International Business Fourth Edition CHAPTER 17 Global Marketing and R&D 17-3 Chapter Focus Examine roles of marketing and R&D in international business. Reduce costs of value creation. Add value by better serving customer needs. Look at the relationship between marketing and R&D. Look at the marketing mix: Product attributes. Distribution strategy. Communication strategy. Pricing strategy. McGraw-Hill/Irwin Set of choices the firm offers to its targeted market. © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-4 Globalization of Markets and Brands “A powerful force drives the world toward a converging commonalty (sic), and that force is technology.” Theodore Levitt, Harvard Business Review. CNN and MTV. Overstatement? Cultural and economic differences act as a major brake on any trend toward global consumer tastes and preferences. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-5 Market Segmentation geography Identifying distinct groups of consumers whose purchasing behavior differs from other in important ways. demographics Social-cultural factors Marketing mix adjusted to reflect differing purchasing patterns in segments. Psychological factors McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-6 Market Segmentation Segments that transcend national borders. McGraw-Hill/Irwin Two main issues in the differences between countries Structure of their market segments. © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-7 Product Attributes Cultural differences. Economic differences. Product and technical standards. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-8 Cultural Differences Range of dimensions: Social structure. Language. Religion. Education. Most important - the impact of tradition. Impact is greatest in foodstuffs and beverages. Also, scent preferences differ from country to country. Some tastes and preferences becoming cosmopolitan: Coffee (Japan and Great Britain). American-style frozen dinners (Europe). Levitt’s global culture still a long way off. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-9 Economic Differences Consumer behavior is influenced by economic development. Consumers in highly developed countries tend to have extra performance attributes in their products. Consumers in less developed countries tend not to demand these extra performance attributes. Cars: no air-conditioning, power steering, power windows, radios and cassette players. Product reliability is more important. Contrary to Levitt, consumers in the most developed countries are often unwilling to sacrifice preferred attributes for lower prices. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-10 Product and Technical Standards Government standards can prevent the introduction of global products. Different technical standards impede global markets, as well. Come from idiosyncratic decisions made long ago. Video equipment. Television signals. Levitt’s prediction is still far off. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-11 Distribution Strategy Three different distribution systems: Retail concentration Channel length. Channel exclusivity. Choice of channel: Cost/benefit of each alternative from country to country. Longer the channel, the higher the price. But, cuts selling costs in fragmented market. Market access. Shorter channel, lower price. Concentrated market. McGraw-Hill/Irwin vary © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-12 A Typical Distribution System Manufacturer Inside the Country Manufacturer Outside the Country Import Agent Wholesale Distributor Retail Distributor Final Customer Figure 17.1 McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-13 Distribution Can Present Interesting Problems McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-14 Communications Strategy International communication occurs When a firm uses a marketing Message to sell its products in another country. McGraw-Hill/Irwin Channels direct selling sales promotion direct marketing advertising © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-15 Communications Strategy Effectiveness of international communications can be impacted by: Cultural barriers. Need to develop cross-cultural literacy. Source and country of origin effects. Receiver of the message evaluates it based upon the status of the sender. Country of origin effects: Emphasize/de-emphasize foreign origin. Noise levels. Tends to reduce the effectiveness of a message. Developed countries - high. Less developed countries - low. Push versus Pull: Push emphasizes personal selling. Pull depends on mass media advertising. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-16 Attractiveness of Push versus Pull Strategies Product Type and Consumer Sophistication. Factors Channel Length. Media Availability. McGraw-Hill/Irwin Pull = selling to large market segments. Push = selling complex products. Pull = long distribution channel. Push = short distribution channel. Pull = access to advertising media. May be legal Restrictions. © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-17 Push-Pull Mix Push industrial or complex products McGraw-Hill/Irwin few print or electronic media available short distribution channels consumer goods long distribution channels sufficient print and electronic media available Pull © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-18 Global Advertising Standardized: Significant economic advantages. Scarce creative talent. Many global brand names. Non-standardized: Messages in one country may fail another. Advertising regulations can be a Dealing with Country differences: in restriction. Select some features for standardization and others for localization. Saves some costs. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-19 Advertising in New Delhi McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-20 Pricing Strategy Price discrimination. Different prices, different countries, same product. Strategic pricing. Regulatory factors: Price controls. Antidumping. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-21 Pricing Strategy Price discrimination: Charging what the market will bear. Two factors: Must keep national markets separate Different price elasticities Arbitrage:Charging different prices in different countries for same product. Doesn’t always work. Ford in Germany and Belgium Sometimes it does. Ford in UK and Belgium McGraw-Hill/Irwin Using Arbitrage © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-22 Determinants of Demand Elasticity Income level and competitive conditions determine elasticity. Elasticity (price) tends to be be greater in countries with low income levels. Elasticity (demand) tends to be greater in countries where there are many competitors. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-23 Elastic and Inelastic Demand Curves Inelastic Demand Curve $ Elastic Demand Curve Figure 17.2 Output McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 17.3 17-24 Price Discrimination Revenue and Costs Revenue and Costs 110 - 110 - 100 - 100 - 100 - 80 - 70 - 70 - 70 - 60 - 60 - 60 - 50 - 50 - 40 - 40 - 30 - 20 - 20 - MR 10 - McGraw-Hill/Irwin j+u 50 - 40 - 0 30 - Output 10 - 50 - Du 40 - 30 - 20 - 0 MRu 10 - j D 40 - 30 - 50 - Output 40 - 30 - 20 - 0 10 - 10 - 50 - 43.58 D j 20 - 80 - Output MC MR j+u 70 - 80 - 30 - World 90 - 60 - United States 90 - 20 - Japan 90 - 10 - 110 - Revenue and Costs © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-25 Strategic Pricing Predatory pricing: Using price as a competitive weapon. Multipoint pricing strategy: When two or more international firms compete against each other in two or more national markets. A firm’s pricing strategy in one market may impact a rival in another market. Experience curve pricing: Firms price low worldwide to build market share. Incurred losses are made up as company moves down experience curve. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-26 Regulatory Influences on Prices Antidumping regulations: Selling a product for a price that is less than the cost of producing it. Predatory pricing and experience curve pricing may violate regulations. Antidumping rules place a floor under export prices and limit a firm’s ability to pursue strategic pricing. Competition Policy: Promote competition. Restrict monopoly practices. Can limit the prices a company can charge in a given country. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-27 Dumping: GATT and the U.S. GATT:Sale of an imported product at ‘less than fair value’ and causes ‘material injury to a domestic industry’. US: An unfair trade practice that results in injury, destruction, or the prevention of the establishment of an American industry. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-28 Configuring the Marketing Mix Differences Here Culture Requires Variation Here McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-29 New Product Development Creative Technological Innovation Destructive McGraw-Hill/Irwin Critical to stay on leading edge of technology Apply technology to developing products Consumers’ want. Design product for cost effective manufacture. © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-30 The Location of R&D New product development is greater where: More money spent on R&D. Underlying demand is strong. Consumers are affluent. Competition is intense. Leading-edge research is carried out worldwide. Centralization is no longer as important. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-31 The Need to Integrate R&D, Marketing and Production High failure rate ratio between new product development and profit goals. Reasons for failure: Limited product demand. Failure to adequately commercialize product. Inability to manufacture product cost-effectively. Cross-functional coordination and integration can reduce risk: Project development is driven by customer needs. New products design ensures ease of manufacture. Development costs kept in check. Time to market is minimized. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-32 Cross-Functional Integration Using cross-functional development teams: Led by “heavyweight” project manager. Composed of at least one member from each key function. Physically co-located to create camaraderie and facilitate communication. Clear plan and goals. Incentives to attain goals. Develop own processes for communication and conflict resolution. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.