The Basis for International Business

International business
•
All business activities that involve exchanges across national boundaries

Some countries are better equipped than others to produce particular goods or services
•
Absolute advantage
-
The ability to produce a specific product more efficiently than any other nation
•
Comparative advantage
-
The ability to produce a specific product more efficiently than any other product

Goods and services are produced more efficiently when each country specializes in the products for which it has a comparative advantage .
Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in

Exporting
•
Selling and shipping raw materials or products to other nations

Importing
•
Purchasing raw materials or products in other nations and bringing them into one’s own country
 Balance of trade
• The total value of a nation’s exports minus the total value of its imports over some period of time

Trade deficit
•
A negative (unfavorable) balance of trade—imports exceed exports in value

 Balance of payments
•
The total flow of money into a country minus the total flow of money out of that country over a period of time
Restrictions to International Business
 The reasons for restricting trade range from internal political and economic pressures to mistrust of other nations.

Nations are generally eager to export their products to provide markets for their industries and develop a favorable balance of trade.

Most trade restrictions are applied to imports from other nations.
Types of Trade Restrictions

Import duty (tariff)
•
A tax levied on a particular foreign product entering a country
-
Revenue tariffs are imposed to generate income for the government
-
Protective tariffs are imposed to protect a domestic industry from competition by keeping the prices of imports at or above the price of domestic products

Dumping
The exportation of large quantities of a product at a price lower than that of the same product in the home market

Nontariff barriers
•
Nontax measures imposed by a government to favor domestic over foreign suppliers
•
Import quota—a limit on the amount of a particular good that may be imported during a given time
•
Embargo—a complete halt to trading with a particular nation or in a particular product
•
Foreign exchange control—restriction on amount of foreign currency that can be purchased or sold

•
Currency devaluation— the reduction of the value of a nation’s currency relative to the currencies of other countries
•
Bureaucratic red tape— subtly imposes unnecessarily burdensome and complex standards and requirements for imported goods
•
Cultural attitudes— can impede acceptance of products in foreign countries
Reasons for and Against Trade Restrictions
FOR
• To equalize a nation’s balance of payments
•
To protect new or weak industries
•
To protect national security
•
To protect the health of citizens
•
To retaliate for another country’s trade restrictions
•
To protect domestic jobs
AGAINST
•
Higher prices for consumers
• Restriction of consumers’ choices
•
Misallocation of international resources
•
Loss of jobs
The Extent of International Business

Although the worldwide recessions of 1991 and 2001-2002 slowed the rate of growth, and 2008-2009 global economic crisis caused the sharpest decline in more than 70 years, globalization is a reality of our time
 In the U.S., international trade accounts for over ¼ of GDP


Trade barriers are decreasing, new competitors are entering the global marketplace, creating more choices for consumers and new job opportunities

International business will grow with the expansion of commercial use of the Internet
The World Economic Outlook for Trade

Economic performance among nations is not equal; growth in advanced countries slowed and then stopped in 2009, while emerging and developing economies continue to grow rapidly

International experts expected global economic growth in 2010 and 2011, despite the high oil prices

Canada and Western Europe

Canada is projected to show growth in 2010 and 2011

Euro area is expected to grow in 2011

U.K. and smaller European countries are expected to experience a recession

Mexico and Latin America
 Mexico is expected to show growth in 2010 and 2011
Latin America and Caribbean economies are recovering at a robust pace
 Japan
•
Projected to show growth in 2010 and 2011

Other Asian Countries
•
Lead by China emerging as a global economic power, growth is strong
•
Key emerging economies is Asia are leading the global recovery

Emerging Europe
•
Growth has been faster than in western Europe and continued growth is expected in 2010 and 2010

Commonwealth of Independent States
•
Projected to show growth in 2010 and 2011
•
With the collapse of communism, trade between the U.S. and central and
Eastern Europe expanded substantially

 Exports and the U.S. Economy
•
In 2008, exports as a percentage of GDP reached its highest level since 1916
•
In the past 50 years, exports have become increasingly important to the U.S. economy
International Trade Agreements

The General Agreement on Tariffs and Trade and the World Trade
Organization

General Agreement of Tariffs and Trade (GATT)
•
International organization of 153 nations dedicated to reducing or eliminating tariffs and other trade barriers
•
Most-favored-nation status (MFN)—Each member of GATT was to be treated equally by all other members
•
Kennedy Round, Tokyo Round, Uruguay Round, Doha Round

The General Agreement on Tariffs and Trade and the World Trade
Organization
(cont’d)
•
World Trade Organization (WTO)

Created in the Uruguay Round of GATT negotiation as a successor to
GATT

WTO oversees GATT provisions, has judicial powers to meditate trade disputes arising from GATT rules and exerts more binding authority than GATT
International Economic Organizations Working to Foster Trade

Economic community
•
An organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies

North American Free Trade Agreement
(NAFTA)
•
United States
•
Canada

•
Mexico
•
Chile is expected to become the 4 th member

Central American Free Trade Agreement – Dominican Republic (CAFTA-DR)
•
El Salvador
•
Guatemala
•
Honduras
•
Nicaragua
•
Dominican Republic
•
Costa Rica

Association of Southeast Asian Nations (ASEAN)
•
Brunei
•
Myanmar
•
Cambodia
•
Indonesia
•
Laos
•
Malaysia
•
Philippines
•
Singapore
•
Thailand
•
Vietnam

European Economic Area (EEA)

Pacific Rim

Commonwealth of Independent States (CIS)

Caribbean Basin Initiative (CBI)


Common Market of the Southern Cone (MERCOSUR)

Organization of Petroleum Exporting Countries (OPEC)

Organization for Economic Cooperation and Development (OECD)
Methods of Entering International Business

Licensing
•
A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation
•
Advantage
-
It allows expansion into foreign markets with little or no direct investment
•
Disadvantages
-
The product image may be damaged if standards are not upheld

Exporting
-
The original producer does not gain foreign marketing experience
•
May use an export/import merchant who assumes the risks of ownership, distribution, and sale
•
Letter of credit - Issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary
•
Bill of lading - Issued by a transport carrier to an exporter to prove merchandise has been shipped
•
Draft -
Issued by the exporter’s bank, ordering the importer’s bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer’s bank
•
May use an export/import agent who arranges sale for a commission or fee; the exporter retains title to products until they are sold
•
May establish own sales offices or branches in foreign countries

Joint ventures

•
A partnership formed to achieve a specific goal or to operate for a specific period of time
•
Advantages
-
Immediate market knowledge and access
-
Reduced risk
-
Control over the product attributes
•
Disadvantages
-
Complexity of establishing agreements across national borders
-
High level of commitment required of all parties involved

Totally owned facilities
•
Production and marketing facilities in one or more foreign nations
•
Advantage
-
Direct investment provides complete control over operations
•
Disadvantage
-
Risk is greater than that of a joint venture
•
Two forms
-
Building new facilities in the foreign country
-
Purchasing an existing firm in the foreign country

Strategic alliances
•
Partnerships formed to create competitive advantage on a worldwide basis

Trading companies
•
Firms that provide a link between buyers and sellers in different countries
•
Takes title to products and perform all the activities necessary to move the products from one country to another

 Countertrade
•
An international barter transaction
•
Avoids restrictions on converting domestic currency to foreign currency

Multinational enterprise
•
A firm that operates on a worldwide scale without ties to any specific nation or region
Sources of Export Assistance

National Export Strategy (NES)
•
Trade Promotion Coordinating Committee (TPCC)
-
Assists U.S. firms in developing export-promotion programs
-
Help American firms compete in foreign markets and create new jobs in the U.S.
Financing International Business

The Export-Import Bank of the United States (Eximbank)
•
An independent agency of the U.S. government whose function it is to assist in financing the exports of American firms

Multilateral Development Bank (MDB)
•
An internationally supported bank that provides loans to developing countries to help them grow
-
World Bank, Inter-American Development Bank (IDB), Asian
Development Bank (ADB), African Development Bank (AFDB),
European Bank for Reconstruction and Development (EBRD)

The International Monetary Fund (IMF)
•
An international bank with 186 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits

Marketing
The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
Managing Customer Relationships

Relationship marketing: Establishing long-term, mutually satisfying buyer-seller relationships

Customer relationship management (CRM): Using information about customers to create marketing strategies that develop and sustain desirable customer relationships

Customer lifetime value: a combination of purchase frequency, average value of purchases, and brand-switching patterns over the entire span of a customer’s relationship with a company
Utility: The Value Added by Marketing

The ability of a good or service to satisfy a human need

Form utility: Created by converting production inputs into finished products
 Place utility: Created by making a product available at a location where customers wish to purchase it

Time utility: Created by making a product available when customers wish to purchase it

Possession utility: Created by transferring title (OR ownership) of a product to a buyer
The Marketing Concept

A business philosophy that a firm should provide goods and services that satisfy customers’ needs through a coordinated set of activities that allows the firm to achieve its objectives

To achieve success, a business must
•
Communicate with potential customers to assess their needs

•
Develop a good or service to satisfy those needs
•
Continue to seek ways to provide customer satisfaction

Evolution of the Marketing Concept
•
Industrial revolution through the early twentieth century
 Business effort directed toward production to meet great demand
•
1920s

Production began to exceed demand

Business efforts included selling goods by advertising, hiring larger sales people
•
1950s
 Business efforts also focused on satisfying customers’ needs

Implementing the Marketing Concept
•
Obtain information about present and potential customers

Their needs; how well those needs are being satisfied; how products might be improved; customer opinions about the firm
•
Pinpoint specific needs and potential customers toward which to direct marketing activities and resources
•
Mobilize marketing resources to

Provide a product that will satisfy customers

Price the product at an acceptable and profitable level

Promote the product to potential customers

Ensure distribution for product availability when and where wanted
•
Obtain information on the effectiveness of the marketing effort and modify efforts as necessary
Markets and Their Classification

Market

•
A group of individuals or organizations, or both, that need products in a given category and that have the ability, willingness, and authority to purchase such products

Consumer markets
•
Purchasers and/or households members who intend to consume or benefit from the purchased products and who do not buy products to make a profit
 Business-to-business (industrial) markets
•
Producer, reseller, governmental, and institutional customers that purchase specific kinds of products for use in making other products for resale or for day-to-day operations
 Producer markets
•
Individuals and business organizations that buy products to use in the manufacture of other products

Reseller markets
•
Intermediaries such as wholesalers and retailers that buy finished products and sell them for a profit
 Governmental markets
•
Buy goods and services to maintain operations and provide citizens with products such as highways, education, utilities, defense

Institutional markets
•
Churches, not-for-profit private schools and hospitals, civic clubs, charitable organizations
Developing Marketing Strategies

Marketing strategy
•
A plan that will enable an organization to make the best use of its resources and advantages to meet its objectives.
•
Consists of:
-
The selection and analysis of a target market

-
The creation and maintenance of an appropriate marketing mix (a combination of product, price, distribution, and promotion developed to satisfy a particular target market)

Target market selection and evaluation
•
Target market
-
A group of individuals, organizations, or both, for which a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group
•
Market segment
-
A group of individuals or organizations within a market that share one or more common characteristics
•
Market segmentation
-
The process of dividing a market into segments and directing a marketing mix at a particular segment or segments rather than at the total market
Developing a Marketing Plan

A written document that specifies an organization’s resources, objectives, strategy, and implementation and control efforts to be used in marketing a specific product or product group

Elements of a marketing plan
•
Executive summary
•
Environmental analysis
•
Strengths and weaknesses
•
Opportunities and threats
•
Marketing objectives
•
Marketing strategies
•
Marketing implementation
•
Evaluation and control

Market Measurement and Sales Forecasting

Sales forecast
•
An estimate of the amount of a product that an organization expects to sell during a certain period of time based on a specified level of marketing effort

Importance of measuring sales potential
•
Evaluate feasibility of enter new segments
•
Decide how best to allocate marketing resources and activities

Estimates should do several things
•
Identify the relevant time frame covered by the forecast
•
Define the geographic boundaries of the forecast
•
Indicate for which products the forecasts are relevant
Marketing Information

Marketing information system
•
A system for managing marketing information that is gathered continually from internal and external sources

Internal data sources
•
Sales figures, product and marketing costs, inventory, sales force activities

External data sources
•
Suppliers, intermediaries, customers, competitors, economic conditions

Outputs
•
Sales reports, sales forecasts, buying trends, market share
 The six steps of marketing research
•
Define the problem
•
Make a preliminary investigation

•
Plan the research
•
Gather factual information
•
Interpret the information
•
Reach a conclusion

Using technology to gather and analyze marketing information
•
Databases such as LEXIS-NEXIS, Reader’s Digest
•
Online information services offer subscribers access to e-mail, websites, mailing lists
•
The internet to access useful Web pages such as Nielsen and Advertising Age
Types of Buying Behavior

The decisions and actions of people involved in buying and using products

Consumer buying behavior
•
The purchasing of products for personal or household use, not for business purposes

Business buying behavior
•
The purchasing of products by producers, resellers, governmental units, and institutions

Consumer income
•
Personal income

The income an individual receives from all sources less the Social Security taxes the individual must pay
•
Disposable income
 Personal income less all additional personal taxes
•
Discretionary income

Disposable income less savings and expenditures on food, clothing, and housing


Of particular interest to marketers due to choice of how to spend it

Why do nation trade? Because countries have different resources, they are not equally efficient at producing the goods and services that their residents demand.
Absolute Advantage The country maintain only source of particular product. The country can make more of product using same amount of or fewer resources than other countries.
Example:
If one unit of labor in Scotland can produce
80 units of wool or
20 units of wine
But one unit of labor in Spain makes
50 units of wool or
75 units of wine
Perform a PLEST Analysis
A PLEST analysis of the market you plan to enter will ensure that you appreciate all the political, legal, economic, socio-cultural, and technological factors that can affect your effort there.
Political factors
The political arena influences business regulation and the spending power of consumers and existing enterprises.
Legal factors
Statutes governing commerce vary by country, of course, so it’s essential to understand how they will affect your activities.
Economic factors
Consider the state of the economy you are planning to enter. You need to look at interest rates, inflation rates, employment levels, taxes and fees on foreign businesses, the cost of employee benefits, long-term economic prospects, and gross domestic product.
Socio-cultural factors
The social and cultural influences on business may be very different from those in your own country.
Technological factors
The use of technology may be vital to your competitive advantage.
Modes of Entry
The decision of how to enter a foreign market can have a significant impact on the results.

Exporting
Selling domestic products to foreign customers
Franchising
Company (franchisor) grants foreign company (franchisee) the right to use its brand name and to sell its product.
Licensing
Allow foreign company (licensee) to sell product of a producer/licensor or to use intellectual property (patents, trademark, copyright) in exchange for royalty fee.
Joint Venture alliance in which partners fund a separate entity (partnership or corporation) to manage their joint operation
Foreign Direct Investment
Formal establishment of business operations on foreign soil (such as building factory or sale office)
Trade Restrictions
A trade barrieris a general term that describes any government policy or regulation that restricts international trade.
Import quotas
Limit amount of particular products that countries can import during specified time period.
Tariffs
Tax imposed by importing country on goods that cross its borders (raise the price of foreign good and make them less competitive with domestic goods).
Subsidies
A payment by the government to producers or distributors in an industry to

prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor.
Embargo
Extreme form of quota which ban the import or export of certain goods to a country economic or political reasons.

 Channel of distribution (marketing channel)
•
A sequence of marketing organizations that directs a product from the producer to the ultimate user
 Middleman (marketing intermediary)
•
A marketing organization that links a producer and user within a marketing channel
-
Merchant middleman—takes title to products by buying them
-
Functional middleman—helps in the transfer of ownership of products but does not take title to the products
-
Retailer—buys from producers or other middlemen and sells to consumers
-
Wholesaler middleman—sells products to other firms
 Producer to consumer (direct channel)
•
No intermediaries
•
Used by all services and by a few consumer goods
•
Producers can control quality and price, do not have to pay for intermediaries, and can be close to their customers
•
Examples: Dell Computer, Mary Kay Cosmetics
 Producer to retailer to consumer
•
Producers sell directly to retailers when retailers (Walmart) can buy in large quantities
•
Most often used for bulky products for which additional handling would increase selling costs, and for perishable or high-fashion products that must reach consumers quickly

 Producer to wholesaler to retailer to consumer
•
The traditional channel
•
Used when a producer’s products are carried by so many retailers that the producer cannot deal with them all
 Producer to agent to wholesaler to retailer
to consumer
•
Agent—functional middlemen that do not take title to products and are compensated by commissions paid to the producers
•
Often used for inexpensive, frequently purchased items, for seasonal products, and by producers that do not have their own sales forces
 A manufacturer may use multiple channels
•
To reach different market segments
-
When the same product is sold to consumers and businesses
•
To increase sales or capture a larger market share
 Producer to business user

•
Usually used for heavy machinery, airplanes, major equipment
•
Allows the producer to provide expert and timely services to customers
 Producer to agent middleman to
business user
•
Usually used for operating supplies, accessory equipment, small tools, standardized parts

 Intensity of market coverage
•
Intensive distribution
-
The use of all available outlets for a product to saturate the market
•
Selective distribution
-
The use of only a portion of the available outlets for a product in each geographic area
•
Exclusive distribution
-
The use of only a single retail outlet for a product in a larger geographic area
 Supply-chain management
•
Long-term partnership among channel members working together to create a distribution system that reduces inefficiencies, costs, and redundancies while creating a competitive advantage and satisfying customers
•
Category management
-
The retailer asks a supplier how to stock the shelves

•
Technology
-
Has enhanced implementation of supply-chain management
 Vertical channel integration
•
The combining of two or more stages of a distribution channel under a single firm’s management
 Vertical marketing system (VMS)
•
A centrally managed distribution channel resulting from vertical channel integration
•
Administered
-
One channel member dominates the others
•
Contractual
-
Intermediary cooperation, rights, and obligations are formalized in contracts
•
Corporate
-
The entire channel is owned by the producer
 Justifications for marketing intermediaries
•
Intermediaries perform essential marketing services
•
Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers
•
Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers
 Justifications for marketing intermediaries
•
Intermediaries perform essential marketing services
•
Manufacturers would be burdened with additional record keeping and maintaining contact with numerous retailers
•
Costs for distribution would not decrease and could possibly increase due to the marketing inefficiencies of producers

 Buy in large quantities and then sell in smaller quantities
 Deliver goods
 Stock a variety of goods in one place
 Promote products to retailers
 Provide market information for both producers and retailers
 Provide financial aid in the form of inventory management, loans, delayed billing
 Provide instant sales forces to manufacturers
 Reduce manufacturers’ inventory costs by purchasing finished goods in sizable quantities
 Assume the credit risks associated with selling to retailers
 Furnish market information gleaned from the market and customers to the manufacturers
 Merchant wholesalers
 Middlemen that purchase goods in large quantities and then sell them to other wholesalers or retailers and to institutional, farm, government, professional, or industrial users
 Operate in one or more warehouses where they receive, take title to, and store goods
 These wholesalers are sometimes called distributors or jobbers
 Full-service wholesalers
 General merchandise wholesaler
 Limited-line wholesaler
 Specialty-line wholesaler

 Limited-service wholesalers
 Commission merchants, agents, and brokers
 Functional middlemen that do not take title to products
 Perform some marketing activities
 Paid a commission (percentage of sales price)
 Commission merchant
 Carries merchandise and negotiates sales for manufacturers
 Agent
 Expedites exchanges, represents a buyer or a seller, and is often hired permanently on a commission basis
 Broker
 Specializes in a particular commodity, represents a buyer or a seller, and is likely to be hired on a temporary basis
 Manufacturer’s sales branch
 Merchant wholesaler owned by a manufacturer
 Carries inventory, extends credit, delivers goods, helps in promoting products
 Customers are retailers, other wholesalers, and industrial purchasers
 Manufacturer’s sales office
 Sales agent owned by a manufacturer
 Sells goods manufactured by its own firm and also others that complement its own product line
 Retailers: The final link between producers and consumers
 Approx. 2.6 million retail firms in the U.S.
 90 percent have sales of less than $1 million


Independent retailer
•
A firm that operates only one retail outlet
 Chain retailer
•
A company that operates more than one retail outlet
 Department store
•
A retail store that
employs twenty-five or more persons
sells at least home furnishing, appliances, family apparel, and household linens and dry goods, each in a different part of the store
 Discount store
•
A self-service, general-merchandise outlet that sells products at lower-than-usual prices
 Catalog showroom
•
A retail outlet that displays well-known brands and sells them at discount prices through catalogs within the store
 Warehouse showroom
•
A retail facility in a large, low-cost building with large on-premises inventories and minimal service
 Convenience store

•
A small food store that sells a limited variety of products but remains open well beyond normal business hours
 Supermarket
•
A large self-service store that sells primarily food and household products
 Superstore
•
A large retail store that carries not only food and nonfood products ordinarily found in supermarkets but also additional product lines
 Warehouse club
•
A large-scale members-only establishment that combines features of cash-and-carry wholesaling with discount retailing
 Traditional specialty store
•
A store that carries a narrow product mix with deep product lines
 Off-price retailer
•
A store that buys manufacturers’ seconds, overruns, returns, and off-season merchandise for resale to consumers at deep discounts
 Category killer
•
A very large specialty store that concentrates on a single product line and competes on the basis of low prices and product availability
 A type of retailing whereby consumers purchase products without visiting a store
 Direct selling
•
The marketing of products to consumers through face-to-face sales presentations at home or in the workplace
 Direct marketing
•
The use of the telephone, Internet, and nonpersonal media to introduce products to customers, who can then purchase them via mail, telephone, or the Internet
 Catalog marketing
•
An organization provides a catalog from which customers make selections and place orders by mail, telephone, or the Internet
 Direct-response marketing

•
A seller advertises a product and makes it available, usually for a short time period, through mail, telephone, or online orders
 Telemarketing
•
The performance of marketing-related activities by telephone
 Television home shopping
•
Products are presented to television viewers, who can buy them by calling a toll-free number and paying by credit card
 Online retailing
•
Makes products available to buyers through computer connections
 Automatic vending
•
The use of machines to dispense products
 A self-contained retail facility constructed by independent owners and consisting of
various stores
•
Lifestyle shopping center
-
Has an open-air configuration and is occupied by upscale national chain specialty stores
•
Neighborhood shopping center
-
Consists of several small convenience and specialty stores
•
Community shopping center
-
Includes one or two department stores and some specialty stores, along with convenience stores
•
Regional shopping center
-
Contains large department stores, numerous specialty stores, restaurants, movie theaters, and sometimes hotels


Inventory management
•
The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs
-
Holding costs—the costs of storing products until they are purchased or shipped to customers
-
Stock-out costs—the costs of sales lost when items are not in inventory when needed
•
Technology and software help manage inventory
•
Efficiency is crucial for firms using just-in-time
(JIT) approach
 Order processing
•
Activities involved in receiving and filling customers’ purchase orders
 Warehousing
•
The set of activities involved in receiving and storing goods and preparing them for reshipment

-
Receiving goods
-
Identifying goods
-
Sorting goods
-
Dispatching goods to storage
-
Holding goods
-
Recalling, picking, and assembling goods
-
Dispatching shipments
•
Types of warehouses
-
Private warehouses—owned and operated by a firm
-
Public warehouses—offer their services to all firms
 Materials handling
•
The physical handling of goods, in warehouses as well as during transportation
 Transportation
•
The shipment of products to customers
•
Carrier—a firm that offers transportation services
-
Common carriers—services available for hire to all shippers
-
Contract carriers—available for hire by one or several shippers; not available to the general public
-
Private carriers—owned and operated by the shipper
•
Freight forwarders—agents who facilitate the transportation process for shippers by handling the details of the process
•
Railroads—in terms of total freight carried, these are America’s most important mode of transportation
 Transportation
•
Trucks

-
Tremendous expansion since creation of national highways
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Often favored by offering door-to-door service, less stringent packaging requirements than other services, flexible schedules
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Airplanes
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Fastest but most expensive
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Used to ship high-value or perishable goods
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Waterways
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Slowest but least expensive
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Used mainly for bulky, nonperishable goods
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Use limited to cities located on navigable waterways
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Pipelines
used primarily to carry petroleum and natural gas

Integrated Marketing Communications
 Coordination of promotion efforts to ensure maximal informational and persuasive impact
on customers
 Results in a consistent message to customers, long-term customer relationships, and the efficient use of promotional resources
− Mass media advertising has given way to targeted promotional tools (e.g., cable TV, direct mail, and the Internet)
− The overall cost of marketing communications has risen significantly, pressuring managers to make the most efficient use of marketing resources
 Promotion
− Commonly the object of two misconceptions
 Promotional activities make up the entire field of marketing
 Promotional activities are unnecessary and cause higher prices
 Role of promotion
− To facilitate exchanges directly or indirectly by informing individuals, groups, or organizations and influencing them to accept a firm’s products or to have more positive feelings about the firm
 Convey product and service information directly to target market segments
 Provide information to interest groups, regulatory agencies, investors, and the general public
− To maintain positive relationships between a company and various groups in the marketing environment
 A promotional activity’s effectiveness depends on the information available to marketers
 The particular combination of promotion methods a firm uses to reach a target market
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Advertising

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A paid non-personal message communicated to a select audience through a mass medium
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Personal selling
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Personal communication aimed at informing customers and persuading them to buy a firm’s products
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Sales promotion
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The use of activities or materials as direct inducements to customers or salespersons
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Public relations
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Communication activities used to create and maintain favorable relations between an organization and various public groups, both internal and external


Types of Advertising by Purpose
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Primary-demand advertising
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Used to increase demand for all brands of a product in a specific industry

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Institutional advertising
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Designed to enhance a firm’s image or build its reputation
 Types of Advertising by Purpose
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Selective-demand (brand) advertising
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Used to sell a particular brand of product
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Most common type of advertising
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Immediate-response advertising
 To persuade customers to buy the product within a short time
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Reminder advertising
 To keep the firm’s name fresh in the public’s mind
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Comparative advertising
 Compares specific characteristics of two or more brands to show the advertiser’s brand is better
 The forms of communication through
which advertising reaches its audience
 Newspapers
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Relatively inexpensive and timely; short life span
 Magazines
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Reach a specific market segment; more prestigious than newspapers; high cost; lack of timeliness
 Direct mail
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Most selective; effectiveness can be measured; email
 Yellow pages advertising
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Print and online; local; purchased for one year
 Out-of-home advertising
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Short promotional messages on billboards, posters, signs, and transportation vehicles; focuses on geographic area; fairly inexpensive

 Television
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The primary medium for larger firms trying to reach national or regional markets
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Network time; local time; sponsoring a show; spot time; product placement; infomercials

Radio
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Offers selectivity; most accessible medium; can be less expensive than other media
 Internet
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Increasingly popular
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Banner and button ads; sponsorship ads; keyword ads; interstitials
 Social media
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Increasingly popular, more personal connection
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Only reaches person at the computer
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So new, uncertainty of best way to use it
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Large time commitment to monitor activity
Major steps in developing an Advertising Campaign

1.
Identify and analyze the target audience
2.
Define the advertising objectives
3.
Create the advertising platform
4.
Determine the advertising appropriation
5.
Develop the media plan
6.
Create the advertising message
7.
Execute the campaign
8.
Evaluate advertising effectiveness
Advertising Agencies
 Independent firms that plan, produce, and place advertising for their clients
 Large agencies also help with sales promotion and public relations
 Media usually pay a commission to agencies

 Firms may use both in-house advertising departments and an independent agency
Personal Selling
 The most adaptable promotion method
 The most expensive promotion method
 Kinds of salespersons
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Order getter
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Responsible for creative selling: selling a firm’s products to new customers and increasing sales to current customers
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Order taker
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Handles repeat sales in ways that maintain positive relationships with customers
 Kinds of salespersons (cont’d)
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Sales support personnel
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Employees who aid in selling but are more involved in locating prospects, educating customers, building goodwill for the firm, and providing followup service
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Missionary salespersons
 Visit retailers to persuade them to buy the manufacturer’s products
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Trade salespersons
 Assist customers in promoting products, especially in retail stores
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Technical salespersons
 Assist current customers in technical matters

Managing Personal Selling
 Setting sales objectives
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Concrete, quantifiable terms
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Specified time period
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Specified geographic area
 Adjusting the size of the sales force to meet changes in the firm’s marketing plan and the marketing environment
 Attracting and hiring effective salespersons
 Training salespersons
 Compensating salespersons
 Motivating salespersons

Sales Promotion
 Activities or materials that are direct inducements to customers or salespersons
 Sales Promotion objectives
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To attract new customers
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To encourage trial of a new product
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To invigorate the sales of a mature brand
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To boost sales to current customers
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To reinforce advertising
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To increase traffic in retail stores
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To steady irregular sales patterns
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To build up reseller inventories
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To neutralize competitive promotional efforts
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To improve shelf space and displays
 Consumer sales promotion method
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Designed to attract consumers to particular retail stores and to motivate them to purchase certain new or established products
 Trade sales promotion method
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Designed to encourage wholesalers and retailers to stock and actively promote a manufacturer’s product
 Factors influencing the choice of sales promotion method
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Objectives of the sales promotional effort
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Product characteristics
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Target market profile
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Distribution channels
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Availability of resellers

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Competitive and regulatory forces in the environment
 Rebate
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A return of part of the purchase price of a product
 Coupon
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Reduces the retail price of a particular item by a stated amount at the time of purchase
 Sample
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A free product given to customers to encourage trial and purchase
 Premium
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A gift a producer offers to a customer in return for buying its product
 Frequent-user incentives
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A program that rewards customers who engage in repeat (frequent) purchases
 Point-of-purchase displays
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Promotional material in the retail store designed to inform customers and encourage purchases
 Trade shows
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Industry-wide exhibits at which many sellers display their products
 Buying allowance
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A temporary price reduction to resellers for purchasing specified quantities of a product
 Cooperative advertising
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A manufacturer agrees to pay a certain amount of the retailer’s media cost for advertising the manufacturer’s product
Public Relations
 A broad set of communication activities used to create and maintain favorable relationships between an organization and various public groups, both internal and external

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Customers, employees, stockholders, suppliers, educators, the media, government officials, society in general
 Types of public relations tools
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Written and spoken communications
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Brochures, newsletters, company magazines, annual reports, news releases, corporate-identity materials, speeches
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Event sponsorship
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Special events such as concerts and charity functions that the firm underwrites wholly or partially
 Publicity
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Communication in news-story form about an organization, its products, or both
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News release
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Feature article
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Captioned photograph
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Press conference

To promote people, places, activities, ideas

 To enhance the reputation of the organization by increasing awareness of company products and activities
 To create specific positive company images
 Promotional campaign
 A plan for combining and using the four promotional methods—advertising, personal selling, sales promotion, and public relations—in a particular promotion mix to achieve one or more marketing goals
 What will be the role of promotion in the overall marketing mix?
 To what extent will each promotional method be used in the promotion mix?
 Providing product information to target markets
 Increasing market share by convincing new customers to purchase
 Positioning the product relative to the images customers have of competing products
 Stabilizing sales by increasing sales during slack periods or for products that are declining
 Marketers may use several promotion mixes at the same time for different products
 The promotion mix ingredients depend on
 Organizational resources and objectives
 Target market characteristics
 Product characteristics
 The cost and availability of promotional methods