Chapter 18
Chapter 18
Global Marketing and R&D
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Learning Objectives 1 of 2
LO 18-1 Explain why it might make sense to vary the attributes of a product from country to country.
LO 18-2 Recognize why and how a firm’s distribution strategy might vary among countries.
LO 18-3 Identify why and how advertising and promotional strategies might vary among countries.
LO 18-4 Explain why and how a firm’s pricing strategy might vary among countries.
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Learning Objectives 2 of 2
LO 18-5 Understand how to configure the marketing mix globally.
LO 18-6 Understand the importance of international market research.
LO 18-7 Describe how globalization is affecting product development.
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Introduction
Mass producing a standardized output:
Allows a firm to realize substantial unit cost reductions from experience curve effects and other economies of scale
However:
Ignoring country differences in consumer tastes and preferences can lead to failure
There is a link between marketing and R&D
Marketing mix – product, price, promotion, and place
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Marketing mix is the choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers to its targeted markets.
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Globalization of Markets and Brands
Theodore Levitt’s HBR article
Importance of technology in globalization
Fewer differences in national and regional preferences
Global corporations sell the same things the same way.
Leads to standardization of products, manufacturing, trade and commerce
Is Levitt right?
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Market Segmentation 1 of 2
Markets are segmented by:
Geography
Demography
Sociocultural factors
Psychological factors
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Market segmentation involves identifying groups of consumers whose purchasing behavior differs from others in important ways.
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Market Segmentation 2 of 2
Issues for marketing managers:
Differences between countries in the structure of market segments
Existence of segments that transcend national borders
Intermarket segment
Enhances the ability of an international business to view the global marketplace as a single entity and pursue a global strategy
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Intermarket segment is a segment of customers that spans multiple countries, transcending national borders.
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Product Attributes 1 of 3
Learning Objective 18-1 Explain why it might make sense to vary the attributes of a product from country to country.
Cultural Differences
Social structure, language, religion, education, others
Tastes and preferences are becoming more cosmopolitan.
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Product Attributes 2 of 3
Economic Development
Consumer behavior is influenced by the level of economic development of a country.
Consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices.
Consumers in the most advanced countries are willing to pay more for products that have additional features and attributes customized to their tastes and preferences.
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Product Attributes 3 of 3
Product and Technical Standards
Regional trade agreements may influence certain regional markets to become more globalized.
Differing government-mandated product standards can often result in companies ruling out mass production and marketing of a fully global and standardized product.
Differences in technical standards also constrain the globalization of markets.
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Distribution Strategy 1 of 5
Learning Objective 18-2 Recognize why and how a firm’s distribution strategy might vary among countries.
Typical Distribution System
Channel with a wholesale distributor and a retailer
Firm may also sell directly to the consumer, to the retailer, or to the wholesaler
Firm may sell to an import agent who then deals with the wholesale distributor, the retailer, or the consumer
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Figure 18.1 A typical distribution system
Jump to long description in appendix
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018)
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Distribution Strategy 2 of 5
Differences between Countries
Retail Concentration
Concentrated retail system
Greater in developed countries because of car ownership, number of households with refrigerators and freezers, and number of two-income households
Fragmented retail system
More common in developing countries because of geography and road conditions
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Concentrated retail system is a retail system in which a few retailers supply most of the market.
Fragmented retail system is a retail system in which there are many retailers, none of which has a major share of the market.
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Distribution Strategy 3 of 5
Differences between Countries continued
Channel length
Producer to consumer = short channel
Producer sells through import agent, wholesaler, and retailer = long channel
Countries with fragmented retail systems also tend to have long channels of distribution.
Large discount superstores shorten channel length.
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Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer.
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Distribution Strategy 4 of 5
Differences between Countries continued
Channel exclusivity
Varies among countries (ex. Japan is very exclusive)
Channel quality
Not consistent in emerging markets and less developed nations
May impede market entry
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Exclusive distribution channel is a distribution channel that is difficult for outsiders to access.
Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses.
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Distribution Strategy 5 of 5
Choosing a Distribution Strategy
Determined by relative costs and benefits of retail concentration, channel length, channel exclusivity, and channel quality
Link between channel length, final selling price, and profit margin
A longer channel cuts selling costs when the retail sector is very fragmented and provides access to an exclusive channel.
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Communication Strategy 1 of 10
Learning Objective 18-3 Identify why and how advertising and promotional strategies might vary among countries.
Barriers to International Communication
Cultural barriers
Make it difficult to communicate messages
Need to develop cross-cultural literacy
Use local input in developing the marketing message
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Communication Strategy 2 of 10
Barriers to International Communication continued
Source and country of origin effects
Source effects can be damaging when there is bias against foreign firms.
Country of origin effects
Consumer may use country of origin as a cue when evaluating a product
Use promotional messages that stress the positive performance attributes of the product
Not always negative
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Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender.
Country of origin effects refer to the extent to which the place of manufacturing influences product evaluations.
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Communication Strategy 3 of 10
Barriers to International Communication continued
Noise levels
High in highly developed countries
Lower in developing countries because there are fewer firms competing for attention
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Noise refers to the number of other messages competing for a potential consumer’s attention, and this too varies across countries.
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Communication Strategy 4 of 10
Push versus Pull Strategies
Push strategy emphasizes personal selling.
Costly
Pull strategy depends more on mass media advertising.
Choice is determined by:
Consumer sophistication
Channel length
Media availability
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Push strategy emphasizes personal selling rather than mass media advertising in the promotional mix.
Pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers.
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Communication Strategy 5 of 10
Push versus Pull Strategies continued
Product Type and Consumer Sophistication
Consumer goods usually use pull strategy, except in nations with poor literacy rates.
Industrial products or complex products favor a push strategy.
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Communication Strategy 6 of 10
Push versus Pull Strategies continued
Channel Length
The longer the distribution channel, the more intermediaries.
Can lead to inertia in the channel
Direct selling can be expensive.
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Communication Strategy 7 of 10
Push versus Pull Strategies continued
Media Availability
A pull strategy relies on access to advertising media.
In developed countries, advertising is focused.
In developing countries, there are fewer forms of mass media.
Use of pull strategy is limited
Media availability may be limited by law.
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Communication Strategy 8 of 10
Push versus Pull Strategies continued
The Push-Pull Mix
Push strategies
For industrial products or complex new products
When distribution channels are short
When few print or electronic media are available
Pull strategies
For consumer goods
When distribution channels are long
When sufficient print and electronic media are available to carry the marketing message
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Communication Strategy 9 of 10
Global Advertising
For standardized advertising
Economic advantages
Shortage of creative talent
Global brand names
Against standardized advertising
Cultural differences
Advertising regulations
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Communication Strategy 10 of 10
Global Advertising continued
Dealing with country differences
A firm may select some features to include in all its advertising campaigns and localize other features.
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Pricing Strategy 1 of 5
Learning Objective 18-4 Explain why and how a firm’s pricing strategy might vary among countries.
Price Discrimination
Charging what the market will bear
Helps maximize profits
National markets must be kept separate.
Price elasticity of demand
Elasticity is greater in countries with low income levels and where there is more competition.
Inelastic demand
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Price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand.
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Figure 18.2 Elastic and inelastic demand curves
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).
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Pricing Strategy 2 of 5
Strategic Pricing
Predatory pricing
Use aggressive pricing to drive out competitors and then raise prices and operate in a monopoly position
Requires the firms to have a profitable position in another market to subsidize the aggressive pricing process
Multipoint pricing strategy
Two or more international businesses compete against each other in two or more national markets
Pricing can be aggressive, eliciting a competitive response
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Strategic pricing has three aspects: predatory pricing, multipoint pricing, and experience curve pricing.
Predatory pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market.
Multipoint pricing refers to the fact that a firm’s pricing strategy in one market may have an impact on its rivals’ pricing strategy in another market.
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Pricing Strategy 3 of 5
Strategic Pricing continued
Experience curve pricing
Price low worldwide in attempt to build global sales volume as rapidly as possible, even at a loss
Take profits later after moving down the experience curve
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Experience curve pricing is aggressive pricing designed to increase volume and help the firm realize experience curve economies.
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Pricing Strategy 4 of 5
Regulatory Influences on Prices
Antidumping regulations
Ambiguity in definition of dumping
Set a floor under export prices and limit firms’ ability to pursue strategic pricing
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Pricing Strategy 5 of 5
Regulatory Influences on Prices continued
Competition policy
Designed to promote competition and to restrict monopoly practices
Can be used to limit the prices a firm can charge in a given country
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Configuring the Marketing Mix
Learning Objective 18-5 Understand how to configure the marketing mix globally.
Marketing mix may vary according to:
Local differences in culture
Economic conditions
Competitive conditions
Product and technical standards
Distribution systems
Government regulations
Etc.
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Table 18.1 Questions to Address to Configure the Marketing Mix 1 of 6
Sample Questions to Address
Product strategy
Product core: Do the customers have similar product needs across international market segments?
Product adoption: How is the product bought by customers in the international market segments targeted?
Product management: How are established products versus new products managed for customers in the international market segments?
Product branding: What is the perception of the product brand by customers in the international market segments?
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Table 18.1 Questions to Address to Configure the Marketing Mix 2 of 6
Sample Questions to Address continued
Distribution strategy
Distribution channels: Where is the product typically bought by customers in the international market segments?
Wholesale distribution: What is the role of wholesalers for the international market segments targeted?
Retail distribution: What is the availability of different types of retail stores in the international markets for the customer segments targeted?
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Table 18.1 Questions to Address to Configure the Marketing Mix 3 of 6
Sample Questions to Address continued
Communication strategy
Advertising: How is product awareness created for a product to reach customers in the international market segments targeted?
Publicity: What role does publicity (e.g., public relations) play among customers in the international market segments targeted?
Mass media: What role do various media (e.g., TV, radio, newspapers, magazines, billboards) have in reaching customers in the international market segments targeted?
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Table 18.1 Questions to Address to Configure the Marketing Mix 4 of 6
Sample Questions to Address continued
Communication strategy continued
Social media: What role do various social media (e.g., Facebook, Twitter, blogs, virtual communities), mainly focused on user-generated content, have in communicating with customers in the international market segments targeted?
Sales promotion: Are rebates, coupons, and other sale offers a widespread activity to motivate customers in the international market segments targeted to buy a company’s products?
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Table 18.1 Questions to Address to Configure the Marketing Mix 5 of 6
Sample Questions to Address continued
Pricing strategy
Value: Is the price of a product critical to the customer’s understanding (or perception) of the value of the product itself among customers in the international market segments?
Demand: Is the demand for the product among customers in the international market segments targeted similar to domestic demands?
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Table 18.1 Questions to Address to Configure the Marketing Mix 6 of 6
Sample Questions to Address continued
Pricing strategy continued
Costs: Are the fixed and variable costs of the product the same when targeting customers in the international market segments (e.g., are there variable costs that change significantly when going international)?
Retail price: Are there trade tariffs, nontariff barriers, and/or other regulatory influences on price that will influence the pricing equation used to determine the retail price to customers in the international market segments?
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International Market Research 1 of 7
Learning Objective 18-6 Understand the importance of international market research.
International Marketing Research
Involves:
All the issues of domestic marketing research
Translation of questionnaires and reports into appropriate foreign languages
Accounting for cultural and environmental differences in data collection
Global companies often have an in-house department
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International market research refers to the systematic collection, recording, analysis, and interpretation of data to provide knowledge that is useful for decision making in a global company.
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International Market Research 2 of 7
Customer-Satisfaction Companies
J.D. Power
CFI Group
International Market Research Firms
Nielsen
Kantar
Ipsos
NPD Group
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International Market Research 3 of 7
Data Collected
Data on the country and potential market segments (geography, demography, sociocultural factors, and psychological factors)
Data to forecast customer demands within specific country or world region (social, economic, consumer, and industry trends)
Data to make marketing mix decisions (product, distribution, communication, and price)
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International Market Research 4 of 7
The Process
Defining the research objectives
Determining the data sources
Assessing the costs and benefits of the research
Collecting the data
Analyzing and interpreting the research
Reporting the research findings
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Figure 18.3 International market research steps
Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018)
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International Market Research 5 of 7
Defining the Research Objectives
Defining the research problem
Setting objectives for the international market research
Determining the Data Sources
Primary data
Secondary data
Assessing Costs and Benefits
Primary data is more costly.
Survey development and sampling frame issues
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International Market Research 6 of 7
Collecting the Data
Gathering the primary or secondary data
Quantitative
Experiments, clinical trials, observing and recording events, and administering surveys with closed-end questions
Qualitative
In-depth interviews, observation methods, and document reviews
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International Market Research 7 of 7
Analyzing and Interpreting the Research
Requires statistical and cultural knowledge
Software for quantitative analysis
Understanding of values, beliefs, norms, and artifacts of the respondent
Reporting the Research Findings
May include information on customers, competitors, countries, the industry, and the environment
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Product Development 1 of 5
Learning Objective 18-7 Describe how globalization is affecting product development.
New product success is a product of:
International marketing
R&D
Manufacturing
Technological innovation
Creative destruction
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Product Development 2 of 5
The Location of R&D
Rate of new-product development is greatest in countries where:
More money is spent on basic and applied research and development
Underlying demand is strong
Consumers are affluent
Competition is intense
U.S. is no longer the lead market.
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Product Development 3 of 5
Integrating R&D, Marketing, and Production
New-product development has a high failure rate.
Development of a technology for which demand is limited
Failure to adequately commercialize promising technology
Inability to manufacture a new product cost effectively
Integrating R&D, production, and marketing can help a company ensure that:
Product development projects are driven by customer needs.
New products are designed for ease of manufacture.
Development costs are kept in check.
Time to market is minimized.
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Product Development 4 of 5
Cross-Functional Teams
Objective: take a product development project from the initial concept development to market introduction
Project manager
At least one member from each key function
Physically in one location if possible
Clear plan and goals
Processes for communication and conflict resolution
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Product Development 5 of 5
Building Global R&D Capabilities
Commercialization may require different versions of a new product to be produced for various countries.
Global networks of R&D centers
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Appendix of Image Long Descriptions
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Appendix 1 Figure 18.1 A typical distribution system
From a manufacturer inside the country, goods flow to a wholesale distributor, a retail distributor, and the final customer.
From a manufacturer outside the country, goods flow to a retail distributor and the final customer; but they may also go first to an import agent who sends them to a wholesale distributor, a retail distributor, and the final customer.
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