Topic to be covered this week:

Topic to be covered this week: International marketing (Chapter 16)

This chapter Chapter 16 explores the issue of international marketing. It begins with a discussion of basic international marketing strategies and examines the debate between standardisation and customisation. Then each component of the marketing mix (product, price, promotion, and distribution) is discussed in depth.

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organisational objectives. International marketing is the extension of these activities across national boundaries. 1. What is international marketing?

International marketing affects, and is affected by, virtually every other organisational activity. Therefore, it must be integrated and coordinated with other activities. 2. International marketing management

Figure 16.1 International marketing as an integrated functional area

2.1 International marketing and business strategies International marketing strategy should support the firm’s overall business strategy whether it is differentiation, cost leadership or focus. If a firm is following an overall strategy of differentiation, managers should develop a marketing strategy that differentiates the firm’s products or services from those of competitors.

If a firm is following an overall cost leadership strategy, marketing managers should focus on keeping production and distribution costs low, lower margins, use less expensive materials and implement other cost measures. If a firm is following an overall focus strategy, managers should adjust the marketing mix to target the needs of various selected segments.

2.2 The marketing mix International marketing managers must address four issues: how to develop the firm’s product(s); how to price those products; how to sell those products; and how to distribute those products to customers. These elements are collectively known as the marketing mix, and are also referred to as the four Ps of marketing (product, pricing, promotion and place - distribution).

Figure 16.2 The elements of the marketing mix for international firms

2.3 Standardisation versus customisation When marketing internationally and as far as the adoption of the marketing mix is concerned, there are three approaches to consider: An ethnocentric approach (market products internationally the same way it does domestically); A polycentric approach (customise the marketing mix to meet the needs of each target market); A geocentric approach (adopt a standardised marketing mix for all markets based on an analysis of customer needs).

Standardisation allows a frim to achieve manufacturing, distribution and promotional efficiencies and to maintain simpler and more streamlined operations. Customisation allows a firm to gain specific advantages within given markets that it might not otherwise be able to achieve. In practice, most firms fall in the middle of a continuum between standardisation and customisation and follow a policy of “think global, act local.”

The degree of standardisation or customisation depends on a variety of factors such as: product type, cultural differences between home and host countries, and the host country’s legal system. Companies often adopt one approach for one marketing element (such as standardisation for product design), and another for a second (such as customisation for advertising).

Standardisation implies a centralised organisational design, while customisation implies that a decentralised design should be adopted. Advantages and disadvantages of standardised and customised international marketing are listed in Table 16.1.

Product comprises both the set of tangible factors (the physical product and its packaging) that the customer can see and touch, and numerous intangible factors (image, installation, warranties, and credit terms). 3. Product policy

3.1 Standardised products or customised products? Firms must decide to what extent they will standardise or customise their product offerings across markets. There are two broad target groups of customers: industrial users and consumers. Industrial products are goods and services sold primarily to organisations, such as machinery, accounting services, and bulk food. Industrial products tend to be relatively standardised across markets.

Products sold as commodities such as agricultural products, petroleum and computer chips are also typically standardised. In contrast, consumer products are goods and services used by individual consumers. These include foodstuffs, personal electronics products, and hair care services. Consumer products tend to be relatively customised to meet the needs of local markets.

3.2 Legal forces Product polices may be affected by the laws and regulations of host countries. Countries may impose labelling requirements, health standards, and technical standards on consumer products.

3.3 Cultural influences Product polices may have to be adapted to meeting different cultural needs. Packaging may need to be changed to include the local language, the ingredients of food products may need to be changed to fit local preferences. Shapes, pictures and colours may require alteration, and quality levels may need to be altered.

3.4 Economic factors Product policies may be affected by economic factors. A country’s level of economic development might affect product feature decisions, and a country’s infrastructure might affect the design of some products, and/or product support services available.

3.5 Brand names Firms that are able to standardise brand names may achieve substantial cost reductions in packaging, design, and advertising production costs. Firms with standardised brand names may also benefit from the spillover effects from one market to the next. Product brand names influence the development of product image in markets.

Pricing directly impacts on a firm’s revenues, and pricing policies serve as an important strategic competitive weapon. The task of pricing is complex in international firms because the cost of doing business varies from country to country, as do transportation costs and differences in distribution systems. In addition, pricing can be affected by fluctuating exchange rates. 4. Pricing issues and decisions

4.1 Pricing policies International firms typically use one of the three pricing policies: standard pricing, two-tiered pricing, or market pricing.

A standard price policy occurs where the same price is charged for products regardless of where they are sold. This policy is usually used by a firm following a geocentric approach to marketing. Firms following this policy may sell highly visible products that permit easy price comparisons, or they may sell commodity products in competitive markets.

A company following a two-tiered pricing policy sets one price for all domestic sales, and a second price is set for all international sales. This policy is usually adopted by firms following an ethnocentric approach to marketing. This type of policy is frequently followed by firms that are at the start of the internationalisation process and may create a situation where the firm is vulnerable to dumping charges.

A firm following a market pricing policy calculates and then charges the profit maximising price in each market it services. This is usually used by firms following a polycentric approach to marketing. For this practice to be successful, the firm must face different demand and/or cost conditions in each country it serves, and the firm must be able to prevent arbitrage from occurring.

Figure 16.3 Determining the profit-maximising price

Promotion embraces all efforts by an international firm to enhance the desirability of its products among potential buyers. The promotion mix - advertising, personal selling, sales promotion, and public relations ‑is used to motivate potential customers to buy the firm’s products. As promotion involves communication with host country audiences, it is the marketing mix element that is most affected by culture. 5. Promotion issues and decisions

5.1 Advertising A firm must consider three factors when developing its advertising strategy the message it wants to convey, the media available to convey the message, and the extent to which the firm wants to globalise its advertising effort.

The message of an advertisement refers to the facts or impressions the advertiser wants to convey to potential customers. Products used for different purposes around the world will need to be advertised differently. A product’s country of origin may be an important part of an advertising message.

The medium is the communication channel used by the advertiser to convey a message. Media must be adapted to the local cultural and legal environment. Media choices may also be affected by a country’s level of economic development, price of media and legal restrictions.

Global versus local advertising: Some companies adopt a global campaign but make subtle adaptations, while others opt for a regionalisation strategy. The decision is affected not only by differences between markets but also by the message the firm wants to convey.

5.2 Personal selling Personal selling is making sales on the basis of personal contacts. Firms that are in the early stages of foreign market expansion may subcontract personal selling to local organisations, while firms that are most established in foreign markets may hire local sales representatives. Personal selling is more commonly used for industrial products than for consumer products.

There are several advantages to personal selling. Firms that employ local sales representatives can be reasonably certain that cultural norms and customs will be observed. Personal selling promotes close, personal contact with customers. Firms may find it easier to acquire market information from sales representatives than from other sources. A main disadvantage of personal selling is its high cost.

5.3 Sales promotion Sales promotion consists of specialised marketing efforts such as coupons, in-store promotions, sampling, direct-mail campaigns, cooperative advertising, and trade fair attendance. Sales promotion activities may be well suited to international firms because they are flexible and can be tailored to meet the special requirements of each market.

5.4 Public relations Public relations refer to efforts aimed at enhancing a firm’s reputation and image with the general public. An effective public relations effort results in the firm being perceived as a good “corporate citizen.” Public relations can be particularly important to international companies because as “foreigners” they may become appealing political targets.

Distribution involves moving products and services from the firm to the customers. International firms face two issues regarding distribution. Firstly, the problem of physically transporting goods and services to the different markets. Secondly, the means by which they will sell goods in the markets they seek to serve. 6. Distribution issues and decisions

6.1 International distribution A firm must select the mode(s) of transportation for its products from the point of origin to the destination. The choice typically involves a trade-off between time and money. The choice also impacts on a firm’s inventory expenses and customer service levels.

6.2 Channels of distribution A distribution channel can consist of many parts: the manufacturer or creator of the product; a wholesaler that buys products and services from the manufacturer and then resells them to retailers; the retailer who buys from wholesalers and, then sells to customers; and, the actual consumer, who buys the product or service for final consumption. Import agents may also be part of the channel.

Figure 16.4 Distribution channel options

Channel length is the number of stages in the distribution channel. A direct sales approach involves selling directly to consumers, bypassing wholesalers and retailers. A longer channel of distribution involves selling to retailers who then market the product to the final consumer. The longest channel adds a wholesaler stage to the process.

International marketing managers must find the optimal distribution channel for the firm to match its competitive strengths and weaknesses. Most firms use a variety of channels. Firms should exercise caution when selecting a foreign distributor as a poor distributor jeopardises the firm’s reputation and performance in that market -often for a long time.

Most imporant points today Key issues of international marketing management Standardisation versus customisation Marketing mix and the management of each of the 4Ps

Topic to be covered this week: