Global Marketing

Global Marketing Management

3 Credits

27 Sessions

• Why study global marketing?• To pursue marketing careers in global markets as career

employees in multinational corporations• Sure…but what does this statement mean in real terms to a

management student-graduate?• To gain a deep understanding and to acquire mastery over the

three critical marketing value chain processes in global markets• The marketing value chain is commonly understood in terms of

three sets of activities or components with consumers at its centre

• What are these three activities that are crucial to (global) marketing value chain?

• Understanding global consumers (market entry and market selection strategies, gaining consumer insights through consumer behavior, marketing research and global consumer and product surveys)

• Most often consumers do not communicate well articulated needs and products often fail in global markets

• only 1 in 10 products launched in global markets succeed• Nokia 1100 series• McDonald’s• Tang (withdrawn; Glucon-D market champion)• Nestea (rejuvenated)• Kellog’s cornflakes (rejuvenated and relaunched)

• Successful companies realize they need to customize existing products or design new products that appeal to local tastes and requirements

• The Dutch manufacturer Royal Philips Electronics (“Philips”) is one example of a company that has taken this philosophy to heart

• Since electric power in emerging markets is often unreliable, Philips employed technologies originally developed to extend the life of torches for rural villagers to build lights that stay powered for several hours even if the main power fails

• They have also manufactured lights that can withstand the power fluctuations that are common in India and other emerging markets

• This understanding of consumers’ need gave rise to the CFL lamp with durable gas filled filaments

• In competing for the Indian market, the auto manufacturer, Hyundai Motor Company Ltd. of

South Korea, adjusted its roof design so that women wearing traditional Indian dresses could get in and out of the car easily

• Innovation also flows in the opposite direction—from emerging to developed markets

• TAL Apparel Group, headquartered in Hong Kong, pioneered the development of pucker-free seams and

wrinkle-free garments • Has helped it sell more than 80 percent of its

production in the United States where it accounts for one in seven dress shirts sold

• KavinCare, a little known Canadian FMCG company based in Chennai pioneered the sachet revolution

• Personal care product packaged as single use items not only multiplied sales but also gave great product penetration efficiencies

• Gillette Vector Plus (Rs. 5 per week) male grooming product has also made aggressive inroads into the price sensitive Indian market for cartridge based razor blades

• Connecting and communicating with consumers through marketing strategies: IMC, branding and CRM

• Cadbury: the legendary food brand marketing chocolate and chocolate flavored health drinks has successfully connected with consumers in global markets for over 60 years……but Hershey’s has not and remains an all American marketer

• Cadbury in India for example has become a marketing champion of down market stretch and up market stretch product mix strategies marketing 20 g bars for Rs. 5 (the lowest price point) and using a price laddering and currency price point to upgrade consumption to Rs. 10, Rs. 20, Rs. 50 and Rs. 80 price points

• Delivering value solutions to consumers (supply chain management; sales and channel management and retail management)

• The marketing champion of value delivery is Hindustan Unilever

• Products are marketed to over 250 million consumers in India alone via 7,500 stockists

• 1.5 billion consumers drink Coke each day• 55 million consumers eat at McDonald’s in over

27,000 restaurants worldwide

• What is global marketing?• In global or world marketing a marketer views the

whole world as a single market of consumers and standardizes the marketing mix of the companies to the extent feasible

• In global marketing a global company does not differentiate between a home country and foreign country

• The conceptual understanding of the evolution of global marketing

Domestic Marketing : Evolution of Global Marketing (Stage 1)Marketing Focus: DomesticOrientation: EthnocentricMarketing Mix Decisions: Domestic consumers• Marketer focuses only on the domestic market consumer

segment/s: Nirma – the mass marketing domestic marketing champion created marketing history by offering detergent powder at bottom down prices to Indian market consumers

• MTR, Dabur• Marketer’s orientation to marketing is ethnocentric: belief of

the marketer that marketing strategies successful in domestic markets will meet with equal success in international markets

• Marketers ignore marketing mix differences

Export Marketing : Evolution of Global Marketing (Stage II) Marketing Focus: Overseas (targeting and entering

foreign markets) Orientation: Ethnocentric Marketing Mix Decisions: Domestic consumers; some

overseas marketing • Marketer focuses only on the domestic market consumer segment/s: but

also services export orders for products from international importer firms and corporations

• Marketer’s orientation to marketing remains ethnocentric with marketing mix strategies similar to the domestic market

• Small and medium enterprises

International Marketing : Evolution of Global Marketing (Stage III) Marketing Focus: Differentiation in country markets

by acquiring host country marketing brands

Orientation: Polycentric Marketing Mix Decisions: Developing local products designed for home country consumer needs and marketing decisions are formulated by subsidiaries •The exporting firm over time expands into multiple domestic markets and focuses on establishing market share and emerges as a foreign competitor•Marketer’s orientation is polycentric. i.e. firm recognizes and responds to adaptation of marketing strategies for multidomestic target markets (standardization vs customization)• Marketing mix decisions such as product development, branding, distribution, pricing and promotion by marketing department of local subsidiary of the firm (GE, Pepsi, Cisco, Nokia and Fujitsu)

Multinational Marketing : Evolution of Global Marketing (Stage IV) Marketing Focus: Consolidation of operations on a regional basis (multinational marketing)

Gains from economies of scale Orientation: Regiocentric Marketing Mix Decisions: Product standardization within regions

but not across regionsOn regional basis

Once a company establishes its manufacturing and marketing operations in multiple markets, it begins to consolidate its operations on a regional basis taking advantage of economies of scale in manufacturing •Marketer’s orientation is regiocentric. i.e., product development is standardized within a region (similar country markets) such as South Asia but not across regions•Marketing mix decisions are standardized within the region but not across regions (advertising, promotion and distribution); regional subsidiaries control marketing mix: Nestle, GM (Opel), Reckitt Benkiser

Global Marketing : Evolution of Global Marketing (Stage V) Marketing Focus: Consolidation a firm’s operations on a global basis (global marketing)Orientation: GeocentricMarketing Mix Decisions: Globalization of marketing mix decisions with local variations (single

marketing method)• The marketers focus is single market: that is the standardization of the marketing program across a single global market with respect to product offering, pricing and channel structures• The marketer’s orientation is geocentric: strategic approach to have a global perspective to reap economies of scale and not complete standardization of the marketing mix decisions• Coca Cola, Toyota, Colgate-Palmolive, Unilever and P&G

• The champion of global marketing is the iconic soft drink beverage brand: Coca Cola

• Its worldwide success is a textbook application of the geocentric orientation of global marketing

• Its market success was not based on the total standardization of the marketing mix elements but rather on it leveraging tremendous brand traction and cross economies in a single global market: CSD; fruit juice based drinks, powdered soft drinks, coffee and tea, bottled water and bottled soda

• Coke embraces a geocentric orientation that while it is a world’s strongest brand globally the company produces over 200 beverages to suit local beverage preferences

• A number of other global corporations have successfully pursued global marketing by creating sting global brands

• Global marketing strategies are not just based on branding but also on product or system design, product positioning, packaging, distribution, customer service and sourcing considerations

• McDonald’s : standardization of communication and distribution while product is customized

• Customer service: Caterpillar with is network of dealers that supports a promise of 24 hour parts and service anywhere in the world

Chapter 6Global Marketing Information Systems and Research

• TWO CENTRAL LEARNINGS OF CHAPTER 6: How does global marketing research generate information on consumers across global markets? How does it help a marketer understand consumers in terms

of both articulated and poorly articulated needs• Global marketing research is defined as research that crosses national borders and involves respondents and researchers from different countries and cultures• Market research is the function that links an organization to its markets through information collection and analysis• Market research is defined as the systematic gathering, recording and analyzing data about problems related to the marketing of goods and services• Can conduct their own marketing research • Or hire other companies to do it for them

• In conducting research, firms must decide whether to collect their own data • Or use data that already exists • Also decide which TYPE of research to use: quantitative research methods or qualitative research methods to collect and interpret data• Observational, focus group, behavioral data• Sample survey• Consumers’ thoughts, actions, and purchase intensions are collected to form the basis of marketing decisions

• Qualitative research methods include focus group discussions, perception studies, mall intercepts, telephone data collection

• Methods used to closely describe the actions of consumers • Instruments used to capture consumer insights are questionnaires • Respondent• Investigator • Questionnaire: open-ended and close-ended questions; preferences

• Consumers are complex in their buying habits and purchase

decision-making

• Consumers, do not always have the capacity to voice, or

understand how they decide to purchase a particular product or

service

• As a result, good marketing research should delve into the

consumers’ “purchase decision trees” to understand hidden

motivations and influences

• Carefully crafted qualitative research may undercover hidden purchase agendas, hidden uses for the product, or hidden opportunities for new, yet undeveloped products: qualitative research can often be a useful step in exploring consumers’ brand and product perceptions

• Quantitative research relies extensively on primary data collection and its mathematical analysis using statistical techniques and modeling to arrive at predictability and accuracy of the marketing decision• field surveys • sample surveys• secondary data analysis

• Industry examples of marketing research

• The market research industry normally undertakes three broad types of research studies—customized, syndicated and omnibus• A customized study is tailor-made for a particular client and for a particular marketing situation or problem• For instance, a company could have a new TV commercial which is to be pre-tested before being aired, or it could have declining sales and may want to know the reasons for the same• Researchers give their interpretation and recommendations for marketing action• Relatively expensive especially when the sample sizes required are large

• A syndicated study gives the marketer the benefit of a large sample size purchased from a research company which sells findings to a buyer • The information to be collected in such studies is decided by the research agency • The cost is low simply because it is shared by many buyers • The syndicated study is only useful for providing baseline market information and trends

•Omnibus studies•An omnibus study is initiated by the research agency and then offered to clients •The research company would simply announce that it is interviewing say 3,000 respondents of income group Rs 30,000-plus in the top seven cities of the country •It then invites clients to ‘board the bus’ by specifying what questions they want asked

• Brain mapping studies

• The ‘jewel’ in the crown of qualitative researchers • Marketers rely on brain mapping studies to study customer behaviour• Explores the hidden motives behind why consumer buy product and services• Market researchers use psychological studies of the consumer to understand motivational behaviour and consumer insights• ‘Hidden persuaders;” brain mapping, buyology, and neuromarketing

• On smoking: smoking is done to satisfy the primary impulse

and need of oral comfort

• Smoking in general serves to relieve tension, impatience,

anger and frustration: just as sucking does to the infant

• This explains the widespread use of chewing gums, cigars and

pan masala

• On selling soaps and detergents: many housewives feel they

are engaged in unrewarded and unappreciated drudgery

while housekeeping

• The advertiser fosters the wife’s feeling of ‘worth and

esteem’ by exalting the role of housekeeping and making it

known what an important and proud thing it is be to be a

home manager: housewife (Lalithaji ad of yesteryear)

• Symbolism of soup: soup is unconsciously associated with a man’s deepest

need for nourishment and reassurance

• It takes consumers back to their earliest sensations of warmth, protection, and

feeding

• Its deepest roots may lie in prenatal sensations of being surrounded by the

amniotic fluid in the mother’s womb

• Why cone ice-creams and burgers are popular: consumers like to sink their

mouth right into the ice-cream and get the full taste of it

• This is symptomatic of a primeval instinct of prey and predator

• Brain mapping studies provide indicators of how advertisers can design and

communicate advertising for maximum pull traction

• Neuromarketing

• The use of magnetic resonance imaging (MRI) scanners to record brain activity in minute detail • Measuring how the products they are selling affects the brain’s pleasure centres • Simply put, MRI scanners measures the flow of oxygen to different parts of the brain, indicating activity or thought in those regions• Mind-reading capability of the machine that makes it so alluring to an increasing number of market researchers

•Printing health warnings on tobacco product packages does not have much of an impact on smoking behaviour •Researchers have concluded that the warnings triggered a stronger craving •The very warnings intended to reduce smoking might well be an effective marketing tool for tobacco giants

• Consumers prefer Pepsi to Coke when they take a blind taste test • But prefer Coke to Pepsi when they are actually drinking the brands• In MRI studies drinking Coke more significantly increases blood flow in the medial prefrontal cortex because its ad campaigns over the years • So effectively associated Coke with sensations of warmth, security and childhood innocence

• Findings of some key Global MR studies

• Sony's LCD TV is best-seller in 2010: India• Sony's LCD television Bravia has emerged the leader in flat panel display sales in 2010 •Capturing a market share of 32 per cent (by value) and 29.5 per cent (by units) •GFK Nielsen•Sony Bravia is the most sold LCD brand in the 22-inch, 32-inch and 40-42-inch segment • Over 100,000 units sold

•DVR, second only to cell phone for homes •A survey conducted by the digital television solutions provider NDS in 2010•DVR ranks second amongst most essential household technology items•Coming only after the mobile phone, and ahead of gadgets such as a home PC, a digital camera and the iPod •DTH players, Tata Sky, Airtel Digital, and DEN and Hathway commissioned a survey amongst 250 DVR owners aged between 18-83 years • Omnibus research study• Eighty eight per cent of respondents felt the DVR had improved their television viewing experience

• Band-Aid: the market leader in the wound-care category• Band-Aid is an Adhesive Bandage used to cover minor cuts and • bruises• In India, Band-Aid was launched in the year 1978 by Johnson & Johnson• Band-Aid was successful because it identified the need in the • households for wound care• But to reach the dominant position in India was not easy• Band-Aid had to fight the tradition rather than the competitors to succeed

•Traditionally consumers in India prefer not to cover the cuts and bruises because there is a feeling that wounds should be kept open in order to heal faster •Further, Indian consumers typically used traditional methods to heal wounds •In earlier days most of the households had the bottle of tincture iodine which was considered as the best solution for cuts and bruises

• Band-Aid comes with red colored medicine inside which resembled Iodine • This had enabled early adoption of this brand and Band-Aid was called " Lal Dhawa Wali Patti" which became the USP • Had the medicine strip color not been red Band-Aid would have had a tough time convincing consumers of wound-care

•Band-Aid was a brand that changed with time and it keenly watched the consumers and tried to identify their needs•The company had valuable consumer insights that created the first water proof band-aid in India •The main weakness for cotton-based Band-Aid adhesive strips was that it used to come off easily when wet

• This prevented the category usage to certain extent • The waterproof Band-Aid strip made the brand usable in any condition • Band Aid focused on the area of application and was clever enough to • come out with various size and shapes • This comes from the insight that different wounds in different parts of the • body need different shapes • For example, a small cut in the forehead needs round strips• These insights made the brand a market leader in the category with a market share of over 60% (India)

• Only 20% of urban mobile users will take to 3G• 8-10 years before majority of users migrate to 3G broadband VALS usage• Even as 3G services are being rolled out by telecom companies, a new survey says that only one in five of India's urban mobile users will adopt it initially

•A study by The Nielsen Company released in November 2010 stated that despite a high awareness of 3G and its capabilities to deliver broadband content it may be as long as eight to 10 years before the majority of mobile users migrate to a 3G plan •Urban mobile subscriber base is around 450 million •If even a fifth adopt it initially: 90 million•Telecom companies have projected 100 million subscribers by 2013•The most eager group to adopt 3G, according to Nielsen, is the power users — largely made up of working professionals and Internet-savvy youth•The high speed would be useful for them to access the Internet and download large attachments

•According to Nielsen, driving migration to 3G devices will be a challenge and the effective course of action for telecom carriers would be to bundle 3G services with new handsets•Around 35 per cent of subscribers said they would leave their current carrier if they failed to provide 3G services•The study also said that reducing pricing to drive 3G adoption may not necessarily grow their businesses: user experience and relevance of services will be key to achieving business success

Developing a Global Vision through Marketing Research

• Given the complexity of the global marketplace solid marketing research is critical for a host of global marketing decisions• Skipping the research phase in the international marketing decision process can often prove to be a costly mistake• The following anecdotes illustrate the even marketing behemoths such as Wal-Mart and Procter and Gamble and Unilever and Kraft

• When Wal-Mart entered the Argentine market in 1999 its

meat counters featured T-bone steaks –an American

household staple – and not the rib strips and tail rumps that

Argentines prefer

• Wal-Mart’s jewellery counters were filled with emeralds,

sapphires, and diamonds while Argentine women prefer

wearing gold and silver

• In 1995 P&G’s Cheer brand of laundry detergent failed to make an

advertising splash in Japanese markets since ads featuring the all-

temperature washing detergent brand mistakenly assumed that

Japanese housewives wash clothes in different temperatures

• P&G has ineffectively researched this cultural trait that Japanese

women wash laundry in tap water or left over bath water!!

• HUL in an attempt to break the dominance of Nestle in the iced tea segment introduced Lipton ice tea in India in 2001 after seeing the success of the brand in various other countries•although the concept was successful in other Asian markets it failed primarily due to poor market research• the introduction of the product was also based on the fact that 60 per cent of customers in other countries liked iced tea• the company envisaged that India being a tropical country with a long summer season would imply the consumers can prefer ice tea to hot tea

•HUL faltered in the fact that in India consumers of tea drank hot tea and hot tea with spices and milk was a local staple in many regions – even in the peak of summer!!• the concept failed• Lipton Ice Tea (green tea) was repositioned and targeted at the 16-29 year urban affluent healthy hedonists: young-minded consumers who enjoy life but also understand the importance of healthier choices (price points of Rs. 70, Rs. 75, Rs. 85 and Rs. 95)

• Kraft, a 100 per cent subsidiary of introduced an orange flavoured energy drink concentrate – Tang – targeted at school going children , sports clubs, and adolescents in the Indian market (2003)•the product was commercialised in the Indian market based on extensive market research which indicated that there was identified need for an energy drink like Tang as there were few players in the market• Kraft India, a 100 per cent subsidiary of Philip Morris U.S. went ahead and accordingly launched Tang in India• Kraft tied up with Dabur Foods Ltd for the distribution of the product

•the product failed in the Indian market and the prime reason for the failure of Tang was its comparatively higher price point that the entrenched market brand – Glucon-D – the flagship energy drink brand from the P&G stable•what do these examples highlight?• most of such cultural blunders stem from inadequate marketing research

• Global marketing research• marketing research assists the global manager in two ways: (1) by making better decisions that recognize cross-country similarities and differences (2) by gaining support from the local subsidiaries for proposed marketing decisions

• global marketing research is defined as research that crosses national borders and involves respondents and researchers from different country markets and cultures

• global marketing research may be conducted simultaneously in multiple countries or sequentially over a period of time

• Four major objectives of global marketing research are: • to carry out country screening and selection• to evaluate a country’s market potential• to identify problems that would not require a country market ‘s listing for further consideration• to evaluate the components of the marketing mix for possible adoption

•the typical sequence of global market research follows the familiar pattern used in domestic marketing research

•therefore the steps are similar:• Step 1 Define the research problem• Step 2 Develop a research design•Step 3 Determine information needs• Step 4 Collect the data (secondary and primary)• Step 5 Analyse the data and interpret the results•Step 6 Report and present the findings of the study

•Let us now examine a sample market research project at Eli Lilly that estimates the market potential for a prescription weight loss product• Research Problem: estimate the dollar potential for a prescription weight loss product in the UK, Spain, Italy, and Germany•Research Hypothesis: Patients would be willing to pay a premium price for the product even without reimbursement by the government

•Secondary Data Research: Market share of a similar product (Isomeride) Incidence of overweight and obesity in Europe• Primary data research: sample size: 350 physicians from the UK, Italy, Spain, and Germany Sampling procedure: random selection from a high prescribers doctor list based on company data

• any research starts with a precise definition of the research problem to be addressed• for example a recent product positioning study carried out by BMW in the European market centred around the following three issues:-What does a motorist in the country concerned demand of his or her car?-What does he or she believe is the value got from different competing brands- What does that imply with regard to positioning the BMW brand across borders?

• a major difficulty in formulating the research problem is the unfamiliarity with the foreign environment leading to false assumptions, mis-defined research problems and ultimately misleading conclusions about the foreign markets•Secondary Global Marketing Research: assessing information needs is the next step after the research problem definition•Published information or information available in the form of computerised electronic databases • primary: data is collected specifically for the purpose of the research study

• more recent and highly reliable forms of secondary data sources are syndicated databases sold by market research companies such as AC Nielson Company and Taylor Nelson Sofres• these firms acquire a wide range of data for sale sourced from purchase transactions from retail outlets whose cash registers are equipped with optical scanning equipment

•primary global marketing research: primary data is collected in three specific ways: focus groups (qualitative), survey research (quantitative), and test markets (qualitative)• survey research begins with sampling where the global researcher draws a sample from the target population

• a sampling plan centres around three issues: who should be surveyed? •What is the target population (sampling unit); how many respondents should be surveyed (sample size); how should prospective respondents be chosen from the target population (sampling procedure)

• computing the desired sample size in cross-country market research varies with the culture: typically large heterogeneous cultures such as India demand bigger samples than homogeneous cultures (South Korea and Thailand)• Most global research firms prefer some form of probabilistic sampling (random, stratified, multilayer) that allows for statistical inferences about the collected data

• the end result of all global market research processes is…?• the end result is market size assessment• when deciding whether to enter a particular country one of the key drivers is market potential • in many global markets a fairly accurate estimate of the market size for any particular product is easily obtainable

• Four methods are commonly used by global researchers to assess the size of the market for any given product• The first technique is the analogy method the method is based on the research premise that the relationship between the demand for a product and a particular indicator, for instance, the demand for a related product, is similar in both countries

•let us now illustrate the method with a brief example• suppose that a consumer electronics company wants to estimate the market size for DVD players in India• for the base country we select a neighbouring Asian country say China for which we possess information on the sales of DVD players

• We also need to choose a proxy variable that correlates highly with the demand for DVD players• One such proxy variable is the number of colour TV sets in use so in this example we assume that the ratio of DVD-player sales to colour TV ownership in India and China is roughly equivalent this is expressed as…

• DVD Player Demand India DVD Player Demand China ______________________ = ________________________________ Colour TVs in Use India Colour TVs in Use China (Eq.1)• since we are interested in the demand for DVD players we can derive an estimate based on the following relationship• DVD Player Demand India = Colour TVs in Use in India * (DVD Player Demand China/Colour TVs in Use China) (Eq. 2)• for this specific example the data values are fitted to the ratios to get:• Annual Retail Sales (2001) : China (CTVs in 000s) = 14,722.64; DVD Players (in 000s) = 69.17• Annual Retail Sales (2001): India (CTVs in 000s) = 15,626.15; DVD Players (in 000s) = ???

•Plugging in the values we get (Eq.3) :•Estimated DVD Player Demand India (Annual Retail Sales) = 15626.15 * (69.17/14,722.64) = 73.4 (or 73,400 units)• in conclusion the analogy method’s usefulness lies in finding a comparable country and a good surrogate measure (in this case the number of colour television sets in use)

•Nestle demonstrates how understanding carefully planned market research can lead to success• Nestle in India successfully positioned its Maggi brand of instant noodles as a between-meal snack food rather than as a main menu pasta item• Nestle also caters to the Indian preference for local brands • So although Nescafe is the company’s flagship global coffee brand in many countries Nestle created a special chicory flavoured coffee blend – Sunrise – especially for the Indian market

• Nestle managers have also learned that the 20 million wealthy households in its core target market have a marked preference for low price and value for money consumer products• In keeping with this cultural value orientation Nestle has responded by keeping price low – more than half of Nestlé's product line costs about one US dollar or Rs. 50/- per unit

• Food majors are active global market researchers and product development, manufacturing, and marketing are executed by each subsidiary for its own local home market• Nestlé India has a wide portfolio for Milk Products and Nutrition locally suited for Indian tastes: Nestle Everyday Pure Ghee, Nestle Fresh n’ Natural Dahi, Nestle Fresh n’ Natural Jeera Raita

•Nestle Prepared Dishes and Cooking Aids product line boasts of many India-alone brands• Based on intensive product research and in depth understanding of Indian food habits and cooking practices, MAGGI Kitchen Secret’s Bhuna Masala allows the housewife to prepare everyday, a large variety of dishes without the hassle of chopping & frying• Bhuna Masala for Gravy Dishes- a ready- mix of Onion, Tomato, Ginger and Garlic fried in refined oil for meat dishes and Bhuna Masala for Vegetables and Dal- a ready- mix of Onion and Tomato, fried in refined oil

Chapter 7Segmentation, Targeting and Positioning

What is the central learning of Chapter 7?

Central learning: Variations in consumer needs is the primary motive for

market segmentation.In other words, when consumer preferences vary marketers

design the product or service tailored to the needs of specific segments in the firm’s market

• There exist only three consumer segments in global marketing• Universal or global segments • Regional segments• Unique or diverse segments• In other words marketers develop and design products and services in response to three types of variations in consumer needs

1. Universal or global consumer segments.• Universal or global consumer segments in global marketing transcend national boundaries• These segments are universal in the sense that customers belonging to such segments have common needs• Examples of universal segments in global marketing are consumers who watch entertainment TV; use high technology consumer durables and travel related products (credit cards and airlines)

• The Nokia 9000 Communicator is a wonderful example of a product that is targeted toward a universal segment: the international business traveller• The product combines phone, fax, e-mail, and Internet functions• To roll out the innovation to universal market segments Nokia used a global campaign with the slogan “Everything, Everywhere”

• The Nokia 9000 Communicator is a wonderful example of a product that is targeted toward a universal segment: the international business traveller• The product combines phone, fax, e-mail, and Internet functions• To roll out the innovation to universal market segments Nokia used a global campaign with the slogan “Everything, Everywhere”• Undifferentiated marketing strategy that offers a more or less uniform product world wide: similarity in consumer needs and preferences exists globally

• Marketing to universal consumer segments: Lego Private Limited• Founded in 1949 a privately-owned and secretive company and is enormously profitable • The Lego group has more than 50 companies world wide generating profits of over $100 million on sales of about $ 1 billion• Lego’s main attraction are Lego toy bricks: colourful plastic bricks in small sizes that are assembled to create a variety of structures: ships, cars, homes, castles, playhouses, bridges etc.• The target market for Lego bricks are boys: aged between 2 and 13 years of age and provide them with a wholesome alternative to video games to develop speedier motor and spatial skills

• Global Market Consumer Segments

• Coca-Cola

• Caterpillar

Global Market Consumer Segments Coca-Cola

• The Coca-Cola company is the world’s largest beverage company• Operates in more than 200 countries and markets to universal or global segments of consumer over 3,500 beverage products marketed through over 500 brands• Coca-Cola has segmented global markets into only two universal consumer segments for the company• Sparkling drinks’ consumer segment: All colas• Still beverages’ consumer segment: waters, juices and juice drinks, teas, coffees, sports drinks and energy drinks • Consumers enjoy Coca-Cola beverages at the rate of 1.7 billion servings a day

Global Market Consumer Segments Caterpillar

• US$ 42.58 billion corporation

• Four clearly defined universal consumer segments

• Segment A: construction and mining equipment

• Segment B: diesel and natural gas engines

• Segment C: Industrial gas turbines

• Segment D: Diesel-electric locomotives

2. Regional segments. • Apart from universalized global segments corporations also focus on building and serving regionalized segments • Consumer needs and preferences are localized with similarities among the region• Nestle is a food corporation that markets its products to regional segments only• Nestle understands that food is and will always be a local product• It markets some 8000 brands that include instant coffee

• India is the largest market for Nestlé's instant noodles: Magi and the company has adapted the Tastemaker Masala to suit the preferences of local tastes – an adaptation not carried out in any other country market• Nestle factories at Choladi process green tea for the company’s requirements for Nestea: a product that is sold the world over but not in India• Strategic orientation: businesses organized along regional consumer geographies• Regional segments: a differentiated strategy allows the company to understand consumers in regional local markets and develop flexible marketing mixes

3. Unique (diverse) segments.

• This type of segmentation strategy is used by corporations when there exist diverse cross border segments of consumers and each with a specific local need or preference• The corporation focus on marketing to attractive target markets in each individual country market• Canon • Canon launched its range of 35 mm, single-lens, reflex cameras (AE-1) by developing three separated marketing mixes: Japan, United States and Europe

• In the Japanese market Canon targeted the product to young replacement buyers• In the US the company targeted upscale, first time buyers of 35 mm high end single lens cameras • In Germany Canon focused its branding on older replacement buyers who were also photo enthusiasts

Segmentation variables in international market segmentation• Predominantly demographic and psychographic based segmentation• Grouping of country markets as global segments• Demographic variables are the most popular segmentation criteria used by corporations to segment global market consumers as most information on population variables is reasonably accurate and readily available• Various consumer surveys by market research and media agencies conducted on mature consumers (45-55 years of age) in Asian cities classify then into the following six types of demographics:1. Entrepreneurs.2. Good Students.3. Thrifty Shoppers.4. Family oriented.5. Self centred.6. Falling behind.

1. Entrepreneurs.- 45-55 year age group, largely male, affluent life styles, risk

takers, like to try out new products; 5 % of Asian consumers in urban areas

2. Good Students.- College educated, high on social affiliation needs, lead

affluent lifestyles; 18 percent of consumers (male) 3. Thrifty Shoppers.- Average in income and education, mainly female, price

conscious and discount centred and spend considerable time in evaluating the price points of products and services (8 percent)

4. Family oriented.- High school education, family in the unit of decision making

and consumer product acquisition, not active information seekers about products and services; 29%

5. Self centred.- Average in income and education, impulse buyers, marked

preference for consumer durables and information technology; mainly female; 18%

6. Falling behind.- High school education, low on aspirational needs, poor

acquisition of products and services; 20%- 4+5+6 = 67 % of global consumer segments

• Psychographic segmentation

• Lifestyle based segmentation: grouping consumers on the basis of attitudes, opinions, and core values• Researchers have grouped consumers in global markets into six global values segments1. Strivers.2. Devouts.3. Altruists.4. Intimates.5. Fun Seekers.6. Creatives.

1. Strivers.• predominantly male, aspire to own wealth, status; ambitious;

common segments in Asia and Russia; prefer to own high tech products; Japan, Philippines, Russia and 23 %

2. Devouts.• Concentrated as segments in the emerging markets of Asia, Africa and

the Middle East; uphold traditional values; marked preference for local or regional brands; global brands hold very little appeal; 22 %

3. Altruists.• concerned about social issues and welfare of society;

predominantly female; median age is 44 years; Russia and Latin America; 18 percent

• 1+2+3 = two thirds of global consumer lifestyle segments

4. Intimates.• social affiliation need level is high; value bonds with family, friends

and colleagues; found mainly in Europe and USA; heavy users of both broadcast media and internet media that allow for bonding (TV, movies, social media); 15 percent

5. Fun Seekers.

• uphold values such as adventure, pleasure, excitement and looking good; the youngest segment (MTV generation); teenagers and young adults; high on entertainment needs: dining, heavily involved with electronic media; strongly represented in Asia; 12 percent

6.Creatives. • a strong interest in education, knowledge and technology;

members of this segment are global trendsetters in owning technology; primarily located in Western Europe and Latin America; heavy media consumers (newspapers, books and magazines); 10 percent

In conclusion: global consumer lifestyle segments range from strivers to creatives

• Global positioning strategies• Once a global corporation has segmented consumers in

foreign markets the firm decides to on the target markets to pursue and the positioning strategies to use to appeal to the chosen target group

• Four Global Positioning Strategies available to a global marketer1. Universal positioning appeals.2. Global consumer culture positioning.3. Local consumer culture positioning.4. Foreign consumer culture positioning.

• Universal positioning appeals: positioning themes of a global marketer that appeal to consumers anywhere in the world regardless of cultural background

• Products that offer benefits or features that are universally important are marketed on universal positioning appeal

• Red Bull : marketing energy drink via universal positioning appeal (Red Bull, Austria)

• An energy drink brand that is positioned at two global target market groups only: (i) Extreme sports enthusiasts (mountain bike racers, rock climbers, rally drivers, wind surfers); (ii) Night club goers: teens and bar-goers and party animals

• Since its launch in 1987 in Austria the product has used the same appeal and communication strategy across global TGs: “The energy drink that gives you wings”

2. Global consumer culture positioning.• Strategy projects the marketers brand as a symbol of a given

consumer culture• Buying the brand reinforces the consumer’s feeling of being

part of a global segment• Sony (“My First Sony”) or Nike (Just Do It”) or Coca-Cola (“Coke

Is It; “Open Happiness”) or Benetton (“ The United Colors of Benetton” ) or McDonald’s (“I Am Loving It”) successfully use this strategy

3. Local consumer culture positioning.• Portraying a global brand as an intrinsic part of the local

culture: depiction of the product as being consumed by local consumers that is manufactured locally with local talent and sourcing

• When HUL launched Knorr, the market leader soup mix brand in India in 2005 its ad campaigns featured Kajol as the brand ambassador and used images of Indian children eagerly awaiting servings from the table

• TG: children craving for a pre-dinner snack (5-8 pm snacking)

4. Foreign consumer culture positioning.• The marketer builds a brand image around a specific foreign

culture in local consumer markets: Switzerland for watches, Germany for household appliances, Japan for cars and South Korea for consumer durables, alcoholic beverages (US and Holland), sports footwear (US)

• Nike, Budweiser, Levis, BMW, Kentucky Fried Chicken (Colonel Sanders) position brands very strongly in their foreign markets around a specific foreign culture: the brand image of a “piece” of Germany or America in the lives of consumers

Chapter 8

International Entry and Expansion Strategies

•Global corporations use the two tools of country evaluation and selection as a frame of reference for international market entry• Global managers and corporations use three entry mode strategies to enter global markets for marketing and sourcing operations:

1. Trade related modes of international market entry.2. Contractual modes of international market entry. 3. Investment modes of international market entry.

• A mode of international market entry is a strategy by which a firm enters new markets and expands its operations overseas

•Trade-related modes: expansion modes that employ some form of

trade to expand business in foreign countries are termed as trade-

related modes

• Four major forms of trade-related modes: exports, piggybacking or

complementary exports, countertrade, and e-channels

• Exports as a mode of trade-related international market entry are defined as manufacturing of goods in the home country or a third country and shipping them for sales to a country other than the country of production• The key form of exports in global marketing is: indirect exports• Indirect exports is defined as a form of trade-related expansion when a firm sells its products through an export intermediary based in its home country and does not take care of export activity

• Indirect exports enable firms to test international markets before plunging into a more proactive entry-expansion mode• Indirect exports take place either through a home-based agent or piggybacking arrangements• Buying Offices• Piggybacking

• Buying Offices: importer firms located in the exporter’s country through a permanent buying office to source supplies from markets• In view of India’s strength as a low-cost manufacturing hub, global retail chains are sourcing a wide variety of products from India• Liberty Shoes, an Indian company, supplies the inners and soles to Addidas and Rebook brand as well non-leather beachwear and sports footwear for the American retail giant Wal-Mart• Global retail chains: JC Penny and Target have set up buying offices in India• Marks and Spencer: the UK based retailer with over 540 stores in 30 countries has set up a sourcing center for ready made garments in Bangalore

• Wal-Mart sources a total of US $ 1 billion value of diamonds, pens, shrimps, towels, and shoes from Indian manufacturers through its procurement offices in Bangalore and Hong Kong

• Piggybacking or complementary exports• A manufacturing firm expands its business in a foreign country by using the distribution network of another company: termed piggybacking or complementary exporting• A company that is not willing to commit its own resources for creating its own distribution channel often prefers to piggyback• Under piggybacking arrangements, the exporting firm is termed ‘rider’ whereas the firm with established distribution channels in the target country of export is termed ‘carrier’• Thus, the exporting firm rides on the back of the carrier through the latter’s well-established distribution channel in the target country

• Piggybacking is generally used for related but non-competitive products of unrelated companies which are complementary to the distributors’ existing product lines • Prominent examples of piggybacking arrangements• Fiat-Tata• Wrigley-Parry

• Fiat decided to use the extensive nationwide network of Tata Motors to market and service its passenger cars •Strategic alliance after Fiat failed to make a sales breakthrough in the Indian market

• Wrigley, the US-based chewing gum company entered India by piggybacking on the well-established distribution network of the Indian confectionary firm: Parry’s Confectionary• The piggybacking arrangement provided Wrigley’s an instant access to over 250,000 retail outlets across India selling the range of Parry’s product mix of hard-boiled sugar confectionary• Hence, Wrigley’s chewing gum had a complementary effect on Parry’s product portfolios and marketing channels

Chapter 9Cooperative Strategies and Global Strategic Alliances

• Cooperative Strategies and Global Strategic Alliances:

• Contractual modes of international entry and expansion

• Investment modes of international entry and expansion

• Contractual modes make use of strategic strengths and resources of a foreign-based partner company for international market expansion• In contractual expansion modes the partner firms complement each other with one or more of their strategic strengths such as: superior technology, strong brand equity, manufacturing facilities, well-established distribution network

• Seven major modes of contractual expansion: international

strategic alliances, international contract manufacturing,

international management contracts, turnkey projects, international

leasing, international licensing, and international franchising

1. International or Global Strategic Alliances.• Long-term formal relationships for mutual benefit: a firm agrees to cooperate with one or more than one firm overseas to carry out a business activity wherein each one contributes its different capabilities and strengths to the alliance• A firm has to be globally cooperative to be globally competitive• Phillips• Star Alliance

• The Dutch giant: Phillips heavily relies on multiple strategic alliances with external firms• Such global strategic alliances are aimed at blunting the market advantage of American-Japanese, South Korean, and Taiwanese competition in high-quality electronics and reducing its dependence on Europe where 50 per cent of sales and 70 per cent of its workforce and assets are located• Philips makes use of its global strategic alliance to have a balance of its business operations in major markets across the world

Industry Strategic PartnerAdvanced telephone systems AT&T (US)Compact Discs Sony (Japan)Electronic credit cards Bull (France)Lighting and electronic components Matshushita (Japan)Minicomputer software Bull, ICL, Siemens, OlivettiMobile communications CIT Alcatel, Thomson,

SiemensPersonal memory systems Control Data, SiemensSemiconductors and microchips Intel (US), Siemens

(Germany)Video recorders Grundig (Germany)

• The major advantages of international strategic alliances include:1. The investment cost is shared.2. Leverage specific individual strengths.

• Star Airlines: launched in May 1997 is a strategic alliance in the airlines industry and is the largest airline in the world• Runs 18,000 daily flights to 975 airports in 162 countries with a total fleet of 3,360 aircraft carrying about 510 million passengers annually• Alliance includes: Air Canada, United Airlines, Lufthansa, Thai Airways, Singapore Airline, and ten other airlines

• The advantages for partner airlines are:1. Integration of frequent flyer programs allowing accumulation

and redemption across partners.2. Flight schedules coordinated to permit seamless travel for

passengers within the alliance on a single ticket.

2. International contract manufacturing: international contract manufacturing is a form of international sub-contracting arrangement between the internationalizing firm and the contract manufacturer

• The contract manufacturer limits itself to the production activities whereas marketing is done by the internationalizing firm globally

• Sub-contracting arrangements involve supply of inputs, semi-finished goods, components

• Contract manufacturing is a strategic tool in cost reduction and reduction in the cycle time of production runs for manufacturing on a large and very large scale

• For example, Chinese contract manufacturers alone produce 30 per cent of air conditioners, 24 per cent of washing machines, and 16 per cent of refrigerators sold in the US and Europe

3. International management contracts.• A firm that possess technical skills and management know how can expand overseas by providing its managerial and technical expertise on a contractual basis• Management contracts are common in the hotel industry to take advantage of economies of scale, brand equity, and global reservation systems• The international expansion strategy of the Global Hyatt Corporation for example is primarily based on managing 216 hotels across 44 countries through management contracts • India’s Taj Hotels has also used the management contract route for international business expansion•Indian Hotels Company Limited (IHCL) entered into a 10 year management contract in April 2005 with the Dubai-based property developer ETA Star to develop and manage the Taj Exotica Resort and Spa: a luxury resort at the Palm Island Jumeriah Cresent in Dubai

4. International licensing.• In licensing a firms makes its tangible assets such as patents, trademarks, and copyrights, technical know how and skills (technical, feasibility, product studies, engineering, designs) available to a foreign company for a fee termed as royalty• The home-based firm transferring the intellectual property is known as the licensor whereas the foreign based firm is known as the licensee• The licensee makes use of these intangible assets in the production process• International licensing is common in pharmaceuticals, toys, machine tools, and publishing

• Arrow, ‘America’ shirt maker since 1851’ follows the licensing strategy to expand worldwide• Licensees in more than 90 countries with a wholesale value of stock worth US $ 300 million• Entered India in 1993 through licensing (product licensing where the licensee gets the right to manufacture, produce, and market the product in the defined market area) to Arvind Clothing a subsidiary of Arvind Mills • Arrow is the market leader in India of branded premium men’s shirt categories

Investment mode of international expansion• Foreign direct investment in manufacturing operations in foreign assets • Major forms of investment modes include joint ventures and wholly owned subsidiaries • International joint ventures offer equity investment opportunities in foreign countries with sharing resources and risks with partner firms • A firm shares equity and other resources with other partner firms to form a new company in the target country• Effective strategy to expand in countries with investment restrictions• 50 per cent ownership• 50-50 equity with equal capital ownership• Minority with less than 50 per cent ownership

• Joint venture mode in India most preferred by foreign companies as a mode of investment only in the early 1990s when investment restrictions were high

• Foreign firms are now only taking the wholly owned subsidiary route• A firm expands internationally to have complete control over its

overseas operations by way of 100 percent ownership in the new entity: known as a wholly owned subsidiary

•Entry Strategies for Foreign Investors: Starting operations in India

• A foreign company planning to set up business operations in India has one of two options of entry: as an Indian Company or a Foreign Company

• AS AN INDIAN COMPANY • A foreign company can commence operations in India by incorporating a company under the Companies Act,1956 either as a joint venture or wholly owned subsidiary • Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India (http://www.dipp.nic.in ).

1. Joint Venture With An Indian Partner• Foreign Companies can set up their operations in India by forging strategic alliances

with Indian partners• Joint Venture may entail the following advantages for a foreign investor: established

distribution/ marketing set up of the Indian partner2. Wholly Owned Subsidiary Company• Foreign companies can also to set up wholly-owned subsidiary in sectors where

100% foreign direct investment is permitted under the FDI policy.

• AS A FOREIGN COMPANY• Foreign Companies can set up their operations in India through • Liaison Office• Project Office• Branch Office

Liaison OfficeLiaison office acts as a channel of communication between the principal place of

business or head office and entities in India. Liaison office can not undertake any commercial activity directly or indirectly and can not, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.

• Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).

• Project Office• Foreign Companies planning to execute specific projects in India can set up

temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

• Branch Office• Foreign companies engaged in manufacturing and trading activities abroad are allowed to

set up Branch Offices in India for the following purposes: (i) Export/Import of goods(ii) Rendering professional or consultancy services(iii) Carrying out research work, in which the parent company is engaged.(iv) Promoting technical or financial collaborations between Indian companies and parent

or overseas group company.(v) Representing the parent company in India and acting as buying/selling agents in India.(vi) Rendering services in Information Technology and development of software in India.(vii) Rendering technical support to the products supplied by the parent/ group companies.(viii) Foreign airline/shipping company. • A branch office is not allowed to carry out manufacturing activities on its own but is permitted to

subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

Foreign investors predominantly select the :1. Joint Venture With An Indian Partner• Foreign Companies can set up their operations in India by forging

strategic alliances with Indian partners• Joint Venture may entail the following advantages for a foreign investor:

established distribution/ marketing set up of the Indian partner2. Wholly Owned Subsidiary Company• Foreign companies can also to set up wholly-owned subsidiary in

sectors where 100% foreign direct investment is permitted under the FDI policy.

• Locate out of Special Economic Zones: http://www.sezindia.nic.in/about-introduction.asp

Chapter 10Competitive Analysis and Strategy

• Central learnings of Chapter 10• Marketing is a vital line function• Line function drives marketing strategy in corporations• Corporations use marketing strategies to attain one universal

goal: sustained business success• Corporations plan a set of five marketing strategies to achieve a

leadership position in global markets

• Product strategies• Pricing strategies • Distribution strategies• Promotion strategies• Global market strategies • Best cost of product ownership to consumer • Focused differentiation of product portfolio• Attract consumers, succeed with consumers, and delight consumers

• HUL • Customer friendly products with major emphasis on low cost overall without compromising on the quality of the product• Leveraging the capabilities and scale of the parent company and focusing on the value of execution •The entire product portfolio is also being tweaked to include premium offerings such as Pond’s Age Miracle and dove shampoo in skin and hair care

• Hindustan Lever's fabric wash division • Value additions, price cuts, improved technology• HUL major detergent bar and powder brands are facing de-growth due strong price pressure from local low cost brand such as Ghadi and Fena and technology competition from foreign MNCs

• Price competition does not come from foreign MNCs• Surf Excel has dropped prices by Rs 20 per kg from Rs 155 to Rs 135 (2008-10)• The 250 gm Rin Shakti Bar witnessed a price drop from Rs 9 to Rs 6.50 • The Rin Supreme Bar was re-introduced as a no-mineral, no- mud bar, pegged as one of the biggest technological innovations in detergent bars, patented by Unilever

• Differentiation• Reshuffling users to graduate to more value-added brands is the

market agenda for HLL • Surf powder users to migrate to Surf Excel (the concentrate

powder) • Wheel detergent users to migrate to Rin Shakti – its mid-priced

powder and even from competitor brands in the same low-priced segment as Wheel, such as Nirma, Ghadi, and Fena

• Even in detergent bars, HLL's strategy for growth is akin to its powders• Upgrade its users to using the more premium Rin Supreme with its improved technology offering of being a no mud bar • Users of low-rung bars like Nirma and Wheel are expected to use Rin Shakti with its reduced pricing

Chapter 11Product Decisions

• a global marketing plan consist of two strategies • product strategy: product standardization, product customization, local adaptation (price, promotion, and distribution strategies are tailored to marketing strategies)• entry mode strategies: the degree of marketing commitment, market risk, control, profit and potential varies with the entry mode (exporting---------------------direct investment)

• the global marketing mix : product, promotion, price, distribution• to succeed in international markets firms selling in a global target market are faced with two types of marketing mix decisions- alter the product or promotion for the global marketplace - radically change the product or adjust either the promotional message or the product to suit local market conditions

• Four Product Categories: local, national, international, and global• Local Products: product available in a portion of a national market - new products that a company is introducing using a rollout strategy or that is a product distributed exclusively in a region

• Originally , Neva Thermal Winter Innerwear by Neva Garments a leading

innerwear manufacturer with a plant at Ludhiana launched a local product

in North India (1998)

• Production capacity of 10,000 pieces per day.

• By 2006, the rollout distribution of thermals made the product available

across India at all leading large format stores and retail outlets

• Neva Eleve for men & women; NevaMod Quilt, Neva Maxx Esancia, &

Neva PEP for men, women & kids

• National Products: offered in a single national market and caters to the product function needs of the of a particular country market

• Represent a significant opportunity cost for the marketer as single-market brands do not provide the market opportunity to develop and utilize global R&D and production•Prestige Pressure Cooker and Pressure Pan; Chawanaprash; Amrutanjan pain balms; supari; Baba zarda; pan masala•To satisfy local tastes for a herbal-based soft drink, Coca-Cola developed a non-carbonated, ginseng- flavored beverage for sale in Japan only (1990)•Inca Cola – sells in only in Peru and contains extracts of the locally grown coca leaves (a mild stimulant)

• Coke launched a yellow-coloured, carbonated flavoured soft drinks “Pasturina’ in 1994 to compete with Peru’s favourite national drink• Failed to dislodge the market leader and ended up acquiring Inca Cola to gain a strategic position in Peru

• International Products: products offered in multinational markets • the classic international product is the range of salted rice meal snack – Kurkure – developed by Pepsico for the South Asian market• Suzuki 800 and the Bajaj three stroke engine three wheeler commercial vehicle

• Global Products: products offered in global markets and consist of product categories marketed in every region of the world• Global Brands: global brands are symbols about which consumers have beliefs or perceptions; global brand names are used as an umbrella for introducing new products • Global products differ from global brands in one important respect: a global product does not carry the same name and image from country to country

• There are four attributes of a global brand:1.Guided by the same principles.2. Same name, similar image.3. Similar positioning vis-à-vis competitor brands.4. Marketing mix may vary.• examples: Marlboro, Coke, Sony, Avon, BMW, Volvo• marketing mix varies from country to country: The Mercedes which is exclusively a luxury car in the US is also marketed as a strong competitor in the taxi market in Europe• Avon which is a premium priced and packaged cosmetic line in Japan is popularly priced in the rest of the world

• When a company develops global products it is confronted with a global brand issue•…should the global product be turned into a global brand by attaching to it the same name and image across global markets?• Yes.• This requires the name and image of the product to be standardized • Standard Oil consolidated and aligned its many different local brands to converge under Exxon• Let us now picture how Mars Inc. and Coca-Cola are today arguably the quintessential global product and global brand

Mars Inc.• Mars Inc. confronted a global issue with its chocolate-covered caramel bar that sold under a variety of national brand names, such as Snickers in the US and Marathon in the UK•Mars decided to transform the candy bar – a global product – into a global brand in the early 1980s by converging different national brand names of its candy bar under a global brand: Snickers•Similarly, Mars changed the name of its successful global chocolate biscuit product – Raider – to Twix

•Coca-Cola is arguably the quintessential global product and global brand• Coke’s positioning and strategy are the same in all countries and its projects a global image of fun, good times, and enjoyment• Coke ‘Is the real thing. There is only one Coke’

•The positioning is a considerable accomplishment when you consider the fact that Coke is a low/no-tech product • In its basic form it is a flavored, carbonated, sweetened water in a plastic bottle or can •The company’s strategy is to make a mundane product within arm’s reach of desire •This is a brilliant example of market differentiation : a real cola for cola lovers across the world

•international product and communication (promotion) strategies1. Straight extension: one product, one message.2. Communication adaptation: one product, message

adaptation. 3. Product adaptation: local adaptation of product design.

4. Dual adaptation: customizing the product and promotion strategy.5. Product invention: new product inventions, new

marketing communication.

Straight Extension Product Adaptation

Product InventionPromotion

AdaptationDual Adaptation

PRODUCT

PROMOTION

Do not change product

Adapt product Develop a

new product

Do not change

promotion

Adapt promotion

International Product-Promotion Strategies

•Straight extension: in country markets where the product function or needs satisfied and the condition of product use is the same• global marketing standardization: a single product sell in all markets and is promoted using the same communication message• Heineken uses a standardized product and promotional approach the world over to maintain and communicate the uniform product quality (can and bottle) of premium beer•“Everyone’s going green”. ‘In over 170 countries across the globe more and more people are drinking Heineken’. 7 billion bottles a year.• Procter & Gamble uses the same product and promotional themes for Head and Shoulders – its fast-acting anti-dandruff shampoo offering in India, China, and the U.S•‘Head & Shoulders helps eliminate scalp dryness, itch and irritation, for hair that's 100% flake-free with regular use’

•Communication adaptation: product extension-promotion adaptation in markets where the product function and the needs satisfied are different but the condition of the product use are the same• global marketing strategy is to maintain the same basic product but alter the promotion strategy• Chewing Gum and Chewable Confectionery offering• benefits of chewing gum and chewable confectionery products: in India are widely perceived to be children’s products but in t he US and UK are considered to be substitutes for smoking, a means to improves oral health (Wrigley’s Orbit and Extra), a means of weight management and stress relief, and a useful aid in increased alertness, focus and concentration

•Wrigley's has a dominant position in confectionery lollipops and bubble gums in India through the Pim Pom, Boomer and Solano brands of chewable gums aimed exclusively at school going children (ads reflect the sense of fantasy and fun)•Orbit line aimed at adult consumers in global markets through its sugar-free, anti-bacterial communication platform (ads are modified to show a professor of dentistry advising students and guests at a wedding to chew on Orbit as a anti-bacterial agent)

•Product adaptation: product-adaptation-promotion extension is an alternative strategy in markets where the conditions of product use are different but the product performs the same function or satisfies the same needs•local adaptation of product design: marketers slightly alter a basic product to meet local conditions – sometimes it is a simple as changing the pack size of an offering• In India, Unilever sell single-use sachets of Sunsilk Shampoo and Conditioner for under Rs.5 /-• the company sell the same product in sachets priced under 4 US cents successfully to consumers in Nigeria, Philippines, Peru, and Bolivia• Washing machines: Indian households use top loading variants where as US and rest of Europe use front loading variants• under these situations the promotional strategy remains the same but the product modifications are made depending on customer need

•Product invention: a global marketing strategy used in markets where the product function and the need satisfied remain the same but the conditions of the product use differ • in other words consumers in different countries use products differently: create a new product or radically change existing product• the Nokia 1100 phone was customized to rough and dusty Indian conditions as a robust product • Coca-Cola and Thums Up are colas but the Thums Up cola outsells Coke by a four-to-one margin• Frito-Lay’s most popular potato chip in Thailand is shrimp flavoured• Coke sells pear-flavoured and berry flavoured colas in Turkey and Germany respectively•Nabisco, the household name in cream-filled cookies in the US has removed the cream filling for the Japanese market as it was felt too sweet

•What to sell abroad: Product Policy for International Markets (Standardization versus Adaptation)•Adapting product features to the extent of creating a new product• Keeping the product same to reduce cost of production and marketing• The goals of reducing cost and complexity of use leads companies to consider standardization, while a customer orientation determines product adaptation

Swatch : An Example of Successful Global StandardizationStandardization is an appropriate product strategy when customers are similar in global markets. Swatch, a cheap, mass produced, plastic fashion wrist watches sell for around $40 across the world.

The product concept involves manufacturing and marketing a strikingly low cost, high quality wrist watch. The watch is designed to appeal to the low end segment of the global watch market accounting for 450 million units out of a total market of 500 million units.

Two Swatch collections comprising 140 models are launched each year making these watched a collector’s item with the average Swatch consumer owning as many as six watches

The Swatchmobile: an inspiration of the Reva and Tata NanoA brand image in the watch segment led to Swatch entering into a joint venture with VW to manufacture a fashion car – the Swatchmobile – a minicar with replaceable panels that permit an ever-changing appearance (mirroring the Swatch face dial colours and patterns)The Smart as it was called was a two seater car launched in Europe in 1998 is an ultra light and highly fuel efficient two seater with plastic doors, hood, and trunk which takes under 5 hours to assemble at the dealership. Positioned as an ideal mini car for the city across Europe.

Washing Machines in Europe•Market research in the 1990s conducted by Hoover, a major producer of washing machines, showed that consumers from the various European countries had distinct preferences for product use.•With regard to dimensions the Italians wanted a shorter machine while most other consumers wanted a 34 inch height for easy access; customers in Germany wanted a wider machine fitted with stainless steel drums

The washing machine capacity of consumers ranged from loads varying from 4 kg-6 kg. Spin speed ranged from a preference for 60 rpm to 850 rpm. Consumers in France and Britain wanted a top-loading feature with an agitator drum action while those in elsewhere desired front loading features with a tumble washing action. Consumers had distinct preferences with regard to styling, colours, durability, and elegance. This adaptation initiative would cost $18 in terms of modification costs and capital investment.Given the vast differences in customer orientation of this product Hoover decided to abandon its adaptation strategy and opted for a standardization strategy!

Research data from sales and market promotion indicated that both the heavily promoted top-of-the-line German washing machine and the cheap Italian machine were market best sellers and the cheaper Italian machine (selling at half price) was cross selling actively in the German market as well! The critical market inference gathered by Hoover indicated that the price and promotion elements of the marketing mix can be used as tools to negate the strong influences of preference behaviour and achieve uniformity in the acceptability of the product An aggressively promoted low priced washing machine with standard features would be the correct product choice in the case. In sum: influencers were low price regardless of feature preferences and heavy promotion regardless of price

• While standardization as a product policy is more amenable to industrial products and machines of various sorts, it would be foolhardy to adopt this product strategy for food products, clothing, cosmetics, and footwear• Picture this…• BSN, the French Food company, is famous for its Danone brand of yogurt• Since yogurt consumption per capita in Japan was one tenth of French consumption, BSN viewed the Japanese yogurt market as having a considerable untapped potential (1988)

• The Japanese yogurt market was dominated by plain yogurt drinks with solid yogurt occupying only 20 per cent of market sales• BSN entered the Japanese market through a local JV partner for the sale of plain yogurt and could not break even in sales even after eight years of sales• What was the problem? Poor promotion or lack of adaptation?• BSN’s research indicated that Japanese consumers did not have a clear preference for Western foods and needed to heavily promote the product as a health food: resulting in consumers switching to Danone as a substitute for the yogurt drink

•The breakfast cereal market in Japan presents an interesting contrast to modifying the market mix and adapting the product to suit local conditions• The Japanese consume only half a box of breakfast cereal annually per capita compared with 15 boxes per capita in the US• Kellogg, the market leader in Japan has a 70 per cent share of breakfast cereals •Nestle eyed the market closely and learned that the cereals market was growing at 60 per cent annually as Japanese were starting to eat a healthier cereal breakfast instead of traditional rice and miso soup

•Nestle as well as Kellogg cashed in on this growth and radically adapted the product by replacing the corn in the flakes with locally suited whole rice, rice bran, and even desiccated vegetables!•Kellogg best selling product is a ground whole rice cereal while Nestle has made sharp inroads with its Vegetable Time – a salty con-flake cereal – with vegetable powder spinach, carrot, and pumpkin)•Adaptation in more likely to succeed when selling food and that too as staples

Geographic Expansion: Strategic Alternatives•A global brand can expand existing product lines into new country markets through geographic expansion •A global brand can select among five strategic alternatives to extend the product/market base•Strategy 1: Product/Communication Extension (Dual Extension)Example: Cake Mixes, Condensed Canned Soups. Campbell discovered the tomato soup in the UK was bitter and that Japanese prefer corn soups, Nestle discovered that UK customers want dry, spongy, cakes at tea time!•Source of cost savings and elimination of duplicate products and manufacturing economies of scale

• Strategy 2: Product Extension/Communication AdaptationExample: a classic example is Perrier brand mineral water: long advertised and consumed in Europe as a staple with healthful qualities Perrier became a success in North America only after it was marketed as chic beverage to order in restaurants and bars, instead of an alcoholic cocktail•appeal is relatively low cost of implementation as R&D, tooling, manufacturing lines, and inventory costs associated with new products are avoided•Strategy 3: Product Adaptation/Communication ExtensionExamples: Exxon adapts its motor fuel formulations to meet weather conditions: high boiling point in tropics versus low boiling point in cold countriesKellogg’s adapted its best selling health cereal, Mueslix, a mushlike consistency on adding milk popular in Europe – to a crisp and crunchy product formulation in the United States that did not get soggy on adding milk•Benefits are basic home-country communications strategy while adapting the product to local use or preference

• Strategy 4: Dual AdaptationExamples: Hallmark Greeting Cards in Europe are blank - a means of providing the sender space to write an individual greeting message-while the cards in the US contain a prepared message; necessitating an adjustment strategy of product and communicationSnuggles, Unilever’s best selling fabric softener product in Europe sells under different brand names, pack sizes, formulations and strength, and marketing strategies•Strategy warranted by function a product serves and consumer receptivity of advertising appeals

• Strategy 5: Product InventionExample: Colgate pursued this strategy in developing ‘Total’, an improved product offering the benefits of a pleasantly flavoured toothpaste with dental and gum protection. The brand’s whose formulation, imagery, and ultimate consumer appeal were designed from the ground up to translate across country markets. The product was tested across six countries each with a different culture profile: The Philippines, Australia, Colombia, Greece, Portugal, and the United Kingdom. Total is a classic case of an improved product the succeeded by unifying the image of the brand and the global product across 100 markets of sale and countered any cultural resistance to the product.

Chapter 12

Pricing Decisions

•Price is the only element of the marketing mix that is revenue generation: all the other elements are costs•Price is therefore used as an active instrument of strategy in the major areas of marketing decision making (as seen in the Reebok example)•Price serves as a means of communication with the buyer by providing a basis for judging the attractiveness of the offer vis-à-vis a competitor price point•Prices along with costs (the remaining elements of the marketing mix) determine long term viability of a marketer is foreign markets

• Global pricing strategies• Pricing in the global environment and is complex because of different currencies, exchange rate variations and costs• Global pricing situations are divided into three strategies: - target pricing- transfer pricing

• One market based approach to pricing popular as a strategy with marketers is target pricing and product development•responsive to the consumer’s ability to buy based on a target price •Canon•Canon implemented target pricing in developing a personal copier for under $ 1000 and the pricing decision guided the entire product development process • Olympus Optical Co.•Another example of using target pricing is Olympus which make high quality, single lens reflex cameras in the early 1990s in the pre-digital camera age

•Olympus was facing a new generation of camera’s from Sony, Pentax, and others with auto focus and zoom lenses •Olympus worked backwards the target price ($110 retail) and developed the production line in alignment with the target price, i.e., the assemblies for a new lens, focus, and built in flash, allowing for dealer and distributor margins

Pricing Reeboks in IndiaThe following caselet indicates how a company tries to maintain its image of high quality in global markets. When Reebok, the world’s number two athletic shoe company decided to enter India in 1995 it face several basic marketing challenges.

The biggest challenge was that Reebok was creating a market from scratch: upscale sports shoes were unknown in India and the most expensive sneakers available at the time cost, Rs. 1,000 ($23). Rebook managers also had to select a market entry mode and a decision was made to subcontract with four local suppliers, one of which became a joint venture partner (Liberty).

Only a limited number of distribution options were open to the company: a distribution tie up with Bata, a Canadian company with global operations, the shoe retailer with national coverage, or the setting up of a company owned retail infrastructure.

The company decided on the latter as American sports style shoes were unknown in India and Reebok needed to reinforce Reebok’s high tech brand image and entry the Indian market with brand retail options.

There were two crucial pieces of the puzzle: product and price.Should Reebok create a line of mass market shoes specifically for India and priced at Rs. 1000? Or should the retail stores it plans offer the same designs sold in other parts of the world and price these products at Rs 2,500 a pair ($58) – a figure that represented the equivalent of a month’s salary for a junior level executive or civil servant at that time!

In the end, Reebok decided to offer Indian consumers 60 models of athletic shoes chosen from the company’s global offerings in line with the desire to sustain Reebok’s brand image of high quality.

Also the qualified market for the premium priced offerings were estimated to be about 30 million and the number of models offered were sufficient at the product introduction stage to cover the qualified market with through various price points.

Reebok’s least expensive pair of shoes were priced at about Rs. 2000 per pair or the price of a new refrigerator.

Nevertheless, the customer response for the shoes was very favourable , especially among the urban youth.

Reebok was also please to discover that demand was strong outside of the key metropolitan markets such as Delhi, Mumbai, and Chennai as the cost of living was lower in smaller towns so consumers had more disposable income to spend.

Also consumers in small towns had less opportunities to travel overseas and therefore were ready to shop locally for trendy and prestigious global brands.

Reebok today has over a hundred branded franchise stores, including factory outlets, that sell about 300, 000 pair of athletic shoes in India each year and manufactures over a million pairs in India alone across more than 80 models targeted at both men and women.

The company has also launched its line of sports apparel and accessories to deepen the image of the brand among consumers.

The company exports 700,000 pairs of shoes to Europe and the US taking advantage of lower production costs in India.

Reebok managers admit that while at first the company was embarrassed about their pricing (a farmer could by a dairy cow for the price point charged by the company!), the strategy to enter India served well.

•Transfer Pricing in International Markets•Transfer pricing (intracorporate pricing) refers to prices of goods sold within the corporate that is, from division to division or to a foreign subsidiary•Let us understand this pricing strategy with the help of a clear company illustration•Transfer pricing at Hewlett-Packard

•Hewlett Packard: product division to international division •Transfer pricing plays a key role in coordinating and distant profit centres at Hewlett-Packard, a multinational firms that get over half its revenues from outside the US•HP’s transfer pricing objectives include motivating local manager who show large profits, minimizing the chances of double taxation, moving profits to low tax jurisdictions while ensuring compliance with accounting and taxation standards•HPs transfer pricing method uses cost plus pricing and a list price minus trade discount method •HP prefers to use a cost plus 10 per cent as the desired company rate of return and bases its transfer pricing mark-ups on a return on assets method

•The benefits of a return on assets method is appropriate to a high tech company since unlike capital intensive or machinery based industries HP spend enormous resources of R&D expenditures, which are expensed and thus need to be adequately recovered

•The international division therefore reflects in its profit and loss account and balance sheet profits from each product line and shows how the cash flows are allocated among R&D, manufacturing, and sales costs and expenses: thereby bringing about greater transparency in its corporate tax structures •For this HP argues that a cost plus method allows for adequate capital returns on understated R&D expenditures for product division across the corporation as well and for its cash flow return to the international division

•HP thus uses a simple but effective pricing strategy to minimise the price and

revenue conflict between product and international divisions on the issue of transfer

prices of product sold within various product division

•Here, the profit margins in sales are attractive to both the product divisions as well

as international division and what is more, the transfer prices (the price at which a

product division sells the product to division or subsidiaries with the international

group) is low enough to enable HP to be profitable and competitive

•The benefits of transfer pricing based on a cost plus price approach are manifold•Intracorporate pricing is a reality as divisions within a corporation are required to transfer the title to the ownership of products and services across other divisions located in all regions of the world• transfer pricing involves price setting and profit sharing among units of a corporation

• cost plus price escalation approach adds some percentage (10 per cent at HP profit transfer) that will make the resulting price of the product or service acceptable to the product division and the international division

• the price escalation component of intracorporate transfer can be a percentage negotiated between the divisions, or a percentage of product division overhead, or a percentage return on product division investment

•Other commonly used market based pricing strategies • Market Holding Pricing •Transfer Pricing•Market holding: frequently adopted by companies that want to maintain their share of the market and dictate that the source country currency appreciation will not be automatically passed on in the form of higher prices •In other words, if the competitive situation in market countries is price sensitive then manufacturers must absorb the cost of currency appreciation by accepting lower retail margins in order to maintain competitive prices in country markets

• Also a strong home currency and the rising costs in the home country may also force a company to shift its sourcing to in country or third country manufacturing or licensing

• IKEA, the Swedish home furnishing company, is negatively affected by the strong Swedish kroner and prefers to source 50 percent of its product range for American and European markets

• Market holding pricing implies that a company needs to examine all its costs to ensure that it will remain competitive in target markets

• So Chrysler-Daimler and BMW in the 1980s built manufacturing and assembly plants in the United States to produce Mercedes and BMW sports utility vehicles and two seater cabriolet sport cars with the express aim of investing in new locations to expand capacity and serve target markets around the world

• International pricing situations: pricing for new markets, changing

price either as an attack strategy or in response to competitive

challenges, and multiple product pricing and coordination to

stimulate demand and blunt the edge of a competitor’s price point

• Situation 1: new market entry adopts a first time pricing model

where the company has three alternatives : skimming to achieve

the highest possible sales in a short time

• Situation 2: price revisions and changes based on a market

pricing model where the final customer price (retail) is determined

based on competitive price points (reference retail prices of

competitors). This approach requires the marketer to have a

thorough knowledge of product costs as well as confidence that

the product life cycle is long enough to warrant entry into a

market.

• Situation 3: in a multiple pricing the various items of the product

line may be differentiated by pricing (for example, an economy

version, a standard version, and a top of the line version). One of

the products in the line may be priced to protect against

competitors or to gain market share from existing competitors (loss

leader or fighting brand) while the other items in the line are the n

price d to make up for the lost contribution of the fighting brand

•Dual pricing strategy differentiates the pricing of domestic and export price for the same product based on two approaches : the cost plus price escalation approach and the marginal cost plus price escalation approach•The cost plus approach to dual pricing reflects the true cost, fully allocating the domestic and foreign costs to the product; although this type of pricing ensure higher margins it runs the risk of pricing products higher than competitor price points •The marginal cost method to export pricing considers the direct cost of producing and selling products for exports as the floor beneath which prices cannot be set• Fixed costs for plants, R&D, and domestic overheads as well as domestic marketing costs are disregarded•market differentiated pricing calls for export pricing according to the consumer’s ability to buy and dynamic conditions of the market place such as competition, exchange rates and marketers use market based pricing to gain entry or better product penetration in a new market

Chapter 13

International Marketing Channels

•The purpose of a marketing channel is to create utility for customers •The major categories of channel utility are place (the availability of a product or service in a location convenient to the consumer); time (the availability when desired); form (the product is processed, prepared, and ready to use); and information (answers to questions and general communication about the product features and value benefits• Distribution Channel strategy in a global marketing program offers two strategic choices for a global brand to enter a competitive market with global products: direct involvement (own sales force, retail stores, non-store retailing) and indirect involvement (independent agents, distributors, and wholesalers)•A distribution channel is a system that links manufacturers to consumers

International Channel Strategies

• Two forms of channel strategy– direct involvement

Own sales force, retail stores, etc.– indirect involvement

Independent agents, distributors, wholesalers

Distribution Channels for Consumer Products

• Door-to-door (or personal selling)• Manufacturer-owned store• Franchise operations• Combined structures

•Most brands use a combination of channel structures for consumer products: sell directly to consumer using a sales force, direct marketing through product catalogues, retail marketing, or online marketing•IKEA, the world’s largest furniture retailer, relies both on company owned stores as well as catalogue marketing•Field Sales Force: door to door selling is a high cost operation but is growing in popularity as a channel structure•Avon and Amway are champions of personal selling in country markets of Japan, China, Hungary, Czech Republic, Russia and 50 other countries including India• heavily rely on the role of a sales force to communicate the benefits of cosmetics, home care, nutrition, personal care products

• For Avon home direct selling is the perfect channel strategy and direct sales is an effective channel to induce buyers to spend more on cosmetics and personal care products

• Amway Asia Pacific has a network of 600,000 distributors and 1 million independent sales agents

• Buying Offices (Indirect Channels) : overseas firms make their permanent presence is the suppliers’ countries by way of establishing a permanent buying office

Examples: Wal-Mart sources US $ 2 billion in value of pens, terry towels, diamonds, and shrimps from India

Wal-Mart set up a global procurement company in Bangalore (2004) to expand sourcing business in India. Sources 30 million units of pens, Welspun and Trident are supplying 30,000 tones of terry towels and bed linen to Wal-Mart while Pune based Karnik Hurwitz supplies the entire socks requirements of Wal-Mart

Physical Distribution: Exporting and Logistics• International Logistics decisions affect the number and locations of

production facilities, production schedules, inventory management, and even the firm’s level of involvement in foreign markets

• International logistics opens up new markets by offering the marketer two strategies for increasing profits: cost reduction and market expansion

• Physical distribution is a major cost in international marketing and profits can be increase through cost reductions in the movement of goods

• Profits can be increased further if sales rise because of an improvement in customer service (delivery times, availability of parts)

Distribution Functions In The Value ChainPurchasing

Inbound LogisticsR&D

Assembly and manufacturing

Outbound LogisticsMarketing

Information and ResearchTarget Market Selection

Product Policy and StrategyPricing Policy and Strategy

Distribution Policy and Strategy

Communication Strategy

International Logistics at General Motors

GM markets in a variety of ways to more than 175 countries where the methods of marketing in these markets range from local GM manufacturing subsidiaries to licensing assembly operations to direct exports.

This caselet focuses on GMs exporting structure.

International Export Sales division of GM ships products as either completely knocked down kits or fully assembled single unit packs.

These units of cars, trucks, vans, and utility vehicles go to a network of international dealers numbering over 5000 across the globe.

The vehicles come from any one of GM’s global operations, including partner operations such as GM do Brazil, Opel in Germany, Holden in Australia, and Suzuki and Isuzu in Japan.

The division export cheaper commercial vehicles manufactured by Isuzu to developing countries and export the Chevrolet, Pontiac, Buick, Cadillac, and the GMC Truck to more affluent markets.

The export division manages GMs worldwide operations through 11 regional offices providing support to local dealer through marketing assistance.

•International Logistics comprise three process: warehousing, inventory management, and transportation

• International Logistics decisions are of three types of markets: for one market, for regional markets, and for international markets

• We examine these dimension in detail

•Coordination of international logistics•For One Market: the physical distribution is handled primarily by the local subsidiary or by a foreign distributor•So to improve its customer service in North America BMW established a three part distribution centre for its 420 auto dealers and 290 motorcycle dealers. Thus by calling the nearest centre dealers could hook on to the BMWs inventory network at a distribution centre• For Regional Markets: due to economic integration the subsidiary or distributor is part of the regional market of distribution• regional economic groupings are encouraging manufacturers to rationalize and centralize their logistics•Whirlpool in 1998, with the expansion of EU to include East European countries went form 30 warehouses to 8 regional centres

•3 M, Eaton Corporation, and Bosh claimed cost savings of over $ 100 million each a year by the reduction in warehouses and reorganizing and centralizing its logistics•SKF, the Swedish firm, the world’s largest producer of metal ball bearings selected Singapore as its sales, service, and distribution centre for Southeast Asia. •Singapore was chosen because it has excellent shipping and air freight services and it offered a free port that enabled the company to avoid tariffs and sales taxes on transhipments on re-exports to the world

•For International Markets: firms that have many markets and supply sources globally need overall coordination for optimum integration of supply and demand.•Such coordination of international logistics can happen on a centralised basis only •Here one division coordinates all export orders and assigns the production sources of the order•Eaton Corporation, the leader in semiconductor parts and devices, produces in 43 countries and exports to more than 100 through a marketing organization based in Switzerland

•Centralized control over exports is often tied to regional distribution centres where inventories are held for faster local delivery : let us see how the strategy works in marketing practice!•Caterpillar, therefore, has a parts depot in the Philippines from which the company ships inventory and provides breakdown and maintenance services to more than 20 Asian markets

•In 2007, Dow Chemicals processed over a million direct orders to its Midland, Michigan headquarters and made export shipments to more than 100,000 consignees across North America, Europe, Asia• Ocean freight charges along stood at $ 15 million •Dow implemented a centralized physical distribution management of its export logistics

•The company first prepared electronic price list of all its 20,000 formulations and 5,000 products enabling sales reps to quote a price against quantity ordered in more than 100 markets almost instantly• Updated computer lists along with the reclassification of frequently exported chemical enabled Dow to cut freight rates from $ 64 to $ 42 per tonne – this opened up new markets by making the product mix competitive vis a vis Bayer and DuPont• Dow’s engineers helped to increase the ship loads per consignment of bulky chemicals by redesigning the storage holds of marine vessels so that shipment could be made in bulk to overseas terminals

• Transportation decisions are the most complex in the logistics chain• Rail, truck, air, water, or pipeline• 3M does an excellent job of managing the physical distribution and

transportation dimensions of outbound logistics• 3M’s international distribution centre receives more than 1 million orders per

week• Export orders that took 11 days to process in 1985 were cut to 5 days in 2007

and shipping errors in documentation fell by 71 per cent despite the fact that export volume was up by 90 per cent

• the critical success factor in this case was setting up hundreds of distribution centres at strategic locations across the world to turnaround container loads quicker, invest in an increasing fleet of trucks to provide daily delivery services to each one of the 54 subsidiaries of 3M across the world

•Cost savings in the movement of export goods and warehousing were cut by 19 per cent in the 2000s•lower inventories and faster deliveries•Laura Ashley is the global retailer of traditional English style household linen and clothing for women•Laura Ashley is a classic case of reconfiguration of its logistics•300 stores in more than 20 country markets with over a 100 distribution centres•Prior to 1995 Laura Ashley incurred costs of 60 per cent of retail price because of a central warehouse located in Wales

•This meant that clothing manufactured in HK or Portugal had first to be exported to Wales from where the consignments were re-exported to country markets•This resulted in slow replenishment cycles and all stores being under stocked by 20 per cent hitting sales revenues hard•The company cut costs and improved inventory management by subcontracting physical distribution to FedEx whose automatic store replenishment software tracked and arranged for the shipment of stock on sale as and when a purchase took place – from the factory and directly to the store

Chapter 14 Global Advertising

Marketing communications – the promotion P of the marketing mix - includes the tools of advertising, public relations, sales promotion, and personal selling Marketing communications refers to the tools of communication used by a marketer to inform, remind, explain, persuade, and influence the attitudes and buying behavior of customers the primary purpose of marketing communications is to inform consumers about the benefits of a product offering advertising decisions facing the international marketers

• Seven decision areas of a global corporation in advertising1. Selecting the Agency2. Choosing the message3. Selecting the Media4. Determining the Budget5. Evaluating Advertising Effectiveness6. Organizing for Advertising7. Deciding Whether to Go Abroad

•Selecting the Agency: advertising agency selection is the first decision that a global corporation has to make•a global corporation can opt for two strategic choices : either select an international agency with domestic and overseas offices or local agencies in each national market• the global trend in international advertising is to commission agencies with offices abroad• ideal choice for marketers who seek to present the same basic appeals of the product select international agencies : corporate awareness and aided brand recall•Let us see some classic favorites … !

• American Express uses Ogilvy & Mather to coordinate its domestic and international advertising • 3M chose Grey Advertising with 278 offices in 70 countries to handle its advertising previously covered by 25 separate agencies worldwide• IBM commissioned O&M replacing 40 different agencies around the world • Levi Strauss reinforces a similarity of appeals abroad and uses McCann-Erickson in the majority of its foreign markets• For Philip Morris, Leo Burnett Co., developed the famous Marlboro cowboy theme for the U.S. markets; as Marlboro diffused globally , Leo Burnett was given foreign markets as well

2. Choosing the Advertising Message: communication takes place only when the meaning is transferred and the key question for global marketers is whether the specific advertising message and media strategy must be changed from region to region or country to country because of environmental requirementsExtension versus adaptation of the communication message

•On the contrary, many consumer products lend themselves to advertising extension rather than adaptation•…Picture this as an illustration of advertising message extension!

Global campaigns for Global Products•Global advertising is responsible for the creating a uniform product appeals in response to a uniform product need around the world.•In other words, if the market is global then advertising appeals can be standardized and extended as a global theme.•The denim jeans marketer, Levi Strauss & Company, racked up record sales in global markets during 1996 on the strength of campaigns (‘Forever in Blue Jeans’ and ‘I’ve Got the Blues’) extended unchanged to Europeans, Latin Americans, and Australians.•The learning here is that market converges for consumer tastes then advertising appeals can be standardized and extended.

• The markets for shampoos, athletic shoes, carbonated soft drinks, Scotch whisky,

Swiss watches, designer clothing – is truly global

• Seagram’s, the brand that manufacturers Chivas Regal, the double malt

premium whisky recently ran a global campaign in 2000 in 34 countries and

translated into 15 languages: theme line “there will always be a Chivas Regal

to celebrate the taste of success”.

• Gillette Company took a ‘one product/one brand name/one strategy’ global

approach when it introduced the Sensor razor in 1990 under the campaign

slogan ‘The Best a Man Can Get’: this campaign proved to be a trigger for the

creation for a total Gillette mega brand strategy that revolutionized the entire

shaving system concept for the company

• The learning here is the Gillette successfully marketed a shaving system

across multinational boundaries as if they were one country.

• A third decision in international advertising is the selection of media

for each national market

• Although markets are becoming increasingly similar media

decisions still vary to a great extent since the availability of

television, newspapers, and other forms of electronic and

print media varies around the world

• Newspapers, Magazines, and TV have multimarket coverage

and the preferred choice for numerous global brands for

Advertising

• Reader’s Digest, the general-interest magazine signed pioneering deals

with Ford, General Motors, Procter & Gamble, Warner-Lambert, and

Bristol-Meyers Squibb allowing access to advertisements in all of

Reader’s Digest’s 41 international editions

4. Setting the international budget: percentage of sales approach is

an easy method of setting the advertisement budget in a country

and is ideally suited for brands that seek to centralize control

over international advertising

• firms need to be careful in planning ad budgets so that the

promotional spend is significantly higher than well entrenched

competitors in new markets

• Panansonic, Addidas, Nike, and Reebok are examples of brands

using this approach

• Coca-Cola- a champion of the percentage to sales approach- in

ad budgeting spend $ 800 million annual to take the first spot as

the world’s most advertised product

• Advertising and Product Influences

• marketers and advertising agencies can be frustrated by widely

differing restrictions on how products can be advertised

• Tobacco products, alcoholic beverages, and pharmaceuticals are

the most heavily regulated in the world

• despite strict bans on advertising these products have not

abandoned their promotional efforts

• Altria Group (formerly Philip Morris) engages in corporate image

advertising using the cowboy spokesperson

• European Cigarette brand such a the legendary, Gitanes (once

smoked by Charles de Gaulle) have diversified into the

entertainment business while retain the core value of the cigarette

brand (restaurants, lounges, and movie theatres)

• AstaZeneca funded TV campaigns that discussed medical

advances in migraine cures without mentioning the brand

• In the UK tobacco advertsing is not allowed in magazines aimed at

under 15 women but it is permitted in other women’s magazines

• Food is a product category most likely to exhibit cultural

sensitivity

• Marketers are to be alert to the need to localize their advertising

• A good example of this is the recent efforts by H.J. Heinz

Company to develop the international market for tomato

ketchup

• Heinz’s strategy called for adapting both the product and the

advertising to target country tastes

• In Greece ads show ketchup being poured over pasta and

cuts of meat

• In Japan ads show models instruct Japanese housewives on

using ketchup as a basic ingredient in Western style cooking

such as pasta, lasagne, and sausages

• Heinz also varies the taste and image of the product

depending on country markets

• In India, Heinz, which faces stiff market competition from

Maggi’s Tomato Ketchup, and Unilever’s Kissan positions the

product not as a cooking ingredient but a meal accompaniment

aimed at fussy school going children who are poor eaters – TV

ads show exasperated mothers trying to feed their children

regular meals and how the application of the Heinz helps to perk

up the flavour of food

• Heinz has also entered into strategic alliances with Domino’s,

Pizza Hut, and McDonald’s to promote its ketchup sachets in

Asian markets at the point of sale in outlets

• Hienz has altered its ketchup formula in India and offers the

product as a sweeter but spicier variant of its American

counterpart

• Beyond the traditional media, international marketers may also

consider product placement in movies, TV shows, games, Web

sites to create wider brand awareness

• to this end products from makers such as BMW, Omega, Nokia,

Heineken, and Bentley have been placed in Hollywood movies –

particularly Bond movies

• This form of international advertising is useful in aiding both

parties to the deal: to create a brand definition for the product and

a dimension of reality for the film

• The estimated size of the product placement market in 2008 was $

6 billion and is growing at an annual rate of 58 per cent

• Close Up Antakshari

• LG KP 199 : Indian Idol

• TVS Saregama

• Amul Voice Of India

• Videocon Boogie Woogie

• Pass Pass

• Maruti Swift in Bunty Aur Babli

• … and so on

Chapter 15 – Global PromotionPersonal Selling and Sales Management

Public Relations

•Although advertising is often the most prominent element of the promotional mix of the international marketer, personal selling is the major promotional tool•Personal selling is a two way communication between a company representative and a potential customer (prospect) •The salesperson’s job it to correctly understand the buyer’s needs and match those product needs to the company’s product mix • Effective personal selling is a salesperson’s home country requires building a relationship with the customer•Global marketing presents additional challenges because the buyer and the seller come from different national and cultural backgrounds• There are two major marketing considerations for a marketer to decide on a promotional budget for personal selling: restrictions on advertising and media availability can limit the advertising reach; low wages in many countries allow companies to hire a large sales force

• The experience of Philip Morris in Latin America illustrates the role of personal selling: low wages permitted the sales department to employ 300 men of which only 75 were salesmen and the rest were sales assistants who helped with deliveries and distribution of sales materials •The younger sales assistants were deployed in the market : bus stations, airports, restaurants, post offices, and restaurant as a missionary-sales force (mobile on bikes) and strongly complement a regular sales force• Personal selling in India: India is one market where Coke trails Pepsi. As part of its catch up strategy, Coke, recruited paraplegics! to sell Coke on the streets of New Delhi. The Handicapped Welfare Society in a tie up with Coke supplies the hand powered tricycles and Coke supplies the beverages. The company expects public relations benefits ( sympathetic to the cause of the physically handicapped) as well sales from these new mobile vendors!

•Colgate in India: Colgate is a strong leader in the toothpaste market in India but most of its sales are in urban areas which account for less than one third of the India’s population•To reach rural customers Colgate began a program of traveling video van to the villages (1986-1989) screening infomercials featuring the benefits of good dental hygiene followed by a tooth brushing demo using Colgate dental cream •The demo specifically focuses on Colgate Toothpowder (an invention custom designed for the Indian rural consumer to upgrade them from locally made coal based toothpowders!)•Since 1990 van have visited over 100,000 villages in rural India and over 20 million people•Colgate has seen a doubling of toothpaste and toothpowder consumption in rural India and expects over 50 per cent of its sales from the rural hinterland•Introduced dental cream in tube sizes of 10 ml and 20 ml priced at Rs. 4 and Rs. 6 respectively

Eastman Kodak• Eastman Kodak developed a line of business approach to allow for standardized strategy throughout a region. In Europe one field sales manager is put in charge of an entire program in each country with responsibility for all sales and service teams. • To maintain a uniform program and overcome language barriers in

Europe Kodak created a service language consisting of 1200 words commonly found in technical information for its photo films.

Sales Promotion: sales promotion in international marketing is used as a catchall term for promotion that does not fall under personal selling, advertising, and publicity. Sales promotions directed at consumers involves activities such as couponing, sampling, premiums, consumer education and demonstration activities, value offers, price discounts, point of purchase contests, and direct mail. The success of the appeal of sales promotions is related to several factors: cost and clutter of media advertising, simple targeting of customers compared with the tools of mass communication, and the easier tracking of promotional effectiveness (coupon returns, value offers, and customer contest data provide a clear measure of effectiveness)

The success of Tang, a presweetened powder juice substitute in Latin America during the 1990s is for most part traceable to successful sales promotion efforts: one promotion involved placing coupons for free groceries offered at Kraft Foods supermarkets in Tang pouchesPremiums as sales promotional tool in consumer promotion in India: premiums are prizes, gifts, and special offers that consumers are offered by marketer at the time of purchase to build a rational or an emotional involvement of the consumer with the product and the brandBarista coffee outlets once offered a free cappuccino on the purchase of two coffee mugs: the prospect got two mugs for the price of one

The Happy Meal targeted at school going children from McDonald’s has a toy on every purchase- the company has a tie up with Walt Disney for the schemeThe toys keep changing frequently leading to more footfallsWhen McDonald’s launched its ‘I’m lovin’ it’ campaign it distributed short music CDs that carried a few popular songs with its commercials on a minimum purchase of Rs 100 at one timeCoupons and its variants: Fast food outlets such as Pizza Hut, Domino’s, McDonald’s, and US Pizza have perforated coupons in their flyers which can be redeemed during the next purchaseCoca Cola once had a lucky number on the inside of its bottle caps

•When Cream Bell Ice Cream (Devyani Foods, Gurgaon) was launched in India in 2004 it tied up with Pizza Hut’s sales promotion scheme of four pizzas for Rs. 200. If a prospect added Rs. 25 then four cups of Cream Bell ice cream came along as dessert: the scheme and the tie up helped both marketers to test market the acceptance of their brands• Similarly Coca-Cola has a tie up with McDonald’s : only Coke and its sub-brands are available at McDonald’s outlets•Pfizer in India attracts drug wholesalers by sponsoring trips and other events and doles out gifts to doctors and their spouses are taken of shopping trips

Chapter 17 – Leading, Organizing and Monitoring the Global Marketing Effort

•To meet the objectives of organizational structure and control firms adopt one of four designs to organize global marketing operations(1) International division structure(2) Product-based structure(3) Geographic Structure(4) Matrix Structure • International Division: under this design the company operates as two entities: the domestic division responsible for the firms domestic activities and the international division in charge of the company’s international operations• this design option is most suited for companies with a non-diverse product line and product items in the product line that do not require a large degree of adaptation to local country need

•this type of design is widely followed by industrial product manufacturers, engineering consulting firms, and large equipment suppliers such as L&T, Komatsu, Black and Decker, Caterpillar, Atlas-Copco, etc.

• the second design option or global product based structure for a global firm centres around different and diverse product lines or strategic business units

• the design is based on the principle of a global product division structure where each product division, being a separate profit centre, is responsible for managing worldwide, the activities of the product line

•this organizational design option is widely used by high-tech firm with highly complex products or a global corporation with a very diversified product portfolio•Sony-Ericsson, John Deere (the largest agriculture machinery manufacturer in the world), Sun Microsystems, and Whirlpool have adopted the global product division structure•Let us now understand organizational reporting and control structure of in an integrated way – product, geographic, and functional structure•…followed by an understanding of each individual design separately for a more clear understanding of MNC structures

Schematic Marketing Organization Plan Combining Product, Geographic, and Functional Approaches

• Insert Exhibit 11.4

• three company examples of global product structure

Chief Executive Officer – Deere & Company

Worldwide Agricultural Division Worldwide Industrial Equipment Division Worldwide Lawn & Ground Care Division and Deere Power Systems Group

Chief Executive Officer – Sun Microsystems

Sun Microsystems Computer CompanySunservice Division Sunexpress Inc.SunSoft Inc. SPARC Technology

Chief Executive Officer – Sony Ericsson

Business Networks Radio Communications Public Telecommunications Components Microwave Ovens

•several marketing benefits are associated with a global product structure• (1) the product focus offers the company a large degree of flexibility in terms of cross country resource allocation and strategic planning• For instance, market penetration by products through distribution efficiencies in recently entered markets can be cross subsidized by profits generated in developed markets•(2) the structure enables a seamless integration of the manufacturing and distribution operations and consolidates the marketing organization in alignment with the distribution organization• this approach is exemplified by Honeywell the U.S. maker of control systems for the IT and high tech manufacturing segment which has set up centres of excellence that span the globe

•(3) the third advantage for the global corporation with this option of design is that the firm can achieve scale economies in the areas of production and logistics and improve the firm’s competitive cost position• let us know check our understanding of the global product division structure with a company illustration that is an accurate application of the concept• Whirlpool’s Consumer Electronics Division (1995-2003)• Whirlpool’s global business units for Microwave ovens and air treatment products (room ACs are dehumidifiers) are managed principally through regional product-business unit structure•the product lines for these two product categories had become truly global with manufacturing, sales, and distribution in more than 75 countries

•this prompted the company to establish two product-oriented business units responsible for product planning, development, manufacturing, and distribution on a global basis•Microwave Ovens and Air Treatment – two global product categories…• based out of two global product hubs: Sweden and PRC• the regional business continue to be in charge of sales and marketing to this day which make Whirlpool the champions among companies that have successfully operated in global markets based on a global product division approach•As a result Whirlpool has not rejuvenated or innovated its business to a geographic or matrix structure

•the Global Microwave Oven Business Unit launched in mid-1994 based on a manufacturing facility in Sweden and a joint venture in China•The Chinese facility offers low cost, large scale production capability while the Swedish plant offers leading edge technology •Swedish and Chinese engineers are rotated between the two facilities to integrate the two units and to address business areas such as logistics, quality control, and procurement and sourcing• the Global Air Treatment Business Unit was formed in 1995 and is in existence to this day •Whirlpool rotated its engineering human expertise in this facility too to foster global integration

• Geographic Structure: the third option is the geographic structure where the global corporation is organized along geographical units• the units might be individual country markets or sales territories (regions)• area structures based on coordinated marketing operations of region specific subsidiaries results in marketing efficiencies as it helps to market closely related product lines with very similar end users and applications around the world (food and beverage, clothing, entertainment)• Coca-cola is widely considered as the champion of the geographic division structure among consumer product companies • let us now understand Coke’s design of its $ 60 billion enterprise serving over a billon consumers world wide

• Coca-Cola is an example of a global corporation organized along lines of a geographic structure• Coke is organized along six operating offices and 26 divisions based in geographical regions in alphabetical order•Highly decentralized• (1) Africa Group: President – Africa Division, Southern African Division• (2) Middle and Far East Division: President – Middle East Division, Southeast and West Asian Division, South Pacific Division, China Division, North Pacific Division, Philippines Division• (3) Latin American Group: President – Brazil Division, Coca-Cola Interamerican, River Plate Division, North Latin America Division, Central America, and Caribbean Division, Andean Division

•(4) Greater Europe Group: President – Nordic and Northern Eurasia Division, Northwest European Division, East Central European Division, Iberian Division, Central Mediterranean Division, German Division, Coca-Coal GmbH•(5) Coca-Cola Foods: President•(6) North America Group: President – Coca-Cola Operations, Coca-Cola Fountain, Coca-Cola Ltd., Canada• the fourth option of organizational design for a global corporation is the Matrix Structure•The matrix structure integrates the product, country, and function based operations of an MNC •The matrix structure is based on the principle of the integration of geographic areas and business divisions

•the product divisions have worldwide responsibility for their product line where there is a dual chain of command with managers report to two superiors • Dow Chemicals, Unilever, British Petroleum, Imperial Chemical Industries, Daimler-Chrysler, and IBM are outstanding examples of MNCs that are functionally and strategically (marketing, sales, and distribution) organized along matrix structures• the matrix organization has two major advantages: matrices reflect the growing complexities of the global market arena and allows for the transfer and implanting of cross regional and cross subsidiary learnings, talent pooling, best of class practices, and global business skills

• a classic and much celebrated examples of the business efficacy of a matrix structure is the DiamlerChrysler’s automotive businesses created after the company was formed in 1999• along geographic lines the organization was divided into three regions (North America, Latin America, and the rest of the world) – each under a CEO• Along product lines the organization was split into three areas: Chrysler cars brands (Chrysler, Dodge, Plymouth, and Jeep), Mercedes-Benz car brands, and the commercial vehicle brands

Matrix Structure

Corporate Staff

Chief Executive Officer

Marketing Finance ResearchInternational Umbrella

CoordinationProduction

Product Division 4

Product Division 1

Product Division 2

Product Division 3

Area HQ Europe

Area HQ Europe

Area HQ Europe

Area HQ Europe

President Global S.A. (France)

Product Divisions

Product Divisions Regional Head- quarters

AdministrationFinance

Product Manager Division 4

Product Manager Division 1

Product Manager Division 2

Product Manager Division 3

Product Manager Division 4

Product Manager Division 1

Product Manager Division 2

Product Manager Division 3

Typical Country Umbrella Organizations

Country Product Markets

Matrix Structure II

• Four basic competencies– Geographic knowledge– Product knowledge & know-how– Functional competence in such fields as finance, production & especially

marketing– Knowledge of the customer or industry & its needs