JOHANSSON - chap (10)

Local Marketing in Emerging Markets

Chap

ter

10

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Outline

Basic Marketing in Emerging MarketsNDCs vs Developing CountriesMarketing in Developing CountriesMarketing in RussiaMarketing in ChinaMarketing in IndiaTakeaway.

ESSENTIALLY, EMERGING MARKETS DO NOT USUALLY HAVE AN EFFECTIVE MARKETING INFRASTRUCTURE.

IN THE OLD SYSTEM, ESPECIALLY IN NEWLY DEMOCRATIZED COUNTRIES, THERE WAS MUCH MORE VALUE PLACED ON PRODUCTION AND ON INDUSTRIAL PRODUCTS TO THE NEGLECT OF CONSUMER PRODUCTS AND EFFECTIVE DISTRIBUTION SYSTEMS.

THESE DIFFICIENCIES MAKE IT DIFFICULT TO BE A LOCAL MARKETER IN AN NDC.

Marketing in Emerging Markets

THE LOCAL MARKETER MUST DETERMINE WHAT FUNCTIONS CAN BE PERFORMED BY EXISTING CHANNELS OF DISTRIBUTION AND, IF NEED BE, CREATE NEW ONES.

THE LOCAL MARKETER HAS TO ADAPT HIS PRODUCT TO LOCAL STANDARDS, EX. BATTERY OPERATED APPLIANCES.

SOMETIMES, THE FIRM’S VALUE CHAIN HAS TO BE RECONFIGURED. FOR EXAMPLE, IF THE REQUIRED KNOW-HOW IS NOT AVAILABLE, THE MARKETER MUST CREATE A SERVICE NETWORK AND TRAIN THE SERVICE STAFF.

Marketing Infrastructure

“Professor” Marketer

IN EMERGING MARKETS, THE ENTERING LOCAL MARKETER NEEDS TO BE A TEACHER AS WELL AS A BUSINESS PERSON. A LOCAL MARKETER NEEDS TO:

1. DEVELOP TRAINING PROGRAMS FOR STORE PERSONNEL, FOCUSING ON CUSTOMER SERVICE.

2. PREPARE MANUALS AND PAMPHLETS DESCRIBING PRODUCTS AND SERVICES AND HELP MIDDLEMEN DEVELOP FACILITIES, INVENTORY, SHIPMENT, SHELVING PROCEDURES FOR THE PRODUCT.

3. HELP MIDDLEMEN DEVELOP A TRACKING AND COST ACCOUNTING SYSTEM.

4. MAKE SURE THAT PRODUCT LOCALIZATION IN TERMS OF DESIGN AND PACKAGING ALSO TAKES INTO ACCOUNT THE NEEDS OF THE MIDDLEMEN.

5. DISTRIBUTE INSTRUCTIONAL VIDEOS AND OTHER EDUCATIONAL MATERIAL TO MEMBERS OF THE DISTRIBUTION CHANNEL, EXPLAINING THE IMPORTANCE OF CUSTOMERS IN THE FREE MARKET SYSTEM AND IMPORTANCE OF MARKETING.

“Professor” Marketer

1. LACK OF CASH AND HARD CURRENCY

2. USED TO FEW ALTERNATIVES

3. LACK OF KNOWLEDGE

4. STEREOTYPICAL EVALUATION

5. KNOW MAINLY WHAT THEY DON’T WANT

6. SUSPICION OF THE TRADE

7. DOUBTS ABOUT ADVERTISING CLAIMS

8. UNACCUSTOMED TO FREE CHOICE AND HANDLING COGNITIVE DISSONANCE

Consumers in Emerging Markets

Buyer Decision Problems in Emerging Markets

NEWLY DEMOCRATIZED COUNTRIES VS.

DEVELOPING MARKETS (B2-4B)

DEVELOPING COUNTRIES

Both are defined primarily by low per capita income levels & severe lack of marketing infrastructure

Russia & the newly democratized post-communist nations,

China

NDC MARKETS

Poor nations of Africa (Nigeria, Zambia, Tanzania),

Asia (Pakistan, India, Vietnam), & Central America (Nicaragua,

Guatemala).

Two Kinds of Emerging Markets

3 SPECIAL FEATURES OF NEWLY DEMOCRATIZED COUNTRIES

• BASIC NEEDS WERE SATISFIED: ESSENTIALLY, NO ONE WAS GOING WITHOUT FOOD, SHELTER, CLOTHING AND OTHER BASIC ITEMS.

• EDUCATION AND SOCIAL CONTROL: A GOOD, SOLID BASIC EDUCATION WAS PROVIDED, ALONG WITH SOCIAL CONTROL AND A SECURE LIFE.

• NO FREE MARKET: THERE IS A LACK OF UNDERSTANDING OF THE CONCEPT OF A FREE MARKET ECONOMY.

Why NDC Markets Are Different

MARKET SEGMENTATION

• Income level represents the basic segmentation criterion

• Market for upper-end status products often lucrative due to uneven income distribution

• Effective income measure is defined in terms of access to foreign or convertible currency

• Most promising market is the urban population of big cities

PRODUCT POSITIONING

• Customer needs are basic

• Domestic alternatives are weak

• Upscale positioning can play an important role

Marketing in Developing Countries: MSPP

PRODUCT

• Policies are dominated by the balance between affordability & upper end positioning

• Pricing fluctuates between a skimming price and a lower penetration price

• Innovative financing: communal buyers, smaller packaging that’s less expensive, store credit

• Initial offerings are usually standardized simpler selections from existing lines

• Limited features make it possible to sell through low-service outlets

• Smaller sizes/smaller packaging

PRICING

Marketing in Developing Countries:The 4Ps

DISTRIBUTION

• Initially limited due to lack of broadcast media

• Although limited, this means there will be less clutter

• Literacy levels differ from more developed nations, promotions must be more visual versus verbal

• Most critical issue

• Cheap domestic labor offers alternative routes for distribution

• Personal service is a “convenience good”

• Weak logistics systems make it difficult for marketing organization & control.

PROMOTION

Marketing in Developing Countries:The 4Ps (cont’d)

Marketing in Russia

MARKET BACKGROUND

Marketing in Russia

• Russia is a large geographical country, surrounded by previous Soviet member states, now independent but still economically linked, including Belarus, Ukraine and Kazakhstan.

MARKET BACKGROUND (CONT’D)

Marketing in Russia

•The economy of Russia and its role in the global economy is very dependent on its hard currency oil export revenues.

•Russia’s population was 145 million in 2003 – but is estimated to be decreasing by about half a percent each year, unusual among countries.

•Russia as a market has great potential – but political uncertainty makes it a difficult market to operate in.

• Assistance from international agencies plays an important role in economic progress, but the government policies have made

such assistance difficult to render

• It is necessary to treat centralizing and authoritarian political and legal forces as integral parts of the economic landscape

and obstacles to exploiting the large market potential

• Export controls at home can also a problem area for the Western marketer

• Politics influences peoples’ attitude toward the free market system

Marketing in Russia

POLITICAL & LEGAL FACTORS

MARKET SEGMENTATION

• Based on ethnicity

• National borders can be less important than ethnicity.

• Western-oriented younger segments.

PRODUCT POSITIONING

• High-end positioning may yield first mover advantage

• Low-end positioning places firm in direct competition with strong domestic brands

Marketing in Russia: MSPP

Kuptsi (merchants)

Cossacks

Students

Business executives

“Russian souls”

Percent of men

30% 10% 10% 25% 25%

Percent of women

45% 10% 5% 10% 30%

Dominant traits

Reliant, nationalistic,

practical, seeks value

Ambitious, independent, nationalistic, seeks status

Passive, scraping by,

idealistic, practical

Ambitious, Western oriented,

busy, concerned with status

Passive, follows others, fears

choices, hopeful

Likely preferences

Car: Volkswagen Cigarettes: Chesterfield Liquor:

Stolichnaya

BMW

Dunhill

Remy Martin

2CV

Marlboro

Local vodka in Smirnoff

bottles

Mercedes

Winston

Johnnie Walker

Lada

Marlboro

Smirnoff

Lifestyle Segmentation in Russia

• Customers initially feel ambivalent about their domestic products

• But as domestic producers improve quality, gradually a pro-domestic sentiment sets in

• Entering global brands will be able to command a price premium over existing local brands

• Long-term prospects of these markets matter much more than short-term payoffs

PRODUCT PRICING

Marketing in Russia: The 4Ps

• Weak infrastructure

• Marketing education

• Service training

• Marketing communications often have to be revised

• Common advertising media may not be available or may have only limited reach

• Lack of credibility of advertising claims is a problem

• Old values can crumble along with the political system

DISTRIBUTION PROMOTION

Marketing in Russia: The 4Ps (cont’d)

2005: RUSSIA AT THE CROSSROADS

• Despite an abundance of natural resources & a highly educated labor force, progress is slow due to corruption, mismanagement & centralization

• Development is skewed, prioritizing heavy industry over consumer goods & agriculture

• Large income disparities make people doubt democracy

• Prospect of WTO membership in 2006 questionable

• Ruble devalued - Barter-style economy prevalent in some parts of the country

• Internal political problems, including terrorism.

Marketing in Russia

Marketing in China

MARKET BACKGROUND

• China has 1.2 billion people, largest country in the world.

• It has become the new economic superpower in Asia, challenging the pre-eminence of Japan.

Marketing in China

MARKET BACKGROUND (CONT’D)

• In 2001, China overtook Italy to become 6th largest world economy

• The growth rate of the economy has been around 10% annually for the last several years.

• China became a WTO member in December 2001

• The policy towards Hong Kong, its new territory since the 1997 takeover, has been relatively "hands-off.“

Marketing in China

ENTRY BARRIERS

• Import license controls – the Ministry of Foreign Trade & Economic Cooperation (MOFTEC) is the main regulatory organization

• Protective tariffs – with WTO entry, tariff reduction gradually in place

• Foreign exchange control – new exchange rate system since 1994

Marketing in China

TRADE REGIONS

• SPECIAL ECONOMIC ZONES (SEZ’s) to attract foreign investment in production for export

• These areas are Shenzen, Zhuhai, Shantou, Xiamen, Hainen, & Pudong New Area in Shanghai

• Corporate tax rate in SEZs is only 15% versus 33% national rate

• Some zones have additional tax exemptions

• Piracy and counterfeits still prevalent

Marketing in China

HONG KONG’S ROLE

• HK handover had little impact on economic policy – so far.

• Many western firms enter China through HK, where sophisticated HK trading companies are familiar with western business practices

• Joint ventures with Chinese partners usually done through HK intermediaries.

• Gradually, however, as more experience is gained, Western companies are moving beyond Hong Kong, dealing with mainland China directly.

Marketing in China

MARKET SEGMENTATION

• Geographic region. E.g. four regions: Eastern China (with Shanghai as the center), Northern China (Beijing the center), Southern China (with Guangzhou as the center) and Western China (with Chengdu as the center).

• Languages & dialects, food and drink preferences, and even ethnic roots vary across the regions.

• Urban/rural split in the typical emerging market pattern, weak infrastructure in rural areas.

• Emerging middle class, rise in per capita income most rapid in Shanghai, Beijing, Guangzhou

Marketing in China: MSPP

MARKET SEGMENTATION (cont’d)

• Chinese talk about "Four big things" (shi da zen), the four products everyone aspires to. In the 1970s, they were a bicycle, a black & white television set, a refrigerator, and a washing machine. In the 1990s they have become a video camera, a CD hi-fi system, a personal computer, and an air conditioner.

• Teenagers/college age people represent the Chinese version of the global youth segment.

Marketing in China: MSPP

• Global brands confer status. Domestic products still suffer from negative image.

• Need to accommodate translation of brand names. Coca Cola had to change its original transliteration from one meaning "dry mouth full of wax" to one signifying "happiness in the mouth" when read and spoken.

• Foreign competition in sales promotion, after-sale service, product delivery, and price.

• Quality differences between foreign companies are perceived as small.

• Consumers are brand loyal, making for definite first-mover advantages.

Marketing in China: MSPP (cont’d)

PRODUCT POSITIONING

PRODUCT POLICIES

• Quality gap between foreign & local products still large

• High tariffs make it hard for foreign brands to compete with lower quality domestic brands

• For most Chinese, acquiring foreign made products are a novel experience

PRICING

• Chinese are very price-sensitive consumers (due to low income and due to habit)

• Prices still high for imported products

• Low priced- products have an inherently assumed low quality

Marketing in China: The 4Ps

DISTRIBUTION

• National product roll-outs close to impossible due to large size and weak infrastructure

• Most channels are government run

• Most department stores are state-owned

• Personal contacts (guanxi) play an important role in transactions

PROMOTION

• Advertising still strictly controlled by government

• Media penetration is weak (e.g. TV)

• Advertised products are not considered counterfeit

• Print & outdoor ads & in-store promotions play a large role

Marketing in China: The 4Ps (cont’d)

• If you don’t like it, go somewhere else. 

• Ask someone else.

• Take a taxi if you don’t like the bus.

• I don’t care whom you complain to.

• If you’re not buying, what are you looking at?

• Buy it if you can afford it, otherwise get out of here.

• Are you buying or not? Have you made up your mind?

• Don’t you see I’m busy? What’s the hurry?

• I just told you. Why are you asking again?

• Why didn’t you choose well when you bought it? Go ask the person who sold it to you.

Service in the new China: Outlawed comments

Marketing in India

MARKET BACKGROUND

• Close to 1 billion citizens. British colony until 1947. The world's largest democracy.

• Religious and ethnic violence. High political risk, with religious rifts and Pakistan problem.

• During the 1990s socialist policies and government controls are gradually giving way to privatization and free markets.

Marketing in India

MARKET BACKGROUND (cont’d)

•Excellent educational system introduced by the British.

•By 2000, the annual growth rate was a strong 6.5%. Western outsourcing FDI very strong.

• With liberalization, foreign firms enter via FDI, usually as a joint venture with local partners who better understand the marketplace.

• Domestic firms are forced to become more efficient, and can draw upon a large and well educated pool of workers.

Marketing in India

MARKET SEGMENTATION

• Two large segments: an impoverished rural population and an increasingly well-off urban middle class.

• Huge metropolitan markets, increased purchasing power, family planning and women working.

• Traditional habits are changing as the middle class becomes more Westernized.

PRODUCT POSITIONING

• Exposure to new products & services has increased the appetite for further purchases

• Consumers are more demanding

• Products are bought for status

• Firms being forced to become more efficient as the economic liberalization continues

Marketing in India: MSPP

PRODUCT POLICIES

• With increasing maturity, the market can support a full line of products also from foreign firms.

• First-mover effects are significant, favoring multinationals which are "old India hands."

PRICING

• Global brands can no longer count on an automatic price premium.

• Middle-income group of consumers are price sensitive.

• Price level is especially important when brand name is less known. Some MNC’s acquire and use well established local brands.

Marketing in India: The 4Ps

DISTRIBUTION

• Infrastructure is still weak in a vast country. Entering companies are assisting with structural improvements.

• Urban distribution channels are becoming more efficient. Capacity is expanded.

PROMOTION

• Advertising agencies are booming.

• Global advertising campaigns are adapted to meet local Indian tastes and localized to India's many dialects.

• TV advertising very popular, but print and outdoor are more cost effective.

Marketing in India: The 4Ps (cont’d)

To take advantage of the opportunities in emerging markets, the marketer needs to get back to the basics of what

marketing is supposed to bring to people.

Takeaways

Emerging countries are usually characterized by political uncertainty, and direct foreign investment can be very risky.

It is useful to distinguish between the newly democratized countries that were part of the Soviet sphere of influence - where education was strong but free markets did not exist -

and the typical developing countries which are defined mostly by poverty.

Takeaways

A functioning marketing infrastructure, especially an effective distribution, is crucial in emerging markets.

When one is lacking, the local marketing effort has to help build it.

Takeaways

The political heritage of the newly democratized countries means that middlemen & consumers have a very ambivalent

feeling about free markets.

They may expect too much while not wanting to accept the uncertainties that free markets bring.

The local marketer from abroad becomes an educator about free markets.

Takeaways

Emerging markets are not all the same and do not even necessarily move in tandem.

For example, in the new millennium as Russia has faltered, China & India still more than hold their own.

Takeaways