Global Marketing & R&D CH 15

1. Global Marketing & R&DCH 15 Role of Marketing & R&D in international business - when product standardization is appropriate & when it is not Link to R& D is identifying gaps in market so new products can be developed to fill gaps Market segmentation & the marketing mix

2. Globalization of Markets & Brands Levitt (HBR) – provacative…but • Modern transportation and communication technologies are facilitating a convergence of the tastes and preferences of consumers in the more advanced countries of the world. • Trade barriers & differences in product & technical standards constrain a firm’s ability to sell a standardized product to a global marketing using a standardized marketing strategy Marketing Mix • Set of choices the firm offers to targeted markets • Elements = product attributes, distribution strategy, communication strategy & pricing strategy • Varies from country to country depending on differences in culture, economic development, product standards, distribution channels, etc.

3. Market Segmentation • Identifying distinct groups of consumers whose purchasing behavior differs from others in important ways (geography, demography, social-cultural factors, psychological factors) • Can vary design of product, pricing strategy, distribution channel & communication strategy from segment to segment • Maximize sales by optimizing fit between the purchasing behavior of consumers in a given segment & the marketing mix • Structure of market segments in a country – may have no parallel in home country (African-Brazilian, Chinese 45-55) • Market segments that transcend national borders – compelling similarities along dimensions of age, value, lifestyles, etc. -> ability to view global marketplace as single entity & pursue global strategy ( global youth segment)

4. Product Attributes • Product = bundle of attributes • Car = power, design, quality, performance, fuel consumption & comfort; & Hotel = atmosphere, quality, comfort & service • Products sell well when attributes match consumer needs & are priced appropriately • Influence on product attributes • Cultural Differences – tradition (food) • Economic Development – developed vs developing • Product & Technical Standards – (video equipment)

5. Distribution Strategy • Means chosen for delivering product to consumer • Retail Concentration • Concentrated = few retailers (US malls) • Fragmented = many w/no major share (Japan) • Channel Length • Number of intermediaries between producer & consumer • Fragmented retail systems promote growth of wholesalers & lengthen the channel (Japan, India, China) • Internet helps shorten the channel • Channel Exclusivity • Exclusive = difficult for outsiders to access (shelf space in supermarkets) • Often based on long term relationships (P&G Japan)

6. Choosing a Distribution Strategy • Optimal strategy is determined by relative costs & benefits & depends on retail concentration, channel length & channel exclusivity • Critical link between channel length, final selling price & firm’s profit margin (markup -> higher price or less margin) • Longer channels cut selling costs when retail sector is very fragmented • Longer channels can influence market access with long term relationships (Apple Computer & Japanese firms)

7. Communication Strategy • Communicating product attributes to prospective customers • Communication channels = direct selling, sales promotion, direct marketing, & advertising • Communication strategy is partly defined by choice of channel

8. Barriers to International Communication • Cultural Barriers • A message in one country can mean something else in another (P&G, Benneton) • Overcome by developing cross-cultural literacy • Source & Country of Origin Effect • Source Effects = Receiver of the message (consumer) evaluates the message based on the status or image of the sender (Honda) • Country of Origin = Extent to which place of manufacturing influences product evaluation (Hyundai cars, German cars, French wine) • Noise Levels • Amount of other messages competing for a potential consumers attention (US high)

9. Push Personal selling rather than mass media advertising – relatively costly Product type = industrial product or complex new products – educate the customer about features Channel length = short Media =few print or electronic media available (or limited by law) Pull Mass media advertising to communicate the marketing message to a large segment Product type = consumer goods Channel length = long, more intermediaries need consumer to pull product through channel Sufficient print & electronic media to carry the marketing message Push vs Pull Strategies

10. For Standard Advertising Significant economic advantages – lowers the cost of value creation by spreading cost over many countries Creative talent is scarce so one large effort better than 40-50 small Justification = many brand names are global – project single brand image Against Standard Advertising Cultural differences are such that a message that works in one nation can fail in another Advertising regulations can block implementation of standardized advertising (Kellogg cornflakes) Hybrid= select some features to include in advertising campaigns & localize other features -> build international brand recognition yet customize ads to different cultures Global Advertising

11. Pricing Strategy Price Discrimination - Charging different prices for the same product in different countries • Firm must be able to keep national markets separate or will have arbitrage (cars in Europe) • Different price elasticities of demand in different countries – measure of the responsiveness of demand for a product to changes in prices • Income Level - Consumers with limited incomes tend to be very price conscious • Competitive conditions – Many competitors cause high elasticity of demand (firm raises prices -> consumers will switch)

12. Pricing Strategy Strategic Pricing • Predatory Pricing • Use of price as a competitive weapon to drive weaker competitors out of a national market • Once the competitors have left market , firm can raise prices & enjoy high profits. Usually subsidized by another market’s profits • Multipoint Pricing • Two international businesses compete against each other in two or more national markets. Firms pricing strategy in one market may have an impact on its rivals’ pricing strategy in another market (Kodak – Fuji) • Experience Curve Pricing • Firm will price low worldwide in attempting to build global sales volume as rapidly as possible thus moving production down the experience curve

13. Regulatory Influence on Prices • Anti-Dumping Regulations • Dumping is whenever a firm sells a product for a price that is less than the cost of producing it • Sets a floor under export prices & limits a firm’s ability to pursue strategic pricing • Competition Policy • Nations have regulations to promote competition & restrict monopoly practices • Regulations can be used to limit the prices a firm can charge in a given country (Hoffman-LaRoche)

14. New Product Development • Competition is as much about technological innovation as anything else – firm must stay on leading edge of technology • Technological innovation is both creative & destructive (computer/typewriter) • Build close links between R&D, marketing & production

15. Location of R&D • Ideas for new products are stimulated by interactions of scientific research, demand conditions & competitive conditions • Rate of new product development is greater where (centers in Japan, Europe, US) • More $$$ is spent on basic/applied R&D • Underlying demand is strong • Consumers are affluent • Competition is intense

16. Integrating R&D, Marketing & Production Failure 80% • Development of technology for which demand is limited • Failure to adequately commercialize promising technology • Inability to manufacture a new product cost effectively Cross functional integration • Product development projects are driven by customer needs • New products are designed for ease of manufacture • Development costs are kept in check • Time to market is minimized Cross-Functional Team • Composed of representatives of R&D, marketing & production • Take product development from initial concept to market introduction • Project manager who can get resources for team to succeed