lecture 09 global marketing and r&d emba ba804 © ram mudambi, temple university

LECTURE 09

Global Marketing and R&D

EMBA BA804© Ram Mudambi, Temple University

2© Ram Mudambi, Temple University, 2007

Outline

Introduction – why are marketing and R&D special?Global marketing

International segmentationLocal responsiveness - product adaptationDistribution and communicationsPricing

Global R&DThe location of R&DThe key to successful knowledge management – cross-functional integration


Conglomerates

From the 1940s to the 1960s, conglomerates were recommended as a way to reduce volatility in business earnings and cash flow

1949 1974

42.0% 14.4%

25.7% 42.3%

4.1% 20.7%

Single business

Related diversified

Unrelated diversified

US FIRMS*

*Rumelt, 1982


Why do investors value multinationality?

The classic study of Morck and Yeung (1991) global diversification of operations creates little in terms of shareholder value. It is intangibles that MNCs can leverage across borders to create value

Marketing intangibles – market knowledge R&D intangibles – technological knowledge


Inputs Markets

Value Value AddedAdded

R&DR&DKnowledgeKnowledge

MarketingMarketingKnowledgeKnowledge

VALUE CHAIN DISAGGREGATIONVALUE CHAIN DISAGGREGATION

Location 1 Location 2 Location 3 Location 4

Recall the Smile of Value Creation*

* Mudambi, JIBS 2007* Mudambi, JIBS 2007

Vertically integrated firmVertically integrated firm


GLOBAL MARKETING


Globalization of Markets and Brands

Global culture is penetrating the remotest corners of the world

A Tibetan monk who is a fan of David Beckham

Overstatement?Cultural and economic differences slow the trend toward global tastes and preferences

The renewed interest in local traditions can be seen as more of a complement to globalization than a substitute for it.


Market Segmentation

Identifying distinct groups of consumers whose purchasing

behavior differs from other in important ways.

geography

demographics

Social-culturalfactors

Psychologicalfactors

Marketing mix adjusted to

reflect differingpurchasingpatterns insegments.


Market Segmentation

Twomainissuesin the

differencesbetweencountries

Structure of market

segments within

countries

Segments that

transcend national borders.


Product Attributes

Cultural differences.Economic differences.

Product and technical standards.


Cultural DifferencesRange of dimensions:

Social structureLanguageReligionEducation

Most important - the impact of tradition.Impact is greatest in foodstuffs and beverages.Also, scent preferences differ from country to country.

Some tastes and preferences becoming cosmopolitan:Coffee (Japan and Great Britain).American-style frozen dinners (Europe).

Levitt’s global culture still a long way off.


Economic DifferencesConsumer behavior is influenced by economic development.

Consumers in highly developed countries tend to have extra performance attributes in their products.Consumers in less developed countries tend not to demand these extra performance attributes.

Cars: no air-conditioning, power steering, power windows, radios and cassette players.Product reliability is more important.

Consumers in the most developed countries are often unwilling to sacrifice preferred attributes for lower prices.


Distribution Strategy

Three aspects:Retail concentrationChannel length.Channel exclusivity

Choice of channel:Cost/benefit of each alternative vary from country to country.Longer channel => higher price, but

cuts selling costs in fragmented market.provides market access.

Concentrated

Fragmente

dShort

No Outsiders

Long Channel


A Typical Distribution System

Manufacturer Inside the Country

Manufacturer Outside the

Country Import Agent

Wholesale Distributor

Retail Distributor

Final Customer


Distribution Can Present Interesting Problems


Communications Strategy

International communication occurswhen a firm uses a marketingmessage to sell its products in

another country.

Channels

• direct selling• sales promotion• direct marketing

• advertising


Communications StrategyEffectiveness of international communications can be impacted by:

Cultural barriers - Need to develop cross-cultural literacy.Country of origin (COO) effects:

Receiver of the message evaluates it based upon the status of the sender.

Emphasize/de-emphasize foreign origin.

Noise levels.Tends to reduce the effectiveness of a message.Developed countries - high.Less developed countries - low.

Push versus Pull:Push emphasizes personal selling.Pull depends on mass media advertising.


Attractiveness of Push versus Pull Strategies

MediaAvailability

ChannelLength

Factors

Product Type and Consumer

Sophistication

Pull = selling to large market segments.

Push = selling complex products.

Pull = long distribution channel.

Push = shortdistribution channel.

Pull = access toadvertising media.

May be legalRestrictions.


Push-Pull Mix

sufficient printand electronic

media available

Push

industrial orcomplexproducts

shortdistributionchannels

few print orelectronic media

available

consumer goods

long distribution

channels

Pull


Global Advertising

Standardized:Significant economic advantages.Scarce creative talent.Many global brand names.

Non-standardized:Messages in one country may fail in another.Advertising regulations can be a restriction.


Messages that don’t travel - 1

The name Coca-Cola in China was first rendered as Ke-kou-ke-la. After thousands of signs had been printed Coke discovered that the phrase means "bite the wax tadpole" or "female horse stuffed with wax" depending on the dialect. Coke then researched 40,000 Chinese characters and found a close phonetic equivalent, "ko-kou-ko-le," which can be loosely translated as "happiness in the mouth."



In Taiwan, the translation of the Pepsi slogan "Come alive with the Pepsi Generation" came out as "Pepsi will bring your ancestors back from the dead." Also in Chinese, the Kentucky Fried Chicken slogan "finger-lickin' good" came out as "eat your fingers off." When General Motors introduced the Chevy Nova in South America, it was apparently unaware that "no va" means "it won't go."



Ford’s Pinto flopped in Brazil. The company found out that Pinto was Brazilian slang for "tiny male genitals".Parker Pen’s ballpoint pen ads in Mexico were supposed to say "It won't leak in your pocket and embarrass you." In Spanish the ads said "It wont leak in your pocket and make you pregnant."In Mexico, Perdue Chicken's slogan, "It takes a tough man to make a tender chicken," was translated as "It takes a hard man to make a chicken aroused."



Hunt-Wesson introduced its Big John products in French Canada as Gros Jos before finding out that in local slang it means "big breasts." However, the name problem did not have a noticeable effect on sales. Colgate introduced a toothpaste in France called Cue, the name of a notorious porno mag. An Italian campaign for Schweppes Tonic Water rendered the name as Schweppes Toilet Water. Kinki Nippon Tourist Company was mystified when it entered English-speaking markets and began receiving requests for unusual sex tours. The owners soon changed its name.


Advertising in New Delhi


Pricing Strategy

Price discrimination.Different prices, different countries, same product.

Strategic pricing.Regulatory factors:

Price controls.Antidumping.


Pricing Strategy

Price discrimination:Charging what the market will bear.Two factors:

Must keep national markets separateDifferent price elasticities

Arbitrage:Charging different prices in different countries for same product.

Doesn’t always work.Ford in Germany and Belgium

Sometimes it does.Ford in UK and Belgium

Using Arbitrage


Determinants of Demand Elasticity

Income level and competitive conditions determine elasticity.

Elasticity (price) tends to be be greater in countries with low income levels.Elasticity (demand) tends to be greater in countries where there are many competitors.


Price discrimination - textbook marketing

The Hill textbook sells for $130 in the US $60 to $80 in Europe$30 to $40 in AsiaSites like www.bookcentral.com have appeared to take advantage of this arbitrage opportunityUS Courts have upheld the legality of such “gray” market operations


Configuring the Marketing Mix

Culture

Economy

Com

petition S

tandard

s

Distrib

ution

Gov’t Regs

Product

Attrib

ute

s

Dis

trib

utio

n

Stra

tegy

Comm

unicatio

ns Strategy

Pricing Strategy

Differences here

Require variation here


R & D IN A GLOBAL CONTEXT


New Product Development

Technological Innovation

Creative

Destructive

Critical to stay on leading edge

of technology

Apply technology to developing products

Consumers’ want.

Design product for cost effective

manufacture.


The Location of R&D

New product development is greater where:

More money spent on R&D.Underlying demand is strong.Consumers are affluent.Competition is intense.

Leading-edge research is carried out worldwide. Centralization is

no longer as important.

Competence-exploiting subsidiaries

Competence-creating subsidiaries


The innovation-integration dilemma

Subunits evolution to competence-creation requires a great deal of local learningTwo requirements for this to happen:

Autonomy‘Local embedding’

Competence-creating subunits are very innovative, but using this innovation is a challenge


The knowledge network & The knowledge network & integrationintegration

P = Parent firmS,S’ = Subunits

Location 1HQ location

Central HQ inflowsCentral HQ inflowsTransfer from subunit Transfer from subunit located in location 1located in location 1

S P4

2Learning in Learning in location 1location 1

Location 2

Transfer Transfer from from

subunit subunit located in located in location 2location 2

4

S’

Learning in Learning in location 2location 2


Innovation vs. integration

IntegrationIntegration, connectivity, connectivity

• InnovationInnovation•AutonomyAutonomy•Local Local

embeddednessembeddedness

Low

Low

High

High

IsolatedIsolatedcontrolcontrol

ConnectedConnectedcontrolcontrol

IsolatedIsolatedfreedomfreedom

ConnectedConnectedfreedomfreedom

Semi-connectedSemi-connectedfreedomfreedom


The social dimension

The negative effects of subunit autonomy depend on linkages to the parent firmThe most effective links are inter-personal

Frequent inter-unit communication leads to ‘Lateral socialization’Knowledge tends to flow along frequently used channels


Knowledge flows – the social dimension

Value of Value of knowledgeknowledge

Frequency ofFrequency ofcommunicationcommunication

Low

Low

High

High

NoNoflowsflows

LowLowflowsflows

ModerateModerateflowsflows

HighHighflowsflows

thethe‘‘In’ groupIn’ group

BestBestpracticepractice


Cross-Functional Integration

Using cross-functional development teams:Led by “heavyweight” project manager.Composed of at least one member from each key function.Physically co-located to create camaraderie and facilitate communication.Clear plan and goals.

Incentives to attain goals.Develop own processes for communication and conflict resolution.


TakeawaysMNEs that create value do so on the basis of their marketing and R&D intangiblesThe extent of local adaptation is driven by cultural and institutional factors – link between marketing and overall strategyCross-cultural literacy is crucial in protecting and developing marketing intangibles like brandsGlobal knowledge management requires enhanced communications protocols

The innovation – integration dilemmaCross-functional international teams

lecture 09 global marketing and r&d emba ba804 © ram mudambi, temple university

Documents

temple university slide

global marketing slide

rd emba ba804 ram mudambi

location of rd

global tastes

brands global culture

levitts global culture

market segmentation