international marketing 2 week 4 lecture marketing strategies for emerging markets

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International marketing 2 Week 4 lecture Marketing strategies for emerging markets

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Page 1: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

International marketing 2

Week 4 lectureMarketing strategies for emerging markets

Page 2: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Agenda

• Emerging markets• Competing with new champions• Targeting/positioning strategies in emerging markets• Entry strategies for emerging markets• Product policy• Pricing strategy• The distribution challenge• Communication strategies for emerging markets

Page 3: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Introduction

• Developed countries: Market saturated• MNC’s set sights on the fast growing emerging markets (EMs)• Asia, Latin America, east bloc countries and Africa

• McDonalds restaurant in Russia, busiest in the world• Mars sells more cat food in Russia than any part of the world• Zara, Spanish brand, announced that half of the new brand to be

opened will be in Asia

Page 4: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Introduction

• Emerging markets hard to resist:• Growing middle classes and• Rising income

• Western MNC’s: bulk part of their revenue from emerging markets• Global economic downturn• Huge obstacle for MNC when doing business in these countries• Emergence of strong local companies

Page 5: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Emerging markets

• Emerging markets (EMs) refer to economies • that are in the process of rapid growth and industrialization

• First introduced in 1981 by Antoine van Agtmael, director at world bank• thought that the term would resonate more with prospective investors in

Thailand than the ‘‘Third World’’ label.

• Among the emerging markets, for many global marketers the most promising and exciting ones are the four that constitute the BRIC, namely: • Brazil, Russia, India, and China• Accounted for 15% of global GDP• Their combined economies larger than the G7 industrialized nations

Page 6: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Characteristics of emerging markets

1. Low per capita incomes but rapid pace of economic development2. High income inequalities (Gini index)3. High rates of migration to the developed world4. Populations are youthful and growing5. Weak and highly variable infrastructure6. Technology is underdeveloped7. Weak distribution channels and media infrastructure

Page 7: International marketing 2 Week 4 lecture Marketing strategies for emerging markets
Page 8: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Lower per capita income but rapid economic development• People with annual income ranging from $6,000 to $30,000 is growing

70 million per year• The bank foresees that another 2 billion will join by 2030

Page 9: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

High rates of migration

• Many low per-capita income EMs also export their people• Mexico and other Latin American countries export agriculture workers to the

United States• Philippines exports nurses and teachers to North America and Western

Europe• Asian countries export construction workers to the Middle East.

• Remittances is an important part of their home countries’ economies• Globally, the World Bank estimated that money sent home by these

immigrants was $305 billion in 2008

Page 10: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Populations are youthful and growing• Populations in most emerging markets are younger and growing much

more rapidly. • Most of these countries have • population growth rates of 1 percent or more, • with a median population age between 20 and 30 years.

• The exceptions are the former Communist East Bloc countries

Page 11: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Weak and highly variable infrastructure• The infrastructure in many of the emerging countries is

underdeveloped. • Transportation networks such as roads, airports, and railroads are low in

coverage and fragile. • water supply and electricity are in short supply. • Telecommunications networks and internet access often lag far behind the

grids of mature markets in terms of coverage and technology.

• Multinationals doing business in these areas need to come up with creative solutions to cope with these kinds of infrastructure weaknesses

Page 12: International marketing 2 Week 4 lecture Marketing strategies for emerging markets
Page 13: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Technology is underdeveloped

• Technology lag behind both on the • supply side (infrastructure, innovation) and

• R&D spending and innovation are still centered in developed countries.• Especially true in high-tech industries such as information technology, biotech, and

telecommunications.• the demand side (adoption of new technologies)

• Consumers in emerging markets tend to be less eager to adopt new products than their counterparts in developed countries.

• Developed countries have relative low time to take off for new products• Japan 5.7 years compared to 12.4 years for India, 12.6 years for the Philippines, 13.9 years for

Vietnam and China

Page 14: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Weak distribution channels and media infrastructure• Largely underdeveloped• Companies often have to set up their own distribution.• However, the distribution environment is changing dramatically• Nine out of the ten largest shopping malls in the world are located in

emerging markets: • Four in China, one in Malaysia, one in Turkey (the biggest mall in Europe), and

three in the Philippines

Page 15: International marketing 2 Week 4 lecture Marketing strategies for emerging markets
Page 16: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Competing with champions

• Conventional knowledge• Trade barriers crumble and emerging economies take off, multinationals can

grab opportunities in these countries and prosper.

• In reality local players have been able to keep multinationals at bay• Growing number of companies that are rooted in that part of the world

showing up in the Fortune Global 500 ranking. • In the 2008 ranking, 29 companies hailed from China, 7 from India, 5 from

Brazil, 5 from Mexico, and 5 from Russia.• In 1999, 11 of the 20 largest banks in the world were US based• In 2009, 5 of the largest bank from China and only 3 from US• Top spot belong to ICBC, China.

Page 17: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The New Champions

• A company created in an emerging market that has been able to humble multinationals• In Philippines, more crowd on Jollibee rather than McDonalds or a Burger king• Became popular by creating the image of warm, friendly, family warming• Now stores across Asia, and even in US

Page 18: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The new champions

• Looking at China, the fastest growing EM, • Local champions throw their weight in dozens of industries.

• In the IT industry alone, some of the highfliers that are leaders in their respective fields in China include • Baidu for online search, • Taobao (owned by Alibaba) for online auctions, • youku.com for online video-sharing, • Shanda for online gaming, and• QQzone (owned by Tencent) for social networking.

Page 19: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The New champions

• Dozens of the new champions have also become credible challengers outside their home market

Page 20: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The New Champions

• Some of these have become credible by buying up global brands

Page 21: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The New Champion

• Some of them have made strides in global arena through ad campaigns or multi million dollar sponsorships deal• 2004, emirates air signed £100 million deal to name new stadium of

Arsenal• India’s TATA consultancy services sponsoring Ferrari team for 2009

Page 22: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

What makes emerging markets firms so successful?1. Create customized offerings. For e.g. Jollibee2. Develop business models to overcome obstacles. • For e.g. computer gaming industry in China

3. Deploy latest technologies4. Take advantage of cheap labour and train staff in-house• For e.g. Huawei and ZTE able to undercut the likes of Alcatel and Lucent in

international markets

5. Scale up rapidly6. Invest in talent to sustain growth

Page 23: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Deploy latest technologies

• Young companies not hampered by legacy of old technologies• Can easily leapfrog to the latest technologies• Some of these companies has also become very innovative• For e.g. safaricom, Kenya's leading mobile phone service provider• Developed mobile banking service called M-PESA• Allows client to transfer money via SMS• This became so successful that Vodafone, British mobile carrier that holds a

stake in Safaricom, rolled it out to other countries

Page 24: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Scale up rapidly

• Many home grown champions distinguish themselves by building up scale very quickly. • Typically, this happens through

• combination of organic growth and absorbing smaller rivals.

• Several new champions go a step further and • take their innovative business models to other emerging markets or sometimes even the

Western world.

• A case in point is Pearl River Piano, China’s leading piano manufacturer. • The company grew over the last 30 years by out-investing local rivals.• Currently, the company has the world’s largest piano factory with a capacity of 100,000 pianos

per year. • In 2000, the firm bought up Rittmuller, a German piano maker, to boost its reputation and to

broaden its price points• The firm is now the leader at the low end of the U.S. upright piano market.

Page 25: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Emerging market champions, whether they should focus on their home market or expand into the global market place?

Page 26: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Strategic options for emerging market companies

Page 27: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Competing against the new comers

• MNC from developed world can fight off the challenge posed by emerging market newcomers• Innovative thinking• Focusing on high end segment markets• Try to beat new champion at their own game by pursuing value for market

strategies• For e.g. IBM business services bought Daksh, a similar rival of Tata consulting services,

Infosys and Wipro to compete on cost and quality with its Indian rivals

Page 28: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Competing against new comers

• MNCs can choose from five value-for-money strategies:1. Go beyond low-cost sourcing in emerging markets:

• for e.g. Nokia Siemens Network, set up an innovation center in China to develop software technologies in telecom industry

2. Develop products in emerging markets and bring them home.• For e.g. Hindustan Lever cheap home water purification system

3. Copy branding tactics used in emerging markets4. Team up with the new emerging giants:

• IBM partnership with Airtel in indian phone market5. Invest in growing mass markets in developing countries

Page 29: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Targeting/positioning strategies

• Bottom of the Pyramid (BOP) or No BOP?• 4 billion people living on less than $2 per day• Fortune at the bottom of the pyramid, C.K.Prahalad• BOP paradigm• Lot of untapped money at BOP

BOP offers new growth opportunity for value creation and innovation• BOP markets must become an integral part of firm’s core business

Page 30: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Targeting/positioning strategies

• Nokia’s experience in china illustrates how can MNC thrive in a BOP market• Views china’s less developed regions as a major driving force for future

growth• Mobile phone subscription in big cities in China slowing• Country’s smaller cities and rural areas still offer tremendous market

opportunities• Developed wide range of ultra cheap handsets while still maintaining

dominance in the upper end

Page 31: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Entry strategies for emerging markets• Timing of entry • Mode of entry

Page 32: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Timing of entry

• EMs: Huge population and less direct competitors

• Early entry can hurt performances• Kelloggs in India in 1994 with a investment of $65 million investment• Initial sales were encouraging• Too expensive for most households• India not yet ready for western style cereals

Page 33: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Timing of entry

• First movers in emerging markets can fail1. Not aware of the pitfalls of newly opened emerging markets2. Return on investment low

• Infrastructure not yet fully developed• Build own distribution networks• Such huge investment hard to recover in short or medium term

3. Later entrants have a flatter learning curve• They can learn from mistakes made by early entrants

Page 34: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Timing of entry

• Arguments for being early entrants1. Better government relations2. Huge initial sales because of previously unavailable western brands3. Access to key resources such as media access, brand endorsers, distributors

or suppliers

Page 35: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Mode of entry

• Can choose from several mode of entry• Exporting, licensing/franchise, joint venture, wholly owned subsidiary

• Trade off between• Risk

• Financial (currency volatility, getting paid)• Marketing (e.g. sales volume)

• Control • Protects resources from leakages (patent theft)• Control over resources such as distribution or supply

• Stronger the institutional framework (legal framework and it enforcement, property rights protection, regulatory regimes), • the more likely the MNC would prefer an acquisition or greenfield entry mode over joint

ventures

Page 36: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Mode of entry

• Given the large risks and the firm’s lack of knowledge:1. First enter with low risk entry mode (e.g. licensing, minority joint venture)2. Little adaptation3. Over time sales takes off4. MNC increases its commitments5. Slowly shifts towards higher-control entry mode

Page 37: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Mode of entry

• Drivers of success for market entry: (study conducted into China and India)• Major factor is the firms performance in host country• Success is greater for China than for entry into India• Success is for smaller firms than for bigger ones• The greater the control of entry mode, the larger the success• Success is greater in the emerging markets which are economically similar to

home country

Page 38: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Once entry mode is decided• Develop marketing strategy to penetrate EM• Simple replicating the successful strategies from developed

countries could be recipe for disaster• Offering the right product mix

Page 39: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Product policy

1. Product design2. Branding 3. Packaging

Page 40: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Product design

• Reluctant to adapt its product offering to the host market• Costs money and time• Sell narrow range of existing products• Position them as premium products targeted to affluent EM customers

• Could pursue backward innovation• Offer a stripped down version of the products that is sold in developed

markets• Increases product life cycle• Could go badly wrong in todays information age:

• people familiar with the latest trends in the market

Page 41: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Product design

• Mass market products in EM need to overcome two barriers:• Low incomes

• Affordable, functional and durable products• Consistency in quality• China’s melamine milk scandal, Chinese mothers switched to foreign milk powder

• Poor infrastructure (unreliable power supply, poor roads)• Durable and long lasting• Product designed to handle a dysfunctional infrastructure• whirlpool in India: restart from the point where it stopped because of power cut• HUL, surf excel, improved formulation to save the scarce water in India

Page 42: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Branding

• Wrong to assume that consumers in EMs, even the affluent one, will pay premium for global brands• Study by McKinsey prescribed a two branding strategy for MNC

• Wealthy segment: foster a global identity• Bottom of Pyramid:

• emulate their local competitors• May be acquiring local brand• Keeping the best local managers, cost reduction, operational efficiencies and simplicity

• Unilever branding strategy in India• Dominates Indian shampoo market with 46.3% market share in 2008• HUL sells global brand (Dove, Sunsilk)• Indian women often oil before washing hair• Need shampoo that remove oil, therefore reformulated its shampoos for India• For surf launched inexpensive brand called Wheel

Page 43: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Packaging

• Cash strapped customers• Smaller packages

• For e.g. Colgate MaxFresh toothpaste available in 40 gm, 80 gm and 150 gm tubes in India while 170gm and 227 gm in US

• Sealed packages favoured by local customer because of their freshness and safety• For e.g. branded medicine are worth paying premium

• Sustainability regarding packaging• Packaging material scarce and costly• Waste treatment facilities inadequate• Therefore, should ideally rely on local materials and be recyclable and biodegradable

Page 44: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Pricing strategy

• Thin margins to attract big volume tend to succeed in EM• To capture sustainable sales volume:• MNC should try to saturate all price points• Not just simply focusing on the upper end of market• If not, at some time in future, local competitors who caters to mass market

could achieve economies of scale could attack MNC• For e.g.

• in India, Unilever markets at least one brand in each price tier• Nokia rolls out handsets at different price points in each price tier

Page 45: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Pricing strategy

• To sustain profit margins:• Focus on cost innovation to improve the products cost structure • instead of continuous product innovation• Lowering fixed and variable costs

• EM consumers are not always price sensitive• For e.g. Unilever experience with Omo (laundry detergent brand) in Vietnam• Bitter price war against P&G’s Tide• Market share started to slip in 2002• Therefore moved from price-led to brand-led

• Demand pooling

Page 46: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The distribution challenge

• Lack of sustainable distribution infrastructure• Distribution varies between urban and rural areas• Urban areas:

• Small retailers carry wide assortments of brands• Modern distribution formats: supermarkets, discount stores

• Rural areas:• Single brand for each category• Therefore being first on shelf and building a close relationship can create a

competitive edge

• Local regulation or lack of local market knowledge• Force the MNC to partner with local distributor

Page 47: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The distribution challenge

• Creating distribution systems:• Lack of distribution infrastructure, build it from scratch• Need for innovative distribution system• In Russia and Poland, P&G decided to build its own distribution operations known as

McVan model• Identified promising distributor• Provided them with vans, working capital and extensive training• Granted territorial exclusivity

• Unilever in India• Company challenge was to reach 500,000 villages in remote areas• Project Shakti in 2001• Women’s self-help group to become entrepreneurs by the money borrowed from self help group• Each distributor aimed to reach 500 customers• By 2009 project had over 45,000 distributors covering over 135,000 villages across 15 states

Page 48: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The distribution challenge

• Managing distributor relationship: Four areas of distribution policy1. Distributor partner selection criteria

1. Developed countries: Product market knowledge2. For EMs, Competence in working with MNC’s

2. Direct selling1. Relative low cost of labour make such format viable2. Internet as channel3. For e.g. China based Alibaba in now worlds largest online global trading platform with

38.1 million registered users

Page 49: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

The distribution challenge

• Managing distributor relationship: Four areas of distribution policy3. Local autonomy:

• Delegate control over many marketing tasks to local distributor• But better to retain control over some critical marketing decisions

4. Exclusivity:• Local distributors often insists on territorial exclusivity• However for rapid market development, having multiple distributors is often much more

preferable

Page 50: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Communications strategies for emerging markets• Marketing activities must accomplish several tasks:• Educating the customers about the product use and benefit• Raising brand awareness• Creating brand image

• Challenge in EMs is to prioritize these tasks• Who to target?• Current existing users of the product or non users• Most MNC concentrate on increasing demand for from current users• But huge payoff from converting non users into users

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Communication strategies

• Pull Vs Push Activities• Consumer oriented promotion or trade directed promotions?• In most EMs, emphasis on trade directed push type promotion

1. Trade has immense power, consumers interface directly with retailers and often rely on their brand recommendations

2. People shop much more frequently, almost daily, as a result, the opportunities to switch brands arise

• Pull promotion activities, mass media like TV and radio are often ineffective especially in a country like India• Diverse consumer groups• Instead targeted media are more useful• Billboards to reach the poor who don’t have TV and do not read newspaper

Page 52: International marketing 2 Week 4 lecture Marketing strategies for emerging markets

Communication strategies

• Mass media Vs non traditional marketing approaches:• Mass media less effective, especially in rural areas• For e.g. 500 million Indians lack TV and radio• Illiteracy and language diversity

• Non traditional approach can be much more rewarding• People intensive communication: as labour being cheap• Can spend more time on educating customer• Can customize the message• For e.g. Nokia,

• deploys a fleet of vans painted in brands signature blue across rural India as advertisements on wheels

• Staff stops the van and then explain the basics of phone

Page 53: International marketing 2 Week 4 lecture Marketing strategies for emerging markets