CASECH03 02/11/2014 10:53:38 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 3-1
SAMSUNG’S SURVIVAL OF THE ASIAN FINANCIAL CRISIS
The Asian financial crisis struck the Korean economy severely,
affecting its currency and balance of payments situation. Several
Korean companies went bankrupt in its aftermath, the epicenter
of which was the year 1997. Others such as Daewoo and Hyundai
werel struggling to hang on almost eight years after the crisis.
Among those that survived is the successful South Korean
chaebol (conglomerate) Samsung with revenues of over $50
billion and over 60 related and unrelated divisions under its
umbrella. Samsung is known all over the world for its flat screen
liquid display panels and superior memory chips as well as for
finished products like cell phones and other consumer elec-
tronics. The company’s electronics division Samsung Electronics
is now one of the largest technology companies in Asia, com-
peting head on with older Japanese electronics firms such as
Sony and Panasonic for global market share.
Samsung rose to global fame in the late 1980s and early
1990s when it introduced its DRAM (dynamic random access
memory) chips in the West, and developments in chip technol-
ogy soon led it to present its 1 megabit chip, the first in the
world and a technological breakthrough at the time. Samsung
went on to later introduce upgrades on its chips in the years
that led up to the crisis of 1997, and even though it was
successful in chip manufacturing, it was losing out to its
competitors in consumer electronics and white goods. When
the Asian financial crisis hit, many companies shut up shop, but
Samsung steeled itself and persevered among falling prices for
chips and its other products. In order to boost profitability, the
company laid off around 30 percent of its workforce after
the crisis but continued to invest in innovation to bring it out of
the red. So, how did Samsung make a turnaround? Well, it
turned to the huge North American and Western European
markets, known for their penchant for technologically
advanced products and greater purchasing power among con-
sumers compared with Asian consumers.
Samsung had to work hard to gain market share in these
markets. In the years after the crisis, it set up subsidiaries in
Western countries. One of its main targets was the large U.S.
market. The company realized that to succeed in the United
Sources: Seung-Ho Kwon, Dong-Khee Ree, and Chung-Sok Sub,
“Globalization Strategies of South Korean Electronics Companies
after the 1997 Asian Financial Crisis,” Asia Pacific Business Review,
10 (Spring/Summer 2004), pp. 422-440; “The Lessons for Sony at
Samsung,” Business Week, October 10, 2005, pp. 37–38; “Winners
Over The Past Five Years,” BusinessWeek.com, July 30, 2007; and
Samsung, http://www.samsung.com/.
r r r r r r r r
States and the global arena, key factors would include better
design to be able to charge premium prices and therefore
generate increased revenues. The company set out and did just
that. It focused on research in digital technology, design, and
utility, and brought in designers from the best design schools in
the Western hemisphere. Their designers were sent all over the
world to draw inspiration for electronics architecture. Thus,
Samsung sought to differentiate itself from its global rivals
through superior design. Its efforts paid off. By the year 2005,
Samsung had captured the higher end TV market in the U.S.
market, and its brand was the best selling in such items in the
country. It is also the largest maker of DRAMs and LCD
monitors. Every year, the company increases its design staff
and budget. Its design staff evaluates consumer tastes and
advises engineers on products. According to a ranking of
the IDEA Biggest Award-Winners between 2003 and 2007,
Samsung ranked the first with a total number of 15, much
higher than Apple and Hewlett-Packard (HP) with 11,
respectively.
In a way, the Asian financial crisis proved to be an indirect
blessing for the company. Due to the crisis, the Korean
government stepped in to revive the industry, and that enabled
firms like Samsung to take the necessary measures to get back
to profitability such as laying off workers, which in Korea is a
contentious issue due to highly unionized workers. Also, it
pushed the company to look at larger markets. Somewhere in
the midst of all the chaos that surrounded companies during
and after the Asian financial crisis, the company made a big
decision, to transform itself from a me-too producer of elec-
tronics to one of the most innovative companies and leading
brands in the world. It is now known for its cool products.
Between 1998 and 2006, the company raised its R&D expen-
ditures to around $6 billion, which constitutes 9.5 percent of its
sales value. Today, the company, which could have easily sunk
in the crisis, has brand equity worth more than $15 billion, and
its market capitalization is greater than that of Sony and other
Japanese electronics leaders that have been around much
longer than Samsung.
DISCUSSION QUESTIONS
1. What did Samsung do differently from other firms that also
faced the Asian financial crisis?
2. What should Samsung do to continue to bring in profits in
the future?
3. What can global firms do to reduce vulnerability to finan-
cial crises?
1
CASECH05 02/11/2014 11:10:40 Page 2
2 • Chapter 5 • Short Cases
DISCUSSION QUESTIONS
1. How would you evaluate the actions of the executives at
Wal-Mart headquarters ? What do you think they should have
done?
Sources: “Vast Mexico Bribery Case Hushed Up by Wal-Mart after
Top-Level Struggle,” New York Times, April 21, 2012; “Walmart’s
Mexican Morass: The World’s Biggest Retailer Is Sent Reeling by
Allegations of Bribery,” Economist, April 28, 2012; “Walmart in
Mexico: Unfinished Story,” Financial Times, April 23, 2012; and
“Wal-Mart’s U.S. Expansion Plans Complicated by Bribery Scandal,”
New York Times, April 29, 2012.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 5-2
TRADEMARK LAWSUIT IN CHINA: PROVIEW’S IPAD VS. APPLE’S IPAD
In late 2010, a struggling Taiwanese-owned company, Proview,
threatened to sue Apple for trademark infringement of its iPad
trademark. Proview is a contract manufacturer of flat screens
that attempted to market its tablet computer called IPAD
almost a decade ago. The company registered its IPAD trade-
marks between 2000 and 2004 in several different countries:
the EU, China, Mexico, South Korea, Singapore, Indonesia,
Thailand, and Vietnam.
In 2006, Proview agreed to sell THE global trademark for
the IPAD name to a US-registered company called IP Appli-
cation Development (IPAD) for $55,104. As the company was
in great financial trouble, selling the valuable trademarks
would help them with their problems. At that time, according
to Yang Rongshan, a spokesperson for Proview, Proview did
not suspect that the company, IP Application Development,
had any association with Apple. Still, according to Mr. Yang,
the trademarks for the Chinese market were not included in
that agreement.
China’s official trademark database shows that Proview
Shenzhen registered the iPad trademark in China as early as
2000, and this is where all the dispute began. Apple claimed
that it had made a request to have the China trademark
transferred to its name in early 2010, before it began selling
the iPad. The Shenzen court, however, rejected the request in
December—a ruling that Apple appealed.
According to legal experts in China, after a patent or
trademark is recorded with customs, which can normally
take up to one month, customs would seize shipments from
any sender other than the rights holders. When goods are
seized, customs can fine the defendant while the court is
deciding on the infringement claims. Shipments would remain
blocked during the court case. Many foreign companies failed
to register trademarks in China because they are unaware that
2. What laws do you think have been violated? Who should
be blamed for the incidence?
3. What do you think Wal-Mart should do to clean up its
tarnished reputation, especially in the international market?
How would your recommendations improve Wal-Mart’s repu-
tation in the future?
this would affect exports as well. Despite the rejection, Apple
keeps selling iPads in China, and that is what makes this
dispute tense. Apple sued Proview Shenzen, asking the court
to transfer the trademark to Apple, a request that was rejected
by the court. At the same time, Proview Shenzen sued Apple
resellers in the southern Chinese cities of Shenzen and Huiz-
hou for an immediate block on sales of iPads.
In early 2012, local authorities in a northern Chinese city,
Xinhua in the district of Shijiazhuang, a mid-size city in the
province next to Beijing, had ordered Apple to stop selling
iPads at local resellers. In addition to asking for halt of iPad
sales, Proview Shenzen requested a temporary restraining
order on iPad sales in a Shanghai court and filed multiple
complaints to local commercial authorities demanding that
sales of the iPad be frozen. At the moment when this case
was written, no ruling had yet been made. Apple still sells the
iPad in Beijing and many other cities, but the Shijiazhuang
move has demonstrated a first small success in the long battle
against the U.S. company.
DISCUSSION QUESTIONS
1. a. If you are Proview, how do you view this case? Support
your arguments with data.
b. If you are Apple, how do you view this case? Support
your arguments with data
2. Assume you are an outside observer, which party would
you back? Why? On what basis do you make your arguments?
3. What consequences would each of the disputing parties
have to bear as a result of this battle?
4. In general, how should foreign companies prevent such
incidents? What actions must they take before marketing their
products globally?
CASECH07 02/13/2014 11:33:53 Page 1

SHORT CASES r r r r r r r r

r r r r r r r r r r r r r r r r r r r r r r r r r r r

C ASE 7-1

COACH—SELLING HANDBAGS OVERSEAS

Coach, Inc. is an American luxury leather goods company pri- Vuitton is that “We offer a well-made and stylish product . . . at
marily known for ladies’ handbags. The company started in 1941 less than half the price point of our European competitors.”1
as a family-run workshop based in a Manhattan loft. Now greatly Coach bags typically cost between $200 and $400, putting the
expanded, the company aspires to maintain high standards for brand at the top of the premium segment or the bottom of the
materials and craftsmanship. In 2008, faced with a severe eco- luxury segment. Occasionally, Coach sells higher-priced lim-
nomic slowdown in its core U.S. market, Coach decided to expand ited edition bags, but it mainly focuses on aspirational buyers.
its drive into Asia. A key market in this expansion drive is China. By keeping prices within that range, Coach hopes to build up
According to Ernst & Young, China bought more than $2 billion a loyal customer base. To keep the brand more accessible
worth of upscale products in 2008. This figure could rise to $11.5 than its European luxury rival brands, Coach makes its
billion by 2015. By the end of 2006, the country boasted 345,000 product in lower-cost countries while sourcing its raw mate-
U.S. dollar millionaires, one-third of whom were women. Coach rials from high-end mills and tanneries. As a result, Coach’s
expected China would make up over 4 percent of its sales by 2013 labor costs are a fraction of its European competitors’ costs.
as the retailer expanded into a hundred cities. It also announced
plans to acquire its own retail businesses in Greater China from
current distributor ImagineX to boost its market presence. Coach
planned to increase the number of stores there from 25 in 2008 to
80 by 2013. It intended to open its first flagship store in Shanghai
within the coming 12 to 14 months.
Coach hoped to replicate in China what it did in Japan (see
Table) by increasing its market share from just 3 percent in
2008 (compared to 30 percent for Louis Vuitton) to 10 percent
by 2013. Coach’s CEO Lew Frankfort explained how Coach
was able to grab shares from its European competitors in
Japan: “Many Japanese women told us they would rather
spend 60,000 yen ($578) for a Coach bag and spend the other
60,000 yen that they would save by not buying a European
luxury brand and use it to go to Thailand.” Coach especially
appealed to women under age 35. Older Japanese women
preferred carrying European luxury brands as a status symbol.

HANDBAG MARKET SHARES IN JAPAN Source: Coach flagship store in Hong Kong.

Company 2000 2008 Coach’s primary focus is on the female consumer because
“she tends to be brand-loyal, will go shopping whether the
Louis Vuitton 33% 27% stock market declines or not, and if she has a bad day at the
Coach 2% 12% office she may buy herself a Coach bag, where a man would
Prada >10% <10% have a double-scotch.”
Gucci >10% <10% Coach opened its first outlet in China in 2003. In May 2008,
Source: “Coach bets Chinese open the purse strings,” Wall the retailer launched a 9,400 square-foot flagship store on
Street Journal, May 30 to June 1, 2008, p. 28. Hong Kong’s Canton Road, one of the city’s main shopping
areas. Ian Bickley, president of Coach International, predicted
that the market for woman’s leather goods (excluding shoes) in
Lew Frankfort noted that Coach’s competitive advantage Greater China would more than double in the coming five
over other luxury leather goods companies such as Louis years, from $1.2 billion to $2.5 billion. His goal was to raise

1
“Handbag Brand Coach Plans Major Expansion in China,” http://www.iht
.com/bin/printfriendly.php?id=13302728.

1
CASECH07 02/13/2014 11:33:54 Page 2
2  Chapter 7  Short Cases
sales from the current $30 million (3% market share) to
$250 million (10% market share).
A key factor to stimulate growth is the firm’s decision to
manage its own stores. In Japan, Coach took direct control of its
retail stores in 2001—the right time to control the destiny of the
brand according to Bickley. Likewise, Bickley declared that “the
time has come for us now in China to establish an in-store
experience and build a brand” (BusinessWeek, June 4, 2008).
Describing the difference between the Chinese and U.S.
consumer, Frankfort said: “In China, there’s a luxury con-
sumer that represents perhaps 0.05 percent of the population—
very small but with enormous purchasing power. That’s not our
primary target. Our target is the emerging middle class who
have gone to university and are now getting 30 to 40 percent
[pay] increases a year. . . . These women are trading up and
investing in plasma TVs and laptop computers and Coach bags.
Sources: “Handbag Brand Coach Plans Major Expansion in China,”
http://www.iht.com/articles/2008/05/29/style/coach.php; www.coach.
com; “Coach Bets Chinese Open the Purse Strings,” Wall Street
Journal Asia, May 30 to June 1, 2008, p. 28; and “Coach Build Its
Brand in China,” BusinessWeek, June 4, 2008.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 7-2
HYUNDAI CONQUERS EUROPE
Car companies spend huge amounts of money on advertising to
promote their brands. However, Hyundai Motor, the Korean
carmaker, received an unsolicited boost to its image from
Volkswagen, one of its main competitors in Europe. A video
shot at the 2011 Frankfurt Motor Show shows Martin Winter-
korn, Volkswagen’s CEO, examining a Hyundai i30 compact.
Wowed by the car’s adjustable steering wheel, he observes to his
entourage: “Nothing rattles. Why can they do it? BMW can’t.
We can’t.” The video posted on YouTube has been seen more
than 1.7 million times (http://www.youtube.com/watch?
v=YpPNVSQmR5c). One of the YouTube comments states:
“It’s always good to know your enemy. I’m guessing Mr. Winter-
korn is thinking we have a tough fight ahead.”
In the U.S. market, Hyundai and its sister brand Kia have
jumped to the number 2 spot among foreign car companies. In
2011, the company sold 1.13 million cars in the United States—
more than triple Volkswagen’s sales. Hyundai’s value propo-
sition of reliability, quality, and long warranties enabled the
company to double its global car sales between 2004 and 2011.
The company has now set Europe as a top priority.
To implement its European strategy, Hyundai expanded the
capacity of its car plants in the Czech Republic and Turkey and
Sources: “The Contender,” Bloomberg Businessweek, January 30 to
February 5, 2012, pp. 21–22; and “Hyundai Set to Shift Up Gear in
Drive for Expansion,” Financial Times, December 16, 2010, p. 26.
They are looking for ways to broaden their life and Coach is
one way. . . . There are some consumers who are extremely
wealthy, and hopefully our limited-edition product will attract
them, but they are not our primary thrust.”2
The next frontier would be India, though for the time being
that market was on the back burner because of infrastructure
problems. Bickley observed: “In India, distribution networks
and local partners are still learning a lot about the industry.
There are no proven partners locally.”
DISCUSSION QUESTIONS
1. Will Coach be able to replicate its Japan success story in
China? Why was the firm successful in Japan?
2. Reflect on Coach’s targeting strategy. What are the alter-
natives? Coach decided to focus on the emerging middle
class—do you agree?
3. Around the time that Coach announced its Asia expansion
drive the global economy entered a deep recession. To what
extent would the recession affect Coach’s strategy in Asia
(primarily Japan and China)? Will Coach need to revisit its
plans? If so how?
“Coach Bets Chinese Open the Purse Strings,” Wall Street Journal Asia,
2
May 30–June 1, 2008) p. 28.
opened a new 150,000-units capacity plant in Russia in 2011. On
the marketing front, Hyundai became a sponsor of the World
Cup soccer, and hired German soccer icon Jürgen Klinsmann as
brand ambassador. It also customized its product line to local
tastes by focusing on vehicle styles that are popular in Europe
such as hatchbacks and wagons. In 2011, its market share jumped
from 4.5 to 5.1 percent, ahead of Toyota, Mercedes, and Volvo.
Hyundai would also like to climb up the ladder by launching
more upscale vehicles. One example is the €42,290 ix55 sports
utility vehicle (Veracruz in the United States). This strategy of
selling luxury cars at lower price points than its European rivals
mirrors what Toyota did with its Lexus line and Nissan with
Infiniti, except that Hyundai is not building a new brand.
DISCUSSION QUESTIONS
1. Why is Europe so critical for Hyundai?
2. Hyundai is a relative latecomer in the European market.
Yet, the company has been growing fast with its market share
rising from 4.5 percent in 2010 to 5.1 percent in 2011. What
has been the magic formula behind Hyundai’s success so far?
3. Hyundai planned to increase its European sales by about
25 percent to 5,000,000 cars by 2013. Part of its strategy is to
move up into higher price tiers. Do you agree with this strat-
egy? Are there other strategic initiatives the company could
pursue to achieve this target?
CASECH07 02/13/2014 11:33:55 Page 4
4  Chapter 7  Short Cases
DISCUSSION QUESTIONS
1. How do you assess the new LEGO Friends line expressly
targeted to girls? Is the toymaker on the right track? Why or
why not?
2. How would you position the new line towards LEGO’s
target (5+-year old girls)?
3. Where should the new line be shelved inside stores like
Wal-Mart or Target? With other LEGO toys or with girl-ori-
ented toys?
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 7-4
CROCS: LOVE THEM, HATE THEM
In the demi-monde of footwear, the term croc once stood for
the reptile skin used in elegant footwear. Today, it’s synony-
mous with an entirely different (and altogether vegetarian)
phenomenon. In just a few years, the shoes known as “Crocs”
have spread around the world.
In June 2002, entrepreneur George Boedecker used a
company he had previously formed called Western Brands
to start up a shoe company that eventually became known as
Crocs, Inc.6 Earlier that same year Boedecker had been
approached by a Canadian firm, Foam Creations, to distribute
a newly developed shoe. The peculiar new shoe was made from
a proprietary foam resin called “Croslite.” The shoes are called
Crocs because they resemble a crocodile’s snout. Initially, the
shoe was marketed as a lightweight boating and outdoor
footwear that featured slip-resistant and non-marking soles.
The first model, the Crocs Beach, was unveiled in November
2002 at the Ft. Lauderdale Boat show, and the 200 initial pairs
sold out immediately. Word of mouth spread. Early adopters
6 7
www.crocs.com.
Sources: “LEGO Is for Girls,” Bloomberg Businessweek, December 19 – December 25, 2011,
pp. 69–73; http://www.legofriends.com; http://en.wikipedia.org/wiki/Lego_Friends; “Why Do
Boys and Girls Have Similar Interests, But Very Different Toys? Toy Makers Still Behind in
Closing the Gender Gap,” http://adage.com/article/news/toy-makers-closing-gender-gap/
237154/.
4. LEGO decided to roll out LEGO Friends first in France,
the U.K., and the United States. What criteria would you use
to decide on the next wave of countries to introduce the new
product range? Does the line have the potential to become a
global blockbuster?
5. For many of LEGO’s more traditional lines targeted
toward boys are co-branded (e.g., with Star Wars, Indiana
Jones, Harry Potter). LEGO decided not to do this for the
new line. Do you agree with this decision? Why or why not?
were mostly people who spent a lot of time on their feet such as
restaurant workers, nurses, and doctors. The Crocs epidemic
soon engulfed the world as millions rushed to jump on the
Crocs bandwagon. Celebrities such as George W. Bush and
Jack Nicholson have been spotted wearing the shoes. Crocs
wearers are almost evangelical about the shoes’ comfort. Crocs
shoes have been awarded the American Podiatric Medical
Association (www.apma.org) Seal of Acceptance. The
AMPA took special note of the fact that Croslite “warms
and softens with body heat and molds to the users’ feet, while
remaining extremely lightweight.”
Crocs capitalized on several strengths.7 Kids like their
brightness, squishiness, and the holes in the front in which
charms can be placed. Parents like that the shoes are water-
proof, odor-free, and washer-safe. The Croc fad also benefits
from the appropriation of an ethnic look: the Dutch clog. Ugly
is acceptable especially when it is imported (not unlike Aus-
tralian Ugg boots). In Rolling Stone Crocs even ran ads
http://www.slate.com/id/2170301/.
CASECH07 02/13/2014 11:33:58 Page 5
proclaiming “Ugly can be beautiful.” The anti-bourgeois qual-
ity of the shoes also has a certain appeal: Crocs are a bottom-up
brand, embraced by ordinary people. They represent a kind of
rebellion.
By June 2004, Crocs was able to acquire Foam Creations to
secure its manufacturing operations and the patent to the foam
resin material that its shoes were made from. In October 2006
Crocs also bought Jibbitz, a manufacturer of accessories that
snap into the holes of Crocs. The Crocs franchise then contin-
ued to grow in 2007 as its product line expanded to over 250
styles and retail points mushroomed to 200 worldwide markets
in Europe and Asia. CEO Ronald Snyder delivered a stunning
report card in 2007 of 139 percent growth and US$847 million
sales revenues, up from US$355 million in 2006.
While many regard the shoes as comfortable and colorfully
decorated, the popularity of Crocs has also led to the inevitable
backlash. Many people regard Crocs as a fashion disaster or
even a disease. Crocs have been lampooned as “clown shoes”
or even worse. A Washington Post article described the Crocs
criticism as follows: “Nor is the fashion world enamored of
Crocs. Though their maker touts their “ultra-hip Italian styl-
ing,” lots of folks find them hideous.”8 One British journalist
who had seen the shoes in South Africa described them as
“something crafted from a car tyre in a poverty-stricken local
township and sold on street corners.”9 Two college students
based in Halifax, Nova Scotia, set up a website called www.
ihatecrocs.com with anti-Crocs rants and videos of the shoes
being burned or shredded. Crocs ranked No. 6 on Maxim’s
“10 Worst Things to Happen to Men in 2007” listing.
Probably even more worrisome are growing negative
reports on the shoes’ safety. Several wearers, mostly children,
8 10
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/31/
AR2006073100890_pf.html.
9
http://www.dailymail.co.uk/femail/article-470904/Curse-Crocs-Why-mid-
dle-aged-men-wear-ugliest-shoes-invented.html.
Short Cases  5
suffered injuries after their shoes got entrapped in escalators.
The U.S. Consumer Product Safety Commission has docu-
mented 77 soft shoe entrapments on escalators since January
2006 and issued a warning in May 2008. One family of a child
whose foot was maimed in an escalator accident at the Atlanta
airport is suing Crocs for failure to put safety features in the
soft-holed shoes.10 The company maintains that the safe design
and maintenance of escalators is the real issue. Yet it put
warning tags on its footwear. Japan’s Trade Ministry is looking
into several reports of people damaging toenails on Jibbitz
accessories fixed to Crocs sandals. Following the incidents,
Crocs Asia warned on its website that children should not wear
oversized Crocs. “Jibbitz attached near the toes could harm
toes or toenails,” said the company on its Japanese website.11
In April 2008, Japanese and Philippine authorities asked the
firm to consider changing the footwear’s design because of
escalator incidents in their countries. Crocs promised to insert
safety tags.
In recent days the allure of Crocs seems to be fading, at
least in the United States. In 2008 U.S. retailers cut back on
orders as U.S. consumers spend less in the wake of the weak
economy. One retail analyst pointed out that the Crocs brand
is not strong enough to command prices four times those of
imitations. At Nordstrom stores, Crocs sell for $24.95 to
$69.95 each compared to as little as $5 for similar clogs on
Wal-Mart’s website. Luckily for the company, international
demand is still rising: sales in the second quarter of 2008 rose
13 percent in Europe and 65 percent in Asia. One retail
consultant noted: “It’s a fad, not an essential basic in the
consumer’s wardrobe . . . with the weak economy, consum-
ers may not be interested in new Crocs this year.”12
http://www.foxnews.com/story/0,2933,419962,00.html.
11
http://www.just-style.com/article.aspx?id=101631.
12
http://www.rockymountainnews.com/news/2008/jul/25/crocs-shares-
sink-grim-sales-news/.
CASECH07 02/13/2014 11:34:2 Page 6

6  Chapter 7  Short Cases

DISCUSSION QUESTIONS
1. Explain why a “heinous synthetic shoe” (as described in a
Slate article) conquered the world?
2. Sales in the United States are declining. Do you expect that
Crocs will also lose momentum in the international markets
and why? Is the phenomenon indeed just a fad?
3. One BBDO ad executive claimed that “Crocs may have
been successful, but it has never been a brand. The name itself
is well established, but the equities are missing.” Do you
agree?
4. How would you target/position the Crocs brand in the
international market (say Asia)?
CASECH08 02/11/2014 11:17:23 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 8-1
GM AND FORD’S PURSUIT OF DIFFERENT BENEFITS FROM GLOBAL MARKETING
GLOBAL MARKETING THOUGHT: THE 1990s
Ford and General Motors have approached globalization
differently. In its quest for a “world car,” Ford developed
the so-called Ford 2000 program by creating five new vehicle
centers—four in the United States and one in Europe—each
responsible for designing and developing a different type of car
worldwide. Ford’s plan was put to test when it built a midsize
world car in 1993 known as the Mondeo in Europe and the
Ford Contour in North America. Its plan was to manufacture
700,000 cars a year in Europe and North America for nearly a
decade with only a “refreshing” after four or five years. Ford
executives say they can no longer afford to duplicate efforts
and they want to emulate the Japanese, who develop cars that
with minor variations can be sold around the world. While the
Mondeo/Contour sold 642,000 units in the first two years in
Europe, it had disappointing sales in the United States, attrib-
uted to its comparably higher price relative to the car’s prede-
cessors. Successful product development efforts require that
the company avoid two problems that can arise from pursuing
global design. First, the high cost of designing products or
components that are acceptable in many settings could nega-
tively affect efficiency. Second, the product, in this case a
“world car,” may be low cost but meet the lowest common
denominator of taste in all countries.
Alternatively, General Motors took a more regional tack by
retaining strong regional operations that develop distinctly differ-
ent cars for their own. If a car has a strong crossover potential,
engineers and marketers cross the Atlantic to suggest custom-
ization. Thus, Cadillac got an Americanized version of the Opel
Omega small luxury sedan developed by GM’s Opel subsidiary in
Germany. GM managers contend that ad hoc efforts are cheaper
and more flexible. One senior executive at Ford of Europe
countered that “doing two conventional car programs would
have cost substantially more than doing one global program.”
The two automakers’ contrasting product development and
marketing programs in the 1990s illustrate the traditionally
viewed tradeoffs of efficiency and effectiveness, global standard-
ization versus customization, market segmentation versus prod-
uct differentiation, and product orientation versus customer
orientation. These debates are framed by the tension between
bending demand to the will of supply (i.e., driving the market)
versus adjusting to market demand (i.e., driven by the market).
It is difficult to conclude that one strategy is always better
than the other. One has to be reminded that while the Ford
Mondeo/Contour project cost $6 billion and took six years to
develop, potential cost savings from the global strategy could
also be enormous for years to come. On the other hand, GM’s
regional strategy could also make sense if regional taste
differences remain so large that a Ford-style global strategy
r r r r r r r r
could, indeed, end up producing a “blandmobile” that hits the
lowest common denominator of taste in different markets.
Which was a winning strategy in the 1990s? Ford’s ex-
president, Jacques Nasser, wanted to keep the efficiencies
generated from central thinking about design and production.
But he wanted to reintroduce the market focus in regions across
the globe that will give Ford stronger brands and more appealing
products. The Ford 2000 was a good idea carried a bit too far.
Ford Contour was discontinued from the U.S. market in 2001.
Ford is now trying to redefine the Ford 2000 program with a
heightened emphasis on the company’s brands and to give the
various regional and brand units more autonomy.
GLOBAL MARKETING THOUGHT: THE 2000s
The first decade of the twenty-first century proved to be period
of struggle and retrenchment for both Ford and GM as they
faced eroding U.S. market share, soaring gasoline prices, and
an overdependence on declining sales of sport utility vehicles
(SUVs) as well as high U.S. health care costs for their aging
workforce. By 2005, both Ford and GM’s corporate bonds had
been downgraded to junk status. In order to shore up its cash
flow, Ford had to sell its luxury brands, Aston Martin and
Volvo, ending its intended goal to build strong luxury divisions.
While Ford managed to further reduce debt and maintain cash
flow by a debt-for-equity exchange, GM filed for bankruptcy in
2009. While in bankruptcy, GM shed Hummer, Pontiac,
Saturn, and Saab to streamline its operations. With the U.S.
government’s financial backing (i.e., the government’s major-
ity ownership), GM appeared from bankruptcy and made an
initial public offering in 2010 to continue its business, and
returned to profitability in 2011. During this period, both
automakers were busy dealing with their own survival issues
and as a result, they did not develop any clear strategic vision
other than cutting costs and streamlining operations.
GLOBAL MARKETING THOUGHT: THE 2010s
The automobile industry today is a growth industry in emerg-
ing markets. Only about 12 percent of the earth’s 7 billion
people enjoy the benefits of vehicle ownership, and industry
growth remains positive at about 20 percent per decade, with
the potential for global annual sales of 96 million vehicles by
2016. Most of this expansion will occur in emerging markets
such as China, India, Russia, and Brazil.
General Motors’ strategy in China and other Asian markets
is very aggressive. Alliances have been the key to its marketing
strategies. For example, GM earlier acquired the majority of
Korea’s Daewoo Motor Company’s automotive assets in 2002.
At the same time, the company has used an approach that is
1
CASECH08 02/11/2014 11:17:23 Page 2
2  Chapter 8  Short Cases
more akin to a “loose confederation” in joining recently with
other partners such as Suzuki, Fuji, and Fiat. GM has a
minority equity stake in each of these companies. In addition,
GM has major joint ventures in both China and Russia. GM’s
alliance strategy and its initiatives to develop new markets are
key elements in the company’s approach to globalization.
Alliances afford the opportunity for component and architec-
ture sharing as well as the reduction in R&D costs that will be
critical for manufacturers looking ahead to hybrid vehicle
technology and, ultimately, hydrogen-based fuel-cell vehicles.
By pulling together the talents and resources from its global
R&D network, GM has been able to reduce redundancy,
accelerate ongoing development, and jump-start new develop-
ment. Nevertheless, globalization entails risks from many
quarters: economics, political forces, energy, and national
differences in social and cultural norms. Consequently, GM
is now focusing on the recruitment and empowerment of an
international executive team, which will help accelerate the
globalization process. For example, in Australia, GM operates
through a subsidiary Holden, and it is closely integrated into
GM’s global manufacturing strategies. In other words, GM is
now planning a reorganization that would move it away from
long-entrenched regional authority toward a structure built on
global functions to improve efficiency. Power would shift from
regional chiefs to global leaders in areas such as marketing,
purchasing, and product development.
Ford is also planning to boost its worldwide sales volumes
by more than 50 percent by 2015, putting it close to parity with
GM and Toyota. But the task will not be easy. The company
faces a variety of challenges, including the need to revive its
long-struggling Lincoln brand and rebuild its European oper-
ations for the past decade. Its new global goal calls for a much
stronger market position in emerging markets, including China
where Ford has been able to capture only 4 percent market
share as opposed to GM’s 15 percent. Although Ford once
Sources: Larry J. Howell and Jamie C. Hsu, “Globalization within the Auto
Industry,” Research Technology Management 45 (July/August 2002):
43-49; “Where Are the Hot Cars?” Business Week, June 24, 2002, pp.
66-67; “Small Carmakers Rise in Large China Market,” China Daily, June
3, 2005; Jill Jusko, “Counterfeiters Be Gone,” “Can Global Automakers
Learn From Their Mistakes?,” BusinessWeek.com, June 16, 2008; “Autos:
China Auto Sales Up 17% in First Half Year,” ChinaDialy.com, July 10,
2008; “Autos: GM, Ford: China H1 Sales Up Steadily,” ChinaDaily.com,
July 9, 2008; “China 2011 Car Sales up 5.2 Percent,” Reuters, January 16,
2012; “2nd UPDATE: GM, Ford China Sales Exceed Industry Forecast,”
Wall Street Journal, January 9, 2012; “Global Auto Forecasts 77.2 Million
in 2012 and 96 Million in 2016,” NextBigFigure.com, January 3, 2012; “GM
Seen Planning Global Reorganization Against ‘Fiefdoms’,” Bloomberg.
com, August 17, 2012.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 8-2
P&G: WE’RE ALSO CHINESE
It is common knowledge that having dominated the Triad region
comprising of North America, Europe, and Japan for the better
half of the last century, multinationals firms (MNCs) turned their
tried to emulate GM’s regional strategy focus, a new manage-
ment team at Ford has shaken up its management structure
and transformed its operations from a network of regional
fiefdoms into a truly integrated global entity. Again, we see a
much clearer efficiency-seeking strategy at work.
In the promising growing economy, car demand in China is
shifting away from large sedans long favored by government
officials to economy models demanded by families. GM and
Ford face harsh competition from both homegrown and
Korean and Japanese automakers.
Car sales in China climbed 5.2 percent in 2011, the slowest
pace since the turn of the century when the nation’s car culture
started to take off. This rate is much lower than that of 2007
and 2008, which reached 22.3 percent and 17.1 percent, respec-
tively. Still, according to the China Association of Automobile
Manufacturers, a total of 14.5 million sedans, sport utility
vehicles, and multi-purpose vehicles were shipped to dealers
in 2011. Amid a slowing economy and a less favorable domestic
policy environment that caused this drop, GM and Ford still
exceeded an industry group’s forecast for total vehicle sales
growth in China, suggesting that demand for some foreign
brands continues to grow in the market. Ford’s vehicle sales in
China rose 7 percent to 519,390 units in 2011, following growth
of 40 percent in 2010. GM’s sales in China rose 8.3 percent to
2.55 million in 2011.
Although we cannot say that General Motors’ and Ford’s
global strategies are converging to emphasize manufacturing
and marketing efficiency, one thing is clear. When the cost and
competitive pressures are mounting, the companies have to
emphasize operational efficiency on a global scale. And as the
growth markets have shifted from developed countries to
emerging markets, the automakers have to shift their focal
marketing strategy to these new markets. As a result, the new
markets’ customer needs and tastes are increasingly shaping
the automakers’ product development strategy.
DISCUSSION QUESTIONS
1. Discuss what is missing in GM’s and Ford’s global strategy.
2. Evaluate GM’s going eco-friendly in China and discuss the
possible global strategy for GM and Ford in an era of oil
shortages.
3. Do you think GM’s success in China was largely helped by
its joint ventures? If so, do you think the approach can be
applied in other emerging markets? Explain your answer.
4. Evaluate Ford’s decision to expand its factory and assem-
bly plant in China. To what extent do you think Ford’s move
will help the company gain better position in the market as
compared to its GM counterpart?
heads toward emerging economies like China, India, and other
Asian economies, which are no longer just sources of cheap
labor for MNC operations but are also large consumer bases.
CASECH09 02/11/2014 11:19:50 Page 3
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 9-3
STARBUCKS’S FORAY IN TEA-LOVING INDIA
On September 28, 2012, Starbucks announced its long-awaited
plans to expand its coffee retailing empire in tea-loving India.
A few weeks later, on October 19, 2012, the global coffee chain
opened its first store in Mumbai’s Horniman Circle, the heart
of the city’s commercial district. The area is home to luxury
shops, including a Hermès store, and numerous offices and
bank headquarters. The 4,500 square feet store (418 sq.
meters) is far larger than most Starbucks stores elsewhere
around the world.
To enter India, Starbucks set up an $80 million 50-50 joint
venture with Tata Global Beverages, a division of the very
diversified Tata Group conglomerate. The joint venture was
already set up before the Indian government decided to allow
so-called single-brand retailers to set up shop in the market on their
own. The Indian partner describes itself as “Asia’s largest coffee
plantation company.” In fact, the Mumbai-first shop is located in a
restored heritage building that is owned by Tata Sons, another
division of the Tata Group. The coffee chain had initially planned
to open its first stores in India in mid-2011, but needed to postpone
its debut when it had difficulty finding suitable real estate.
In a first for the firm, all the coffee sold in Starbucks stores
across India would be locally sourced and roasted in India.
Tata Coffee, a unit of Starbucks joint venture partner, had built
the roasting facility in the southern Indian state of Karnataka.
The new facility would have a capacity of 375 metric tons of
coffee beans annually.
Even though India is a nation of tea lovers, the country has
seen a rise in the coffee shop culture over the past few years.
According to one consultancy, the total coffee shop market was
expected to grow from $230 million in 2012 to $410 million by
2017. At the time of Starbucks’s entry, Bangalore-based Café
Coffee Day dominated the market with more than 1,300 stores
across the country. Other notable coffee chains included The
Coffee Bean and Tea Leaf, a privately held U.S. firm, and
U.K.-based Costa Coffee. Costa Coffee set up business in India
Sources: “Starbucks to Enter India in $80 m Tata Joint Venture,”
Financial Times, January 31, 2012, p. 15; “Costa Coffee Opens 100th
Outlet in Mumbai,” http://articles.economictimes.indiatimes.com/
2012-07-14/news/32674990_1_costa-coffee-india-cafe-brand-100th-
outlet; “Starbucks Makes Long-Awaited India Entry in South Mum-
bai,” http://india.blogs.nytimes.com/2012/09/28/starbucks-makes-long-
awaited-india-entry-in-south-mumbai/; “Tata Setting up Starbucks
Coffee Roasting Facility,” http://online.wsj.com, accessed on October
13, 2012; “Starbucks Out to Woo Tea-Loving Indians,” http://www.ft
.com, accessed on October 20, 2012.
Short Cases  3
in 2005. By mid-2012, the chain had stores in six cities across
India; it opened its one hundredth outlet in Mumbai in August
2012. Costa Coffee planned to open another 100 stores over
the coming two years. Costa Coffee also recognized the need to
go beyond serving coffee alone.
Starbucks’s expansion into India is part of its strategy to
reduce the dominance of the United States in its operations. Of
its more than 17,000 outlets, about 6,000 were in more than 50
countries outside the U.S. In Europe, Starbucks had struggled in
some countries, particularly France. China, on the other hand,
has been a crown jewel of the company’s international empire.
The China business, however, did meet a few obstacles. A
Starbucks outlet set up in 2000 in Beijing’s Forbidden City
was closed seven years later after protesters claimed that the
store tarnished the historical site. By 2012, Starbucks had over
500 outlets in China. It expected that China would become its
second-largest market by 2014 and planned to have 1,500 stores
across the country by 2015. Starbucks also had high aspirations
for India. In an interview with the New York Times, John Culver,
president of Starbucks China and Asia Pacific, said: “We’re
going to be very thoughtful on how we grow, but at the same time
we’re going to look at accelerating growth and capturing the
opportunity that exists for us here in India.”
DISCUSSION QUESTIONS
1. Starbucks decided to enter India through a 50-50 joint ven-
ture with Tata Global Beverages. As the case points out, the
first store was based in Mumbai. Assess Starbucks’s entry
strategy—entry mode choice, partner choice, and scope.
2. Starbucks entered India relatively late. Costa Coffee, a
major global chain based in the U.K., set up business seven
years earlier. By the time of Starbucks’s entry in the country,
Costa already operated 100 outlets. In fact, Starbucks planned
to enter India much earlier but it had to postpone its move.
Evaluate the timing decision. Does Costa Coffee have a signif-
icant first mover advantage vis-à-vis Starbucks? If so, would
Starbucks be able to overcome it?
3. What criteria would you use for selecting future cities in
India to set up shop?
4. What marketing mix recommendations in terms of menu
and promotion would you recommend to Starbucks? Should it
make concessions to the Indian palate as other Western global
restaurant chains operating in India have done? Should
Starbucks charge a premium price as it does in most other
countries or lower the price for its coffees?
CASECH12 02/11/2014 11:25:59 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 12-1
STARBUCKS IN HOT WATER IN THE UK AFTER TAX-RELATED CUSTOMER REVOLT
Starbucks opened its first UK shop in 1998. Over the 14 years
that the chain had operated in the UK, Starbucks had paid just
£8.6 million despite £3 billion sales. One Labour MP (member
of parliament) who had campaigned against companies that
use tax avoidance techniques commented: “The fact they
[Starbucks] have paid 0.3 percent tax on their turnover is
utterly scandalous. If they didn’t think they could get away
with it, they wouldn’t dare it.”
The main reason why Starbucks had avoided paying taxes
for a 3-year string in the United Kingdom was a complex
transfer pricing scheme for transactions within the company.
Starbucks UK had incurred losses due to a 4.7 percent pre-
mium paid to the Netherlands division where the coffee is
roasted and another 20 percent premium to Switzerland where
it buys the coffee beans. The claim of losses, however, was
contradicted by statements that corporate executives made to
analysts about the UK business. For instance, in 2010, John
Culver, the president of Starbucks international division, said:
“We are very pleased with the performance in the UK” in spite
of filing a £33 million loss.
When news about Starbucks low tax contributions spread in
2012, pressure groups and British MPs called for an inquiry
into the company’s tax affairs. UK Uncut, a grassroots group
that targets companies that it accuses of tax dodging in the
United Kingdom, called on the government to change the law
to stop what it described as “unfair and unjust behavior.”
Other multinationals, including Google and Amazon, had
also been attacked for using arrangements that channeled
Sources: “Starbucks to Pay £20m in Tax Over Next Two Year After
Customer Revolt,” http://www.guardian.co.uk, accessed January 14,
2013; “Starbucks ‘pays £8.6m Tax on £3bn Sales,’” http://www
.guardian.co.uk, accessed January 14, 2013; “Starbucks Pays Up to
Avoid Boycott,” http://www.ft.com, accessed January 14, 2013.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 12-2
KRAFT LAUNCHES OREO IN INDIA
In March 2011 India’s cookie wars intensified when U.S.
food giant Kraft introduced Oreos into the country. This was
the first major brand launch in India for the company
following its Cadbury acquisition in 2010. Each year more
than 7.5 billion Oreo cookies are consumed worldwide.
r r r r r r r r
profits to European subsidiaries based in countries where taxes
were lower.
In December 2012, surprised by the public outcry,
Starbucks UK announced that it would volunteer to pay £10
million in taxes in each of the coming two years even if the
coffee chain failed to make any profits. Kris Engskov, manag-
ing director of Starbucks UK, stated in an announcement made
at the London Chamber of Commerce: “I am announcing
changes which will result in Starbucks paying higher corporate
tax in the UK—above what is currently required by law.
Specifically, in 2013 and 2014 Starbucks will not claim tax
deductions for royalties or payments related to our inter-
company charges. In addition, we are making a commitment
that we will propose to pay a significant amount of corporation
tax during 2013 and 2014 regardless of whether our company is
profitable during these years.”
UK Uncut was not pleased however. It claimed that the
voluntary tax Starbucks offered to pay was still far less than the
taxes paid by the chain’s closest competitor, Costa Coffee. It
vowed to continue organizing a protest action planned in
Starbucks stores around the country in December 2012.
According to the organization’s spokesperson: “People will
be transforming Starbucks stores into refuges, cr eches and
other services which the government are cutting with their
unjust and unnecessary austerity plans.”
DISCUSSION QUESTIONS
1. Explain why transfer pricing is so complicated especially
for a company like Starbucks.
2. Assess Starbucks UK’s decision to pay a voluntary tax of
£10 million per year in 2013 and 2014. Google and Amazon,
who were also accused of dodging taxes, declined to follow
Starbuck’s example, insisting that they paid the correct level
of tax.
Kraft’s goal was to make the “world’s favorite cookie”
also India’s most popular one. Prior to the rollout, Indian
cookie connoisseurs had been munching the imported ver-
sion of Oreos. A large pack of imported Oreos cost around
Rs50 (about $0.90).
1
CASECH12 02/11/2014 11:25:59 Page 2
2 • Chapter 12 • Short Cases
According to Euromonitor, the volume growth of cookies in
2011 was slightly over 11 percent. Total category sales of
cookies were expected to reach Rs142.6 billion (around
$2.6 billion). Due to their affordability, plain cookies were
the largest segment. However, the cream-filled cookies saw
the fastest growth. Such cookies were especially appealing to
children. In general, Indian consumers considered cookies as
a cheaper indulgence and as nourishing products compared
to cakes or pastries. Local players dominated the market with
the two leading players being Parle (33.1% retail value share
in 2010) and Britannia (32.8%). Prior to Oreo’s debut in
India, Britannia had launched a cream sandwich cookie
named Treat-O that had a deceptive similarity to Oreo. Kraft
was considering legal action against Britannia for copyright
infringement.
To roll out Oreo, Kraft planned to leverage Cadbury’s
existing distribution network of more than 300,000 outlets in
India. It chose to start out with key cities as distribution points,
focusing on modern retail stores. Given that Cadbury had
Sources: “Late Entrant Oreo Finds Indian Consumer Willing,” http://
www.hindustantimes.com, accessed January 15, 2013; http://www
.cadburyindia.com/in/en/brands/biscuits/oreo.aspx; “Beyond Choco-
late: Cadbury Launches Oreo in India,” http://www.hindustantimes
.com, accessed January 15, 2013; “Biscuits in India,” Euromonitor
International, November 2011.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 12-3
CARLSBERG MALAYSIA—SELLING BEER IN A 60 PERCENT MUSLIM NATION
Malaysia’s beer market has been under heavy pressure lately.
From 2004 to 2006, the industry saw heavy increases in excise
duties. With an excise duty of RM7.40 (US$2) per liter,
Malaysia now has the second-highest beer tax in the world
(Norway ranks first). The price increases have narrowed the
price gap between beer and other alcoholic drinks such as
wine. Beer drinkers have balked: consumption dropped from
1.4 million (2004) to 1.2 million hectoliters (2006) as a result
of the price increases. Many beer and stout customers have
turned to wine and liquor due to the narrowed price gap for
these products with beer.
The tax increases have also reshaped the competitive land-
scape. Carlsberg bore the brunt of the price increases. Until
recently, two big brewers carved up Malaysia’s beer market:
Carlsberg, which has been operating in Malaysia for over
35 years, and Guinness Anchor Berhad (GAB), the maker of
Guinness, Tiger, and Anchor beer. In 2000 Carlsberg had a 55
percent market share while GAB had the remaining 45 percent.
By mid-2006, GAB’s share had risen to 55 percent. In 2007 a new
local beermaker under the name of Napex Corporation joined
the two brewers selling a beer named Jaz Beer. Differences
between the brand portfolios of GAB and Carlsberg partly
explain the market share reversal. GAB sells pricier brands
such as Guinness and Heineken while most of Carlsberg’s sales
came from the lower-priced Carlsberg green label. Buyers of
much stronger brand name recognition, Oreo was to be pro-
moted as a Cadbury product. One critical decision would be
the entry price. Oreos would be manufactured in India, so the
cost would be much lower than for the imported version. Still,
Cadbury’s competitors expected that Cadbury would price
Oreo as a premium brand. Kraft was pondering whether to
surprise the market by pricing its Oreos at an extremely low
price point. For instance, a 10-pack would retail for merely
Rs.10 or less than $0.20. This would help the brand to grab
market share.
DISCUSSION QUESTIONS
1. Should Kraft price Oreo relatively low, or should it go for a
premium price compared to the local competing brands?
What factors should the company take into account when
making its pricing decision?
2. Should Kraft continue to focus on the big metropolitan
areas, or should it also shift to smaller towns?
3. How would you position Oreos in India? Whom would you
target? How would you build up the desired brand image?
4. Should Kraft localize Oreo in India? If so, what aspects of
the brand would you localize? (Note that they already
“adapted” the umbrella brand by promoting it as a Cadbury
cookie; not a Kraft or Nabisco cookie as in other parts of the
world.)
premium brands are wealthier and less price sensitive than cheap
beer consumers. Soren Jensen, managing director of Carlsberg
Malaysia, explained the situation as follows: “Once you have
high duties, you don’t have much cheap beer. The premium
brands have strengthened because the relative price difference is
smaller” (Media, Nov. 27, 2008). Charles Ireland, the head of
GAB, said: “We sell premium brands, they sell brands which are
of lower prices; we have different business models and our
consumer markets are different” (www.theedgedaily.com).
To shore up Carlsberg’s position, the firm overhauled its
brand stable by adding new high-end offerings such as Tuborg,
Skol Super, and Carlsberg Gold as well as importing Corona
from Mexico. GAB also outspent Carlsberg in advertising
during 2007: RM10.4 million ($2.8 million) for GAB versus
RM6.8 million ($1.8 million) spent by Carlsberg on its core
brand (see Table A). Television, radio, and outdoor are not
T ABLE A
TOP FIVE BRANDS BY ADSPEND (000’S)
Carlsberg RM6,780 (Carlsberg)
Heineken RM5,867 (GAB)
Tiger Beer RM2,967 (GAB)
Skol RM1,884 (Carlsberg)
Anchor RM1,603 (GAB)
CASECH13 02/13/2014 11:46:36 Page 3
Betty is a show about true beauty, which is exactly what Dove’s
communication is all about.”
The show ranked No. 1 in its time-slot across China each
time it aired during its first season. Unilever signed up for
more, and the second season was scheduled to start in January
2009.
Sources: “Unilever gives ‘Ugly Betty’ a product-plug makeover in
China,” Wall Street Journal, December 29, 2008, p. B1; “Dove finds
perfect match in China’s ‘Ugly Betty,’ www.adage.com; “In China,
brands come with plots—advertisers find big audience for Web series,
films built around products,” Wall Street Journal, June 12, 2009, p. B6.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 13-4
KIWI SCHOOLGIRLS FIND ALMOST NO VITAMIN C IN RIBENA DRINK
Ribena is a famous brand of fruit-based health drinks sold by
global drugs company GlaxoSmithKline (GSK). In 2004
Ribena hit a major snag due to its advertising campaign in
New Zealand. The campaign stated that the black currants in
Ribena have four times the vitamin C of oranges.
The controversy surrounding the ad campaign started with
a simple school project. That year, two New Zealand high
school students conducted a science experiment to determine
the vitamin C levels of their favorite fruit drinks. They hypoth-
esized that cheaper brands would be less healthy. The students
were surprised to discover that Ribena contained virtually no
trace of vitamin C, contrary to the brand’s advertising claims.
Instead, their lab test found that Ribena contained a tiny
amount of vitamin C, while a cheaper rival product “Just
Juice” contained almost four times as much. After contacting
the company, the students’ concerns of “intentionally mislead-
ing and quite inappropriate” claims were dismissed. “They
didn’t even really answer our questions. They just said it’s the
black currants that have it, and then hung up,” one of the
students said (www.guardian.co.uk).
Their case was taken up by a television consumer affairs show,
Fair Go, which suggested the girls take their findings to the New
Sources: “Schoolgirls Rumble Ribena Vitamin Claims,” www.guardian
.co.uk, accessed January 1, 2009; “GlaxoSmithKline Fined for False
Ribena Advertisements in New Zealand,” www.iht.com, accessed
January 2, 2009; www.ribena.co.uk, and “Are Consumers Ready to
Forgive Ribena’s Lie?” Media, April 20, 2007.
Short Cases • 3
DISCUSSION QUESTIONS
1. Why did Dove’s global “Real Beauty” ad campaign fail in
China?
2. What could be the benefits of an Ugly Wudi–like brand
integration campaign over traditional advertising campaigns?
What could be some possible risks?
3. How would you measure the effectiveness of this
campaign?
Zealand Commerce Commission, a government watchdog. The
commission’s investigation confirmed the girls’ findings: Ribena
had no detectable level of vitamin C even though black currants
have more vitamin C than oranges. The commission brought 15
charges in the Auckland District Court against GSK under the
Fair Trading Act. On 27 March 2007 GSK pleaded guilty to all 15
charges and was fined NZ$217,500 (about $156,000) for mis-
leading consumers and ordered to run a one-month corrective
advertisement campaign in New Zealand’s leading print titles in
addition to a message on its website. After the verdict, one of the
girls told a local radio station: “We feel quite proud . . . blown
away. If we hadn’t done that science test three years ago, Ribena
could have been promoted as Vitamin C full forever” (www.iht
.com).
Clearly, GSK had not handled the PR crisis well.
New Zealand media reports indicated sales dropped by 10
to 12 percent in 2007 compared to sales a year before.
Questions over Ribena’s vitamin C content were raised
also in other markets. GSK maintains that the issue only
affected Australia and New Zealand and that Ribena drinks
sold in other markets contain the levels of vitamin C stated on
the product label.
DISCUSSION QUESTIONS
1. What are the lessons to be drawn from Ribena’s crisis in
New Zealand?
2. How can GSK salvage the Ribena brand in New Zealand?
CASECH14 02/11/2014 11:35:30 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 14-1
HILTON UNIVERSITY—FOR EMPLOYEES ONLY!
Products-based multinational firms with worldwide operations,
and therefore a diverse workforce, face a major task training
employees in different regions in order to maintain a uniform
organizational culture throughout the global company. But for
multinational service firms, maintaining an educated, well trained
workforce is even more challenging. That is why many service
firms have made it a priority to establish training programs. Take
the hospitality industry for example. Before the World Wide Web
era, these training programs used to be face to face and were
carried out in various foreign locations. The downside of this form
of classroom instruction was costs, time, and the wide disparity in
teaching methods in different places. Today, however more and
more global service firms are taking their classrooms online. Not
only does this form of training lower overall costs but it also
attempts to transfer the image of corporate culture.
The premier hotel group Hilton International launched its
Hilton University in 2002, solely for training and educating its
global employees. Prior to this initiative, employee training was
conducted on every Hilton hotel’s premises in more than
65 countries. Needless to say, the costs of training, time taken,
and the training programs differed to a certain extent based on
location. Also, not all of Hilton’s hotels are owned by the
company. Some hotels are managed by outsiders. The company
felt the need to consolidate employee training and introduced
online training. Another reason for establishing Hilton Univer-
sity was that corporate headquarters felt the need to monitor and
control training programs, mainly the content of the training
program and its effect on employee skills.
Hilton University conducts several different online training
programs. Its employees worldwide are expected to get training
for at least 40 hours in a year. One of the businesses’ primary
needs is the ability of its hotel staff to effectively communicate
with its customers. Given that many of its hotels are located in
non–English speaking countries, its training in English has
become one of its most important programs. Hilton’s main
clientele consists of high income, educated travelers, who are
willing to pay a premium for good service and comfort. A large
number of its patrons are also from its home country (U.S.).
Hence, a majority of its customers are English speaking, and
with the establishment of Hilton University the company
announced that English would be its official language for con-
ducting business in all parts of the globe.
Accordingly, Hilton University started an English course. It
uses GlobalEnglish, the leading online English learning and
service provider for business communication. This course
provides an engaging and personalized user experience that
Source: John Guthrie, “Hilton International: Creating a Global Service
Culture,” Chief Learning Officer, 4 (January 2005), pp. 54-56; www
.hiltonuniversity.com, accessed October 5, 2008.
r r r r r r r r
has students on their way to speaking and writing English in no
time at all. Another reason for the introduction of this course
was that the company wanted to create an organization culture
of shared beliefs about the company and for employees to be
able to share knowledge, information, and ideas.
The results of the English training program were good.
GlobalEnglish is used by many team members of Hilton to
improve their proficiency in English. On average, more than
75 percent of Hilton’s foreign employees commended the
program and claimed that it had given them the necessary
language skills to be able to confidently perform their jobs.
Better communication with guests improves their satisfaction,
a good way to greet guests more often as they come back. As
mentioned earlier, Hilton had set a target of 40 hours per
employee, but the number of hours actually clocked in by
employees exceeded the target by 10 hours on average.
Since 2005, Hilton University has offered more on-line
language learning, including French, Spanish, Italian, German,
and Dutch. However, most of the courses other than language
courses provided by Hilton University are still in English. Since
less than 10 percent of Hilton’s foreign staff is fluent in English,
most of these courses are not comprehensible to the majority of
its employees. A possible solution to this problem is to intro-
duce courses in different languages. In addition to the com-
plexity of this task, the company was unable to provide similar
learning opportunities to its non-English-speaking staff.
In spite of the problem of course language, Hilton Univer-
sity has still witnessed large successes. From 2002 to 2005,
nearly 10,000 Hilton people completed over 100,000 e-Learn-
ing programs; 93 percent of these learners said that they would
recommend this form of learning to their friends and col-
leagues. The strongest “likes” were the chance to learn at a
time, place, and speed that were suited the learner.
Boosted by the success of its online programs, Hilton
University has introduced several others that the company
expects to increase employee productivity and improve service
at its hotels all over the world. This initiative by the company
has also raised its image in the eyes of employees, and the
company has gotten much closer to its objective of maintaining
a global service-oriented organization culture.
DISCUSSION QUESTIONS
1. Should the sales force of service multinationals have a
global service strategy like Hilton’s, or should it be more
locally oriented to serve the needs of regional customers?
Why?
2. How is sale force training in manufacturing firms different
from training in service firms?
3. What are the pros and cons of online training versus face-
to-face classroom-based training?
1
CASECH15 02/11/2014 11:36:26 Page 3
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 15-3
WHICH DISTRIBUTOR TO CHOOSE IN COSTA RICA?
Not long ago, TransMotors (a disguised name), an American
export management company that had a joint venture in China
manufacturing motorcycles began to search for new distrib-
utors in Central America. During previous years, TransMotors
had been highly successful in South America and Africa
locating distributors for its line of basic transportation motor-
cycles. Using Honda technology, the Chinese motorcycles
were proven to be of high quality and reliability. Most impor-
tant, they sold for less than a third of the cost of the competing
Japanese models.
The first stop in Central America was Costa Rica, the most
prosperous country in the region. A growing economy and
political stability provided the kind of market conditions that
were optimal for successful sales: a rising lower middle-class
that could now afford a dependable motorcycle for its trans-
portation needs. Such a formula had worked very well in
Colombia, Ethiopia, Venezuela, Burkina Faso, Argentina,
South Africa, Brazil, Nigeria, Peru, and Cameroon. For Trans-
Motors, like most others seeking to gain entry into high-
growth, emerging markets, the key to success was selecting
and recruiting the right kind of distributors for its products.
Robert Grosse, the executive in charge of developing the
entry strategy for TransMotors, was able to locate two possible
distributors in Costa Rica. Full of pride because of success in
the above-mentioned markets and others, Grosse believed
himself invincible when it came to identifying who would be
the best representative for his company’s products.
Harvey Arbelaez, the first candidate for the Costa Rican
distributor, was a young, upstart entrepreneur who had cut his
teeth in the agriculture business—importing farm implements
and fertilizers. Arbelaez had built a nice network that covered
the entire market in Costa Rica and was interested in the
Chinese motorcycles because he felt they would complement
his existing product lines.
Jaime Alonso Gomez, the other candidate appeared to be
the better fit. Gomez was one of the richest individuals in the
country and had made his fortune as the exclusive distributor
of Honda cars, Scania trucks, and Komatsu heavy equipment.
He had sold some Honda motorcycles in the past and was
interested in getting back into the low-end transportation
business. To the U.S. executive, this appeared to be the logical
choice.
When it came time to travel to San Jose to interview the two
prospects, Grosse had as his goal the sale of 250 motorcycles a
year for each of the first three years. According to his research,
the annual sale of motorcycles for the entire country was
approximately 2,700 units and growing nicely at a rate of 10
percent per year. The sale of 250 units annually would establish
a foundation that could be leveraged down the road to build
market share to ultimately 20–25 percent.
The first stop on the trip was at Arbelaez’s office. On a
personal level, the two did not hit it off; although it was clear to
Grosse that Arbelaez was wildly enthusiastic about the oppor-
tunity to offer the Chinese motorcycles throughout his net-
work. Any positive feelings on the American executive’s part
Short Cases • 3
soon evaporated, however, when the young man showed
projections that the annual sale would be no more than 100
units for the first couple of years. Arbelaez said it would take a
long while for the marketplace to adjust to a Chinese-branded
product, but once it did, the potential would be tremendous. At
this point, Grosse ended the conversation and told his coun-
terpart, “I will take your plan under advisement.” Twenty-
minutes later, the American executive was dropped off by a
taxi in front of the sparkling offices of the Honda/Scania/
Komatsu distributor, Jaime Alonso Gomez.
Within an hour of their meeting, Grosse and Gomez agreed
that the dealer would become the exclusive distributor for the
Chinese motorcycles. It was clear that there existed the sales
staff, service capability, financial resources, and knowledge of
distribution to handle the motorcycles. And, if that wasn’t
enough, the first order was to be 1,000 units—four times what
the American executive thought it would be! Dinner that night
was a celebration of the new relationship at San Jose’s most
prestigious private club. All that was needed was an exclusive
distribution agreement giving the Costa Rican sole rights for
the Chinese motorcycles for five years. Then, once the agree-
ment was in place, a revolving letter of credit would be opened
to begin shipping the motorcycles in 125 unit increments over
the first year.
After the exclusive agreement was consularized (i.e.,
authenticated by the consul) and notarized, the first 125 units
were shipped from China to Costa Rica without incident. The
letter of credit went smoothly and communication between the
two firms was regular and efficient. However, everything
changed when it came time to ship the next 125 units. To
re-initiate the revolving letter of credit a document was
required from the distributor to the confirming bank. For
more than a month the U.S. firm called, e-mailed, and faxed
its exclusive distributor. The only individuals the Americans
could get in touch with were administrative assistants who
generated the same, pat answers. “He’s away on a trip . . . in a
meeting . . . away from his desk.” With the second lot of
motorcycles languishing at the dock in Shanghai and the other
700 units ready for production, pressure was building.
Unannounced, Grosse grabbed a plane and flew to San Jose
to see what was going on. He took a taxi at the airport and went
right to his new distributor’s office. Not surprising, his new
distributor was “in meetings all day and unavailable.” Nor
were any of the motorcycles or promotional material anywhere
to be found on the showroom floor.
Distraught, the American executive took a cab to his hotel.
During the 30-minute trip, he was startled to see so many small
motorcycles on the streets of San Jose—something that was not
the case during his last visit a few months earlier. Many of them
were the models of one of his leading competitors from
Taiwan.
After a couple of stiff drinks at the hotel bar, Grosse
swallowed his pride and called Harvey Arbalaez, the young
entrepreneur whom he had rejected earlier as the exclusive
distributor. Half-expecting to be hung up on, the American
CASECH15 02/11/2014 11:36:26 Page 4
4 • Chapter 15 • Short Cases
executive was shocked when the young man agreed to join him
for dinner to discuss what was happening with the motorcycles.
Not gloating too much, the young Costa Rican showed pictures
of TransMotors’ motorcycles still sitting in a bonded ware-
house at the port. He further showed photos of a brand new
motorcycle distribution company located in the heart of San
Source: This case was provided by Professor Timothy J. Wilkinson of
Montana State University based on Andrew R. Thomas and Timothy J.
Wilkinson, “It’s the Distribution, Stupid!” Business Horizons 48 (2005):
125–134.
Jose that was importing small motorcycles from Taiwan.
Because of no competition, newspaper articles stated that sales
of the Taiwanese products might exceed 500 units that year. In
scanning the articles, Grosse recognized the last name of the
distributor. The name was Gomez—turns out, he was the
brother of the Honda guy.
DISCUSSION QUESTIONS
1. What mistakes did Robert Grosse make in selecting a
distributor?
2. What steps should Robert Grosse have taken that could
have helped in doing a better job in distributor selection?
CASECH16 02/11/2014 11:39:13 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 16-1
GRAY MARKETING ATTACKS! FROM A GIANT DISCOUNTER’S WATCH SALES TO A
GRADUATE STUDENT’S eBay BUSINESS
In 2008, Costco, the largest U.S. warehouse club, was sued by
Omega Seamaster, a Swiss luxury watch manufacturer. Costco
had become involved in gray marketing practices by purchas-
ing Omega watches from unauthorized distributors and whole-
salers abroad and then reselling them at a deep discount
price—a third less than the suggested retail price. Costco found
a distributor abroad offering Omega watches that were priced
less than what Omega had charged in the United States for its
products. The suggested retail price in the United States was
around $1,995; Costco sold the same watch for $1,299—$700
less than its suggested retail price.
Omega then sued Costco for copyright infringement and
claimed that the company had the exclusive right to sell and
distribute those watches in the United States. Costco fought
back and claimed that its action was protected by the “first
sale” doctrine. The “first sale” doctrine basically says that the
copyright holder—in this case, Omega—can only profit from
the original sale of a product. This means that the doctrine
allows the re-sale, lending, or gifting of copyrighted items
that have been sold once. Therefore, from Costco’s stand-
point, the original sale was made between Omega and over-
seas wholesalers, from whom Costco later bought the
watches. In the Ninth Circuit Court of Appeals—the largest
of the 13 U.S. appellate courts—which covers the whole of
the western United States, and nearly 20 percent of the
nation’s population—decided that in copyright law, the “first
sale” doctrine does not act as a defense to claims of infringing
distribution and importation for unauthorized sale of authen-
tic, imported watches that bore a design registered in the
Copyright Office. The Ninth Circuit held that the first-sale
doctrine of the Copyright Act, 17 U.S.C. § 109, does not apply
to imported goods manufactured abroad, finding that the
Copyright Act grants U.S. copyright holders complete con-
trol over the resale, redistribution, and importation into the
United States of any copyrighted works they manufacture
abroad, even after the holder sells those works to others.
The ruling was definitely in favor of Omega although it
applied only within the Ninth Circuit territory.
In 2010, the case was brought to the Supreme Court and
Costco asked the high court to extend a 1998 ruling that put
limitations on the manufacturer’s ability to block the importa-
tion into the United States of goods originally sold overseas. A
4-4 split decision was issued by the Supreme Court, leaving the
lower-court ruling that favored Omega remains intact. The 4-4
result means that the appeals court ruling favoring Omega over
r r r r r r r r
Costco will be upheld, but the ruling will not be binding on all
judges nationwide. Instead, Omega’s victory will be binding
only in the 9th Circuit, where it was heard.
Another similar case occurred in 2008, where John
Wiley & Sons filed an infringement suit in Manhattan
federal district court against Supap Kirtsaeng, a Thai
national and graduate student at the University of South-
ern California (he was an undergraduate student at Cornell
University when the case happened). Mr. Kirtsaeng had
family and friends buy textbooks manufactured interna-
tionally and ship them to him to be then resold on eBay,
where he made huge profit. According to the evidence
presented in the court, Mr. Kirtsaeng made from
$900,000 to $1.2-million from the sales, suggesting that
he was not merely reselling his own textbooks but was
running a business. Similar to Costco, Mr. Kirtsaeng
referred to the “first sale” doctrine. A jury eventually
found Kirtsaeng liable for infringing eight works and
imposed statutory damages of $600,000. In August 2011,
however, the U.S. Court of Appeals for the Second
Circuit upheld a lower court’s ruling that the first-sale
principle applied only to U.S.-made works. John Wiley
& Sons will definitely defend the decision in the Supreme
Court.
The implication of this case will affect many categories of
copyrighted work. Those who are against Omega and John
Wiley would argue that the victory for both companies would
be a huge burden to resellers and libraries. They would be
forced to research the origins of a particular copyrighted
good before selling it or lending it out. Retailers argued they
should be allowed to import goods however they like, as long
as they are legitimate, non-pirated items that had already
been sold once at a price of the copyright owner’s choosing.
Libraries are concerned because many works are printed
abroad. The most obvious implication for libraries is that
they loan items under the first-sale doctrine. Does that mean
that they cannot now lend imported books in their
collections?
DISCUSSION QUESTIONS
1. Discuss how the ruling in favor of Omega and John Wiley
& Sons would impact the relationship of both companies with
their authorized dealers. What implications might the ruling
bring to global businesses? Who will be affected, and in what
ways will they be affected?
1
CASECH16 02/11/2014 11:39:14 Page 2
2 • Chapter 16 • Short Cases
Sources: Greg Stohr, “Costco’s Swatch Sales May Lead High Court
To Limit Gray Market,” Bloomberg News, November 8, 2010; Joe
Mullin, “Publishers Win an Unusual Victory in Costco v. Omega,”
Paid Content, December 14, 2010; “Supreme Court Takes Another
Look at Gray Market Resales”, Reuters, April 17, 2012; and Jennifer
Howard, “Supreme Court Will Hear Case Over Foreign Textbooks
Imported and Resold in U.S.,.” The Chronicle of Higher Education,
April 16, 2012.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 16-2
AN UPSET MERCK
Purchasing medicines through internet pharmacies is the latest
trend to hit the drug industry. This channel of distribution has
existed for years now, but it drew attention to itself when
Pfizer’s popular drug for erectile dysfunction was released and
consumers who were too embarrassed to buy this drug offline,
resorted to buying it online. At the time, drug companies were
not too distressed at this trend, given that it added one more
channel of distribution of their products, and drug companies
willingly supplied pharmacies with drugs for sale over the
internet.
However, the past couple of years have seen major U.S.
pharmaceutical companies cutting off drug supplies to some
Canadian pharmacies, and now second-largest U.S. drug com-
pany, Merck, with sales of over $20 billion worldwide is the
most recent one to join the bandwagon. The reason for this
move: Canadian pharmacies that operate through the mail
order or online channel, provide drugs not only to Canadian
consumers but also indulge in cross-border exports to patients
in the United States who demand drugs at lower prices than
those offered in the United States. The Canadian government
controls prices of pharmaceuticals in Canada unlike the U.S.
government, and therefore prices of drugs tend to be cheaper
in Canada than the same drugs that are available in the
United States.
According to U.S. pharmaceuticals companies, this export-
import practice affects Canadian consumers on the one hand
because drug exports to the U.S. result in a shortage of
medicines for Canadian patients. On the other hand, firms
such as Merck argue that such drug exports to patients are
essentially risky due to the lack of stringent controls. Further-
more, the emergence of internet pharmacies that sell counter-
feit medicines has increased the possibility of health hazards to
patients who expect to get genuine products but do not. Also,
Merck argued that some of its drugs provided under the U.S.’s
Medicaid program are affordably priced and should preclude
drug exports by Canadian pharmacies.
Source: “Pain of the Pill Market,” Maclean’s, February 21, 2005,
pp. 28–29.
2. In terms of strengthening brand presence in the market, how
do you think gray marketing would significantly play a role?
3. Do you think both Omega and John Wiley & Sons should
continue using segmented pricing strategies? If so, how would
you suggest the companies handle gray market threats? If not,
what do you think the implications are of implementing a
universal pricing strategy—that is, a strategy where prices are
set uniformly across the globe?
In January 2005, Merck’s Canadian subsidiary Merck Frosst
sent a letter to Canadian pharmacies that export drugs to the
U.S., stating that it would no longer supply products to these
companies unless they proved that they had discontinued such
activities. According to the firm, drug exports violate their sales
agreements with these retailers. The result of this dispute
between Canadian pharmacies and U.S. drug makers like
Merck is that the pharmacies are left struggling to fill orders
from consumers in the United States.
But, this business has proved to be extremely attractive for
the pharmacies. Sale of prescription and other drugs over the
internet started off on a small scale, but over the years, due to
the high demand for this method of sale, these firms have
grown so much that drug companies are becoming more
vigilant and defensive against such activities. Nevertheless
such moves by Merck and others have managed to curb
drug exports to a certain extent. Since Merck’s decision to
boycott these pharmacies, internet pharmacies have reduced
their workforce. There are some, however, that are still going
strong by obtaining drugs from wholesalers and retailers
behind closed doors. Still others are now looking toward other
foreign countries, mainly in Europe, to supply drugs.
It is interesting to see whether or not drug exports will cease
in the future but that might need some strict regulation and
governmental interference. Amidst complaints by pharma-
ceuticals giants, the Canadian government has considered
passing a law to shut down internet pharmacies. But, the talks
are still going on.
DISCUSSION QUESTIONS
1. What else can Merck do to reduce the exports of drugs
back into the United States by Canadian pharmacies?
2. Should the U.S. and Canadian governments step in to solve
this problem? If so, what can the governments do in this
matter?
3. Will Merck’s recent move prevent further exports by
Canadian pharmacies?
4. What does the future likely hold for this retail method for
drugs in particular?
CASECH17 02/11/2014 11:41:53 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 17-1
REVAMPING PROCTER & GAMBLE: “ORGANIZATION 2005”
Until the late 1990s, Procter & Gamble was split into four
regional divisions: North America; Europe, Middle East,
and Africa; Asia; and Latin America. Each division was
responsible for its profits and losses. Despite heavy R&D
spending, P&G failed through the 1990s to develop and
successfully launch innovative products. After a lackluster
sales performance during the mid-1990s, P&G decided to
embark on a self-improvement plan. Top executives of the
firm traveled around the country, visiting the CEOs of a
dozen major companies such as Kellogg, Hewlett-Packard,
and 3M in search for advice. The result of the whole exercise
was “Organization 2005” a new bold plan to revamp the
P&G organization. The goal of the restructuring exercise was
to boost sales and profits by launching an array of new
products, closing plants, and cutting jobs. The plan was
spearheaded by then CEO Durk Jager. According to Jager,
P&G’s management had become too conservative: “Speed
builds sales. But, speed has been an issue for us.”
Under Organization 2005, P&G was to be remolded from a
geographically based organization to one based on global
product lines. The key elements of the program were:
² Global Business Units (GBUs). P&G moved from four
geographic units to seven so-called GBUs based on product
lines. Each GBU would have all the resources it needs to
understand consumer needs in its product area and to do
product innovation. By shifting the focus to products, P&G
hoped to boost innovation and speed. The GBUs were to
develop and sell products on a worldwide basis. They would
replace a system where country managers ruled their local
fiefs, setting prices and devising product policies as they saw
fit. By 2000, P&G had consolidated into five GBUs: paper
($12 billion in net sales in FY 2001), fabric and home care
($11.7 billion), beauty care ($7.3 billion), health care ($4.4
Sources: “P&G’s Hottest New Product: P&G,” Business Week, October
5, 1998, pp. 58–59; “The what, not the where, to drive P&G,” Financial with Laffey’s comments of “too much too fast”?
Times, September 3, 1998, p. 18; www.pg.com/investor/news/recentnews_ 2. Is Organization 2005 fundamentally right for P&G? Or
newsrel.html; http://www.indiainfoline.com/fmcg/feat/pgga.html.
r r r r r r r r
billion), and food and beverage ($4.1 billion), such as baby
care, laundry detergents, shampoos, and beauty care.
² Global Business Services (GBSs). This new unit would
bring support services such as accounting, information tech-
nology, and data management under one roof.
² Market Development Organizations (MDOs). The MDOs
were created to tailor global marketing programs to local
markets.
² Corporate functions. Corporate functions were streamlined
Most of the corporate staff was transferred to one of the new
business units.
² Overhaul of reward systems and training programs.
P&G saw the revamped organization as a continuation of
the strategy it started in the 1980s when it moved from brand
management to category management. With the new setup,
category management would be run on a global basis. Durk
Jager, P&G’s CEO, made the case for Organization 2005 as
follows: “Organization 2005 is focused on one thing: leveraging
P&G’s innovative capability. Because the single best way to
accelerate our growth . . . is to innovate bigger and move
faster consistently and across the entire company. The cultural
changes we are making will also create an environment that
produces bolder, more stretching goals and plans, bigger
innovations, and greater speed.”
However, in FY 2000, P&G was struggling. Results were
below plan. Core earnings (earnings excluding restructuring
charges) grew a modest 2.0 percent. Durk Jager commented: “I
am proud of our vision of Organization 2005, and we’ve made
important progress. It’s unfortunate our progress in stepping
up top-line sales growth resulted in earnings disappointments.”
Jager resigned in June 2000, after less than two years on the
job. A. G. Laffey, the new CEO, said: “In hindsight, it is clear
that we have changed too much too fast, all with the right intent
of accelerating growth—but still, too much change too fast.”
DISCUSSION QUESTIONS
1. What went wrong with Organization 2005? Do you agree
should P&G nip Organization 2005 in the bud and if so, why?
1
CASECH18 02/11/2014 11:45:28 Page 3
others you have to go beyond that. You have to build a brand
because they don’t know anything about it.”
DISCUSSION QUESTIONS
1. Jollibee Foods is an example of a so-called emerging mar-
kets champion. What have been the key success factors
behind the Jollibee story?
Sources: http://www.jollibee.com.ph; http://www.jollibeeusa.com; and
“Tasting Success,” Forbes Asia (February 2013): 62–66.
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 18-3
NISSAN’S REVIVED DATSUN—THE MODEL T FOR THE TWENTY-FIRST CENTURY?
In its heyday, Datsun was a much-beloved brand in the
United States and Europe. It had a reputation for being
an economical car that came with innovative touches and
classy designs. It was the second-biggest selling import brand
in the United States in 1981, with sales of 580,000 cars. The
Japanese carmaker phased out Datsun in1981 and replaced it
with Nissan to unify the corporate identity worldwide.3 Some
people considered the name change as one of the worst
marketing decisions in automotive history. Now, Nissan plans
to revive the Datsun marque for emerging markets. The new
Datsun would be distinct from existing Nissan models on at
least one attribute: its price tag.
The trigger for Datsun’s rebirth as an emerging market car
brand came after India’s carmaker Tata Motors revealed its
mission to build the world’s cheapest car for a price below
$3,000. Tata’s bold plan intrigued Carlos Ghosn, chairman and
CEO of Renault-Nissan: he had been told by Nissan executives
that a full-fledged car could not built for less than double that
amount. Ghosn was convinced that Nissan should have an
offering that could compete in the so-called ultra-low car
segment of emerging markets. By 2012, nearly half of all global
car sales were in those countries. He turned to the company’s
internal think-tank known as the Nissan Exploratory Team.
Their mission was to come up with a profitable way to design a
better cheap car. The team started a secret project codenamed
“The $3,000 car” in 2007. In the meantime, in 2009, Tata rolled
out its super-cheap Tata Nano in India. Sales of the Nano were
very disappointing; a badly conceived marketing campaign was
mainly blamed for the poor results.
Five years after the taskforce initiated the project Nissan
revealed its plans. The company intended to offer at least six
Datsun models in early 2014 with the cheapest one selling
within the $3,000 to $5,000 price range. This price would be
close to a third of its current most inexpensive offering, the
$8,000 Tsuru compact sold in Mexico.
In an interview with the Wall Street Journal, Ghosn prom-
ised that the new car will be “modern and fresh” because
3
Nissan also sells premium cars under the Infiniti brand name.
Short Cases • 3
2. Tony Tan plans to raise the international share of the
company’s business to 50 percent by 2020. Is this goal
realistic? Over time, how has the company’s global expan-
sion evolved?
3. Assess the China strategy. How does it differ from the
strategy used in other regions? So far the China business has
been loss-making. Should Jollibee continue developing the
China market, or would it be better off focusing on other
areas such as Europe?
4. What strategic recommendations would you make for
Jollibee’s global expansion strategy?
buyers in emerging markets want a car “that makes them feel
good and is in their budget.” When Nissan first revealed the
relaunch of the Datsun in 2012, most details were still vague
and mostly based on rumor. One thing was clear though:
Nissan did not intend to sell Datsun cars in the United States
and other industrialized countries. In these markets, regulatory
and safety hurdles would undermine the company’s ultra-low
pricing strategy.
To make the new cars profitable and ultra-cheap at the same
time, Nissan planned to take a bare-bones approach to comfort
and safety. Features that were standard for cars sold in devel-
oped countries would be sacrificed: only manual transmission,
noisier exhaust systems, no full supply of airbags. Referring to
emerging-market drivers, a senior Datsun team advisor said in
an interview with the Wall Street Journal: “If an accelerator
pedal sticks, they tend to overlook it rather than obsess.”
The initial focus for the re-born Datsun would be India,
Indonesia, and Russia. India in particular looked like a prom-
ising market: one study found that only 38 Indians out of 1,000
owned a car in 2010, compared with over 600 per 1,000 in the
United States.
Still, Nissan’s latest plan was met with a great deal of
skepticism. Some Nissan executives worried that the Datsun
revival would divert scarce resources needed to boost sales of
existing products in developed markets. Nissan’s rivals
doubted that there would be enough demand for such cars
in emerging markets. One Toyota executive observed: “It’s a
big mistake to think you can introduce a cheap car in emerging
markets and be successful. People want a car they and their
family can be proud of.”
DISCUSSION QUESTIONS
1. The Tata Nano was hailed as the world’s cheapest car.
Despite its low price tag, its sales performance was miserable
in India. Does the re-born Datsun have a better chance to
succeed in profitably penetrating the lowest price segment in
CASECH18 02/11/2014 11:45:28 Page 4
4 • Chapter 18 • Short Cases
emerging markets? Should Nissan instead focus on more
developed markets or its existing core brands—Nissan and
Infiniti?
Sources: “For Datsun Revival, Nissan Gambles on $3,000 Model,”
http://www.wsj.com, accessed October 1, 2012; “After Three Decades,
Nissan to Revive the Datsun,” Wall Street Journal Asia, March 21,
2012, pp. 17, 18; and “Nissan Dusts Off Datsun Brand,” http://www
.branchannel.com, accessed March 5, 2012.
2. How would you position the Datsun? Whom would you
target?
3. What challenges do you foresee in launching the
Datsun?
4. Nissan decided to initially launch the reborn Datsun in
India, Indonesia, and Russia. What criteria should the car-
maker use in deciding what other markets to roll out
Datsun?
CASECH20 02/11/2014 11:51:10 Page 1
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 20-1
GREENPEACE ASKS KIT KAT TO GIVE ORANGUTANS A BREAK
On March 17, 2010, Greenpeace started a social media attack
against Nestlé’s Kit Kat brand. One of its most potent weapons
was a slick Kit Kat mock-ad posted on Greenpeace’s website
and YouTube. The video parodied the “Have a break; have a
Kit Kat” ads. The clip starts with a bored office worker taking a
Kit Kat break. He tears of the wrapping and snaps off a finger.
However, instead of it being a Kit Kat chocolate finger the
piece turns out to be a bloody digit of an orang-utan. The clip
then shows an orangutan with her baby crouched in a solitary
tree, with the noise of chainsaws in the background. The slogan
near the end of the mock-ad states: “Stop Nestlé buying palm
oil from companies that destroy the rainforests.”1 Within four
days, the Greenpeace video had been viewed 180,000 times.
Palm oil, the world’s most widely used vegetable oil, has a
long and complex supply chain. Some 85 percent comes from
plantations in Indonesia and Malaysia. It is a key ingredient for
products such as soap, cakes, chocolate, and margarine. Mul-
tiple links in the chain mean various opportunities for oils from
different sources to be blended.
The Greenpeace campaign tried to put pressure on Nestlé
to switch to sustainable palm oil. The NGO had been succesful
with other multinationals such as Unilever and Kraft.2 Pres-
sured by Greenpeace, these companies had decided to suspend
Sources: “Growing Issue for Palm Oil Producers,” Financial Times,
May 23, 2011, p. 19; “Nestlé Learns to See the Wood for the Trees,”
http://www.ft.com, accessed May 31, 2010.
1
http://www.youtube.com/watch?vˆQV1t-MvnCrA.
2
Kraft split into two companies in 2012. The international division became
known as Mondelez International.
SHORT CASES
r r r r r r r r r r r r r r r r r r r r r r r r r r r
C ASE 20-2
KFC FACES A FOOD SAFETY CRISIS IN CHINA
Near the end of 2012, one of the jokes circulating on Weibo,
China’s popular micro-blogging network, went as follows:
Next time I get sick, I’m going to KFC. Get my antibiotic
fix from their chicken—save me a trip to the hospital!
The joke was not much appreciated by Yum! Brands, the
company that owns KFC. The trouble began in November
r r r r r r r r
the purchase of palm oil from Sinar Mas, an Indonesian
plantation firm that was being blamed for deforestation. The
Swiss multinational, however, held out. It initially complained
to Google, the owner of YouTube, that the Greenpeace mock
ad was a copyright infringement. However, this complaint
simply drew more attention to the video which quickly went
viral. Not surprisingly, Nestlé soon dropped its complaint.
Deforestation has become a major issue as it threatens the
habitat of endangered species like orangutans. Still, Nestlé was
not a big user of palm oil. It only bought 0.7 percent of world
production. Nestlé could simply ignore the campaigners. So
far, the campaign had not hit Kit Kat sales. The shares had
performed strongly so far in 2010. Alternatively, the company
could give in. Nestlé faced a short- and long-term challenge. It
had to limit the immediate damage (if any) of the Greenpeace
campaign. In the long term, the multinational might have to
come up with a solution for the palm sourcing problem.
DISCUSSION QUESTIONS
1. Why did Greenpeace single out Nestlé’s Kit Kat brand
despite the fact that Swiss multinational is a marginal con-
sumer of palm oil. It bought only 0.7 percent of world
production.
2. Should Nestlé ignore the Greenpeace campaign or respond
to it? If so, what should it do immediately? What are long-
term recommendations?
3. What are the key lessons to be drawn from Nestlé’s Kit Kat
episode?
r r r r r r r r
2012 when Chinese media reported that some of KFC’s main
chicken suppliers fed excess antibiotics and growth hormones
to their birds. By doing this, the breeders were able to bring
their chickens to maturity in just 45 days. Not surprisingly,
consumers were horrified. Consumers shunned KFC; same-
store sales for KFC in China took a hit, dropping by 41 percent
in January 2013.
1
CASECH20 02/11/2014 11:51:11 Page 2
2 • Chapter 20 • Short Cases
At the end of 2012, KFC had around 4,200 restaurants in
over 800 cities in China. China accounted for more than half of
the company’s sales and 40 percent of total operating profit.
One reasons for its appeal among China’s diners had been its
image of its being safe, as a foreign brand in a country plagued
by food safety scandals.
Yum’s initial reaction to the antibiotics scandal was muted.
It noted that it was cooperating with investigators and that its
Sources: “KFC’s Fast-growing Chicken Headache,” Campaign Asia-
Pacific, March 2013, p. 23; “KFC’s Midlife Crisis in China,” http://www.
forbes.com, accessed April 18, 2013; “Poetry Contest Helps KFC
Overcome Sales Crisis in China,” Advertising Age, March 18, 2013,
p. 5.
products were safe. It also pointed out that 45-day-old chickens
were an industry norm. However, as consumers were not
convinced, Sam Su, Yum’s China CEO, issued a formal apol-
ogy on January 10, 2013.
DISCUSSION QUESTIONS
1. Assess KFC’s initial response to the crisis. Was the firm
right in moving cautiously? Why or why not?
2. What do you recommend KFC should do to cope with the
crisis? Do you think the firm will be able to restore consumer
trust in China?
3. What are the lessons of KFC’s chicken crisis for other mul-
tinationals operating in China’s food industry?
TATA 02/13/2014 13:20:54 Page 1
TATA MOTORS: AN INDIAN AUTOMOBILE MAKER GOING
GLOBAL*
r r r r r r r r r r r r r r r r r r r r r r r r r r r
TATA GROUP
Tata Motors is owned by the Tata Group, an Indian business
conglomerate comprising over 90 operating companies across 7
business sectors: communications and information technology,
engineering, materials, services, energy, consumer products, and
chemicals. Tata Group is one of the pioneers and drivers of
India’s industrialization. Besides its domestic business, the group
has operations in more than 80 countries across 6 continents, and
exports products and services to 85 countries. Prominent among
its businesses are the world’s seventh-largest steel producer,
Tata Steel; Asia’s largest IT services company, Tata Consultancy
Services (TCS); the world’s second-largest manufacturer and
distributor of tea, Tata Global Beverages; and a leading global
provider of long-distance communications, Tata Communica-
tion Ltd. In 2009–2010, the total revenue of Tata Group was
$67.4 billion, with 57 percent coming from business outside
India. In its home country, the group is highly regarded for
its ethical values and social responsibility. Tata companies have
always believed in returning wealth to the society, and currently
spend around 4 percent of net profits on charitable causes.
Going forward, Tata Group is focusing on new technologies
to drive its business in India and internationally. Tata compa-
nies are building multinational businesses that pursue growth
through excellence and innovation, while trying to balance the
interests of shareholders, employees, and society.
OVERVIEW OF TATA MOTORS
With $20 billion in revenues (2009–2010) and 5.9 million Tata
vehicles plying Indian streets, Mumbai-based Tata Motors is
India’s largest automobile company. Established in 1945, the
firm initially focused on locomotives and then shifted to com-
mercial vehicles. The company grew to be the world’s second-
largest bus and fourth-largest truck manufacturer. Tata Motors
entered the passenger vehicle market in 1991 with the launch of
the Tata Sierra, followed by the Estate, the Sumo, and India’s
first SUV—the Safari. The year 1998 marked the beginning of a
new era: Tata Indica was released as the first fully indigenous
passenger car of India. Various features, including good fuel
efficiency, coupled with extensive marketing, made the Indica
one of India’s all-time car bestsellers. Since then, Tata has
launched various passenger car models in the hatchback, sedan,
pickup, crossover, and sports utility vehicle categories.
Tata Motors was able to accelerate the learning curve as an
automobile manufacturer and achieve rapid advances through
*
This case was prepared by Jutta Geisinger, Shiyi Gu, and Venkata Nagendra Satyam of the Fox School of Business at Temple University under the
supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation
described (2012).
r r r r r r r r
a number of international partnerships. For example, a strate-
gic relationship for jointly manufacturing medium-sized com-
mercial vehicles existed from 1954 to 1969 with Daimler AG of
Germany. In 1994, Daimler and Tata Motors again signed a
joint venture agreement, this time to manufacture Mercedes-
Benz cars in India. This agreement was phased out after Tata
and Daimler sold off their stakes in each other’s firms in 2000
and 2010, respectively.
Through a 50-50 joint venture with Fiat Automobiles India
Ltd., established in 2005, Tata Motors is currently selling Fiat
cars in the Indian market. The partnership provided Tata with
access to Fiat’s diesel technology. Tata Fiat operates a joint
manufacturing plant in Ranjangaori, India.
Tata Motors started exporting its commercial vehicles in 1961
and has since built a distribution network in several countries in
South Asia, Southeast Asia, Africa, the Middle East, South
America, and Europe. The company gained its international
foothold mainly through acquisitions and partnerships. Recent
agreements include the acquisition of Daewoo’s truck manufac-
turing unit based in South Korea (2004) and Spanish bus manu-
facturer Hispano Carrocera (21 percent in 2005 and the remaining
79 percent in 2009), a 51-49 joint venture with Brazilian bus
manufacturer Marcopolo (2007), and purchasing a 80 percent
stake in Italy-based design and engineering firm Trilix (2010).
The most significant acquisition in the recent years was
Jaguar Land Rover (JLR). The two iconic British marques of
Jaguar and Land Rover were bought from Ford Motors in 2008,
just before the subprime mortgage crisis that eventually led to
the global financial crisis. The following global credit crunch and
drop in automobile sales represented a challenging situation for
Tata Motors’ funding and consolidation of the acquisition.
However, Tata continuously pumped money into the JLR
brands during the crisis and was thus able to emerge from the
downturn with improved overall quality and streamlined pro-
duction processes. Additional benefits resulting from the JLR
acquisition include the ownership of two UK-based production
plants and design centers, international supplier and distributor
relationships, and consumer insights in the global luxury and up-
scale markets. In addition, Tata is currently building a JLR
manufacturing plant in India and is in talks with local companies
to set up a production facility in China.
Tata Motors expressed its global ambitions and is determined
to use its resources to take the Tata brand abroad. The company
first received broad international recognition when Ratan Tata,
chairman of the Tata Group, presented his dream project of a
“people’s car” for India. After four intense years of engineering,
1
TATA 02/13/2014 13:20:54 Page 2
2 • Tata Motors: : An Indian Automobile Maker Going Global
E XHIBIT 1
TATA MOTORS RECENT SALES DEVELOPMENT IN VARIOUS PRODUCT CATEGORIES AND MARKETS
(# OF UNITS SOLD).
800,000 Domestic (India)
700,000
600,000
500,000
400,000
300,000
200,000
100,000
–
2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06
various technological hurdles were overcome and the $2,200
Nano car was unveiled in 2008. The innovative Tata Nano is one
of the most prominent examples of frugal engineering.
Status Quo: The following paragraphs will look at Tata
Motors’ current performance in terms of domestic and inter-
national sales, examine recent trends in its home country, and
explore appropriate products that could expand its interna-
tional sales.
Exhibit 1 depicts the recent growth of sold Tata-branded
vehicles with a sales drop during the world financial crisis in 2008.
The chart also shows the dependability of Tata Motors on its
home market: In the 2010–2011 period, 93 percent of total
vehicles were sold in India. A closer look into the particular
vehicle categories reveals that out of 263,274 passenger cars,
only 7,075 units, or 2.7 percent, were sold internationally.
In addition to sales from Tata-branded vehicles, Tata
Motors benefited from the JLR sales. Year to year, the sales
increased by 16 percent from 2008–2009 to 2009–2010 and are
expected to grow a further 24 percent in 2010–2011. The
company’s strategy of aggressively marketing Jaguars and
Land Rovers to the rising upper-class clientele in growth
markets such as China, Russia, and India, started showing
drastic improvements in sales numbers since the first quarter of
2010. In the year 2010, Land Rover sales doubled, and Jaguar
sales increased by 50 percent in China. In Russia, strong
demand for Jaguar cars resulted in a 70 percent increase in
sales and a 47 percent increase in for Land Rovers. In India,
JLR combined sales increased 268 percent—from 242 units in
2009–2010 to 891 units in 2010–2011. Other luxury brands such
as Audi and BMW still outperform the Jaguar brand, but
industry experts are expecting the Indian luxury car market
to grow from 15,000 units in 2010 to 50,000 units in 2015. So far,
Tata has decided to continue marketing the JLR vehicles solely
by the brand names of Jaguar and Land Rover respectively,
without actively endorsing the cars with the Tata affiliation.
INDIA’S AUTOMOBILE GROWTH STORY
Currently, India is the world’s seventh-largest automobile mar-
ket with approximately $35 billion turnover and a huge potential
Passenger Cars
Utility Vehicles
Light Commercial
Vehicles
Military & Heavy
Commercial Vehicles
Exports
for growth. With 1.2 billion people, India has the second-largest
population in the world; so far only about 1.1 percent of the
population owns a car. Two-wheelers still dominate the vehicle
market with a 75 percent share. While 50 million Indians
belonged to the middle class in 2005, it is projected that this
number will rise to 583 million, or 41 percent of the population,
by 2025. In this growing segment, greater purchasing power and
drive for higher living standards are fuelling the demand for
personal transport vehicles. These developments make India
one of the fastest-growing automotive markets—second only to
China. At present, the Indian passenger car market is dominated
by Maruti Suzuki with a 46 percent share, followed by Tata
Motors (16 percent), Hyundai Motor (14 percent), Mahindra &
Mahindra (7 percent), and several imported car brands.
Overview of Tata-Branded Passenger Cars
The Tata Motors passenger vehicle segment consists of a range
of car offerings—from hatchbacks to crossovers; 12 different
Tata-branded models are presently available in the Indian
market. For increasing the global sales and overall success
of Tata passenger cars, the Nano and Pixel models are pre-
sented in detail/
Tata Nano: With an introductory base price of $2,200, the
Nano is considered the cheapest car in the world. At its launch in
2008, Nano was termed the “people’s car,” as its small price tag
was seen as allowing millions of Indians in the lower-middle-class
segment to consider buying a new car for the first time. To
accomplish the rock-bottom price target of the four-seater car,
Tata engineers and suppliers developed breakthrough innova-
tions and undertook major changes in typical auto design, e.g.,
only attaching one windshield wiper. The Nano received inter-
national press coverage that led to high sales expectations long
before the official roll-out. The Financial Times, for example,
reported in 2008: “If ever there were a symbol of India’s ambi-
tions to become a modern nation, it would surely be the Nano, the
tiny car encapsulates the dream of millions of Indians groping for
a shot at urban prosperity.” The small Nano received initial
bookings of 203,000 units. This level of demand was so over-
whelming that Tata had to resort to a lottery to select the lucky
100,000 customers, who would receive the first available cars. The
TATA 02/13/2014 13:20:54 Page 3
Tata Motors: An Indian Automobile Maker Going Global • 3
large-scale production plans from the outset proved publicly
problematic when the company ran into problems purchasing
land for a new factory in West Bengal, a province in India. Due to
these issues, the production of the first Nano cars was delayed for
more than 18 months. After finally hitting the road, Nano sales
slumped due to several factors, including the unavailability of
finance options, limited advertising, sparsely located dealerships,
and some reported incidents of cars’ catching fire, which pro-
voked safety concerns. Tata Motors subsequently adapted vari-
ous marketing tools: it now provides easy financing schemes,
extended warranties, and alternative sales outlets, such as deal-
erships adjacent to supermarkets. The company also aired a
number of Nano commercials with the Hindi slogan “Khushiyun
ki chaabi” (“Key to happiness”) that portrays the car as an
integral part of the family. Tata addressed safety concerns by
stating that “the Nano has successfully passed the most stringent
national and international safety and durability certifications.”
As a result of these measures, Nano sales numbers picked up
again and crossed the 10,000 units per month level in April 2011.
After several price increases due to rising material and
component costs, Nano’s present price tag on the Indian
market is approximately $3,100–4,300. These price increases
have slightly diluted the Nano’s image as the cheapest car in
the world. In fact, the premium version of the Nano sells for
only about $800 less than the Suzuki Alto—its closest compet-
itor with “a bigger engine, more storage space and a longer
track record” according to New York Times.
Tata Pixel: The Pixel—a stylish-looking city car, built on the
Nano platform then debuted at the Geneva Auto Show in 2011.
“Optimal in space, maneuverability and environment-friendli-
ness” are the major selling points of the Pixel, according to Tata
Motors CEO Carl-Peter Forster. In fact, the Pixel can seat up to
four adults while being only 10 feet in length; its “zero-turn
traction drive” enables an 8.5 feet turning radius; the mileage of
69 mpg and carbon dioxide emissions of 89 g/km make it a very
attractive environmentally-friendly car option. Besides the
design and technological advances, its über cool exterior makes
it a promising city car for targeting European small car buyers.
International Expansion Plans: Tata Motors has established
subsidiaries and associate companies in the UK, South Korea,
Thailand, and Spain. At present, only 7.2 percent of all Tata
vehicles are sold outside of India. Focusing on Tata-branded
passenger cars, this percentage drops further to a mere 2.7
percent. Its international dealer network currently serves
various African (Congo, Ghana, Nigeria, Senegal, South
Africa, Tanzania), Asian (Bhutan, Nepal, Sri Lanka), and
Middle Eastern countries (Saudi Arabia and Syria). Tata
Motors has also started building a distributor network in Italy,
Spain, Poland, and Turkey.
Going forward, the domestic Indian market provides contin-
ued opportunity for growth. However, in light of the utmost
importance of scale economies to car makers due to the tremen-
dous cost in developing the design and setting up production
plants for new car models, Tata Motors currently tries to expand
its international presence. Ratan Tata, Tata Motors chairman,
explained that their operational strategy is “to leverage the
company’s strengths in the design and development of products
for the base of the pyramid, namely, addressing the often-
unserved large potential market at the low end, while also
growing in the higher priced segment.” This two-sided strategy
requires an examination of the present structure and future
trends in both emerging and mature markets.
Emerging Markets: Many developing Asian and African
countries seem to be relatively easy targets for expanding what
appears to be working in terms of product offerings and
marketing in India. This is due to various similarities, such
as the infrastructure development stage. Two-wheelers typi-
cally constitute the major form of motorized individual trans-
portation, and safety standards are low to medium high.
Similar basic transportation needs and growing purchasing
power make potential consumers comparable to Tata’s Indian
home market. In many emerging countries, the vast majority of
the population has never been able to afford a new car.
Competition mainly comes from two-wheelers, the used car
market, and possible other rock-bottom priced cars, such as the
Chery QQ, Hyundai i10, or Geely IG. When considering entry
into developing markets, however, Tata has to carefully eval-
uate barriers to entry; for example, in regard to political risk,
protectionist policies, or uncertainty of currency develop-
ments. Cultural differences, which are most visible in terms
of different languages, are also of primary concern. Tata’s
experience from multilingual India can support its communi-
cation efforts and ensure an adequate message—taking into
account different languages, levels of literacy, and adapting the
message to low- or high-context cultures. Depending on the
development stage of the specific country in question, Tata
Motors could also face problems in securing reliable distrib-
utors and establishing dependable supply chains.
Some markets may still be classified in the “emerging”
category, although China, for example, is already the largest
car market in the world, but it is still expected to grow
tremendously over the next years. Looking at the BRIC
(Brazil, Russia, India, and China) markets in particular, the
Boston Consulting Group predicts that “by 2014, one-third of
the world [demand] will be in those four markets.” The Nano
provides Tata with a car model that can support its foray into
these growth countries and increase the volume of unit sales.
Similar to the Indian market—many people in other emerging
economies are entering a wealth level in which owning a car is
possible for the first time in their lives. A small, no-frills, and
fuel-efficient car such as the Nano provides the desired benefits
for many consumers while being affordable.
Mature Markets: The Triad regions—that is, North Amer-
ica, Japan, and Western Europe—can all be considered mature
passenger-car markets. North American automobile buyers
have traditionally followed the “bigger is better” credo. His-
torically low gas prices, compared to other countries, led to
significantly lower emphasis given to mileage. In addition, very
strict safety requirements make manufacturing more expen-
sive, add on weight, and thus decrease the mileage advantage
of light micro cars such as Tata’s Nano. Recent trends, for
instance, rising fuel prices, have made smaller and more fuel-
efficient cars more attractive. The Mini Cooper by BMW is a
prime example of this development. BMW found a winning
way of marketing the smaller-sized, retro-design car to young,
urban Americans. The consumer insights resulting from
BMW’s extensive experience in the North American market
were used to position the Mini Cooper as a unique lifestyle
product. One of the few micro cars currently available in the
United States is the Smart Fortwo car. The Smart car devel-
oped by Mercedes-Benz producer Daimler AG of Germany
had to undergo major adaptations to pass safety tests and
please consumer demands; for instance, in terms of a more
powerful engine. After an initial hype, the Smart car had only
TATA 02/13/2014 13:20:54 Page 4
4 • Tata Motors: : An Indian Automobile Maker Going Global
limited success and the starting price had to be lowered to
$10,990. This example points out that the concept of “small,
efficient city car” only appeals to a rather narrow consumer
segment and it is of crucial importance to get the marketing
message “right” and to fit the product to consumer needs. Tata
Motors may face major challenges in finding Nano or Pixel
buyers in a market where the preference is still for spacious
cars with high performance. “Americans love their space. Cars
are roomier and heavier than they were a generation ago.”
Japan has traditionally been seen as demanding the
world’s highest quality standards due to the sophistication
of its buyers. While JLR has an established presence and
been able to record increasing sales, currently no Tata-
branded passenger vehicles are available in the Japanese
market. Tata Motors would have to work hard on building up
a quality image to convince Japanese buyers of the value of
its product offerings.
Western Europe also constitutes a tough competitive land-
scape due to high sophistication and saturation of the markets.
Very high safety standards and strict environmental policies
represent compliance challenges, but also offer opportunities
for differentiation. Tata has already designed the “Europa”-
version of the Nano to comply with European crash tests and is
expected to receive a good 4-star rating. Environmental legis-
lation, such as Low Emission Zones or Congestion Charge
Zones, along with consumers’ ecological consciousness, neces-
sitate low carbon dioxide emissions. Tata Motors’ small vehi-
cles with low emissions could provide a competitive advantage
in this aspect. The advanced infrastructure in Western Europe
leads to different driving needs; for instance, more horsepower
and higher speeds are required to drive on the German
Autobahn. In addition to these factors, Tata would also
have to compete with established low-price competition; for
instance, the Dacia Sandero sells for around $9,800 and the
Nissan Pixo for $11,500. Competition also exists from other
available micro cars; the Smart Fortwo priced at $14,300 has
been widely successful in various European markets, including
Italy and Germany. Tata received extensive media coverage
for the Nano, which led to awareness of the brand and
influenced initial opinions—not all of them positive. The
prominent automotive TV show Top Gear in the UK, for
example, roasted the Nano by comparing its design to the
cartoon character Pokémon Pikachu. The overall press con-
sensus, however, was positive, and Tata was praised for its
successful frugal engineering project. The Nano may, however,
appeal only to some European countries—mainly where
incomes are comparatively low and where price plays a major
role. For highly developed automotive markets such as the
United Kingdom or Germany, the Pixel with its trendy image
appears to be a better option. Young European consumers
seem to be a good target segment for inexpensive cars such as
the Pixel: A recent study by Cetelem found 59 percent of under
30-year olds are (very) interested in buying a low-cost car.
Promotions in these countries should emphasize the eco-
friendliness of the car. Tata will have to start building its brand
almost from scratch; except for the Nano, other Tata-branded
cars are practically unheard of. The lack of a track record in
Europe, the established competition with trusted brands, and
strict safety policies pose challenges that Tata Motors will need
to overcome.
Further Steps: It is recommended that Tata Motors pursue
opportunities in emerging markets by building on its expe-
riences in its Indian home market. The Nano seems to be an
adequate product offering, and market tactics employed in
India, such as alternative sales outlets to reach deeper into
the markets and offering of test rides for inexperienced car
drivers, seem adequate. For entering more mature markets,
Tata Motors has to find niches for positioning its products and
differentiating them from existing competitors. Due to the
cultural and economic diversity of countries, even within the
European Union, for instance, it is of crucial importance to
engage in extensive research about consumers and to employ
local experts. In 2010, British-born and German-raised Carl-
Peter Forster was appointed as new CEO of Tata Motors. His
extensive experience in many global car companies such as
BMW and GM can be seen as bringing in the required leadership
talent for a successful global expansion.
DISCUSSION QUESTIONS
1. Should Tata Motors actively endorse the Jaguar and Land
Rover brands? Discuss pros and cons.
2. How does Tata’s country of origin affect its global selling
potential?
3. For the planned international expansion, discuss where
you see a good fit between specific country markets and cur-
rent Tata products.
4. If Tata Motors was to market the Nano or Pixel to Euro-
pean customers, how should they address the heterogeneity of
the market?
REDBULL 02/12/2014 15:25:18 Page 1
RED BULL GmbH: IT GIVES YOU WINGS*
r r r r r r r r r r r r r r r r r r r r r r r r r r r
INTRODUCTION
In the 1980s Austrian marketing executive Dietrich Mateschitz
traveled regularly to Bangkok, Thailand, for business. Each
time he arrived he rolled off the airplane in an exhausted, jet-
lagged fog. He found relief and a solution to his problem in the
local Thai energy tonic, Krating Daeng. He drank it. He was
revitalized. So he was able to do his business.
Mateschitz was a marketing executive for the German
toothpaste maker, Blendex. The reason he frequented Bang-
kok was to visit TC Pharmaceuticals, which was the regional
authorized manufacturing partner for Blendex. Coincidentally,
TC Pharmaceuticals also manufactured Krating Daeng.
Mateschitz was so inspired by Krating Daeng that he
approached the owner of TC Pharmaceuticals with a proposal
to market it to the rest of the world. At that time there was
literally no market for energy drinks outside of Asia. Mateschitz
told him, “No market exists for Red Bull, but I will create one.”
So through a unique marketing agreement, a reformulation
of the drink for international tastes, and a revamped marketing
plan, the company Red Bull was born. Over 25 years later, Red
Bull stands out as a unique success story showing how one
great product and the right marketing mix can take the world
by storm.
ENTERING THE MARKET
A Unique Marketing Agreement
The way Mateschitz entered the market is one of the most
interesting parts of the Red Bull story. He could have devel-
oped his own, similar, energy drink, or he could have negoti-
ated to purchase the Krating Daeng brand. However, he chose
a different route. He crafted a marketing agreement with TC
Pharmaceuticals owner, Chaleo Yoovidya. This allowed him to
springboard off the competencies and existing infrastructure of
TC Pharmaceuticals and enter the market with minimal
upfront investment.
An agreement was reached. Each partner invested $500,000
of seed money. Mateschitz and Yoovidya each took a 49 per-
cent stake in the company. The remaining 2 percent stake was
given to Yoovidya’s son, Chalerm. Although the Thai side of
the ownership equation had a slightly majority stake, it was
decided that Mateschitz would assume full responsibilities for
running the new company. Both the company and the product
would be called Red Bull, a translation of the name Krating
Daeng into English. The original Krating Daeng formulation
would be modified into a lighter and bubblier recipe. Finally
*
This case was prepared by Yuko Hayashi, Nobuko Nitta, Melissa Snyder, and Barbara Zelaney of the Fox School of Business at Temple University Japan
under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective management of a
situation described (2012).
r r r r r r r r
the unique agreement gave Mateschitz the right to market Red
Bull to every country in the world except Thailand. Meanwhile
TC Pharmaceuticals could continue to market Krating Daeng
anywhere. Also the new company would have full access to the
brand name, logo, and formulation. Red Bull GmbH, an
Austrian company, was born.
THE PRODUCT
A Single Product Strategy
After securing his marketing deal in 1984, Mateschitz went
about refining the recipe of Krating Daeng to create a taste that
could make his vision come true. The results were distinctive.
While the original Thai version was thick, sweet, and flat in
taste, the new Red Bull emerged lighter, berry flavored, and
carbonated. He put it in a tall thin blue can and targeted a
young, hip, hard playing, and hard partying demographic.
The price for Red Bull is set high. Mateschitz felt that it
needed to cost at least 10 percent more than any competitor or
substitute for its benefits to be taken seriously. Although
flavorful, Red Bull is not meant to be consumed like a soft
drink. Rather it is intended to energize and give its drinkers an
“edge” in times of physical or mental stress. The ingredients
that provide this kick are Taurine (an amino acid), Glucur-
onolactone (a carbohydrate), B-vitamins, caffeine, and sugar.
The key ingredient is Taurine. Red Bull asserts that under
times of duress the body excretes too much of it, causing
decreased performance. It claims that drinking Red Bull
replenishes the lost Taurine to allow the drinker’s body to
regain its full vital processing and thus enhance performance.
Red Bull has, basically, been a single-product company with
a single-product strategy. This strategy has worked to catapult
the brand to the top of a market, which it has defined. However
reliance on just one product is fraught with several risks. Most
importantly what happens if the product falls out of favor with
consumers due to changing tastes, demographics, marketing
blunders, or reputation problems? Furthermore there is the
lost opportunity cost of profits not earned from expanding the
brand. To some extent Red Bull has addressed this issue with
the release of three additional Red Bull beverages in certain
countries; Red Bull Energy Shots, Red Bull Sugarfree, and
Red Bull Cola. However, these are essentially just differenti-
ated versions of the original Red Bull, and the company has yet
to extend beyond that concept. Outside the scope of the Red
Bull brand, the company has actually ventured into several
complementary businesses. There are a Red Bull–sponsored
soccer team, a Formula 500 team, and an aerobatic aircraft
1
REDBULL 02/12/2014 15:25:18 Page 2
2 • Red Bull GmbH: It Gives You Wings
team. Also a subsidiary brand, Carpe Diem, has been created
to sell healthy and natural beverages. Additionally, the com-
pany bought Laucala Island in Fiji where it built and now
operates a seven-star resort. A one-night stay will cost you
$27,000 per night! So although the company has diversified into
other areas, it seems very reluctant to dilute the Red Bull brand
itself. The brand personality is focused, uncompromised, and at
the very core of the marketing strategy.
THE COMPANY
A World Leader
Red Bull was first introduced in 1987 in Austria. With one
secretary and a six-person sales team, Mateschitz set out to sell
the product in bars and retail outlets. It caught on immediately,
and the brand exploded leaving Mateschitz eager to push Red
Bull beyond the borders of his home country. Singapore came
next in 1989. However, expansion into Europe immediately hit
political roadblocks.
In the 1980s Austria had yet to join the European Union
(EU). In order to gain approval to sell Red Bull in the EU, at
least one of the member countries needed to list all of the
included ingredients on an “approved list.” At the time Tau-
rine was only on Scotland’s list; and Scotland was not an
obvious first-choice entry point for expanding the brand.
However, another law mandated that if a product was
approved for sale in one EU country, then it was legal to
sell in all EU countries. So Mateschitz launched Red Bull in
Scotland and used it as a backdoor to gain approval to push the
product into the rest of Europe. It spread like wildfire. When
Red Bull launched in Germany in 1992, the company could not
keep up with demand of 1 million cans a day. Halfway through
the first year, Red Bull disappeared from shelves. As Red Bull
struggled to fix its supply chain hiccup, a black market actually
sprang up which only served to increase demand: 1995 brought
the first profits and Red Bull hit the shores of the U.S. market
in 1997.
Today Red Bull is sold in 160 countries worldwide, with
sales of about 4 billion cans a year. The company is based in
Fuschl am See, Austria. The actual headquarters consists of
two volcano-shaped buildings rising out of a lake. The archi-
tecture is aptly intended to represent Red Bull’s energy. The
product is produced in only two locations worldwide. Red Bull
has made the interesting choice to outsource all of its produc-
tion. One factory in Austria produces all of the world’s Red
Bull except for the U.S. market. In order to minimize trade
issues between the United States and the EU, a plant in
Switzerland makes all of the American-bound Red Bull.
This supply chain requires that all of the cans have to be
shipped globally before finally reaching consumers. The com-
pany is still privately owned under the original structure set up
in 1982.
CORPORATE STRUCTURE
A Key Man
Dietrich Mateschitz is the driving force behind Red Bull.
Mateschitz is a native Austrian born to two primary school
teachers who split up when he was young. From a career that
began by taking 10 years to earn a marketing degree, he has
risen to one of the world’s 300 wealthiest men. Mateschitz
tends to do things his own way and is completely comfortable
operating outside the realm of normal convention. Despite the
extra years it took to finish college, he is widely regarded as a
standout marketing genius. The fact that he was able to
convince Yoovidya to agree to the Red Bull deal at all is a
true testament to his charisma, networking skills, and drive. His
strong leadership has allowed him to take his creative vision
and transform it into a number one global brand. Although he
has one son, Mateschitz is single and vows that he always will
be. He embodies the same sort of fast-paced energy that Red
Bull represents.
Since Red Bull Gmbh is privately owned and Mateschitz is
its lifeblood, it brings about issues of successorship. Now in his
60 s, Mateschitz has worked hard to realize his vision of Red
Bull and has reaped the rewards. Is retirement on his horizon?
Either way Red Bull will still at some point, in the not so distant
future, be looking at the need for a new CEO. Several options
exist. Will the company just hire a new CEO? Will the
Yoovidyas and TC Pharmaceuticals buy out Mateschitz’s
share? Certainly the prospect of going public with an IPO
or selling out to a competitor has been considered. Since the
company is private, nobody is sure what will happen. However,
it brings to mind questions of the future viability of the brand
without Mateschitz. When asked about it in an interview,
Mateschitz indicates that he intends to extend the brand by
pushing it into the future; he says, “We have the next hundred
years in front of us.”
PROMOTION
A Youthful Demographic
When Mateschitz launched his company he wisely cherry-
picked from the marketing strategy of the original product.
He retained certain features of the brand while revamping
other aspects. The original Krating Daeng was marketed to a
blue-collar, working-class demographic. It was a cheap pick-
me-up to help Thai shift workers and drivers stay awake on the
job. Mateschitz’s vision for his version of Red Bull did not
target this demographic. Instead, he decided to create an
energy drink for young vibrant people that would fuel a
“play hard, party hard” lifestyle. An 18 to 25 year-old demo-
graphic was targeted. Red Bull’s slogan is “It gives you wings,”
promising optimum focus and performance for its drinkers.
The premium price point is justified by this added value of
getting “wings.” Athletes, students burning the midnight oil,
and party animals were all promised that extra edge from Red
Bull. Instead of the glass bottles and the squat gold cans of
Krating Daeng, Red Bull is packaged in sexy, sleek blue and
silver cans.
Initial Promotion
Before he took Red Bull to market, Mateschitz commissioned
a marketing research test for the brand-new Red Bull. The
initial tests showed that Red Bull was a bomb. Mateschitz
recalled with a smile, “People didn’t believe the taste, the logo,
the brand name. I’d never before experienced such a disaster.”
The marketing research firm reported that 50 percent of those
tested hated it; but 50 percent loved it. Mateschitz thought that
polarization gave it “edge,” ignored the market research, and
went to market anyway. Initial promotion was nontraditional
and based on word of mouth and “creating a buzz.” Red Bull
was promoted as a non-brand with a cult following. Mateschitz
said, “We do not market the product to the consumer, we let
REDBULL 02/12/2014 15:25:18 Page 3
the consumer discover the product first.” Although this
inexpensive guerilla marketing worked wonders in the early
years, the company has upped its marketing expenditures to an
estimated 30 to 50 percent of revenues. Red Bull has put its
money behind its non-traditional approach. TV advertisement,
billboards, and traditional print ads are shunned in favor of
events, sponsorships, and people-to-people approaches that
promote the cult of Red Bull.
Website
A visit to Red Bull’s flagship website leaves you with a real
sense of excitement for the brand. In today’s digital world, it is
the perfect platform for reaching its young wired-in target
customer. The website is a multimedia extravaganza that
includes layers of shocking and entertaining videos, but sur-
prisingly little information about the company or product itself.
However if you are drawn to the energy and excitement of the
brand, it is understood that drinking Red Bull will follow.
Sports Sponsorship
Red Bull has also borrowed inspiration from Krating Daeng by
using sports sponsorship as a promotional vehicle. Krating
Daeng became famous by sponsoring boxing matches. In
fact the original logo was developed to support this. It depicts
two bulls crashing together, head-on, like Thai boxers. It
evokes a spirit of strength, competition, and fearlessness. Since
this is perfectly in synch with sponsoring extreme sports,
Mateschitz carried the logo and the strategy into his brand.
If a sporting event involves danger and adrenaline, you can be
sure that Red Bull will be there. It has become synonymous
with backcountry snowboarding, racing, skydiving, and stunts
that test the limits of human endurance. Mateschitz has man-
aged to take extreme sports sponsorship to a level that is
unprecedented in its success. Currently, Red Bull sponsors
teams, athletes, and events in every type of extreme sport that
you can imagine. These high-octane events fuel excitement for
the brand and define the Red Bull lifestyle.
Differential Marketing for 160 Countries
Operating in 160 countries certainly requires differentiation.
However, Red Bull has managed to be surprisingly consistent
in its promotion and in its product worldwide. Its strategy and
aura of excitement resonates for drinkers all over the world.
The desire to “get wings” spans oceans of cultural differences.
That being said, there are minor differences incorporated into
different markets. Of course, packaging is printed in local
languages. In some countries, the ingredients are listed on
the can, and in some they are omitted. Also the company
maintains similar but differentiated websites for the various
markets. In Japan, a smaller can size was introduced in order to
appeal to local consumers, who are accustomed to smaller
portions. One of Red Bull’s flagship promotions is the Free
Red Bull Car Campaign. A giant Red Bull can is mounted to
the back of a brightly painted vehicle. It is then driven to
strategic locations where pretty girls hand out free Red Bull.
Locally popular cars are featured, and the pretty local girls add
to the cultural appeal. Word of mouth and viral advertising are
still key aspects of Red Bull’s promotion strategy. In the early
years, free cases of Red Bull were distributed on college
campuses to create a buzz and get people talking. Red Bull
still does this today by hiring campus representatives to host
Red Bull GmbH: It Gives You Wings • 3
Red Bull parties and spread the brand image. These reps have
a finger on the pulse of the young market, and they keep Red
Bull immersed in local hip culture.
CONTROVERSY
From the beginning, Red Bull has been the subject of great
controversy. In many countries the ingredient Taurine is
considered a drug and must receive governmental approval
before being allowed in a product. Because of this, Red Bull
has been banned in many countries including France, Norway,
and Denmark. The company has had to jump through many
political hoops in order to get approval to sell in these countr-
ies. France fought for over a decade to keep the controversial
Red Bull brand out of the country. Although Mateschitz met
with French leaders over 10 times each year to try to break into
that market, his real attitude was revealed when he told a
reporter, “They can survive without Red Bull, and we can
survive without France.” This exemplifies the “thumb your
nose at them” attitude that is part of the product’s allure.
Another issue arose when Red Bull launched its Cola, and it
was found to contain small traces of cocaine. This caused quite
a ruckus in Hong Kong and Taiwan. These countries threat-
ened to pull Red Bull from the shelves until it was established
that the trace amounts found were from the coca leaves used as
an ingredient, could not cause any detriment to the drinker in
such amounts, and did not violate any drug laws. Tragically,
there have actually been several deaths of young people after
consuming numerous cans of Red Bull. Although there is no
evidence that Red Bull directly led to these deaths, they caused
an uproar and created negative press coverage. The combina-
tion of alcohol and Red Bull is another hot button issue. The
combination of Red Bull and vodka has become a favorite at
clubs all around the world. Partiers credit the concoction with
allowing them to party all night and drink more alcohol without
feeling the ill effects of getting too drunk. Canadian officials
have become so alarmed by this trend that they require Red
Bull to place a warning on cans stating that Red Bull should not
be consumed with alcohol. Since so much Red Bull ends up
being sold to clubs, this requirement puts the company in an
interesting position. In Canada, Red Bull cannot actively
market its product as a mixer, but it also clearly markets to
bars. Another controversy surrounds the ingredient Taurine.
The internet has spawned an urban legend that claims the
Taurine in Red Bull is actually derived from bull testicles.
Although bull testicles can indeed be a source of Taurine,
all that is used in Red Bull is 100 percent synthetically
manufactured.
Although controversy has always surrounded Red Bull, it
has never interfered with the upward trajectory of sales and
growth. Has it only added to the edgy and extreme aura that
surrounds each can? Has it helped to further the company’s
promotional goals? Red Bull embraces controversy. Red Bull’s
website has direct links to countless extreme sports videos that
are dangerous, amazing, and shocking. One Red Bull promo-
tional video featured a “BASE jump” from the Christ the
Redeemer statue in Rio de Janeiro. This is a clearly illegal
activity that was sponsored by Red Bull and is now publicly
used in its promotion. Orchestration of this high dollar stunt
required helicopters, support staff, and several camera crews.
At the end of the clip, you see a waiting getaway car whisk the
skydiver away from his landing zone and into the city. The
intentional squealing of tires as the car slips away is another
REDBULL 02/12/2014 15:25:18 Page 4

4 • Red Bull GmbH: It Gives You Wings

way that Red Bull thumbs its nose at rules and convention.
Apparently, profanity, death defying danger, and disregard for
law are all fair game when it comes to promotion for Red Bull.
The company used a similar tactic when it became apparent
that France would be forced by EU regulations to finally allow
the product onto French shelves. Red Bull sponsored the same
stunt jumper, Felix Baumgartner, to “fly” across the English
Channel. At an altitude of 30,000 feet over Dover England,
Baumgartner jumped out of an aircraft with a wing strapped to
his back. He made the “flight to France” with millions of
people watching. It was Red Bull’s way of saying to France,
“See we can come to your country whether you like it or not.”
Soon thereafter Red Bull was allowed into France and the
stunt created the perfect marketing buzz to help make the
French launch a huge success.
COMPETITIVE ENVIRONMENT
Over the past decades the blue ocean market Red Bull created
has become saturated and mature. Yet Red Bull holds firmly to
its number one position and continues to grow. At the same
time, it is losing market share each year as the entire energy
drink sector expands. Major global players like Pepsi and Coke
as well as smaller entrants are jumping in with both feet.
Mateschitz explains why he still believes that Red Bull will
continue to thrive. “We created the market. If you appreciate
the product, you want the real one, the original. Nobody wants
a Rolex made in Taiwan or Hong Kong.”
North America
Since Red Bull was launched in 1997, over 300 varieties of
energy drinks from over 210 brands have flooded the North
American market. “Me-Too” brands are everywhere. It is a $1
billion pie, and everyone wants a piece. The segment currently
controls almost 5 percent of the non-alcoholic beverage mar-
ket. Red Bull dominates with a 40 percent market share. The
next-largest contenders are Monster and Rockstar, which
share another 35 percent. Some 200 other brands fight for
the rest of the market.
The entire segment promotes its products following Red
Bull’s lead. Companies try to position the products as “quick
energy boosters,” heavy in caffeine and sugar, with connec-
tions to extreme sports, romance, and late nights. The Me-Too
marketing also extends into packaging considerations. The
majority of brands are offered in the 8-ounce style can origi-
nated by Red Bull. Product taste is essentially similar across
brands. In fact, Red Bull has investigated and subsequently
litigated against several nightclubs for substituting cheaper
alternatives into drinks that were being advertised as Red
Bull & Vodka. The taste was so close that bars were getting
away with this switch with their customers, but not with Red
Bull. The company says it uses litigation as a last resort but has
a track record of defending the brand vigorously in court when
necessary.

ASIA

2010 USA

CANADA

WESTERN EUROPE

2009 EASTERN EUROPE

LATIN AMERICA

MIDDLE EAST/NORTH AFRICA

2008 AUSTRALALIA

REST OF AFRICA
0% 50% 100%

Energy Drink: Volume by Region in millions of liters, 2008-2010.

7,000
5,914.10
6,000 5,292.40 5,555.90
5,000
4,000
3,000
2,000
1,000
0
2008 2009 2010

Global Energy Drink Volume in Millions of Liters, 2008–2010.

REDBULL 02/12/2014 15:25:18 Page 5
2008 SHARE OF ENERGY DRINK MARKET
(BY BEVNET)
Brand % of Dollar Sales
Red Bull 40
Monster 23
Rockstar 12.3
AMP 8 are indeed differentiated, the premium price tag of Mate-
Full Throttle 4 schitz’s Red Bull seems to be the biggest difference in the two
Western Europe
In Western Europe where it all began, Red Bull has also kept a
firm position, owning the market lead in 12 of 13 countries.
Another 17 percent of the market is shared among the top 20
players while the rest consists of numerous small brands. Most
brands have imitated Red Bull’s choice of ingredients with a
combination of caffeine and Taurine, but many European
competitors have opted to go with a larger 250 ml can. Mad
Bat in Germany, Blue Monster in Spain, and Dark Dog in
Greece are all competing brands that have chosen names that
mirror the Red Bull format. Shark, from Austria, has strength-
ened to a number two ranking. Battery, owned by Carlsberg’s
Finnish subsidiary Sinebrychoff, follows in third place. Battery
is the only product to outsell Red Bull in Finland. The product
is offered in a 330 ml can that is usually associated with beer.
This deviation from Me-Too marketing has worked for Battery
and helped it stand out from the Red Bull–led pack.
Japan
Japan has a saturated and competitive drink market. Unlike
other countries, the Japanese market is led by Nutraceutical
drinks. Both pharmaceutical companies and soft drinks com-
panies manufacture and sell these tonics. They offer the
drinker specific benefits. Chocola BB is good for skin care,
Solmac is for hangovers, and other brands cover every ailment
imaginable. Most drinks are sold in a small brown bottle with a
screw cap and a small portion: generally less than 100 ml. When
people feel they are tired and need energy, they go to a
pharmacy or a convenience store, choose one of the drinks
that are good for their symptoms, buy it and drink it in the store
and leave. Another popular drink unique to Japan is canned
coffee drinks, which are available everywhere. These are vastly
different types of energy drinks than Red Bull. Red Bull,
however, creates confusion for the Japanese consumer.
Even though Red Bull has entered a Red Ocean market in
Japan, it really is the only energy drink of its type. If Red Bull’s
iconic marketing efforts can make the Japanese understand the
spirit of the brand and clarify the product, then perhaps its
differences will allow it to stand out and take off.
Japan has become an extremely important target for Red
Bull. It is the world’s largest and oldest market for tonic drinks.
Red Bull is so focused on success in Japan that the company
has even gone so far as reformulating the ingredient list in
order to satisfy regulators and gain market entry. The key
ingredient Taurine has been replaced with a different amino
acid that is approved for use in soft drinks. This is a vast
departure from Red Bull’s worldwide strategy of offering a
consistent brand and not bowing to pressure from local
regulators.
Red Bull GmbH: It Gives You Wings • 5
The Rest of Asia
In most Southeast Asian countries, as well as in China, Red
Bull finds itself in a very interesting competitive position.
One of its biggest rivals is the original Krating Daeng, which
is now also marketed with the Red Bull name. The tall blue
and silver cans sit side by side on shelves with the squat gold
cans of original Red Bull. Although the taste and packaging
products. Lucky Chaleo Yoovidya wins regardless of which
Red Bull product drinkers decide to purchase. The TC
Pharmaceuticals version has recently been usurped as Thai-
land’s number one energy drink by a very similar product
called M-150. Whether M-150’s success will extend beyond
the borders of Thailand and how that will affect sales of
Mateschitz’s Red Bull is still uncertain.
Extended Markets
Africa, Russia, India, and Japan are the markets that Red Bull
is currently targeting for growth. Red Bull launched in India in
2003 and created the market for energy drinks in that country.
The market has exploded despite the fact that alcohol con-
sumption is frowned upon in, and Red Bull has an established
connection to the club scene. As the market blossoms with new
entrants, Red Bull enjoys a dominant lead over competitors
Power Horse, Effect, and Fullpower. The high price makes
Red Bull an out-of-reach luxury for some. However, incomes
are increasing in India, and a hard working, educated middle
class is growing rapidly. This demographic has shown a thirst
for the product.
After overcoming some political problems, Red Bull has
experienced success in Brazil as well. In 1999, the product
endured an all too familiar government ban before going
through yet another process of working its way back onto
the shelves.
Africa is considered a very important market for Red
Bull right now. Nigeria in particular has welcomed it with
excitement and demand. The booming economy, local cul-
ture, and huge population offer the right mix for Red Bull to
thrive. More and more Nigerians can afford Red Bull, and
the kick that it offers resonates with local lifestyles and
values.
CONCLUSION
The Red Bull story is an absolutely fascinating case of how
unique marketing can be the principal driver of corporate
success. Many consider it a classic example how an average
product can command a premium price by virtue of inventive
marketing techniques alone. Red Bull also proves that a single
product strategy can indeed catapult one product into a global
brand with staying power. It is a prime example of how
partnering with an existing entity can be a winning market
strategy and a smart way to gain market entry. Red Bull has
also shown that political roadblocks can be overcome and
controversy can coexist with market leadership. Dietrich Mate-
schitz has succeeded in creating a market and defining a whole
new paradigm of branding and promotion. His energy, convic-
tion, and drive to do things his own way have certainly given
Red Bull “its wings.”
REDBULL 02/12/2014 15:25:19 Page 6
6 • Red Bull GmbH: It Gives You Wings
DISCUSSION QUESTIONS
1. Dietrich Mateschitz is the driving force behind Red Bull.
What do you think the company should consider in terms of
his successorship?
2. Do you think that Red Bull’s youthful consumers will grow
out of Red Bull? Do you think this will affect its continued
dominance of the market? What do you think that Red Bull
should do to address this issue in its marketing?
3. Do you think that Red Bull should expand its product line
or stick to a, basically, single product strategy?
4. What do you think about the Austrian version of Red Bull
competing against the Thai version of Red Bull in many Asian
countries? Do you think that this will be an impediment to
Red Bull’s growth in Asia?
5. Do you think that the controversy around Red Bull helps
or hinders its marketing efforts? Do you think Red Bull has a
Corporate Social Responsibility towards its consumers?
6. What do you think about Red Bull’s strategy in Japan? Do
you think this market is worth the emphasis that Red Bull is
placing on it?