978-0078112911 Chapter 16 Part 2

Global Business Today Ninth Edition

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is said to be elastic when a small change in price produces a large change in demand. Demand is

inelastic when a large change in price produces only a small change in demand.

D) The elasticity of demand is determined by a number of factors, of which income level and

competitive conditions are probably the most important. In general, price elasticity tends to be

greater in countries with lower income levels and greater numbers of competitors.

Strategic Pricing

E) The concept of strategic pricing has three aspects, which we will refer to as predatory pricing,

multi-point pricing, and experience curve pricing.

Predatory Pricing

F) Predatory pricing involves using the profit gained in one market to support aggressive pricing

in another market. The objective is to drive competitors out of the market.

Multi-point Pricing Strategy

G) Multi-point pricing strategy becomes an issue in those situations where two or more

international businesses compete against each in two or more distinct (national) markets.

H) The concept of multi-point pricing refers to the fact a firm’s pricing strategy in one market

may have an impact on their rival’s pricing strategy in another market. In particular, aggressive

pricing in one market may elicit a competitive response from a rival in another market that is

important to the firm.

I) The managerial message in all of this is that pricing decisions around the world need to be

centrally monitored.

Experience Curve Pricing

J) Many firms pursuing an experience curve pricing strategy on an international scale price low

worldwide in an attempt to build global sales volume as rapidly as possible, even if this means

taking large losses initially. Firms using experience curve pricing believe that several years in the

future, when they have moved down the experience curve, they will be making substantial profits

and, moreover, have a cost advantage over less aggressive competitors.

Regulatory Influences on Prices

K) Firms’ abilities to engage in either price discrimination or strategic pricing may be limited by

national or international regulations.

Antidumping Regulations

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L) Dumping occurs whenever a firm sells a product for a price that is less than the cost of

producing it.

M) From the perspective of an international business, the important point is that antidumping rules

set a floor under export prices and limit firms’ ability to pursue strategic pricing.

Competition Policy

N) Most industrialized nations have regulations designed to promote competition and to restrict

monopoly practices. These regulations can be used to limit the prices that a firm can charge in a

given country.

CONFIGURING THE MARKETING MIX

A) Standardization versus customization is not an all or nothing concept. In reality most firms

standardize some things and customize others. When looking at the overall marketing mix and

message, one often finds some aspects of standardization and some aspects of customization in all

products depending on local requirements and overall cost structures. Table 16.1 illustrates issues

that should be evaluated to determine the marketing mix.

Management Focus: Levi Strauss Goes Local

Summary

This feature explores how Levi Strauss, the manufacturer of blue jeans, changed its international

marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its

sales fall from $7.1 billion in 1996 to just $4 billion in 2004. The company had failed to keep up

with changes in the fashion market, and was out of touch with its consumer. A three part

turnaround strategy was implemented to start to turn things around. By 2009, the company was

beginning to see some improvements and at the end of 2013, annual sales were $4.6 billion. Levi

expects emerging markets to account for a significant share of its profits in the future. Discussion

of the feature can begin with the following questions:

Suggested Discussion Questions

Please see Critical Thinking and Discussion Question 6 for more on this feature.

INTERNATIONAL MARKET RESEARCH

A) To effectively configure the marketing mix, global companies conduct marketing research.

International marketing research is defined as the systematic collection, recording, analysis, and

interpretation of data to provide knowledge that is useful for decision making in a global company.

B) Compared with market research that is focused on the domestic market, international market

research involves additional issues such as translation of questionnaires into appropriate foreign

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languages and accounting for cultural and environmental differences in data collection. Firms

often have their own in-house marketing research department, and some also turn to outside

research companies such as Nielsen, Kantar, Ipsos, and the NPD Group.

C) The basic data that companies want collected include (1) data on the country and potential

market segments; (2) data to forecast customer demands within a specific country or world region;

and (3) data to make marketing mix decisions.

D) The process for conducting international market research involves six steps (Figure 16.3). (1)

Defining the research objectives. (2) Determining the data sources that will address specific

research problems: primary and secondary. (3) Assessing the costs and benefits of the research.

(4) Collecting the data. (5) Analyzing and interpreting the research. (6) Reporting the research

findings.

PRODUCT DEVELOPMENT

A) Firms that successfully develop and market new products can earn enormous returns. Firms to

need build close links between R&D, marketing, and manufacturing.

Video Note: One issue which firms must contend with is protecting their proprietary property. The

video in the International Business Library on Pinterest (http://www.pinterest.com/mheibvideos/)

China Rising: Intellectual Piracy in China explores how many companies have been negatively

affected by intellectual piracy by China.

The Location of R&D

B) Ideas for new products are simulated by the interactions of scientific research, demand

conditions, and competitive conditions. Other things being equal, the rate of new-product

development seems to be greater in countries where:

i) More money is spent on basic and applied research and development.

ii) Demand is strong.

iii) Consumers are affluent.

iv) Competition is intense.

Integrating R&D, Marketing, and Production

C) The need to adequately commercialize new technologies poses special problems in the

international business, since commercialization may require different versions of a new product to

be produced for different countries.

D) A firm’s new product development efforts need to be closely coordinated with the marketing,

production, and materials management functions. This integration is critical to making certain

that:

• product development projects are driven by customer needs,

• new products are designed for ease of manufacture,

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• development costs are kept in check, and

• time to market is minimized.

Cross-Functional Teams

E) One means of achieving cross-functional integration is to have cross-functional product

development teams. Effective cross functional teams should be led by a heavyweight project

manager with status in the organization, include members from all the critical functional areas,

have members located together, have clear goals, and have an effective conflict resolution process.

Building Global R&D Capabilities

F) The need to integrate R&D and marketing to adequately commercialize new technologies poses

special problems in the international business because commercialization may require different

versions of a new product to be produced for various countries.

G) Integrating R&D, marketing, and production in an international business may require R&D

centers in North America, Asia, and Europe that are closely linked by formal and informal

integrating mechanisms with marketing operations in each country in their regions, and with the

various manufacturing facilities.

H) Some companies allocate product development responsibilities using a global network of R&D

centers that develop the basic technologies for new products which are then picked up by R&D

units attached to global product divisions and used to generate new products to serve the global

marketplace.

Critical Thinking and Discussion Questions

1. Imagine you are the marketing manager for a US manufacturer of disposable diapers. Your firm

is considering entering the Brazilian market. Your CEO believes the advertising message that has

been effective in the United States will suffice in Brazil. Outline some possible objections to this.

Your CEO also believes that the pricing decisions in Brazil can be delegated to local managers.

Why might she be wrong?

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2. Within 20 years we will have seen the emergence of enormous global markets for standardized

consumer products. Do you agree with this statement? Justify your answer.

3. You are the marketing manager of a food products company that is considering entering the

Indian market. The retail system in India tends to be very fragmented. Also, retailers and

wholesalers tend to have long-term ties with Indian food companies, which makes access to

distribution channels difficult. What distribution strategy would you advise the company to

pursue? Why?

would.

4. Price discrimination in indistinguishable from dumping. Discuss the accuracy of this statement?

5. You work for a company that designs and manufactures personal computers. Your company’s

R&D center is in North Dakota. The computers are manufactured under contract in Taiwan.

Marketing strategy is delegated to the heads of three regional groups: a North American group

(based in Chicago), a European group (based in Paris), and an Asian group (based in Singapore).

Each regional group develops the marketing approach within its region. In order of importance,

the largest markets for your products are North America, Germany, Britain, China, and Australia.

Your company is experiencing problems in its product development and commercialization

process. Products are late to market, the manufacturing quality is poor, and costs are higher than

projected, and market acceptance of new products is less than hoped for. What might be the

source of these problems? How would you fix them?

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6. Reread the Management Focus feature on Levi Strauss and then answer the following questions:

a. What marketing strategy was Levi Strauss using until the early 2000s? Why did this strategy

appear to work for decades? Why was it not working by the 2000s?

b. How would you characterize Levi’s current strategy? What elements of the marketing mix are

now changed from nation to nation?

c. What are the benefits of Levi’s new marketing strategy? Is there a downside?

d. What does the Levi Strauss story tell you about the “globalization of markets”?

Answer:

a. Prior to implementing its turnaround strategy in 2005, Levi Strauss had been selling essentially

the same product the same way around the world. The company was able to standardize its

marketing mix because differences between markets were not well defined, and it was able to

Global Business Today Ninth Edition

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318

seem to exist in the market. For example, Japanese consumers prefer skinny, black jeans, while

women from South Africa prefer jeans with a little more room in the backside. Many students

might conclude that while there are some similarities in markets, many of the similarities are too

broad to allow for a standardized marketing mix around the world.

Teaching Tip: To see how the recovery at Levi Strauss has progressed, go to

{http://www.levistrauss.com/} and click on “International” then explore the various topics

including values and vision, and company transformation and also consider

{http://www.businessweek.com/ap/2012-07-11/sector-snap-levis-results-tar-denim-sellers}.

Lecture Note: Levi Strauss recently decided to expand in China. To learn more, go to

{http://www.businessweek.com/managing/content/sep2010/ca20100917_601459.htm}.

Closing Case: Domino’s Pizza

Summary

The closing case explores Domino’s Pizza’s international strategy. The company, which has about

the same number of stores located outside the United States as within the country, believes that the

real growth potential for the industry is overseas. So far, Domino’s has approached its foreign

markets using essentially the same strategy as it uses in the United States, but with minor changes

to the marketing mix to respond to local differences. Discussion of the case can begin with the

following questions:

QUESTION 1: Do you think it is wise for Domino’s to stick to its traditional “home delivery”

business model, even when that is not the norm in a country, and when its international rivals have

changed their format?

QUESTION 2: What do you think Domino’s does from an organizational perspective to make sure

that it accommodates local differences in consumer tastes and preferences?

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319

QUESTION 3: How does the marketing mix for Domino’s in Japan differ from that in the United

States? How does that in India differ from the U.S. marketing mix?

menu.

QUESTION 4: What lessons can we draw from the Domino’s case study that might be useful for

other international businesses selling consumer goods?

Teaching Tip: To learn more about Domino’s Pizza’s international operations, go to

{http://www.dominosbiz.com/Biz-Public-EN/Site+Content/index.html/},

{http://www.bloomberg.com/news/2011-05-05/domino-s-eyes-international-expansion-as-same-

store-sales-abroad-improve.html}, and

{http://www.freep.com/article/20100319/COL06/3190391/Domino-s-Pizza-CEO-lead-global-

sales-shift}.

Continuous Case Concept

As automakers seek to expand their market share in foreign countries, they are challenged by the

age-old question of whether they can sell the same model everywhere or whether a new model

must be developed to meet the needs of each individual market. Some companies like BMW and

Mercedes believed, when they made North American expansion a priority, that they needed to be

closer to the market in order to get a real feel for local design preferences, and so consequently

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moved their production to the United States. Other companies like Hyundai and Kia have

established design centers in Germany to take advantage of like minds and knowledge of the local

market. VW is hiring 200 engineers in the United States for its new location in Tennessee. The

company believes that it has been too slow in the past to recognize and respond to changes in

demand in the United States. Yet at the same time, Ford is finding success with its One Ford

platform.

• Ask students to discuss how Ted Levitt would view the world’s auto markets. Would he

believe that standardization of the marketing mix is possible, why or why not? Did Henry

Ford have the right idea (you can buy the car in any color as long as it is black)? Who is

right? VW or Ford?

• Next, develop a list of attributes that might be important in a car. What do Europeans

consumers want in a car? How does this compare to the average American or Japanese

consumer? For example, does the rugged pick-up truck driver image work in Japan?

Does the sleek, powerful European car work in China? Then, consider the notion of a

world car—a car that could be successful in any market. What factors could prevent the

development of such a product? Consider issues related to culture, distribution, a country’s

level of economic development, and so on.

• Finally, consider mistakes foreign automakers could make when designing their cars for

foreign customers. How could the presence of a joint venture partner help the company

avoid these mistakes?

This exercise can be used as a summary discussion for this chapter, or it can be broken down into

segments. For example, the second question of this exercise works well as an introduction to

international marketing. The first question can be addressed after discussing the notion of

standardization of the marketing mix, and at this point, you might also revisit the second question.

Finally, the third question allows you incorporate previous discussion of the benefits of a joint

venture to international marketing.

globalEDGE Exercises

The resources for each exercise can be easily located by using the search box at the top of the

globalEDGE website at http://globalEDGE.msu.edu

Exercise 1

Search phrase: best global brands

Resource Name: Interbrand: Best Global Brands

Website: http://www.interbrand.com/en/best-global-brands/

globalEDGE Category: Rankings

Additional Info:

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Chapter 16

Best Global Brands is an annual ranking that has been published by Interbrand since 2001. It

provides a breakdown of the brands by sector, and by region, and features several other insightful

charts and graphs to discuss how branding has been evolving globally.

Exercise 2

Search phrase: Global Competitiveness Report

Resource Name: World Economic Forum: Global Competitiveness Report

Website: http://www.weforum.org/issues/global-competitiveness

globalEDGE Category: Publications

Additional Info:

The Global Competitiveness Report assesses the competitiveness landscape of about 150

economies, providing insight into the drivers of their productivity and prosperity. The report tries

to analyze sustainable competitiveness by looking at basic requirements (infrastructure, health,

education, institutional framework), efficiency enhancers (market size, technology, financial

markets, labor efficiency, etc.), and innovation and sophistication factors.

Additional Readings and Sources of Information

Fast-Food Banh Mi? Yum Tests America’s Appetite for Vietnamese Sandwiches

http://www.businessweek.com/articles/2014-09-12/bahn-shop-a-texas-test-for-yums-vietnamese-

sandwich-concept

Mobil Tech Brings Bid Retail Brands to Rural India

http://www.bbc.co.uk/news/business-12841993

Food Trucks Arrive in Food Crazy Belgium

http://www.businessweek.com/ap/2014-10-29/food-trucks-arrive-in-food-crazy-belgium

Russian Cheese, Anyone? Imports Hard to Replace in Moscow

http://www.businessweek.com/news/2014-10-29/russian-cheese-anyone-imports-hard-to-replace-

in-moscow

Selling Ragu: Here’s Why Unilever Wants to Break Out of Jarred Sauce

http://www.businessweek.com/articles/2014-03-04/selling-rag-heres-why-unilever-wants-to-break-

out-of-jarred-sauce

Michael Kors Challenges Europe’s Luxury Brands

http://www.businessweek.com/articles/2014-05-01/michael-kors-challenges-europes-luxury-

brands

Can Huawei Become China’s First Global Brand?

http://www.bbc.com/news/business-29628044

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Developing an Innovation Pipeline

http://www.businessweek.com/managing/content/mar2010/ca20100312_851759.htm

Mondelēz Ditches Kraft’s Name; Others Dump the Accent

http://www.businessweek.com/articles/2012-10-01/mondel-z-splits-from-kraft-with-a-symbol-that-

goes-missing

The Imitator’s Edge

http://www.businessweek.com/articles/2012-07-06/the-imitators-edge

31 Innovation Questions

http://www.businessweek.com/managing/content/dec2010/ca20101228_495770.htm

Is China Fed up With the Colonel’s Chicken?

http://www.businessweek.com/magazine/content/10_08/b4167030011836.htm

Chile bans marketing of toys in children’s food

http://www.businessweek.com/ap/2012-08-01/fast-food-chains-sued-as-chile-outlaws-happy-meals

Pacific Trade International’s Mei Xu: Marketing to China

http://www.businessweek.com/stories/2011-03-23/pacific-trade-internationals-mei-xu-marketing-

to-china