1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 10 Local Marketing in Emerging Markets

3. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Local Marketing in Developing Countries The macroenvironment in the typical developing market is characterized by uncertainty Consumer needs tend to be basic and easy to identify Market Segmentation In these markets, income level represents the basic segmentation criterion Effective income measures are defined in terms of access to convertible currency

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Local Marketing in Developing Countries Product Positioning The developing market environment makes product policy a key issue At the core of the market, customer needs tend to be basic and domestic alternatives weak Pricing Price policies in developing markets are dominated by The balance between affordability and upper-end positioning The lack of purchasing power means that the marketer often must find ways of offering a simpler product

5. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Local Marketing in Developing Countries Distribution Unless effective ways of distributing the product can be found or created, market entries might be thwarted and economic growth of the developing countries will not take off Promotion Promotion in developing markets is initially limited because of lack of broadcast media

6. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe The defining characteristic of Russia and the Eastern European countries is Their emergence from a communist-dominated political system Three major features that set NDC apart from developing countries Basic needs satisfied Education and social control No free market International Support Assistance from international agencies plays an important role in economic progress

7. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Political and Legal Factors In NDC markets It is necessary to treat political and legal factors as part of the economic landscape Export controls are another political-legal problem area for the marketer Politics influences peoples’ attitude toward the free market system Market Segmentation The local marketer in NDC economies may find it useful to define the market served in terms of ethnic market segmentation of subgroups among the population in each of the countries

8. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Product Positioning Most indicators would suggest that these markets would be best served with a more basic products at the low end of the price scale But, being the first company to offer a more advanced product can yield first-mover advantages

9. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Marketing Tactics Product Policies In NDC markets, customers tend to feel ambivalent about their domestic products Pricing Entering global brands will typically be able to command a price premium over existing local brands For most firms, the long-term prospects of these markets matter much more than short-term payoffs

10. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Marketing Tactics cont’d Distribution A big problem that the new local marketer faces in typical NDCs Is a wasteful and dysfunctional distribution system Weak infrastructure Marketing education Service training

11. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Marketing Tactics cont’d Promotion Marketing communications often have to be revised in NDC markets The common advertising media may not be available or may have only limited reach Lack of credibility of advertising claims is a problem Old values can crumble along with the political system

12. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in Russia and Central Europe Russia at the Crossroads Much of Russia’s uncertainty in political and economic transformation stems from managing a vast nation that only recently has elected its first democratic leader There remains a legacy of corruption, mismanagement and isolation Turning back into a barter-style economy

13. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in China China’s Market Potential China has a population of 1.2 billion people which is the largest in the world With its underlying strength in natural resources and able and disciplined worker the Chinese economy has so far been relatively untouched by the Asian Crisis Despite the size and potential of the Chinese market its fast-growing purchasing power is still low

14. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in China Entry Barriers Import License Controls The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) Protective Tariffs With the entry into the WTO, the government has promised to continue tariff reductions to meet the level of the other WTO members Foreign Exchange Control Foreign exchange is controlled by the State Administration of Foreign Exchange Control Foreign Trading Companies With ongoing reform, and WTO entry, the government-controlled trading companies have lost their monopoly

15. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in China Entry Barriers Special Economic Zones Five limited areas called Special Economic Zones (SEZs) have been established by the Chinese government to attract foreign investment in production for export

16. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in China Hong Kong’s Role Many European and American companies enter China from Hong Kong To identify potential customers, the in-charge industrial ministries in China need to be approached Market Segmentation Geographic region Urban/rural split in the typical emerging market pattern Product Positioning The China market is open for global brands and standardized campaigns

17. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in China Marketing Tactics Product Policies Chinese consumer buy foreign products because of no availability of similar products and the superior quality of foreign products Pricing Most Chinese customers are price-oriented out of habit and are not willing to pay more for alleged superior quality Distribution Most distribution channels are controlled by the government Guanxi: Mutual good feeling and trust Promotion Strictly controlled by the government

18. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in India Market Potential India has close to 1 billion citizens and despite religious and ethnic violence in the country The country’s leaders have continued to be elected through a democratic process as socialist policies and government controls give way to privatization and free markets Domestic opportunities for India’s citizens will multiply The Socialist Era During this period there were restrictions on inbound technology transfer into India Products on the Indian market changed only slightly from 1950 to 1980

19. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in India Free Markets The country is showing strong economic progress and revitalized domestic firms in spite of ethnic and religious violence Market Segmentation During the 1980s the Indian market divided into two large segments Impoverished rural population Increasingly well-off urban middle class Product Positioning The Indian consumer who once focused on the durability of products has now started buying products as symbols of status and success

20. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Close-Up: Marketing in India Marketing Tactics Product Policies Lessons learned by multinational firms entering India are the market demands a full line of products and a significant first-mover effect exists Pricing Global brands can no longer count on an automatic price premium when competing against strong local products Distribution Distribution channels and stores are developing more efficient networks, and capacity is expanded Promotion Advertising in India does not include direct attacks on the competition, though it is often implied