Khon Kaen University International College International Product and Pricing Strategy

Course number 052 201 - First semester 2012

Monday 10:40 room 732 Friday 10:40 room 823 Lecturer: Michael Cooke office room 817

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2. 3.

WalMart Mexico is accused of violating the FCPA because: A) Company representatives paid facilitation fees to local building contractors (think of Southern Shrimp Alliance) B) The company is suspected of having systematically paid substantial bribes to government officials C) The company paid ‘grease money’ to local government planning officials D) All of the above Host country as used in this course refers to A) The country in which the business has headquarters B) A foreign country in which the multinational is allowed to do business C) Any country with a robust tourism sector Marketing can mitigate host country political risk by which of the following?

A) Creating the perception of being a host country business or product B) Opposing Compulsory Licensing (CL) legislation whenever it is proposed C) Systematically bribing host government officials D) Joining the WTO (World Trade Organization) 4.

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Foreign direct investment is a way to gain entry to certain markets, however it carries risks, such as: A) Risk of expropriation or nationalization of assets by a host government B) Risk of a loss of control over processes or intellectual property C) Risk of confiscation of assets (such as for suspicion of money laundering) D) All of the above A small highly motivated advocacy group can affect any aspect of marketing in a foreign country A) True B) False 6.

WTO rules to protect intellectual property allow exceptions for public health or emergencies A) True B) False Answers: 1=B, 2=B, 3=A, 4=D, 5=A, 6=A

Homework for week 5

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Skim chapter 8 (fairly long, try to get a sense of the contents)

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Read P&G case 8-2 (pages 287-288). Look for the P&G trademark on supermarket goods.

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Skim the Aaker article (link in the syllabus)

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How should Gulf Coast shrimpers market the product?

Wally Stevens, the chief operating officer of Slade Gorton, a seafood distributor in Boston, argues that the damage is self-inflicted. The American Seafood Distributors Association, of which Mr. Stevens is president, maintains that farmed shrimp is more consistent in size and quality than domestic shrimp

caught Louisiana shrimp. . He also says the domestic industry has tried to compete on price alone—impossible, since trawlers and fuel are so expensive—instead of marketing to a niche. The sort of sophisticated consumers who seek out boutique pinot noirs from Oregon and artisanal cheeses from Vermont would presumably pay a little extra for wild-

money few of them have.* The shrimpers reply that better marketing alone won't keep them in business, and that a big advertising blitz would eat up The salmon fishing industry had a similar problem from salmon raised on farms in the USA, Chile, and elsewhere. The higher cost product found a viable lucrative niche among wealthier and health conscious consumers. *Source: The Economist 4 July, 2004 ( http://www.economist.com/node/2904934 ) Niche: Narrowly defined group of customers having unique needs.

Chapter Overview – Segmentation and Positioning

1. Reasons for International Market Segmentation 2. International Market Segmentation Approaches 3. Segmentation Scenarios 4. Bases for Country Segmentation 5. International Positioning Strategies 6. Global, Foreign, and Local Consumer Culture Positioning Appendix – making sense of data

Note: Much of the material covered in these slides can be found in Chapter 7 of ‘Global Marketing Management’

Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Introduction

• • • • Variation in customer needs is the primary motive for market segmentation.

Most companies will identify and target the most attractive market segments that they can effectively serve.

In global marketing, market segmentation becomes especially critical because of wide divergence in cross-border consumer needs and lifestyles.

Once management has chosen its target segments, management needs to determine a competitive positioning strategy for its products.

Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Reasons for International Market Segmentation

• • • • • • Country Screening (consideration of a market is based on initial screening criteria) Global Market Research – Cluster countries across relevant characteristics – Focus research efforts on a representative sample Market Entry Decisions – Product launches based on shared relevant characteristics across countries – Country differences on other dimensions can hinder success Positioning Strategy (influencing customer perception of the product relative to competitors) – Where will marketing efforts have greatest impact?

– – Target market segments might change due to consumer preferences or population changes How the products or service is positioned will follow the opportunity Resource Allocation (Exhibit 7-1) – Market share clusters (increase penetration) – Consumption clusters (developing the market) Marketing Mix Policy – Countries in same segment might have similar mix strategy (design, pricing, promotion, distribution) – Similarities on one dimension might be offset by differences on another (such as price sensitivity)

Exhibit 7-1: Market Clustering Approach for Instant Coffee

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Chapter 7

Requirements for International Market Segmentation

– – – – – – Identifiable • Should be easy to define and measure • Value or lifestyle measures typically difficult to gauge Sizable • Segments should be large enough to be worth pursuing • Small segments aggregated across countries might work Accessible • Segments should be easy to reach • Infrastructure differences across countries Stable target market behavior and composition Responsive – segments have unique responses Actionable – the required marketing mix is consistent with the company goals and competencies Adapted from 2009 John Wiley & Sons, Inc.

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International Market Segmentation Approaches

• • International segmentation procedures: – Country-as-segments or aggregate segmentation (Exhibits 7-2 & 7-3.) • Geographic single dimension or several dimensions • • Marketing irrelevance of many country boundaries Difficulty of determining which variables to use for geo segments – Disaggregate international consumer segmentation • • Consumer segments defined by similarities along chosen characteristics Consumer bases might be geographically disbursed – logistical issues – Two-stage international segmentation • • • First aggregate countries (macro level) screens out countries Second segment consumers within the country cluster (micro) Market oriented and accessible For numerous country traits, use data reduction techniques such as factor analysis (SAS Proc Factor).

Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Exhibit 7-2: Nestlé’s Geographic Segmentation of the Americas

Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Exhibit 7-3: Macro-Level Country Characteristics

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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• • • • •

Psychological basis

Information filtering (sensory filtering) – Occurs among even lowest organisms (react to heat, light. Other aspects of environment ignored by primitive senses) – Highest life forms still limited in gathering and processing information from environment • We learn to filter information irrelevant to a situation • Often the most highly educated among us filter most – We fail to see/hear or recall much of what is available to us Under the right conditions (context) we might recall what we otherwise would not Our filtering and recall changes through life and with circumstances Marketers try to determine which audiences might be receptive to the product message, and how to enable recall Distances between high SES among countries might be less than between SESs within a country (life circumstances and education factors)

Segmentation Scenarios

• Universal or global segments (go beyond boundaries) – Customers belonging to universal segments have common needs – Could be a universal niche (example: global elite, business travelers) – Common customer needs higher in some product categories (high-tech or travel related) • Regional segments – Differentiated versus undifferentiated strategies apply to global segments as well – Differentiated strategy tailors marketing to local market conditions – An undifferentiated strategy is often followed by some high-tech companies – uniform worldwide marketing, scale economies • Unique (diverse) segments – Substantial differences in cross country customer preferences – Localized marketing mix programs – Food products may have country specific segments • Degrees of segmentation often follow degrees of market development (emerging markets usually have a simple consumer market structure – high price or low price only) 14

Bases for Country Segmentation

• • – – – – Demographics Demographic variables are among the most popular criteria Socioeconomic Variables • Per Capita income Issues in using per capita income as an indicator: – – Transactions valued in an international currency (monetization of transactions) Official exchange rates seldom reveal true buying power within a country » Services are provided in-country using local currency » Goods not traded across borders (housing, etc) • • • • • Gray and Black Market sections of the economy (cash or barter) Income disparities (wide gap between rich and poor) – Gini index » » » Lower number means more income equality Scandinavian countries have most equality (lowest index number) Thailand, China, USA relatively unequal (higher index) UN’s Human development index (HDI) classification Life expectancy at birth Adult literacy PPP per capita income – in-country basket of goods Socioeconomic Strata (SES) Analysis (education, consumption) Chapter 7 Adapted from 2009 John Wiley & Sons, Inc.

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Demographics Segmentation

• Easy to measure • Fairly accurate and easy to obtain • The elderly are an often overlooked segment – Unique needs – Self perceptions (active, not old) • Global middle class family is highly sought – Definition is tricky • HH income figures ignore purchasing power differences • Vast differences between countries in how income is spent – Chinese spend less than 5% on rent, transport, health – US consumers spend 50% – Income distinctions ignore education and values

Example of population clusters, from Japanese ad agency study of Asian women (Exhibit 7-5):

– – – – – Socially conscious (8%) Community oriented My Small World (26%) Family oriented Happy as I am (26%) Satisfied with current lifestyle I want more (26%) Like to try new things Look at me (13%) Ambitious, want status – Ford Fiesta’s ‘Beautiful’ strategy in China targets which group?

• Would Ford use an identical strategy in Europe?

• Personalization versus standardization – Note that the often ignored elderly: • Have unique needs (wish to perceive self as active, ‘not old’) • Are a growing % of the population in developed countries (soon up to 1/3 of total population in some countries) • May have high disposable income

Exhibit 7-5: Six Types of Chinese Pre-Elders

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Chapter 7

Bases for Country Segmentation Product Related (Exhibit 7-7)

– Attitudes toward product attributes • • Country of origin Status related (microwaves in living room) – Usage rate (product consumption per capita or per HH) – Product penetration • Percentage of target market that uses the product • An often used measure of new sales potential – Consumption infrastructure (electricity, etc.) 19

Exhibit 7-7: Benefit Segments of Toothpaste Market in the U.S.A., China, and Mexico

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Other Bases for Country Segmentation Lifestyles

Roper Consulting Valuescope Model (1998) – Strivers (largest WW segment) have material goals • More likely to be men • More common in developing Asia than in developed Asia – Devout (second largest segment) emphasis on tradition and duty • Women more than men • Least common in Europe, highest in Saudi Arabia – – Intimates value personal relationships and nuclear family • Europe and North America (especially UK) – – Altruists (18% of all adults) interests in social issues • Women more than men, and older people • Latin America and Russia Fun Seekers (12% of population) more common in developed Asia (highest in Brazil) Creative (10% of population) have strong interest in education and technology People in different segments buy different products, use different media – Tailor messages to parts of the population most likely to buy – Tools for refining strategies • Potential customers • Reinforcing loyal customers Chapter 7 21

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A last thought on segments

For many forms of marketing, the higher the likelihood of getting a sale, the higher the cost per target consumer.

– Before internet, mailing lists were sold with a price per name. Marketers considered cost of sending mail – The more specific the segment (higher likelihood of getting a response) the higher the unit cost – How do international Google ads fit this model?

– How does worldwide spam fit into this economic model?

How does this rule change when there is no cost to deliver a message? What sort of filtering mechanisms would we have?

1. For global marketing careful segmentation is critical because: A. Different countries have big differences in customer lifestyles B. Marketing departments need something to do C. Many host countries require the use of segments D. None of the above 2. Motives for market segmentation include: A. Variation in individual needs B. Differences in how people perceive C. Cost of delivering communication D. All of the above 3.

Which of the following countries is most likely to have a prosperous middle class: A ) High average income, low income differences (Sweden) B) Low average income, low income differences (Ukraine) C) Medium average income, high income differences (South Africa) D) Low income, high income differences (Central African Republic) 4.

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Differences in needs and perceptions can be due to which of the following: A) Age differences B) Cultural differences C) Education differences D ) All of the above Product related country segmentation would consider attitudes toward country of origin because: A) In some circumstances foreign products carry prestige or status B) In some circumstances local products are preferred C) Both A and B D. International Marketing staff have travel expense budgets International segmentation can involve macro level country screening and then customer screening (micro level) A) True B) False

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International Positioning Strategies

Positioning: The presentation of a product or service to evoke a positive and differentiated mental image in the consumer’s perception (International Marketing; Czinkota and Ronkainen)

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Position: The place a product, brand or group of products occupies in consumer’s minds relative to competing offerings. (Introduction to Marketing 9 th edition; McDaniel, Lamb, Hair)

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Effective positioning (local or global) requires:

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Finding and assessing competing products

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Understanding the important aspects of competitor positions Choosing a position to maximize the impact of marketing efforts

• Product differentiation involves distinguishing a product from competitor’s products.

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International Positioning Strategies

• • Uniform versus Localized Positioning Strategies – Target a universal segment • May involve same positioning worldwide • Might involve tailoring to different markets – Pursue different segments in different markets • Typically customize positioning appeals to each segment Universal Positioning – Consistent image worldwide – Can use global media – Difficult to devise a theme that appeals across markets (differences in culture, economics, competition, product lifecycle) – Successful appeals may target specific buying groups • Quality or performance for business customers • Features or benefits for consumer non-durables • Quality or performance for consumer durables • User groups share common characteristics – A mainstream brand in a home market might be upscale in overseas markets 25

Global, Foreign, and Local Consumer Culture Positioning

• • • •

Global consumer culture positioning (GCCP)

– Brand as a symbol of a given global consumer culture (self image of buyer is cosmopolitan) – Global brands might confer status in less developed economies – – High tech consumer products symbolize modernism Consumers share core values

Local consumer culture positioning (LCCP)

– Brand as an intrinsic part of the local culture • Brand is portrayed as consumed buy local people • Brand may be depicted as using local supplies or ingredients • Multi-local brands are perceived as local across several countries

Foreign consumer culture positioning (FCCP)

– Brand mystique built around a specific foreign culture A company might employ all of these at the same time (cosmopolitan, with foreign origins, using local ingredients, etc) Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Exhibit 7-10: McDonald’s Promoting Its Local Community Support in New Zealand

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Appendix: Segmentation Tools

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Segmentation techniques and tools:

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Cluster Analysis:

Collection of statistical procedures for dividing objects into groups (clusters). The grouping is done in such a manner that members belonging to the same group are very similar to one another but quite distinct from members of other groups (no overlap). (SAS Proc Cluster) Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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Appendix: Segmentation Tools

– Regression Analysis: In regression, one assumes that there exists a relationship between a response variable, Y, and one or more so-called predictor variables, X1, X2 and so on. (SAS Proc Reg) – The higher the R 2 value, the better the ability of the regression model to predict the data.

– With multivariate regression the user has the ability to determine which bases are most explanatory.

29 Chapter 7

Exhibit 7-11: Principles of Cluster Analysis

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Exhibit 7-12: Plot of Concentration versus Category Growth Chocolate Market

Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

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Exhibit 7-13: Cluster Analysis

Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

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