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Global Marketing and R&D

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15 chapter Global Marketing and R&D McGraw-Hill/Irwin Global Business Today, 5e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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INTRODUCTION The marketing mix (the choices the firm offers to its targeted market) is comprised of: product attributes distribution strategy communication strategy pricing strategy Firms try to perform marketing and R&D activities so they will reduce the costs of value creation and add value by better serving customer needs. However, firms are constrained by the need to reduce costs, while at the same time be responsive to local conditions.

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Classroom Performance System The marketing mix involves all of the following elements except Product attributes Communication strategy Distribution strategy Production strategy Classroom Performance System Answer: d

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THE GLOBALIZATION OF MARKETS AND BRANDS Theodore Levitt argued that world markets were becoming increasingly similar making it unnecessary to localize the marketing mix Levitt’s theory has become a lightening rod in the debate about globalization Internet Extra: Cadbury Schweppes operates in many countries around the world. The company sells some products in virtually the same way in some markets, but sells entirely different products that fill a similar need in other markets. Go the company’s site {http://www.cadburyschweppes.com/EN}. Click on Our Brands. Pick a couple of products and see where they are sold. What conclusions can you draw from your findings? For example, are the countries all former British colonies that may have similar cultural preferences? Next, to see when new brands were developed or acquired, and to see how the company has changed some product names, go to Brand History. Finally, click on Brand Websites. Pick a brand. Then go to a couple of countries and explore the sites for the brand. For example, compare the site for Cadbury in the U.S. to Cadbury in the U.K. How are the sites the same? How are they different? Is the product line the same in both countries? How about packaging? What do your findings imply about pressures to be locally responsive?

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The current consensus is that although the world is moving towards global markets, the continuing persistence of cultural and economic differences among nations acts as a major brake on any trend toward global consumer tastes and preferences In addition, trade barriers and differences in product and technical standards also constrain a firm's ability to sell a standardized product to a global market Internet Extra: Cadbury Schweppes operates in many countries around the world. The company sells some products in virtually the same way in some markets, but sells entirely different products that fill a similar need in other markets. Go the company’s site {http://www.cadburyschweppes.com/EN}. Click on Our Brands. Pick a couple of products and see where they are sold. What conclusions can you draw from your findings? For example, are the countries all former British colonies that may have similar cultural preferences? Next, to see when new brands were developed or acquired, and to see how the company has changed some product names, go to Brand History. Finally, click on Brand Websites. Pick a brand. Then go to a couple of countries and explore the sites for the brand. For example, compare the site for Cadbury in the U.S. to Cadbury in the U.K. How are the sites the same? How are they different? Is the product line the same in both countries? How about packaging? What do your findings imply about pressures to be locally responsive?

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MARKET SEGMENTATION Market segmentation involves identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Management Focus: Marketing to Black Brazil Summary This feature explores how companies are marketing to Brazil’s black population. Although Brazil is home to a sizable racial minority, to date companies have essentially ignored the market segment. Now however, companies are beginning to target the group using products and promotions specifically developed for the market. Suggested Discussion Questions 1. Describe the differences between the black population in the U.S. and the black population in Brazil. What are the implications of these differences for the culture as a whole? 2. How has Unilever targeted the black population in Brazil? How does the company’s strategy in Brazil differ from its strategy in other countries? What does your response tell you about Unilever’s overall global marketing strategy?

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Firms must adjust their marketing mix from segment to segment Firms also need to consider the existence of segments that transcend national borders and understand differences across countries in the structure of segments Segments that transcend national borders include consumers with compelling similarities that lead to similarities in purchasing behavior Where there are no such similarities, firms must customize the product, the packaging, or the way in which the product is marketed in order to maximize performance in the market Global market segments are more likely to exist in industrial products than in consumer products Management Focus: Marketing to Black Brazil Summary This feature explores how companies are marketing to Brazil’s black population. Although Brazil is home to a sizable racial minority, to date companies have essentially ignored the market segment. Now however, companies are beginning to target the group using products and promotions specifically developed for the market. Suggested Discussion Questions 1. Describe the differences between the black population in the U.S. and the black population in Brazil. What are the implications of these differences for the culture as a whole? 2. How has Unilever targeted the black population in Brazil? How does the company’s strategy in Brazil differ from its strategy in other countries? What does your response tell you about Unilever’s overall global marketing strategy?

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PRODUCT ATTRIBUTES Products sell well when their attributes match consumer needs If consumer needs were the same everywhere, a firm could sell the same product worldwide But, consumer needs do vary from country to country depending on culture and the level of economic development Internet Extra: Food products firms and fast food restaurants are examples of companies that standardize some elements of the marketing mix, and customize others. For example, Kraft sells its products in several markets around the world. In some markets, Kraft sells virtually identical products, in others, products have been adapted to meet local needs. Go to the web site {http://www.kraft.com/default.aspx}. Click on Brands. Pick a few products and look at how they are sold in other markets. Are product names the same? What differences do you see in product packaging? Are there differences in the products themselves? What do your answers tell you about Kraft’s international marketing strategy?

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Cultural Differences Countries differ along a range of cultural dimensions including: tradition social structure language religion education Among these dimensions, there is evidence of the trends Levitt identified.

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Economic Development A country’s level of economic development has important marketing implications. Firms based in highly developed countries tend to build a lot of extra performance attributes into their products Consumers in less developed nations tend to prefer more basic products

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Product and Technical Standards National differences in product and technological standards force firms to customize the marketing mix

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DISTRIBUTION STRATEGY A firm’s distribution strategy (the means it chooses for delivering the product to the consumer ) is a critical element of the marketing mix If the firm manufacturers its product in the particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler The same options are available to a firm that manufactures outside the country

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A typical distribution system consists of a channel that includes a wholesale distributor and a retailer.

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Differences between Countries Retail Concentration In some countries the retail system is very concentrated, while in other countries it is fragmented In a concentrated system, a few retailers supply most of the market In a fragmented system there are many retailers, no one of which has a major share of the market

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Channel Length Channel length refers to the number of intermediaries between the producer and the consumer When the producer sells directly to the consumer, the channel is very short When the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists

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Channel Exclusivity An exclusive distribution channel is one that is difficult for outsiders to access Japan's system is an example of a very exclusive system

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Channel Quality 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. The quality of retailers is good in most developed countries, but is variable at best in emerging markets and less developed countries

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Choosing a Distribution Strategy The choice of distribution strategy determines which channel the firm will use to reach potential consumers Since each intermediary in a channel adds its own markup to the products, there is generally a critical link between channel length and the firm's profit margin A long channel can be beneficial because it economizes on selling costs when the retail sector is very fragmented

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Classroom Performance System Which of the following is not one of the three main differences between distribution systems? Retail concentration Product attributes Channel length Channel exclusivity Classroom Performance System Answer: b

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COMMUNICATION STRATEGY Communicating product attributes to prospective customers is a critical element in the marketing mix and is partly determined the channel choice. Communication channels available to a firm include direct selling sales promotion direct marketing advertising

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Barriers to International Communication International communication occurs whenever a firm uses a marketing message to sell its products in another country. The effectiveness of a firm's international communication can be jeopardized by: cultural barriers source and country of origin effects noise levels Lecture Note: The class can be stimulated to think of some positive and negative source effects (German autos vs. German wine, Italian cuisine vs. British cuisine). Management Focus: Overcoming Cultural Barriers to Selling Tampons Summary This feature examines Procter & Gamble’s (P&G) efforts to bring tampons to the world. After purchasing Tambrands in 1997, P&G found that marketing strategies that were successful in the U.S. failed to generate sales in many other parts of the world. P&G, in an effort to reach new customers, has developed a new marketing strategy that is based on direct selling and relationship marketing. The strategy is currently being tested in Mexico, and if successful, will be implemented in other South Americas n markets. Suggested Discussion Questions 1. How has culture affected P&G’s efforts to sell tampons around the world? 2. P&G has resorted to direct selling and relationship marketing to sell tampons. In your opinion, would these methods work in the U.S.? Why or why not?

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Push versus Pull Strategies The main choice with regard to communication strategy is between a push strategy (emphasizes personnel selling) and a pull strategy (emphasizes mass media advertising). The choice between the strategies depends upon: product type and consumer sophistication channel length media availability

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Product Type and Consumer Sophistication Firms in consumer goods industries that are trying to sell to a large segment of the market tend to prefer a pull strategy Firms that sell industrial products or other complex products favor a push strategy

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Channel Length Using direct selling to push a product through many layers of a distribution channel can be very expensive A firm may try to pull its product through the channels by using mass advertising to create consumer demand

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Media Availability A pull strategy relies on access to advertising media A push strategy is more attractive when there is limited access to mass media

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The Push-Pull Mix Push strategies tend to be emphasized: for industrial products and/or complex new products when distribution channels are short when few print or electronic media are available

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Pull strategies tend to be emphasized: for consumer goods products when distribution channels are long when sufficient print and electronic media are available to carry the marketing message Management Focus: Unilever—Selling to India’s Poor Summary This feature explores Unilever’s innovative global marketing strategy. Unilever maintains a substantial presence in many of the world’s poorer nations where low-income levels, unsophisticated consumers, illiteracy, a fragmented retail distribution system, and unpaved roads make marketing difficult. Still, the company has managed to succeed thanks to its efforts to customize its marketing strategy to the local market. Suggested Discussion Questions 1. Discuss the effects of India’s culture on each of the components of Unilever’s marketing strategy. What can Unilever learn from its experiences in India? 2. Is Unilever’s strategy in India a push strategy or a pull strategy? Explain.

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Global Advertising Should a firm standardize its advertising worldwide?

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For Standardized Advertising Standardized advertising makes sense when: it has significant economic advantages creative talent is scarce and one large effort to develop a campaign will be more successful than numerous smaller efforts brand names are global

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Classroom Performance System A push strategy works best in all of the following situations except For industrial products When distribution channels are short When sufficient print and electronic media are available to carry the marketing message For complex new products Classroom Performance System Answer: c

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Against Standardized Advertising Standardized advertising is not appropriate when: cultural differences among nations are significant country differences in advertising regulations may block the implementation of standardized advertising

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Dealing with Country Differences Some firms have been trying tactics to capture the benefits of global standardization while responding to individual cultural and legal environments

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PRICING STRATEGY How should a firm price its product or service in foreign markets?

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Price Discrimination A firm can maximize profits by using price discrimination (charging consumers in different countries different prices for the same product) For price discrimination to work the firm must be able to keep national markets separate and different price elasticities of demand must exist in different countries

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The price elasticity of demand is a measure of the responsiveness of demand for a product to changes in price. Demand is elastic when a small change in price produces a large change in demand Demand is inelastic when a large change in price produces only a small change in demand

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The elasticity of demand is determined by a number of factors including: income level competitive conditions In general price elasticities tend to be greater in countries with lower income levels and greater numbers of competitors.

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Strategic Pricing Strategic pricing has three aspects: predatory pricing multi-point pricing experience curve pricing

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Predatory Pricing Predatory pricing involves using the profit gained in one market to support aggressive pricing designed to drive competitors out, in another market

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Multi-point Pricing Strategy Multi-point pricing refers to the fact that a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market Aggressive pricing in one market may elicit a competitive response from a rival in another critical market For managers, it is important to centrally monitor pricing decisions around the world

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Experience Curve Pricing Firms pursuing an experience curve pricing strategy on an international scale price low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially A firm using experience curve pricing believes that several years in the future, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less aggressive competitors

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Regulatory Influences on Prices The use of either price discrimination or strategic pricing may be limited by national or international regulations

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Antidumping Regulations Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it Antidumping rules set a floor under export prices and limit firms’ ability to pursue strategic pricing

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Competition Policy Most industrialized nations have regulations designed to promote competition and restrict monopoly practices These regulations can be used to limit the prices that a firm can charge

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CONFIGURING THE MARKETING MIX Standardization versus customization is not an all or nothing concept Most firms standardize some things and customize others Management Focus: Castrol Oil in Vietnam Summary This feature focuses on the strategies and experience of Castrol Oil in marketing its GTX brand of motor oil around the world. Castrol Oil is the lubricants division of the British chemical, oil, and gas concern Burmah Castrol. Castrol Oil’s GTX brand of motor oil is marketed as a premium brand. The feature focuses on the company’s entries into the lubricants markets in Thailand and Vietnam . Castrol has a unique strategy of appealing to consumers who drive motorcycles, in hopes of developing brand loyalty and retaining these customers as their countries develop to the point where cars are more common. This strategy worked well in Thailand, and is currently under way in Vietnam . Suggested Discussion Questions 1. In underdeveloped countries like Thailand and Vietnam , the conventional forms of media that we are accustomed to, like radio and television, are often absent. This problem is particularly pronounced in Vietnam . Describe how Castrol Oil overcame this challenge. Does the company’s approach seem prudent to you? Explain your answer. 2. Would you describe Castrol Oil’s communications strategy in Vietnam as a push or a pull strategy? Explain your answer. 3. Castrol Oil emphasizes a premium pricing strategy. What elements of the company’s communications and distributions strategies support this premium pricing strategy?

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Classroom Performance System When a firm uses a pricing strategy aimed at giving a company a competitive advantage over its rivals, the firm is engaging in Predatory pricing Multipoint pricing Experience curve pricing Strategic pricing Classroom Performance System Answer: d

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NEW PRODUCT DEVELOPMENT The Location of R&D New product ideas come from the interactions of scientific research, demand conditions, and competitive conditions.

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The rate of new-product development is greater in countries where: more money is spent on basic and applied research and development demand is strong consumers are affluent competition is intense

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Integrating R&D, Marketing, and Production Commercialization of new technologies in international firms may require different versions of a new product to be produced for different countries New product development efforts should be closely coordinated with the marketing, production, and materials management functions This integration will ensure that customer needs are met and that the company performs all its value creation activities efficiently

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Cross-Functional Teams Cross-functional integration is facilitated by cross-functional product development teams Effective cross functional teams should: be led by a heavyweight project manager with status in the organization have members from all the critical functional areas have members located together have clear goals have an effective conflict resolution process

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Building Global R&D Capabilities R&D and marketing need to be integrated to adequately commercialize new technologies This may require R&D centers in North America, Asia, and Europe that are closely linked by formal and informal integrating mechanisms with marketing operations in each country in their regions, and with the various manufacturing facilities

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CRITICAL THINKING AND DISCUSSION QUESTIONS 1. Imagine you are the marketing manager for a US manufacturer of disposable diapers. Your firm is considering entering the Brazilian market. Your CEO believes the advertising message that has been effective in the United States will suffice in Brazil. Outline some possible objections to this. Your CEO also believes that the pricing decisions in Brazil can be delegated to local managers. Why might she be wrong? Answer: While babies’ behinds serve the same function in all cultures, and the product's technical standards may be similar, sensitivity to bodily functions does vary across cultures. Thus the advertising message may need to be changed for different attitudes towards what is appropriate advertising. Likewise, where it might be progressive to show an ad with a male changing a diaper in some countries, in other countries this message could be lost or misinterpreted. Another consideration would be the noise level created by the advertising message of competitor's products, which may well be different in Brazil. While local demand and price elasticity decisions should play an important role in Brazil, pricing should not be left solely to the discretion of the local managers. Since this is a global business, your firm will likely be competing in Brazil with some of the same competitors as elsewhere. Thus pricing decisions in one country can have an impact on pricing and competition in other markets. Similarly, your firm may want to position and price the brand similarly across different South American countries.

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CRITICAL THINKING AND DISCUSSION QUESTIONS 2. Within 20 years we will have seen the emergence of enormous global markets for standardized consumer products. Do you agree with this statement? Justify your answer. Answer: One could either choose to agree or disagree, while the best answer would likely hedge it somewhere in the middle. There clearly already are enormous global markets already for products like Coke and Levis, while it is questionable whether there will ever be a global consumer market for Norwegian lutefisk. More global consumer markets will likely emerge, but there will continue to be national distinctions for many products.

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CRITICAL THINKING AND DISCUSSION QUESTIONS 3. You are the marketing manager of a food products company that is considering entering the Indian market. The retail system in India tends to be very fragmented. Also, retailers and wholesalers tend to have long-term ties with Indian food companies, which makes access to distribution channels difficult. What distribution strategy would you advise the company to pursue? Why? Answer: The firm should sell to either wholesalers or import agents. Because the retail system in India is very fragmented, it would be very expensive for the firm to make contact with each individual retailer. As a result, it would be more economical for the firm to sell to wholesalers or import agents. Import agents may have long-term relationships with wholesalers, retailers, and/or other import agents. Similarly, wholesalers may have long-standing relationships with retailers and, therefore, be better able to persuade them to carry the firm’s product than the firm itself would.

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CRITICAL THINKING AND DISCUSSION QUESTIONS 4. Price discrimination in indistinguishable from dumping. Discuss the accuracy of this statement? Answer: In some specific instances this statement is correct, but as a general rule it is not. When a firm is pricing lower in a foreign country than it is in its domestic market, it can be difficult to distinguish dumping from price discrimination unless it is clear that the firm is selling at below cost in the foreign market. Yet when costs are reasonably well known and all prices are above these, or if the firm is pricing lower in its domestic market than in foreign markets, it can reasonably concluded that price discrimination rather than dumping is occurring.

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CRITICAL THINKING AND DISCUSSION QUESTIONS 5. You work for a company that designs and manufactures personal computers. Your company’s R&D center is in North Dakota. The computers are manufactured under contract in Taiwan. Marketing strategy is delegated to the heads of three regional groups: a North American group (based in Chicago), a European group (based in Paris), and an Asian group (based in Singapore). Each regional group develops the marketing approach within its region. In order of importance, the largest markets for your products are North America, Germany, Britain, China, and Australia. Your company is experiencing problems in its product development and commercialization process. Products are late to market, the manufacturing quality is poor, and costs are higher than projected, and market acceptance of new products is less than hoped for. What might be the source of these problems? How would you fix them? Answer: The dispersion of activities makes sense - products are produced in the lowest cost location and marketed by people familiar with local conditions. (The R&D in North Dakota must be a historical fluke.) Yet this makes the coordination task extremely complex, and information required for successful commercialization is likely not being effectively communicated among all the appropriate people. Greater cross-functional integration in the new product development process should help to improve product development and commercialization.


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