CHAPTER 12
Global Marketing
Chapter Outline
• Introduction
• Analyzing International Markets
• Kinds of Markets
• Information Required: Surveying International Demographics
• Marketing Research vs. Marketing Intelligence Systems
• Making the Standardization and Adaptation Decision
• Developing the International Product Mix
• Developing New Products for International Markets
• Managing Existing Products
• Where to Locate Research and Development Facilities
• Product Counterfeiting
• Developing the International Promotion Mix
• Advertising
• Sales Promotion
• Publicity
• Developing the International Distribution Mix
• Channels of Distribution
• Physical Distribution
• Developing the International Pricing Mix
• Pricing Objectives
• Setting Prices in International Markets
• Dumping
• Transfer Pricing
• Developing the International Customer Service Mix
Teaching Objectives
After covering this chapter, the student should be able to:
• Distinguish between marketing research and marketing intelligence systems.
• Distinguish between standardization and adaptation.
• Describe how new products are developed and how existing products are managed for
international markets.
• Explain the four different methods of promoting international marketing products and
provide some advantages and disadvantages of each.
• Define channels of distribution and physical distribution and indicate the role of each of
these for marketing products internationally.
• Discuss the objectives and decisions involved in international pricing.
• Discuss aspects of customer service required for goods and services that are globally
marketed.
COMPREHENSIVE LECTURE OUTLINE
I. Introduction. Marketing activities in international and domestic markets are often
the same, but they are not usually performed in the same manner.
CLASS ACTIVITY: Use the Cultural Perspective case as an opportunity to allow students to
explore the importance of marketing for a company in an open, free market economy.
• Analyzing International Markets. Companies must conduct research on their foreign
markets to decide in which countries to conduct business and which market segments to
target. Market potential refers to the total number of units of a product that could
possibly be sold by all companies doing business in a specific international market. Sales
potential refers to the percentage of a market potential that a specific company expects to
sell in a specific international market.
• Kinds of Markets. There are three major markets within each foreign market that can
purchase products and services and need to be analyzed:
o Consumer Markets in developed countries often account for over 50% of these
nations’ GDPs.
o Industrial Markets include companies that purchase products and services.
o Government Markets often involve many of the same products and services as
exist for industrial markets, but are likely to emphasize major infrastructure
projects.
• Information Required: Surveying International Demographics. Companies need to
collect a wide variety of information about their foreign markets.
o A larger number of people usually means higher market potentials for many
consumer products and services.
o Marketers also will want to know about income levels in their proposed foreign
markets. GDP represents the total purchasing power in a nation. GDP per capita is
a frequently deployed measure of a nation’s purchasing power. Exhibit 12.1 • Per
Capita GDPS. Another measure of countries’ incomes compares the average
incomes of the wealthiest 20% of people in a nation to the average incomes of the
poorest 20%. The world’s middle class is growing. Yet, some companies are
beginning to target low income people around the world.
o The age of a nation’s population is an important measure. Increasing life spans in
many countries have resulted in aging populations.
o International marketers are also interested in the ethnicity variable.
o Whether a market is located in a rural or an urban area is another way to
analyze overseas markets.
o For some products, such as food, religion is an important discriminator.
II. Marketing Research vs. Marketing Intelligence Systems. Marketing research
collects information at one specific time in order to help marketers make better decisions about
their overseas markets. A marketing research study is often prompted by information that a
company’s marketing intelligence system provides. Marketing intelligence systems collect
information regularly over time about the overseas environment in which the company
cooperates. Exhibit 12.2 • Typology of Information Sources for Mary Kay Cosmetics
Marketing Intelligence System—Europe.
DISCUSSION STARTER: REALITY CHECK 1.
Visit a department store and identify some products that may indicate that foreign suppliers
have done marketing research to serve the customers who frequent the store.
III. Making the Standardization and Adaptation Decision. The first and most important
decision that a firm must make when entering foreign markets is the degree to which its
marketing strategies for foreign markets will be the same or different from those deployed
domestically.
• The Standardization approach signifies that the marketing strategies used in
international markets will be the same as those used domestically. Standardization has an
advantage related to cost, because it avoids the expense of establishing new operations.
Another benefit of standardization is that it can be quickly implemented.
• The Adaptation approach means that domestic and international strategies will be
different. While adaptation is more costly, it has the advantage of obtaining higher sales
because it recognizes the needs and wants of customers in foreign markets.
• Many companies use a glocalization strategy. It involves standardizing when possible,
and adapting when necessary.
DISCUSSION STARTER: REALITY CHECK 2.
Visit a supermarket, chain drugstore, or discount store (e.g., Target or Walmart) and examine
several products from a foreign supplier. Do you see evidence of standardization, adaptation,
or glocalization?
IV. Developing the International Product Mix. Companies have four options to consider
when marketing their products overseas: They can sell the same domestic product overseas. They
can modify products for different countries and regions. They can develop new products for
foreign markets. Or, they can incorporate all product differences into one design and develop a
global product suitable for most world markets.
• Developing New Products for International Markets. Most companies follow a
defined set of steps when developing new products. First, they have to decide upon the
sources of new product ideas, including internal and external sources. From these
sources, new product will emerge and be evaluated against a set of variables that are
related to new product success. Exhibit 12.3 • Characteristics Affecting Rate of
Adoption and Level of Adoption for New Products. Those product ideas that are not
rejected are then subjected to concept testing—when the product idea is presented to a
small sample of the intended market to gauge its reaction. Ideas that succeed are then
moved to the business analysis step, where projections of potential revenues and profits
are made. Only if these numbers are acceptable will the new product be developed.
Following development, new products are subjected to market testing, when the most
appropriate marketing mix for the new offering is developed. In the last step,
commercialization, the new product is manufactured, the marketing strategy is finalized,
and the product is introduced to the market.
• Managing Existing Products. The product life cycle (PLC) is a useful tool for
managing products after they have been introduced to foreign markets. The lifetime of a
product can be divided into four stages:
o In the introduction phase, sales gradually increase, as do profits. Losses are
common in the early part of this stage.
o Sales and profits rapidly increase in the growth phase. Profits reach a maximum
during the latter part of the growth stage.
o In the maturity phase, sales reach a peak and then begin to decline as profits
continue to decline.
o In the decline phase, both sales and profits have continued to decline. Once
products reach the decline phase, they need to be considered for elimination.
Exhibit 12.4 • The Product Life Cycle.
• Where to Locate Research and Development Facilities. Companies have two options
where they may locate their R&D facilities:
o They can have one facility in the home country. In this case, a firm can reduce
R&D costs and exert more control and coordination over the R&D program.
o They can have one facility in the home country and one or more additional
facilities in their foreign markets. Advantages of this option include the fact that
MNCs can use the skills of foreign scientists and engineers. Additionally,
products developed in the foreign markets are more likely to be attuned to the
company’s overseas markets. These products then can be transferred back to the
home country—the process known as reverse strategy.
• Product Counterfeiting. One aspect of product development is the practice of
counterfeiting. In addition to the lost revenue, there is the possibility that the “knock–off”
will be so inferior to the original product that the company’s image will be tarnished in
locations where the counterfeit has been sold.
DISCUSSION STARTER: REALITY CHECK 3.
Visit a grocery supermarket, chain drug store, or discount store (such as Walmart or Target)
and choose 15 different products. Check the labels to see where they have been made. How
many were manufactured in foreign countries?
V. Developing the International Promotion Mix. Four major methods can be used to promote
products and services in international markets:
▪ Advertising. Major advertising media frequently used in international markets include
television, radio, newspapers, magazines, and direct mail. In general, advertising reaches
large audiences at low cost per contact.
▪ Personal Selling is considered a very effective method to generate sales in international
markets, especially with business audiences. One disadvantage of personal selling is its
high cost per contact.
▪ Sales Promotion. Contests and sweepstakes, coupons, end-aisle displays in stores,
sponsorships, and trade shows are examples of the most widely-used sales promotion
techniques in foreign markets. Sales promotion can produce tangible benefits in short
periods of time.
▪ Publicity refers to stories about a company, its products or services, and its executives
that appear in media. Large companies that conduct business overseas have public
relations departments that attempt to influence media to positively report about them.
When media reports negatively about foreign companies, companies’ public relations
departments must combat these stories if they are false, or take immediate, remedial
actions if they are true. Publicity provides a number of benefits. It helps firms to prospect
for new customers, paves the way for sales calls, helps sell minor products, and stretches
the promotion budget. The most important benefit is that favorable stories provide
objective, unbiased, third-party endorsement for a company.
DISCUSSION STARTER: REALITY CHECK 4.
Look at the advertisements in an issue of a business magazine (e.g., Forbes, Business Week)
or newspaper (e.g., Wall Street Journal). How many of them are from companies based in
foreign countries? How well do the ads appeal to potential customers in the United States?
VI. Developing the International Distribution Mix. International distribution includes two
major aspects: Channels of distribution and physical distribution.
• Channels of Distribution. Companies that conduct business overseas can use
distribution channels that are located in foreign markets, which is called an indirect
strategy. They can also bypass those channels and market their products and services
through marketing or sales offices that they establish and maintain in foreign markets.
This is called a direct strategy. The indirect strategy offers several advantages. Channels
can introduce products into international markets more quickly. Channels often have
excellent knowledge of foreign markets. An indirect strategy does not require an up-front
investment. Some disadvantages in using channels of distribution include the fact that
channels frequently carry competitive products. Also, when using these channels, a
company relinquishes control over much of the market effort. A company that is
beginning to sell overseas will often elect to use channels of distribution. Agents and
distributors are the two major kinds of channels of distribution that international
marketers use. An agent acts on behalf of a company in a foreign market and is
compensated by a commission on the volume of sales achieved. A distributor purchases
products from the company and resells them to other buyers.
• Physical Distribution refers to a company’s storage and transportation operations used
in moving its products to their foreign markets. In some countries, there will be more
distribution layers; thus the wholesalers and retailers will be small and inefficient. This
results in more complicated and costly physical distribution operations. Poor logistics
infrastructure is another challenge in some foreign countries.
• The greater distance involved for international shipments requires sellers to place more
emphasis on the protective package and increases logistics costs. Shipments by air and
water are the most important for international business. Shipments by air account for
only 1% of all international shipments, but represent 20% of their value. Air shipments
are used for high-value and perishable items and those that need to reach customers
quickly. Container ships move large quantities of products at low per-unit costs but at a
much slower pace.
• Companies selling products overseas often must engage the service of a freight
forwarder, who acts as an agent for companies shipping products to international
customers.
• An important development in international physical distribution is containerization, in
which shipments are placed in trailer-sized containers which can be moved from one type
of transportation to another without requiring the contents to be unloaded and reloaded.
Containerization reduces handling costs, spoilage, and pilferage.
DISCUSSION STARTER: REALITY CHECK 5.
Observe traffic on a major interstate highway or freight rail line near where you live or work.
If you can, also visit the docks at a major ocean, lake, or river port, and observe the unloading
and loading operations on cargo ships. Pay particular attention to the movement of
containerized freight. Can you tell if any shipments are from overseas?
VII. Developing the International Pricing Mix. Developing pricing objectives for
international markets, setting prices in international markets, addressing the issue of dumping,
and setting transfer prices are the major aspects of a company’s international pricing strategies.
• Pricing Objectives. Determining a company’s international pricing mix involves
consideration of four major objectives. Exhibit 12.5 Pricing Objectives for International
Products and Services.
o Performance objectives involve bottom-line goals, such as net profit.
o Prevention objectives can be used to keep competitors out of a foreign market.
o Maintenance pricing objectives are designed to keep the status quo.
o A survival objective may be used in order to allow a company to survive in an
international market.
• Setting Prices in International Markets. Once pricing objectives have been established, a
company will be faced with the task of setting specific prices in its international markets.
One approach to setting prices is to charge the same price in the foreign market as in the
domestic market. Often, a price will be set that includes the additional costs required to
market the product overseas. A market differentiation approach recognizes costs, but places
a greater emphasis upon the demand that exists for production at various prices.
• Dumping. A company that sets a price in a foreign market that undercuts the prices of
competitive companies may be accused of dumping. Exhibit 12.6. Fuji Film Accused of
Dumping in the U.S Market. A complaint may be lodged with the WTO because firms
bringing the charge feel that they are losing sales and market share and the dumper will be
able to force them out of the market. Two pricing strategies will often trigger allegations of
dumping:
o If the home-country firm sets a price in the foreign market below what it charges the
domestic market.
o If the price is above what it domestically charges, but below the marginal cost needed
to move the product overseas.
ETHICAL PERSPECTIVES: Gray Marketing Involves Ethical Issues. Use the Ethical
Perspectives case as an opportunity to discuss gray marketing, also known as “parallel
importation”—unauthorized importers reselling a manufacturer’s product in the manufacturer’s
domestic market at a price less than what the manufacturer charges in that market. While
manufacturers object to gray marketing, stating that their images can be tarnished because their
products are sold at lower prices, gray marketers justify their actions by claiming that the
opportunity for them to make a profit would not occur if the manufacturer was not overcharging
its domestic customers.
• Transfer Pricing. MNCs have overseas subsidiaries to which they will sell products. The
subsidiary, in turn, will resell the product. The prices a company charges its overseas
subsidiaries, known as transfer prices, come under scrutiny by taxing authorities. These
bodies allege that a transfer price is set not to maximize profits but to minimize taxes.
Taxing authorities often stipulate that transfer prices must be an arms length price, a
price that the overseas market is willing to pay.
DISCUSSION STARTER: REALITY CHECK 6.
Using the Internet, research the prices of several products in one or more foreign countries
and compare them to their prices in the home country where the goods are produced. What
factors do you think determine the foreign prices? Do you think any of the prices are
artificially high or low in one country or another?
VIII. Developing the International Customer Service Mix. Providing greater levels of
customer service is becoming a more important responsibility for international marketers.
• As products and prices have become more similar, foreign prospects and customers will
look at other factors to make a purchase decision. Often, the deciding variable will be
customer service.
• According to research, customers are five times more likely to switch vendors because of
perceived customer service problems than for price or product issues.
• By having a higher standard of customer service, a share of wallet—the percentage of
purchases in a category a buyer gives to one vendor—may be increased by as much as
80%.
• Companies must guard against providing too high a level of service. When the costs
associated with providing a higher level of service are very high, firms may be over-
committing resources.
• An important aspect of customer service is how complaints are handled. Customers who
have problems resolved are more loyal than those who don’t have problems. When
complaints from customers arise, the most effective strategy is to deal with them
immediately. Employees should be granted empowerment to immediately respond to
customer complaints.
ECONOMIC PERSPECTIVES: Toyota’s Safety Recalls. Use the Economic Perspectives case
as an opportunity to discuss the response of Toyota to customer complaints about its products. In
2009–2010, Toyota was forced to recall millions of its automobiles from around the world due to
significant safety problems.
Suggestion: You could ask students to do this case as individuals or in teams as a class activity.
Have the students read the case presented in the text and answer the questions at the end of the
case.
Questions:
1. What should Toyota do about the recall problem? Answer: Toyota should promptly
2. Why were the earlier recalls necessary? Answer: There were significant safety problems,
3. How can you explain the need for the 2014 recall? There were minor flaws in 27 models,
DISCUSSION STARTER: REALITY CHECK 7.
Talk to a friend or acquaintance who has traveled or lived overseas. Ask her or him to
compare the quality of customer service found when shopping in department stores in foreign
countries to that experienced when shopping in U.S. department stores.
Assignments
End-of-Chapter Discussion Questions
1. Why do companies need to research their international markets? Answer:
2. What are the three major markets that exist in all foreign markets? Answer:
3. What is the difference between standardization and adaptation? Answer:
4. How can use of the product life cycle assist international marketers?
5. What are the advantages of using trade shows to promote products in
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and trial, competitors can be monitored, and many visitors to trade shows are
specifically interested in viewing new products.
6. What are some of the disadvantages that can result when companies use
channels of distribution to market their products overseas? Answer:
7. What are the advantages of using freight forwarders? Answer: Freight
8. How can companies competitively set international prices while avoiding
allegations of dumping? Answer: Companies should not set a price in the
9. How should companies deal with international customers who complain?
Mini-Case Synopsis and Questions
The Horse Place is a retailer that sells horse tack through Internet and classified
ads. The retailer’s owner, Mary Jones, had recently begun sourcing from suppliers
in India. She considered their products to be excellent quality at about half the
price she was paying domestic vendors. Mary is considering selling her
merchandise in foreign markets, such as Argentina, Brazil, Mexico, France, the
U.K., Russia, and Germany.
Questions:
1. What are the advantages and disadvantages of using licensing and
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
137
could find a trustworthy licensee with whom she will be able to establish a
good business relationship.
2. Will Mary need to use the services of a freight forwarder? If so, what
3. Are there any other countries, besides those mentioned, that might be
Point/Counterpoint, Interpreting Global Business News, and Portfolio Projects
Students’ answers to these assignments will vary widely. Their writing should
reflect an understanding of the chapter’s basic concept, thorough research, and
logic and critical thinking skills.