hit&run strategy 26 2015-03-25 Product adaptation • Some features of product are changed according to foreign customers preferences, legal requirements, etc. • Adaptation may concern to every product attribute, eg packaging, brand, quality level, etc. But except core product and basic feature. • A large number of geographical areas • Highly differentiated forein markets • High level of commitment to new markets • Typical strategy of adaptation • Hidden champions or cooperation strategy Product invention • New product for new market but the same product category and form - backward – the old (former)product, PLC!!! - forward – new version of the product which is not offered on domestic market (B2B markets, when SME wants to enter market) • large new market • large number of geographical areas • Highly differentiated forein markets • High level of commitment to new markets • Typical strategy of adaptation • Typical entering strategy – investment modes • Hidden champion or cooperation strategy 27 2015-03-25 Designing International Marketing Plan Promotional Decisions Promotion 28 2015-03-25 Communication at Work • Differentiates – between competitors, substitutes and alternatives. • Reminds – and re-enforces past transactions. Makes future dealings desirable. • Informs – makes potential customers / users aware of offer. Essential to diffuse information. • Persuades – influences the decision making process. Makes the exchange desirable. Communication at Work • Attention •Attention • Interest •Interest • Desire •Desire • Action •Conviction •Action •Satisfaction 29 2015-03-25 Possible Communications Objectives • clarification of customer needs •increasing trial purchase • increasing brand awareness •increasing word-of-mouth recommendation •increasing repeat purchase • increasing product knowledge •improving financial position • improving brand image •increasing co-operation from the trade • improving company image • increasing brand preference •enhancing the reputation with key stakeholder • stimulating search behaviour •building up management ego... The ‘Promotional’ Toolbox - a Bag of Marbles ? Personal selling Advertising Field marketing Sponsorship Word of mouth Commerce Internal marketing Packaging Sales promotion Consumer Audience Channel Audience Stakeholder Audience Corporate identity Point of Purchase Website Direct marketing Public relations Exhibitions Perception Branding 30 2015-03-25 The Principal Characteristics of Communications Tools Advert. Sales promotion PR Personal selling Direct marketing Ability to deliver personal messages Low Low Low High High Scope for reaching large audiences High Medium Medium Low Medium Degree of interaction Low Low Low High High Perceived credibility by target audiences Low Medium High Medium Medium Communications The Principal Characteristics of Communications Tools Advert. Sales promotion PR Personal selling Direct marketing Absolute costs High Medium Low High Medium Cost per contact Low Medium Low High High Wastage levels High Medium High Low Low Level of investment High Medium Low High Medium Costs 31 2015-03-25 The Principal Characteristics of Communications Tools Advert. Sales promotion PR Personal selling Direct marketing Medium High Low Medium High Management’s ability Medium to adjust the deployment of the tool ws circumstances change High Low Medium High Control Scope for targeting specific audiences Designing International Marketing Plan Distribution and Price Decisions 32 2015-03-25 An institutional arrangement necessary for the entry of a company’s products into a new foreign market is known as an entry mode. 9-65 Deciding How to Enter the Market ENTRY MODES EXPORT MODES INTERMEDIATE MODES INVESTMENT MODES 33 2015-03-25 Deciding How to Enter the Market – classification of entry modes Export modes – 100% externalizing low control, low risk, low profitability, high flexibility Intermediate modes shared control & risk, moderate profitabilty, split ownership Investment modes – 100 % internalizing high control, high risk, full ownership, low flexibility Factors affecting foreign market entry mode decision Internal factors Desired mode characteristics Entry mode decision External factors 34 2015-03-25 Internal factors affecting market entry mode decision Product Product complexity Product differentiation advantage International experience Entry mode decision Firm size Desired mode characteristics affecting market entry mode decision Risk averse Control Entry mode decision Flexibility 35 2015-03-25 External factors affecting market entry mode decision Entry mode decision Sociocultural distance Number of export intermediaries Country risk/ demand uncertainty Market size/ growth Direct/ indirect trade barriers Intensity of competition Deciding How to Enter the Market Export modes 1.Indirect export 2.Direct export Intermediate entry modes 3.Cooperative export 1.Contract manufacturing 2.Licensing 3.Franchising 4.Joint venture (strategic alliances) Investment modes 5.Management contracting 1.Domestic-based representatives 2. Foreign sales subsidiary (foreign sales branch) 3.Sales & production subsidiary – acquisition 4. Sales & production subsidiary – greenfield Source: Hollensen, 1998, pp. 217-281 36 2015-03-25 Advantages of Export Modes Indirect exporting: Direct exporting: Limited commitment and investment required Access to local market experience and contacts to potential customers High degree of market diversifiction is possible Shorter distribution chain Market knowledge acquired Minimal risk (market or political) More control over marketing-mix No export experience required Local selling support and services available Export marketing groups: Shared costs and risks of internalization Provide a complete product line or system sales to customers 37 2015-03-25 Disadvantages of Export Modes Indirect exporting: Direct exporting: No control over marketing mix elements other than product Limited control over market price because of tarrifs and lack of distribution control Additional domestic member in the distribution chain may add costs, leaving smaller profit to the producer Lack of contact with the market (no market knowledge acquired) Limited product experience (based on commercial selling) Some investement in sales organization required (contact from home base with distributors or agents) Cultural differences, providing communication problems and information filtering (transaction costs occur) Possible trade restictions Export marketing groups: Risk of unbalanced relationships (different objectives) Participating firms are reluctant to give up their complete independence 38 2015-03-25 What to look for in an intermediary • Size of firm • Physical facilities • Willingness to carry inventories • Knowledge/use of promotion • Reputation with supplier, customers, and banks • • • • Sales performance record Cost of operations Overall experience Knowledge of English or other relevant languages • Knowledge of business methods in manufacturer’s country 39 2015-03-25 Investment Modes - Advantages •Company can secure cost economies in the form of cheaper labor or raw materials, foreign-government incentives, freight savings, and so on. •Better image in the host country because company creates jobs. •Positive aspects of megamarketing practices. •Deeper relationship with local customers, distributors, and suppliers enabling better adopt marketing-offer. •Company retains full control over investment, production & marketing operations. •Better access to the market. Investment Modes - Disadvantages •Higher risks (political, legal, financial, marketing, and so on) •Higher responsibilities. •Bigger requirements for capital, skilled managers, salespeople. •Lack of expertise, know-how and experience •Threats of potential competition 40 2015-03-25 Distribution Channel Levels • short vs. long channel (from one to three or more levels) • key factors: - average order size - geographic concentration of customers - seasonality of sales - geographical distance from producer to market - perishability of the product 41 2015-03-25 Number of intermediaries Three strategies: • intensive distribution - as many available outlets as possible hold this product; products for which consumers require a great deal of location convenience • selective distribution - more than a few but less than all of the intermediaries • exclusive distribution - severely limiting the number of intermediaries; even only one outlet in a certain geographic area supplies a product Intensive distribution Key characteristic include: • • • • • • • maximum number of outlets covered to maximize availability target outlets in as many geographical regions as possible consumer convenience products high number of purchasers high purchase frequency impulsive purchase low price 42 2015-03-25 Selective distribution Key characteristic include: • • • • • • • medium level of customers - but likely to be significant less intensive distribution f outlets retailers may require specialist knowledge shopping based products purchase is occasional purchase is more likely to be planned medium price Exclusive distribution Key characteristic include: • • • • • • • relatively few customers limited retail outlet close retailer/customer relationship speciality products infrequent purchase high involvement and planned purchase high price 43 2015-03-25 Price Global Pricing Contract Benefits For customers: • Lower prices worldwide coupled with higher level od service • Standarization of products and services offered across markets • Efficiences in all processes, including NPD, manufacturing, customer service • Faster diffusion of innovations globally 44 2015-03-25 Global Pricing Contract Benefits For suppliers: • Easily gain access to new markets and grow the business • Consolidate operations and achieve economies of scale • Collaborate with customers and develop strong relationships (difficult to brake into for potential competitors) Global Pricing Contract Disadvantages For customers: • Supplier might not have capabiliteies to provide consistent quality nad performance across markets • Suppliers might use customer’s overdependence to extract higher prices • Costs of monitoring global contracts might outstrip the benefits 45 2015-03-25 Global Pricing Contract Disadvantages For suppliers: • Local managers resist change • Conflict in existing channels of distribution in the new market • Might lose the ability to serve other attractive customers 46