Chapter 17 - Global Marketing and R&D
Global Marketing and R&D
Learning objectives

Explain why it makes sense to
vary the attributes of a product
from country to country.

Articulate why and how a
firm’s distribution strategy
might vary among countries.

Identify how and why
advertising and promotion
strategies might vary among
countries.

Explain how and why a firm’s
pricing strategy might vary
among countries.

Discuss how the globalization
of the world’s economy is
affecting new product
development within the
international business firm.
17
The focus of this chapter is on how marketing and R&D
can be performed so they will reduce the costs of value
creation and add value by better serving customer needs.
A global marketing strategy that views the world’s
consumers as similar in their tastes and preferences is
consistent with the mass production of a standardized
output. By mass-producing a standardized output, the firm
can realize substantial unit cost reductions from
experience curve and other scale economies. But ignoring
country differences in consumer tastes and preferences can
lead to failure. Thus, an international business’s marketing
function needs to determine when product standardization
is appropriate and when it is not, and to adjust the
marketing strategy accordingly. Similarly, the firm’s R&D
function needs to develop globally standardized products
when appropriate as well as products that are customized
to local requirements.
Marketing and R&D are dealt with in the same chapter
because of their close relationship. A critical aspect of the
marketing function is identifying gaps in the market so
that new products can be developed to fill those gaps.
Developing new products requires R&D; thus, the linkage
between marketing and R&D. Marketing dictates to R&D
whether to produce globally standardized or locally
customized products.
.
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Chapter 17 - Global Marketing and R&D
OUTLINE OF CHAPTER 17: GLOBAL MARKETING AND R&D
Opening Case: Levi Strauss Goes Local
Introduction
The Globalization of Markets and Brands
Market Segmentation
Management Focus: Marketing to Black Brazil
Product Attributes
Cultural Differences
Economic Development
Product and Technical Standards
Distribution Strategy
Differences between Countries
Choosing a Distribution Strategy
Communication Strategy
Barriers to International Communication
Push versus Pull Strategies
Global Advertising
Management Focus: Overcoming Cultural Barriers to Selling Tampons
Management Focus: Unilever—Selling to India’s Poor
Pricing Strategy
Price Discrimination
Strategic Pricing
Regulatory Influences on Prices
Configuring the Marketing Mix
Management Focus: Castrol 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
Chapter Summary
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Chapter 17 - Global Marketing and R&D
Critical Thinking and Discussion Questions
Closing Case: Kodak in Russia
CLASSROOM DISCUSSION POINT
Review the passage by Theodore Levitt at the beginning of the chapter with students.
Then, pick a company like McDonald’s, MTV, or Starbucks and ask students to discuss
whether the company standardizes its marketing mix, or adapt it to the local market. Ask
students to explore the company’s web site, and specifically its international sites. Next,
ask students to identify differences and similarities in the marketing mix across countries.
Finally, ask students to explain their findings using Levitt’s hypothesis.
OPENING CASE: Levi Strauss Goes Local
Summary
The opening 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 currently the
company is beginning to see a turnaround. Discussion of the case can begin with the
following questions.
1. How would Theodore Levitt view the world of blue jeans? Why did Levi Straus
change its marketing mix? What effect did the change have on the company’s overall
strategy?
2. How did Levi Strauss engineer its turnaround?
3. What does the decision to give national managers more autonomy mean to the
company’s overall strategy?
Another Perspective: 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 OUTLINE FOR CHAPTER
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view”, then on “notes”. The following provides a brief overview of each
Power Point slide along with teaching tips, and additional perspectives.
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Slide 17-3 Introduction
The marketing mix (the choices the firm offers to its targeted market) is comprised of
product attributes, distribution strategy, communication strategy, and pricing strategy.
Slide 17-4 The Globalization of Markets and Brands
Culture and consumer tastes drive the need to localize. Globalization seems to be the
exception rather than the rule in many markets.
Slides 17-5-17-6 Market Segmentation
Market segmentation involves identifying distinct groups of consumers whose
purchasing behavior differs from others in important ways. Segments can be based on:
geography, demography, socio-cultural factors and psychological factors.
Slide 17-8 Product Attributes
A product is like a bundle of attributes. Products sell well when their attributes match
consumer needs.
Slide 17-9 Cultural Differences
While there is some cultural convergence among nations, Levitt’s vision of global
markets is still a long way off.
Slide 17-10 Economic Development
Consumers in highly developed countries tend to demand a lot of extra performance
attributes, while consumers in less developed nations tend to prefer more basic products.
Slide 17-11 Product and Technical Standards
Differences in product and technical standards may require the firm to customize
products.
Slides 17-12- 17-13 Distribution Strategy
A firm’s distribution strategy (the means it chooses for delivering the product to the
consumer) is a critical element of the marketing mix.
Slides 17-14-17-18 Differences between Countries
There are four main differences in distribution systems:
1. retail concentration
2. channel length
3. channel exclusivity
4. channel quality
Slide 17-19 Choosing a Distribution Strategy
The optimal strategy depends on the relative costs and benefits of each alternative.
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Slide 17-21 Communication Strategy
Communication channels available to a firm include direct selling, sales promotion,
direct marketing, and advertising via different media.
Slides 17-22-17-25 Barriers to International Communication
The effectiveness of a firm's international communication can be jeopardized by cultural
barriers, source and country of origin effects, and noise levels.
Another Perspective: The class can be stimulated to think of some positive and negative
source effects (German autos vs. German wine, Italian cuisine vs. British cuisine).
Slides 17-26-17-29 Push Vs. Pull Strategy
Firms have to choose between two types of communication strategies:
 a push strategy emphasizes personnel selling
 a pull strategy emphasizes mass media advertising
The choice between push and pull strategies depends upon product type and consumer
sophistication, channel length, and media availability.
Slides 17-30-17-31 Global Advertising
Standardized advertising makes sense when it has significant economic advantages,
creative talent is scarce and one large effort to develop a campaign will be more
successful than numerous smaller efforts, and brand names are global. Standardized
advertising does not make sense when cultural differences among nations are significant,
and country differences in advertising regulations block the implementation of
standardized advertising.
Slide 17-34 Pricing Strategy
There are three issues to consider price discrimination, strategic pricing and regulatory
influence on prices.
Slides 17-35-17-37 Price Discrimination
Price discrimination occurs when firms charge consumers in different countries
different prices for the same product. The price elasticity of demand is a measure of
the responsiveness of demand for a product to changes in price.
Slides 17-38-17-41 Strategic Pricing
Strategic pricing has three aspects:
1. predatory pricing - involves using the profit gained in one market to support
aggressive pricing designed to drive competitors out in another market.
2. multi-point pricing - a firm’s pricing strategy in one market may have an impact on a
rival’s pricing strategy in another market.
3. experience curve pricing - price low worldwide in an attempt to build global sales
volume as rapidly as possible, even if this means taking large losses initially.
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Slides 17-42-17-44 Regulatory Influences on Prices
A firm’s ability to set its own prices may be limited by:
1. antidumping regulations
2. competition policy
Slide 17-46 Configuring the Marketing Mix
Differences in culture, economic conditions, competitive conditions, product and
technical standards, distribution systems, government regulations, and the like may
require variation in product attributes, distribution strategy, communications strategy, and
pricing strategy.
Another Perspective: Fun sites to visit with students include Cadbury Schweppes
{http://www.cadburyschweppes.com/EN http://www.cadburyschweppes.com/EN} and
Kraft {http://www.kraft.com/default.aspx}. Both companies sell 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.
Slide 17-47 New Product Development
Firms today need to make product innovation a priority. This requires close links between
R&D, marketing, and manufacturing.
Slide 17-48 The Location of R&D
New product ideas come from the interactions of scientific research, demand conditions,
and competitive conditions.
Slides 17-49 Integrating R&D, Marketing and Production
A firm’s new product development efforts need to be closely coordinated with the
marketing, production, and materials management functions.
Slide 17-50 Cross Functional Teams
Effective cross functional teams should be led by a heavyweight project manager with
status in the organization, include members from all the critical functional areas, have
members located together, establish clear goals, develop an effective conflict resolution
process.
Slide 17-51 Building Global R&D Capabilities
To adequately commercialize new technologies, firms need to integrate R&D and
marketing.
CRITICAL THINKING AND DISCUSSION QUESTIONS
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QUESTION 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 the possible objections to this. Your CEO also believes that the
pricing decisions in Brazil can be left to local managers. Why might she be wrong?
ANSWER 1: While babies’ behinds serve the same function in all cultures, and the
product's technical standards may be similar, sensitivity to bodily functions does vary
across cultures. Thus, the advertising message may need to be changed for different
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.
QUESTION 2: Within 20 years we will have seen the emergence of enormous global
markets for standardized consumer products. Do you agree with this statement? Justify
your answer.
ANSWER 2: One could either choose to agree or disagree, while the best answer would
likely hedge it somewhere in the middle. There are already enormous global markets
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.
QUESTION 3: You are the marketing manager of a food products company that is
considering entering the Indian market. The retail system in India tends to be very
fragmented. Also, retailers and wholesalers tend to have long-term ties with South
Korean food companies, which make access to distribution channels difficult. What
distribution strategy would you advise the company to pursue? Why?
ANSWER 3: The firm should sell to either wholesalers or import agents. Because the
retail system in India is very fragmented, it would be very expensive for the firm to make
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.
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QUESTION 4: Price discrimination is indistinguishable from dumping. Discuss the
accuracy of this statement?
ANSWER 4: In some specific instances this statement is correct, but as a general rule it
is not. When a firm is pricing lower in a foreign country than it is in its domestic market,
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.
QUESTION 5: You work for a company that designs and manufactures personal
computers. Your company’s R&D center is in North Dakota. The computers are
manufactured under contract in Taiwan. Marketing strategy is delegated to the heads of
three regional groups: a North American group (based in Chicago), a European group
(based in Paris), and an Asian group (based in Singapore). Each regional group develops
the marketing approach within its region. In order of importance, the largest markets for
your products are North America, Germany, Britain, China, and Australia. Your
company is experiencing problems in its product development and commercialization
process. Products are late to market, the manufacturing quality is poor, and costs are
higher than projected, and market acceptance of new products is less than hoped for.
What might be the source of these problems? How would you fix them?
ANSWER 5: The dispersion of activities makes sense - products are produced in the
lowest cost location and marketed by people familiar with local conditions. (The R&D in
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: Kodak in Russia
Summary
The closing case describes the approach Kodak took to establish itself as a leader in the
Russian consumer photography market. Kodak entered the Russian market in the early
1990s as the country was making its transition from a command economy to a market
driven economy. At the time, the consumer market for photography was
underdeveloped, few distribution options existed, and the Kodak name was relatively
unknown. Today, Russia is one of Kodak’s most promising markets. The following
questions can be helpful in directing the discussion.
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QUESTION 1: How did the Russian market differ from markets in developed Western
nations? How were these differences likely to impact upon demand for photographic
products?
ANSWER: There were several key differences between the Russian market and other
developed Western markets. A primary difference involved Russia’s transition from a
command economy to a market economy, and all of the challenges that resulted from the
transition. In addition, the consumer market for photography was underdeveloped, the
Kodak product line was virtually unknown, and the cost of cameras and complementary
products was out of reach for many consumers. A further difference involved the few
viable options for distribution.
QUESTION 2: How did Kodak adjust its marketing mix in Russia to match local
requirements? Do you think this was the right thing to do?
ANSWER: Kodak made several changes to its marketing mix to better fit the Russian
market. Capitalizing on Russia’s lower production costs, Kodak company opened a
factory is Russia to produce a simple, inexpensive camera and accessories. The company
also developed a consistent marketing message tailored to the local market , and
encouraged major enterprises to give cameras as employee gifts rather than the traditional
vodka. Finally, Kodak established a franchising system for its Kodak Express stores
where consumers can buy products and develop film. It would appear that the changes
Kodak has made to its marketing mix have been successful. Russia is now one of
Kodak’s top markets.
QUESTION 3: Kodak’s traditional film business is now under attack from digital
photography (in which Kodak is also a leader). Should Kodak adjust its marketing mix
for digital products to the Russian market? Why?
ANSWER: This question should generate a number of interesting ideas from students.
Some students might argue that Kodak has successfully built a presence in the country
and that it should not bother fixing something that is not broken. These students might
further point out that given that cameras are very much a luxury item, computers are also
likely to be considered a luxury, and that without easy access to computers some of the
appeal of digital photography is lost. Other students however, will probably point out
that by not entering the digital market, Kodak is leaving itself open to attack from
competitors – that the company has already done the hard work of establishing a
consumer photography market, now it should expand its product line to include digital
cameras and equipment.
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Another Perspective: The Kodak web site
{http://www.kodak.com/eknec/PageQuerier.jhtml?pq-path=2/6868&pqlocale=en_US&_requestid=5417} lets you explore the company’s marketing efforts in
other countries by changing the country selection at the top of the page. Go to the site,
and change the country to Russia to see the company’s current efforts there.
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Drug Companies Conduct Research in India
Conducting Drug Trials in India
Abstract: This video explores the ethics of using India as a source of subjects for clinical
trials by multinational pharmaceutical companies.
Key Concepts: economic development, investment, ethics, new product development,
location-specific advantages
Notes: With its vast number of sick people, India is becoming an important destination
for multinational pharmaceutical companies. Unlike traditional investment that is driven
by a search for low cost labor or materials, or a bigger market however, pharmaceutical
giants like Pfizer and Glaxo are attracted to India because of the country’s large number
of scientists, doctors, and most importantly, patients. Yet, Pfizer and Glaxo are not trying
to sell products designed to help the population get well, instead, they see the country as a
laboratory of sorts.
India has more than 30 million people that suffer from heart disease, a similar number of
diabetics, and tens of millions of other people that have been diagnosed with cancer or
psychiatric problems. Because of the poverty in the country many of these people are in
advanced stages of their illnesses and have never been medically treated making them
ideal candidates for clinical trials of new drugs. For companies, the clinical phase is one
of the most tedious, expensive, and critical steps in the development of a new drug.
Companies like Glaxo and Pfizer can shorten this stage and make it less expensive by
completing it in India where according to Dr. Vijai Kumar of Neeman Medical
International, companies can include one third more people in one third less time. The
pharmaceutical companies believe that by conducting their clinical trials in India, drugs
will eventually be more affordable everywhere.
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However, concerns have been raised that the pharmaceutical giants might be taking
advantage of the situation in India. Jeffery Kahn of the University of Michigan Medical
School has suggested that some people might participate in clinical trials simply because
it is the only way they can get any sort of treatment. Kahn is concerned that many of the
study participants will not get the benefit of the new drugs. Instead, the new products
will only benefit people in richer nations. There are also concerns that the studies could
be unreliable if people lie about their medical histories because they are so desperate for
treatment. For now however, it appears that the trials will continue. Experts anticipate
that by 2010, some 2 million Indians will be involved in some sort of trial, up from just
2,000 three years ago.
Discussion Questions:
1. Why are so many pharmaceutical companies attracted to India? What are the
advantages of conducting clinical trials in India as compared to countries such as the
U.S.? Can a company in today’s hyper-competitive market afford to continue clinical
trials in its domestic market?
2. Consider the ethics of using India as a test market for new drugs. Should companies
like Pfizer be prohibited from conducting clinical trials in a country where many
participants may be illiterate and extremely poor? Should clinical trials be limited to only
those participants who can demonstrate a certain level of literacy and/or income?
3. The clinical trial phase of new product development is one of the most expensive and
arduous stages of getting a drug to market. If companies are criticized for moving this
process to places like India where they believe they can conduct this step in less time for
less money what will be the effect on new product development? Who are the winners
and who are the losers in the new trend of conducting clinical trials in India?
4. Concerns have been raised that the clinical trials being conducted in India may be
compromised because people are lying about their medical histories just to be included.
What are the dangers of conducting clinical trials in a nation where people are desperate
to get medical treatment of any sort, experimental or not? What are the implications of
using such trials to quickly and cheaply get a product to market?
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INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following:
Title 4: Dominos Pizza
Summary
Domino’s began expanding its pizza business outside the U.S. in 1983. By 2005, the
company had 3,000 stores outside the U.S. located in more than 50 different countries.
Domino’s success lies in part to its product, pizza seems to be universally accepted, and
to its commitment to consistency, the company wants every store to be the same
regardless of its location. Still, Domino’s has had to make some adjustments to meet the
needs of each market. Pizza topping and ingredients reflect local tastes and customs for
example. Delivery methods must also be adapted to individual market conditions. So, for
example, in Japan pizzas are delivered via scooter by people who are very familiar with
the neighborhood. Similarly, promotional materials must fit with the market. In Belgium
for example, menus are printed in three different languages. Yet, through all of the
adjustments to the marketing mix, the company is committed to its core principles.
To ensure that the company’s core principles are emphasized, Domino’s is very particular
when selecting franchisees. The company only considers people who are capable of
operating a business within corporate guidelines. To facilitate this process, Domino’s
also provides strong support to its franchisees. In Mexico for example, the company
makes a store visit every 45 days, provides all marketing materials, and provides training.
Discussion Questions
1. Domino’s has successfully grown its international presence very quickly. Compare
and contrast its strategy with that of another well-known international fast food operation,
McDonald’s. What similarities do you see? Are they any significant differences between
the two companies? What has led to the success of Domino’s?
2. Domino’s owes its rapid expansion into foreign markets to its franchisees. Consider
the company’s franchising strategy. How does Domino’s ensure that its corporate values
and strategies are adopted by the franchise operations?
3. While its pizza appears to be universally accepted, Domino’s has had to make some
adjustments to its marketing mix. Discuss the different components in the marketing mix
and how the company has responded to local needs.
4. Domino’s made some significant changes to its Mexican operation in the late 1990s.
Discuss Domino’s efforts there, the economic risk the company was facing, and the
strategies it used. Is Domino’s current strategy viable in the long-term? Why or why
not?
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globalEDGE™ Exercise Questions
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
The consumer purchase of specific brands is an indication of the relationship that
develops over time between a company and its customers. Locate and retrieve the most
current ranking of global brands. Identify the criteria that are utilized. Which country (or
countries) appears to dominate the top 100 global brands list? Why do you think this is
the case? Prepare a short report identifying the countries that possess global brands and
the potential reasons for success.
Exercise 2
Some regions of the world are more widely known for their innovation efforts than
others. Identify the fifteen organizations with the highest research and development
(R&D) expenditures in the world. A colleague mentioned that the Technology Review is
a particularly informative source on innovation topics. Prepare a short report regarding
the country of origin of the companies with the most R&D spending, as well as the
distribution of R&D expenditures by industry.
Answers to the Exercises
Exercise 1
The overall and industry rankings of the world’s top 100 global brands are prepared
annually by BusinessWeek and Interbrand. The rankings can be accessed by searching
the term “global brand” at {http://globaledge.msu.edu/ResourceDesk/}. This resource is
named “Interbrand: Global Brands Scoreboard” and is found under the globalEDGE
category “Research: Rankings”. Be sure to check the “Resource Desk only” checkbox of
the search function on the globalEDGE website.
Search Phrase: “global brand”
Resource Name: Interbrand: Global Brands Scoreboard
Website:
{http://www.businessweek.com/magazine/toc/06_32/B399606globalbrands.htm}
globalEDGE™ Category: “Research: Rankings”
Exercise 2
The “Top 15: Companies Spending the Most on R&D” is an annual ranking published by
the Technology Review magazine. The ranking can be reached by searching for the term
“Technology Review” at {http://globaledge.msu.edu/ResourceDesk/}. The link is
located under the globalEDGE category “Research: Rankings”. Be sure to check the
“Resource Desk only” checkbox of the search function on the globalEDGE website.
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Chapter 17 - Global Marketing and R&D
Search Phrase: “Technology Review”
Resource Name: Technology Review: Corporate R&D Scorecard 2005
Website: {http://www.technologyreview.com/Biztech/14743/}
globalEDGE™ Category: “Research: Rankings”
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