Chapter 18 – Global Marketing and R&D
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Global Marketing and R&D
Learning objectives
• Explain why it makes sense to
vary the attributes of a product
from country to country.
• Recognize why and how a
firm’s distribution strategy
might vary among countries.
• Identify how and why
advertising and promotion
strategies might vary among
countries.
• Explain how and why a firm’s
pricing strategy might vary
among countries.
• Describe how the globalization
of the world’s economy is
affecting new product
development within the
international business firm.
.
The focus of this chapter is on how marketing and R&D
can be performed so they will reduce the costs of value
creation and add value by better serving customer needs.
A global marketing strategy that views the world’s
consumers as similar in their tastes and preferences is
consistent with the mass production of a standardized
output. By mass-producing a standardized output, the firm
can realize substantial unit cost reductions from
experience curve and other scale economies. But ignoring
country differences in consumer tastes and preferences can
lead to failure. Thus, an international business’s marketing
function needs to determine when product standardization
is appropriate and when it is not, and adjust the marketing
strategy accordingly. Similarly, the firm’s R&D function
needs to develop globally standardized products when
appropriate as well as products that are customized to
local requirements.
A critical aspect of the marketing function is identifying
gaps in the market so that new products can be developed
to fill those gaps. Developing new products requires R&D;
thus, the linkage between marketing and R&D. Marketing
dictates to R&D whether to produce globally standardized
or locally customized products.
The opening case explores Ford’s new strategy to sell the
same cars to the same segments across multiple markets.
The closing case describes Microsoft’s efforts to capture
the market in India.
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Chapter 18 – Global Marketing and R&D
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OUTLINE OF CHAPTER 18: GLOBAL MARKETING AND R&D
Opening Case: Ford’s Marketing Goes Global
Introduction
The Globalization of Markets and Brands
Market Segmentation
Management Focus: Marketing to Black Brazil
Product Attributes
Cultural Differences
Economic Development
Product and Technical Standards
Distribution Strategy
Differences between Countries
Choosing a Distribution Strategy
Communication Strategy
Barriers to International Communication
Push versus Pull Strategies
Global Advertising
Management Focus: Unilever—Selling to India’s Poor
Management Focus: Dove’s Global ‘Real Beauty’ Campaign
Pricing Strategy
Price Discrimination
Strategic Pricing
Regulatory Influences on Prices
Configuring the Marketing Mix
Management Focus: Levi Strauss Goes Local
New-Product Development
The Location of R&D
Integrating R&D, Marketing, and Production
Cross-Functional Teams
Building Global R&D Capabilities
Chapter Summary
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Critical Thinking and Discussion Questions
Closing Case: Microsoft in India
CLASSROOM DISCUSSION POINT
Review the passage by Theodore Levitt at the beginning of the chapter with students.
Then, pick a company like McDonald’s, MTV, or Starbucks and ask students to discuss
whether the company standardizes its marketing mix, or adapt it to the local market. Ask
students to explore the company’s web site, and specifically its international sites. Next,
ask students to identify differences and similarities in the marketing mix across countries.
Finally, ask students to explain their findings using Levitt’s hypothesis.
OPENING CASE: Ford’s Marketing Goes Global
Summary
The opening case explores Ford’s new strategy to develop global vehicles. By 2015,
Ford hopes to compete in North America, Europe, and Asia by offering several global
models including the Fiesta, the Fusion, and the Mondeo. The company, which refers to
its new strategy as One Ford, anticipates that its global models will share the same
components and looks and be positioned in a similar way in each market in which they
are sold. Discussion of the case can begin with the following questions.
1. What is behind Ford’s One Ford vision? What is the company hoping to accomplish
with this strategy?
2. What are the advantages of creating global models like Ford is planning with its One
Ford vision? Do you see any problems with this one-size fits-all approach?
3. Why is Ford giving its local units the authority to change marketing themes and how
they are presented? How can this policy help the company better reach its customers?
Another Perspective: To learn more about Ford’s new vision go to
{http://www.ford.com/}.
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LECTURE OUTLINE FOR CHAPTER
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view”, then on “notes”. The following provides a brief overview of each
Power Point slide along with teaching tips, and additional perspectives.
Slide 18-3 The Marketing Mix
The marketing mix (the choices the firm offers to its targeted market) is comprised of
product attributes, distribution strategy, communication strategy, and pricing strategy.
Slides 18-4-18-5 The Globalization of Markets and Brands
Culture and consumer tastes drive the need to localize. Globalization seems to be the
exception rather than the rule in many markets.
Slides 18-6-18-7 Market Segmentation
Market segmentation involves identifying distinct groups of consumers whose
purchasing behavior differs from others in important ways. Segments can be based on
geography, demography, socio-cultural factors and psychological factors.
Slide 18-8-18-9 Product Attributes
A product is like a bundle of attributes. Products sell well when their attributes match
consumer needs.
While there is some cultural convergence among nations, Levitt’s vision of global
markets is still a long way off.
Slides 18-10-18-14 Distribution Strategy
A firm’s distribution strategy (the means it chooses for delivering the product to the
consumer) is a critical element of the marketing mix.
There are four main differences in distribution systems:
1. retail concentration
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Slide 18-15 Choosing a Distribution Strategy
The optimal strategy depends on the relative costs and benefits of each alternative.
Slide 18-16 Communication Strategy
Communication channels available to a firm include direct selling, sales promotion,
direct marketing, and advertising via different media.
Slides 18-17-18-19 Barriers to International Communication
The effectiveness of a firm’s international communication can be jeopardized by cultural
barriers, source and country of origin effects, and noise levels.
Another Perspective: The class can be stimulated to think of some positive and negative
source effects (German autos vs. German wine, Italian cuisine vs. British cuisine).
Slides 18-20-18-22 Push Vs. Pull Strategy
Firms have to choose between two types of communication strategies:
• a push strategy emphasizes personnel selling
• a pull strategy emphasizes mass media advertising
Slides 18-23-18-24 Global Advertising
Standardized advertising makes sense when it has significant economic advantages,
creative talent is scarce and one large effort to develop a campaign will be more
successful than numerous smaller efforts, and brand names are global.
Slide 18-25 Pricing Strategy
There are three issues to consider price discrimination, strategic pricing and regulatory
influence on prices.
Slides 18-26-18-28 Price Discrimination
Price discrimination occurs when firms charge consumers in different countries
Slides 18-29-18-30 Strategic Pricing
Strategic pricing has three aspects:
1. predatory pricing – involves using the profit gained in one market to support
aggressive pricing designed to drive competitors out in another market.
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2. multi-point pricing – a firm’s pricing strategy in one market may have an impact on a
rival’s pricing strategy in another market.
3. experience curve pricing – price low worldwide in an attempt to build global sales
volume as rapidly as possible, even if this means taking large losses initially.
Slide 18-31 Regulatory Influences on Prices
A firm’s ability to set its own prices may be limited by:
1. antidumping regulations
2. competition policy
Slide 18-32 Configuring the Marketing Mix
Differences in culture, economic conditions, competitive conditions, product and
technical standards, distribution systems, government regulations, and the like may
require variation in product attributes, distribution strategy, communications strategy, and
pricing strategy.
Another Perspective: Fun sites to visit with students include Nestle
Slide 18-33 New Product Development
Firms today need to make product innovation a priority. This requires close links between
R&D, marketing, and manufacturing.
Slide 18-34 The Location of R&D
New product ideas come from the interactions of scientific research, demand conditions,
and competitive conditions.
Slides 18-35 Integrating R&D, Marketing and Production
A firm’s new product development efforts need to be closely coordinated with the
marketing, production, and materials management functions.
Slide 18-36 Cross Functional Teams
Effective cross functional teams should be
• led by a heavyweight project manager with status in the organization
• include members from all the critical functional areas
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Slide 18-37 Building Global R&D Capabilities
To adequately commercialize new technologies, firms need to integrate R&D and
marketing.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Imagine you are the marketing manager for a U.S. manufacturer of
disposable diapers. Your firm is considering entering the Brazilian market. Your CEO
believes the advertising message that has been effective in the United States will suffice
in Brazil. Outline the possible objections to this. Your CEO also believes that the
pricing decisions in Brazil can be left to local managers. Why might she be wrong?
ANSWER 1: While babies’ behinds serve the same function in all cultures, and the
product’s technical standards may be similar, sensitivity to bodily functions does vary
across cultures. Thus, the advertising message may need to be changed for different
QUESTION 2: Within 20 years we will have seen the emergence of enormous global
markets for standardized consumer products. Do you agree with this statement? Justify
your answer.
ANSWER 2: One could either choose to agree or disagree, while the best answer would
likely hedge it somewhere in the middle. There are already enormous global markets for
QUESTION 3: You are the marketing manager of a food products company that is
considering entering the Indian market. The retail system in India tends to be very
fragmented. Also, retailers and wholesalers tend to have long-term ties with South
Korean food companies, which make access to distribution channels difficult. What
distribution strategy would you advise the company to pursue? Why?
ANSWER 3: The firm should sell to either wholesalers or import agents. Because the
retail system in India is very fragmented, it would be very expensive for the firm to make
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QUESTION 4: Price discrimination is indistinguishable from dumping. Discuss the
accuracy of this statement.
ANSWER 4: In some specific instances this statement is correct, but as a general rule it
is not. When a firm is pricing lower in a foreign country than it is in its domestic market,
QUESTION 5: You work for a company that designs and manufactures personal
computers. Your company’s R&D center is in North Dakota. The computers are
manufactured under contract in Taiwan. Marketing strategy is delegated to the heads of
three regional groups: a North American group (based in Chicago), a European group
(based in Paris), and an Asian group (based in Singapore). Each regional group develops
the marketing approach within its region. In order of importance, the largest markets for
your products are North America, Germany, Britain, China, and Australia. Your
company is experiencing problems in its product development and commercialization
process. Products are late to market, the manufacturing quality is poor, and costs are
higher than projected, and market acceptance of new products is less than hoped for.
What might be the source of these problems? How would you fix them?
ANSWER 5: The dispersion of activities makes sense – products are produced in the
lowest cost location and marketed by people familiar with local conditions. (The R&D in
CLOSING CASE: Microsoft in India
Summary
The closing case describes how Microsoft is meeting the challenges of expanding into the
potentially lucrative Indian market – a market where currently most people cannot afford a
computer nor the Microsoft programs to run it. Microsoft has changed its highly standardized
approach to markets to develop products specifically designed to meet the needs of the Indian
market. In addition, the company has established local R&D operations which it hopes will
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generate new products for the market. The following questions can be helpful in directing
the discussion.
QUESTION 1: Why does Microsoft’s traditional strategy of “one-size-fits-all” not work
well in emerging markets like India? What is different about these markets? How do
customers differ both in their characteristics and in the way they use technology?
ANSWER 1: Microsoft’s traditional one-size-fits-all approach was developed in the
United States and then used in other markets as the company expanded. Now, Microsoft,
hoping to increase market share in emerging economies like India, is finding that its
QUESTION 2: What steps did Microsoft have to take in order to develop products that
are customized to Indian customers?
ANSWER 2: In order to better understand Indian consumers and how they use
computers and their limitations with computer access, Microsoft established an R&D
QUESTION 3: How does Microsoft vary the marketing mix of its existing product
offerings to gain traction with Indian customers? What else has Microsoft done to make
headway in India?
ANSWER 3: Microsoft has focused on finding not only cheaper options for its Indian
customers, but also alternatives that work with the Indian way of using technology. To
that end, Microsoft has developed the Window XP Starter edition that allows access to a
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QUESTION 4: What general lessons can be derived from Microsoft’s experience in
India?
ANSWER 4: Most students will probably suggest that Microsoft’s experiences in India
clearly illustrate the importance of understanding the local customer. Microsoft initially
found it challenging to gain market share in India because it was trying to use a strategy
that had worked in the United States without considering whether differences in the
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Chrysler Pays Back Billions In Bailout Loans: Is The Comeback
Complete?
Run Time: 11:50
Abstract: This video explores the return of U.S. automaker Chrysler to the global
playing field following its repayment of the bailout money the company was forced to
take after nearly collapsing two years ago.
Key Concepts: Foreign direct investment, strategic alliances, impact of the
multinational company on the host country, global production, global economy,
globalization, international marketing
Notes: Chrysler recently announced that it had repaid its debts to the U.S. government in
full. The global automaker had been forced to take bailout money from the government
in 2009 in order to avoid bankruptcy. The announcement not only quieted critics who
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claimed that the investment by the government was a poor one, but it also signaled the
return of Chrysler to the global playing field. Like so many other companies, Chrysler
was hard hit by the 2008 recession that began in the United States and then swept through
Europe and Asia, but its troubles really began much earlier. In fact, one of the changes
made at the time of the bailout resulted in a new management team at Chrysler led by the
CEO of Italy’s Fiat, Sergio Marchionne. Fiat also made a significant investment in the
troubled automaker.
Initially, there was concern that the relationship between Fiat and Chrysler would be
doomed to follow the same path that the Daimler Chrysler venture took, but so far Fiat’s
presence in the company has proved to be positive and Fiat has since increased its stake
in Chrysler to 51 percent and expects to raise that even further in the future. Still,
Chrysler has a long way to go before it can return to its former position in the industry.
Already the company is changing its product line up to include fuel-efficient small car
technology. The Fiat 500, popular in Europe for the last five years, will be introduced in
the United States later this year. Chrysler hopes it will be an attractive alternative to the
BMW Mini. In response to demand for more fuel efficient cars, the company also has
plans to reintroduce the Chrysler 300. In addition, Chrysler is striving to improve its
reputation for producing quality vehicles. Recent reports by J.D. Powers show that
Chrysler has had some success, but that it still must do more to improve its overall
competitiveness.
Like other U.S. companies, Chrysler has been hurt by the competition among states to
attract foreign investment and the economic benefits it brings. Companies like Nissan
and BMW receive sizeable tax breaks from Tennessee and Alabama giving them a cost
Discussion Questions:
1. Discuss the challenges that lie ahead for Chrysler as it continues its recovery. What
does Chrysler’s revival mean to other players in the industry? What does your response
imply about the nature of the industry?
2. Consider the relationship between Chrysler and Fiat. Why is the relationship
beneficial to Chrysler? What does Fiat gain?
3. Reflect on the tax breaks some states offer to foreign automakers in exchange for
investments. What does the state gain from the investments? Does this practice give
foreign companies an unfair advantage over domestic companies?
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4. Chrysler is hoping to add some Fiat models that are popular in Europe to its U.S.
product line. Is it possible to standardize cars across markets? Is there such a thing as a
world car?
INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: Chinese Flavors for American Snacks
Learning Objectives
The purpose of this video is to help you:
❖ Explore cultural differences across markets.
❖ Identify how national culture influences firm strategy.
❖ Understand international marketing strategy.
❖ Recognize the impact of foreign companies on the host country.
Key Words
❖ Culture
❖ Cultural change
❖ International marketing strategy
❖ Foreign direct investment
❖ First mover advantages
❖ Impact of the multinational company on the host country
❖ Globalization
Synopsis
The brands in the busy supermarket in Beijing may be recognizable to most Americans,
but the flavors certainly are not. Lays potato chips sold in Beijing are blueberry flavored
rather than sour cream and onion. Cheetos come in strawberry and milk, and Minute
Maid sells aloe juice instead of orange juice. American companies hoping to capitalize
on China’s $186 billion fast food and processed food market have entered the country en
masse. However, while they are selling the same brands they sell in the United States,
they have developed much different flavors in the hopes of better attracting Chinese
buyers.
Frito Lay recognized early on that Chinese taste buds were quite different from American
taste buds. Popular flavors in the United States did not appeal to Chinese consumers
prompting Frito Lay and other U.S. companies to research Chinese preferences and
develop products specifically for the local market. Accordingly, Tropicana sells
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cantaloupe juice, Chips Ahoy cookies are orange flavored, and Wrigley’s sells Chinese
herbal medicine gum. Even toothpaste companies are selling products designed to tempt
Chinese consumers. Crest sells a lotus flower flavored product, while Colgate offers salt
flavored toothpaste. U.S. companies focused on the Chinese culture as a starting point
for developing new product flavors. Product researchers inspired by traditional Chinese
cooking came up new flavors like Szechuan spicy, sweet and sour tomato, and mango.
Pepsi Co’s Harry Hill points out that because the market is so competitive, new products
are being launched on a regular basis.
The same trend is changing the strategies of fast food companies in China. McDonald’s
has introduced purple taro pie, Starbucks sells drinks with jelly cubes on the bottom, and
spicy squid on a stick is available at Kentucky Fried Chicken. Analysts note that while
the flavor game may seem a bit outrageous to some, in China it is serious business. The
country will soon be if not the largest, the second largest consumer market in the world.
Companies need to ensure they are doing everything they can to capture a share of the
market.
Discussion Questions
1. Discuss the implications of globalization on the food industry in China.
2. What makes China so attractive to U.S. food companies? Discuss why it is important
to gain market share in the country. How has Frito Lay approached the market?
3. Reflect on the standardization versus adaptation debate as it relates to marketing fast
food and processed food in China. Using the ‘4Ps’ of marketing, discuss how companies
should approach the market. Which elements in the marketing mix can be standardized?
Which elements must be adapted to suit local preferences?
4. How is Western culture influencing China’s culture? Discuss how companies like
Frito Lay and McDonald’s are contributing to this change. What are the implications of
this trend?
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
The consumer purchase of specific brands is an indication of the relationship that
develops over time between a company and its customers. Locate and retrieve the most
current ranking of global brands. Identify the criteria used. Which countries appear to
dominate the top 100 global brands list? Why do you think this is the case? Prepare a
short report identifying the countries that possess global brands and the potential reasons
for success. In addition, identify the traits of companies new to the list.
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Exercise 2
Part of developing a long-term research and development (R&D) strategy is to locate
facilities in countries which are widely known to be competitive. Your company seeks to
develop R&D facilities in Asia to counter recent competitor responses. A publication
which evaluates economies based on their competitiveness is the Global Competitiveness
Report. Locate this report and develop a presentation for the top management team that
presents the benefits and drawbacks for the top 5 Asian economies listed. Justify your
conclusions thoroughly.
Answers to the Exercises
Exercise 1
The overall and industry rankings of the world’s top 100 global brands are prepared
annually by BusinessWeek and Interbrand. The rankings can be accessed by searching
the term “global brand” at http://globaledge.msu.edu/ResourceDesk/. This resource is
Exercise 2
The “Global Competitiveness Report” is an annual ranking published by the World
Economic Forum. The ranking can be reached by searching for the term “Global