Global Marketing & R&D

CH 15
 Role of Marketing & R&D in international business - when product
standardization is appropriate & when it is not

Link to R& D is identifying gaps in market so new products can be

developed to fill gaps

 Market segmentation & the marketing mix

Globalization of Markets
& Brands
Levitt (HBR) – provacative…but
 Modern transportation and communication technologies are facilitating a
convergence of the tastes and preferences of consumers in the more advanced
countries of the world.

 Trade barriers & differences in product & technical standards constrain a firm’s
ability to sell a standardized product to a global marketing using a standardized
marketing strategy

Marketing Mix
 Set of choices the firm offers to targeted markets

 Elements = product attributes, distribution strategy, communication strategy &

pricing strategy

 Varies from country to country depending on differences in culture, economic

development, product standards, distribution channels, etc.
Market Segmentation
 Identifying distinct groups of consumers whose purchasing behavior differs from
others in important ways (geography, demography, social-cultural factors,
psychological factors)

 Can vary design of product, pricing strategy, distribution channel &

communication strategy from segment to segment

 Maximize sales by optimizing fit between the purchasing behavior of consumers

in a given segment & the marketing mix

 Structure of market segments in a country – may have no parallel in home

country (African-Brazilian, Chinese 45-55)

 Market segments that transcend national borders – compelling similarities along

dimensions of age, value, lifestyles, etc. -> ability to view global marketplace as
single entity & pursue global strategy ( global youth segment)
Product Attributes
 Product = bundle of attributes
 Car = power, design, quality, performance, fuel consumption
& comfort; & Hotel = atmosphere, quality, comfort & service

 Products sell well when attributes match consumer

needs & are priced appropriately

 Influence on product attributes

 Cultural Differences – tradition (food)
 Economic Development – developed vs developing
 Product & Technical Standards – (video equipment)
Distribution Strategy
 Means chosen for delivering product to consumer

 Retail Concentration
 Concentrated = few retailers (US malls)
 Fragmented = many w/no major share (Japan)

 Channel Length
 Number of intermediaries between producer & consumer
 Fragmented retail systems promote growth of wholesalers & lengthen the
channel (Japan, India, China)
 Internet helps shorten the channel

 Channel Exclusivity
 Exclusive = difficult for outsiders to access (shelf space in supermarkets)
 Often based on long term relationships (P&G Japan)
Choosing a Distribution Strategy
 Optimal strategy is determined by relative costs &
benefits & depends on retail concentration, channel
length & channel exclusivity

 Critical link between channel length, final selling price &

firm’s profit margin (markup -> higher price or less margin)

 Longer channels cut selling costs when retail sector is very

fragmented

 Longer channels can influence market access with long term

relationships (Apple Computer & Japanese firms)
Communication Strategy
 Communicating product attributes to
prospective customers

 Communication channels = direct selling,

sales promotion, direct marketing, &
advertising

 Communication strategy is partly defined by

choice of channel
Barriers to International
Communication
 Cultural Barriers
 A message in one country can mean something else in another
(P&G, Benneton)
 Overcome by developing cross-cultural literacy

 Source & Country of Origin Effect

 Source Effects = Receiver of the message (consumer) evaluates
the message based on the status or image of the sender (Honda)
 Country of Origin = Extent to which place of manufacturing
influences product evaluation (Hyundai cars, German cars, French
wine)

 Noise Levels
 Amount of other messages competing for a potential consumers
attention (US high)
Push vs Pull Strategies
Push
 Personal selling rather than
mass media advertising –
relatively costly
 Product type = industrial
product or complex new
products – educate the
customer about features
 Channel length = short
 Media =few print or electronic
media available (or limited by
law)
Pull
 Mass media advertising to
communicate the marketing
message to a large segment
 Product type = consumer goods
 Channel length = long, more
intermediaries need consumer
to pull product through channel
 Sufficient print & electronic
media to carry the marketing
message
Global Advertising
For Standard Advertising
 Significant economic advantages –
lowers the cost of value creation by
spreading cost over many countries
 Creative talent is scarce so one
large effort better than 40-50 small
 Justification = many brand names
are global – project single brand
image
Against Standard Advertising
 Cultural differences are such that a
message that works in one nation
can fail in another
 Advertising regulations can block
implementation of standardized
advertising (Kellogg cornflakes)
 Hybrid = select some features to
include in advertising campaigns &
localize other features -> build
international brand recognition yet
customize ads to different cultures
Pricing Strategy
Price Discrimination - Charging different prices for the same product in
different countries

 Firm must be able to keep national markets separate or will have

arbitrage (cars in Europe)

 Different price elasticities of demand in different countries – measure

of the responsiveness of demand for a product to changes in prices

 Income Level - Consumers with limited incomes tend to be very

price conscious
 Competitive conditions – Many competitors cause high elasticity
of demand (firm raises prices -> consumers will switch)
Pricing Strategy
Strategic Pricing

 Predatory Pricing
 Use of price as a competitive weapon to drive weaker competitors out of a
national market
 Once the competitors have left market , firm can raise prices & enjoy high
profits. Usually subsidized by another market’s profits

 Multipoint Pricing
 Two international businesses compete against each other in two or more
national markets. Firms pricing strategy in one market may have an impact
on its rivals’ pricing strategy in another market (Kodak – Fuji)

 Experience Curve Pricing

 Firm will price low worldwide in attempting to build global sales volume as
rapidly as possible thus moving production down the experience curve
Regulatory Influence on Prices
 Anti-Dumping Regulations
 Dumping is whenever a firm sells a product for a
price that is less than the cost of producing it
 Sets a floor under export prices & limits a firm’s
ability to pursue strategic pricing

 Competition Policy
 Nations have regulations to promote competition
& restrict monopoly practices
 Regulations can be used to limit the prices a firm
can charge in a given country (Hoffman-LaRoche)
New Product Development
 Competition is as much about technological
innovation as anything else – firm must stay
on leading edge of technology

 Technological innovation is both creative &

destructive (computer/typewriter)

 Build close links between R&D, marketing &

production
Location of R&D
 Ideas for new products are stimulated by
interactions of scientific research, demand
conditions & competitive conditions

 Rate of new product development is greater

where (centers in Japan, Europe, US)
 More $$$ is spent on basic/applied R&D
 Underlying demand is strong
 Consumers are affluent
 Competition is intense
Integrating R&D, Marketing &
Production
Failure 80%
 Development of technology for which demand is limited
 Failure to adequately commercialize promising technology
 Inability to manufacture a new product cost effectively

Cross functional integration

 Product development projects are driven by customer needs
 New products are designed for ease of manufacture
 Development costs are kept in check
 Time to market is minimized

Cross-Functional Team
 Composed of representatives of R&D, marketing & production
 Take product development from initial concept to market introduction
 Project manager who can get resources for team to succeed