Global Marketing Chapter 15 17 2 Extra credit

Global Marketing Chapter 15

17 - 2 Extra credit opportunity • Presentations on - a country or - a region (even a town/city in U. S. ) - some other subject in global business • An especially good chance to discuss your home or your ancestors’ home • Up to 16 points extra on class participation grade • Details available on web site Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 3 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 4 What is ‘Marketing? ’ • The process by which the firm’s abilities, products, and services are - brought to the attention of customers, - then sold and - delivered Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 5 Global marketing requires thinking through the complete process • Even people who have done well in a marketing class tend to oversimplify it • Global marketing involves complexity at each step Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 6 ‘ 4 Ps’ of Marketing • Product • Place (=‘Distribution Strategy’ in texts) • Promotion (=‘Communication Strategy’ in texts) • Price (Pricing Strategy) Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 7 Choosing a Strategy Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions ©

17 - 8 The Globalization of Markets and Brands • Important to determine when product standardization is appropriate in an international market • Firms may need to vary the marketing mix in each different country - Globalization may be the exception rather than the rule in marketing, especially in consumer goods markets - Firms with a global standardization strategy overall may still need to localize marketing a great deal Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 9 Product Attributes • Firms will change their product from country to country (localize) due to … - Cultural differences - Levels of economic development - Product and technical standards • Product & technical standards are mostly set by governments • Sometimes even firms whose basic approach is global standardization or the international strategy must alter product for these reasons Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 10 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 11 Distribution (Place) • Definition – “The course that goods take between production and consumption” - physical path and - legal title – Who buys the product from the maker and sells it to others closer to the final customer? • Today we’re mostly considering how products get to final customer once they’re in a particular country Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 12 - Shipping is one part of distribution - But the core of the distribution challenge is identifying the people and companies you will work with and the process through which you will sell it • to retailers, and through them • to the final customer - These people, companies, and processes for distribution are called marketing “channels” Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 13 • If you’re selling on line, you still have to think about ‘place’ - How will people find your product in cyberspace? Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 14 Distribution Strategy (Place) • Choice of the optimal channel for delivering a product to the consumer - Depends on differences between countries • Retail concentration – How many companies have major stores relevant to your product? • Channel length – Do you sell directly to the retailer or through intermediaries? How many intermediaries? • Channel exclusivity- Will people in the standard channels for your product consider buying from you? Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 15 Direct Selling • Selling direct to foreign retailers or end users - Often difficult - But gives you control of the process - Avoids risk of a lazy distributor Mc. Graw-Hill/Irwin International Business, 6/e, 7/e 17 -10 Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 16 - A distributor – a firm that buys from maker or a larger distributor and sells to a retailer or a smaller distributor (or sometimes to the final customer) Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 17 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 18 Selling is complex everywhere – but even more so abroad • Need to provide a sales program - Promotional materials, services, training of sales people, discounts for quantity, credit • Don’t be quick to cut the base price Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 19 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 20 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 21 Communication Strategy (Promotion) Cultural • Defines the process the firm will use in communicating the attributes of its product to prospective customers Mc. Graw-Hill/Irwin International Business, 6/e, 7/e barriers Source effects Noise levels Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 22 Push Versus Pull Strategy • Push strategy emphasizes personal selling - Requires intense use of a sales force - Relatively costly • Pull strategy depends on mass media advertising - Can be cheaper for a large market segment • Determining factors of type of strategy - Product type and consumer sophistication - Channel length - Media availability Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 23 Product Type and Consumer Sophistication • Pull strategy – typically used for - Consumer goods - Large market segment (e. g. , personal computers) - Mass communication has cost advantages Mc. Graw-Hill/Irwin International Business, 6/e, 7/e • Push strategy - Industrial products or complex new products - Direct selling allows firms to educate users Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 24 Channel Length • A combination of pull and push - is needed for long or exclusive distribution channels • common in Japan and some other countries - Mass advertising is needed to generate demand to pull product through various layers - Salespeople’s push working with distributors • Push strategy is often especially important in countries with low literacy levels to educate consumers Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 25 Media Availability • Pull strategy - Relies on access to advertising media - Common in developed nations • A push strategy is necessary if. . - Media availability is limited by law - Most electronic media is state owned with ‘no commercials’ policy Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 26 Pricing is much more complex in international business • • • Changing values of currency Diversity of markets Costs of transportation, warehousing Tariffs, quotas Government regulations Distribution methods have to differ from one country to the next Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 27 Distribution systems result in ‘price escalation’ • U. S. , Canada, much of Europe have concentrated distribution system with many big stores • It is difficult to build huge stores in many countries • So many buyers must be reached through long, complex channels – a ‘fragmented’ system - They typically buy at small stores within walking or public transit distance from home - Small distributors serve the small stores Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 28 Price escalation US production cost = $1 Sell to retailer for $1. 50 U. S. retailer sells for $2. 25 Ship & sell to distributor in Japan & se l in C l to reta an iler for $ ada 1. 60 Canada retailer sells for $2. 40 Tariff =. 05 Shipping =. 20 Your cost=$1. 25 Store in Japan Big distributor buys for $1. 875, has high costs, Small distributor adds 20%, takes 20% markup, sells adds 60%, sells for $2. 70 for $2. 25 for $4. 32 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 29 • Government involvement – no consistency - Some laws set minimum prices – to prevent ‘monopoly, ’ Japan, Germany protect small stores - Many prohibit selling below ‘cost’ - Others set maximum prices Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 30 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 31 Globalization of Markets? • Prof. Theodore Levitt has argued that markets were becoming fully “globalized” – that is, the same everywhere - He said people used to be very different from one country to the next, - But they’ve become essentially the same with the spread of • similar communications media • similar government regulation Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 32 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 33 • There’s much truth in Levitt’s claim - Developed country markets have become much more similar • Proctor & Gamble no longer has to make different laundry detergents for different developed countries - People in poorer countries aspire to live like those in the rich countries, and they will often buy the same products Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 34 But big differences still exist in desires for most consumer goods • Products where differences are large include: - Foods - Cars - Cosmetics Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 35 If you can standardize, there are big advantages • You not only save money by producing in fewer, more efficient locations • You also have an organization that is easier and more efficient to run, because the rules are similar everywhere - Starbucks - Levi’s - Apple Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 36 Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The

17 - 37 • Material below here is not required unless specifically mentioned in study guide Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 38 Choosing a Distribution Strategy • Benefits of a longer distribution channel - Cuts selling costs when the retail sector is fragmented - Longer channels can provide increased market access • If channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel - This may include establishing its own distribution channel Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 39 Pricing Strategy • Three aspects of international pricing strategy - Price discrimination - Strategic pricing - Regulatory influence on prices Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 40 Strategic Pricing • Multipoint pricing strategy - Two or more international firms compete against each other in two or more national markets - A firm’s pricing strategy in one market may impact a rival in another market • Kodak and Fuji Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 41 Strategic Pricing • Experience curve pricing - Firms price low worldwide to build market share - Incurred losses are made up as company moves down experience curve, making substantial profits - Cost advantage over its less-aggressive competitors Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 42 Regulatory Influences on Prices • Antidumping regulations - Selling a product for a price that is less than the cost of producing it - Antidumping rules vague, but place a floor • Competition policy - Regulations designed to promote competition and restrict monopoly practices Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 - 43 y tion om dard peti on Stan Com Ec s Configuring the Marketing Mix Culture Di Str stribu ate tio gy n t s c u te d o ibu r P ttr A Mc. Graw-Hill/Irwin International Business, 6/e, 7/e Co io ut n D ib r t is gs e R t ’ Gov Pric i Stra ng tegy m m St un ra ica te ti gy on s Differences Here Requires Variation Here Portions © 2007, 2009 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.