1. Chapter Seventeen Global Marketing and R & D

2. 17 - 2 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. The Globalization of Markets and Brands Important to determine when product standardization is appropriate in an international market Firms may need to vary marketing mix in each different country Globalization may be the exception rather than the rule in many consumer goods markets and industrial markets

3. 17 - 3 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Market Segmentation Refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways Segments can based on: -Geography -Demography -Socio-cultural factors -Psychological factors

4. 17 - 4 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Market Segmentation Two main issues relating to segmentation: -Extent of differences between countries in the structure of market segments -Existence of segments that transcend national borders

5. 17 - 5 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Product Attributes Cultural differences Economic development Product and technical standards

6. 17 - 6 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Cultural Differences Differ along dimensions such as social structure, language, religion, and education Impact of tradition Some tastes and preferences becoming cosmopolitan

7. 17 - 7 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Economic Development Consumer behavior is influenced by economic development -Consumers in highly developed countries tend to demand extra performance attributes in their products Price not a factor due to high income level -Consumers in less developed countries value basic features as more important Price a factor due to lower income level -Cars: no air-conditioning, power steering, power windows, radios, and cassette players Product reliability is more important

8. 17 - 8 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Product and Technical Standards -Government standards can rule out mass production and marketing of a standardized product -Differing technical standards constrain globalization of markets Different television signal frequencies

9. 17 - 9 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Distribution Strategy Choice of the optimal channel for delivering a product to the consumer -Optimal strategy is determined by the relative costs and benefits of each alternative -Depends on differences between countries Retail concentration Channel length Channel exclusivity

10. 17 - 10 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Typical Distribution System

11. 17 - 11 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Retail Concentration Concentrated system -Common in developed countries -Contributing factors: increase in car ownership, number of households with refrigerators and freezers, and two-income households Fragmented system -Common in developing countries -Contributing factors: great population density with large number of urban centers, e.g. Japan -Uneven or mountainous terrain, e.g. Nepal

12. 17 - 12 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel Length Refers to number of intermediaries between the producer and the consumer Determined by degree to which the retail system is fragmented -Long distribution channel -Short distribution channel

13. 17 - 13 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel Length Long distribution channel -Fragmented retail system promotes growth of wholesalers and retailers -Firms go through intermediaries such as wholesalers to cut selling costs Short distribution channel -Concentrated retail system -Firms deal directly with retailers

14. 17 - 14 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel Exclusivity Degree to which it is difficult for outsiders to access distribution channels Varies between countries -Japan - exclusive systems because personal relations, often decades old, play an important role in stocking products -Difficult for new firm to get shelf space as compared to an old firm

15. 17 - 15 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Choosing a Distribution Strategy The optimal strategy is determined by the relative costs and benefits of each alternative -Varies from country to country Benefits of a shorter distribution channel -The longer the channel, the greater the aggregate markup and the higher the price that consumers are charged for the final product -If price is an important competitive weapon the firm might choose a shorter channel

16. 17 - 16 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Choosing a Distribution Strategy Benefits of a longer distribution channel -Cuts selling costs when the retail sector is fragmented -Longer channels can provide increased market access If channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel -This may include establishing its own distribution channel

17. 17 - 17 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Communication Strategy Defines the process the firm will use in communicating the attributes of its product to prospective customers Cultural barriers Source effects Noise levels

18. 17 - 18 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Barriers to International Communication Cultural Barriers -Develop cross-cultural literacy -Firm should use local input such as local advertising agency and sales force Source and country of origin effects -Receiver of the message evaluates the message based on status or image of the sender Anti-Japan wave in US in 1990’s -Place of manufacturing influences product evaluations Often used when consumer lacks more detailed knowledge of the product -Examples: French wines, Italian clothes, and German luxury cars

19. 17 - 19 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Barriers to International Communication Noise levels -Amount of other messages competing for a potential customer’s attention Developed countries - high Less developed countries - low Standardized advertising strategy execution more difficult (culture, laws)

20. 17 - 20 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Push Versus Pull Strategy Push strategy emphasizes personal selling -Requires intense use of a sales force -Relatively costly Pull strategy depends on mass media advertising -Can be cheaper for a large market segment Determining factors of type of strategy -Product type and consumer sophistication -Channel length -Media availability

21. 17 - 21 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Product Type and Consumer Sophistication Pull strategy -Consumer goods -Large market segment -Long distribution channels -Mass communication has cost advantages Push strategy -Industrial products or complex new products -Direct selling allows firms to educate users -Short distribution channels -Used in poorer nations for consumer goods where direct selling only way to reach consumers

22. 17 - 22 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Channel Length Pull strategy -Long or exclusive distribution channels e.g. Japan -Mass advertising to generate demand to pull product through various layers Push Strategy -In countries with low literacy levels to educate consumers

23. 17 - 23 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Media Availability Pull strategy -Relies on access to advertising media -Common in developed nations Push strategy -Media availability limited by law -All electronic media state owned with no commercial policy

24. 17 - 24 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Global Advertising Standardized: -Significant economic advantages -Scarce creative talent -Many global brand names Non-standardized: -Cultural differences -Advertising regulations can be a restriction

25. 17 - 25 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Pricing Strategy Three aspects of international pricing strategy -Price discrimination -Strategic pricing -Regulatory influence on prices

26. 17 - 26 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Price Discrimination Said to occur when consumers in different countries are charged different prices for the same product Two conditions necessary -National markets kept separate to prevent arbitrage Capitalization of price differentials by purchasing product in countries where prices are lower and reselling where prices are higher -Different price elasticities of demand in different countries Greater in countries with low income levels and highly competitive conditions

27. 17 - 27 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Elastic and Inelastic Demand

28. 17 - 28 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Pricing Predatory pricing -Using price as a competitive weapon to drive weaker competition out of a national market -Firms then raise prices to enjoy high profits -Firms normally have profitable position in another national market

29. 17 - 29 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Pricing Multipoint pricing strategy -Two or more international firms compete against each other in two or more national markets -A firm’s pricing strategy in one market may impact a rival in another market Kodak and Fuji

30. 17 - 30 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Pricing Experience curve pricing -Firms price low worldwide to build market share -Incurred losses are made up as company moves down experience curve, making substantial profits -Cost advantage over its less-aggressive competitors

31. 17 - 31 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Regulatory Influences on Prices Antidumping regulations -Selling a product for a price that is less than the cost of producing it -Antidumping rules vague, but place a floor under export prices and limit a firm’s ability to pursue strategic pricing Article 6 of GATT allows action against an importer if the product is sold at ‘less than fair value’ and causes ‘material injury to a domestic industry’ Competition policy -Regulations designed to promote competition and restrict monopoly practices

32. 17 - 32 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Configuring the Marketing Mix Culture Economy Competition Standards Distribution Gov’t Regs Product Attributes Distribution Strategy Communications Strategy Pricing Strategy Differences Here Requires Variation Here

33. 17 - 33 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. New Product Development The location of R & D -Rate of new product development greater in countries where More money spent on R&D Underlying demand is strong Consumers are affluent Competition is intense

34. 17 - 34 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Integrating R&D, Marketing and Production Integrating R&D, production and marketing ensures -Project development driven by customer needs -New products are designed for ease of manufacture -Development costs are kept in check -Time to market is minimized

35. 17 - 35 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Integrating R&D, Marketing and Production High failure rate ratio -Between 33 % and 60% of new products fail to earn adequate profits Reasons for failure: -Limited product demand -Failure to adequately commercialize product -Inability to manufacture product cost-effectively

36. 17 - 36 McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Cross-Functional Product Development Teams Objective of team to take a product development project from the initial concept development to market introduction Effective teams must have -“Heavyweight “ project manager -One member from each key function -Physically co-located to facilitate communication -Clear plan and goals -Own process for communication and conflict resolution