E13 International Marketing

Module 4

Developing the (International)

Marketing Mix

Introduction
This module covers the following topics:

 The product and the branding decision

o International product concept
o Product adaptation versus product standardisation
o Building international brands
o Guidelines for a global branding policy
o Managing brand equity for international markets
o International brand positioning strategy
 Challenges in international pricing
o Methods of global pricing
o Concept of exchange rate and global pricing
o Role of other drivers in international pricing
o Strategies for managing competitive global pricing
o Transfer pricing, reverse auctions, gray market pricing,
INCO terms
 Global logistics management
o Managing global logistics
o Trade operation and documentation
o Structure of international distribution system and strategy
 Global communication
o Global communication and culture
o Communication tools for Global Marketing
o Role of exhibition, trade advertising etc.
o Introduction to e-marketing

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Upon completion of this module you will be able to:

 discuss the issues involved in developing product/service mix in

context of global markets.
 explain and apply the concepts of standardisation versus
adaptation required for product and communication in global
Outcomes markets.
 describe the pricing challenge in Global Marketing and the
debate of skimming versus penetration pricing.
 explain the mandatory issues about export sales contract and
documentation required.
 explain the issues involved in global distribution and logistics
and find solutions to problems and recent developments in the
area of logistics.
 Discuss and apply the concepts in international marketing
communication

Product Life Cycle: The course of a product’s sales and profits over
its lifetime.

Innovators: Members of the first consumer group to adopt

Terminology
a product, service or technology

Early Adopters: Opinion leaders or role models for others

Tangible: Capable of being touched, held, or preserved in

physical form.

Intangibles: Something that needs to be experienced, that

cannot be touched or preserved.

Incoterms International commercial terms

F.A.S. Free Alongside Ship

F.O.B Free on-Board

C.I.F Cost, Insurance and Freight

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Lesson notes10
In many situations, customers seek particular brands, not just products.
The challenge is to develop product and brand policies and strategies
sensitive to market needs, competition, company ambitions, and
resources on a global scale. Effective Global Marketing entails a balance
between adapting products and brands to local market preferences and
concentrating on standardised global products and brands.

Chapter 10 examines global product and brand decisions. There is a

review of basic product and brand concepts, followed by a discussion of
local, international, and global products and brands. Product design
criteria are identified, and attitudes toward foreign products explored. The
next section outlines strategic alternatives available to global marketers.
Finally, new product issues in Global Marketing are discussed.

Marketing managers develop pricing objectives and strategies, covered in

Chapter 11. The overall goal may be an internal performance measure
such as unit sales, market share, or return on investment, but several
pricing issues are unique to Global Marketing. A pricing strategy may
vary from country to country: low-priced, mass-market products in some
countries are premium priced in others. Pricing objectives depend on a
product's life cycle stage and the country-specific competitive situation.
External considerations such as added costs for shipping across national
boundaries are factored in. Global pricing can be integrated in the design
process; an approach used by the Japanese.

Market Skimming and Financial Objectives

When financial criteria such as profit and maintenance of margins are the
objectives, price is integral to the total positioning strategy. Market
skimming targets a segment willing to pay a premium price for a
particular brand or for a specialised product, especially when it has just
been introduced. Companies that pursue differentiation strategies or
position their products in the premium segment use market skimming
(e.g., Mercedes-Benz). The skimming strategy is appropriate in the
introductory phase of the product life cycle. A high price limits demand
to innovators and early adopters. During the growth stage of the life
cycle, competition increases and manufacturers cut prices to go to the
lower income segments (e.g. Sony’s VCRs).

Penetration Pricing and Non-Financial Objectives

Price can be used as a competitive weapon to gain or maintain market

position. Penetration pricing sets price levels low enough to quickly
build market share (e.g., Sony Walkman in 1979). A company can change
objectives as a product proceeds through its life cycle and as competitive

10
Participants to the programme are encouraged to read the article, Going Global: Lessons for Late
Movers, by Christopher Bartlett and Sumantra Ghoshal, Harvard Business Review 78, no. 2 (March-
April 2000), p. 133.

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conditions change. For example, Sony lowered the price for its
PlayStation (PS2) in 2002 in an effort to increase the customer base. A
first-time exporter is unlikely to use penetration pricing because the
product may be sold at a loss, and companies cannot absorb such losses.
Many companies launch new products not innovative enough for patent
protection, but penetration pricing achieves market saturation before
competitors copy the product.

Target Costing

The actual cost of producing the product will create a cost floor; Japanese
companies approach cost issues in a way that results in savings. Western
companies are beginning to adopt some of these money-saving ideas.

Physical Distribution

Physical distribution discussed in chapter 12, is the movement of goods

through channels, made up of a coordinated group of individuals or firms
that perform functions that add time and place utility to a product or
service. The diversity of channels and the wide range of possible
distribution strategies and market entry options present challenges to
managers responsible for designing global distribution programmes.
Smaller companies are often blocked by their inability to establish
effective channel arrangements. In larger companies that operate via
country subsidiaries, channel strategy is the element of the marketing mix
that headquarters understands the least. Channels and physical
distribution are crucial aspects of the total marketing programme and a
crucial element of competitive strategy.

Marketing Communications

Advertising, publicity, and other forms of communication are critical

tools in the global auto wars. Marketing communications—the
promotion P of the marketing mix, forms the subject of chapters 13 and
14 and refers to all forms of communication used by organisations to
inform, remind, explain, persuade, and influence the attitudes and buying
behaviour of customers and others. The primary purpose of marketing
communications is to tell customers about the benefits and values that a
company, product, or service offers. The elements of the promotion mix
are advertising, public relations, personal selling, and sales promotion.
All of these elements can be utilised in Global Marketing.

Integrated Marketing Communications

The environment in which marketing communications programmes and

strategies are implemented varies from country to country. The challenge
of effectively communicating across borders is one reason for using
integrated marketing communications (IMC). Various elements of a
company's communication strategy must be coordinated. This chapter
examines advertising and public relations from the perspective of the
global marketer.

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Reading: Chapter 10
Keegan Chapter 10
You should now read Chapter 10 of the Keegan text (Global Marketing,
4th edition).
Reading

In applying your understanding of this material, you should take note of

the following:

 The product is the most important element of a marketing

Note it! programme. Global marketers face the challenge of formulating
coherent product and brand strategies on a worldwide basis. A
product can be viewed as a collection of tangible and intangible
attributes that collectively provide benefits to a buyer or user.

 A brand is a complex bundle of images and experiences in the mind

of the customer. Products and brands can be classified as local,
international, and global. A global product meets the wants and
needs of a global market. A global brand has the same name and a
similar image and positioning throughout the world. Many global
companies have leveraged favourable brand images and high brand
equity by employing combination (tiered) branding, cobranding,
and brand extension strategies.

 Maslow’s hierarchy of needs is a needs-based framework that offers

a way of understanding opportunities to develop local and global
products in different parts of the world. An understanding of product
saturation levels and country-of-origin effects can guide marketers
in search of opportunities around the world.

 Product and communications strategies can be viewed within a

framework of extend, adapt, or create options. Five strategic
alternatives are open to companies pursuing geographic expansion:
product-communication extension; product extension-
communication adaptation; product adaptation-communication
extension; product-communication adaptation; and product
invention.

 The strategic alternative(s) that a particular company chooses will

depend on the product and the need it serves, customer preferences
and purchasing power, and the costs of adaptation versus
standardisation.

 Global competition has put pressure on companies to excel at

developing standardised product platforms that can serve as a
foundation for cost-efficient adaptation. New products can be

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classified as discontinuous, dynamically continuous or continuous

innovations. A successful product launch requires an understanding
of how markets develop: sequentially over time or simultaneously.
Today, many new products are launched in multiple national markets
as product development cycles shorten and product development
costs soar.

Reading: Chapter 11
Keegan Chapter 11
You should now read Chapter 11 of the Keegan text (Global Marketing,
4th edition).
Reading

In applying your understanding of this material, you should take note of

the following:

 Pricing decisions are a critical element of the marketing mix that

Note it! must reflect costs, competitive factors, and customer perceptions
regarding value of the product. Pricing strategies include market
skimming, market penetration, and market holding.

 International terms of a sale such as ex-works, F.A.S., F.O.B., and

C.I.F. are known as Incoterms and specify which party to a
transaction is responsible for covering various costs. These and other
costs lead to price escalation, the accumulation of costs that occurs
when products are shipped from one country to another.

 Expectations regarding currency fluctuations, inflation, government

controls, and the competitive situation must also be factored into
pricing decisions.

 Global companies can maintain competitive prices in world markets

by shifting production sources as business conditions change.
Overall, a company’s pricing policies can be categorised as
ethnocentric, polycentric, or geocentric.

 Several additional pricing issues are related to Global Marketing. The

issue of gray market goods arises because price variations between
different countries lead to parallel imports. Dumping is another
contentious issue that can result in strained relations between trading
partners.

 Transfer pricing is an issue because of the sheer monetary volume

of intra-corporate sales and because country governments are anxious
to generate as much tax revenue as possible. Various forms of
countertrade play an important role in today’s global environment.

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 Barter, counter-purchase, offset, compensation trading,

cooperation agreements, and switch trading are the main
countertrade options.

Reading: Chapter 12
Keegan Chapter 12
You should now read Chapter 12 of the Keegan text (Global Marketing,
4th edition).
Reading

In applying your understanding of this material, you should take note of

the following:

 A channel of distribution is the network of agencies and institutions

Note it! that links producers with users. Channel decisions are difficult to
manage globally because of the variation in channel structures from
country to country.

 Consumer channels may be relatively direct, utilising direct mail or

door-to-door selling, as well as manufacturer-owned stores. A
combination of manufacturers' sales force, agents-brokers, and
wholesalers may also be used.

 Channels for industrial products are less varied, with manufacturer's

sales force, wholesalers, and dealers or agents utilised.

 Retail distribution takes many different forms, including

department stores, specialty retailers, supermarkets, convenience
stores, discount stores, warehouse clubs, hypermarkets,
supercentres, and category killers.

 Global retailing is a growing trend as successful retailers expand

around the world in support of growth objectives. Selection, price,
store location, and customer service are a few of the competencies
that can be used strategically to enter a new market. It is possible to
classify retailers in a matrix that distinguishes companies offering
few product categories with an own-label focus; many categories-
own-label focus; few categories-manufacturer-brand focus; and many
categories-manufacturer-brand focus. Global retail expansion can be
achieved via organic growth, franchising, chain acquisition, and joint
venture.

 Transportation and physical distribution issues are critically

important in Global Marketing because of the geographical distances
involved in sourcing products and serving customers in different

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parts of the world. Important activities include order processing,

warehousing, and inventory management.

 To cut costs and improve efficiency, many companies are

reconfiguring their supply chains by outsourcing some or all of these
activities. Four transportation modes—air, truck, water, and rail—
are widely used in global distribution. Distributing products around
the globe is made easier by containerisation and intermodal
transportation.

Reading: Chapters 13 and 14

Keegan Chapters 13 and 14
You should now read Chapter 13 and 14 of the Keegan text (Global
Marketing, 4th edition).
Reading

In applying your understanding of this material, you should take note of

the following:

 Global advertising consists of the effort required to create a global

Note it! campaign that forces a company to determine whether or not a global
market exists for its product. The trade-off between standardised
and adapted advertising is often accomplished by means of pattern
advertising, which can be used to create localised global advertising.

 Global advertising campaigns can be both cost effective and

beneficial to international companies in that they lend themselves to
economies of scale (the costs can be spread out over a wider range of
market targets). There may be need to only fine tune the advertising
or to add another language voice over to adapt the promotion. The
caution remains, however, that global advertising may only be
successful for products where there is little evidence of ethnicity or
SRC and where the product or service being presented is culturally
and socially acceptable in the market concerned.

 A company utilises public relations (PR) to foster goodwill and

understanding among constituents both inside and outside the
company. In particular, the PR department attempts to generate
favourable publicity about the company and its products and brands.
The PR department must also manage corporate communications
when responding to negative publicity. The most important PR tools
are press releases, media kits, interviews, and tours. Many global
companies make use of various types of corporate advertising,
including image advertising and advocacy advertising.

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Activity 4.1
Internet Exercise: Brand equity

Go to the bossini website (www.bossini.com) to see the value of the

clothing company’s brand equity. How has bossini created a branded
house as opposed to the house of brand which FMCG’s create? What are
Activity the company’s global markets?

Activity 4.2
Small Group Activity

In small groups, take a new product idea and carry the new product
through a new product development process for the global marketplace.
You may have to use your imagination in certain phases. When you have
Activity finished, analyse your effort. Do you think your product has a chance of
success? What factors would be critical to the success of the product?
What additional information do you need to be able to make the idea
work? Where would you get the information?

Activity 4.3
Written Exercise

List 10 of your favourite brand names. Which are global brands? What do
you like about the product and/brand name? What do you dislike? What
image does the brand have in your mind? How loyal are you toward the
Activity brand? Students can write a short paper and share their answers with the
class.

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Summary
In this module you learned:

 The challenges of developing product/service mix for global

markets.
Summary
 Product and marketing communication strategies; the dilemma of
standardisation and adaptation.

 The challenge of global pricing, and pricing strategies such as

skimming versus penetration.

 Moving goods across national borders, including export sales

contracts, terms of shipments and documentation.

 The complexities of global distribution and logistics.

Assignment
Case Study: Boeing versus Airbus: A Battle for the Skies

Read through the case study entitled, Boeing versus Airbus: A Battle for
the Skies on pages 360-361 of the Keegan text and respond to the
following questions:
Assignment 1. Assess Boeing's plans to subcontract out significant portions of the
7E7’s manufacture.

2. How can Boeing successfully compete in the airline industry with

Airbus and others?

3. Contrast the difference in strategy for Boeing and Airbus.

Submit your responses to the case study questions to your instructor or

tutor for evaluation.

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Assessment
Out-of-Class Reading:

Kohli, C., Suri, R, & Mrugank, T. (2002). Creating Effective Logos:

Insights from Theory and Practice. Business Horizons 45, no. 3
Assessment
(May/June), pp. 58-64.

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