Chapter Sixteen

Global Marketing and

R&D
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Contents

• Global Marketing and R & D

- The Globalization of Markets and Brands
- Market Segmentation
- Product Attributes
- Distribution Strategy
- Communication Strategy
- Pricing Strategy
- Configuring the Marketing Mix
- New-Product Development

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Opening Case

• Kodak entered Russia in the early 1990’s

- Country was deep in the middle of a turbulent transition
from a communist economy to a new democracy
- Russian consumers had little knowledge of Kodak’s
products
- The consumer market for photography was
underdeveloped
- Apart from state-run stores, there was little or no
infrastructure in place for distributing photographic
equipment, film, and processing
- Consumers were poor and lacked the ability to afford all
but the most inexpensive cameras

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Opening Case

• Kodak’s entry into Russia is widely regarded as a major success

because it accounts for a significant portion of $2.59 billion in
international sales and growth rate of 26%
• Reasons for Kodak’s success include
- A clear and consistent marketing message communicated
through a number of media
- They invested in promoting a corporate image as a firm that
takes a stand against corruption and black-market practices
- The product strategy has been to sell lower-end film and
cameras in Russia
- Encouraged major enterprises to give cameras to valued
employees
- Built a distribution channel through franchising

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1. The Globalization of Markets and

Brands

• Important to determine when product standardization is

appropriate in an international market
• Firms may need to vary marketing mix in each different
country
• Globalization may be the exception rather than the rule in
many consumer goods markets and industrial markets

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2. Market Segmentation

• Refers to identifying distinct groups of consumers

whose purchasing behavior differs from others in
important ways
• Segments can based on:
- Geography
- Demography
- Socio-cultural factors
- Psychological factors

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Market Segmentation

• Two main issues relating to segmentation:

- Extent of differences between countries in the

structure of market segments
- Existence of segments that transcend national borders

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3. Product Attributes

• Cultural differences
• Economic development
• Product and technical standards

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Cultural Differences

• Differ along dimensions such as social structure,

language, religion, and education
• Impact of tradition
• Some tastes and preferences becoming cosmopolitan

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Economic Development

• Consumer behavior is influenced by economic development

- Consumers in highly developed countries tend to
demand extra performance attributes in their
products
• Price not a factor due to high income level
- Consumers in less developed countries value basic
features as more important
• Price a factor due to lower income level
- Cars: no air-conditioning, power steering, power
windows, radios, and cassette players
• Product reliability is more important
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Product and Technical Standards

- Government standards can rule out mass

production and marketing of a standardized
product
- Differing technical standards constrain
globalization of markets
• Different television signal frequencies

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4. Distribution/ Place Strategy

• Choice of the optimal channel for delivering a product to the

consumer
- Optimal strategy is determined by the relative
costs and benefits of each alternative
- Depends on differences between countries
• Retail concentration
• Channel length
• Channel exclusivity

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Typical Distribution System

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Retail Concentration

• Concentrated system
- Common in developed countries
- Contributing factors: increase in car ownership,
number of households with refrigerators and freezers,
and two-income households
• Fragmented system
- Common in developing countries
- Contributing factors: great population density with
large number of urban centers, e.g. Japan
- Uneven or mountainous terrain, e.g. Nepal

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Channel Length

• Refers to number of intermediaries between the

producer and the consumer
• Determined by degree to which the retail system is
fragmented
- Long distribution channel
- Short distribution channel

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Channel Length

• Long distribution channel

- Fragmented retail system promotes growth of
wholesalers and retailers
- Firms go through intermediaries such as
wholesalers to cut selling costs
• Short distribution channel
- Concentrated retail system
- Firms deal directly with retailers

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Channel Exclusivity

• Degree to which it is difficult for outsiders to access

distribution channels
• Varies between countries
- Japan - exclusive systems because personal relations,
often decades old, play an important role in stocking
products
- Difficult for new firm to get shelf space as compared to an
old firm

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Choosing a Distribution Strategy

• The optimal strategy is determined by the relative

costs and benefits of each alternative
- Varies from country to country
• Benefits of a shorter distribution channel
- The longer the channel, the greater the aggregate markup
and the higher the price that consumers are charged for
the final product
- If price is an important competitive weapon the firm might
choose a shorter channel

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Choosing a Distribution Strategy

• Benefits of a longer distribution channel

- Cuts selling costs when the retail sector is fragmented
- Longer channels can provide increased market access

• If channel quality is poor, a firm should consider

what steps it could take to upgrade the quality of the
channel
- This may include establishing its own distribution channel

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5. Promotion/Communication Strategy

Cultural
b arriers
Source effects

• Defines the process the firm will

Noise levels
use in communicating the
attributes of its product to
prospective customers

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Barriers to International Communication

• Cultural Barriers
- Develop cross-cultural literacy
- Firm should use local input such as local advertising
agency and sales force
• Source and country of origin effects
- Receiver of the message evaluates the message based on
status or image of the sender
• Anti-Japan wave in US in 1990’s
- Place of manufacturing influences product evaluations
• Often used when consumer lacks more detailed knowledge of the
product
- Examples: French wines, Italian clothes, and German luxury cars

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Barriers to International Communication

• Noise levels
- Amount of other messages competing for a potential
customer’s attention
• Developed countries - high
• Less developed countries - low
• Standardized advertising strategy execution more
difficult (culture, laws)

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Push Versus Pull Strategy

• Push strategy emphasizes personal selling

- Requires intense use of a sales force
- Relatively costly
• Pull strategy depends on mass media advertising
- Can be cheaper for a large market segment
• Determining factors of type of strategy
- Product type and consumer sophistication
- Channel length
- Media availability

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Product Type and

Consumer Sophistication

• Pull strategy • Push strategy

- Consumer goods - Industrial products or
- Large market segment complex new products
- Long distribution - Direct selling allows firms
channels to educate users
- Mass communication has - Short distribution
cost advantages channels
- Used in poorer nations
for consumer goods
where direct selling only
way to reach consumers

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Channel Length

• Pull strategy
- Long or exclusive distribution channels
• e.g. Japan
- Mass advertising to generate demand to pull product
through various layers
• Push Strategy
- In countries with low literacy levels to educate
consumers

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Media Availability

• Pull strategy
- Relies on access to advertising media
- Common in developed nations
• Push strategy
- Media availability limited by law
- All electronic media state owned with no commercial policy

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Global Advertising

• Standardized:
- Significant economic advantages
- Scarce creative talent
- Many global brand names
• Non-standardized:
- Cultural differences
- Advertising regulations can be a restriction

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6. Pricing Strategy

• Three aspects of international pricing strategy

- Price discrimination
- Strategic pricing
- Regulatory influence on prices

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Price Discrimination

• Said to occur when consumers in different countries

are charged different prices for the same product
• Two conditions necessary
- National markets kept separate to prevent arbitrage
• Capitalization of price differentials by purchasing product in
countries where prices are lower and reselling where prices
are higher
- Different price elasticities of demand in different
countries
• Greater in countries with low income levels and highly
competitive conditions

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Elastic and Inelastic Demand

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Strategic Pricing

• Predatory pricing
- Using price as a competitive weapon to drive weaker
competition out of a national market
- Firms then raise prices to enjoy high profits
- Firms normally have profitable position in another
national market

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Strategic Pricing

• Multipoint pricing strategy

- Two or more international firms compete against each other
in two or more national markets
- A firm’s pricing strategy in one market may impact a rival in
another market
• Kodak and Fuji

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Strategic Pricing

• Experience curve pricing

- Firms price low worldwide to build market share
- Incurred losses are made up as company moves
down experience curve, making substantial profits
- Cost advantage over its less-aggressive competitors

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Regulatory Influences on Prices

• Antidumping regulations
- Selling a product for a price that is less than the cost of
producing it
- Antidumping rules vague, but place a floor under export
prices and limit a firm’s ability to pursue strategic pricing
• Article 6 of GATT allows action against an importer if the product is
sold at ‘less than fair value’ and causes ‘material injury to a
domestic industry’
• Competition policy
- Regulations designed to promote competition and restrict
monopoly practices

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7. Configuring the Marketing Mix

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8. New Product Development

• The location of R & D

- Rate of new product development greater in countries
where
• More money spent on R&D
• Underlying demand is strong
• Consumers are affluent
• Competition is intense

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Integrating R&D,
Marketing and Production

• Integrating R&D, production and marketing ensures

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

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Integrating R&D,
Marketing and Production

• High failure rate ratio

- Between 33 % and 60% of new products fail to earn
adequate profits
• Reasons for failure:
- Limited product demand
- Failure to adequately commercialize product
- Inability to manufacture product cost-effectively

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Cross-Functional Product
Development Teams

• Objective of team to take a product development

project from the initial concept development to market
introduction
• Effective teams must have
- “Heavyweight “ project manager
- One member from each key function
- Physically co-located to facilitate communication
- Clear plan and goals
- Own process for communication and conflict resolution

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End of Chapter
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