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International Marketing Czinkota & Ronkainen Spring 2010 Web Slides Ch. 9-15, 17.

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Presentation on theme: "International Marketing Czinkota & Ronkainen Spring 2010 Web Slides Ch. 9-15, 17."— Presentation transcript:

1 International Marketing Czinkota & Ronkainen Spring 2010 Web Slides Ch. 9-15, 17

2 Chapter 9 Market Entry and Expansion Chapter 9 Market Entry and Expansion

3 Why Firms go International Proactive Stimuli Profit advantage Unique products Technological advantages Exclusive information Economies of scale Market size Reactive Stimuli Competitive pressures Overproduction Stable or declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports

4 Foreign Market Entry Strategies – 1/2. (A) Exporting (Casual, Indirect, Direct) (B) Contractual Agreements  Licensing (patents, technology, trade secrets)  Franchising (brand, managerial know-how)  Subcontracting (from prime contractors)  Contract manufacturing (for foreign brands)  Turnkey Operations  Co-production Agreements  Management Contracts (IK)

5 Foreign Market Entry Strategies – 2/2. (C) Joint Ventures (minority/majority equity) (D) Wholly-Owned Subsidiaries »Local Sales only »Local Assembly & Sales »Local Production & Sales »Local Production, Sales & Export Start-up of new operations –Merger with an existing enterprise –Acquisition of an existing enterprise –Greenfield investment

6 Exporting Export management companies (EMCs) –Domestic firms that perform international marketing services as commission representatives or distributors for other firms. –Two primary forms of operation Take title to goods and operate internationally. Perform services as agents.

7 Exporting Trading companies –The most famous trading companies are the sogoshosha of Japan. –Reasons for the success of the Japanese sogoshosha: gather, evaluate, and translate market information into business opportunities. Their vast transaction volume provides them with cost advantages. serve large markets around the world and have transaction advantages. access to capital, both within Japan and in the international capital markets.

8 Exporting Export trading companies Act (ETCs) –Designed to improve the export performance of small- and medium-sized firms. –Permits bank participation in trading companies to allow better access to capital. –Reduces the antitrust threat to joint export efforts to enable firms to share the cost of international market entry. –Must balance the demands of the market and the supply of the members to be successful.

9 Trading companies Independent distributors that match up buyers and sellers. Do not represent a manufacturer but find many who can supply a buyer. –Most major trading companies are the sogoshosha of Japan. –Reasons for the success of the Japanese sogoshosha: Are organized to gather, evaluate, and translate market information into business opportunities. Cost advantages because of vast transaction volume Serve large markets around the world and have transaction advantages. Have access to capital, both within Japan and in the international capital markets.

10 Going International E-commerce: Offering goods and services over the Web: Corporate websites. B-to-C and C-to-B forums. Firms must: –Provide 24-hour order taking and customer support service (often outsourced) –Have the regulatory and customs-handling expertise to deliver internationally. –Understand global marketing environments for further development of business relationships.

11 Licensing and Franchising Advantages of licensing –Capital investment or knowledge or marketing strength is not required. –Additional return on R&D investments already incurred. –Reduces the risk of R&D failures –Ongoing licensing cooperation and support enables the Licensee benefits from new developments. –Allows a firm to test a foreign market without major investment of capital or management time. –Preempts a market for competition, especially if the licensor’s resources permit full-scale involvement only in selected markets. –Increases protection of intellectual property rights.

12 Licensing and Franchising –Disadvantages of licensing Licensor gets limited expertise. Licensor creates its own competitor. Allows multinational corporations (MNCs) to capitalize on older technology.

13 Foreign Direct Investment Types of ownership - Joint ventures –Collaborations of two or more organizations for more than a transitory period. –Partners share assets, risks, and profits in proportion to ownership. –Governmental and commercial reasons for joint ventures

14 Foreign Direct Investment Advantages of joint ventures –Pooling of resources. –Better relationships with local organizations. –The partner’s knowledge of the local market. –Minimize exposure to political risk. –Tap local capital markets. Disadvantages of joint ventures –Different levels of control are required. –Difficulty in maintaining the relationship. –Disagreements over business decisions. –Disagreements over profit accumulation and distribution (profit repatriation).

15 Firms are categorized as: –Resource seekers - Search for natural and human resources. –Market seekers - Search for better opportunities to enter and expand within markets. –Efficiency seekers - Attempt to obtain the most economic sources of production. Foreign Direct Investment

16 –Bring in capital, economic activity, and employment. –Transfer technology and managerial skills. –Encourage competition, market choice, and competitiveness. But, they: –Drain resources from host countries. –Starve smaller capital markets. –Discourage local technology development. –Bring in outmoded technology. –Create new competition for local firms. Foreign Direct Investors

17 Chapter 10 Product Adaptation Chapter 10 Product Adaptation

18 Product Variables Products can be differentiated by their composition, country of origin, tangible features such as packaging or quality, or augmented features such as warranty.

19 Standardization vs. Customization: Decision Criteria Nature of Product Technology Differences Weights & Measures Physical Environment Cost/Benefit Relationship Legal Requirements Competition Support Systems Cultural differences Market Conditions (IK) TM 89 Product Design Strategy Standardization vs. Customization

20 Exhibit Standardization versus Adaptation Factors encouraging standardization –Economies of scale in production –Economies in product R&D –Economies in marketing –“Shrinking” of the world marketplace/economic integration –Global competition Factors encouraging adaptation –Differing use conditions –Government and regulatory influences –Differing consumer behavior patterns –Local competition –True to the marketing concept

21 Government Influences on Adaptation Government regulations –Political agendas –Firms can influence these regulations by lobbying directly or through industry associations. –Economic integration reduces discretionary governmental regulations to some extent. Nontariff barriers –Include product standards, testing or approval procedures, subsidies for local products, and bureaucratic red tape.

22 Customer Variables Customer characteristics, expectations, and preferences –Physical size, local behaviors, tastes, attitudes, and traditions…. –Consumption patterns, psychosocial characteristics, general cultural criteria … –Product positioning - Consumers’ perception of a brand as compared with that of competitors’ brands.

23 Economic Conditions Economic development –Affects demand characteristics and helps determine potentials for selling certain kinds of products and services. –Backward innovation of the product may be required to meet local requirements.

24 Competition, Environment Competitive offerings - Monitoring competitors’ product features is critical in adjusting the product for competitive advantage. Climate and geography – influence core product; tangible elements (mainly packaging) ; and the augmented features.

25 Global Brand Development Questions to ask when management seeks to build a global brand: –Will anticipated scale economies materialize? –How difficult will it be to develop a global brand team? –Can a single brand be imposed on all markets successfully?

26 Global Brand Development Create a compelling value proposition (warranty can also be a value proposition) Think about all elements of brand identity and select names, marks, and symbols that have the potential for globalization Research the alternatives of extending a national brand versus adopting a new brand identity globally Develop a company-wide communication system

27 Packaging Considerations –three major functions: protection, promotion, user convenience. –Materials: vary by transportation mode, transit conditions, storage, display, length of time in transit, regulations... –The promotional aspect of packaging relates mostly to labeling. –User convenience. Containers must withstand logistics challenge, and yet must be easy for customers to open. –Package aesthetics: prudent choice of colors and package shapes. –Package size: varies by purchasing patterns and market conditions.

28 Country of Origin ( COO ) –The origin of a product may have a strong effect on consumer perceptions and biases. –This effect reduces as: Customers become more informed. Countries develop the necessary bases to manufacture products.

29 Product Counterfeiting Counterfeit goods – Goods bearing an unauthorized representation of a trademark, patented invention, or copyrighted work that is legally protected in the country where it is marketed. The European Union estimates that trade in counterfeit goods accounts for 2 percent of total world trade. The largest number of counterfeit goods are sourced from China, Brazil, Taiwan, Korea, and India.

30 Combating Counterfeiting Some acts, agreements, and alliances that help combat counterfeiting include: –The Omnibus Tariff and Trade Act of 1984 –The Trademark Counterfeiting Act of 1984 –The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement –The International Anti-Counterfeiting Coalition (1978) –Counterfeit Intelligence and Investigating Bureau

31 Chapter 11 Export Pricing Chapter 11 Export Pricing

32 Price Dynamics The alternatives strategies for first-time pricing: –Skimming - Achieve the highest possible contribution in a short initial time period, and then gradually lower the price as more segments are targeted and more products are available. –Market pricing – Determined based on competitive prices; production and marketing is adjusted to the price. –Penetration pricing – Offer products at a low price to generate volume sales and achieve high market share, to compensate for lower per unit return.

33 The Setting of Export Prices Export pricing strategy –The standard worldwide price may be the same regardless of the buyer or may be based on average unit costs of fixed, variable, and export-related costs. –Dual pricing differentiates between domestic and export prices.

34 Export pricing strategy Approaches to pricing products for exports: –Full cost method – Fully allocating domestic and foreign costs to the product; ensures profit margins but may compromise the firm’s competitiveness –Marginal cost method – Considers direct costs of producing and selling products for export as the floor beneath which prices cannot be set. Market-differentiated pricing –based on the dynamic conditions of the marketplace. –prices change frequently due to changes in competition, exchange rate, or environment.

35 The Setting of Export Prices Export-related costs –Unique export-related costs include: Cost of modifying a product for a foreign market. Operational costs of exporting. Cost incurred in entering the foreign market. Price escalation –A combined effect of clear-cut and hidden costs results in an increase in export prices over and above the domestic prices.

36 Price Escalation Thru Exporting (see Exhibit 11-4 in your text) Domestic: - Shipping and insurance - wholesaler margin - retailer margin Exported: - higher shipping & insurance costs - Tariff - Importer, wholesaler and jobber’s margins - VAT at each value-added level If manufacturer’s price is $6.00 then domestic customer’s price may be $12.00 to $14.00 and foreign customer’s price may be anywhere from $20.00 to $45.00

37 Mitigating export-related costs - Reorganize the channel of distribution (consolidate or go around certain middlemen and/or their functions) -Product adaptation -Local sourcing of inputs - Use new or more economical tariff or tax classifications. - Assemble or produce overseas.

38 Incoterms ( First issued by ICC in 1936, revised 6 times since then) These delivery terms influence the quoted export price EXW (…named place) FCA FREE CARRIAGE (…named place) FAS (…named port of shipment) FOB (…named port of shipment) CFR OR C&F (…named port of destination) CIF (…named port of destination) CPT CARRIAGE PAID TO (…named place of destination) CIP CARRIAGE AND INSURANCE PAID TO (…named place of destination) DAF DELIVERED AT FRONTIER (…named place) DES DELIVERED EX SHIP (…named port of destination) DDU DELIVERED DUTY UNPAID (…named place of destination) DDP DELIVERED DUTY PAID (…named place of destination)

39 Terms of Payment Cash in advance –Relieves the exporter of all risks and allows for immediate use of the money. –Used for first time transactions or situations where the exporter doubts the importer’s solvency.

40 Terms of Payment Letter of credit (lc) (Opener, Issuer, Beneficiary) –An instrument issued by the bank at the request of the buyer. –The bank promises to pay money on presentation of specified documents like the bill of lading, consular invoice, and description of the goods. –Classified as irrevocable versus revocable, confirmed versus unconfirmed, and revolving versus non- revolving.

41 Terms of Payment Drafts (Drawer, Drawee, Payee) –Similar to personal check; an order by one party to pay another. –Buyer must obtain shipping documents before obtaining possession of the goods involved in the transaction. Documentary collection –The seller ships the goods, and the shipping documents and the draft are presented to the importer through banks acting as the seller’s agent. –The draft, also known as the bill of exchange, may be either a sight draft, time draft or arrival draft.

42 Terms of Payment Banker’s acceptance - A time draft drawn on and accepted by a bank; it is sold in the short-term money market. Discounting - Selling a draft to the bank at a discount from face value; it can be with recourse or without recourse. Open account - The normal manner of doing business in the domestic market; also known as open terms. Consignment selling – Allows the importer to defer payment until goods are actually sold.

43 Payment Risks Commercial risk –Refers to the insolvency of, or protracted payment default by, an overseas buyer. –Results from deterioration of conditions in the buyer’s market, fluctuations in demand, unanticipated competition, or technological changes. Political risk –Can neither be controlled by the buyer nor the seller.

44 Managing Foreign Exchange Risk To prevent currency related risks, the exporter can: –Shift the risk through foreign currency contractual hedging. –Modify the risk by manipulating prices and other elements of a marketing strategy. Forward exchange market –The exporter gets the bank to agree to a rate at which it will buy the foreign currency the exporter receives when the importer makes payment. –The rate is either a premium or a discount on the current spot rate.

45 Foreign Exchange Risk & Price Adjustments –Pass through – Make no change in the price, resulting in a less favorable price in foreign currencies and, most likely, lower sales. –Absorption - Decrease the export price in conjunction with increases in the value of the currency to maintain stable export prices in foreign currencies. –Partial pass-through only a portion of the increase. –Pricing-to-market - Destination-specific adjustment of mark-ups in response to exchange-rate changes.

46 Sources of Export Financing Commercial banks –Provide assistance to only first rate credit risks. –Provide enhanced services which help exporters monitor and expedite their international transactions. –Marketers should assess the overseas reach of banks to avail greater market coverage.

47 Sources of Export Financing Forfeiting –Provides the exporter with cash at the time of shipment. –The importer uses bills of exchange or promissory notes to pay the exporter at the time of shipment. –The exporter sells them to a third party at a discount from their face value for immediate cash.

48 Sources of Export Financing Factoring houses –May purchase an exporter’s receivables for a discounted price. –Provide the exporter with a complete financial package that combines credit protection, accounts-receivable bookkeeping, and collection services.

49 Sources of Export Financing Differences between forfeiting and factoring: –Factors usually want a large percentage of the exporter’s business, while most forfeiters work on a one-shot basis. –Factors usually do not have strong capabilities in the developing countries, forfeiters do. –Forfeiters work with capital goods, factors typically with consumer goods. –Forfeiters work with medium-term receivables, while factors work with short-term receivables.

50 Government Export Financing Can be either a loan or a guarantee, including credit insurance. Advantages of trade financing by the government: –Protection in the riskiest part of an exporter’s business. –Protection against political and commercial risks over which the exporter does not have control. –Encouragement to exporters to make competitive offers by extending terms of payment. –Broadening of potential markets by minimizing exporter risks. –Possibility of leveraging exporter accounts receivable. –Opportunity for commercial banks to remain active in the international finance arena.

51 Price Negotiations Pricing is the most sensitive issue in business negotiations; the exporter should discuss it as part of a comprehensive package and should avoid price concessions early on in the negotiations. Carefully consider concessions that reduce price or profitability; example: discounts, payment terms, product features. Revisit competitive prices to ascertain that the price reflects market conditions accurately. Focus negotiations first on substantive issues (quality and delivery), then on price.

52 Leasing Trade liberalization has benefitted lessors both through expected growth in target economies and eradication of country laws and regulations hampering outside lessors. Allows market penetration for the firm’s products, when outright sale is not possible. Total net income from leasing is often higher than it would be if the unit was sold.

53 Dumping Selling goods overseas at a price lower than in the exporter’s home market or below the cost of production, or both. Ranges of dumping –Predatory dumping – Intentionally selling at a loss in another country in order to increase its market share at the expense of domestic producers. –Unintentional dumping - Result of time lags between the dates of sales transaction, shipment, and arrival.

54 Remedies for Dumping –Antidumping duty - Levied on imported goods sold at less than fair market value. –Countervailing duties - Imposed on imports which are subsidized in the exporter’s home country. To minimize the risk of being accused of dumping, focus on value-added products and increase differentiation by including services in the product offering Keep excellent records

55 Chapter 17 Global Pricing Chapter 17 Global Pricing

56 Transfer Pricing Objectives Transfer pricing is established to : –Be competitive in various markets –Reduce taxes and tariffs –Manage cash flows –Minimize exposure to foreign exchange risks –Avoid conflicts with home and host governments –Internal concerns such as goal congruence and motivation of subsidiary managers

57 The three philosophies are cost-based, market-based, and arm’s-length price. –Transfer at cost to increase the profits of affiliates –Derive transfer prices from the local market conditions –Use arm’s-length pricing to ensure proper intracompany pricing and to minimize government interference Transfer Pricing Philosophies

58 Corporate objectives: to undersell a major competitor. –to improve their efficiency and/or shift production bases. Costs: Easily measured, Varying inflation rates When prices cannot be changed, try value pricing, stripping down products, introducing innovative products at a modest premium, and getting close to customers by using new technologies. Demand and market factors: Price elasticity, customer perception of the product Market structure and competition: Distribution structure, trade discounts, etc. Environmental constraints: Government policies. Try non-price measures, emphasize other marketing mix elements Factors Governing Pricing Within Individual Markets

59 Countertrade Countertrade is a sale that encompasses an exchange of goods, services, or ideas for other goods, services, or ideas instead (or in addition to) money. Conditions that support countertrade are lack of money, lack of value of money, lack of acceptability of money as an exchange medium, or greater ease of transaction by using goods.

60 Forms of Countertrade. - Straight barter -Counterpurchase agreement (with the government, smaller deals) -Offset (with the government, larger, longer-term deals) - Buyback (from plant output) - Triangular Compensation {A (goods) →B (goods) → C (cash) → A} - Clearing agreements (Accounts cleared periodically) - Switch trading (one company sells to another its obligation to make a purchase in a given country) Blocked currencies (Typically soft currencies)

61 Merits: –Permits the covert reduction of prices and therefore allows firms and governments to circumvent price and exchange controls. –An excellent mechanism to gain entry into new markets. –Provides stability for long-term sales. Limitations: –Requires that accounts be settled on a country-by- country or even transaction-by-transaction basis. –Valuation of goods received in exchange can be difficult Why Use Countertrade?

62 Chapter 16 Global Logistics and Materials Management Chapter 16 Global Logistics and Materials Management

63 A Definition of International Logistics International logistics - The design and management of a system that controls the flow of materials into, through, and out of the international corporation. The systems approach helps the firm explicitly recognize the linkages among the traditionally separate logistics components within and outside of the corporation. Interaction with outside organizations, suppliers, and customers helps build on commonality of purpose in the areas of performance, quality, and timing.

64 A Definition of International Logistics The systems approach also ensures –JIT - Just-in-time. –EDI - Electronic data interchange (more efficient order processing). –ESI - Early supplier involvement. –ECR - Efficient customer response systems (tracks sales at retail level, allows manufacturer to coordinate production to shelf-replacement needs).

65 Logistics: major concepts –Systems concept - The extensive and complex materials-flow activities within and outside the firm must be considered in the context of their interaction. –Total-cost concept - Minimize overall logistics cost by identifying activity-based costs that impact after-tax profits. –Trade-off concept - Recognizes the linkages within logistics systems that result from the interaction of their components.

66 Supply Chain Management An integration of the three-system concepts. 1.planning and management of all activities involved in sourcing and procurement, conversion, and logistics. 2. coordination and collaboration with channel partners. 3.Integration of supply and demand management within and across companies.

67 Basic differences between domestic and international logistics –Distance - Presence of firms in more than one country. –Currency variations and exchange rate differences. –Transportation modes - Reliability of carriers may be different; computation of freight rates may be different.

68 1. Air: (wide body jets) 2. Truck: Truck trains 3. Rail: Gauges, technology, unit trains 4. Inland Waterways: Barges (motorized, non-motorized) 5. Ocean: Container ships, Ro-Ro ships, Lighter aboard ships, Supertankers, Ore carriers, LNG carriers (Trades, Conferences, Lines, Liner/Tramp, rates, flags, Insurance: General/Particular average) 6. Pipelines: Liquid, gas, domestic, transnational 7. Intermodal IK International Shipping/Transportation Modes

69 Choice of Transportation Modes is influenced by: –Transit time –Predictability (Air is more predictable than ocean) –Cost –Noneconomic factors (government involvement)

70 Exhibit Documentation for an International Shipment Trading regions such as the European Union have greatly simplified their documentation requirements. Documentation is sometimes considered to be a trade barrier.

71 Packaging for International Shipping Customer Requirements Shipper Requirements Distributor Requirements Climate Customs and traditions Government Requirements Cost (shipping, insurance, pilferage) Physical hazards (acceleration, deceleration, dropping, pitching, rolling, vibrations, etc.)

72 Management of International Logistics Centralized logistics management - Headquarters retain decision-making power and control over logistic activities affecting international subsidiaries. Decentralized logistics management –Each subsidiary is made a profit center which carries responsibility for its performance. –Leads to greater local management satisfaction and better adaptation to local market condition. –Required by firms operating in a number of international markets that are diverse in nature.

73 Management of International Logistics Contract logistics –Outsourcing logistical management by employing outside logistical expertise. –Helps firms to achieve improved service at equal or lower cost. –Allows marketers to take advantage of an existing network, complete with resources and experience. –Leads to loss of the firm’s control in the supply chain.

74 The Supply Chain and the Internet Global net e-commerce revenue is expected to surpass the $1 trillion dollar mark by Companies enter e-commerce through hub sites (also known as virtual malls or digital intermediaries) which bring together buyers, sellers, distributors, and transaction payment processors in a marketplace (e Bay, Priceline, Amazon etc.). Companies using e-commerce need to be prepared for 24-hour order-taking and customer service.

75 Logistics and Security Logistics systems are vulnerable to terrorist attacks and piracy; to prevent them, governments impose security measures (screening of shipments and shippers). Security measures: –Affect the firm’s ability to plan their international shipments and distributions. –Increases the cost of supply chain activities.

76 Logistics and Security Strategies employed for reducing security costs: –Replace international shipments with domestic. –Eliminate the use of vulnerable international transportation. –Redesign the logistics strategies to incorporate the effects of substantial and long-term interruptions of supplies and operations.

77 Recycling and Reverse Logistics The firm’s ability to develop reverse logistics is a key determinant for market acceptance and profitability. Reverse distribution –Ensures that a firm can retrieve a product from the market for subsequent use, recycling, or disposal. –Is a complex customer service, inventory control, information management, cost accounting, and disposal process. –Reverse logistics management is highly specialized.

78 Chapter 12 Marketing Communication Chapter 12 Marketing Communication

79 International Negotiations The two biggest dangers faced in international negotiations: –Parochialism - The misleading perception that the world of business is becoming ever more American and that everyone will behave accordingly. –Stereotyping - Generalizations about any given group, both positive and negative.

80 International Negotiations Process Five-stage negotiated selling process: –Offer Initiated by either the seller or the buyer. Allows the parties to assess each other’s needs and commitment. –Informal meetings To discuss the terms and get acquainted. It may be necessary to utilize facilitators (such as consultants or agents) to establish the contact. –Strategy formulation Review and assess all factors to be negotiated, and Prepare for actual give-and-take of the negotiation.

81 International Negotiations –Negotiations details Two approaches are used: competitive and collaborative. Depend on the cultural background and business traditions prevailing in different countries. –Outcomes The choice of location for the negotiations and the negotiator characteristics play a role in the outcome.

82 Negotiating in other Countries 1/2 Approaches used for adjusting to the style of the host- country negotiators: –Team assistance (use specialists to allow all points to be considered) –Traditions and customs (status relations & business procedures) –Language capability (a culturally and linguistically competent interpreter may be needed) –Determination of authority limits (US & European negotiators have much greater authority than Asians) –Patience

83 Negotiating in other Countries 2/2 –Negotiation ethics (may be different and, sometimes, seem unethical to US & Europeans) –Silence (must be interpreted correctly. It not always negative) –Persistence (insisting on quick answers may be seen as a threat. Let things develop as per local culture) –Holistic view (concessions should come at the end of bargaining after all other issues have been discussed) –The meaning of agreements (written, legal contracts may not be needed or even be negative)

84 The promotional mix –Advertising –Personal selling –Publicity –Sales promotion –Sponsorship. The choice of tools leads to either a push or a pull emphasis in marketing communications.

85 Push & Pull Strategies Push strategies - Focuses on personal selling; considered useful for marketing industrial goods which have shorter channels of distribution. Pull strategies - Depend on mass communications to reach target audiences over long distribution channels. Integrated marketing communications - Coordinated use of a broad range of promotional tools to reach a target market.

86 Direct marketing –Establishes relationship with a customer in order to initiate immediate and measurable responses. –Accomplished through direct-response advertising (direct mail literature and catalogs), telemarketing (telephone via call centers), and direct selling (database marketing to create individual relationships with each customer). –All can be highly personalized tools if the target audience can be identified and defined narrowly.

87 Trade Shows and Missions Trade shows may be general (horizontal) or specialized (vertical). They provide: –Opportunity to introduce, promote, and demonstrate new products. –Goodwill and contacts. –Locate trade intermediaries and suppliers. –Meet government officials and decision makers. –Collecting market research and competitive intelligence. –Reach sizable sales prospects in a brief time period at a reasonable cost per contact.

88 Reasons for not participating in trade fairs –High cost. –Difficulty in choosing the appropriate trade fairs –Coordination. Other promotional events that the exporter can use are trade missions, seminar missions, solo exhibitions, virtual trade shows, etc.

89 Personal selling –Involves high costs per contact. –Provides immediate feedback on customer reaction as well as information on markets. –Can be used for consumer selling in low-wage markets

90 Chapter 13 Distribution Management Chapter 13 Distribution Management

91 Channel Structure From direct (producer-to-consumer types) to elaborate (multilevel channels using many types of intermediaries). Channel configurations for the same product will vary within industries, even within the same firm, because national markets quite often have unique features. Channel structures are designed to manage multidirectional connections for: Physical movement of goods and services. Transactional title flows. Information communications flows.

92 Foreign Wholesaling 1. Smaller 2. More numerous 3. More services, especially financing 4. Higher margins cf. U.S. wholesalers 5. Operate in permanent wholesale markets, fewer trade shows IK

93 Foreign Retailing 1. Much smaller 2. Fewer/smaller chains 3. Varied operating hours 4. Limited offerings 5. Nomenclature differences 6. Government regulations 7. Service level varies by country 8. Less self-service IK

94 The general distribution systems used by companies include: –Direct sales to customers through a firm’s own field sales force or through electronic commerce. –Indirect sales through independent intermediaries at the local level. –Indirect sales through an outside distribution system having a regional or global coverage. Channel Strategies

95 Channel Design Influences Customer characteristics –The demographic and psychographic characteristics of targeted customers form the basis for channel design decisions. –Focusing on customer needs: why, when, and how they buy helps to generate a competitive advantage.

96 Channel Design Influences Culture The existing channel structures or the distribution culture. The functions performed by the various types of intermediaries. Foreign legislation affecting distributors and agents

97 Channel Design Influences Competition –Channels used by competitors may be the only product distribution system that is accepted by both the trade and consumers. –If distribution channels used by competitors are not satisfactory, the exporter can: Form jointly owned sales companies with distributors to exercise more control. Seek a good company fit in terms of goals and objectives.

98 Channel Design Criteria Company objectives: market share and profitability Nature of the product: consumer, industrial Capital: financial requirements for setting up a channel system Cost: of maintaining a channel Coverage: intensive, selective, exclusive Control: depends on company plans for the future Continuity: expressed thru visible market commitment Communication: for channel coordination

99 Selection of Intermediaries Two basic decisions: –Determining the type of intermediary relationship Distributorship Agency relationship –Determining the type of exporting function Indirect exporting Direct exporting Integrated distribution

100 The distributor agreement –Some important terms to be included: Contract duration. Geographic and customer boundaries. Method of compensation. Products and conditions of sale. Means of communication between parties. Process of dispute resolution/dissolution

101 Gray Markets Gray markets (parallel importation) –Authentic and legitimately manufactured trademark items that are produced and purchased abroad but imported or diverted to the market by bypassing designated channels. –Fuelled by price segmentation and exchange rate fluctuation. –They under-cut local marketing plans, erode long- term brand images, eat up costly promotion funds, and sour manufacturer–intermediary relations.

102 Gray Markets Arguments for gray markets: –The right to “free trade.” –Consumers benefit from lower prices. –Discount distributors find a profitable market niche.

103 Gray Markets Arguments against gray markets: –Hurts the legitimate owners of trademarks. –Reduces incentive among trademark owners to undertake product development. –Take unfair advantage of the trademark owners’ marketing and promotional activities. –Can deceive consumers by not meeting product standards or their normal expectations of after- sale service.

104 Gray Markets Solutions to the gray market problem: –A contractual relationship that ties businesses together. –A one-price policy. –Producing different versions of products for different markets. –Conducting educational and promotional campaigns.

105 Chapter 14 Global Product Management and Branding Chapter 14 Global Product Management and Branding

106 Global Product Development The goal of the product development process is to build adaptability into products and product lines to achieve worldwide appeal.

107 Global Product Development Stages of the product development process –Idea generation –Screening –Product and process development –Scale-up –Commercialization

108 Global Product Development Sources for idea generation: –Company –Customers –Lead users –Procurement requisitions from governments and supranational organizations –Facilitating agents, such as advertising agencies or market research organizations

109 Screening Product Ideas Product ideas are screened on the basis of market, technical, and financial criteria. A product idea that at some stage fails to meet the specified criteria is not scrapped; data from these banks are used in the development of other products.

110 Global Product Development The use of computer aided design (CAD) allows inexpensive adaptation of the product designs for future markets. The product development process can be initiated by any unit of the organization, in the parent country or abroad.

111 Global Product Development The assignment of product development responsibility may be based on a combination of special (market and technical) knowledge as well as long-term or political considerations. Though product development activity takes place in the parent country, the affected units participate in the development and market planning for a new product.

112 Global Product Development Reasons for investing in R&D activities abroad: –Aids technology transfer from parent to subsidiary. –Develops new and improved products for foreign markets. –Develops new products and processes for simultaneous application in world markets of the firm. –Generates new technology of a long-term exploratory nature. –Curries favor with host-country governments

113 Global Product Development –Multidisciplinary teams in an organization Maximize the payoff from R&D by streamlining decision making. Reduce development time of a new product. Reduce overall material costs. Trim manufacturing processes. –Companies increase communication and exchange of personnel to reduce language and cultural barriers among R&D teams. –R&D consortia have been established provide the benefits and face the challenges of any strategic alliance.

114 Global Product Development Testing of new product concepts for performance and customer acceptance –Is the final stage of product development. –Ranges from reliability tests to mini-launches. –Is undertaken to avoid high rate of product failure. Reasons for product failure: –Relying on instinct or hunch rather than testing and research. –Lack of product distinctiveness. –Unexpected technical problems.

115 International product testing –Laboratory test markets - Captures consumer reactions in a controlled environment. –Micro test-marketing - Uses a permanent panel of consumers and assesses their willingness to buy after exposure to media and purchase incentives. –Forced distribution tests - Relies on the continuous report of consumer reactions to new products already in the market.

116 Global Product Launch Global Launch: Introducing the product into countries in three or more regions within a narrow timeframe. –Measures undertaken for successful launches: Involvement of country managers. Pre-launch attention to localization and translation requirements. Increased education and support of the sales channel. –Benefits of a successful global launch: Permits the company to showcase the product. Removes old models at once. Captures new product’s higher margins.

117 Management of the Product and Brand Portfolio Should have a balanced product and market portfolio— a proper mix of new, growing, and mature products to provide a sustainable competitive advantage. Product portfolio analysis –Is based on growth rates and market share positions. –Is used to analyze: Business entities, product lines, or individual products. Market, product, and business interlinkages.

118 Management of the Product and Brand Portfolio Advantages of product portfolio approach –A global view of competitive structures. –A guide for formulation of global marketing strategy based on allocation of scarce resources. –A guide for formulation of marketing objectives based on the role of product lines in the markets served. –A convenient visual communication goal. Disadvantages of product portfolio approach –Foreign competition does not follow the same rules as domestic competition. –Relationships between market share and profitability may vary. –Government regulations. –Local content laws. –Different production sites impact perceptions of risk and quality.

119 Branding Policies Three choices of branding: Use of the corporate name. Use family brands for a wide product line. Use individual brands for each item in the product line. –Global brands are a key way of creating consistency and impact. May be completely standardized or some elements of the product may be adapted to local conditions. –Characteristics of global brands Carry a strong quality signal and compete on emotion. Cater to the need of feeling cosmopolitan. Reflect the professional and personal status of the user. Use their monetary and human resources to benefit society

120 Branding Policies Private branding –The intermediaries’ own branded products or “store brands.” –Methods used for private branding: Umbrella branding with the intermediary’s name. Separate brand names for individual products or product lines. –Private brand goods have achieved a significant penetration in many countries due to increase in price sensitivity and decrease in brand loyalty.

121 MKT-421 Spring 2010 End of Class Slides


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