Download PART SIX MANAGING INTERNATIONAL OPERATIONS

PART SIX
MANAGING INTERNATIONAL OPERATIONS
International Business
Chapter Sixteen
Marketing Globally
Chapter Objectives
• To understand a range of product policies and the
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circumstances in which they are appropriate internationally
To grasp the reasons for product alternations 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
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Marketing Strategies
Marketing: the performance of a wide range of
business activities directed at satisfying needs
and wants through the exchange process
• Marketing strategies depend upon a firm’s:
– marketing orientation
– target market(s)
• When firms select target markets, they may choose
market segments that exist in more than one country.
• Ways of identifying consumer market segments
within and across countries include demographics
(income, age, gender, religion) and psychographics
(attitudes, values, lifestyles).
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Marketing Orientations
• production orientation: emphasizes production variables
such as efficiency, quality, and/or capacity [used internationally
for selling commodities and passive exports and for serving foreign
market segments that resemble domestic markets]
• sales orientation: assumes that global customers are reason-
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ably similar and that the same product can be sold at home
and abroad
customer orientation: stresses sensitivity to customer needs,
i.e., identifying and serving the needs of the customer
strategic marketing orientation: commits to continuously
serving foreign markets and to making incremental adaptations to satisfy local customers [draws upon elements of the
production, sales, and customer orientations, as appropriate]
• societal marketing orientation: requires that activities be conducted in a way that preserves or enhances the well-being of
all stakeholders [addresses the environmental, health, social, and
work-related problems that arise in foreign operations]
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Fig. 16.1: Marketing in
International Business
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Product Policy:
Reasons for Making Alterations
• Legal reasons: explicit product-related legal requirements
vary widely by country but are usually meant to protect
customers, the environment, or both. [Protective packaging
laws and product standards are very complicated legal issues.]
• Cultural reasons: cultural factors affecting product demand
may or may not be easily discerned [While religious beliefs offer
clear guidelines regarding product acceptability, other factors such
as color, design, and artistic preferences are more subtle.]
• Economic reasons: levels of income, differences in income distribution, and the extent and condition of available infrastructure can
all affect demand for a given product [Price-reducing alterations
may be required if a firm expects to enter an emerging market.]
Firms usually prefer to standardize basic components
while altering critical end-use characteristics.
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Product Policy:
Other Considerations
• Extent and Mix of the Product Line
– Whereas narrowing a product line allows for the
concentration of effort and resources, the broadening
of a product line may capture distribution economies.
• Product Life-cycle Considerations
– 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 specific product.
Differences will likely exist across countries
in both the shape and the length of a product’s life cycle.
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Pricing
• Price: the value asked for a product
[Although usually expressed as a monetary value,
in countertrade transactions, it might not be.]
– The complexities of pricing are exacerbated in
the international arena.
– Pricing decisions must assure the firm of
sufficient funds to replenish inventory.
– In the long-run, price must be low
enough to generate sufficient demand
but high enough to yield a profit.
The Internet is causing more firms to compete for the same business as
customers gain increasing access to global products and global prices.
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Pricing Complexities
• Government Intervention
– Every country has laws that either directly or
indirectly affect prices to the final customer.
– Price 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).
– A firm may charge different prices in different regions
or countries because of differing competitive and
demand factors.
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Pricing Complexities
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Market diversity, i.e., country variation, leads to
many ways of segmenting the market for a given
product. Depending upon market conditions, a firm
may adopt any of the following pricing strategies:
– skimming price: sets a high price for a new product
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.]
– penetration price: sets an aggressively low price (i) to
discourage competition and (ii) to attract a maximum
number of customers (some of whom will hopefully switch
from competitors’ brands)
– cost-plus price: sets the price at a desired margin over
cost
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Pricing Complexities
• Price Escalation in Exporting
– Common reasons for price escalation in export sales are
(i) tariffs and (ii) the often greater distance to the market.
– If standard markups occur within a distribution channel,
either lengthening the channel or adding expenses at
additional points within the network will increase the
delivered cost of a product.
– To compete in export markets, a firm may have to sell
its products to intermediaries at reduced prices in order
to lessen the amount of price escalation.
A firm may choose to exclude fixed costs in the price
calculation of products exported to developing countries
in order to be price competitive in those markets.
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Fig. 16.3: Price Escalation in Exporting
if Companies Use Cost-plus Pricing
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Pricing Complexities
• Currency Values and Inflation Rates
– Currency fluctuations: affect a firm’s
competitiveness and, ultimately, its profitability
[Sales contracts may specify that payment
be made in a given currency.]
– High inflation in a host country: negatively
affects the value of a firm’s foreign receipts
[A firm may need to adjust
its margins downward in order to remain competitive.]
̶ High inflation in a home country: negatively affects the costs of a firm’s foreign-sourced inputs
[A firm may need to source locally in order
to remain competitive.]
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Effect of Taxes and Inflation on
Pricing: An Example
Assumptions: beginning cost = $1,000; inflation = 36%;
tax rate = 40%; after-tax profit goal on replacement cost = 30%
IF STOCK IS SOLD AND FUNDS
IF STOCK IS SOLD AND FUNDS
ARE COLLECTED WHEN STOCK
ARE COLLECTED ONE YEAR
IS PURCHASED
AFTER STOCK IS PURCHASED
Cost
$1,000
Replacement cost
$1,360
+ Mark-up
500
+ Replacement mark-up
320
Sales price
1,500
Sales price
1,680
- Cost
1,000
- Original cost
1,000
Taxable income
500
Taxable income
680
- Tax @40%
200
- Tax @ 40%
272
After-tax income
300
After-tax income
408
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Pricing Complexities
• Fixed-cost vs. Variable-cost Pricing
– The extent to which producers can set prices at the
retail level varies substantially by country.
– There is substantial variation in whether, where, and
for which products customers expect to be able to
negotiate a price.
– Local laws and customs may limits firm’s abilities to
set optimal prices.
– In many cultures prices are simply the starting point
in the bargaining process.
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Import-Export Price Negotiations:
An Example
Goal: to delay a pricing commitment
while discussing a whole package of other commitments
IMPORTER’S REACTION
1. Offer is too expensive
2. Budget is insufficient
3. Offer does not fit needs
4. Offer is not competitive
EXPORTER’S RESPONSE
What is meant by expensive?
Determine what price is acceptable.
How large is the importer’s budget?
Determine the time frame and explore
payment alternatives.
Insist on specific details of real needs.
Repackage offer in light of new info.
Determine details of competitors’ offers.
Reformulate offer in non-comparative
ways; stress uniqueness of offer.
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Promotion
Promotion: the presentation of messages
intended to help sell a product
[direct and indirect forms of communication designed to
inform, persuade, and/or remind a target audience about an
organization, its products, and/or its positions]
Promotion Mix: the particular combination
of elements used in a promotion strategy
̶ personal selling
̶ advertising
̶ sales promotion activities
̶ publicity/public relations activities
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Promotion: The Push-Pull Mix
Push strategy: direct marketing techniques designed
to create immediate demand, i.e., personal selling
[primarily used when a product is relatively
expensive and distribution is tightly controlled]
Pull strategy: indirect marketing techniques designed
to create final demand, i.e., advertising, sales
promotion, and publicity/public relations
• The cross country push-pull mix is determined by:
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types of distribution systems
the cost and availability of media
customer attitudes toward sources of information
the relative price (affordability) of a product
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Promotion: The Standardization of
Advertising Programs
Advertising: any paid form of
media (nonpersonal) presentation
• The advantages of standardized advertising include:
– substantial cost savings
– improved quality (effectiveness) at the local level
– rapid entry into new country markets
• The challenges of standardized advertising include:
– translation [content, meaning, images]
– legality [differing views on consumer protection, competitive protection, standards of morality, and nationalism]
– message needs [national differences in perceptions and
product demand]
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Branding
• Brand: a name, term, symbol, and/or design
intended to identify a product or product line and
differentiate it in the marketplace
• Trademark: a brand, or part of a brand, i.e., a
mark, that is granted legal protection because it is
capable of legal appropriation
• MNEs must consider the following branding options:
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brand vs. no brand
manufacturer’s brand vs. private brand
one brand vs. multiple brands
worldwide brands vs. local brands
Overall, the portion of local brands to international
(regional or global) brands is decreasing.
[continued]
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• Challenges to regional and global brands include:
– language factors [the translation and pronunciation of
brand names; the cultural sensitivity of shapes, symbols,
and colors]
– brand acquisitions [local brands may be well-known but
expensive and strategically difficult to maintain]
– country-of-origin images [products from particular
countries may be perceived as being particularly desirable
and of relatively high quality]
– generic and near-generic names [generic names may
either stimulate or frustrate the sales of the firm from
whom a name is expropriated]
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Distribution
Distribution: the physical and legal path that products
follow from the point of production to the point of
consumption
Distribution channel: the set of interdependent individuals
and organizations that take title to or assist in the
transfer of a title to a product from producer to final
customer
[banks --- transportation companies]
[producers --- wholesalers --- retailers]
[agents & brokers]
• Often, geographic barriers and poor transport infrastructure
divide a country into distinctly viable and non-viable markets.
The selling of goods through unauthorized distributors,
i.e., the gray market, causes a firm’s operations in different
countries to complete with one another, thus preventing
them from pricing according to local market conditions.
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Distribution:
The Difficulty of Standardization
• Each country has its own national distribution system
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that is historically intertwined with its cultural, economic,
and legal environments.
Factors that influence the distribution of consumer
products within a country include:
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citizens’ attitudes towards their own retailers
the ability (or inability) to pay retail workers
retailers’ trust in their employees
legislation affecting chain and individually-owned stores
restrictions on the size of stores and their hours of
operation
– the financial ability of retailers to carry large inventories
– the efficacy of the national postal system
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Distribution:
Distributor and Channel Selection
• Firms should handle the distribution function internally if:
– sales volume is high
– human, capital, and financial resources are sufficient
– the nature of the product demands that the producer deal
directly with customers
– customers are global
– it is possible to gain a competitive advantage
• The more complex and expensive a product, the greater
the importance of after-sales service.
– Firms may need to invest in service centers, which in turn
can become important sources of revenues and profits.
[continued]
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• Criteria for the selection of potential distributors include:
– financial strength
– quality of connections
– the extent of a distributor’s other commitments regarding
both complementary and competitive products
– the state of a distributor’s equipment, facilities, and
personnel
– trustworthiness and contract enforcement issues
• A new client must convince a desired distributor of the
viability of its firm and its products.
– A new client may need to offer distributors extra incentives
or be willing to enter into exclusive arrangements.
Firms may choose a combination of internal distribution
and outsourced distribution services.
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Distribution:
Hidden Costs
• Differences in national distribution systems that
may contribute to increased costs include:
– poor infrastructure [port, roads, warehouse facilities]
– levels within a distribution system [multi-tiered
wholesale systems]
– retail inefficiencies [an insistence upon counter service]
– government restrictions [laws protecting small retailers
or limiting hours of operation]
– lack of retail storage space [more frequent, smaller
deliveries required to prevent stock-outs]
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The Internet and Electronic
Commerce
• Opportunities
– E-commerce offers firms a unique opportunity
to market their products worldwide.
– The Internet permits suppliers to deal
more quickly with their customers.
• Challenges
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Customers worldwide can quickly compare prices from
different distributors, thus intensifying price competition.
Differentiation is difficult because the same web ads
and prices reach customers everywhere.
Internet ads and prices must comply with the laws
of each country where a firm markets its products.
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Internet Usage by Region, 2005
WORLD
REGIONS
Africa
Asia
Europe
Middle East
North Amer.
Latin Amer.
Oceania
WORLD
% OF WORLD
POPULATION
900,465,411
3,612,363,165
730,991,138
259,499,772
328,387,059
546,917,192
33,443,448
6,412,067,185
INTERNET
USAGE
13,468,600
302,257,003
259,653,144
19,370,700
221,437,647
56,224,957
16,269,080
888,681,131
% OF POP.
% OF WORLD
[USAGE RATE]
USERS
1.5%
8.4%
35.5%
7.5%
67.4%
10.3%
46.6%
13.9%
1.5%
34.0%
29.2%
2.2%
24.9%
6.3%
1.8%
100.0%
Source: Miniwatts International, Ltd.
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Managing the Marketing Mix:
Gap Analysis
Gap analysis: a method for estimating a firm’s potential sales of
a given product by determining the difference between the total
market potential and gaps in usage, competition, product line
offers, and distribution
Total market potential: the total potential sales of all
competitors within a given product market (category)
• The difference between total market potential and current
sales, i.e., the gap, is due to:
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usage patterns
product line characteristics
distribution coverage strategies
the effect(s) of competitors’ strategies
Gap analysis helps managers determine both the size of and the
reasons for the differences between market potential and actual sales.
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Fig. 16.4: Gap Analysis
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Implications/Conclusions
• Marketing is a social and managerial process
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through which individuals and organizations
satisfy their needs and objectives through the
exchange process.
A standardized approached to worldwide marketing means maximum uniformity in products
and programs amongst countries in which sales
occur.
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• A variety of legal, cultural, and economic con-
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ditions may cause firms to alter their marketing
strategies, but the cost of adaptation must be
measured against the potential gain in sales.
Gap analysis is a tool that help firms determine (i) why they have not yet maximized
their market potential in given countries and
(ii) what parts of the marketing mix to emphasize in which countries and regions.
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