Chapter
Global Marketing and R&D
17
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Case: Marketing Coca-Cola in China
China major market for Coca-Cola Expected to surpass consumption in the US in the next
decade
To reach goals aggressive marketing campaign Market information helps define sales and distribution
strategies
Coca- Colas hurdle is distribution & pricing Coke only reaches 8% of population High transportation costs makes Coke most expensive
where people are the poorest
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The globalization of markets and brands
Important to determine when product standardization is appropriate in an international market
Firms may need to vary marketing mix in each different country
Globalization may be the exception rather than the rule in many consumer goods markets and industrial markets
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Market segmentation
Refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways
Segments can based on: Geography Demography Socio-cultural factors Psychological factors
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Market segmentation
Two main issues relating to segmentation: Extent of differences between countries in the
structure of market segments Existence of segments that transcend national
borders
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Product attributes
Cultural differences Economic development Product and technical standards
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Cultural differences
Differ along dimensions such as social structure, language, religion and education
Impact of tradition Some tastes and preferences becoming
cosmopolitan
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Economic development
Consumer behavior is influenced by economic development
Consumers in highly developed countries tend to demand extra performance attributes in their products Price not a factor due to high income level
Consumers in less developed countries, value basic features as more important Price a factor due to lower income level
Cars: no air-conditioning, power steering, power windows, radios and cassette players.
Product reliability is more important
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Product and technical standards
Government standards can rule out mass production and marketing of a standardized product
Differing technical standards constrain globalization of markets Different television signal frequencies
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Distribution strategy
Choice of the optimal channel for delivering a product to the consumer Optimal strategy is determined by the relative
costs and benefits of each alternative Depends on differences between countries
retail concentration channel length channel exclusivity
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A typical distribution system
FIG 17.1
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Retail concentration
Concentrated system common in developed countries contributing factors: increase in car ownership, number
of households with refrigerators and freezers and two-income households
Fragmented system common in developing countries contributing factors: great population density with large
number of urban centers e.g. Japan uneven or mountainous terrain e.g. Nepal
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Channel length
Refers to number of intermediaries between the producer and the consumer
Determined by degree to which the retail system is fragmented Long distribution channel Short distribution channel
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Channel length
Long distribution channel Fragmented retail system promotes growth of
wholesalers and retailers Firms go through intermediaries such as
wholesalers to cut selling costs
Short distribution channel Concentrated retail system Firms deal directly with retailers
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Channel exclusivity
Degree to which it is difficult for outsiders to access distribution channels
Varies between countries Japan - exclusive systems because personal
relations, often decades old play important role in stocking products
Difficult for new firm to get shelf space as compared to an old firm
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Communication strategy
Defines the process the firm will use in communicating the attributes of its product to prospective customers
Cultural barriersSource effects
Noise levels
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Barriers to international communication
Cultural Barriers Develop cross-cultural literacy Firm should use local input such as local
advertising agency and sales force
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Barriers to international communication
Source and country of origin effects Receiver of the message evaluates the message
based on status or image of the sender Anti-Japan wave in US in 1990’s
Place of manufacturing influences product evaluations Often used when consumer lacks more detailed
knowledge of the product Examples: French wines, Italian clothes and
German luxury cars
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Barriers to international communication
Noise levels Amount of other messages competing for a
potential customer’s attention Developed countries - high. Less developed countries - low.
Standardized advertising strategy execution more difficult (culture, laws)
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Push versus pull strategy
Push strategy emphasizes personal selling Requires intense use of a sales force Relatively costly
Pull strategy depends on mass media advertising Can be cheaper for a large market segment
Determining factors of type of strategy Product type and consumer sophistication Channel length Media availability
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Product type and consumer sophistication
Pull strategy
Consumer goods Large market segment Long distribution
channels Mass communication
has cost advantages
Push strategy Industrial products or
complex new products Direct selling allows
firms to educate users Short distribution
channels Used in poorer nations
for consumer goods where direct selling only way to reach consumers
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Channel length
Pull strategy Long or exclusive distribution channels
e.g. Japan
Mass advertising to generate demand to pull product through various layers
Push Strategy In countries with low literacy levels to educate
consumers
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Media availability
Pull strategy Relies on access to advertising media Common in developed nations
Push strategy Media availability limited by law All electronic media state owned with no
commercial policy
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Global advertising
Standardized: Significant economic advantages Scarce creative talent Many global brand names
Non-standardized: Cultural differences Advertising regulations can be a restriction
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Pricing strategy
Three aspects of international pricing strategy Price discrimination Strategic pricing Regulatory influence on prices
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Price discrimination
Said to occur when consumers in different countries are charged different prices for the same product
Two conditions necessary National markets kept separate to prevent
arbitrage Capitalization of price differentials by purchasing
product in countries where prices are lower and reselling where prices are higher
Different price elasticities of demand in different countries Greater in countries with low income levels & highly
competitive conditions
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Elastic and inelastic demand curves
Fig 17.2
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Price discrimination
Fig. 17.3
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Strategic pricing
Predatory pricing Using price as a competitive weapon to drive
weaker competition out of a national market Firms then raise prices to enjoy high profits Firms normally have profitable position in
another national market
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Strategic pricing
Multipoint pricing strategy Two or more international firms compete
against each other in two or more national markets
A firm’s pricing strategy in one market may impact a rival in another market. Kodak and Fuji
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Strategic pricing
Experience curve pricing Firms price low worldwide to build market share Incurred losses are made up as company moves
down experience curve, making substantial profits
Cost advantage over its less-aggressive competitors
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Regulatory influences on prices
Antidumping regulations Selling a product for a price that is less than the cost of
producing it Antidumping rules vague, but place a floor under export
prices and limit a firm’s ability to pursue strategic pricing Article 6 of GATT, allows action against an importer
if the product is sold at ‘less than fair value’ and causes ‘material injury to a domestic industry’
Competition policy Regulations designed to promote competition and restrict
monopoly practices
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Configuring the marketing mix
Culture
Economy
Com
petition
Stan
dard
s
Distrib
ution
Gov’t Regs
Product
Attrib
utes
Dis
tribu
tion
Stra
tegy
Comm
unications
Strategy
Pricing Strategy
Differences Here
Requires Variation Here
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New product development
The location of R & D Rate of new product development greater in
countries whereMore money spent on R&DUnderlying demand is strongConsumers are affluentCompetition is intense
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Integrating R&D, marketing and production
Integrating R&D, production and marketing ensures Project development driven by customer needs New products are designed for ease of
manufacture Development costs are kept in check Time to market is minimized
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Integrating R&D, marketing and production
High failure rate ratio Between 33 % and 60% of new products fail to
earn adequate profits Reasons for failure:
Limited product demand Failure to adequately commercialize product Inability to manufacture product cost-effectively
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Cross-functional product development teams
Objective of team to take a product development project from the initial concept development to market introduction
Effective teams must have “Heavyweight “ project manager One member from each key function Physically co-located to facilitate
communication Clear plan and goals Own process for communication and conflict
resolution