International Business
by
Daniels and Radebaugh
Chapter 16
Marketing
© 2001 Prentice Hall
16-1
Objectives
To introduce techniques for assessing market sizes for given countries
To describe a range of product policies and the circumstances in which
they are appropriate
To contrast practices of standardized versus differentiated marketing
programs for each country in which sales are made
To emphasize how environmental differences complicate the
management of marketing worldwide
To discuss the major international considerations within the marketing
mix: product, pricing, promotion, branding, and distribution
© 2001 Prentice Hall
16-2
Introduction
Domestic and international marketing principles are similar
• Environmental differences often cause managers to apply these
principles differently abroad
– managers may interpret foreign information incorrectly
Market Size Analysis
Total market potential—estimate of the possible sales of a product for all
companies, and the estimate of your own company’s market-share
potential
Present income and population are the major indicators for potential
sales of most products
 As incomes change, product demand may change
 Other factors affect demand
– managers cannot project potential demand perfectly
© 2001 Prentice Hall
16-3
Marketing in International Business
OPERATIONS
EXTERNAL INFLUENCES
OBJECTIVES
PHYSICAL AND
SOCIETAL FACTORS
STRATEGY
MEANS
COMPETITIVE
ENVIRONMENT
Modes
© 2001 Prentice Hall
Overlaying
Alternatives
Functions
• MARKETING
• Exporting and importing
• Global manufacturing
• Supply chain
management
• Accounting
• Finance
• Human resources
16-4
Per Capita Televisions and Per Capita Income at PPP
25,000
Germany
Per Capita Income at PPP
20,000
Ireland
15,000
Portugal
Argentina
10,000
South Africa
5,000
Guinea
0
0.0
Ecuador
Philippin
Indonesia es
Lao
Congo
s
0.1
0.2
0.3
0.4
0.5
0.6
Per Capita Televisions
© 2001 Prentice Hall
16-5
Gap Analysis
Method for estimating a company’s potential sales by identifying market
segments it is not serving adequately
• Sales potential exists when sales are lower than the estimated
market potential
• Usage gap—less product sold by all competitors than potential
– growth potential for all competitors
• Distribution gap—sales lost to competitors who distribute where
the company does not
– company misses geographic or intensity coverage
• Product line gap—sales lost to competitors who have product
variations the company does not
• Competitive gap—remaining unexplained sales lost to
competitors who may have a better image or lower prices
© 2001 Prentice Hall
16-6
Gap Analysis
Usage gap
Competitive
gap
Potential sales for all
competitors
A Actual sales for all
competitors
Product line
gap
Sales lost to competitors
Distribution
gap
Company’s
current sales
B
© 2001 Prentice Hall
16-7
Product Policy
Product orientation—companies focus on production with little emphasis
on marketing
• Assumes that customers want lower prices or higher quality
• Price most important factor in selling many commodities
– marketing boosts sales of some commodities
• Passive sales occur when:
– advertising spills over
– foreign buyers seek unaltered domestic product
Sales orientation—company tries to sell same product in domestic and
international markets
• Assumes that customers are similar globally
• Takes active marketing approach
• Effective when consumers are similar and product information
spillover exists
© 2001 Prentice Hall
16-8
Product Policy (cont.)
Customer orientation—company wants to penetrate markets in a given
country
• Geographic area taken as a given
• Extremes of approach
– develop products tailored for foreign market
– responds to requests from purchasing agents
Strategic marketing orientation—combines production, sales, and
customer orientation
• Companies vary products abroad without deviating very far from
their experience
• Can retain some economies of standardization
• Product designed for global market segment
Societal marketing orientation—considers potential environmental,
health, social, and work-related problems that may arise
• Concerned about product disposal and changes that increase
social desirability of product
© 2001 Prentice Hall
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Reasons for Product Alteration
Legal reasons—meant to protect customers
• Related to health and safety
• Laws on packaging to protect the environment
• International product standards an issue
– both consumer and economic resistance to standardization
Cultural reasons—difficult to predict foreign consumers’ reaction to a
product
• Examination of cultural differences may pinpoint possible problem
areas
Economic reasons—personal incomes and infrastructures affect product
demand
• Foreign consumers must have sufficient income
– purchase of items in small quantities may necessitate new
types of packaging
• Poorer infrastructures require more durable products ability to
deal with utility outages
© 2001 Prentice Hall
16-10
Alteration Costs
Some product alterations are inexpensive, but have important influence
on product demand
• Must compare alteration costs with the cost of lost sales from no
alterations
• Compromise strategy between uniformity and diversity
– rely on standardization while altering some end
characteristics
Extent and Mix of the Product Line
Narrowing the product line for foreign markets
• Offer only a few products, perhaps as entry strategy
• Based on considerations of sales and costs associated with
selling one product as opposed to family of products
• Broadening the product line may gain distribution economies
© 2001 Prentice Hall
16-11
Product Life Cycle Considerations
Countries differ in either the shape or length of a product’s life cycle
• Product facing declining sales in one country may have growing
or sustained sales in another
Pricing
Companies place importance on price, which must:
• Be low enough to gain sales
• Be high enough to guarantee flow of funds
• Assure short-term profits and long-term viability
Governmental intervention—every country has laws that affect prices
• May set either minimum or maximum prices
– price controls may prompt companies to lower product quality
• WTO—countries may restrict imports that come in at prices below
those charged in the exporting country
© 2001 Prentice Hall
16-12
Pricing (cont.)
Greater market diversity
• Variations among countries create natural market segments
• Substantial competition in some countries limits discretion in
setting prices
– near-monopoly markets permit greater discretion
• Country-of-origin stereotypes limit pricing
• Diversity in buying on credit affects sales
Price escalation in exporting
• Price usually goes up by more than transport and duty costs
• Price escalation in export sales occurs because:
– distribution channels are longer
– tariffs are passed on to consumers
© 2001 Prentice Hall
16-13
Price Escalation in Exporting If Companies
Use Cost-Plus Pricing
Transport
Cost
= $.25
Importer’s Cost =
$1.90 and
Markup = $.95
Cost of Production = $1.00
and Markup = $.50
Tariff = $.15
© 2001 Prentice Hall
16-14
Pricing (cont.)
Currency value and price changes
• Pricing in volatile currencies can be troublesome
• Pricing decisions must consider
– replacement costs
– effects of inflation on:
» exchange rates of currencies
» readjustment of prices to reflect cost increases
– basis for taxation of profits
• Spillover in buying occurs if similar goods are priced differently in
different countries
– gray market—handling of goods through unofficial
distributors
» ruins relations with official distributor
» causes competition among company’s plants
» complicates spotting counterfeit goods
© 2001 Prentice Hall
16-15
Effect of Taxing and Inflation on Pricing
Assume: Cost at beginning is 1,000
36% inflation
40% tax rate
30% profit goal on replacement
cost after taxes
IF SOLD AND COLLECTED
AS SOON AS INVENTORY IS ACQUIRED
Cost
1,000
Markup
500
Sales price
1,500
- Cost
1,000
Taxable income
500
Tax @ 40%
200
Income after taxes
300
IF SOLD AND COLLECTED A YEAR
AFTER INVENTORY IS ACQUIRED
Replacement cost
1,360
Markup on replacement
320
Sales price
1,680
- Original cost
1,000
Taxable income
680
Tax @ 40%
272
Income after taxes
408
© 2001 Prentice Hall
16-16
Pricing (cont.)
Fixed versus variable pricing—there are country-to-country differences
in:
• Whether manufacturers set prices
• Whether prices are fixed or bargained in stores
• Where bargaining occurs
• How sale prices can be used
Retailers’ strength with suppliers
• Dominant retailers with clout can get suppliers to offer them lower
prices
© 2001 Prentice Hall
16-17
Promotion
Presentation of messages intended to help sell a product or service
Push-pull mix
• Push—uses direct selling techniques
– used when
» distribution system is tightly controlled
» indirect tax on advertising is high
• Pull—relies on mass media
– used when:
» contact limited between salespeople and customers
» product price is high in relation to consumer income
© 2001 Prentice Hall
16-18
Promotion (cont.)
Standardization of advertising programs
• Standardized advertising means similar, not identical, messages
in different markets
• Advantages of standardized advertising include:
– some cost savings
– better quality of advertising at local level
– rapid entry into different countries
• Usually implies using a global advertising agency
• Translation—usually required when sales intended in a country
with a different language
– difficult to translate some messages
• Legality—countries have different laws
– consumer protection
– advertising some products may be forbidden
• Message needs—economic and cultural factors suggest different
advertising appeals
© 2001 Prentice Hall
16-19
Branding
Brand—an identifying mark for products or services
• Trademark—a legally registered brand
• Provides instant recognition, thereby saving promotional costs
• Language factors—brand names may carry a different
association in another language
– pronunciation presents other problems
– different alphabets present other problems
• Brand acquisitions—frequent method of international expansion
• Country-of-origin images—images of products are affected by
where they are made
• Generic and near-generic names
– if a brand name is used for a class of product, the company
may lose the trademark
» name becomes generic -- available for anyone to use
© 2001 Prentice Hall
16-20
Distribution
The course—physical path or legal title—that goods take between
production and consumption
• Must decide on method of distribution among and within countries
• Company may enter a market gradually by limiting geographic
coverage
Difficulty of standardization—distribution a difficult function to
standardize internationally
• Numerous factors influence how goods will be distributed in a
given country
– distribution norms differ
Choosing distributors and channels
• Internal handling—more likely when:
– volume is high
– product requires direct dealing with customer
– the customer is global
– distribution can be a competitive advantage
© 2001 Prentice Hall
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Distribution (cont.)
Choosing distributors and channels (cont.)
• Distributor qualifications—include:
– financial capability
– connections with customers
– fit with a company’s product
– status of personnel, facilities, and equipment
• Spare parts and repair—important for sales, especially for
expensive products
• Gaining distribution—distributors choose companies and products
to represent
– choose products with greatest profit potential
– companies—may need to provide incentives
» may use successful products as bait for new products
» must convince distributors that product and company are
viable
© 2001 Prentice Hall
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Distribution (cont.)
Hidden costs in foreign distribution
• Infrastructure conditions—roads, warehousing
• Number of levels in the distribution system
– multitiered wholesalers that sell to each other before product
reaches the retailer
• Retail inefficiencies—trust levels of owners
– preference for counter service vis-à-vis self-service
• Operating-hours restrictions
– limit efficiencies of large retailers
Internet and electronic commerce
• Opportunity to promote products worldwide
• Hard to differentiate marketing program
• Must deliver goods expeditiously
• Advertising must comply with laws of each country
© 2001 Prentice Hall
16-23
Growth of the Global On-Line Population
300
Total
250
Rest of World
200
150
United States
100
Europe
50
0
1995
1997
1999
2001*
2003*
2005*
* Estimate
© 2001 Prentice Hall
16-24