BUSI 2701 Chapter 14: Global Marketing and Research & Development

The Globalization of Markets and Brands

Theodore Levitt wrote in 1983 about the globalization of world markets. Technology drives the
world toward a converging commonality, the result of which is the emergence of global markets
for standardized consumer products on a previously unimagined scale of magnitude.

Advantages Disadvantages
• Global culture, markets • Localization
• Standardization of products, • Exceptions rather than rules
manufacturing • Trade barriers, technical standards
• Rise of global media

Global Marketing

Global marketing: A marketing strategy that view the world’s consumers as similar in their tastes
and preferences is consistent with the mass production of a standardized output.

By mass-producing a standardized output, the firm can realize substantial unit cost reductions
but ignoring country differences in consumer tastes and preferences can lead to failure.

• Thus, an international business’ marketing function needs to determine when product

standardization is appropriate and when it is not, and to adjust the marketing strategy
accordingly.

Marketing Segmentation

Identifying groups of consumers whose purchasing behavior differs from others important ways.

• Geography
• Demography
• Social-cultural factors (ex. Lifestyle choices)

Marketing mix: The set of choices that a firm offers its targeted markets.

The 4 elements of marketing mix are:

1. Product attributes
2. Place- Distribution strategy
3. Promotion- Communication strategy
4. Pricing strategy

Product attributes
Products can be viewed as a bundle of attributes. Issues that influence product attributes
include:
a) Cultural differences
• Ex. Tradition, social structure, language, education
b) Economic development
 • Consumer behaviour is influenced by the level of economic development in a country.
Firms based in highly developed countries tend to build a lot of extra performance
attributes into their product.
c) Product and technical standards
National differences can force firms to customize the marketing mix.
Little If Any Modifications Moderate Amounts of Extensive Modification Required
Modification
Heavy equipment, electronic Automobiles, clothing, High-style consumer goods,
watches, laptops, computers, appliances, cosmetics, pre-packaged foods,
chemical processes, cameras, pharmaceuticals, aircraft, educational products, health
tennis rackets, cigarettes running shoes, TVs, beer services, restaurant meals, cultural
products

Distribution Strategy
Distribution strategy: The means to deliver the product to the consumer.
Differences between countries include:
a) Retail concentration: The number of retailers in a market.
• In a concentrated retail system, a few retailers supply most of the market. This is common in
most developed countries.
• In a fragmented retail system there are many retailers, no one has a major share of the
market. This is common in developing countries.

Channel length: The number of intermediaries between the producer and the consumer.
Typically, the longer the channel is, the higher the price.
• Short channel: When the producer sells directly to the consumer, common in concentrated
systems.
• Long channel: When the producer sells through an import agent, a wholesaler, and a retailer,
common with fragmented retail systems.

b) Channel exclusivity: How difficult is it for outsiders to access the channel.

• Sometimes channels are exclusive because retailers like to carry well established brands
rather than take a chance on something new.
• Ex. It is often difficult for a new firm to get access to shelf space in supermarkets.

Ex. Japan’s exclusive system: Relationships between retailers, wholesalers and manufacturers in
Japan often go back decades and it can be virtually impossible for foreign companies to
break in. Many of these relationships are based on the understanding that distributors will
not carry the products of competing firms.

c) Channel quality: The expertise, competencies, and skills of established retailers in a

nation, and their ability to sell and support the products of international businesses.
• The quality of retailers is good in most developed countries but is variable at best in
emerging markets and less developed countries.
• Firms may have to devote considerable resources to upgrade channel quality.
The optimal strategy depends on the relative costs and benefits of each alternative. When price
is important, a shorter channel is better because each intermediary in a channel adds its own
markup to the products. When the retail sector is very fragmented, a long channel can be
beneficial because it economizes on selling costs and it can offer access to exclusive channels.

Promotion- Communication strategy

The effectiveness of a firm’s international communication can be jeopardized by:
a) Cultural barriers- Firms need to develop cross-cultural literacy and use local input when
developing marketing messages.
• Ex. Use local advertising agencies, develop a local sales force

b) Source and country of origin effects

Source effects occur when the receiver of the message evaluates the message base on the
status or image of the sender.
• Ex. When British Petroleum acquired U.S gas stations, it changed its name to BP.

Country of origin effects: the extent to which the place of manufacturing influences product
evaluations.

c) Noise levels: The number of other messages competing for a potential consumer’s
attention.
• In highly developed countries, noise is very high while in developing countries, noise levels
tend to be lower.

Push vs Pull Marketing Strategies:

Push strategy- A marketing strategy emphasizing personal selling rather than mass media
advertising.
Pull strategy- A marketing strategy emphasizing mass-media advertising as opposed to personal
selling.

Factors that determine which strategy to use include:

a) Product type and consumer sophistication
• Push strategy works better with firms selling consumer goods to a large market segment.
• Pull strategy works better for industrial products.

b) Channel length
• A pull strategy works better with longer distribution channels.

c) Media availability
• A pull strategy relies on access to advertising media.
• A push strategy may be better when media is not easily available.
 Push Strategies Push Strategies
• For industrial products and/or complex • For consumer goods.
products • When distribution channels are long
• When distribution channels are short • When sufficient print and electronic media
• When few print or electronic media are are available to carry the marketing
available message

Advantages of Standardized Advertising Disadvantages of Standardized Advertising

• Lowers the cost of value creation by • Cultural differences can cause failure.
spreading over many countries • Advertising regulations differ in countries.
• Creative talent is scarce so one large
effort will produce better results

Pricing Strategy
a) Factors influencing international pricing
• Customer expectations, purchasing power, price elasticity
• Nature of competitors’ offerings, prices, and strategy
• International customer costs
• Ex. Packaging labeling, documentation, financing costs, packing and container costs,
shipping, insurance, etc.
• Landed cost
• Ex. Tariffs, warehousing charges, local transportation
• Importer’s costs
• Ex. Value-added tax, other taxes, intermediary margins, cost of financing inventory
• Anticipated fluctuations in currency exchange rates.

b) Price discrimination: When firms charge consumers in different countries different prices
for the same product. For price discrimination to work, multinational corporations must
be able to keep national markets separate and countries must have different price
elasticities of demand.

c) Strategic pricing
i) Predatory pricing: Use profit gained in one market to support aggressive pricing
designed to drive competitors out in another market (ex. Matsushita TV’s).
ii) Multi-point pricing strategy: A firm’s pricing strategy in one market may have an
impact on a rival’s pricing strategy in another market (ex. Kodak and Fuji).
iii) Experience curve pricing: Price low worldwide to build global sales volumes as
rapidly as possible, even if this means taking large losses initially.

d) Regulatory influence on prices

i) Anti-dumping regulations
• Dumping occurs whenever a firm sells a product for a price that is less than the cost
of producing it.
ii) Competition policy
 • Most industrialized nations have regulations designed to promote competition and
restrict monopoly practices, which can limit the prices that a firm can charge.

Standardization vs customization is not an all or nothing concept, most firms standardize some
things and customize others. Firms should consider the costs and benefits of customizing and
standardizing some elements in the marketing mix.

Global R&D
• Firms today need to make product inventory a priority
• Competition is as much about technological innovation as anything else
• The pace of technological change is faster than ever, and product life cycles are often very
short
• New innovations can make existing products obsolete but at the same time, open the door to
a host of new opportunities
• Firms need to close links between R&D, marketing, and manufacturing
New Product Development
Firms that successfully develop and market new products can gain significant returns.

1. Location of R&D
New product ideas come from the interactions of scientific research, demand conditions, and
competitive conditions. The rate of new product development is greater in countries where:
• More money is spent on basic and applied research and development
• Demand is strong
• Consumers are affluent
• Competition is intense

2. Integrating R&D, Marketing and Production

New product development has a higher failure rate, so efforts should involve close coordination
between R&D, marketing, and production. Integration will ensure that:
• Customer needs drive product development
• New products are designed for ease of manufacture
• Development costs are kept in check
• Time to market is minimized

3. Cross Functional Teams

Cross functional integration is facilitated by cross-functional product development teams.
Effective cross-functional teams:
• Are led by a heavyweight project manager with status
• Members are from all the critical functional areas
• Members are all located together
• Clear goals are established
• There is an effective conflict resolution process
How can firms build global R&D capabilities?
• To adequately commercialize new technologies, firms need to integrate R&D and marketing
• To successfully commercialize new technologies, firms may need to develop different
versions for different countries.
• Ex, A firm may need R&D centers in North America, Asia and Europe that are linked
closely by formal and informal integrating mechanisms with marketing operations in each
country in their regions, and with the various manufacturing facilities.