978-0134129945 Chapter 1 Lecture Note Part 1

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CHAPTER 1

INTRODUCTION TO GLOBAL MARKETING

SUMMARY

A. Marketing is an organizational function and a set of processes for creating,

communicating, and delivering value to customers and for managing customer

relationships in ways that benefit the organization and its stakeholders. A company that

engages in global marketing focuses resources on global market opportunities and threats.

Successful global marketers such as Nestlé, Coca-Cola, and Honda use familiar

marketing mix elements – the four Ps – to create global marketing programs.

B. Marketing, R&D, manufacturing, and other activities comprise a firm’s value chain the

value equation (V =B/P) expresses the relationship between values and the marketing

mix.

C. Global companies also maintain strategic focus while pursuing competitive advantage.

The marketing mix, value chain, competitive advantage, and focus are universal in their

applicability, irrespective of whether a company does business only in the home country

or has a presence in many markets around the world. However, in a global industry,

companies that fail to pursue global opportunities risk being pushed aside by stronger

global competitors.

D. A firm’s global marketing strategy (GMS) can enhance its worldwide performance. The

GMS addresses several issues. First is the nature of the marketing program in terms of the

balance between a standardization (extension) approach to the marketing mix and a

localization (adaptation) approach that is responsive to country or regional differences.

Second is the concentration of marketing activities in a few countries or the dispersal of

such activities across many countries. Companies that engage in global marketing can

also engage in coordination of marketing activities. Finally, a firm’s GMS will address

the issue of global market participation.

E. The importance of global marketing today can be seen in the company rankings compiled

by the Wall Street Journal, Fortune, Financial Times, and other publications. Whether

ranked by revenues, market capitalization, or some other measure, most of the world’s

major corporations are active regionally or globally. The size of global markets for

individual industries or product categories helps explain why companies “go global”.

Global markets for some product categories represent hundreds of billions of dollars in

annual sales; other markets are much smaller. Whatever the size of the opportunity,

successful industry competitors find that increasing revenues and profits means seeking

markets outside the home country.

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F. Company management can be classified in terms of its orientation toward the world:

ethnocentric, polycentric, regiocentric, or geocentric. The terms reflect progressive levels

of development or evolution. An ethnocentric orientation characterizes domestic and

international companies; international companies pursue marketing opportunities outside

the home market by extending various elements of the marketing mix. A polycentric

worldview predominates at a multinational company, where the marketing mix is adapted

by country managers operating autonomously. Managers at global and transnational

companies are regiocentric or geocentric in their orientation and pursue both extension

and adaptation strategies in global markets.

G. The dynamic interplay of several driving and restraining forces shapes the importance of

global marketing. Driving forces include market needs and wants, technology,

transportation and communication improvements, product costs, quality, world economic

trends, and recognition of opportunities to develop leverage by operating globally.

Restraining forces include market differences, management myopia, organizational

culture, and national controls such as nontariff barriers (NTBs).

OUTLINE OF THE BOOK

The book is divided into five parts.

Part 1: An overview of global marketing and the basic theory of global marketing.

Part 2: The environments of global marketing.

Part 3: Approaching global markets (global strategy)

Part 4: The marketing mix in global marketing.

Part 5: Corporate strategy, leadership, and the impact of the digital revolution on global

marketing.

LEARNING OBJECTIVES

1 Use the product/market growth matrix to explain the various ways a company can expand

globally

2 Describe how companies in global industries pursue competitive advantage

3 Compare and contrast single-country marketing strategy with global marketing strategy (GMS)

4 Identify the companies at the top of the Global 500 rankings

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5 Explain the stages a company goes through as its management orientation evolves from

domestic and ethnocentric to global and geocentric.

6 Discuss the driving and restraining forces affecting global integration today.

OVERVIEW

The growing importance of global marketing is one aspect of a sweeping transformation that has

profoundly affected the people and industries of many nations during the past 160 years.

Four decades ago, the phrase global marketing did not even exist. Today businesspeople utilize

global marketing to realize their companies’ full commercial potential. However, there is another,

even more critical reason why companies need to take global marketing seriously: survival. A

management team that fails to understand the importance of global marketing risks losing its

domestic business to competitors with lower costs, more experience, and better products.

But what is global marketing? How does it differ from “regular” marketing? Marketing can be

defined as the activity, set of institutions, and processes for creating, communicating, and

delivering value for customers, clients, partners, and society at large.

Marketing activities center on an organization’s efforts to satisfy customer wants and needs with

products and services that offer competitive value and for managing customer relationships in

ways that benefit the organization and its stakeholders. The marketing mix (product, price, place,

and promotion) comprises a contemporary marketer’s primary tools. Marketing is a universal

discipline – as applicable in Argentina as it is in Zimbabwe.

(Learning Objective #1)

This book is about global marketing. An organization that engages in global marketing focuses

its resources and competencies on global market opportunities and threats. A fundamental

difference between regular marketing and global marketing is the scope of activities. A company

that engages in global marketing conducts important business activities outside the home-country

market. The scope issue can be conceptualized in terms of the familiar product/market matrix of

growth strategies (see Table 1-1). Some companies pursue a market development strategy; this

involves seeking new customers by introducing existing products or services to a new market

segment or to a new geographical market.

Global marketing can also take the form of a diversification strategy in which a company creates

new product or service offerings targeting a new segment, a new country, or a new region. Four

of the growth strategies shown in Table 1-1:

(Chapter 1, Page 5)

Four Stages – Starbucks

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Market penetration: Starbucks is building on its loyalty card and rewards program in

the United States with a smartphone app that enables customers to pay for purchases

electronically. The app displays a bar code that the barista can scan.

Market development: Starbucks is entering India via an alliance with the Tata Group.

Phase one calls for sourcing coffee beans in India and marketing them at Starbucks

stores throughout the world. The next phase will likely involve opening Starbucks

outlets in Tata’s upscale Taj hotels in India.

Product development: Starbucks created a brand of instant coffee, Via, to enable its

customers to enjoy coffee at the office and other locations where brewed coffee is not

available. After a successful launch in the United States, Starbucks rolled out Via in

Great Britain, Japan, South Korea, and several other Asian countries.

Diversification: Starbucks has launched several new ventures, including music CDs

and movie production. Next up: Revamping stores so they can serve as wine bars and

attract new customers in the evening.

Companies that engage in global marketing frequently encounter unique or unfamiliar features in

specific countries or regions of the world. In some regions of the world, bribery and corruption

are deeply entrenched. A successful global marketer understands specific concepts and has a

broad and deep understanding of the world’s varied business environments. He or she also must

understand the strategies that, when skillfully implemented in conjunction with universal

marketing fundamentals, increase the likelihood of market success.

ANNOTATED LECTURE/OUTLINE

Principles of Marketing: A Review

Marketing is one of the functional areas of business – distinct from finance and operations.

Marketing is the set of activities and processes that (along with product design, manufacturing,

and transportation) comprises a firm’s value chain.

Decisions at every stage of the process – from idea conceptualization to customer support after

the sale – should be assessed in terms of their ability to create value for customers.

The core of marketing is to surpass the competition in creating perceived value for customers.

The value equation is the guide to this task:

Value = Benefits / Price (money, time, effort, etc.)

The marketing mix is central to this equation because benefits are a combination of the product,

promotion, and distribution components of the mix.

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Value to the customer can be increased in two ways – 1) an improved bundle of benefits or 2) a

lower price (or both):

1) Marketers may improve the product, design new channels of distribution, communicate

better – or a combination of all three.

2) Marketers may seek ways to cut costs or lower the price. Nonmonetary costs may be

lowered by decreasing the time and effort customers must expend to learn about or

acquire a product.

If a company is able to offer a combination of superior product, distribution, and promotion of

the benefits AND offer lower prices than its competition, it should enjoy an extremely

advantageous position. Recall the definition of a market: people or organizations that are both

able and willing to buy. In order to achieve market success, a product or brand must measure up

to a threshold of acceptable quality and be consistent with buyer behavior, expectations, and

preferences

Competitive Advantage, Globalization, and Global Industries

(Learning Objective #2)

When a company succeeds in creating more value for customers than its competitors, that

company is said to enjoy competitive advantage in an industry. Competitive advantage is

measured relative to rivals with whom you compete in the industry – whether that is on a local,

national, or global level.

Global marketing is essential if a company competes in a global industry or one that is

globalizing.

The process of globalization is the transformation of formerly local or national industries into

global ones.

From a marketing point of view, globalization presents companies with tantalizing opportunities

—and challenges—as executives decide whether to offer their products and services everywhere.

As defined by management guru Michael Porter, a global industry is one in which competitive

advantage can be achieved by integrating and leveraging operations on a worldwide scale. Put

another way, an industry is global to the extent that a company’s industry position in one country

is interdependent with its industry position in other countries. Indicators of globalization include

the ratio of cross-border trade to total worldwide production, the ratio of cross-border investment

to total capital investment, and the proportion of industry revenue generated by companies that

compete in all key world regions. One way to determine the degree of globalization in an

industry sector is to calculate the ratio of the annual value of global trade in the sector—

including components shipped to various countries during the production process—to the annual

value of industry sales.

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Achieving competitive advantage in a global industry requires executives and managers to

maintain a well-defined strategic focus. Focus is simply the concentration of attention on a core

business or competence. Companies that understand and engage in global marketing can offer

more overall value to customers than companies that do not have that understanding.

Value, competitive advantage, and the focus required to achieve them are universal in their

relevance, and they should guide marketing efforts in any part of the world. Global marketing

requires attention to these issues on a worldwide basis and utilization of a business intelligence

system capable of monitoring the globe for opportunities and threats. A fundamental premise of

this book can be stated as follows: Companies that understand and engage in global marketing

can offer more overall value to customers than companies that do not have that understanding.

Global Marketing: What It Is and What It Isn’t

The discipline of marketing is universal. It is natural, however, that marketing practices will

vary from country to country, for the simple reason that the countries and peoples of the world

are different. A successful marketing approach in one country may not necessarily succeed in

another. Customer preferences, competitors, channels of distribution, and communication media

may differ. An important managerial task in global marketing is learning to recognize the extent

to which it is possible to extend marketing plans and programs worldwide, as well as the extent

to which adaptation is required.

(Learning Objective #3)

The way a company addresses this task is a reflection of its global marketing strategy (GMS). In

single-country marketing, strategy development addresses two fundamental issues: choosing a

target market and developing a marketing mix. The same two issues are at the heart of a firm’s

GMS, although they are viewed from a somewhat different perspective (see Table 1-3).

A Long, Strange Trip: The Grateful Dead at 50

Tells the story about how the band, the Grateful Dead, in 1965 created a new art form with a

sound that incorporated blues, jazz, rock, jug band, folk, and other cultural influences. In 2015

as the bad approached their 50th anniversary, many industry observers hailed the Dead for

innovations that continue to impact the music scene in the present day. Precursors of

contemporary marketing concepts such as brand equity, freenomics, brand tribes, the sharing

economy, customer relationship management, niche marketing, and word-of-mouth marketing

can be seen in their business practices.

a) Global market participation – is the extent to which a company has operations in major

world markets.

b) Standardization versus adaptation – is the extent to which each marketing mix element

can be standardized (used the same way) or must be adapted (used in different ways) in

different country markets.

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c) Concentration of marketing activities – is the extent to which activities related to the

marketing mix (such as pricing decisions) are performed in one or only a few country

locations.

d) Coordination of marketing activities – is the extent to which marketing activities related

to the mix are planned and executed interdependently around the globe.

e) Integration of competitive moves – the extent to which a firm’s competitive marketing

tactics in different parts of the world are interdependent.

The decision to enter one or more particular markets outside the home country depends on a

company’s resources, its managerial mind-set, and the nature of opportunities and threats.

Global marketing does mean widening business horizons to encompass the world in scanning for

opportunities and threats.

The five emerging markets of Brazil, Russia, India, China, and South Africa represent significant

growth opportunities. They are known as BRICS. Mexico, Indonesia, Nigeria, and Turkey—the

so-called MINTs—also hold great potential.

We can use Burberry as a case study in global marketing strategy. The U.K.-based luxury brand

is available in scores of countries, and Burberry’s current expansion plans emphasize several

geographical areas. Burberry’s marketing mix strategy includes the following:

Product: Boost sales of handbags, belts, and accessories—products whose sales are less cyclical

than clothing.

Price: More expensive than Coach, less expensive than Prada. “Affordable luxury” is central to

the value proposition.

Place: Burberry intends to open more independent stores in the United States as well as

expansion in London and Hong Kong.

Promotion: Encourage advocacy and sharing social media and online channels such as Twitter,

Instagram, and www.artofthetrench.com. Launch Burberry Acoustic to enhance brand relevance

and to provide exposure for emerging music talent via www.burberry.com/acoustic.

The issue of standardization versus adaption has been at the center of a long-standing

controversy among both academicians and business practitioners. Much of the controversy dates

back to the days of Theodore Levitt’s (1983) “homogenized global market.” Levitt envisioned a

global community where standardized, high-quality world products would be marketed in a

standardized manner.

The “homogenized global market” view didn’t work. Even those companies that have become

global successes have not done so through total standardization of the product.

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Global marketing made Coke a worldwide success. However, that success was not based on a

total standardization of marketing mix elements.

Coca-Cola succeeded through the application of global localization. What does the term “global

localization” really mean? Global localization: Think globally, act locally (refer to Table 1-4).

a) For example, Cinnabon’s customers in Central and South America prefer dulce de leche.

Products developed in those regions being introduced in the U.S., where the Hispanic

population is a key segment.

b) Starbucks opened an experimental store in Amsterdam that serves as a testing ground for

new design concepts such as locally sourced and recycled building materials.

c) Kraft’s Tang powder became a $ 1 billion brand as regional managers in Latin American

and the Middle East moved beyond orange (the top-seller) into popular local flavors such

as mango and pineapple. Kraft plans to use these lessons learned on the U.S. market.

Global marketing may include a combination of standard and nonstandard approaches. Global

marketing requires marketers to think and act in a way that is both global and local by

responding to similarities and differences in world markets.

The particular approach to global marketing that a company employs will depend on industry

conditions and its sources of competitive advantage.

For example, McDonald’s global marketing strategy is based on a combination of global and

local marketing mix elements (refer to Table 1-4).

a) For example, Harley-Davidson’s competitive advantage is based in part on “Made in the

USA.” Moving production to a low-wage country would tarnish its image.

b) Toyota’s and Honda’s success in the US has come through its ability to transfer world-

class manufacturing skills to America and advertising that the Camry is “Made in the

USA” by Americans.

c) Uniqlo, a division of Japan’s Fast Retail operates about 850 stores in Japan and 300 stores

in 12 overseas countries. Uniqlo currently has 6 stores in the U.S. but plans call for a

total of 200 stores by 2020.

The Importance of Global Marketing

The largest single market in the world in terms of national income is The United States,

representing roughly 25 percent of the total world market for all products and services.

U.S. companies that wish to achieve maximum growth potential must “go global” because 75

percent of the world market potential is outside of their home country.

Non-US companies have an even greater incentive to “go global;” their potential markets include

the 300 million people in the US.

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