CHAPTER 14
DEVELOPING AND MARKETING PRODUCTS
LEARNING OBJECTIVES:
14.1 Describe the factors to consider in developing international product strategies.
14.2 Outline the international promotional strategies and methods available to firms.
14.3 Explain the factors to consider when designing international distribution
strategies.
14.4 Describe the two main international pricing strategies and factors to consider.
CHAPTER OUTLINE:
Introduction
Developing Product Strategies
Laws and Regulations
Cultural Differences
Brand and Product Names
Selecting International Brand and Product Names
National Image
Counterfeit Goods and Black Markets
Shortened Product Life Cycles
Creating Promotional Strategies
Push and Pull Strategies
International Advertising
Standardizing or Adapting Advertisements
Case: The Elusive Euro-Consumer
Blending Product and Promotional Strategies
Communicating Promotional Messages
Product/Communications Extension (Dual Extension)
Product Extension/Communications Adaptation
Product Adaptation/Communications Extension
Product/Communications Adaptation (Dual Adaptation)
Product Invention
Designing Distribution Strategies
Designing Distribution Channels
Degree of Exposure
Channel Length and Cost
Influence of Product Characteristics
Special Distribution Problems
Lack of Market Understanding
Theft and Corruption
Developing Pricing Strategies
Worldwide Pricing
Copyright © 2019 Pearson Education, Inc.
Dual Pricing
Factors That Affect Pricing Decisions
Transfer Prices
Arm’s Length Pricing
Price Controls
Dumping
A Final Word
A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 14.
These slides and the lecture outline below form a completely integrated package that simplifies the
teaching of this chapter’s material.
Lecture Outline
I. INTRODUCTION
Globalization affects international business activities, industries, and products differently. Some
companies market an identical product worldwide, whereas others must adjust marketing
strategies across national markets. Companies that cannot sell the same product abroad as at
home must create new products, modify promotional campaigns, or adjust their marketing
strategies in some other way. Yet, how do managers decide when their marketing strategies can
remain the same or if they need modification? This dilemma is referred to as the
standardization-versus-adaptation decision.
II. DEVELOPING PRODUCT STRATEGIES
A. Laws and Regulations
1. Companies must adapt their products to satisfy laws and regulations in a target
market.
2. The fact that many developing countries have fewer consumer-protection laws
creates an ethical issue; lower levels of education and experience mean that
consumers need protection.
3. Many governments impose fewer regulations to hold down production costs and
consumer prices.
B. Cultural Differences
1. Companies sometimes must adapt their products to suit local buyers’ preferences
rooted in culture.
2. Not all companies modify products but find a different cultural need that it
satisfies.
C. Brand and Product Names
1. Brand name is the name of one or more items in a product line that identifies the
source or character of the items. Consumers assign products a certain value
based on experiences with a brand.
2. Brand names help consumers select, recommend, or reject products; they also
function as legal property that owners can protect from competitors.
3. A consistent worldwide brand image is important as more consumers and
businesspeople travel internationally.
4. Companies must review its brand image and update it if needed.
5. Selecting international brand and product names
a. Products in international markets need carefully selected names whether
standardized or localized.
b. Company and product names are made up of morphemes—semantic
elements, or language building blocks.
c. Brand names seldom offend people in international markets, but product
names do.
D. National Image
1. Value customers obtain from a product is influenced by the image of the country
in which it is designed, manufactured, or assembled.
2. Image can be positive for some products but negative for others.
3. Because it affects buyers’ perceptions of quality and reliability, national image is
an important element of product policy.
4. National image can and does change over time.
E. Counterfeit Goods and Black Markets
1. Counterfeit goods are imitation products passed off as legitimate trademarks,
patents, or copyrighted works. See Chapter 3 for discussion as to how companies
are trying to protect their intellectual property and trademarks from counterfeit
goods.
2. Counterfeit brand name consumer goods, such as watches, perfumes, clothing,
movies, music, and computer software are sold to consumers on the black
market.
3. Topping the list for counterfeits: China, India, Russia, Thailand, and Turkey.
Counterfeiting is worth tens of billions globally each year.
4. Counterfeit goods can damage buyers’ images of a brand when the counterfeits
are of inferior quality to the original. Buyers who purchase a brand expect a level
of craftsmanship and satisfaction; when the product fails to deliver on
expectations, the buyer is dissatisfied and the company’s reputation is tarnished.
F. Shortened Product Life Cycles (See Chapter 5 – International Product Life Cycle)
1. Companies traditionally managed to extend a product’s life by introducing it into
different markets consecutively; products were first in industrialized countries
and later in developing markets.
2. Advances in telecommunications have alerted consumers around the world to the
latest product introductions; consumers in developing and emerging markets
demand the latest products.
3. Companies now undertake new product development at a rapid pace and shorten
product life cycles.
III. CREATING PROMOTIONAL STRATEGIES
Efforts by companies to reach distribution channels and target customers through
communications such as personal selling, advertising, public relations, and direct marketing are
called its promotion mix.
A. Push and Pull Strategies
1. Pull strategy: Create buyer demand that will encourage channel members to
stock a company’s product. Buyer demand is generated in order to “pull”
products through distribution channels to end-users.
2. Push strategy: Pressure channel members to carry a product and promote it to
final users. Manufacturers of products sold in department and grocery stores
often use a push strategy.
3. The strategy to use depends on the type of distribution system, access to mass
media, and the type of product.
a. Distribution system: Implementing a push strategy is difficult when
channel members wield a great deal of power relative to that of
producers. It can be ineffective when distribution channels are lengthy. It
might be easier to use a pull strategy.
b. Access to mass media: Developing and emerging markets have fewer
forms of mass media, making it difficult to increase consumer awareness
and generate product demand. Many consumers cannot afford cable or
satellite television, or glossy magazines, so advertisers use billboards and
radio.
c. Type of product: A pull strategy is appropriate when buyers display brand
loyalty; brand-loyal buyers know what they want before they buy it. Push
strategies are appropriate for inexpensive consumer goods for buyers
who are not brand loyal; low brand loyalty means that a buyer purchases
one of the brands carried by the retailer.
B. International Advertising
International advertising differs from domestic advertising. Cultural similarities mean
that ads are only slightly modified in different nations. Cultural differences may mean
that entirely new ads must be created.
1. Standardizing or adapting advertisements
a. Most advertising in any one nation is produced solely for that domestic
audience. Companies that advertise in multiple markets must determine
the aspects of the advertising campaign that can be standardized and
those that cannot.
b. To pursue a global marketing strategy, a company tries to get the most
for its advertising expenditure. An increasingly popular method is
marketing over the World Wide Web. Companies that use direct
marketing (such as telemarketing or leaflets through the mail) have had
mixed results with Web ads. (See Chapter 11)
c. Companies reach a global audience by sponsoring global sporting events,
such as the Olympics, World Cup Soccer, and Formula One automobile
racing.
2. Case: The Elusive Euro-Consumer
a. The integration of EU nations causes marketers to think they can
standardize advertising to appeal to the Euro-consumer.
b. Advertising agencies have tried a pan-European advertising approach
only to fail due to national differences; Europe’s many languages create
translation issues for marketers.
c. Successful pan-European ads contain visuals, few words, and a focus on
the product.
C. Blending Product and Promotional Policies
When companies extend marketing to international markets, they develop
communication strategies that blend product and promotional policies. A company’s
communication strategy for a market considers the nature of the product and the
promotion mix. There are five product/promotional methods.
1. Communicating promotional messages
a. Marketing communication is the process of sending promotional
messages about products to target markets.
b. Marketing internationally often means translating promotional messages
from one language to another. Marketers must also be knowledgeable of
cultural nuances that affect how buyers interpret a promotional message.
c. Laws that govern promotion in another country can force changes in
marketing communication.
d. Marketing communication is typically considered a circular process
(Figure 14.1):
i. The company with an idea to communicate is the source.
ii. The idea is encoded (translated into images, words, and symbols)
into a promotional message.
iii. The promotional message is sent to the audience (potential
buyers) through various media—radio, television, newspapers,
magazines, billboards, and direct mailings. The audience receives
the message, decodes the message, and interprets its meaning.
iv. Information in the form of feedback (purchase or nonpurchase)
flows to the source of the message.
v. The decoding process can be disrupted by the presence of noise—
anything that disrupts the audience’s ability to receive and
interpret the promotional message. Language barriers between the
company and potential buyers create noise if a company’s
promotional message is incorrectly translated into the local
language.
2. Product/communications extension (dual extension)
a. Extends the same home-market product and marketing promotion into
target markets. Under certain conditions, it can be the simplest and most
profitable strategy.
b. May grow more popular as the information age ties the world together.
Best suited for companies that use a global strategy; upscale personal
items with global brand names.
c. Useful to companies who are low-cost leaders in their industries; one
product and one promotional message keep costs down.
3. Product extension/communications adaptation
a. Extends the same product into new target markets, but alters its
promotion. Communications require adaptation because the product
satisfies a different need, serves a different function, or appeals to a
different type of buyer.
b. Contains costs because the product does not undergo any alterations;
developing new promotional campaigns is expensive.
c. Low economic development can demand that communications be
adapted to local conditions. In developing countries, television and radio
coverage are limited and the Web is years behind; marketers use door-to-
door personal selling and regional product shows or fairs.
4. Product adaptation/communications extension
a. Requires a company to adapt its product to the international market yet
retain the original marketing communication.
b. Company may adapt its product for reasons such as legal requirements in
the local market. Governments can require certain local materials, labor,
or other resources in local production process; if the same materials are
not available locally, the product may be modified.
c. Can be costly, especially if a company invests in production facilities to
remain close to changing buyer preferences. It can be successful if a firm
sells a differentiated product and charges a higher price to offset
production costs.
5. Product/communications adaptation (dual adaptation)
a. Adapts a product and its marketing communication to suit the target
market. The product itself is adapted to match the needs or preferences of
local buyers. The promotional message is adapted to explain how the
product meets those needs and preferences.
b. High cost means few companies employ this strategy; it can be
implemented successfully if a large and profitable market segment exists.
6. Product invention
a. Requires that an entirely new product be developed for the target market.
Product invention is necessary when many differences exist between the
domestic and target markets.
b. One reason for invention is that local buyers cannot afford a product
because of low purchasing power.
c. Product inventions can arise due to lack of infrastructure.
IV. DESIGNING DISTRIBUTION STRATEGIES
Planning, implementing, and controlling the physical flow of a product from its point of origin
to its point of consumption is called distribution.
The physical path that a product follows on its way to customers is called a distribution
channel. Companies along this channel that work together in delivering products to customers
are called channel members or intermediaries.
Manufacturers of goods are not the only producers who need distribution channels;
service providers such as consulting companies, health-care organizations, and news services
need distribution.
Companies develop their international distribution strategies based on two related
decisions: (1) how to get the goods into a country and (2) how to distribute goods within a
country. See Chapter 13 for a review of the different ways companies can get their products into
countries.
A. Designing Distribution Channels
When managers establish distribution policies, they consider the market exposure
needed and the cost of distribution.
1. Degree of exposure
a. Exclusive channel: Manufacturer grants the right to sell its product to one
or a limited number of resellers. Gives control over sales to channel
members such as wholesalers and retailers; this helps constrain
distributors from selling competing brands.
b. An exclusive channel creates a barrier that makes it difficult or
impossible for outsiders to penetrate the channel.
c. Intensive channel: Producer grants the right to sell its product to many
resellers. Provides convenience because of the many outlets through
which a product is sold. It does not create strong barriers to channel
entry, nor provide control over reseller decisions such as what competing
brands to sell.
d. Obstacle for small companies that choose intensive channels is gaining
shelf space. This is exacerbated by the increasing global trend toward
retailers developing their own private label brands—brands created by
retailers themselves.
2. Channel length and cost
a. Channel length refers to the number of intermediaries between the
producer and the buyer.
b. Zero-level channel (called direct marketing): producers sell directly to
final buyers.
c. One-level channel: One intermediary between producer and buyer. Two
intermediaries make up a two-level channel, and so on.
d. The more intermediaries, the more costly it becomes because each one
adds a fee for services.
B. Influence of Product Characteristics
1. Value density: Value of a product relative to its weight and volume; an important
variable in formulating distribution policies.
2. As a rule, the lower a product’s value density, the more localized the
distribution system. Commodities have low value-density ratios—value is low
relative to cost of shipping.
3. Products with high value-density ratios include emeralds, semiconductors, and
premium perfumes. Because the cost of transporting these products is small
relative to their values, they can be processed or manufactured and then shipped.
C. Special Distribution Problems
A country’s distribution system develops over time and reflects its unique cultural,
political, legal, and economic traditions. The distribution system of each nation has its
own unique pros and cons.
1. Lack of market understanding
This can create frustration and financial loss for companies.
2. Theft and corruption
This can present major obstacles to distribution.
V. DEVELOPING PRICING STRATEGIES
The pricing policy must match a company’s overall international strategy.
A. Worldwide Pricing
1. Establishes one selling price for all international markets.
2. Difficult to achieve for four reasons:
a. Production costs differ from one nation to another.
b. Producing in just one location cannot guarantee the same selling price in
international markets because of the different cost of reaching different
markets.
c. Purchasing power of local buyers must be considered.
d. Fluctuating currency values can affect a product’s price abroad.
B. Dual Pricing
1. Product has a different selling price (typically higher) in export markets than it
has in the home market.
2. When a product has a higher selling price in the target market than it does in the
home market, it is called price escalation, which results from exporting costs and
currency fluctuations.
3. Product’s export price may be lower than the price in the home market.
4. Some companies decide that domestic sales are to cover expenses for R&D,
administration, and overhead; exports cover only additional costs associated
with exporting and selling in a target market (e.g., tariffs).
5. To apply dual pricing in international marketing, a company must keep domestic
and international buyers separate. If a company cannot keep its buyers separate,
they could undermine the policy through arbitrage—buying products at lower
prices and reselling them at higher prices.
C. Factors That Affect Pricing Decisions
Several key factors affect pricing decisions.
1. Transfer prices
a. Price of products between a company and a subsidiary.
b. Companies enjoyed freedom in setting transfer prices; subsidiaries in
countries with high taxes charged a low price for outputs to subsidiaries.
The subsidiary lowered the parent company’s taxes by reducing profits in
the high-tax country.
c. Large firms used transfer pricing to manage their global taxes and
become more price-competitive.
2. Arm’s length pricing
a. Free-market price that unrelated parties charge one another.
b. Although companies had great latitude in assigning transfer prices, many
governments are assigning them arm’s length prices to clamp down on
tax evasion. There is also pressure on companies to be good corporate
citizens in target markets.
c. Developing and emerging markets are hurt by lost revenue when
international companies manipulate prices to reduce tariffs and corporate
taxes. They need revenue for schools, hospitals, and infrastructure.
These, in turn, benefit companies by improving the productivity and
efficiency of the local business environment.
3. Price controls
a. Upper or lower limits placed on the prices within a country.
b. Upper-limit price controls provide price stability in an inflationary
economy (when prices are rising). Companies that want to raise prices
must apply to government authorities.
c. Lower-limit price controls prohibit the lowering of prices below a certain
level.
d. Governments impose lower-limit prices to help local companies compete
against the less expensive imports of international companies or to ward
off price wars.
4. Dumping (See Chapter 6)
a. Price of a good is lower in export markets than in the domestic market.
b. Accusations of dumping are often made against foreign competitors
when inexpensive imports flood a domestic market.
c. Although charges of dumping normally result from deliberate efforts to
undercut the prices of competitors in the domestic market, changes in
exchange rates can cause unintentional dumping.
d. Antidumping tariffs punish producers in the offending nation by
increasing the price of their products.
VI. A FINAL WORD
Despite the academic debate over globalization and the extent to which companies should
standardize their international marketing activities, many companies continue to adapt to local
conditions. Sometimes this takes the form of only slightly modifying promotional campaigns
and at other times it can require the creation of an entirely new product. The causes of
alterations in promotional aspects of marketing strategy can be cultural, such as language
differences. They can also be legal such as requirements to produce locally so as to help ease
local unemployment. Some companies benefit from standardization and centralized production
obtained by selling one product worldwide.