• Contracts for the supply and delivery of goods and services
• The registration and enforcement of trademarks, brand names, and labeling
• Patents
• Marketing communications
• Pricing
• Product safety, acceptability, and environmenial issues
THE INTERNATIONAL MARKETING ENVIRONMENT 1 43
Political Stability
Business activity tends to grow and thrive when a nation is politically stable. When a nation is politically unstable, multinational firms can still conduct business profitably. Their strategies will be affected however. Most firms probably prefer to engage in the export business rather than invest considerable sums of money in investments in foreign subsidiaries. Inventories will be low and curre.lcy will be converted rapidly. The result is that consumers in the foreign nation pay high prices, get less satisfactory products, and have fewer jobs.
Monetary Circumstances
The exchange rate of a particular nation's currency represents the value of that currency in relation to that of another country. Governments set some exchange rates independently of the forces of supply and demand. The forces of supply and demand set others. If a country's exchange rate is low compared to other countries, that country's consumers must pay higher prices on imported goods. While the concept of exchange rates appears relatively simple, these rates fluctuate widely and often, thus creating high risks for exporters and importers.
Trading Blocs and Agreements
U.S. companies make one-third of their revenues from products marketed abroad, in places such as Asia and Latin America. The North American Free Trade Agreement (NAFfA) further boosts export sales by enabling companies to sell goods at lower prices because of reduced tariffs.
Regional trading blocs represent a group of nations that join together and formally agree to reduce trade barriers among themselves. NAFTA is such a bloc. Its members include the U.S., Canada, and Mexico. No tariffs exist on goods sold between member nations of NAFTA. However, a uniform tariff is assessed on products from countries not affiliated with NAFTA. In addition, NAFTA seeks common standards for labeling requirements, food additives, and package sizes.
One of the potentially interesting results of trade agreements like NAFTA is that many products previously restricted by dumping laws, laws designed to keep out foreign products, would be allowed to be marketed. The practice of dumping involves a company selling products in overseas markets at very low prices, one intention being to steal business from local competitors. These laws were designed to prevent pricing practices that could seriously harm local competition. The laws were designed to prevent large producers from flooding markets with very low priced products, gain a monopoly, and then raise orices to very high levels. In 1993, about 40 nations, counting the European Community as one, had anti-dumping legislation. Those in favor of agreements argue that antidumping laws penalize those companies who are capable of competing in favor of those companies that are not competitive.
Almost all the countries in the Western Hemisphere have entered into one or more regional trade agreements. Such agreements are designed to facilitate trade through the establishment of a free trade area customs union or customs market. Free trade areas and customs unions eliminate trade barriers between member countries while maintaining trade barriers with nonmember countries. Customs Unions maintain common tariffs and rates for nonmember countries. A common market provides for harmonious fiscal and monetary policies while free trade areas and customs unions do not. Trade agreements are becoming a growing force for trade liberalization; the development of such agreements provides for tremendous opportunities for U.S. companies doing business in Latin America and North America.
1 44 CHAPTER 6 MARKETING IN GLOBAL MARKETS
The creation of the single European market in 1992 was expected to change the way marketing is done worldwide. It meant the birth of a market that was larger than the United States, and the introduction of European Currency Units (Euros) in place of the individual currencies of member nations. Experience in multilingual marketing would help non-European companies succeed in this gigantic market. With new technologies such as multilingual processing programs, it would be possible to target potential customers anywhere in Europe, in any language, and in the same marketing campaign.
Progress toward European unification has been slow-many doubt that complete unification will ever be achieved. However, on January 1, 1999, 11 of the 15 member nations took a significant step toward unification by adopting the Euro as the common currency. These 11 nations represent 290 million people and a $6.5 trillion market. Still, with 14 different languages and distinctive national customs, it is unlikely that the EU will ever become the "United States of Europe."
Tariffs
Most nations encourage free trade by inviting firms to invest and to conduct business there, while encouraging domestic firms to engage in overseas business. These nations do not usually try to strictly regulate imports or discriminate against foreign-based firms. There are, however, some governments that openly oppose free trade. For example, many Communis Lnations desire self-sufficiency. Therefore, they restrict trade with non-Communist nations. But these restrictions vary with East-West relations.
The most common form of restriction of trade is the tariff, a tax placed on imported goods. Protective tariffs are established in order to protect domestic manufacturers against competitors by raising the prices of imported goods. Not surprisingly, U.S. companies with a strong business tradition in a foreign country may support tariffs to discourage entry by other U.S. competkorG.
Expropriation
All multinational firms face the risk of expropriation. That is, the foreign government takes ownership of plants, sometimes without compensating the owners. However, in many expropriations there has been payment, and it is often equitable. Many of these facilities end up as private rather than government organizations. Because of the risk of expropriation, multinational firms are at the mercy of foreign governments, which are sometimes unstable, and which can change the laws they enforce at any point in time to meet their needs.
TheTechnological Environment
The level of technological development of a nation affects the attractiveness of doing business there, as well as the type of operations that are possible. Marketers in developed nations cannot take many technological advances for granted. They may not be available in lesser-developed nations. Consider some of the following technologically related problems that firms may encounter in doing business overseas:
• Foreign workers must be trained to operate unfamiliar equipment.
• Poor transportation systems increase production and physical distribution costs.
• Maintenance standards vary from one nation to the next.
• Poor communication facilities hinder advertising through the mass media.
• Lack of data processing facilities makes the tasks of planning, implementing, and controlling marketing strategy more difficult.
THE INTERNATIONAL MARKETING ENVIRONMENT 145
The Economic Environment
A nation's economic situation represents its current and potential capacity to produce goods and services. The key to understanding market opportunities lies in the evaluation of the stage of a nation's economic growth.
A way of classifying the economic growth of countries is to divide them into three groups: (1) industnalized, (2) developing, and (3) less-developed nations. The industrialized nations are generally considered to be the United States, Japan, Canada, Russia, Australia and most of Western Europe The economies of these nations are characterized by private enterprise and aconr.umer orientation. They have high literacy, modem technology, and higher per capita i;lcomes,
Developing nations are those that are making the transition from economies based on agricultural and raw materials production to industrial economies, Many Latin American nations fit into this category, and they exhibit rising levels of education, technology, and per capita incomes,
Finally, there are many less developed nations in today's world. These nations have low standards of living, literacy rates are low, and technology is very limited.
Usually, the most significant marketing opportunities exist among the industrialized nations, as they have high levels of income, one of the necessary ingredients for the formation of markets. However, most industrialized nations also have stable population bases, and market saturation for many products already exists. The developing nations, on the other hand, have growing population bases, and although they currently import limited goods and services, the long-run potential for growth in these nations exists. Dependent societies seek products that satisfy basic needs-food, clothing, housing, medical care, and education. Marketers in such nations must be educators, emphasizing information in their market programs, As the degree of economic development increases, so does the sophistication of the marketing effort focused on the countries,
The Competitive Environment
Entering an international market is similar to doing so in a domestic market, in that a firm seeks to gain a differential advantage by investing resources in that market. Often local firms will adopt imitation strategies, sometimes successfully. When they are successful, their own nation's economy receives a good boost. When they are not successful, the multinational firm often buys them out.
Japanese marketers have developed an approach to managing product costs that has given them a competitive advantage over U.S. competitors. A typical American company will design a new product, then calculate the cost. I f the estimated cost is too high, the product will be taken back to the drawing board. In Japan, a company typically starts with a target cost based on the price that it estimates the market is most willing to accept. Product designers and engineers are then directed to meet the cost target. This approach also encourages managers to worry less about product costs and more about the role it should play in gaining market share, Briefly, at Japanese companies like NEC, Nissan, Sharp, and Toyota, a team charged with bringing a product idea to market estimates the price at which the product is most likely to appeal to the market. From this first impOltantjudgement, all else follows. After deducting the required profit margin from the selJing price, planners develop estimates of each element that make up the product's cost: engineering, manufacturing, sales, and marketing. U.S. firms tend to build products, figure how much it costs to build the product, and then ask whether the product can be sold at a profitable price. U.S. companies tend not to assess what the market will be willing to pay.
1 46 CHAPTER 6 MARKETING IN GLOBAL MARKETS
Marketing Objectives
Having identified stakeholder expectations, carried out a detailed situation analysis, and made an evaluation of the capabilities of the company, the overall marketing goals can be set. It is important to stress that there is a neeo for realism in this, as only too frequently corporate plans are determined more by the desire for short-term credibility with shareholders than with the likelihood that they will be achieved.
The process adopted for determining long-term and short-term objectives is important and varies significantly, depending on the size of the business, the nature of the market and the abilities and motivation of managers in different markets. At an operational level, ihe national managers need to have an achievable and detailed plan for each country, which will take account of the local situation, explain what is expected of them and how their performance will be measured. Examples of objectives might be:
s Financial performance, including return on investment and profitability
• Market penetration, including sales (by volume and value), market share by product category
• Customer growth, by volume and profitability
• Distribution, including strength in supply chain, number of outlets
• Brand awareness and value
• New product introductions and diffusion
• Company image, including quality and added value (or service)
THE WALL STREET JOURNAL.
IN PRACTICE
International markets offer organizations market expansion and profit opportunities. However, entering international markets poses risks and valid reasons to avoid entering these markets exist. International marketing plans must identify the benefits and risks involved with international expansion, and detail the options for entry into the foreign market.
Deciding whether or not to adjust its domestic marketing program is a critical issue for any organization planning to expand internationally. Organizations must understand the various environmental factors affecting international marketing to determine whether a standardized or customized marketing mix will be the best strategy.
The Interactive Journal provides extensive information about world business. On the Front Section, select World-Wide from the main page.
World-Wide focuses on international news and events. You'll find information about trade agreements, international governing organizations, and regional conflicts in this section. Under the Asia, Europe, and The Americas headings, you'll find information specific to these regions. General news stories, financial markets activity, and technology issues are all discussed as they pertain to the specific region. For country specific information, page down to Country News in any of the regional sections. Using the drop down menu, you'll find links to recent news and business articles.
In the Economy section, you'll find an International Calendar of Economic Events. On the Front Section, select Economy from the left menu. In this section you'll also find articles about noteworthy economic developments in various countries.
Travel news is found in the Business Fare section of Marketplace. Here you'll find a Currency Converter as well as travel related business articles.
DELIVERABLE
Select one major headline in the Asia, Europe, and The Americas sections. Use the Country News menu to select the specific countries discussed and to look for additional information about the articles you've chosen. Review the articles and write a one-paragraph synopsis of each.
DISCUSSION QUESTIONS
1. How can an organization determine its best option for entering an international market?
2. What impact do international trade agreements such as NAFTA and international governing organizations such as the World Trade Organization have on decisions to expand internationally?
3. Other than the Interactive Journal, what other sources provide relevant information to organizations facing international marketing decisions?
4. What changes do you anticipate in international marketing? What countries will influence international trade?
1 48 CHAPTER 6 MARKETING IN GLOBAL MARKETS
SUMMARY
Most American firms have discovered that many oppOitunities exist in international marketing, as evidenced by the vast amount of goods exported by U.S.-based firms. There are many reasons why U.S. firms choose to engage in international marketing. Perhaps the most attractive reasons are the market expansion and profit opportunities afforded by foreign markets.
Basic principles of domestic marketing apply to intelllational marketing. However, there are some differences, many of which are centered on environmental factors which affect international marketing: (1) the economic environment, (2) the competitive environment, (3) the cultural environment, (4) the political/legal environment, and (5) technological environment and the ethical environment.
Once a firm has decided to enter a particular foreign market, it must decide upon the best way to enter that market. A firm has five basic foreign market entry options, the selection of which depends largely on the degree of control that the firms wishes to maintain over its marketing program.
When a firm chooses to market its products internationally, it must decide whether to adjust its domestic marketing program. Some firms choose to customize their market programs, adjusting their marketing mix to meet the needs of each target market. Others use a standat'dized marKeting mix. in making the decision to customize or standardize, there is a wide range of possibilities for adapting a finn's product, price, promotion, and distribution strategies.
MARKETER'S VOCABULARY
International marketing The marketing of a company's products and/or services outside of that company's home nation.
Multinational marketing Firms thai are involved in marketing as well as production, research, human resource management and the employment of a foreign work force.
Dumping A practice in which a firm attempts to sell discontinued products, seconds, or repaired products in overseas markets at below domestic prices.
Exchange rate The value of one nation's cUlTency in relation to that of another country.
Tariff A tax placed on imported goods.
Expropriation The act of a government taking ownership of a firm's plants.
Indirect exporting Occurs when all of a finn's foreign sales are made through the firm's domestic sales department.
Semidirect exporting Occurs when a firm sells products in foreign markets through agents, merchant middlemen, or other manufacturers.
Combination export manager A domestic agent intermediary that acts as an exporting department for several noncompeting firms.
Manufacturers export agent Similar to manufacturer's agents in domestic product setting.
Webb-Pomerene Export Association Two or more finTIs that compete domestically, but work together in exporting their products.
Piggyback exporting A situation in which one manufacturer that has export facilities and overseas channels of distribution will handle the exporting of another firm's noncompeting but complementary products.
Direct exporting Occurs when a firm establishes an export department to sell directly to a foreign flnn.
Licensing An agreement in which a firm (licensor) provides some technology to a foreign firm (licensee) by granting the firm the right to use the licensor's manufacturing process, brand name, or sales knowledge in return for some payment.
Joint venture A partnership between a domestic firm and a foreign firm.
Straight extension The introduction of the same product and the same message in every foreign
market.
Communication adaptation A strategy used in foreign markets when the same product can be used to satisfy different needs, or if a product is used in a different way in foreign market
Product adaptation A product is changed to meet individual foreign target market needs.
DISCUSSION QUESTIONS
1. What are the reasons a firm might engage in exporting?
2. How does the economic environment affect international marketing activities?
3. How does the cultural environment affect international marketing activities?
4. How does the technological environment affect international marketing activities?
5. Briefly describe the major strategies a firm might use to enter a foreign market.
6. Why are prices often lower in foreign markets than in domestic markets?
7. What are the differences between straight extension, communication adaptation, product adaptation, dual adaptation, and product invention strategies?
8. What are the reasons why a firm might enter a foreign market by means of a joint venture strategy?
9. Briefly desclibe the methods of distribution used by direct exporters.
10. Why does direct investment in foreign markets afford marketers the greatest degree of control over international marketing activities?
PROJECT
Identify a U.S.-made product that is currently sold in the U.S. Develop a marketing plan for this product, assuming they plan to export to Canada.
CASE APPLICATION
UNILEVER'S GLOBAL BRAND
Unilever division Unipath is to begin the global rollout of a contraceptive product that has been 15 years in secret development and that the company is hailing as a major brand launch.
"The biggest thing to happen to contraception since the '60s," as the U.K. print and poster ads through Ogilvy & Mather Worldwide, London, describes it. Persona is the fruit of tens of millions of dollars investment.
150 CHAPTER 6 MARKETING IN GLOBAL MARKETS
REFERENCES
"This is going to be a big Unilever brand," said Senior Brand Development Manager Susannah Day at its U.K. launch, backed by a $7.8 million marketing campaign that also includes an Internet site, a free phone "careline," retailer training, point of purchase displays, and direct mailings to the medical profession. O&M, a Unilever roster agency, was appointed in 1995 to create ads that would work internationally.
First evidence that all this was not mere launch puffery came at Unilever's results meeting, when Co-Chairman Niall FitzGerald revealed sparkling sales and awareness statistics and details of the product's march just into Italy and -reland and then into the Netherlands, Scandinavia, and Germany.
In the first few weeks of the U.K. launch, Persona was the biggest selling item by value in the 1,247 stores nationwide of Boots-the retailer through which the brand was exclusively launched-and it achieved 55% consumer awareness within a month. In prelaunch research among hundreds of women in the U. K. and Germany, 30% said they were likely to buy the product.
"We expect Persona to be a mainstream form of contraception in most markets in Europe and the U.S.," notes Ms. Day. Plans are to take the brand into 20 countries by 2000, including Australia and ultimately, it is expected to go on sale worldwide. This occurred in July of 2000.
Persona works by measuring a woman's hormone levels via home urine lests and revealing the days in a month when she is least at risk of becoming pregnant. An electronic monitor records the days in a woman's cycle. On the mornings when a test is required, a yellow light flashes, asking for a stick carrying a urine sample to be inserted into the monitor. After the hormone level is measured, either z red light denoting high risk or a green light denoting low appears. Reliability is claimed to be 95%-the same as condoms.
Source: Suzanne Bedlake, "Birth of a Global Brand," Ad Age International, March 1997, p. 126; Rainer Hengst, "Plotting Your Global Strategy." Direct Marketing, August 2000, pp. 52-55; Eileen P. Moran, "Include Overseas Markets the Right Way." Marketing News. April 24, 2000, pp. 47-48.
Questions:
1. What will be some of the problems Persona faces as it enters markets outside of Europe?
2. The initial monitoring machine costs $78, plus $16 a month for the sticks. Will these costs present problems?
1. Isobel Doole, Robin Lowe, and Chris Philips, International Marketing 7. Barker and Kaynak, op. cit.
Strategy, International Thompson Business Press: London, 1999, pp. 8. Eileen Cassidy Imbach, "U.S. Commercial Centers: The Future of
14-15. Doing Business Abroad," Business America, November, 1994,
2. Theodore Levitt. "The Globalization of Markets,'* Harvard Business pp.25-26.
Review. May-June 1983, pp. 92-]02. 9. Michael Selz, "More Small Firms Are Turning to Trade Intermedi-
3. Philip Kotler, "Global Standardization-Courting Danger," Journal aries," The Wall Street Journal, February 2, 1995, p. B2.
of Consumer Marketing, Vol. 3, No.2, Spring, ]986, pp. 13- 20. 10. Julia Flunn and Richard A. Melcher, "Heineken's Battle to Stay Top
4. S. Barker and E. Kaynak, "An Empirical Investigation of the Dif Bottle," 8usiness Week, August 1, 1998, pp. 60-62.
ferences Between Initiating and Continuing Exporters," European 1]. Warren J. Keegan, "A Conceptual Framework for Multinational Mar-
Journal of Marketers, Vol. 26, No.3, J992. keting," Columbia JounUll ofWorldBusiness, Vol. 7, November 1973,
5. Ibid. p.67.
6. Anne Chen and Malt Hicks, "Going Global? Avoid Culture 12. TT Nagle, The Strategies and Tactics ofPricing, Prentice-Han, Inc.
Clashes," PC Week, April 3, 2000, pp. 68-69. Englewood Cliffs, N.J., ]999.
CHAPTER
7
INTRODUCING AND MANAGING
THE PRODUCT
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
Look at the meaning of the term "product" from three different perspectives: the manufacturer, the consumer, and the public.
Understand the three levels inherent in all products. Learn the classification systems that are used to identify products, and suggest appropriate marketing strategies. Clarify the difference between goods products and service products.
Study some of the processes involved in product pianning and strategy formulation: determination of product objectives and identification and resolution of factors that have an impact on the product.
Understand the eight steps that make-up the new product development system.
JAPANESE CARS ON THE DECLINE
J apan's auto dealers have tried just about everything to revive sales. One Toyota Motor Corp. dealership in Tokyo throws monthly festivals in its parking lot and offers discounts of as much as $2,500 on new models. But potential customers such as Kai Matsuda, a smartly dressed 28 year old, isn't buying. Sure, after spending a recent Sunday touring Toyota's swank four-story Amlux showroom in Tokyo, Matsuda came away impressed. The building housed everything from rugged recreational vehicles to sleek luxury sedans such as the $37,000 Aristo. Matsuda would love to buy a new car, "if 1 had the money." But, with Japan's economy on the skids, he doesn't.
For Japanese carmakers preparing to roll out their new fleets at the Tokyo Motor Show, consumers such as Matsuda illustrate why 2000 was such a tough year. Despite a flurry of new launches, the recent increase in Japan's consumption tax from 3% to 5% has caused car sales to decline for six months in a row. Dealers sold 9% fewer cars in September then in the same month a year earlier and several have now fallen into the red or have gone bankrupt.
So carmakers are desperately hoping their 2000 mOdels will boost sales. The Motor Show's new lines have the latest in breaking, engine, and transmission technology,
152 CHAPTER 7 INTRODUCING AND MANAGING THE PRODUCT
more sporty designs, and more environmentally friendly engines-including a "hybrid" car that can get 66 miles per gallon on a combination of gasoline and electricity. "Every maker is preparing new launches to keep sales from falling through the floor," says Christopher Redl, automotive analyst at ING Barrings Ltd.
But Japanese consumers are already overwhelmed with choices. "There are now over 190 car models available in the market," says Atsushi Fuji.i, member of the board of directors in charge of domestic sales at Nissan Motor Co. "And the average consumer can only remember about 11 of them."
Yet at the Motor Show, Japanese carmakers will be coming out with even more. Toyota wants to target young people with fun European-looking models and convertible sports car. Toyota also plans to roll out the world's first mass-produced hybrid, with sales projected at 1,000 a month. The company admits it will see the hybrid as one-third of the world's auto market by 2005. After working out the kinks in the hybrid in Japan, Toyota plans to take it for a spin in overseas markets. However, analysts worry the hybrid could cannibalize sales of other models. "Why would you want to buy a Corona when you might be able to buy a hybrid car for just about the same price?" asks Edward Brogan, automotive analyst at Salomon Brothers Inc.
In this chapter we will look at the special chal lenges that the marketing of products possess. Moreover, we will delineate the unique characteristics associated with products as they pass through the various stages of their lives. Particular attention will be given to the kinds of decisions that are necessary through this process.
SOURCES: Jean Halliday, "Carmakers Learn to Mine Databases:' Advertising Age, April 17,2000, p. S6; Emily Thorton, "Too Many Cars, Too Few Buyer," Business Week, Oetober 20,1997, p. 56; Alison S. Wellnei, "Hot Wheels:' Amerieall Demographics, August 2000, pp. 48—49; David Kiley, "Not Your Father's STj V," American Demographics, January 1999, pp. 44—45,
INTRODUCTION
This chapter begins our discussion of the functional areas of marketing. Why do we begin our discussion with product rather than with promotion, distribution, or pricing? The answer is quite obvious. None of those other functions serve any useful purpose without a company product that provides consumer satisfaction. Without a product, there is nothing to promote, nothing to distribute, nothing to price, This does not suggest that product is more important, rather, it is the impetus for the other marketing functions. Logically, we should start at the beginning, and the beginning of a market place is a set of correct decisions about the product offerings of the finn.
DEFININGTHE PRODUCT
In essence, the tenn "product" refers to anything offered by a finn to provide customer satisfaction, be it tangible or intangible. It can be a single product, a combination of products, a product-service combination, or several related products and services. It nonnally has at least a generic name (e.g. banana) and usually a brand name (e.g. Chiquita). Although a product is normally defined from the perspective of the manufacturer, it is also important to note two other points-of-view-those of the consumer and other relevant pub'ics.
DEFINING THE PRODUCT 1 53
For a manufacturer like Kraft Foods, their macaroni-and-cheese dinner reflects a food product containing certain ingredients, packaged, distributed, priced and promoted in a unique manner, and requiring a certain return on their investment. For the consumer, the product is a somewhat nutritious food item that is quick