European Marketing Professor Dr Marin A Marinov © University of Gloucestershire, United Kingdom May 29 – June 2, 2006 University of Warsaw Topic One: Is Standardized Marketing Strategy Applicable in Europe? Goals: •To address European diversity •To present some aspects of culture heterogeneity of Europe •To reflect on the applicability of Standardized Marketing Strategy in Europe What Is Europe • Which Europe are we talking about: – Western Europe – European Union (EU15 or EU25) – Geographically defined Europe – The above plus the Commonwealth of Independent States Degree of Homogeneity and Heterogeneity in Europe • Depending on what Europe we refer to • Environmental characteristics – Political – convergence versus divergence – Economic – degree of similarities and dissimilarities – Cultural – probably the most diverse feature • Languages • Systems guaranteeing culture development (e.g., education and help from the government) • Religions • Values and believes – Legal – Financial Culture Homogeneity (Using Hofstede’s Culture Dimensions) • Anglo-Saxon Europe – Ireland and United Kingdom – Low power distance – Low uncertainty avoidance – Highly individualistic – Mostly masculine – Short-term oriented Culture Homogeneity (Using Hofstede’s Culture Dimensions) • Nordic Europe – Sweden, Norway, Denmark, Finland, Northern Germany, the Netherlands – Low power distance – Low uncertainty avoidance – Highly individualistic – Strongly feminine – defer from Anglo-Saxon – Short-term oriented Culture Homogeneity (Using Hofstede’s Culture Dimensions) • Western Central Europe – most of Germany, Luxemburg, Belgium, Switzerland, Austria, France – High/low power distance - heterogeneous – High uncertainty avoidance - defer from Anglo-Saxon – Highly individualistic – Masculine/feminine – heterogeneous – Short-term to medium-term oriented heterogeneous Culture Homogeneity (Using Hofstede’s Culture Dimensions) • Mediterranean Europe – Spain, Portugal, Greece, Italy, Southern France – High power distance - defer from Anglo-Saxon – High uncertainty avoidance - defer from AngloSaxon – Collectivistic/individualistic - heterogeneous – Masculine/feminine – heterogeneous – Short-term to medium-term oriented heterogeneous Culture Homogeneity (Using Hofstede’s Culture Dimensions) • Eastern Central Europe – Czech Republic, Hungary, Poland, Slovakia, Slovenia – High power distance – differ from Anglo-Saxon – High uncertainty avoidance - defer from AngloSaxon – Individualistic/collectivistic - heterogeneous – Masculine/feminine – heterogeneous – Short-term to long-term oriented heterogeneous Culture Homogeneity (Using Hofstede’s Culture Dimensions) • South-eastern Europe – Bulgaria, Croatia, Romania, Turkey – High power distance – differ from AngloSaxon – High uncertainty avoidance - defer from Anglo-Saxon – Collectivistic - defer from Anglo-Saxon – Mainly feminine – defer from Anglo-Saxon – Mostly long-term oriented - defer from AngloSaxon Is Standardized Marketing Strategy Applicable to Europe? • ‘…it is clear that Europe stands apart from all other regions that are characterized by either high population density and homogeneous population (e.g., Japan and China) or low density and heterogeneous population (e.g., North America). Europe represents one of the most potentially lucrative markets in the world.’ Kaynak and Jallat, 2005 Is Standardized Marketing Strategy Applicable to Europe? • Europe is very diverse in: – Culture – Geo-political characteristics – Level of economic, legal and financial development – Buying behaviour (market features) – Level of disposable income (Buyer characteristics) Is Standardized Marketing Strategy Applicable to Europe? • Competing economies with significant power – German, British, French, Italian and to some extent Dutch and Swedish • Dominating role of Anglo-Saxon economic and business model applied in continental Europe within the model of social security which seems to erode Is Standardized Marketing Strategy Applicable to Europe? • Europe is undergoing constant change of significant nature that affects – Geo-political – Economic – Cultural, etc. boundaries of regions • However diversity stays and is expected to stay in the foreseeable future, thus it is very difficult to implement Standardized Marketing Strategy in Europe even to apply Pan-European Marketing Strategy. Topic Two: European Customers and Market Definition Goals: •The European market •European market segmentation •Special issues European Market • Composition – variety of integration blocs: – European Union (EU) – 25 member states (intended homogeneity in economic, monetary and political terms) – about 430 million people – European Free Trade Agreement (EFTA) – 4 member states – small to tiny – very homogeneous economically – Iceland, Liechtenstein, Norway and Switzerland – less than 10 million people – Central European Free Trade Agreement (CEFTA) – 4 states prospective EU members Bulgaria (2007), Croatia, FYR of Macedonia and Romania (2007) – about 40 million people – Commonwealth of Independent States (CIS) – all former USSR republics apart from the Baltic countries - Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine – almost 300 million people European Market European Market • High income European countries – Luxemburg, • • • • Norway, Ireland, Liechtenstein and Switzerland High middle income countries – Andorra, Austria, Denmark, the Netherlands, Iceland, Belgium, Sweden, United Kingdom, Finland, Germany, Monaco, San Marino, France and Italy Low middle income countries – Spain, Cyprus, Portugal, Greece, Slovenia, Malta, Czech Republic and Hungary Low income countries – Slovakia, Estonia, Croatia, Poland, Lithuania, Latvia, Bulgaria, Russian Federation, Romania, Turkey and FYR of Macedonia Very low income countries – All other countries in Europe European Market • Factors drawing European market apart: – The enlargement of the EU extends and enhances the diversity of consumers within the Union – Most multinationals have regional European HQs – Matsushita, Kellogg’s, Ford, etc. • Factors drawing European market together: – Industrial market is targeted on Pan-European basis about 45 per cent of market transactions in Europe are of industrial goods – Companies selling consumer durables are mostly using unified components of marketing strategy – still promotion, distribution and sometimes pricing policies differ across Europe. European Market • Industrial Markets – The Airbus consortium (Germany, France, UK and Italy) sells a huge range of short- and longhaul aircraft – Automakers producing commercial vehicles (Daimler-Benz, GM, Fiat, Renault, etc.) offer a huge rage of vehicles for the segments by engine size, performance and exploitation conditions market European Market • Consumer markets - Segmentation – Formation of large urban clusters of mass European consumers are recommended by many researchers – e.g., Paris, London, Milan, Madrid, Vienna) – Medium-sized regional niche clusters are recommended in cross-border regions (e.g., high income consumers in Brussels-Paris region) – Small local niche clusters can be formed on the basis of lifestyle (e.g., suburban markets of large urban areas Special Issues • Consumers from low and very low income countries may need targeting with different marketing strategies: – Concerning the marketing mix – The degree of localization – The strategic priority formation – The relocation of production facilities for: • Obtaining cost leadership • To be closer to the market Topic Three: European Market Intelligence Goals: •To identify existing market opportunities •To provide understanding of the varieties of marketing process applied in Europe •To provide data base for future marketing activities European Market Intelligence • What are the feasible motives for serving the European market? • What is the level of commitment to the European market and various parts of it? • What resources and agencies are available for conducting European market research? European Market Intelligence • Using existing publications for preliminary information: – ESOMAR (European Society for Opinion and Marketing Research) – organizes conferences and publishes research findings – Official publications of various government institutions • Hiring research companies foreign/local to conduct market research Specific Issues in European Market Intelligence • Demographic data – mostly reliable, depending on • • • • source (government or other) Educational stratification – different educational systems – process of unification – long-term effect Marital status or partner co-existence (hetero- and homo-sexual couples/families) Social stratification – can differ significantly across Europe – low, medium and high end of the market Promotional issues: – Approaches to promotion – Promotional budgets Topic Four: Market Entry and Country Selection • • • Goals: To evaluate market entry strategies for Europe To make decision associated with country selection To understand existing competition challenges Market Entry Strategies for Europe • What are theoretically available choices: – Exporting – indirect, direct – Contracting intellectual property – licensing, franchising – Investment • Forms: Greenfield or acquisition • Outcomes: Strategic alliances, joint ventures, partially or wholly owned subsidiaries • Management dilemmas: which party manages the venture Market Entry Strategies for Europe • Benefits and risks from the application of various modes of market entry: – Benefits increase from indirect exporting to wholly owned subsidiary – Risks also augment when we move along that line – Country risk evaluation • Business/marketing strategy and market entry strategy: – Cost leadership strategy requires investment – Differentiation and focus strategies may be associated with any market entry strategy Market Entry Strategies for Europe • Current foreign involvement in European markets (Percentages in value terms): – Importing – about 20 per cent – Contractual arrangements – about 10 per cent – Investment – more than 70 per cent • Research based preferred modes of market entry by some European countries: – Strategic alliances (Austria, France, Germany, Italy, Spain, United Kingdom) – most preferred and applied in France, last preferred and applied in Germany – Franchising – Applied on a massive scale for fast food restaurants, trade and other services across Europe – Investment – Joint ventures mostly applied in riskier countries and counties with limited market intelligences, elsewhere preference for the formation of wholly owned subsidiaries Market Entry Strategies for Europe Country Selection • Regional or European market targeting: – Pan-European or country specific approach – remember similarities and differences across Europe – Is testing of the market necessary – choice of a lead country – How much commitment should be devoted to various countries – entering the markets of various countries with different modes of market entry Market Entry Strategies for Europe • Regionalization of the European market – sets of criteria to use – Geo-political – Demographic – Cultural – Membership in various integrations – Implications of various policies (quotas, tariffs, CAP, etc.) – Industry specific criteria Market Entry Strategies for Europe • How to select countries: – Market size, market specifics, purchasing power distribution and growth potential (Market and economic constraints) – Competition • Type and intensity • Domestic or foreign • Positioning of competitors – Risks associated with market entry and operations – Government and consumer attitudes – government policy; ethnocentrism and animosity – Cost of market entry and transaction cost issues – Infrastructure and business support structure – Negotiation practices and lobbying opportunities – significance of domestic partner Market Entry Strategies for Europe Competition • Competition related issues (Michael Porter questions associated with competition: – Will the competition retaliate to the entry? – When the retaliation take place? – What impact will the retaliation have? – How strong the retaliation will be? – Can retaliation be controlled, managed or influenced? – What strategy will work best in any particular contexts Market Entry Strategies for Europe Competition • Government factors influencing competition: – Protectionist policy towards local businesses: Subsidies, credits with low or no interest – Favourable policy towards foreign business – Encouraging imports, helping local businesses enter in partnerships, low taxation, tax holidays – Financial regulations – centralized in the Euro zone, but not in all other European countries including the EU member states outside the Euro zone Market Entry Strategies for Europe Competition • Entering European markets with a cost leadership strategy: – In more affluent countries – target the most profitable segments – profit maximization approach – In less affluent counties – target the mass market consisting of highly price-sensitive customers with price-oriented promotional campaigns – building market share approach – In highly competitive markets avoid attacking directly existing major competitors – reposition, search for niche markets – In less affluent countries patience is needed for profit generation – such is rather limited or none existent in the first years of operation – Example: Dell Computers market entry in Europe in 1990s highly profitable since early 2000s Market Entry Strategies for Europe Competition • Entering European markets with differentiation or focus strategies: – In all country markets targeting of specific segments or niche markets would be beneficial – non-price segment formation and targeting approach – In high end markets in all countries it is advisable to put an emphasis on augmented products (high value added products and provision of special or superior customer services) – In all country markets attempt to lock in customers (create customer loyalty) with specialist product attributes mostly intangible (brand building and brand recognition) Topic Five: Marketing Mix Polices Goals: •Product policy decisions •Price policy decisions •Promotion policy decisions •Distribution policy decisions Product Policy Decisions • Barriers to Trade: – Compliance with EU or national standards and legislation – Adherence the international (ISO) or national technical and product related standardization systems • Customization versus Standardization of products – most serious issues with FMCGs (French versus British approaches). Product Policy Decisions • Branding Decisions – Brand Positioning: – Euro-mass brands: high volume, basic quality, low margins. Example: Natrel deodorant launched by Gillette in 12 European countries with same brand name, formula, packaging and promotion. More success in some countries, less success in other. – Euro-niche brands: low to medium volume, high value added, high to very high margins. Example: American Express Card introduced in Europe appeals to a small target group in most European countries – the business community engaged in international operations. – Local national or regional brands in Europe: tailored to specific national or regional tastes. Example: Regional beer brands in Germany (more than 150), one of the best selling British tabloid newspapers The Sun targets a very specific readership, which is quite distinctive to the UK. – In summary there is a small number of Euro brands because of the huge variation of consumer tastes, legislation, media preferences, etc. Thus targeting Europe with a branding strategy should be done very carefully. Product Policy Decisions • Private Label and Original Equipment Opportunities in Europe: – Importer and local producers use retailer’s brand names – For private label goods (mostly food retailers) Carrefour, Tesco, etc. In 2004 the share of such goods was 8 per cent in Italy, 17 per cent in France, 39 per cent in the UK – Imports of parts and components for B2B markets in which firms serve as OEM (consumer durables) and industrial goods assembly – about 28 per cent of the goods sold in the 35 country EU in 2003 were produced using OEM Product Policy Decisions • Service Quality: – Expectations for service quality in the developed and affluent European markets are very high and mostly uniform; expectations are constantly increasing in other parts of Europe - Special training programmes required at all management levels to meet these expectations - Meeting a certain quality threshold a must to be able to serve successfully European market Pricing Policy Decisions • The Role of the EU and EMU (European Monetary Union) on Making of Pricing Decisions: – Price transparency and comparability – Tax policies – Impact of direct and indirect taxes on prices – Price comparison across Europe – None unified VAT taxation – Subsidies – CAP (Common Agricultural Policy) Pricing Policy Decisions • Pricing impact of the Euro (in 12 EU member countries and 13 national currencies: – Hampering unified pricing – Necessity of unified currency quotations • Pricing outside EU and EFTA: – Hedging against currency fluctuations – If a contract price were quoted in Polish zloti sufficient amount of this currency may be bought on the future market to cover the contract. Banks and specialized financial markets like LIFFE (London International Financial Future Exchange). Promotion Policy Decisions • Regulation of promotional activities of EU member countries: – Centralized EU regulation exercised by the European Commission (EC) bodies – Country specific restrictions of promotional activities – The role of media regulation – satellite television, cross-border print advertising France-Belgium; Austria-Germany; Scandinavian countries Promotion Policy Decisions • Promotional expenditure in the EU: – Advertising – about two-thirds of overall promotional spending – Sales promotion – approximately 15 per cent – Direct mail – circa 8 per cent • Advertising expenditure as a percentage of GDP (2004): – Countries with advertising expenditure above 1.00 per cent of their GDP: Spain – 1.71 per cent; UK – 1.68 per cent; Italy – 1.35 per cent; the Netherlands – 1.21 per cent; Denmark – 1.11 per cent – Countries with highest advertising expenditure in absolute figures (2004 in billion Euros): UK – 9.7; Germany – 7.1; Italy – 6.9; France – 5.2; Spain – 3.8. Distribution Policy Decisions • EU cross-border restrictions: – Customs control is mainly exercised when entering the EU (exception most EU new member states) – Foreign exchange controls are now applied when entering the new EU member states and goods originate from these states • Retail regulation: – Closing hours – Restrictions in developments in urban and suburban areas Distribution Policy Decisions • Retailing development and structure: – Excessive expansion of food retailing in recent years – more foreign retail outlets, increased competition, concentration of transaction points – Concentration of grocery buying (Per cent buying from the 10 largest retailers, 2003): • Switzerland – 96%, Sweden – 93%, Germany – 84%, the Netherlands – 82%, Belgium – 72%, UK – 70% • By contrast – Italy – 33%, Spain – 28%, Romania – 24% Topic Six: Marketing in the Emerging Markets of South-eastern Europe Goals: •To identify geo-political environment •To analyse main economic features •Common marketing features of the countries Geo-Political Environment • Consisting of four countries pre-1991: – Albania – small, underdeveloped, strictly socialist country; – Bulgaria – small to medium, somewhat industrialized, the closest ally to the ex-USSR – Romania – medium-sized, somewhat industrialized, under personal dictatorship – Socialist Federal Republic of Yugoslavia – mediumsized federation of six republics, the most open to the West socialist country Geo-Political Environment • Presently comprising nine countries with territory of about 640 000 square kilometres and population of about 58 million: – Albania – 3.5 million, Muslim country – Bosnia and Herzegovina – 4 million, in political and economic instability, federation, Muslim and Christian population – Bulgaria – 8 million, mostly Christian country – Croatia – 4.5 million, economically stable, mostly Christian population – FYR of Macedonia – 2 million, Christian and Muslim population – Montenegro – 0.7 million, mostly Christian population, last break through republic from former Yugoslavia (May 2006) – Romania – 23 million, mostly Christian country – Serbia – 10 million, mostly Christian country – Slovenia – 2 million, most advanced economically, EU member (2004), mostly Christian country Economic Environment • GDP per capita in purchasing power parity (PPP) in 2003: – Slovenia – US$18 500, highest average puchasing power – Newly expected EU member states: • Bulgaria – US$6 800 (January 2007) • Croatia – US$8 800 (2008) • Romania – US$7 100 (January 2007 – Rest of the countries: • • • • Macedonia – US$4 800 Serbia and Montenegro – US$4 700 Albania – US$3 900 Bosnia and Herzegovina – US$3 800 • Comprising about 1 per cent of the world population it contributed in 2003 1.12 per cent to the world’s GDP measured in PPP. Common Marketing Features • Consumer behaviour: – High price sensitivity – Preference for purchasing locally produced goods (especially food stuff) – Medium to high ethnocentrism and consumer animosity – Predominantly frequent purchases of fresh food – Medium to high conservatism in buying habits – Low level of brand recognition and brand loyalty Common Marketing Features • Promotion: – High reliance on television advertising by foreign companies – High reliance on print and radio advertising by local companies – Aggressive advertising by foreign companies – Low degree of regulation of the promotion activities - underdeveloped legislation and problems with law enforcement Common Marketing Features • Distribution: – Highly fragmented distribution systems – Quick development of centralized puchasing through penetration of foreign retail chains – super- and hypermarkets – Traditional retail outlets still popular with low income buyers – Small specialist retailers establishing presence in these markets on franchise basis