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University of Economics, Prague
International Business – Central European Business Realities
Selected Aspects of Cultural Differences and their
Influence on the International Marketing Mix
Author: Anne Sakseide Svendsen
Thesis instructor: Marketa Lhotakova
Scholar year: 2010/2011
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Declaration:
I hereby declare that I am the sole author of the thesis entitled ―Selected Aspects of Cultural
Differences and their Influence on the International Marketing Mix―. I have duly marked out
all quotations. The used literature and sources are stated in the attached list of references.
In Prague on 24th of May 2011
Anne Sakseide Svendsen
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Acknowledgement
I hereby wish to express my appreciation and gratitude to the supervisor of my thesis, Ing.
Markéta Lhotáková, Ph.D.
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Table of contents
Introduction ....................................................................................................... 3
1 Culture ................................................................................................... 6
1.1 Research through history ..................................................................... 8
1.1.1 Hofstede ..................................................................................... 8
1.1.2 Trompenaars ............................................................................ 11
1.2 Elements of culture ........................................................................... 14
1.2.1 Values & norms ....................................................................... 14
1.2.2 Non-verbal communication ..................................................... 15
1.2.3 Language ................................................................................. 16
1.2.4 Demographic ........................................................................... 18
2 International marketing ....................................................................... 19
2.1 International marketing mix .............................................................. 21
2.1.1 Product ..................................................................................... 21
2.1.2 International price .................................................................... 24
2.1.3 International distribution ......................................................... 30
2.1.4 International promotion ........................................................... 33
3 Case study: Häagen-Dazs .................................................................... 43
3.1 The brand Häagen-Dazs 哈根达斯(hā gēn dá sī ) ....................... 43
3.1.1 History/development ............................................................... 44
3.1.2 Product portfolio ...................................................................... 45
3.1.3 Home market strategy – the United States of America ........... 47
3.2 China ................................................................................................. 51
3.2.1 Basic information .................................................................... 51
3.2.2 History ..................................................................................... 52
3.2.3 Economy and international trade ............................................. 58
3.2.4 Culture ..................................................................................... 59
3.2.5 China and Hofstedet ................................................................ 64
3.3 Häagen- Dazs‘ in China .................................................................... 67
3.3.1 Häagen-Dazs‘ in China ............................................................ 67
3.3.2 Distribution .............................................................................. 68
3.3.3 Product ..................................................................................... 70
3.3.4 Promotion ................................................................................ 74
3.3.5 Price ......................................................................................... 85
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4 Recommendations ............................................................................... 87
Conclusion, limitation and further research .................................................... 93
Bibliography.................................................................................................... 95
Appendix ....................................................................................................... 100
Figure list ...................................................................................................... 102
Table list ........................................................................................................ 102
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Introduction
During the last decades large changes has happened regarding trade in the world.
From having a world with large trading barriers, both political and economical, the
world has developed to become one global market place. This provides companies allover the world major opportunities, but also causes many treats.
While the consumers experience the globalisation by a growing product
spectrum and in some cases lower prices, the companies have to deal with higher and
stronger global competition. This results in that it is not only important for a company
to have good knowledge about their own country and local competitors, but also
possible treats from abroad. But there are not only disadvantages for the companies, the
increasing ratio of international trade and international trade agreements lowers the
barriers for companies to do business abroad. With this possibility companies can do
business abroad and target a larger market, this can increase the sale and reduce the
costs with economy of scale.
There are many issues a company have to take into consideration before making
the decision about going abroad. First the company have to consider if they actually
have the resources to enter a new market, both regarding finance and knowledge, as
well as what challenges they might experience in the target country. Even though many
international agreements that makes the process easier exists, different countries have
different customs of dealing with both formal issues like tax and banking system, and
informal issues or a natural barrier like culture.
While the formal issues can be dealt with by help from consultation companies
or with specific education, the informal issues are in many cases omitted because
companies do not realize that there are differences. Culture is an important business
element which can make the difference between success and failure. The differences
between two cultures do not have to vary to a large extent, but they still have to be
considered. Even for a company expansion to a neighbour country might result in
cultural problems with for example language or norms. Hence knowledge about culture
plays an important role in a company‘s decision making process.
The topic of this master thesis is ―Selected Aspects of Cultural Differences and
their Influence on the International Marketing Mix.‖ The thesis will contain a
theoretical and practical part with focus on the main issues a company have to take into
consideration when developing an international marketing mix.
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The beginning of the thesis will contain a theoretical overview of culture and
some of the main research which has been done through history: Hofstede and
Trompenaars. Then four selected variables which influence the culture will be
discussed. The variables demonstrate the effect culture has on the customer behaviour
and the marketing mix and is based on a cultural model from the book ―Consumer
Behaviour. Implications for marketing strategy‖1.
Further on theory about the marketing mix will be discussed, with the usage of
Philip Kotlers‘ four P‘s2, as well as how the culture elements influence the international
marketing mix.
The practical part will consist of a case study of the international marketing mix
Häagen-Dazs uses on the Chinese market. It will start with general knowledge about
Häagen-Dazs, their products and their strategy in the United States. Then continue with
basic information about China, Chinas‘ history and culture which is relevant to
understand the changes Häagen-Dazs have made on their marketing mix used in China.
The thesis will then continue with analyses of Häagen-Dazs‘ marketing mix on the
Chinese market with emphasis on the element which is adapted to the Chinese culture
and why these changes have been made. The practical part will also include Hofstede‘s
analyses about China and see if these analyses are applicable on the marketing mix that
Häagen-Dazs is using on the Chinese market. As a closure of the practical part further
recommendations for Häagen-Dazs‘ marketing mix in China have been conducted with
emphasis on the further adaption to the Chinese culture.
The thesis will then finalise with the conclusion, bibliography and the appendix.
In the start of the development of these thesis three hypothesis where prepared
with the purpose of being a guideline and goals for the thesis. The hypotheses are as
following:
1.
If culture affects the marketing mix, then companies have to take this
into consideration when developing a marketing mix.
2. Culture plays an important role in the people‘s life and this has to be
taken into consideration to be able to develop an effective and purposeful
marketing mix.
1
Consumer behavoiur - Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.2 Principles of Marketing (2005). P. Kotler & G. Armstrong. NJ: Pearson/Prentice-Hall, Upper Saddle
River. 11th
edition.
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3. Hofstede‘s research is still genuine today based on the marketing mix
Häagen-Dazs is using on the Chinese market.
The methods used for proving these hypotheses are secondary sources as books,
journalistic articles and internet articles. The information have been gathered over a
period of five months and then analysed based on the topic.
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1 Culture
―A culture is a way of life of a group of people-the behaviours, beliefs, values,
and symbols that they accept, generally without thinking about them, and that are
passed along by communication and imitation from one generation to the next.‖
3
This isone of the many definitions of culture which can be found today. The research about
this topic is very wide and it has gone on for many centuries.
According to Lars Perner, Ph.D.4 there are some characteristics that equal when
you are looking at cultures in the world, this is the main elements that the culture is
based on and has developed from.
One of these characteristics is that culture is learned rather than congenital.
During the years of growth a child will learn about for example the norms of the culture,
communication style or unwritten laws either by acting or thought by someone else.
This can either be from people close to them, like parents or siblings, but also be people
they look up to like politicians or movie stars. The cultural elements that the child will
learn have all developed within limits of what are acceptable in the society. The cultural
elements should not violate the acceptable behaviour in the society, and if they do this
can result in legal problems or problems related with socialization in the society and the
punishment is ranked according to the degree of the offence. Since culture is learned
from the childhood it becomes a natural part of people‘s life, and in many cases a
person can react unconscious on culture related issues according to their habits. One
example is that people in Scandinavia have been learned from they are small that they
shall eat all the food on their plate as a sign that they liked the food and that they are
grateful to the host. While in many Asian countries an empty plate is a sigh that you are
still hungry and that the host should offer you more food and if you then reject the offer
it is an insult to the host. The problems might occur when Scandinavians comes to Asia,
or the other way, and the guest acts unconscious according to the habit from their
culture.
Another characteristic is that culture is comprehensive. This means that the
culture is extensive with many elements that are logically brought together and they will
support the main values and norms of the culture when they are followed correctly. ―For
3TimelessTime (n.d.) CULTURE MATTERS- Maximising People Contribution through Collective
Behaviour. Retrieved 22th of May 2011 from http://www.timelesstime.co.uk/white-papers/culture-
matters-maximising-people-contribution/4USC Marshall (nd.) Culture. Retrieved 22
th of May 2011 from
http://www.consumerpsychologist.com/intl_Culture.html
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example, bowing and a strong desire to avoid the loss of face are unified in their
manifestation of the importance of respect. ―5
One last characteristic that should be mentioned is that the culture is static or
dynamic based on how quickly the people in the society accept changes. In cultures
based on strong, traditional values, like many Arabian countries, the cultural changes
have been much slower compared to cultures that accept changes to a higher extend,
like the inhabitants in America.
There are today as well different levels of culture in the society. This is national
culture, organizational culture, subculture and individual culture.6 The national culture
is the culture which is to some extent equal for the whole country. This can for example
be if the culture is individualistic or afraid of changes. The cultural research by Prof.
Geert Hofstede, which will be discussed later, is discussing cultural dimensions on a
national level.
The second cultural level is the organizational culture level. Organizational
culture is ―the norms, values, and beliefs concerning the organization shared by member
of the organization‖7 This culture is specific for the organization, and is based on the
national culture in the country.
The fourth culture level is the subcultures which are found in the country. ―A
cultural subgroup differentiated by status, ethnic background, residence, religion, or
other factors that functionally unify the group and act collectively on each member.‖8
This can for example be Punks or Goths.
The last cultural level is individual culture. This is the individuals‘ norms, values
and beliefs. It is based on all of the ment ioned levels in addition to the individuals‘
mindset and experiences.
All these levels of culture companies have to take into consideration when
making business decisions. The reason for this is that the levels influence the
consumer s‘ purchasing decision.
5 USC Marshall (nd.) Culture. Retrieved 5
th of January 2011 from
http://www.consumerpsychologist.com/intl_Culture.html6 L. Smirnova (2007). Understanding Culture.Retrieved 22
th of May 2011 from
http://www.lisaconsulting.com/en/weblog/2007/07/24/culture4/7 Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson Higher
Education, 4th
edition. P. 538 The American Heritage® Dictionary of the English Language (2009). Subculture. Retrieved 22th of
May 2011 from http://www.thefreedictionary.com/subculture
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1.1
Research through history
Through the history there has been done much research about culture and how it
influences the business environment. Some of the research is more known than other
and the next section will focus on research frequently used both business education and
in companies, this is Hofstede‘s model of national culture and Seven Dimensions of
Culture by Trompenaars.
1.1.1 Hofstede
The first cultural model was introduced by Prof. Geert Hofstede, a world-famous
Dutch scientist, in the beginning of the 1980s. Between 1967 till 1973 a survey was
conducted by IBM and it had 116 000 responders from 70 countries9
. The result was a
model identifying four cultural value dimensions based on the largest 40 countries from
the survey. At a later stage the analyses have been updated to include 74 countries and
regions as well as one additional dimension.
Today Hofstede‘s model of national culture includes five dimensions; Power
Distance, Individualism, Masculinity, Uncertainty Avoidance, and Long-Term
Orientation.
The first dimension Power Distance relates to how people deal with power andinequality. In other words, how much control and power an employer has over the
employees and if the power is divided equality or not.
In countries with high power distance the power is divided unequally in the
society and high hierarchies are commonly used. Respect is a keyword in these
countries, everyone knows their place in the society and the future has to some extent
been predetermined for the people according to your social group. The hierarchal
structure is visible in all stages of a person‘s life; as children they are taught to obey
their parents and elders, when they start at school they have to obey the teachers and in
the workplace they have to respect and obey their boss.
Countries with high power distance are commonly found in (for example
Malaysia) and the Arab World, while countries in Northern Europe (such as Sweden)
usually have low power distance.10
9
Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson HigherEducation, 4
th edition p.54
10 Intercultural communication (2009). Milena Bočánková a kol. Vysoka skola ekonomicka v Praze. .
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The second dimension is individualism. Individualism ―is the relationship
between the individual and the group in the society.‖11 In countries with a highly
individualistic culture the people are perceived as unique, they are responsible for
themselves and in business life promotions are based on individual performance. United
States, Australia and the United Kingdom are all examples of countries with high
individualism.
On the opposite end of the spectrum to individualistic countries are collectivistic
countries. "Collectivism means the subjugation of the individual to a group - whether to
a race, class or state does not matter. Collectivism holds that man must be chained to
collective action and collective thought for the sake of what is called 'the common
good."12 This means that a person should not have their own opinions unless it is in the
best interest of the whole group, if they do have a different opinion compared with the
group this can be looked on as a loyalty break One of the main issues related to business
promotions in collectivistic societies is that promotions usually happen slowly and is
based on seniority. Although a person might go directly into a management position if
they have family members in high positions in the company as family relationships are
highly regarded in collectivistic cultures.
When looking at collectivistic countries we can see a pattern related to the size
and also the power distance. In highly populated countries, as for example China and
Indonesia, the power distance is quite high and these have a collectivistic society. The
reason for this might be the issue about control especially when the population is so
high. Additionally the Confucius‘ theories where collectivism and respect are the main
aspects have been central throughout history in many Asian countries.
The third dimension masculinity is related to weather the general values in
society are male or female related. Typically male related values are linked to
achievement, self-fulfilment and money. It is also related to how the leader positions are
divided in the companies between males and females. In countries where the
masculinity is high men are dominating the important leader positions. Some examples
of countries with a high masculinity are Great Britain and Japan.
Feminine values are the care for other people, emphasis on relationships and
sympathy for the weak. The feminine values can be found for example in Scandinavia
11 Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson
Higher Education, 4th
edition. p. 5812 Fare Rideau (1944). The Only Path to Tomorrow. Retrieved5
th of January 2011 from
http://fare.tunes.org/liberty/library/toptt.html
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where women‘s return to work after giving birth is encouraged by government
supported universal day care and a one year paid parental leave is available for parents
(it can go to the mother or father or a combination).
The dimension which describes how people react to change, differences or
unknown situations is called uncertainty avoidance. In countries with high uncertainty
avoidance the society reacts negatively to change and frequently cause stress or
frustration. To make the inhabitants most comfortable there should be precise laws and
regulation and a structured social system. The inhabitants also believe that the
authorities are usually correct and it is important that the government lives up to this.
In countries with low uncertainty avoidance flexibility is desired and the level of
formality is usually low. In these countries, for example the United States, innovation is
commonly promoted while in countries with high uncertainty avoidance the probability
that innovations will be implemented is higher. 13
The last dimension, long-term orientation, is not one of the original dimensions
but was added later to explain the rapid economic growth that has occurred in many
Asian countries. This dimension deals with how the inhabitants deal with time, if they
are focusing on the future or on the past and present.
When it comes to the values associated with long term orientation these are
related to saving resources by only using what is necessary, adaptation of traditions to a
modern context and planning according to what will gain them the most in the future.
In short term oriented countries people are living in the moment. They usually
feel a social pressure to be on the same level as their social group with material things,
even if this will result in overspending. The short term oriented countries also have a
respect for traditions and are not willing to change these traditions if it‘s not necessary.
Countries that are short term oriented are countries like Canada, Norway and the United
Kingdome, while China, Hong Gong and Taiwan are long term oriented.
13 Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson
Higher Education, 4th
edition, p. 58
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1.1.2 Trompenaars
Another well-known Dutch scientist that studied culture is Fons Trompenaars.
Together with Charles Hampden-Turner, he developed a cultural model called ―Seven
Dimensions of Culture‖ that was released in 1998 after over ten years of research. The
questionnaire was conducted in 28 countries with at least 500 responses in each country
and was later tested on 55 national cultures.14
The main difference between the Trompenaars and Hofstede was the research
methods used. While Hofstede mostly used direct questions, Trompenaars used case
studies within his questionnaire to see how people would react in real life.15 In this way
Trompenaars research is more accurate according to how people behave, while Hofstede
relates to how people feel they should behave, because it can be a contrast between this.
In addition to this it was a large time gap between when the research was
conducted, this time gap is approximately twenty years. Within twenty years many
changes has happened in the culture and because of this some of the finding of
Trompenaars and Hofstede do not correspond. This is for example regarding the
collectivism that both of the scientists have included in their research, but the finding in
this category is not the same.
The model is based on the fact that all people come into situations where they
have to solve problems related to the problem of survival. Even if the problems might
be similar in all countries the way people react differs according to their culture‘s values
and norms. The model is therefore responding to three different problems that people
may experience; the first relates to how people relates to each other, which is the topic
in the first five dimensions, and the two last dimensions relates to how the culture deals
with time and how they deals with nature.16
Since some of the dimensions in Trompenaars model are quite equal to
Hofstede‘s‘ dimensions I have decided not to go into detail about these dimensions andinstead refer to the part about Hofstede cultural model.
First universalism vs. particularism is taking into consideration how people treat
each other and if rules or personal relationship is the most important thing. In
universalistic cultures the people should treat each other based on law, religion or
14Provenmodels b.v (2011) Seven dimensions of culture. Retrieved 15
th of January 2011 from
http://www.provenmodels.com/58015 Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson
Higher Education, 4th
edition, p 7216 Multinational Management - A strategic approach (2008), J.B.Cullen, K.P.Parboteeah , Thomson
Higher Education, 4th
edition, p 68
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cultural principles, who you know and your personal relationship with the person does
not matter like it does in particularistic cultures. Here the laws are looked at as
guidelines for how to act, but every situation should be evaluated separately. Typical
universalistic cultures is United States and United Kingdom while South Korea and
Mexico have particularistic cultures
Second individualism versus collectivism, it is one of the dimensions that
Hofstede and Trompenaars have in common and this will therefore not be discussed
further in this part.
Neutral vs. affective is also a dimension that relates to how people relates to
each other, but this time in connection to if they show emotions or not. While is some
cultures emotions is a common way to show their opinion and how they feel, it is in
other cultures looked at as a sign of weakness. In neutral cultures people are supposed
to reveal thoughts through feeling and communication should be objective and task
oriented. On the contrary in affective cultures emotions are a common part of the
conversation together with gesturing to emphasis their opinion. According to
Trompenaars research Sweden is one of the most neutral countries while China is one of
the most affective.
The fourth dimension by Trompenaars is specific vs. diffuse is related to how
involved a person is in their work relationship. In specific cultures the people is direct in
their relationship and precise in their communication. Work related issues belong at
work and they separate work and family to a large extend. In diffuse cultures the line
between family and work is not that strict and it is important to build up a relationship
with people so they know they can trust each other.
The last dimension relating to how people interact with each other is
achievement vs. ascription. This dimension is related to if the person is given their
status according to whom they are and who they know or if they earn it by what they do.
In achievement cultures like Norway you earn your status according to what you
perform and your accomplishments. It does not help to know the right people unless you
have achieved something in the past. In ascription cultures on the other hand people can
be get status based on their background, their profession or their title. In ascription
cultures the usage of profession titles are commonly used and the age and a person‘s
seniority is important.
The sixth dimension is related to the societies‘ attitudes to time, where they areeither future-oriented or past-oriented. In past-oriented cultures they assume that the life
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is following a predetermine path based on tradition, fate or the will of God. Due to this
they often feel that when it comes to a decision it is best that an old person, who have
lived long and has more experience, is the best person for a decision. In this category
we have countries like China, Great Britain and Japan.
In future-oriented cultures the people look at the future as something positive
that they can change according to their actions. Long term planning for companies is
most profitable and controlling that everything is going according to the plan is
important.17 The United States and Brazil are both future-oriented countries.
The last dimension from Trompenaars is about internal vs. external control, in
other words if we are controlling our fate or if the environment around us do. In cultures
who focus on internal control the people believes that they have control over the
environment and the main issue is themselves and their group.
Countries with external-oriented culture on the other hand are more flexible and
open for a compromise, they are also more being more comfortable with changes and
are adopting more easily. 18
On the top list of countries that is focused on internal-control we have Poland
and Norway, while the countries that is external-focused is Russia, Singapore and
Cuba.19
17 Analytic Technologies (nd.) Differences in Cultures. Retrieved 15
th of January 2011 from
http://www.analytictech.com/mb021/cultural.htm18 Jean Binder (2007). Trompenaars’ d imensions. Retrieved from
http://www.globalprojectmanagement.org/index.php?option=com_content&task=view&id=2319 Multinational Management - A strategic approach (2008), Cullen and Parboteeah, Thomson Higher
Education, 4th
edition, p.78
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1.2
Elements of culture
For a company to communicate efficiently to consumers and potential consumer
they need understand the culture and the elements which is influences it. Today there
are many cultural models expressing these elements, but the choice in this thesis fell on
a model from the book ―Consumer Behaviour. Implications for marketing strategy
(2007).‖20 The reason for this choice is because the model catches the essence of what a
company have to understand about a culture. As shown in ―Figure 1: Variables
influencing cross-cultural marketing strategy,‖ there are four main variables which
influence the marketing strategy; values and norms, non-verbal communication,
language and demographics.
Figure 1: Variables influencing cross-cultural marketing strategy
Source 1. Consumer behavoiur. Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.
McGraw-Hill Australia. 5th edition
1.2.1 Values & norms
Values and norms are important elements influencing the society in the culture
because these are two of the foundations in a person‘s mind. Both the values and thenorms are usually learned through the childhood, but are changing according to the
environment people live in and the values and norms in this environment. The cultural
values are belief tells us what is good, what is right and acceptable. Norms are
boundaries which are set by the people in the culture based on the values in this culture.
20 Consumer behavoiur. Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.
McGraw-Hill Australia. 5th
edition
Marketing strategyCulture
Language
Demographics
Values & normes
Non-verbal
commun-ication
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Norms are about the behaviour of the people and reflects the behaviour of the
people and can be used as a guideline to our actions.21 One example is that the norm in
France is to kiss as greetings, while this is not accepted in Japan where physical contact
is kept to a minimum.22 A global example is that people do not yell at others in the
grocery store, because it‘s not especially appropriate behaviour. In both cases there are
no specific law against this, but it is against the norms in the society.
Like culture in general, the values and norms are under constant changing. An
example of values that has changed through history can be seen in China.23
Traditionally the sons in Chinese families were valued higher than the daughters. Hence
many girls were killed at birth because they were looked at as useless. The reason for
this is that girls could not carry the family name further or earn money for the family,
because their job was at home. Due to this the sons were expected to work hard and
obey they their father and in this way give the family name a good reputation. Today the
values in Chine have shifted towards a more sex equality society, partly due to the
Western influence. The traditional family values are still important, but in large cities it
is usual that male and female are working. Education for children, both girls and boys,
are today strongly valued to increase their possibility to obtain success later in their life.
Regardless of this it is important to mention that the development in the countryside has
has been much slower than in the cities and here the traditional values about sons and
daughters are still important and the parents wants to give birth to a boy so that they
have an insurance that someone will take care of them when they goes older.
1.2.2 Non-verbal communication
Non-verbal communication is the communication that is not verbal. This can be
movement and body positioning, clothing and bodily characteristics, physical
environment, time, symbols and physical objects. According to research non-verbal
communication represents 55% of the impression we make and only 38% from the way
we speak.24 This indicates that the words themselves are not that important, but how we
behave and appear is influencing more than we might be aware of.
21 Chris Brogan (2008). Laws rules norms and habits. Retrieved 5
th of January 2011from
http://www.chrisbrogan.com/laws-rules-norms-and-habits/22
Consumer behavoiur. Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.McGraw-Hill Australia. 5
th edition p. 526
23 Thinkquest Team (1998). Living and Values. Retrieved 5th of January 2011from
http://library.thinkquest.org/20443/g_living.html24 Dragonbridge Corporation (nd.) Interpersonal Communication Training. Retrieved from
http://www.dragonbridgecorp.com/training.php
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When it comes to how companies have to be aware of non-verbal
communication in their marketing mix, this will in most cases be related to the product
and the promotion. Regarding the product itself non verbal communication can affect
design, symbols used on products and usage of colour. In promotion it can influence
how sales people are dressed, greeting customer as well as the colours used in
promotion campaigns.
As mentioned, symbols can be an important element when a company is dealing
with products and promotion. The definition of symbols is: ―signs or objects
representing something (e.g. status).‖25 This can for example be a number, a colour, a
shape or an animal. Some examples on this can be in Ghana and Singapore number 7
means bad luck, while in India, Slovakia and USA it symbolizes good luck. Another
example is the animal deer. This is in United State associated with speed and grace,
while in Brazil it symbolizes homosexuality.
When it comes to colours it can be a very sensitive issue because one colour can
symbolize different things in different countries. One example can be that the
comprehension of the colour red in different countries. In China red is considered as a
colour of good luck and is worn by the brides while in the Middle East red symbolize
evil or danger, while in Amsterdam red is usually connected with the Red Light
district.26
Many companies have actually failed on the international market just because
they haven‘t done their research when it comes to use of colours. One example of a
failure due to this was made by a manufacturer of water-sports product that wanted to
go into the Malaysian market. The problem was that the companies predominated
colour was green who is associated with the jungle and illness.27 The result was that the
Malaysians where willing to buy the product due to superstition regarding the colour
and the company had to change their predominated colour to increase the sale.
1.2.3 Language
In the world today many thousands of languages are spoken, but no one knows
precisely how many languages there are. Some languages can be understood by a large
25 Consumer behavoiur. Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.
McGraw-Hill Australia. 5th
edition p. 54326Color-Wheel-Artist.com (2008) The Meaning of Red. Retrieved from http://www.color-wheel-
artist.com/meanings-of-red.html27 Consumer behavoiur. Implications for Marketing Strategy (2007). Quester, Neal & Pettigrew.
McGraw-Hill Australia. 5th
edition p. 543
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amount of people like Mandarin Chinese, Hindu, Spanish and English, while other
languages are just understood by a small tribe at a small geographical area. 28 But
language is not only about what language you use, but also about how you use the
words in the language and the meaning of the words.
When it comes to the issue about how the word are being used this can be
divided into explicit messages and implicit messages. In low-context countries the use
of explicit messages in communication is very common. The message is then literally
and the words are most important and not the context they are being set to. When it
comes to implicit messages this is more common in high-context cultures and the
communication style is more diffuse. The communication is then being more presented
‗in pictures‘ and it can be hard for the conversation partners if they do not have a fairly
good understanding about the other partner.
In most countries the word ―yes‖ means actually yes, but when you take it into
the context of negotiation with Japanese the meaning is actually ―yes, I understand what
you are saying‖ instead of ―yes I agree with you‖ like most Europeans or Americans are
used to.29 In most Asia countries it is also considered impolite to say no and due to this
the answer will not be straight forward.
One of the main problems for many companies has been the translation process
from one language to another. Many companies have done the mistake of translating to
literary and it has resulted in a marketing disasters. One example of this can be the well
know mistake from the company Kentucky Fried Chicken. When their slogan "finger-
lickin' good" where translating into Chinese the meaning was changed into "eat your
fingers off."30 This is only one of many translation mistakes that has happened in
marketing the recent years and this has made the translators of marketing campaigns
more focused on translating the ideas instead of the words and in this way be able to
avoid the mistakes to a larger extend.
Another issue regarding language is the written alphabet. There are today
approximately 50 different written alphabets in the world and most of these are used in
28Vistawide (2011). Top 30 languages of the world. Retrieved 2th of February from
http://www.vistawide.com/languages/top_30_languages.htm29
International Business (2007) Griffin & Pustay. Pearson Education International p. 9030 Learn English Network (n.d.) English Horror Mistakes. Retrieved 30
th of January 2011 from
http://www.learnenglish.de/mistakes/HorrorMistakes.htm
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Asia. Just in South Asia there are more than ten alphabets, while in whole Europe only
three alphabets are used.31
The main advantage with written alphabets is that this is not a ―hidden‖ cultural
element like values or norms, but a cultural element which it is easy for companies to
find information about. In today‘s technological society there are as well computer
programs suitable for all alphabets, but it might result in higher costs for the company.
External communication will also be influences by usage of different alphabets, but the
translation process for the company will not be that different from translating from one
language to another.
1.2.4 Demographic
Demographics are commonly used in marketing to look at the characteristics ofhuman populations and population segments to identify consumer markets.32 This can
be age, occupation, income, status, sex, education, religion or family size. The
demographical information is usually quite easy to find for the company through the
official authorities in the different countries and they are usually being updated on a
regular basic by national population censuses.
Regarding demographic in connection with the marketing mix it is commonly
used in the preparation for stage, i.e. segmentation. Demographics as a part of thesegmentation are a commonly used tool for companies to target the customers suitable
for their product, but also to see what products which are suitable for the population.
For example with the knowledge about the family size a company can see if a large
packaging size or a small one is most preferred for their product. Or if a company is
going to launch a product suitable for students at a college level they will have
information about the size of the target group.
When it comes to the usage of demographic in segmentation it is commonly
used in addition to another segmentation strategy. The reason for this is that
demographic is not saying anything about the customers‘ attitude and behaviour, these
two factors are also not demographically driven or demographical related. 33
Demographic is therefore commonly used to identify and describe the segment.
31 L. LO (2011). Timeline. Retrieved 12th of May 2011 from
http://www.ancientscripts.com/ws_timeline.html32
American Heritage Dictionary (n.d.) Demographics. Retrieved 12th
of May 2011 from
http://www.answers.com/topic/demographics#ixzz1DvTM4P4U33 International marketing: theory, practices and new trends. (2010) Machková, Král, Lhotáková,
Karlíček, Malý, Štěrbová. Praha: Oeconomica.
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2 International marketing
International marketing is ―the business of presenting and promoting goods or
services in such a way as to make customers want to buy them‖34 outside their domestic
market. International marketing has the same purpose as domestic marketing, but whenconducting an international marketing strategy more factors have to be taken into
consideration.
The first factor a company has to look at is the international market
environment. This consists of the political, legal and regulatory- (P), the economical-
(E), the social and cultural- (S) and the technological environment (T). These factors are
together forming the PEST analysis which analyses the external macro environment
which the company is rarely able to control. 35 Some selected factors of the analyses are
listed in ―Table 1 PEST factors‖. These are some of the factors a company have to
consider before entering the market. The cultural factors in the PEST analyses will be
discussed to a large extent later in this thesis.
Table 1 PEST factors
PEST factors
Political Analysis Economic Analysis
Political stability
Legal framework for contract enforcement
Intellectual property protection Trade regulations & tariffs
Anti-trust laws
Pricing regulations
Taxation - tax rates and incentives
Wage legislation - minimum wage and
overtime
Work week
Industrial safety regulations
Product labeling requirements
Economic system in countries of operation
Government intervention in the free market
Comparative advantages of host country Exchange rates & stability of host country
currency
Efficiency of financial markets
Infrastructure quality
Skill level of workforce
Labor costs
Economic growth rate
Unemployment rate
Inflation rate & interest rates
Social Analysis Technological Analysis Class structure
Education
Culture (demographics, gender roles, etc.)
Entrepreneurial spirit
Attitudes (health, environmental consciousness)
Leisure interests
Recent technological developments
Technology's impact on product offering
Impact on cost structure
Impact on value chain structure
Rate of technological diffusion
Source 2 NetMBA.com (n.d.) PEST Analysis. Retrieved from http://www.netmba.com/strategy/pest/
34 GlossaryOfMarketing.com (n.d.) Marketing. Retrieved 22th of May 2011 from
http://www.glossaryofmarketing.com/definition/marketing.html35 NetMBA.com (n.d.). PEST Analysis. Retrieved 22
th of May 2011 from
http://www.netmba.com/strategy/pest
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Another decision companies have to make before expanding abroad is what
marketing approach they will use. There are three main strategies: ethnocentric
approach, polycentric approach and geocentric approach.36 With the ethnocentric
approach companies use the same marketing strategy on their domestic market and
abroad. The company can in this way reduce costs for adapting their marketing mix, but
will not be able to react to customer preferences on the international market.
With the usage of a polycentric approach the company adapts the whole
marketing mix based on thorough research of every market it approach. This strategy
requires high investments, but some companies feel that this is well invested money
because the customers in the different countries receive offers customized to their
needs.
In the last strategy, geocentric approach, the company standardizes their
marketing mix to sell product or services globally. The main difference between this
approach and the ethnocentric approach is that with a geocentric approach global
analyses have been conducted and decisions are made based on this. With an
ethnocentric approach the company uses an already established marketing mix and
copies this to the new market.
Based on the advantages and disadvantages mentioned in ―Table 2 Advantages
and Disadvantages of Standardized International Marketing‖ and ―Table 3 Advantages
and Disadvantages of Customized International Marketing‖ the company has to take
into consideration what strategy will be most effective and profitable for them.
Table 2 Advantages and Disadvantages of Standardized International Marketing
Standardized international marketing
Advantages Disadvantages
Reduces marketing costs
Facilitates centralized control of marketing
Promotes efficiency in R&D
Result in economy of scale of production
Reflects the trend towards a single global
marketplace
Ignored different conditions of product use
Ignores local legal differences
Ignores differences in buying behaviour
pattern
Inhibits local marketing initiatives
Ignores other differences in individual
markets
Source 3 International Business - A managerial perspective (2007). Griffin & Pustay. Pearson Education
International. 5th edition. P.449
36 International Business - A managerial perspective (2007). Griffin & Pustay. Pearson Education
International. 5th
edition. P.449
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Table 3 Advantages and Disadvantages of Customized International Marketing
Customized international marketing
Advantages Disadvantages
Ignores different conditions of product use
Acknowledges local legal differences
Accounts for differences in buying
behaviour
Promotes local marketing initiatives
Accounts for other differences in individual
markets
Increases marketing costs
Inhibits centralized control of marketing
Creates inefficiency in R&D
Reduces economy of scale of production
Ignores the trend towards a single global
marketplace
Source 4 International Business - A managerial perspective (2007). Griffin & Pustay. Pearson Education
International. 5th edition. P.449
2.1
International marketing mix
The marketing mix is a central and important part of the marketing strategy
which a company prepare wherever they are doing business on their domestic market or
abroad. The marketing mix is ―a planned mix of the controllable elements of a product's
marketing plan commonly termed as 4Ps: product, price, place, and promotion. These
four elements are adjusted until the right combination is found that serves the needs of
the product's customers, while generating optimum income.‖37 For the best result the
company should develop a marketing mix which supports itself through the whole mix.
The marketing mix should as well support the corporate goals for the company as well
as the marketing strategy. When the company has found the best combination the
optimum for the company has been created.
2.1.1 Product
The product is the main element in the marketing mix and it play an importantrole in the international marketing strategy. It can be looked at as the main element
because the other elements are in some way dependent on the product.
Historically products were a reaction to a need that customers wanted satisfied.
―In today‘s marketing, product is not only a certain set of physical features but rather a
complex solution that is offered to customers to satisfy their need and wishes.‖38 One
37 WebFinance, Inc. (n.d.). Marketing mix. Retrieved 23th of March 2011 from
http://www.businessdictionary.com/definition/marketing-mix.html38 International marketing: theory, practices and new trends. (2010) Machková, Král, Lhotáková,
Karlíček, Malý, Štěrbová. Praha: Oeconomica.
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reason for this is that consumers are getting more aware of their needs, but also because
in many societies citizens have covered their physical needs and want to fulfil other
needs they have. In the education sector the usage of ‗Maslow‘s hierarchy of needs‘ is
commonly used to describe the needs and wants the consumers have (―Appendix 3
Maslow's hierarchy of needs‖).
Looking at the product itself it consists of three or four levels or dimensions
depending on the research material you are looking at. For the purposes of this section a
model consisting of four dimensions has been used as it reflects and emphasizes the
product dimensions in a manner more congruent to this discussion.
Figure 2 Four levels of a product
Source 5 Strategic Marketing (2010). A. Whalley. Andrew Whalley & Ventus Publishing ApS
The first dimension is the core benefits of the product. This is the physical and
technical features of the product which satisfy the need or the want of the customers. An
example can be that a customer wants to satisfy the need of being transported from
place A to place B in a specific time and the product can then be a bus, a car or other
means of transportation that can cover this.
The second dimension is the basic product; for example the quality, design or
the packaging. This is characteristics of the product, how they are presented to add
value to the customers and also the benefit the customers expect to achieve by using the
product.
The third dimension is the augmented product consisting of supporting features
that are included in the product or can be brought additionally. It consists of warranties,
customer service, delivery or other features that can help persuading the customers if
they have doubts.
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The last dimension is the perceived product. In other words how the customers
see the product in their mind. This is one of the hardest parts for a company to control
because different customers have different views on what they like and dislike based on
their life experience and personalities, for example. But a company has the possibility to
influence the customers view via positioning. The main purpose of this is to ―create a
clear position for the brand in consumers‘ mind; it should differentiate it from its
competitors and represents a clear benefit or value to the customer.‖39
When a company is deciding to go abroad they have to make one main decision
concerning the product, this is whether they should adapt their products to the foreign
market or standardized the products. This decision should be based on an in depth
analyses about the country, for example with the usage of PEST analysis which
examines the political, technological, economical and social environment in the target
country. The most common reasons for adapting a product are technical norms, legal
requirements, or cultural and economical differences on the target market. Because
changes of the product are quite expensive many companies try to avoid this if it is
possible.
Regarding the adaption that is related to the cultural issues this can be looked at
through the different dimension that is visible in ―Figure 2 Four levels of a product.‖
The most expensive adaptation for a company occurs when changes have to be made in
the first dimension, the core benefits of the product. The reason for this is that the
switching costs for a company to change the manufacturing process are in most cases
very high. In this dimension cultural issues like demographic, for example family size,
and values (if the usage of this product acceptable in this culture) can influence if the
core benefits of the product have to be changed or not.
In the second dimension cultural issues such as language and non-verbal issues
is influence the product. Especially the design and packaging is influenced by colours,
symbol or if the product has a soft or a hard design. According to research Hofstedet
cultural dimension is commonly influencing the product design in many cultures. In
culture societies with high masculinity the design on the products are harder and
stronger while in feminine cultures the design is softer.
The third dimension, the support features, is influenced by the values in the
society and also by the formal laws in the country. Commonly in high developed
39 International marketing: theory, practices and new trends. (2010) Machková, Král, Lhotáková,
Karlíček, Malý, Štěrbová. Praha: Oeconomica.
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countries there are more regulations regarding warranties and return policies for the
products then in developing countries. The reason for this can be that consumers in
developed countries have higher expectations regarding the features of the products and
their durability. Consumer protection is commonly higher in developed countries as
well, resulting in a higher consumer power.
The fourth and last dimension, the perceived product, is again influenced by the
values in the society. Brand image is all about how the brand is represented in the mind
of the consumers and the company therefore have to do a thorough job with finding the
best representation of the brand that reflects the image they want to the customers to
perceive.
One example related to the brand image is the cultural values towards luxury
brands in different cultures. In some areas of the United States, for example in Los
Angeles, luxury brands like Dior or Dolce & Gabbana demonstrate the status the owner
has in the society. Hence these brands focus on the status, prestige and elegancy when
they are branding their products. On the other hand, in Scandinavian societies there is
an unwritten rule regarding how to act and behave regarding demonstrating wealth or
financial achievements called the Jante law. The Jante Law was written in 1933 by the
Danish- Norwegian author Aksel Sandemose in the novel ―A fugitive crosses his
tracks‖, original title ―En flyktning krysser sitt spor .‖ Originally it contains ten rules,
but it can be briefly summarize as ―you should not think you are better than anyone
else.‖ Today almost 80 years after it was written the Jante Law is still a part of the
Scandinavian society. To show off one's wealth and financial achievements with luxury
brands and exclusive cars is perceived as negative and condescending above others.
Even so luxury brands have a good possibility of success in Scandinavia if they are
aware of the Jante Law and adapt their brand image according to this.
2.1.2 International price
The only element in the international marketing mix which is directly
influencing the economic revenue for a company is the price. In addition it can be an
important strategic weapon in the fight against the competitors. Choosing the right price
can be the difference between failure and success so it is an important element which
has to be considered in detail.
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Factors in fl uencing the in ternational pr ice
There are many factors influencing the price a company can charge for a
product, both internally and externally (Figure 3 Factors influencing the price).
Figure 3 Factors influencing the price
Source 6 G. Pfajfar (2009) I nternational pri cing decisions. Retrieved from miha.ef.uni-lj.si/_dokumenti3plus2/190198/Lecture7_pricing.ppt
The internal factors influencing the price strategy can be divided into two
categories; firm-level factors and product factors,40 while the external factors can be
divided into environmental factors and market factors. To give a clearer picture of what
the different factors contain ‗Figure 4 Internal and external factors‘ has been developed.
Figure 4 Internal and external factors
Internal factors External factors
Product factors
- Stage in Product life cycle
- Place in product line
- Most important product features
- Product positioning
- Product cost structure
Environmental factors
- Government influences and constraints
- Inflation
- Currency fluctuations
- Business cycle stage
Firm-level factors
- Corporate and marketing objectives
- Competitive strategy
-
Firm positioning- Product development
- Production location
- Market entry modes
Market factors
- Customers‘ perceptions - Customers‘ ability to pay
-
Nature of competition- Competitors‘ objectives, strategies,
strengths and weaknesses
Source 7 Pfajfar (2009) International pricing decisions. Retrieved from miha.ef.uni-
lj.si/_dokumenti3plus2/190198/Lecture7_pricing.ppt
Concerning the internal factors this is factors that the company to some extend
can influence themselves. Especially ―Firm-level factors‖ are determent by the internal
40 G. Pfajfar (2009) International pricing decisions. Retrieved 20
th of March 2011 from miha.ef.uni-
lj.si/_dokumenti3plus2/190198/Lecture7_pricing.ppt
Internal factors
Firm-level factors
Product factors
Pricing strategy
External factors
Environmental
factors
Market factors
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strategies the company have developed; both corporate strategy and market strategy.
The product factors are as well partly determined by the internal strategy as well as by
the market and the customers purchasing behavoiur.
The external factors on the other hand are determined by factors outside the
power of the company. These factors the company have to learn to handle based on
knowledge and experience. The company might be able to influence some of them, like
customers‘ perceptions and government constrains (last one is only able to influence in
some markets), but factors as nature of competition and currency fluctuation is out of
the reach of the company.
Especially when dealing with international business taxations and currency
fluctuations are important indicators on how hard or easy it will be for a company to do
business on the market.
The last years the issue concerning taxation has been easier for companies to
relate and the reason for this is the high number of trade agreements that has been
developed. This has resulted in a more transparent taxations and tariff system and it is
now more predictable for companies to do business within these trade areas. There are
today a high number of regional trade agreements in the world where the largest
agreements are related to the World Trade Organization (WTO). WTO has in 2008 153
members from all over the world.41
The issue with currency fluctuation have also been solved for some countries
within the European Union (EU). In 2011 17 countries are officially using the currency
Euro and in addition some countries are using it, but are not officially included in the
Euro zone.42 For these countries the trade within the Euro zone has reduced their risk of
unwanted changes in relationship with currency fluctuation. There are also other
advantages for the businesses within the Euro zone like reduction in costs because there
is no need for currency exchange, the companies have better access to capital and it is
easier for the companies to develop plans for the future.43
41 World Trade Organization (2008). Members and Observers. Retrieved 20
th of March 2011 from
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm42 European central bank (2011). Map of euro area 1999-2011. Retrieved 20th of March 2011 from
http://www.ecb.int/euro/intro/html/map.en.html43 European Commission (2009). The Euro- Business Benefits. Retrieved 20
th of March 2011 from
http://www.eubusiness.com/topics/euro/business
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I nternational pricing strategies
The international price strategies a company choose is depending on the
companies‘ goal for the market and the factors discussed above. As with the other
element in the marketing mix the company have the possibility to standardize or adapt
their price strategy to their new market. Regarding price this is called price
standardization, two-tiered pricing or price differentiation.44
Price standardization means that a company charge the same price for their
product or service no matter what market they are present on and it can be defined as:
―Pre-established uniform price for a good or service, based on its historical price,
replacement cost, or an analysis of its competitive position in the market.‖ 45 This
strategy is commonly used in relation to a global positioning. Especially in today‘s
world where internet and other technological communication methods makes it possible
for people to buy products from other countries, the usage of price standardization can
be the best solution for some companies. The main disadvantage with this strategy is
that the price is not adapted to for example purchase power in the country or the market
price. This can result in a price gap between what the company is offering and the
market price.
The second strategy a company can use is two-tiered pricing. This means that
the company use one price on the international market and one price on the domestic
market. In this way the international price is covering the charges related to the
international business, and the domestic price is covering the costs related to
administration, research and development and accounting costs.46 This method is as
well commonly used on the price on entrance tickets for tourist attractions in developing
countries where the share of foreign tourists is high. The reason for this is that the
foreign tourists can afford to spend more money than the locals and local businesses
exploit this.47
Price differentiation is defined as ―a pricing strategy in which a company sells
the same product at different prices in different markets.‖48 With the usage of this
strategy the local management team in the targeted country defines the price according
44 International Business (2007). Griffin & Pustay. Pearson Education International. 5
th edition. P. 456
45 WebFinance, Inc. (n.d.). Standard price. Retrieved 20th of March 2011fromhttp://www.businessdictionary.com/definition/standard-price.html46
International Business (2007). Griffin & Pustay. Pearson Education International. 5th
edition. P. 45647 www.braun-rentacar.com (2010). Two-Tier Pricing. Retrieved 20th of March 2011 from
http://www.braun-rentacar.com/Two-tier%20pricing.htm48 GlossaryOfMarketing.com (n.d.). Price differentiation. Retrieved 20
th of March 2011 from
http://www.glossaryofmarketing.com/definition/price-differentiation.html
http://www.braun-rentacar.com/http://www.braun-rentacar.com/
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to the analyses made about the market. One of the advantages related to this strategy is
that the company can respond faster to changes in the market, for example the internal
and external factors discussed earlier. In addition to this ―in a market with
heterogeneous tastes and different product valuations, companies may increase their
profits by segmenting consumers and charging differential prices, which allows for the
extraction of additional consumer surplus.‖49
Further there are more pricing decisions which have to be taken into
consideration when using price discrimination. This can be the usage of for example
premium pricing or penetration pricing.
Premium pricing is defined as ―Practice in which a product is sold at a price
higher than that of competing brands to give it snob appeal through an aura of
'exclusivity.'‖50 The marketing objective is to maximize profit with fewer, but more
profitable sales. With this strategy it is usual to target a small group, but people with a
higher purchasing power who are willing to pay more for the image of the product.
Premium pricing is commonly used for luxury brands and high quality technologies and
services.
According to the research ―Luxury markets and premium pricing‖ by Yeoman
and McMahon-Beattie there has been changes in the society. Because of increasing
income and lack of time more people choose to spend more money on things that was
not common before. ―The concept of luxury is incredibly fluid, and changes
dramatically across time and culture. In the past, it was associated with champagne,
caviar, designer clothes and sports cars. Nowadays, with increased affluence, luxury is a
blurred genre which is no longer the preserve of the elite. More and more consumers
have traded up as the old values of tradition and nobility have become less important.
People are enjoying much more material comfort in comparison with previous
generations, resulting in a trend of a cultural shift for personal fulfilment and aspiration
through experience. Therefore, it could be argued that luxury is increasingly about
experience and authenticity (Yeoman et al., 2005), rather than monetary value.‖51 They
49 A. Wolk & C. Ebling (2008). Multi-Channel Price Differentiation: An Empirical Investigation of
Existence and Causes. Retrieved 20th of March 2011 fromhttp://ijrm.feb.uvt.nl/uploads/Forthcoming_Wolk&Ebling.pdf50
WebFinance, Inc. (n.d.). Premium pricing. Retrieved 20th
of March 2011 fromhttp://www.businessdictionary.com/definition/premium-pricing.html51
I. Yeoman & U. McMahon-Beattie (2005). Luxury markets and premium pricing. Journal of Revenueand Pricing Management, Vol. 4, No. 4, 2006, pp. 319 – 328. Retrieved 21th of March 2011 fromhttp://www.tomorrowstourist.com/pdf/luxury.pdf
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state further that this is an increasing trend that companies have to be aware of because
it will influence the way the consumers think in the future.
The opposite pricing strategy is price penetration. Penetration pricing is
commonly used if a company wants to penetrate a market to gain market shares or when
a company needs to use up spare resources (e.g. factory capacity). With this strategy the
company charge a low price for their product and services in first phase on the new
market and when they achieve their targeted market shares the price will increase. For
this strategy to be successful the demand for the goods has to be highly elastic and the
company have to have the capacity, both regarding production and distribution to be
able to meet the increasing demand. ―A successful penetration pricing strategy may lead
to large sales volumes/market shares and therefore lower costs per unit. The effects of
economies of both scale and experience lead to lower production costs, which justify
the use of penetration pricing strategies to gain market share.‖52
There are two main cultural elements that are influencing the pricing strategy,
this is demography and values. While demography us related to if the customers have
the income to buy the product, the value is related to the willingness of consumer
spending. This can be reflected in Hofstedets analyses regarding long term orientation
and short term orientations. In long term oriented countries, like China, the population
are mainly investing money into the future instead. On the other hand in short term
oriented countries, like the United States, money is looked at as a reward for the hard
work which can be enjoyed.
It is important to notice that these values are changing through time. Even
though Hofstedet analyzed China as the country with the highest Long Term
orientation, China is today one of the largest growing luxury markets in the world
because of their growing purchasing power. According to research KRMG in 2007 the
attitude in the Chinese population regarding the owners of luxury brands are quite good
and it reflected that the users where successful and only 2 percent of the responders
looked at the users as ―superficial‖.53 This indicates that the Chinese culture has shifted
towards a more Short Term Oriented country and that it is more accepted for the
population to buy luxury products.
52 tutor2u (n.d.). pricing strategies - penetration pricing. Retrieved 21th of March 2011 from
http://tutor2u.net/business/marketing/pricing_strategy_penetration.asp53 N. Debnam & G. Svinos (2007). Luxury brands in China. Retrieved 15
th of March 2011 from
http://www.kpmg.com.cn/en/virtual_library/Consumer_markets/CM_Luxury_brand.pdf
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2.1.3 International distribution
International distribution is the factor in the international marketing mix that is
the most complex, complicated and least flexible tool. To create a well functioning and
efficient distribution strategy it requires a lot of strategic planning and high investments.
It is important to mention that international distribution is not just about where the
product is sold abroad, but also the whole process of getting the product from the
manufacturing plant till the end customer.
To develop the best international distribution strategy there are many factors that
has to be evaluated and looked at. These factors are according to ―Food and Agriculture
Organization of the United Nation‖54:
Market needs and preferences
The cost of channel service provision
Incentives for channel members and methods of payment
The size of the end market to be served
Product characteristics required, complexity of product, price, perishability,
packaging
Middlemen characteristics - whether they will push products or be passive
Market and channel concentration and organization
Appropriate contractual agreements
Degree of control.
Based on these factors the company has to decide what distribution channels to
use, if they will distribute directly to the customers themselves or go indirectly through
middlemen or use a combination on both of the options.
Indirect channels are based on whether they are using domestic overseas
intermediaries or foreign intermediaries. With the usage of domestic overseas
intermediaries a company can choose between commission buying agents, country-
controlled buying agents, export management companies (EMCs), export merchants,
export agents or piggy backing. While with the usage of foreign intermediaries the
choice is between foreign sales representatives, foreign sales agents, foreign stocking
and non-stocking agents or state controlled trading companies.55 Definitions and
advantages and disadvantages can be seen in ―Appendix 1 Distribution: Definitions,
advantages and disadvantages.‖
54 Food and Agriculture Organization of the United Nation (1997). Global agricultural marketing
management. (Marketing and Agribusiness Texts - 3). Edition 3. Retrieved 15th
of March 2011 fromhttp://www.fao.org/docrep/W5973E/w5973e0e.htm#channels55
Indira Gandhi National Open University (n.d.). International distribution and sales policy. Retrieved 15
th of March 2011 from
http://www.egyankosh.ac.in/bitstream/123456789/35472/1/Unit-12.pdf P. 3
http://www.ignou.ac.in/http://www.ignou.ac.in/
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The other option a company has is to use direct distribution. ―direct distribution
include sending missionary skiles representatives abroad from the headquarter, setting
up of local sales/branch office in the foreign country or for a region, establishing a
subsidiary abroad, entering into a joint venture or franchising agreement.‖ 56 For
companies with long-term interest in the market this can be the best alternative, but
requires a lot of investments and if the strategy fails it can result in a large loss.
After these decisions there is still one question that the company has to take into
consideration: where and in how many stores should the products is sold. For this there
are three basic distribution strategies a company can use, intensive distribution,
selective distribution or exclusive distribution.
Intensive distribution means to ―Marketing strategy under which a firm sells
through as many outlets as possible, so that the consumers encounter the product
virtually everywhere they go: supermarkets, drug stores, gas stations, etc.‖57 The main
goal with this strategy is to cover the whole market with the usage of all available
outlets and to sell a huge number of products. This strategy is commonly used for
products as soft drinks and snacks where you can in most cases find in every
supermarket or kiosk no matter where in a country you are. For a company to be able to
use this strategy they have to invest a lot of financial resources and have a close
cooperation with the retailers.
Selective distribution is a ―type of product distribution that lies between
intensive distribution and exclusive distribution, and in which only a few retail outlets
cover a specific geographical area. Considered more suitable for high-end items such as
'designer' or prestige goods‖58 but also suitable for products with a long life cycle.
Some of the reasons why a company is choosing this strategy can be to minimize
the distribution costs to receive a higher net profit as well as trying to limit the potential
competition. In addition to this the company has more control over the channels they are
going through.
When choosing this strategy the company is identifying a smaller and more
specific market with specific specifications which the distribution outlet has to fulfil.
56 Indira Gandhi National Open University (n.d.). International distribution and sales policy. Retrieved 15
th of March 2011 from
http://www.egyankosh.ac.in/bitstream/123456789/35472/1/Unit-12.pdf P.457 WebFinance, Inc. (n.d.). Intensive distribution. Retrieved 15th of March 2011 from
http://www.businessdictionary.com/definition/intensive-distribution.html58 WebFinance, Inc. (n.d.). Selective distribution. Retrieved 15
th of March 2011 from
http://www.businessdictionary.com/definition/selective-distribution.html
http://www.ignou.ac.in/http://www.ignou.ac.in/
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This can be related to outlet size, quality of service, market size, customers group or
other specifications which reflects the company‘s corporate strategy. The retailers can
also be chosen based on a geographical area.
Exclusive distribution is a ―situation where suppliers and distributors enter into
an exclusive agreement that only allows the named distributor to sell a specific
product.‖59 In most cases there will be an exclusive, legal distribution agreement where
the agreement is specified, but this depends on the two parties.
This usage of exclusive distribution is commonly used with high end and luxury
products for example with cars or ―Apple had an exclusive distribution deal with AT&T
to provide the iPhone to consumers.‖60
The usage of exclusive distribution agreement is in favour for both the
manufacturer and the distributor or retailer. For the manufacturer the logistic will be
simplified and they will have more control on how their products are marketed and
branded. In addition the usage of fewer and more exclusive retailers can also reinforce
the idea that the product is exclusive and rare. And from the retailers‘ point of view an
exclusive contract mean that the consumers who want the product will come to them to
buy the product.
It is important to emphasize one main difference between the selective and
exclusive distribution and this is; while with selective distribution the retailer is allowed
to sell similar product from other brands, this is not the case with exclusive distribution.
With exclusive distribution the retailers are, by contract, not allowed to carry competing
brand but they on the other hand they are the only the retailer with the right to distribute
the brand in the area.
An increasing trend for consumer purchase today is e-commerce or electronic
commerce. It can be defined as:‖the buying and selling of products and services by
businesses and consumers through an electronic medium, without using any paper
document.‖61 Increasing usage of internet in private homes as well as increasing trust to
the system has resulted in a steady growth of e-commerce. From 2003 till 2010 e-
commerce sales increased from 1,5% till 4% of the total retail sale in the United States
59 WebFinance, Inc. (n.d.). Exclusive distribution. Retrieved 15
th of March 2011 from
http://www.businessdictionary.com/definition/exclusive-distribution.html60 WebFinance, Inc. (n.d.). Exclusive distribution. Retrieved 15th of March 2011 from
http://www.businessdictionary.com/definition/exclusive-distribution.html61 WebFinance, Inc. (n.d.). E-commerce. Retrieved 19
th of May 2011 from
http://www.investorwords.com/1637/e_commerce.html
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and the growth will according to prognoses continue.62 Today it accounts for a small
percentage of the total retail sale but according to forecast it will reach over $240 billion
by 2014. Other countries with a high level of e-commerce are the Scandinavian
countries, United Kingdom and the Netherlands63 where more than 50% of the
responders had purchased or sold goods or service over internet the last 3 months.
Looking at how the culture is influencing the international dis