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PART SIX
MANAGING INTERNATIONAL OPERATIONS
CHAPTER SEVENTEEN
MARKETING GLOBALLY
OBJECTIVES
17-1 Classify international marketing strategies in terms of marketing orientations,
segmentation, and targeting
17-2 Discuss the pros and cons of adaptation versus global standardization of products
17-3 Describe pricing complexities when selling in foreign markets
17-4 Recognize the advantages and problems of using uniform promotional marketing practices
among countries
17-5 Explain the different branding strategies companies may employ internationally
17-6 Discern major practices and complications of international distribution
17-7 Illustrate how gap analysis can help in managing the international marketing mix
CHAPTER OVERVIEW
Marketing is a social and managerial process through which individuals and organizations
satisfy their needs and objectives via the exchange process. Chapter Seventeen begins by
examining the ways in which marketing managers analyze country market potential in order to
develop effective international marketing mix strategies. It reviews the adaptation vs.
standardization debate and also considers the rationale for selecting nationally responsive vs.
globally integrated marketing strategies. The chapter discusses each of the marketing mix
variables from an international perspective and concludes with a note about international
e-commerce.
CHAPTER OUTLINE
OPENING CASE: Tommy Hilfiger
The Tommy Hilfiger brand has been very successful since its introduction in 1988. The
brand became an almost overnight success with creative advertising that created a mental
association of the name with other designer brands. International sales account for
approximately half of all sales and the company is seeking ways to harmonize its
American and European operations and designs. But markets differ and Tommy Hilfiger
recognizes some of the issues. European operations are more expensive, and prices are
higher in Europe than in the United States due to the need for more design changes in
Europe, and the fragmentation of the European wholesale and retail system. In the United
States, the retail market is more concentrated and produces greater efficiencies that can be
passed on to consumers. Also, in some cases, European consumers were demanding
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higher-quality materials be used for the clothing. Price differentials between Europe and
the United States can bring about a few difficulties such as gray market activity and image
problems.
I. INTERNATIONAL MARKETING STRATEGIES: ORIENTATIONS,
SEGMENTATION, AND TARGETING
Although marketing principles are global, companies need to apply them differently abroad.
A. Marketing Orientations
The international applications of five common product policies are highlighted below.
1. Production Orientation. A production orientation indicates a firm is more
concerned about production variables such as efficiency, quality, and/or capacity
than it is about marketing. Firms assume customers want lower prices and/or
higher quality. Such an approach is still used internationally for selling
commodities, for passive exports, and for serving foreign-market segments that
resemble domestic markets.
2. Sales Orientation. A sales orientation indicates a firm assumes global
customers are reasonably similar and it can, therefore, sell abroad the same
product it sells at home. A firm will be aided in this approach when there is also
a spillover of product information from one country to another.
3. Customer Orientation. A customer orientation indicates a firm is sensitive to
customer needs, i.e., it thinks in terms of identifying and serving the needs of the
customer. Given a particular country market, what products are needed?
4. Strategic Marketing Orientation. A strategic marketing orientation
indicates a firm is committed to continuously serving foreign target markets and
to making incremental product adaptations to satisfy local customers. It draws
upon elements of the production, sales, and customer orientations, as
appropriate.
5. Societal Marketing Orientation. The societal marketing orientation
indicates a firm recognizes it must conduct its activities in a way that preserves
or enhances the well-being of all its stakeholders, i.e., as it serves the needs of
its customers it must also address the environmental, health, social, and
work-related problems that may arise when producing or marketing its products
abroad.
B. Segmenting and Targeting Markets
Market size is not only a function of population in a given country, but is more
specifically related to how many people are likely to consume a particular product.
The most common way of identifying market segments within a country is through
demographic factors such as income, age, gender, ethnicity, and religion.
Internationally, segmentation and targeting may take place at a
global or country level
a. By Global Segment. A company may identify some segments
globally, such as segments based primarily on income. Thus each
country may have some people within the same segment.
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b. By Country. A company may choose to segment its market by
selecting a single country to enter. There is little opportunity of gaining
economies through standardization with this approach.
c. Mixing the Marketing Mix. A company may hold one or more elements
of its marketing functions—prices, promotion, branding, and distribution—
constant while altering the others
d. Mass Markets versus Niche Markets. Companies must decide when
introducing their products abroad to enter it with a mass market or niche
market strategy. Because the percentage of people that fall into any
segment may vary substantially among countries, a niche market in one
country may be a mass market in another.
II. PRODUCT POLICIES: COUNTRY ADAPTATION VERSUS GLOBAL
STANDARDIZATION
Although adopting marketing orientations that involve product adaptations for foreign
markets is often costly, many companies continue to make product alterations for foreign
markets for a variety of compelling reasons.
A. Why Firms Adapt Products
The primary reasons behind the tendency of firms to alter their products to meet local
conditions are legal, cultural, and/or economic in nature.
1. Legal Considerations. Explicit product-related legal requirements vary widely
by country but are usually meant to protect customers, the environment, or both.
a. Labeling Requirements. One of the more cumbersome product
alterations for companies is adjusting to different laws on labeling.
b. Environmental-Protection Regulations. Some countries prohibit
certain types of containers, others restrict the volume of packaging
materials, and there are sometimes mandates on container reusability.
c. Indirect Legal Considerations. Marketing managers must also
watch for indirect legal requirements such as higher taxes on heavy
automobiles that may shift demand to lighter ones.
d.Issues of Standardization. A recurring issue is the need to arrive at
international product standards and eliminate some of the wasteful
product requirements for alterations among countries.
2. Cultural Considerations. Cultural factors affecting product demand may or
may not be easily discerned. While religious beliefs may offer clear guidelines
regarding product acceptability, other factors such as color, design, and artistic
preferences may be much more subtle.
3. Economic Considerations. Levels of income, differences in income
distribution, and the extent and condition of available infrastructure can all affect
demand for a particular product. Often, price-reducing alterations are required if
a firm wishes to participate in a particular country market. Poor infrastructure
may also require alterations, as companies must deal with rough terrain, etc.
B. Alteration Costs
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Usually, firms will choose to standardize basic components while altering critical
end-use characteristics. Certain alterations (such as packaging and color options) may
be inexpensive to make, yet they can have an important effect on demand.
C. The Product Line: Extent and Mix
Although most companies produce multiple products, it is doubtful that all of these
products could generate sufficient sales in a given foreign market to justify the cost of
penetrating that market.
1. Sales and Cost Considerations. When making product line decisions,
managers must consider the cost and effect on sales of offering just one or a few
products internationally as opposed to an entire family of products. Whereas
narrowing a product line allows for the concentration of effort and resources, the
broadening of a product line may lead to distribution economies.
III. INTERNATIONAL PRICING COMPLEXITIES
Price represents the value asked for a product. In the long run, price must be low enough
to generate sufficient demand but high enough to yield a profit to the firm.
A. Potential Obstacles in International Pricing
The complexities of pricing are exacerbated in the international arena.
1. Government Intervention. Every country has laws that either directly or
indirectly affect prices at the consumer level. Price controls may set either
maximum or minimum prices for designated products. The WTO permits a
government to establish restrictions against any imports that enter the country at
a price below the price charged to customers in the exporting country (dumping).
However, a firm may charge different prices in different countries because of
competitive and demand factors (e.g., a firm may choose to exclude fixed costs
in the price calculation of products exported to developing countries in order to
be price competitive in those markets.)
2. Market Diversity. Country variations lead to many ways of segmenting the
market for a particular product. Consumers in some countries simply like certain
products more and are willing to pay more for them.
a. Pricing Tactics. Depending upon market conditions, a firm may
adopt any of the following pricing strategies. A skimming strategy sets a
high price for a new product, which is aimed at market innovators. Over
time, the price will be progressively lowered in response to demand and
supply conditions, i.e., the presence of additional competitors. A
penetration strategy sets an aggressively low price to attract a maximum
number of customers (some of whom may switch from other brands) and to
discourage competition. A simple cost-plus strategy sets the price at a
desired margin over cost. Cash versus credit buying also affects demand.
3. Export Price Escalation. If standard markups occur within distribution
channels, either lengthening the channels or adding other expenses somewhere
within the network will further increase the delivered price of the product.
Common reasons for price escalation in export sales are tariffs and the
often-greater distance to the market. To compete in export markets, a firm may
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have to sell its products to intermediaries at a reduced price in order to lessen the
amount of price escalation [see Fig 17.2].
4. Fluctuations in Currency Value. Pricing in the case of highly volatile
currencies can be extremely difficult, especially under conditions of high
inflation. Pricing decisions must assure the company of sufficient funds to
replenish inventory. This may result in the need for frequent price adjustments.
Further, currency fluctuations also affect pricing decisions for any product that
faces foreign competition; when a currency is strong, producers may have to
accept a lower profit margin if they wish to be price competitive.
a. The Gray Market. The longer-term viability of a distribution system
can be undermined in some cases by activities in the gray market, the
selling and handling of goods through unofficial distributors.
5. Fixed versus Variable Pricing. MNEs often negotiate export prices, while
small companies frequently give price concessions too quickly. This limits small
companies’ ability to negotiate on a range of marketing factors that affect their
costs such as:
• Discounts for quantity or repeat orders
• Deadlines that increase production or transportation costs
• Credit and payment terms
• Service
• Supply of promotional materials
• Training of sales personnel or customers
a. Supplier Relations. Dominant retailers with substantial clout may get
suppliers to offer them lower prices, which in turn will enable them to
compete as the lowest-cost retailer. However, such clout may not exist in
new foreign markets. In addition, many industrial buyers are claiming
large price reductions through Internet purchases.
IV. SHOULD PROMOTION DIFFER AMONG COUNTRIES?
Promotion consists of the messages intended to help sell a product or service. The types
and direction of messages and the method of presentation may be extremely diverse,
depending on the company, product, and country of operation.
A. The Push-Pull Mix
Promotion strategies may be categorized as push (which uses direct selling
techniques) or pull (which relies on mass media). Most firms use a combination of
both.
1. Factors in Push-Pull Decisions. Factors that will determine the mix of push
and pull strategies include the type of distribution system, the cost and
availability of media, customer attitudes toward sources of information, and the
relative price of the product as compared to disposable income. Push is more
likely when self-service is not predominant, advertising is restricted, and product
price is a high portion of income.
A. Some Problems in International Promotion
Because of diverse national environments, promotional problems are varied. In
many countries regulations pose an even greater barrier. In emerging economies, MNEs
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usually have to use more push strategies for mass consumer products.
1. Advertising Standardization: Pro and Con. Advertising represents any paid
form of media (nonpersonal) presentation. Although savings from the
standardization of advertising are not as great as those from product
standardization, they can nonetheless be substantial. However, in addition to
reducing costs, standardized advertising may also improve the quality of
advertising at the local level, prevent the confusion associated with different
national messages and images and speed the entry of products into new country
markets. Standardization usually implies using the same agency globally. The
issue of standardization in advertising raises problems in a few other areas—
namely, translation, legality, and message needs.
a. Translation. When a media transmission spans multiple
countries, there is no opportunity to translate a message into other
local languages. When messages are translated, numerous difficulties
can be encountered with both language (content and meaning) and
images.
b. Legality. What is deemed to be legal advertising in one country may, in
fact, be illegal elsewhere. Differences result mainly from varying
national views on consumer protection, competitive protection,
standards of morality, and nationalism.
c. Message Needs. An advertising theme may not be appropriate
everywhere because of national differences in how well consumers
know a product, how they perceive it, who makes the purchasing
decision, and what features are most important.
2. The Internet. The growth in products’ online availability through the Internet
creates new promotional and distributional opportunities and challenges.
a. Opportunities. There are certainly many e-commerce success stories.
These include promotion for direct sales as well as information to
pre-sell and inform shoppers where they may buy the products.
b. Problems. Global Internet sales are not without glitches. A company
that wants to reach global markets may need to supplement its Internet
sales with other means of promotion and distribution, which can be very
expensive. Further, a switch to Internet sales may risk upsetting
existing distributors and, if unsuccessful, make future sales more
difficult.
V. INTERNATIONAL BRANDING STRATEGIES
A brand is a name, term, sign, symbol, and/or design that is intended to identify a product
or product line and differentiate it in the marketplace. A trademark is a brand, or a part of a
brand, that is granted legal protection because it is capable of exclusive appropriation. It
protects the seller’s exclusive rights to use the brand name and/or brand mark.
A. Global Brand versus Local Brands
In addition to the same branding decisions that every producer has to make,
international marketers must make a decision about whether to adopt a worldwide
brand or to brand products for a variety of local markets.
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1. Advantages of Global Brands. A global image assists in the marketing to
international travelers and creates an international identity as a global player.
2. Some Problems with Global Brands. A number of problems are inherent in
using global brands
a. Language. Both the translation and pronunciation of brand names pose
potential problems in many markets. Often the problems are obvious, but
other times they are quite subtle, yet critical. In addition, brand symbols
(shapes and colors) are culturally sensitive in many societies.
b. Brand Acquisition. When an MNE acquires a (foreign) firm, it
automatically acquires its brands. In some instances those brands will be
maintained; in others they will be folded into a larger brand in order to
capture economies of scale and to promote regional/global brand recognition.
c. Country-of-Origin Image. Firms must determine whether to promote a
local or foreign image for their products. The products of some countries may
be perceived as being particularly desirable and of higher quality than
products from other countries. A firm may be able to enhance its competitive
advantage by effectively exploiting this perception.
d. Locational Origin of Names. One ongoing international legal debate
concerns product names associated with location. The EU protects the names
of many European products based on location names, such as Roquefort and
Feta cheeses, Parma ham, and Chianti wine. It has also pushed for protection
against the foreign use of regulated names associated with wines, such as
clos, chateau, tawny, noble, ruby, and vintage.
e. Generic and Near-Generic Names. While firms want their brand names
to become household words, they do not want those names to become so
common they are considered to be generic (e.g., Kleenex and Xerox).
Generic names may either stimulate or frustrate the sales of the firm from
whom the name was expropriated.
POINT—COUNTERPOINT:
Should Home Governments Regulate Their Companies’ Marketing in Developing
Countries?
POINT: International companies sell products in developing countries for which there are
restrictions in their home countries. Often, the regulations in developing countries are lax, and
the consumers may not be able to make good decisions due to poor education and low incomes.
If home governments don’t regulate to protect consumers in developing countries, no one will.
In addition to selling potentially harmful products, many MNEs also neglect to develop new
products that consumers in developing countries actually need. Further regulation may help to
improve the situation for consumers in developing countries.
COUNTERPOINT: Instead of regulating companies, efforts should be focused on improving
education and living standards in less developed countries. Even if developed countries limited
their own companies from selling certain harmful products, companies from developing
countries would likely continue to sell those same products. Again, education of individuals,
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rather than government intervention, is the only effective long-term solution to consumer
protection.
VI. DISTRIBUTION PRACTICES AND COMPLICATIONS
Distribution refers to the physical and legal path that products follow from the point of
production to the point of consumption. In many instances, geographic barriers and poor
transportation infrastructure and facilities will divide a country into very distinct viable
and non-viable markets.
A. Deciding Whether to Standardize
Distribution is often the marketing mix variable that firms find the most difficult to
standardize. This is because each country has its own national distribution system
that is historically intertwined with its cultural, economic, and legal environments.
Other factors that influence the ways in which consumer products are distributed
within a given country include people’s attitudes toward entrepreneurship, the ability
to pay retail workers, restrictions on the size of stores and their hours of operation,
the financial ability to carry large inventories, and the efficacy of the national postal
system.
B. Internalization or Not?
Should companies handle their own distribution? Or should they contract other
companies to do it for them?
1. Sales Volume and Cost. When sales volume is low, it is usually more cost
effective for a firm to contract with an external distributor. On the other hand,
distribution may be handled internally when sales volume is high, when the firm
has sufficient human, capital, and financial resources, when after-sales service is
extensive and complex, when customers are global, and when a firm can
otherwise enhance its competitive advantage.
2. Factors Favoring Internalization. Circumstances conducive to
internalization include not only high sales volume but also the following factors:
When a product has the characteristic of high price, high technology, or
the need for complex after-sales servicing (such as aircraft), the
company will probably have to deal directly with the buyer, but may
simultaneously use a distributor to identify sales leads.
When the company deals with global customers, especially
business-to-business, sales may go directly to the global customer.
When the company’s main competitive advantage is its distribution
methods, it may control distribution abroad, such as Avon’s direct
selling through independent representatives.
C. Distribution Partnership
If a company wishes to collaborate with a distributor abroad, it can usually compare
several potential companies. While trying to find the best distributors, it must also
convince them to handle its products.
1. Which Distributors Are Best Qualified? The choice of international
distributor depends on the same criteria as for domestic options. These criteria
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include the distributor’s financial strength, its good connections, the extent of its
other business commitments, its current status (e.g., personnel, facilities, and
equipment), and its reputation as an honest performer.
2. Promoting to Potential Distributors. Companies must evaluate potential
distributors, but distributors must choose which companies and products to
represent and emphasize. In some cases, distributors are tied into exclusive
arrangements with manufacturers that impede new competitive entries.
D. Distribution Challenges and Opportunities
1. How Reliable Is After-Sales Service? The more complex and
expensive a product, the more important that after-sales service will be. When
after-sales service is critical, firms may need to invest in service centers, which, can
in turn, become important sources of revenues and profits.
2. Hidden Costs and Gains in Distribution. Several factors often contribute to
country differences in distribution costs:
a. Infrastructure Conditions. Where roads and warehousing facilities are in
bad condition, getting goods to consumers quickly, cheaply, and with
minimum damage or loss is problematic.
b. Levels in the Distribution System. Where there are multitiered wholesalers
that sell to each other before the product reaches the retail level, each
intermediary adds a markup and prices escalate.
c. Retail Inefficiencies. Where low labor costs and owners’ distrust of
nonfamily members cause counter- rather than self-service merchandise
examination, there is less productivity in serving customers. In addition,
many retailers (mainly in developing economies) lack equipment that
improves the efficiency of handling customers and reports, such as
electronic scanners and payment systems linked to inventory-control
records and to credit card companies.
d. Inventory Stock-Outs. Costs rise where governments restrict the ability of
some retailers from using more productive distribution practices.
VIII. GAP ANALYSIS: A TOOL FOR HELPING TO MANAGE THE
INTERNATIONAL MARKETING MIX
Although every element in the marketing mix is important, the relative importance of one
versus another may vary from place to place and over time. Thus management must
monitor and adjust its marketing programs accordingly. Once a company is operating in a
country and estimates that country’s market potential, it must calculate how well it is
doing there. One tool that can be used to accomplish this is gap analysis—a method for
estimating potential sales by identifying market segments a company is not serving
adequately [see Fig 17.3]. The difference between total market potential and a company’s
sales is due to several types of gaps:
• Usage—collectively, all competitors sell less than the market potential
• Product line—the company lacks some product variations
• Distribution—the company misses coverage by geography or type of outlet
• Competitive—competitors’ sales are not explained by product-line and distribution gaps
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A. Usage Gaps. Gaps may exist in a country’s usage of the product.
Marketing campaigns may be developed to attempt to persuade
consumers in those countries to use more of the product.
B. Product Line Gaps. Gaps that develop due to the lack of a wide line of
products sold by the company.
C. Distribution and Competitive Gaps. A company’s products may be sold in
too few places, creating a gap in distribution. There also may be competitive
gaps—sales by competitors that cannot be explained by differences between
product lines and distribution. That is, competitors are selling more because of
their prices, advertising campaigns, goodwill, or any of a host of other factors.
D. Aggregating Countries’ Programs. Although gap analysis prioritizes
elements in the marketing mix within countries, it is also possible to use the tool
by aggregating needs among countries.
LOOKING TO THE FUTURE:
How Might International Market Segmentation Evolve?
There are, of course, many global trends that may affect future international marketing than we
can possibly highlight (e.g., aging population, growing obesity, increasing
use of social media), thus the following discussion highlights only one key demographic and
one key psychographic area. Most projections indicate the disparities between the “haves” and
the “have-nots” of the world will continue to grow throughout the foreseeable future, both
within and across countries. To serve the “haves,” firms will offer luxury products to customer
niches that cut across national boundaries. At the other extreme, companies will have
numerous opportunities to develop low-cost, standardized products designed to fit the needs of
the “have-nots.” Thus, companies will have
conflicting opportunities: develop luxury to serve the haves and cut costs to serve the
have-nots. Despite the growing proportions of haves and have-nots, demographers
project that the actual numbers of people moving out of poverty levels and into middle-income
levels will increase. Attitudinal differences also affect demand in general as well as for
particular types of products and services. There are three types of personality traits that affect
how potential consumers react. The traits are materialism, cosmopolitanism, and
ethnocentrism. The traits are not mutually exclusive but the portion of people who are
influenced by one or another varies by country.
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