Global Business Management (MGT380) Lecture #23:

Today’s topic Global Marketing and Product Development

Learning Objectives  Understand why and how it may make sense to vary the attributes of a product among countries  Appreciate why and how a firm’s distribution strategy might vary among countries  Understand why and how advertising and promotional strategies vary among countries

Recap of the last lecture  When a firm’s competitive advantage is based on proprietary technological know-how, the firm should avoid licensing and joint venture arrangements unless it believes its technological advantage is only transitory, or that it can establish its technology as the dominant design in the industry  When a firm’s competitive advantage is based on management know-how, the risk of losing control over the management skills is not high, and the benefits from getting greater use of brand names is significant Firms can establish a wholly owned subsidiary in a country by:  Using a greenfield strategy - building a subsidiary from the ground up  Using an acquisition strategy Acquisitions are attractive because: they are quick to execute; they enable firms to preempt their competitors; acquisitions may be less risky than greenfield ventures

 Acquisitions can fail when: the acquiring firm overpays for the acquired firm ii) the cultures of the acquiring and acquired firm clash iii) attempts to realize synergies run into roadblocks and take much longer than forecast; iv)there is inadequate pre-acquisition screening  The main advantage of a greenfield venture is that it gives the firm a greater ability to build the kind of subsidiary company that it wants. However, greenfield ventures are slower to establish; Greenfield ventures are also risky  Acquisition may be better when the market already has well-established competitors or when global competitors are interested in building a market presence; A greenfield venture may be better when the firm needs to transfer organizationally embedded competencies, skills, routines, and culture  Choice of strategic partner; structure, and managing  Exporting procedure: Three modes of importer-exporter interaction

Globalization and Markets  “Globalization seems to be the exception rather than the rule in many consumer goods markets and industrial markets; and,  Procter and Gamble …still customizes the final product offering and market strategy to the conditions that pertain in individual national markets.” - Charles W. Hill

What Is The Marketing Mix?  The marketing mix (the choices the firm offers to its targeted market) is comprised of 1. Product attributes 2. Distribution strategy 3. Communication strategy 4. Pricing strategy

Should The Marketing Mix Be Changed For Each Market?  Question: Are markets and brands becoming global?  Theodore Levitt argued that world markets were becoming increasingly similar making it unnecessary to localize the marketing mix  Question: Is Levitt right? Probably not!  Levitt’s theory has become a lightening rod in the debate about globalization

Should The Marketing Mix Be Changed For Each Market?  The current consensus is that while the world is moving towards global markets, global standardization is not possible because of  cultural differences among nations  economic differences among nations  trade barriers  differences in product and technical standards

What Is Market Segmentation?  Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways  Markets can be segmented by  geography  demography  socio-cultural factors  psychological factors

What Is Market Segmentation?  Two key market segmentation issues 1. The differences between countries in the structure of market segments may have to develop a unique marketing mix to appeal to a certain segment in a given country 2. The existence of segments that transcend national borders when segments transcend national borders, a global strategy is possible

How Do Product Attributes Influence Marketing Strategy?  A product is like a bundle of 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 depend on 1. Culture tradition, social structure, language, religion, education For example: Findus frozen food division of Nestle the Swiss food giant, market frozen fish cakes and fingers in UK, beef bourguignon in France, bravilio in Italy. Coca-Cola markets Georgia, a cold coffee in Japan based on traditional taste.

How Do Product Attributes Influence Marketing Strategy? 2. Level of economic development  consumers in highly developed countries tend to demand a lot of extra performance attributes in Product. price is not a factor due to high income level  consumers in less developed nations tend to prefer more basic products, Price is important  cars: no air-conditioning, power steering, power windows, radios, and cassette players; product reliability is more important 3. Product and technical standards  national differences can force firms to customize the marketing mix

How Does Distribution Influence Marketing Strategy?  Distribution strategy - the means the firm chooses for delivering the product to the consumer  How a product is delivered depends on the firm’s market entry strategy  firms that produce locally can sell directly to the consumer, to the retailer, or to the wholesaler  firms that produce outside the country have the same options plus the option of selling to an import agent

How Does Distribution Influence Marketing Strategy? A Typical Distribution Strategy

How Do Distribution Systems Differ?  There are four main differences in distribution systems 1. Retail concentration – concentrated or fragmented  concentrated retail system, a few retailers supply most of the market common in developed countries contributing factors: increase in car ownership, number of households with refrigerators and freezers, and two- income households  fragmented retail system there are many retailers, no one of which has a major share of the market common in developing countries

How Do Distribution Systems Differ? 2. Channel length - the number of intermediaries between the producer and the consumer  short channel - when the producer sells directly to the consumer common with concentrated systems  long channel - when the producer sells through an import agent, a wholesaler, and a retailer common with fragmented retail systems

How Do Distribution Systems Differ? 3. Channel exclusivity – how difficult it is for outsiders to access  Japan's system is a very exclusive system  difficult for new firm to get shelf space as compared to an old firm 4. Channel quality - the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses  good in most developed countries, but variable in emerging markets and less developed countries  firms may have to devote considerable resources to upgrading channel quality

Which Distribution Strategy Should A Firm Choose?  The optimal strategy depends on the relative costs and benefits of each alternative  When price is important, a shorter channel is better  each intermediary in a channel adds its own markup to the product  When the retail sector is very fragmented, a long channel can be beneficial  economizes on selling costs  can offer access to exclusive channels

Why Is Communication Strategy Important?  Communicating product attributes to prospective customers is a critical element in the marketing mix  How a firm communicates with customers depends partly on the choice of channel  Communication channels available to a firm include  direct selling  sales promotion  direct marketing  advertising

What Are The Barriers to International Communication?  The effectiveness of a firm's international communication can be jeopardized by 1. Cultural barriers - it can be difficult to communicate messages across cultures  a message that means one thing in one country may mean something quite different in another  firms need to develop cross-cultural literacy, and use local input when developing marketing messages

What Are The Barriers to International Communication? 2. Source and country of origin effects –  source effects occur when the receiver of the message evaluates the message on the basis of status or image of the sender can counter negative source effects by deemphasizing their foreign origins, Examples: French wines, Italian clothes, and German luxury cars  country of origin effects - the extent to which the place of manufacturing influences product evaluations anti-Japan wave in US in 1990’s

What Are The Barriers to International Communication? 3. Noise levels - the amount of other messages competing for a potential consumer’s attention  in highly developed countries, noise is very high  in developing countries, noise levels tend to be lower

Summary of the lecture  Globalization seems to be the exception rather than the rule in many consumer goods markets and industrial markets.  The marketing mix (the choices the firm offers to its targeted market) is comprised of Product attributes, Distribution strategy, Communication strategy, Pricing strategy  Market segmentation - identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented by geography, demography, socio-cultural factors, psychological factors  Two key market segmentation issues: The differences between countries in the structure of market segments may have to develop a unique marketing mix to appeal to a certain segment in a given country

 (ii) The existence of segments that transcend national borders when segments transcend national borders, a global strategy is possible  Culture: tradition, social structure, language, religion, education For example: Findus frozen food division of Nestle the Swiss food giant, market frozen fish cakes and fingers in UK, beef bourguignon in France, bravilio in Italy.  Level of economic development: consumers in highly developed countries tend to demand a lot of extra performance attributes in Product. price is not a factor due to high income level  Product and technical standards: national differences can force firms to customize the marketing mix  Distribution strategy: the means the firm chooses for delivering

 There are four main differences in distribution systems 1. Retail concentration – concentrated or fragmented  Channel length - the number of intermediaries between the producer and the consumer  Channel exclusivity – how difficult it is for outsiders to access  Channel quality - the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses  The effectiveness of a firm's international communication can be jeopardized by Cultural barriers - it can be difficult to communicate messages across cultures. Source and country of origin effects – source effects  country of origin effects and Noise effect