Global Marketing and R&D

Global Marketing and R & D Chapter Outline OPENING CASE: Dove – Building a Global Brand INTRODUCTION THE GLOBALIZATION OF MARKETS AND BRANDS MARKET SEGMENTATION Management Focus: Marketing to Black Brazil PRODUCT ATTRIBUTES Cultural Differences Economic Development Product and Technical Standards DISTRIBUTION STRATEGY Differences between Countries Choosing a Distribution Strategy COMMUNICATION STRATEGY Barriers to International Communication Management Focus: Overcoming Cultural Barriers to Selling Tampons Push Versus Pull Strategies Management Focus: Unilever—Selling to India’s Poor Global Advertising

PRICING STRATEGY Price Discrimination Strategic Pricing Regulatory Influences on Prices CONFIGURING THE MARKETING MIX Management Focus: Castor Oil in Vietnam NEW PRODUCT DEVELOPMENT The Location of R&D Integrating R&D, Marketing, and Production Cross-Functional Teams Building Global R&D Capabilities SUMMARY CRITICAL THINKING AND DISCUSSION QUESTIONS CLOSING CASE: Levi Strauss Goes Local Learning Objectives 1.

Explain why it might make sense to vary the attributes of a product from country to country. 2. Articulate why and how a firm’s distribution system might vary among countries.

. Identify why and how advertising and promotional strategies might vary among countries. 4. Explain why and how a firm’s pricing strategy might vary among countries. 5. Discuss how the globalization of the world economy is affecting new-product development within the international business firm Chapter Summary This chapter focuses on the marketing and R&D activities of global firms. The chapter begins with a review of the four elements that constitute a firm’s marketing mix: product attributes, distribution strategy, communication strategy, and pricing strategy.

A firm’s marketing mix is the set of choice that if offers its customers.

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Many firms vary their marketing mix from country to country depending on differences in cultures, levels of economic development, product and technical standards, the availability of distribution channels, and so forth. The chapter discusses the strategic implications of each element of the marketing mix for an international firm. The link between marketing and R&D is also discussed. The author stresses the point that selling a product on a global scale may require that a firm vary its products from country to country to satisfy local preferences.

This may require a firm to establish R&D centers in different parts of the world, and closely link R&D and marketing in each region to ensure that the company is producing products that its overseas customers will buy. Opening Case: Dove – Building a Global Brand Summary The opening case explores how Unilever’s reconfigured its marketing mix for its Dove brand. Historically, Unilever had customized its products and marketing campaigns for each market, a strategy that not only resulted in duplication of effort, but also in organizational complexity.

In 2003, Unilever shifted its strategy to develop a more globally standardized approach for Dove. The company now uses a basic message for the brand, and allows some customization at the local level. Discussion of the case can begin with the following questions: QUESTION 1: How would you describe Unilever’s approach to international markets prior to 2003? What were the advantages of this strategy? What were the drawbacks of this approach? ANSWER 1: Prior to 2003, Unilever more or less approached each market individually. The company often developed entirely different products and marketing campaigns for each market.

In India for example, the company developed a shampoo designed to clean hair that had been oiled. But it also developed entirely different products for both Hong Kong and China. This strategy of customizing products, packaging, and messages to individual markets while allowing the firm to cater to the individual needs of customers also led to high costs, complexity, and confusion within the organization. QUESTION 2: In 2003, Unilever adopted its Real Beauty strategy. Explain how this new strategy differed from its traditional approach to foreign markets? How should this new approach help Unilever’s international sales?

ANSWER 2: Unilever’s Real Beauty strategy involved establishing a basic product and message that could be used across several markets, but that allowed for tweaking at the local level. So, rather than developing a Dove shampoo and message for the Indian market, and for the Chinese market, and so on, the company used a basic message that Dove stood for the beauty of all women, and then the product and message was adapted to local markets. So, while the basic message is the same, in the Latin America, ads might show women touching each other, but in the United States, the ad might show women standing apart from each other.

Moreover, the Real Beauty message was carried through other products like body gels and skin creams allowing Unilever to further reduce its costs. So far, the new strategy seems to be working. Dove is now a leading brand in the global market place. Teaching Tip: To see learn more about Unilever’s international operations and its Real Beauty strategy, go to {http://www. unilever. com/}. Lecture Note: To extend this discussion to Unilever’s efforts to market a new shampoo in several countries, go to {http://www. businessweek. om/globalbiz/content/feb2008/gb20080215_454648. htm? chan=search}. Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips INTRODUCTION A) This chapter explores how an international business can perform marketing and R&D activities to reduce the costs of value creation and add value by better serving customer needs. B) The tension that exists in most international businesses between the need to reduce costs and the need to be responsive to local conditions is particularly predominant in this chapter as we look at the development and marketing of products

C) The four elements that constitute a firm’s marketing mix, or set of choices the firm offers to its targeted markets, are product attributes, distribution strategy, communication strategy, and pricing strategy. THE GLOBALIZATION OF MARKETS AND BRANDS A) Theodore Levitt wrote lyrically about the globalization of world markets. Levitt’s arguments are worth quoting at some length since they have become something of a lightening rod for the debate about the extent of globalization.

B) The current consensus among academics is that although the world is moving towards global markets, the continuing persistence of cultural and economic differences among nations acts as a major brake on any trend toward global consumer tastes and preferences. In addition, trade barriers and differences in product and technical standards also constrain a firm’s ability to sell a standardized product to a global market. Teaching Tip: Some firms area in the business of helping firms “go global. ” One example is Global Reach {http://www. glreach. com/eng/intltrade/index. hp3} which focuses on international Internet marketing. MARKET SEGMENTATION A) Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Firms must adjust their marketing mix from segment to segment. The goal is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix. B) International managers need to consider the existence of segments that transcend national borders and understand differences across countries in the structure of segments.

C) For a segment to transcend national borders, consumers in that segment must have some compelling similarities that lead to similarities in purchasing behavior. D) Where such similarities do not exist, there must be some customization if the firm is to maximize performance in the market. This customization may be in the product, the packaging, or simply the way in which the product is marketed. E) Global market segments are much more likely to exist in industrial products (e. g. , memory chips, chemical products, and corporate bonds) than in consumer products.

Management Focus: Marketing to Black Brazil Summary This feature explores how companies are marketing to Brazil’s black population. Although Brazil is home to a sizable racial minority, to date companies have essentially ignored the market segment. Now however, companies are beginning to target the group using products and promotions specifically developed for the market. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1. Describe the differences between the black population in the United States and the black population in Brazil.

What are the implications of these differences for the Brazilian culture as a whole? Discussion Points: Racial discrimination in the United States has made the country’s black population an identifiable subculture. In contrast, in Brazil racism has been more subtle, and the black population has not been excluded in the manner found in the United States. In fact, Brazil has encouraged marriages between blacks and whites. In the end, most African-Brazilians think of themselves as part of a culture that transcends race, rather than as black or white.

Most students will probably suggest that this attitude promotes a more cohesive culture where biases toward or against certain groups are not prevalent. 2. How has Unilever targeted the black population in Brazil? How does the company’s strategy in Brazil differ from its strategy in other countries? What does your response tell you about Unilever’s overall global marketing strategy? Discussion Points: Because Brazil’s blacks think of themselves as falling into a range of skin tones, rather than being simply black, Unilever’s approach to the Brazilian market has been to target the entire population rather than certain segments.

The company’s advertisements show people with different skin tones, not just blacks or whites, and its products are labeled as being for tan and black people so as to cover a greater range of consumers. Students will probably note that this strategy indicates that Unilever is using a localization approach for its marketing. Teaching Tip: Unilever’s web site {http://www. unilever. com/} is an interesting one to visit. You can click on countries and brands to see how the company sells its products in different markets. Lecture Note: To extend this discussion to include some of Unilever’s other efforts in foreign markets, consider {http://www. usinessweek. com/globalbiz/content/sep2007/gb20070926_123492. htm? chan=search} and {http://www. businessweek. com/globalbiz/content/aug2007/gb20070824_230078. htm? chan=search}. ? PRODUCT ATTRIBUTES A) Products sell well when their attributes match consumer needs. If consumer needs were the same the world over, a firm could simply sell the same product worldwide. But consumer needs vary from country to country depending on culture and the level of economic development. In addition, firms are limited by countries differing product standards. Cultural Differences

B) Countries differ along a whole range of cultural dimensions, including tradition, social structure, language, religion, and education. At the same time, there is some evidence of the trends Levitt talked about. Tastes and preferences are becoming more cosmopolitan. Economic Development C) Just as important as differences in culture are differences in the level of economic development. Firms based in highly developed countries tend to build a lot of extra performance attributes into their products. Consumers in less developed nations do not usually demand these extra attributes, instead the preference is for more basic products.

Product and Technical Standards D) Notwithstanding the forces that are creating some convergence of consumer tastes and preferences, Levitt’s vision of global markets may still be a long way off due to national differences in product and technological standards. DISTRIBUTION STRATEGY A) A critical element of a firm’s marketing mix is its distribution strategy, the means it chooses for delivering the product to the consumer. B) Figure 15. 1 in the text illustrates a typical distribution system consisting of a channel that includes a wholesale distributor and a retailer.

If the firm manufactures it product in the particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler. The same options are available to a firm that manufacturers outside the country. Differences between Countries C) The four main differences between distribution systems are retail concentration, channel length, channel exclusivity, and channel quality. Retail Concentration D) In some countries the retail system is very concentrated, whereas in other countries it is fragmented. In a concentrated retail system, a few retailers supply most of the market.

A fragmented retail system is one in which there are many retailers, no one of which has a major share of the market. Channel Length E) Channel length refers to the number of intermediaries between the producer and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells through an import agent, a wholesaler, and a retailer, a longer channel exists. F) In recent years, the Internet has helped to shorten channels as has the entry of large discount retailers to some markets. Channel Exclusivity G) An exclusive distribution channel is one that is difficult for outsiders to access.

Japan’s system is often held up as an example of a very exclusive system. Channel Quality H) Channel quality refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses. The quality of retailers is good in most developed countries, but is variable at best in emerging markets and less developed countries. Choosing a Distribution Strategy I) The choice of distribution strategy determines which channel the firm will use to reach potential consumers.

Since each intermediary in a channel adds its own markup to the product, there is generally a critical link between channel length and the firm’s profit margin. J) A long channel also has benefits. One benefit of using a longer channel is that it economizes on selling costs when the retail sector is very fragmented. Another benefit is increased market access. COMMUNICATION STRATEGY A) Another critical element in the marketing mix is communicating the attributes of the product to prospective customers. A number of communication channels are available to a firm. They include direct selling, sales promotion, direct marketing, and advertising.

B) A firm’s communications strategy is partly defined by its choice of channel. Barriers to International Communication C) International communication occurs whenever a firm uses a marketing message to sell its products in another country. The effectiveness of a firm’s international communication can be jeopardized by three potentially critical variables: cultural barriers, source effects, and noise levels. Cultural Barriers D) Cultural barriers can make it difficult to communicate messages across cultures. The best way for a firm to overcome cultural barriers is to develop cross-cultural literacy.

Source and Country of Origin Effects E) Source effects occur when the receiver of the message (the potential consumer) evaluates the message based upon the status or image of the sender. Source effects can be either positive or negative. A subset of source effects is referred to as country of origin effects (the extent to which the place of manufacturing influences product evaluations). Lecture Note: The class can be stimulated to think of some positive and negative source effects (German autos vs. German wine, Italian cuisine vs. British cuisine). Noise Levels F) Noise tends to reduce the chance of effective communication.

In this context, noise refers to the amount of other messages that are competing for a potential consumer’s attention. Management Focus: Overcoming Cultural Barriers to Selling Tampons Summary This feature examines Procter & Gamble’s (P&G) efforts to bring tampons to the world. After purchasing Tambrands in 1997, P&G found that marketing strategies that were successful in the United States failed to generate sales in many other parts of the world. P&G, in an effort to reach new customers, has developed a new marketing strategy that is based on direct selling and relationship marketing.

The strategy is currently being tested in Mexico, and if successful, will be implemented in other South American markets. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1. How has culture affected P&G’s efforts to sell tampons around the world? Discussion Points: Culture has played a significant role in P&G’s effort to sell tampons. While tampons are commonly used in North America and much of northwestern Europe, sales are almost nonexistent in other parts of the world. Many cultures link the use of tampons with a loss of virginity.

The company has been forced to take a personal approach to marketing, and include education as part of its strategy. 2. P&G has resorted to direct selling and relationship marketing to sell tampons. In your opinion, would these methods work in the United States? Why or why not? Discussion Points: Most students would probably argue that direct selling and relationship marketing would not be necessary in the United States where tampon usage is already high. Teaching Tip: To further explore Procter & Gamble’s international marketing efforts, go to {http://www. pg. com/en_US/index. html}, and click on “P&G Global Operations. ” To see how P&G changes its marketing mix across countries, click on several countries and follow a few products. Push versus Pull Strategies G) The main choice with regard to communication strategy is between a push strategy and a pull strategy. A push strategy emphasizes personnel selling whereas a pull strategy emphasizes mass media advertising. The choice between push and pull strategies depends upon product type and consumer sophistication, channel length, and media availability. Product Type and Consumer Sophistication ?

H) A pull strategy is generally favored by firms in consumer goods industries that are trying to sell to a large segment of the market. In contrast, firms that sell industrial products or other complex products favor a push strategy. Channel Length I) Using direct selling to push a product through many layers of a distribution channel can be very expensive. In such circumstances, a firm may try to pull its product through the channels by using mass advertising to create consumer demand. Media Availability J) A pull strategy relies on access to advertising media. A push strategy is more attractive when access to mass media is limited.

Video Note: China now has more Internet users than any other nation in the world – a situation which is sure to attract the attention of many companies that market or advertise their products using this medium. However, as the iGlobe Growing Internet Use in China Reflects Changing Society points out, Internet users in China tend to be quite different from Internet users in other countries like the United States. The Push-Pull Mix K) Push strategies tend to be emphasized more in the following circumstances: •for industrial products and/or complex new products, •when distribution channels are short, and when few print or electronic media are available. L) Pull strategies tend to be emphasized more in the following circumstances: •for consumer goods products, •when distribution channels are long, and •when sufficient print and electronic media are available to carry the marketing message. Management Focus: Unilever—Selling to India’s Poor Summary This feature explores Unilever’s innovative global marketing strategy. Unilever maintains a substantial presence in many of the world’s poorer nations where low-income levels, unsophisticated consumers, illiteracy, a fragmented retail distribution system, and unpaved roads make marketing difficult.

Still, the company has managed to succeed thanks to its efforts to customize its marketing strategy to the local market. Discussion of the feature can begin with the following questions: ? Suggested Discussion Questions 1. Discuss the effects of India’s culture on each of the components of Unilever’s marketing strategy. What can Unilever learn from its experiences in India? Discussion Points: In India, Unilever faces numerous challenges to its marketing strategy. Income levels are low, consumers are unsophisticated and illiterate, the retail distribution system is fragmented, and the road system is poor.

However, by adapting to the environment, Unilever has built a small, but successful business in the country. Because most consumers do not have access to television, the company posts advertisements in common meeting areas such as village wells and marketplaces. The company also takes part in weekly markets where it not only sells its products, but it also gives away free samples. Unilever has also made a strong effort to fit in with the country’s retail system, and stocks its products in small size packages in about 3 million stores, many of which are very tiny. 2.

Is Unilever’s strategy in India a push strategy or a pull strategy? Explain. Discussion Points: Most students will suggest that Unilever’s strategy in India is a push strategy. The country has few mass media options, and consequently has been forced to take a unique approach to developing awareness of its products among consumers. Unilever representatives frequently establish a presence in locations where people tend to congregate such as riverbanks where clothes washing takes place, or the village well or marketplace. Teaching Tip: As noted earlier, Unilever’s web site {http://www. unilever. om/}is worth a visit. Go to the company’s Indian site by selecting it from the list available on the homepage and compare the company’s marketing efforts there to the strategy used in other countries. Global Advertising L) In recent years there has been much discussion about the pros and cons of standardized advertising worldwide. For Standardized Advertising M) The support for global advertising is threefold. 1) It has significant economic advantages. 2) There is the concern that creative talent is scarce and that one large effort to develop a campaign will produce better results than 40 or 50 smaller efforts. ) Brand names are global. Against Standardized Advertising N) There are two main arguments against globally standardized advertising. 1) Cultural differences among nations are such that a message that works in one nation can fail miserably in another. 2) Country differences in advertising regulations may block implementation of standardized advertising. Dealing with Country Differences O) Some firms have been experimenting with tactics that allow them to capture some of the benefits of global standardization while recognizing differences in countries’ cultural and legal environments. PRICING STRATEGY

A) International pricing strategy is an important component of the overall international marketing mix. Issues to consider include the case for pursing price discrimination, strategic pricing, and how regulatory factors influence prices. Price Discrimination B) Price discrimination exists whenever consumers in different countries are charged different prices for the same product. Price discrimination can help a firm to maximize its profits. C) For price discrimination to work the firm must be able to keep national markets separate and different price elasticities of demand must exist in different countries.

The price elasticity of demand is a measure of the responsiveness of demand for a product to changes in price. Demand is said to be elastic when a small change in price produces a large change in demand. Demand is inelastic when a large change in price produces only a small change in demand. D) The elasticity of demand is determined by a number of factors, of which income level and competitive conditions are probably the most important. In general, price elasticity tends to be greater in countries with lower income levels and greater numbers of competitors.

Strategic Pricing E) The concept of strategic pricing has three aspects, which we will refer to as predatory pricing, multi-point pricing, and experience curve pricing. Predatory Pricing F) Predatory pricing involves using the profit gained in one market to support aggressive pricing in another market. The objective is to drive competitors out of the market. ? Multi-point Pricing Strategy G) Multi-point pricing strategy becomes an issue in those situations where two or more international businesses compete against each in two or more distinct (national) markets.

H) The concept of multi-point pricing refers to the fact a firm’s pricing strategy in one market may have an impact on their rival’s pricing strategy in another market. In particular, aggressive pricing in one market may elicit a competitive response from a rival in another market that is important to the firm. I) The managerial message in all of this is that pricing decisions around the world need to be centrally monitored. Experience Curve Pricing

J) Many firms pursuing an experience curve pricing strategy on an international scale price low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially. Firms using experience curve pricing believe that several years in the future, when they have moved down the experience curve, they will be making substantial profits and, moreover, have a cost advantage over less aggressive competitors. Regulatory Influences on Prices K) Firms’ abilities to engage in either price discrimination or strategic pricing may be limited by national or international regulations.

Antidumping Regulations L) Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it. M) From the perspective of an international business, the important point is that antidumping rules set a floor under export prices and limit firms’ ability to pursue strategic pricing. Competition Policy N) Most industrialized nations have regulations designed to promote competition and to restrict monopoly practices. These regulations can be used to limit the prices that a firm can charge in a given country. CONFIGURING THE MARKETING MIX

A) Standardization versus customization is not an all or nothing concept. In reality most firms standardize some things and customize others. When looking at the overall marketing mix and message, one often finds some aspects of standardization and some aspects of customization in all products depending on local requirements and overall cost structures. Management Focus: Castrol Oil in Vietnam Summary This feature focuses on the strategies and experiences of Castrol Oil in marketing its GTX brand of motor oil around the world. Castrol Oil is the lubricants division of the British chemical, oil, and gas concern Burmah Castrol.

Castrol Oil’s GTX brand of motor oil is marketed as a premium brand. The feature focuses on the company’s entries into the lubricants markets in Thailand and Vietnam . Castrol has a unique strategy of appealing to consumers who drive motorcycles, in hopes of developing brand loyalty and retaining these customers as their countries develop to the point where cars are more common. This strategy worked well in Thailand, and is currently under way in Vietnam. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1.

In underdeveloped countries like Thailand and Vietnam, the conventional forms of media that are common in developed countries, like glossy print media and television, are often absent. This problem is particularly pronounced in Vietnam. Describe how Castrol Oil overcame this challenge. Does the company’s approach seem prudent to you? Explain your answer. Discussion Points: In Vietnam, Castrol Oil has focused on developing consumer awareness through the use of billboards, bumper stickers, and signs that are displayed at roadside garages and motorcycle cleaning shops.

In addition, Vietnam was one of places visited by soccer star David Beckham as part of a global marketing campaign for the company. Students will probably argue that given the lack of alternatives, Castrol Oil has done well with its communications strategy in Vietnam. 2. Would you describe Castrol Oil’s communications strategy in Vietnam as a push or a pull strategy? Explain your answer. Discussion Points: Students will note that a pull strategy generally relies on access to advertising media such as newspapers, magazines, television, radio, and the Internet.

Because mass media options are limited in Vietnam, Unilever has turned to alternate communications methods such as stickers, billboards, and gas station signs. Accordingly, students will probably conclude that Castrol Oil is using a push strategy in Vietnam. ? 3. Castrol Oil emphasizes a premium pricing strategy. What elements of the company’s communications and distributions strategies support this premium pricing strategy? Discussion Points: Castrol Oil has priced its product at about three times the cost of cheaper imports from Taiwan and Thailand.

Accordingly, the company has developed a slogan that indicates that Castrol Oil is the best quality lubricant in the market. Students will probably note that the company is currently focusing on targeting motorcycle users based on the assumption that consumers in this market will start driving cars when they become more affordable. Teaching Tip: To see more about how Castrol Oil handles its international marketing, go to {http://www. castrol. com}and click on the various country options to compare the products and services that are offered in different markets.

Lecture Note: To get an applied look at how two companies market their products around the world consider visiting the web sites of Cadbury {http://www. cadbury. com/Pages/Home. aspx}and Kraft {http://www. kraft. com/default. aspx}. Both companies sells their products in many countries around the world, and by clicking on the various country locations, students can get a feel for which elements of the marketing mix have been standardized, and which have not. NEW PRODUCT DEVELOPMENT A) Firms that successfully develop and market new products can earn enormous returns.

Firms to need build close links between R&D, marketing, and manufacturing. Video Note: One issue which firms must contend with is protecting their proprietary property. The iGlobe China Rising: Intellectual Piracy in China explores how many companies have been negatively affected by intellectual piracy by China. The Location of R&D B) Ideas for new products are simulated by the interactions of scientific research, demand conditions, and competitive conditions. Other things being equal, the rate of new-product development seems to be greater in countries where: )More money is spent on basic and applied research and development. ii)Demand is strong. iii)Consumers are affluent. iv) Competition is intense. Integrating R&D, Marketing, and Production C) The need to adequately commercialize new technologies poses special problems in the international business, since commercialization may require different versions of a new product to be produced for different countries. D) A firm’s new product development efforts need to be closely coordinated with the marketing, production, and materials management functions.

This integration is critical to making certain that: •product development projects are driven by customer needs, •new products are designed for ease of manufacture, •development costs are kept in check, and •time to market is minimized. Cross-Functional Teams E) One means of achieving cross-functional integration is to have cross-functional product development teams. Effective cross functional teams should be led by a heavyweight project manager with status in the organization, include members from all the critical functional areas, have members located together, have clear goals, and have an effective conflict resolution process.

Building Global R&D Capabilities F) The need to integrate R&D and marketing to adequately commercialize new technologies poses special problems in the international business because commercialization may require different versions of a new product to be produced for various countries. G) Integrating R&D, marketing, and production in an international business may require R&D centers in North America, Asia, and Europe that are closely linked by formal and informal integrating mechanisms with marketing operations in each country in their regions, and with the various manufacturing facilities.

H) Some companies allocate product development responsibilities using a global network of R&D centers that develop the basic technologies for new products which are then picked up by R&D units attached to global product divisions and used to generate new products to serve the global marketplace. Critical Thinking and Discussion Questions 1. Imagine you are the marketing manager for a US manufacturer of disposable diapers. Your firm is considering entering the Brazilian market. Your CEO believes the advertising message that has been effective in the United States will suffice in Brazil.

Outline some possible objections to this. Your CEO also believes that the pricing decisions in Brazil can be delegated to local managers. Why might she be wrong? Answer: While babies’ behinds serve the same function in all cultures, and the product’s technical standards may be similar, sensitivity to bodily functions does vary across cultures. Thus, the advertising message may need to be changed for different attitudes towards what is appropriate advertising. Likewise, where it might be progressive to show an ad with a male changing a diaper in some countries, in other countries this message could be lost or misinterpreted.

Another consideration would be the noise level created by the advertising message of competitor’s products, which may well be different in Brazil. While local demand and price elasticity decisions should play an important role in Brazil, pricing should not be left solely to the discretion of the local managers. Since this is a global business, your firm will likely be competing in Brazil with some of the same competitors as elsewhere. Thus pricing decisions in one country can have an impact on pricing and competition in other markets.

Similarly, your firm may want to position and price the brand similarly across different South American countries. 2. Within 20 years we will have seen the emergence of enormous global markets for standardized consumer products. Do you agree with this statement? Justify your answer. Answer: One could either choose to agree or disagree, while the best answer would likely hedge it somewhere in the middle. There are already enormous global markets already for products like Coke and Levis, but it is questionable whether there will ever be a global consumer market for Norwegian lutefisk.

More global consumer markets will likely emerge, but there will continue to be national distinctions for many products. Lecture Note: In the fall of 2008, Levi Strauss was set to launch a global marketing campaign for its 501 jeans. 3. You are the marketing manager of a food products company that is considering entering the Indian market. The retail system in India tends to be very fragmented. Also, retailers and wholesalers tend to have long-term ties with Indian food companies, which makes access to distribution channels difficult. What distribution strategy would you advise the company to pursue? Why?

Answer: The firm should sell to either wholesalers or import agents. Because the retail system in India is very fragmented, it would be very expensive for the firm to make contact with each individual retailer. As a result, it would be more economical for the firm to sell to wholesalers or import agents. Import agents may have long-term relationships with wholesalers, retailers, and/or other import agents. Similarly, wholesalers may have long-standing relationships with retailers and, therefore, be better able to persuade them to carry the firm’s product than the firm itself would. 4. Price discrimination in indistinguishable from dumping.

Discuss the accuracy of this statement? Answer: In some specific instances this statement is correct, but as a general rule it is not. When a firm is pricing lower in a foreign country than it is in its domestic market, it can be difficult to distinguish dumping from price discrimination unless it is clear that the firm is selling at below cost in the foreign market. Yet when costs are reasonably well known and all prices are above these, or if the firm is pricing lower in its domestic market than in foreign markets, it can be reasonably concluded that price discrimination rather than dumping is occurring. . You work for a company that designs and manufactures personal computers. Your company’s R&D center is in North Dakota. The computers are manufactured under contract in Taiwan. Marketing strategy is delegated to the heads of three regional groups: a North American group (based in Chicago), a European group (based in Paris), and an Asian group (based in Singapore). Each regional group develops the marketing approach within its region. In order of importance, the largest markets for your products are North America, Germany, Britain, China, and Australia.

Your company is experiencing problems in its product development and commercialization process. Products are late to market, the manufacturing quality is poor, and costs are higher than projected, and market acceptance of new products is less than hoped for. What might be the source of these problems? How would you fix them? Answer: The dispersion of activities makes sense – products are produced in the lowest cost location and marketed by people familiar with local conditions. (The R&D in North Dakota must be a historical fluke. Yet this makes the coordination task extremely complex, and information required for successful commercialization is likely not being effectively communicated among all the appropriate people. Greater cross-functional integration in the new product development process should help to improve product development and commercialization. Closing Case: Levi Strauss Goes Local Summary The closing case explores how Levi Strauss, the manufacturer of blue jeans, changed its international marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its sales fall from $7. 1 billion in 1996 to just $4 billion in 2004.

The company had failed to keep up with changes in the fashion market, and was out of touch with its consumer. A three part turnaround strategy was implemented, and by 2006, the company was beginning to see some improvements. Discussion of the case can begin with the following questions: QUESTION 1: What marketing strategy was Levi Strauss using until the early 2000s? Why did this strategy appear to work for decades? Why was it not working by the 2000s? ANSWER 1: Prior to implementing its turnaround strategy in 2005, Levi Strauss had been selling essentially the same product the same way around the world.

The company was able to standardize its marketing mix because differences between markets were not well defined, and it was able to capitalize on its trademark name. However, during the 2000s, competition became more intense, and variations between markets more distinct. Levi Strauss, with its one-size-fits-all approach to markets saw sales drop significantly. QUESTION 2: How would you characterize Levi’s current strategy? What elements of the marketing mix are now changed from nation to nation?

ANSWER 2: Most students will probably suggest that Levi Strauss is trying to pursue a transnational strategy that allows it to standardize some parts of the marketing mix, yet gives national managers the ability to tailor other parts of the marketing mix to local markets. One of the first issues Levi Strauss addressed as part of its turnaround strategy was reducing its domestic cost structure. The company closed its remaining domestic factories and shifted production to low cost locations. Levi Strauss also introduced additional products such as its Signature line that could be sold in low priced outlets like Wal-Mart.

Finally, the company decentralized its marketing to local managers giving them flexibility to adapt to local market requirements. As part of the new strategy, new styles were introduced to meet differing style preferences. In addition, the company also revamped its promotion to reflect regional differences. Price and distribution were also changed. Pricing is now done on a market-by-market basis according to the competition in each market. QUESTION 3: What are the benefits of Levi’s new marketing strategy? Is there a downside? ANSWER 3: The changes Levi Strauss made to its strategy seem to be working.

Growth is expected to be especially strong in developing markets. Most students will probably note that the decision to give national managers more autonomy meant that while the company lost the benefits of economies of scale in advertising and production that it had previously had, consumers’ demands were better met. However, some students may point out that the new strategy means that differences between national markets became are now more pronounced—a change that could be an issue further down the road. QUESTION 4: What does the Levi Strauss story tell you about the “globalization of markets”?

ANSWER 4: Theodore Levitt suggested that consumer tastes and preferences are becoming more global, and that standardized consumer products will become the norm. In fact, Levitt might argue that in the world of blue jeans there are strong similarities in groups such as the teen market that run across national borders. However, he might be surprised to find that strong cultural preferences also seem to exist in the market. For example, Japanese consumers prefer skinny, black jeans, while women from South Africa prefer jeans with a little more room in the backside.

Many students might conclude that while there are some similarities in markets, many of the similarities are too broad to allow for a standardized marketing mix around the world. Teaching Tip: To see how the recovery at Levi Strauss has progressed, go to {http://www. levistrauss. com/} and click on “International” then explore the various topics including values and vision, and company transformation. Lecture Note: Levi Strauss seems to be taking a more standardized approach to its marketing campaign. The company began a new campaign in the fall of 2008. More details can be found in the Wall Street Journal July 18, 2008, p.

B7 “Levi’s Marketers Hope One Size Fits All”. Continuous Case Concept As automakers seek to expand their market share in foreign countries, they are challenged by the age-old question of whether they can sell the same model everywhere or whether a new model must be developed to meet the needs of each individual market. Some companies like BMW and Mercedes believed, when they made North American expansion a priority, that they needed to be closer to the market in order to get a real feel for local design preferences, and so consequently moved their production to the United States.

Other companies like Hyundai and Kia have established design centers in Germany to take advantage of like minds and knowledge of the local market. Honda is predicting that buyers in India will be more attracted to motorcycles than traditional vehicles. Honda, together with its Indian partner, sold more than 4 million two-wheelers in India in 2007. In Japan, automakers are trying to figure out how to get younger drivers interested in actually owning cars. Japan’s younger generation is seemingly indifferent to the notion of car ownership, preferring instead to spend their money on other things entirely. ? Ask students to discuss how Ted Levitt would view the world’s auto markets. Would he believe that standardization of the marketing mix is possible, why or why not? Did Henry Ford have the right idea (you can buy the car in any color as long as it is black)? •Next, develop a list of attributes that might be important in a car. What do Europeans consumers want in a car? How does this compare to the average American or Japanese consumer? For example, does the rugged pick-up truck driver image work in Japan? Does the sleek, powerful European car work in China? Then, consider the notion of a world car—a car that could be successful in any market.

What factors could prevent the development of such a product? Consider issues related to culture, distribution, a country’s level of economic development, and so on. •Finally, consider mistakes foreign automakers could make when designing their cars for foreign customers. How could the presence of a joint venture partner help the company avoid these mistakes? This exercise can be used as a summary discussion for this chapter, or it can be broken down into segments. For example, the second question of this exercise works well as an introduction to international marketing.

The first question can be addressed after discussing the notion of standardization of the marketing mix, and at this point, you might also revisit the second question. Finally, the third question allows you incorporate previous discussion of the benefits of a joint venture to international marketing. globalEDGE Exercises Use the globalEDGE Resource Desk {http://globalEDGE. msu. edu/ResourceDesk/} to complete the following exercises. Exercise 1 You are the marketing manager of a diversified food and beverage company. Preliminary market research indicates that Peru holds significant opportunities for your products.

Using an analysis of the Food and beverage industry in Peru that you found on Austrade, the Australian government’s trade portal, prepare a short report identifying the factors that need to be considered when formulating the marketing strategy for this country. Answer: The information can be gathered by searching the phrase “Austrade” at http://globalEDGE. msu. edu/ResourceDesk/. The Austrade site is found under globalEDGE category “Research: Multicountry. ” Once on the website, click on “Export Markets” menu and select “Industries within Countries,”. Then select “Food and Beverage to Peru. Search Phrase: “Austrade” Resource Name: Austrade Online – Industry and Country Information Website: http://www. austrade. gov. au/Industry-overviews/default. aspx globalEDGE Category: “Industry: Industry Specific” Exercise 2 A. T. Kearney publishes an annual study to help retailers prioritize their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of criteria. Find the latest version of this Global Retail Development Index. What criteria are used to identify the attractiveness of the retail environment in emerging countries?

Are there any countries in the top 10 that surprise you? Answer: The A. T. Kearney report can be accessed by using the search term “Global Retail Development Index” at http://globalEDGE. msu. edu/ResourceDesk/. The PDF report has the top 30 countries listed. The web page as well as the report describes in detail the criteria used. Search Phrase: “Global Retail Development Index” Resource Name: A. T. Kearney: The Global Retail Development Index http://www. atkearney. com/main. taf? p=5,4,1,131 globalEDGE Category: “Research: Rankings” Additional Readings and Sources of Information

The Arab World Wants its MTV http://www. businessweek. com/magazine/content/07_43/b4055067. htm? chan=search Jack Daniel’s International Appeal http://www. businessweek. com/innovate/content/oct2007/id20071010_651037. htm? chan=search One World, One Car, One Name http://www. businessweek. com/magazine/content/08_12/b4076063825013. htm? chan=search Jaguar: Finally Ready to Roar? http://www. businessweek. com/bwdaily/dnflash/content/mar2008/db20080325_325999. htm Avoiding Faux Pas When Exporting http://www. businessweek. com/smallbiz/content/jun2007/sb20070627_897013. htm? chan=search