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International Business by Yong-Sik Hwang Sejong University Same product, different marketing… 2 Market Segmentation • • • The process of dividing the firm’s total customer base into homogeneous clusters that allows management to formulate unique marketing strategies for each group. Within each market segment, customers exhibit similar characteristics, including income level, lifestyle, demographic profile, or desired product benefits. Internationally, common market segment variables include income level, culture, legal system, etc. E.g., Caterpillar targets its earthmoving equipment using distinctive marketing approaches to several major market segments, such as construction firms, farmers, and the military. Global Market Segment • A group of customers that share common characteristics across many national markets. • Firms target these buyers with relatively uniform marketing programs, regarding product, pricing, communications, and distribution • Such segments often follow global media, embrace new fashions or trends, and have much disposable income. Examples • Young people worldwide (e.g., MTV, Levi’s) • The global segment of jet-setting business executives • People worldwide with elevated cholesterol (e.g., Pfizer and Lipitor) Positioning • The firm’s objective in pursuing global market segments is to create a unique positioning of its offerings in the minds of target customers. • Positioning -- the firm develops both the product and its marketing to evoke a distinct impression in the customer's mind, emphasizing differences from competitive offerings. • In the international construction industry, Bechtel positions itself as providing sophisticated technical solutions for major infrastructure projects worldwide. 5 Global Positioning Strategy • Internationalizing firms aim for a global positioning strategy, i.e., one in which the offering is positioned similarly in the minds of buyers worldwide. • Starbucks, Volvo, and Sony are good examples of companies that successfully use this approach. Consumers around the world view these strong brands in the same way. • Global positioning strategy is beneficial because it reduces international marketing costs by minimizing the extent to which management must adapt elements of the marketing program for individual markets. 6 Volvo’s positioning in 1980s 7 Standardization and Adaptation • • • Adaptation: Modifying elements of the marketing program to accommodate specific customer requirements in individual foreign markets Standardization: Efforts to make marketing program elements uniform, so as to target entire regions of countries, or even the global marketplace, with a similar product or service Goal: To strike some ideal balance between adaptation and standardization Standardization Adaptation Tradeoffs Between Standardization and Adaptation Standardization is pursued when: •Global market segments exist •Products have universal specifications (as in industrial products) Complete Standardization Advantages: • Cut costs • Improve planning and control • Do global branding Adaptation is pursued when the market has unique characteristics based on language, culture, regulations, income level, economic conditions, infrastructure Complete Adaptation Advantages: • Meet customer needs more precisely • Differentiate products • Comply with government regulations Standardization and Adaptation: A Balancing Act • • • Adaptation is costly and may require substantial changes to the marketing mix, especially when many national markets are involved. Firms pursue a regional strategy, in which marketing elements are formulated across a geographic region. Dell strikes a balance between standardization and adaptation. The basic machines are identical worldwide, while the keyboards and software are varied to suit local conditions. Regional Solutions may be more Practical • As a compromise, some firms will pursue standardization as part of a regional strategy, where international marketing program elements are formulated to exploit commonalities across a geographic region, instead of across the world. • General Motors markets distinctive car models for each of China (for example, Buick), Europe (Opel, Vauxhall), and North America (Cadillac, Saturn). • Convergence of regional preferences, regional economic integration, harmonization of product standards, and growth of regional media and distribution channels, all make regional marketing more feasible than pursuing global standardization. Global International Local Global Branding • Well-known global brands include: Electronics (Playstation), personal care products (Gillette), toys (Barbie), food (Cadbury), beverages (Heineken), credit cards (Visa), movies (e.g., Star Wars), pop stars (Lady Gaga), and sports stars (David Beckham). • A strong global brand enhances: Efficiency and effectiveness of marketing programs The ability to charge premium prices The firm’s leverage with resellers Brand loyalty Trust and confidence in the product Top Global Brands by Region Global Product Development • In developing international products, managers emphasize their commonalities across countries rather than the differences between them. • A basic product incorporates only core features that are then varied at the margins for individual markets. • A global new-product planning team is a group within a firm that determines which product elements will be standardized and which will be adapted locally, and how products will be launched. International Pricing • Pricing is complex in international business, due to multiple currencies, trade barriers, added costs, and typically longer distribution channels. • Prices affect sales and profits. An inverse relationship often exists between profits and market share. • Firms face pressure to lower prices abroad, mainly due to lower income levels. • Conversely, prices can escalate due to tariffs, taxes, transportation, intermediary markups, and after-sales service. ₤ $¥ € Factors That Affect International Pricing • Nature of the market: Local purchasing power and distribution infrastructure are important factors. • Nature of the product or industry: A specialized or highly advanced product, or an industry with few competitors, may necessitate charging a higher price. • Type of distribution system: Channels are complex in some countries, which pushes prices up. • Location of the production facility: Locating manufacturing near customers or in countries with low-cost labor facilitates lower prices. Three Pricing Strategies • • • Rigid cost-plus pricing: Set a fixed price for all export markets by adding a flat percentage to the domestic price to compensate for the added costs of doing business abroad. Flexible cost-plus pricing: Set price to accommodate local market conditions, such as customer purchasing power, demand, and competitor prices. Incremental pricing: Set price to cover only variable costs, not fixed costs. This assumes that fixed costs are already paid from sales in the home or other countries. Steps in Setting the Price of a Product Abroad International Price Escalation • The problem of end-user prices reaching high levels in the export market • Caused by multilayered distribution channels, intermediary margins, tariffs, and other added costs associated with the foreign market • May result in an excessively high retail price in the target market, creating a competitive disadvantage for the exporter • Various strategies to reduce price escalation Strategies to Combat International Price Escalation 1. Shorten the distribution channel: That is, bypass some intermediaries in the channel 2. Redesign product to remove costly features: E.g., Whirlpool developed a no-frills washing machine 3. Ship products unassembled, as parts and components, qualifying for lower import tariffs: Do final assembly in the foreign market, using low-cost labor, or in Foreign Trade Zones 4. Have product reclassified using a different tariff classification to qualify for lower tariffs. 5. Move production or sourcing to another country to take advantage of lower labor costs or favorable currency rates Strategies for Dealing With Varying Currency Conditions Transfer Pricing • The pricing of intermediate or finished goods exchanged among the subsidiaries and affiliates of the same corporate family located in different countries • May be used to repatriate profits from countries that restrict MNEs from taking their earnings out of the country • May be used to shift profits out of a high corporate tax county into a low corporate tax one, thereby increasing companywide profits Gray Marketing • Legal importation of genuine products into a country by those other than authorized intermediaries. • Buy the product at a low price in one country, import it into another country, and sell it there at a higher price Causes: • Large difference in pricing of same product between two countries, often the result of company strategy • Exchange rate differences of products priced in two different currencies Manufacturer Concerns Over Gray Markets • Risk of tarnished image when customers realize the product is available at a lower price through alternative channels • Strained relations between the manufacturer and its distributors, as the latter lose sales • Disrupted company activities, including: Sales forecasting Pricing strategies Merchandising Marketing Strategies to Cope With Gray Markets 1. Aggressively cut prices in countries and regions targeted by gray market brokers 2. Hinder the flow of products into markets where gray market brokers procure the product 3. Design products with exclusive features that strongly appeal to customers 4. Publicize the limitations of gray market channels International Advertising • Firms conduct advertising via media, which includes direct mail, radio, television, cinema, billboards, transit, print media, and the Internet. • Advertising spending on major media amounted to $100 billion in both Western Europe and Asia. • In the United States, advertising expenditures totaled over $160 billion. • Advertising is influenced by local factors, such as availability of media, literacy, regulations, culture, and local customs, as well as the goals of the firm. Standardization in International Advertising Media Characteristics in Selected Countries The Largest Global Ad Agencies International Distribution • • • • Distribution is the most inflexible of the marketing program elements—once established, it may be difficult to change. The most common international distribution approaches are via independent intermediaries (for exporters) and establishing a subsidiary directly in the market (FDI). Both types of channels must perform a range of downstream marketing activities. The firm should seek to minimize channel length in order to minimize final prices and decrease complexity. Global Account Management • Under globalization, foreign customers seek uniform and consistent prices, quality, and customer service. • Global account management means serving a key global customer in a consistent and standardized manner, regardless of where in the world it operates. • For example, Wal-mart is a key global account for Procter & Gamble, purchasing many P&G products. • Each global customer is assigned a global account manager, or team, which provides the customer with coordinated marketing support and service across various countries.