Session 15-16Importing, Exporting, and Sourcing

Export Selling vs. Export Marketing Export selling involves selling the same product, at the same price, with the same promotional tools in a different place Export marketing tailors the marketing mix to international customers

Export Guideline

Requirements for Export Marketing• An understanding of the target market environment• The use of market research and identification of market potential• Decisions concerning product design, pricing, distribution and channels, advertising, and communications

Organizational Export Activities1. The firm is unwilling to export; it will not even fill an unsolicited export order.2. The firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller.3. The firm explores the feasibility of exporting (this stage may bypass Stage 2).4. The firm exports to one or more markets on a trial basis.5. The firm is an experienced exporter to one or more markets.6. After this success, the firm pursues country- or region-focused marketing based on certain criteria. 7. The firm evaluates global market potential before screening for the “best” target markets to include in its marketing strategy

and plan.

7 Important issues• Type of Economy: Emerging Country, Poor Contry, Developed Country• Type of Goverment: Monarch, Democratic, One Party, • Trade and Capital Flow: Free Trade, Union, Single currency board system• The Comanding Heights State own or Private Own• Services Provided by state and funded through Taxes: Pension Fund, Health Care (BPJS) fund, Education Fund (Kartu

Pintar)• Institutions: Corruption Watch• Markets: Social Media Driven, Bonus Driven

Government Programs that Support Exports• Tax incentives• Subsidies• Governmental assistance• Free trade zones

Company Objective:

ProductsProduction Process

Market PositionRisk Adversity

Target Country:Market Size

DemographicsInfrastructure

Legal & Tax SystemExchange RateSovereign Risk

Trading Environment:

CompetitorTariffs

Non Tariffs barrierTransportationWarehousing

Governmental Actions to Discourage Imports and Block Market Access• Tariffs• Import controls• Nontariff barriers

– Quotas– Discriminatory procurement policies– Restrictive customs procedures– Arbitrary monetary policies– Restrictive regulations

Tariff Systems• Single-column tariff

– Simplest type of tariff– Schedule of duties in which rate applies to imports from all countries on the same basis

• Two-column tariff– General duties plus special duties apply

Preferential Tariff• Reduced tariff rate applied to imports from certain countries• GATT prohibits the use, with three exceptions:

– Historical preference arrangements already existed– Preference is part of formal economic integration treaty– Industrial countries are permitted to grant preferential market access to LDCs

Customs Duties• Ad valorem duty – Expressed as percentage of value of goods• Specific duty – Expressed as specific amount of currency per unit of weight, volume, length, or other unit of measurement• Compound or mixed duties

Other Duties and Import Charges• Anti-dumping Duties

– Dumping is the sale of merchandise in export markets at unfair prices– Special import charges equal to the dumping margin

• Countervailing Duties• Variable Import Levies• Temporary Surcharges

Key Export Participants• Foreign purchasing agents• Export brokers• Export merchants • Export management companies• Export distributor• Export commission representative• Cooperative exporter• Freight forwarders• Manufacturer’s export representatives

Organizing for Exporting in the Manufacturer’s Country• Exports can be handled

– As a part-time activity performed by domestic employees– Through an export partner – Through an export department– Through an export department within an international division– For multi-divisional companies; each possibility exists for each division

Organizing for Exporting in the Market Country• Direct market representation

– Advantages: control and communications• Representation by independent intermediaries

– Advantages: best for situations with small sales volume

Export Financing and Methods of Payment• Documentary credits (letter of credit)• Documentary collections (bill of exchange)• Cash in advance• Sales on open account• Sales on consignment basis

L/C , TR, BEP, BA• LETTER OF CREDIT (LC)  This is a major payment method in international trade because it benefits both parties in the

transaction. As the buyer, you do not have to pay until the documents are received in good order. Your sellers are also comfortable because they will definitely be paid if they have complied with the terms of the LC.

• TRUST RECEIPT (TR) A form of financing for your purchases, where the financier pay your suppliers 100% of the value of the goods, so that you can take delivery promptly and defer payment for an agreed period of time.

• BILLS OF EXCHANGE PURCHASED (BEP)  This provides you with immediate funds upon presentation of export/sales documents with or without Letters of Credit. This gives you instant cash in hand for other business needs while the bank collects payment from your buyer at a later date. 

• BANKER'S ACCEPTANCE (BA)  The bank provides financing for importers and local purchasers so you can take delivery of goods faster to meet market demands. 

Customs Trade Partnership Against Terrorism• The U.S. Customs and Border Patrol inspects cargo• C-TPAT aims to have businesses certify their security and that of their partners• They get inspection priority

Duty Drawback• Refunds of duties paid on imports that are processed or incorporated into other goods AND re-exported• Reduce the price of imported production inputs• Used in the U.S. to encourage exports• After NAFTA, U.S. reduced drawbacks on exports to Canada and Mexico• China had to reduce drawbacks in order to join the WTO

Sourcing• Must emphasize benefits of sourcing from country other than home country• Must assess vision and values of company leadership• Advantage can be gained by

– Concentrating some of the marketing activities in a single location– Leveraging company’s know-how– Tapping opportunities for product development and R&D

Factors that Affect Sourcing• Management vision• Factor costs and conditions• Customer needs• Logistics• Country infrastructure• Political risk• Exchange rate, availability, and convertibility of local money

Session 17-18Global Market Entry Strategies: Licensing, Investment, and Strategic Alliance

Investment Cost of Marketing Entry Strategies

Which Strategy Should Be Used?• It depends on:

– Vision– Attitude toward risk– Available investment capital – How much control is desired

LicensingA contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation– Patent– Trade secret– Brand name– Product formulations

Advantages to Licensing:• Provides additional profitability with little initial investment• Provides method of circumventing tariffs, quotas, and other export barriers• Attractive ROI• Low costs to implement• License agreements should have cross-technology agreements to inequities

Disadvantages to Licensing:• Limited participation• Returns may be lost• Lack of control• Licensee may become competitor• Licensee may exploit company resources

Special Licensing Arrangements• Contract Manufacturing – Companies provide technical specifications to a subcontractor or local manufacturer. The

subcontractor then oversees production. Such arrangements offer several advantages. The licensing firm can specialize in product design and marketing, while transferring responsibility for ownership of manufacturing facilities to contractors and subcontractors.

• Franchising – A franchise is a contract between a parent company-franchiser and a franchisee that allows the franchisee to operate a business developed by the franchiser in return for a fee and adherence to franchise-wide policies and practices.

Investment• Partial or full ownership of operations outside of home country

Foreign Direct Investment (FDI)o Start-up of new operations

Greenfield operations or Greenfield investment

o Merger with an existing enterpriseo Acquisition of an existing enterprise

*E.g. : Volkswagen, 70% stake in Skoda Motors, Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations)

• Forms Joint ventures Minority or majority equity stakes

Outright acquisitionJoint Ventures• Entry strategy for a single target country in which the partners share ownership of a newly-created business entity • Builds upon each partner’s strengths

*Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Russian government, Ericsson’s cell phones and Sony, Ford and Mazda, Chrysler and BMW

Advantages of Joint Ventures: Allows for risk sharing–financial and political Provides opportunity to learn new environment Provides opportunity to achieve synergy by combining strengths of partners May be the only way to enter market given barriers to entry

Disadvantages of Joint Ventures: Requires more investment than a licensing agreement Must share rewards as well as risks Requires strong coordination Potential for conflict among partners Partner may become a competitor

Global Strategic Partnerships• Possible terms:

– Collaborative agreements– Strategic alliances– Strategic international alliances– Global strategic partnerships

The Nature of Global Strategic Partnerships

Participants remain independent following formation of the alliance Participants share benefits of alliance as well as control over performance of assigned tasks Participants make ongoing contributions in technology, products, and other key strategic areas

Five Attributes of True Global Strategic Partnerships• Two or more companies develop a joint long-term strategy• Relationship is reciprocal• Partners’ vision and efforts are global• Relationship is organized along horizontal lines (not vertical)• When competing in markets not covered by alliance, participants retain national and ideological identities

Success Factors of Alliances• Mission: Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or

advantage.• Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid

conflicts.• Governance: Discussion and consensus must be the norms. Partners must be viewed as equals.• Culture: Personal chemistry is important, as is the successful development of a shared set of values. • Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management.• Management: Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that

will result in commitment by all partners.

Alliances with Asian Competitors Four common problem areas

– Each partner had a different dream– Each must contribute to the alliance and each must depend on the other to a degree that justifies the alliance– Differences in management philosophy, expectations, and approaches– No corporate memory

Cooperative Alliance in Japan: Keiretsu• Inter-business alliance or enterprise groups in which business families join together to fight for market share• Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its

buyers and non-financial suppliers• Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices

Cooperative Strategies in South Korea: ChaebolComposed of dozens of companies, centered around a bank or holding company, and dominated by a founding family– Samsung– LG– Hyundai– Daewoo

21st Century Cooperative Strategies: Targeting the Digital FutureAlliances between companies in several industries that are undergoing transformation and convergence– Computers– Communications– Consumer electronics– Entertainment

Risk vs Control

International Strategy• Mostly exporter and importer• No manufacture investment in other country• Pressure for both local adaptation and low costs are rather low• Different activities in the value chain have different optimal locations• Susceptible to higher levels of currency and political risks

Global Strategy• The company have invested a manufacture in other country• Competitive strategy is centralized and controlled largely by corporate office• Emphasizes economies of scale

Advantages of Global Strategy: Larger production plants Efficient logistics and distribution networks Supports high levels of investment in R&D Standard level of quality throughout the world

Disadvantages of Global Strategy:• Concentration on scale-sensitive resources and activities in one or few locations leads to higher transportation & tariff costs• Activity is isolated from targeted markets• The rest of the firm becomes dependent on that geographically isolated location

Multidomestic Strategy• Emphasis is differentiating products and services to adapt to local markets• Authority is more decentralized• Risks include

– Increased cost structure– Potential problems with local adaptations– Finding optimal degree of local adaptation is difficult

Transnational Strategy• Invest manufacture in other country and give the power of R&D and Marketing in local Country• Optimization of tradeoffs associated with efficiency, local adaptation, and learning• Firm’s assets and capabilities are dispersed according to the most beneficial location for a specific activity• Avoids the tendency to either

– Concentrate activities in a central location– Disperse them across many locations to enhance adaptation

• Unique risks and challenges– Choice of an “optimal” location cannot guarantee that the quality and cost of factor inputs will be optimal– Knowledge transfer can be a key source of competitive advantage, but it does not take place automatically

Session 19-20Brand and Product Decisions in Global Marketing

Basic Product Concepts• A product is a good, service, or idea

– Tangible Attributes– Intangible Attributes

• Product classification– Consumer goods

Buyer Orientation• Buyer orientation

– Amount of effort expended– Level of risk – Buyer involvement

• Buyer orientation framework– Convenience– Preference– Shopping– Specialty

Brands• Bundle of images and experiences in the customer’s mind• A promise made by a particular company about a particular product• A quality certification• Differentiation between competing products• The sum of impressions about a brand is the Brand Image

Brand Equity• The added value that accrues to a product as a result of investments in the marketing of the brand• An asset that represents the value created by the relationship between the brand and customer over time

Benefits:• Greater loyalty• Less vulnerability to marketing actions• Less vulnerability to marketing crises• Larger margins• More inelastic consumer response to price increases• More elastic consumer response to price decreases• Increased marketing communication effectiveness

Local Products and Brands• Brands that have achieved success in a single national market• Represent the lifeblood of domestic companies• Entrenched local products/brands can be a significant competitive hurdle to global companies

International Products and Brands Offered in several markets in a particular region

*Honda 5-door hatchback auto is known as Fit in Japan and Jazz in Europe

Global Products and Brands• Global products meet the wants and needs of a global market and are offered in all world regions• Global brands have the same name and similar image and positioning throughout the world• Global brands are not the same as global products

*iPod = brand; mp3 player= product

Global Brand Characteristics• Quality signal—allows a company to charge premium price in a highly competitive market• Global myth—marketers can use global consumer culture positioning to link the brand identity to any part of the world• Social responsibility—shows how a company addresses social problems

Branding Strategies• Combination or tiered branding allows marketers to leverage a company’s reputation while developing a distinctive identity

for a line of products*e.g. : Sony Walkman

• Co-branding features two or more company or product brands*e.g. : NutraSweet and Coca-Cola, Intel Inside

Global Brand Development1. Create a compelling value proposition2. Think about all elements of brand identity and select names, marks, and symbols that have the potential for globalization3. Research the alternatives of extending a national brand versus adopting a new brand identity globally4. Develop a company-wide communication system5. Develop a consistent planning process (assign specific responsibility for managing branding issues)6. Execute brand-building strategies (harmonize, unravel confusion, and eliminate complexity)

Local versus Global Products and Brands: A Needs-Based ApproachMaslow’s Hierarchy of Needs

Asian Hierarchy of Needs

Country of Origin as Brand ElementPerceptions about and attitudes toward particular countries often extend to products and brands known to originate in those countries (Japan, Germany, France, Italy)

Packaging• Consumer Packaged Goods refers to products whose packaging is designed to protect or contain the product during

shipping, at retail, or point of use• Eco-Packaging is key because package designers must address environmental issues• Offers communication cues that provide consumers with a basis for making a purchase decision

Labeling• Provides consumers with various types of information• Regulations differ by country regarding various products

– Health warnings on tobacco products– American Automobile Labeling Act clarifies the country of origin, and final assembly point– European Union requires labels on all food products that include ingredients from genetically modified crops

Aesthetics• Global marketers must understand the importance of visual aesthetics• Aesthetic styles (degree of complexity found on a label) differ around the world

Product Warranties• Express Warranty is a written guarantee that assures the buyer is getting what they paid for or provides a remedy in case of a

product failure• Warranties can be used as a competitive tool

Extend, Adapt, Create: Strategic Alternatives in Global Marketing• Extension – offering product virtually unchanged in markets outside of home country• Adaptation – changing elements of design, function, and packaging according to needs of different country markets• Creation – developing new products for the world market

Global Product Planning: Strategic Alternatives

Product InventionImportant for reaching mass markets in less industrialized nations and certain segments in industrialized countries• Hand-cranked radios for areas with no electricity• Total toothpaste by Colgate uses global benefit segmentation

How to Choose a Strategy?• The product itself, defined in terms of the function or need it serves• The market, defined in terms of the conditions under which the product is used, preferences of potential customers, and

ability to buy the product• Adaptation and manufacturing costs the company will incur

New Products in Global Marketing• Pursue opportunities in competitive arenas of global marketplace• Focus on one or only a few businesses• Active involvement from senior management• Ability to recruit and retain best employees• Understand the importance of speed in bringing product to market

Identifying New Product Ideas• What is a new product?

– New to those who use it or buy it– New to the organization– New to a market

The International New Product Department• How big is the market for this product at various prices?• What are the likely competitive moves in response to our activity?• Can we market the product through existing structure?• Can we source the product at a cost that will yield an adequate profit?• Does product fit our strategic development plan?

Session 21-22Pricing Decisions

Basic Pricing ConceptsLaw of One Price : All customers in the market get the best product for the best price

Global markets National markets

– Diamonds– Crude oil– Commercial aircraft– Integrated circuits

– Costs– Competition– Regulation

Global Pricing Objectives and Strategies• The Global Manager must develop systems and policies that address

– Price Floor: minimum price– Price Ceiling: maximum price– Optimum Prices: function of demand

• Must be consistent with global opportunities and constraints• Be aware of price transparency created by Euro zone, Internet• Managers must determine the objectives for the pricing objectives

– Unit Sales– Market Share– Return on investment

• They must then develop strategies to achieve those objectives – Market Skimming– Penetration Pricing

Market Skimming and Financial Objectives Charging a premium price May occur at the introduction stage of product life cycle Luxury goods marketers use price to differentiate products

* e.g. : LVMH, Mercedes-Benz

Penetration Pricing and Non-Financial Objectives Charging a low price in order to penetrate market quickly Appropriate to saturate market prior to imitation by competitors

*e.g. : Packaged food product makers, with products that do not merit patents, may use this strategy to get market saturation before competitors copy the product.

Companion Products or “Razors and Blades” Pricing• Products whose sale is dependent upon the sale of primary product

Video games are dependent upon the sale of the game console• “If you make money on the blades, you can give away the razors.”• Cellular service providers subsidize the phone and make money on calling plans

The Target-Costing Process• Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay. • Compute overall target costs with the aim of ensuring the company’s future profitability. • Allocate the target costs to the product’s various functions. Calculate the gap between the target cost and the estimated

actual production cost.• Obey the cardinal rule: If the design team can’t meet the targets, the product should not be launched.

Export Price EscalationExport price escalation is the increase in the final selling price of goods traded across borders.

Factors for Pricing on Goods that Cross Borders1. Does the price reflect the product’s quality?2. Is the price competitive given local market conditions?3. Should the firm pursue market penetration, market skimming, or some other pricing objective?4. What type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm offer its international

customers?5. Should prices differ with market segment?6. What pricing options are available if the firm’s costs increase or decrease? Is demand in the international market elastic or

inelastic?7. Are the firm’s prices likely to be viewed by the host-country government as reasonable or exploitative?8. Do the foreign country’s dumping laws pose a problem?

Cost-Plus Pricing• Cost-based pricing is based on an analysis of internal and external cost• Full absorption cost method is using western cost accounting principles

– Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs • Rigid cost-plus pricing means that companies set prices without regard to the eight pricing considerations• Flexible cost-plus pricing ensures that prices are competitive in the contest of the particular market environment

Cross International Borders-Terms of Sale• Obtain export license if required• Obtain currency permit• Pack goods for export• Transport goods to place of departure• Prepare a land bill of lading• Complete necessary customs export papers• Prepare customs or consular invoices• Arrange for ocean freight and preparation• Obtain marine insurance and certificate of the policy

Terms of the SaleIncoterms Ex-works – seller places goods at the disposal of the buyer at the time specified in the contract; buyer takes delivery at the

premises of the seller and bears all risks and expenses from that point on. Delivery duty paid – seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with

all costs, including duties, paid FAS (free alongside ship) named port of destination – seller places goods alongside the vessel or other mode of transport and

pays all charges up to that point FOB (free on board) – seller’s responsibility does not end until goods have actually been placed aboard ship CIF (cost, insurance, freight) named port of destination – risk of loss or damage of goods is transferred to buyer once goods

have passed the ship’s rail CFR (cost and freight) – seller is not responsible at any point outside of factory

Environmental Influences on Pricing Decisions• Currency Fluctuations

*e.g. : January 2000 January 2002 January 2007 January 2010 $1=¥101 $1=¥130 $1=¥113 $1=¥91

• Inflationary Environment Defined as a persistent upward change in price levels

o Can be caused by an increase in the money supplyo Can be caused by currency devaluation

Essential requirement for pricing is the maintenance of operating margins

• Government Controls, Subsidies, and RegulationsThe types of policies and regulations that affect pricing decisions are: Dumping legislation Resale price maintenance legislation Price ceilings General reviews of price levelsForeign governments may: require funds to be noninterest-bearing accounts for a long time restrict profits taken out of the country and limit funds paid for imported material Restrict price competition

• Competitive Behaviour

If competitors do not adjust their prices in response to rising costs it is difficult to adjust your pricing to maintain operating margins

If competitors are manufacturing or sourcing in a lower-cost country, it may be necessary to cut prices to stay competitive

• Using Sourcing as a strategic pricing tool Marketers of domestically manufactured finished products may move to offshore sourcing of certain components to

keep costs down and prices competitive China is “the world’s workshop” Rationalize the distribution system—Toys ‘R’ Us bypasses layers of intermediaries in Japan to operate U.S. style

warehouse stores

Global Pricing: Three Policy Alternatives• Extension or Ethnocentric

Ethnocentric Per-unit price of an item is the same no matter where in the world the buyer is located Importer must absorb freight and import duties Fails to respond to each national market

• Adaptation or Polycentric Permits affiliate managers or independent distributors to establish price as they feel is most desirable in their

circumstances Sensitive to market conditions but creates potential for gray marketing

• Geocentric Intermediate course of action Recognizes that several factors are relevant to pricing decision

o Local costso Income levelso Competitiono Local marketing strategy

Gray Market Goods• Trademarked products are exported from one country to another where they are sold by unauthorized persons or

organizations• Occurs when product is in short supply, when producers use skimming strategies in some markets, and when goods are

subject to substantial mark-ups

Gray Market Issues• Dilution of exclusivity• Free riding• Damage to channel relationships• Undermining segmented pricing schemes• Reputation and legal liability• Selling drugs out of date leads to lawsuits.

Dumping• Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin.• Occurs when imports sold in the U.S. market are priced at either levels that represent less than the cost of production plus

an 8% profit margin or at levels below those prevailing in the producing countries.• To prove, both price discrimination and injury must be shown.

Price Fixing• Representatives of two or more companies secretly set similar prices for their products

Illegal act because it is anticompetitive• Horizontal price fixing occurs when competitors within an industry that make and market the same product conspire to

keep prices high• Vertical price fixing occurs when a manufacturer conspires with wholesalers/retailers to ensure certain retail prices are

maintained

Transfer Pricing• Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing

business with an affiliate in another jurisdiction• Intra-corporate exchanges

– Cost-based transfer pricing– Market-based transfer pricing– Negotiated transfer pricing

Countertrade

• Countertrade occurs when payment is made in some form other than money• Options

Bartero The least complex and oldest form of bilateral, non-monetary countertradeo A direct exchange of goods or services between two parties

Counterpurchase or parallel trading Offset Compensation trading or buyback Switch trading

Session 23-24Global Marketing Channels and Physical Distribution

Channel ObjectivesMarketing channels exist to create utility for customers Place utility - availability of a product or service in a location that is convenient to a potential customer Time utility - availability of a product or service when desired by a customer Form utility - availability of the product processed, prepared, in proper condition and/or ready to use information utility - availability of answers to questions and general communication about useful product features and

benefits

Distribution Channels: Terminology and Structure• Distribution is the physical flow of goods through channels• Channels are made up of a coordinated group of individuals or firms that perform functions that add utility to a product or

service• Distributor – wholesale intermediary that typically carries product lines or brands on a selective basis• Agent – an intermediary who negotiates transactions between two or more parties but does not take title to the goods being

purchased or sold

Consumer ProductsPiggyback Marketing – Channel innovation that has grown in popularity– One manufacture distributes product by utilizing another company’s distribution channel– Requires that the combined product lines be complementary and appeal to the same customer

Establishing Channels• Direct involvement – the company establishes its own sales force or operates its own retail stores• Indirect involvement – the company utilizes independent agents, distributors, and/or wholesalers• Channel strategy must fit the company’s competitive position and marketing objectives with in each national market

Working with Channel Intermediaries• Select distributors – don’t let them select you• Look for distributors capable of developing markets, rather than those with a few good customer contacts• Treat local distributors as long-term partners, not temporary market-entry vehicles• Support market entry by committing money, managers, and proven marketing ideas• From the start, maintain control over marketing strategy• Make sure distributors provide you with detailed market and financial performance data• Build links among national distributors at the earliest opportunity

Global Retailing• Department stores• Specialty retailers• Supermarkets• Convenience stores• Discount stores and warehouse clubs• Hypermarkets• Supercenters• Category killers• Outlet stores• Environmental Factors

Saturation in the home country market Recession or other economic factors Strict regulation on store development High operating costs

• Critical Question: “What advantages do we have relative to the local competition?”

Classifying Global Retailers

Global Retailing Strategies• Organic

Company uses its own resources to open a store on a green field site or acquire one or more existing retail facilities• Franchise

Appropriate strategy when barriers to entry are low yet the market is culturally distant in terms of consumer behavior or retailing structures

• Chain AcquisitionA market entry strategy that entails purchasing a company with multiple existing outlets in a foreign country

• Joint VentureThis strategy is advisable when culturally distant, difficult-to-enter markets are targeted

Innovation in Global Retailing• Innovation takes place only in the most highly developed systems• The ability of a system to successfully adapt innovations is directly related to its level of economic development• Even when the economic environment is conducive to change, the process of adaptation may be either hindered or

helped by local demographic factors, geographic factors, social mores, government action, and competitive pressures• The process of adaptation can be greatly accelerated by the actions of aggressive individual firms

Supply Chain Definitions• Supply Chain

– Includes all the firms that perform support activities by generating raw materials, converting them into components or finished products and making them available to customers

• Logistics– The management process that integrates the activities of all companies to ensure tan efficient flow of goods through

the supply chain

Physical Distribution, Supply Chains, and Logistics Management• Order Processing

– Includes order entry in which the order is actually entered into a company’s information system; order handling, which involves locating, assembling, and moving products into distribution; and order delivery

• Warehousing– Warehouses are used to store goods until they are sold– Distribution centers are designed to efficiently receive goods from suppliers and then fill orders for individual

stores or customers• Inventory Management

– Ensures that a company neither runs out of manufacturing components or finished goods nor incurs the expense and risk of carrying excessive stocks of these items.

• Transportation– The method or mode a company should utilize when moving products through domestic and global channels; the

most common modes of transportation are rail, truck, air, and water

Session 25-26

GLOBAL MARKETING COMMUNICATIONS DECISIONS

Advertising• May be defined as any sponsored, paid message placed in a mass medium• Global advertising refers to the use of the same advertising appeals, messages, art, copy, photographs, stories, and video

segments in multiple-country markets

Global Advertising• Advertising is any sponsored, paid message that is communicated in a non-personal way

– Single country– Regional– Global

• Global advertising is the use of the same advertising appeals, messages, art, copy, photographs, stories, and video segments in multiple country markets

Global Advertising concept: Standardization vs. AdaptationFour difficulties that compromise an organization’s communication efforts The message may not get through to the intended recipient. The message may reach the target audience but may not be understood or may even be misunderstood. The message may reach the target audience and may be understood but still may not induce the recipient to take the action

desired by the sender. The effectiveness of the message can be impaired by noise.

Advertising Agencies: Organizations and Brands• Understanding the term organization is key

– Umbrella corporations/holding companies have one or more ‘core’ advertising agencies– Each ‘organization’ has unites specializing in direct marketing, marketing services, public relations, or research

• Individual agencies are considered brands– Full service brands create advertising, and provide services such as market research, media buying, and direct marketing

Selecting an Advertising Agency• Company organization : companies that are decentralized ma want to leave the choice to the local subsidiary.• National responsiveness : is the global agency familiar with local culture and buying habits of a particular country?• Area coverage : does the agency cover all relevant markets.• Buyer perception : what kind of brand awareness does the company want to project?

Creating Global Advertising• Creative strategy• Big idea• Advertising appeal

– Rational appeal– Emotional appeal

• Selling proposition• Creative execution

– Art & Copy

Copy and Copywriters• Language specialist who develop headline, subhead and body copy • General rule:

– Short– Avoid slang– Avoid idiom– Increase use of picture or illustration

• Foreign rule:– Set new copy for a foreign market in the language of the target country– Translate original copy to target country– Leave some (or all) copy elements in the original home country

Cultural Considerations

Global Media Decisions• Prepare new copy for foreign markets in host country’s language• Translate the original copy into target language• Leave some or all copy elements in home country language

Media Decisions – Saudi Arabia• Use of comparative advertising claims is prohibited• Non-censored films cannot be advertised• Women may only appear in those commercials that relate to family affairs, and their appearance must be in a decent manner

that ensures feminine dignity• Women must wear a long suitable dress which fully covers her body except face and palms

Public Relations and Publicity• Fosters goodwill and understanding• Generates favorable publicity• Tools

– News releases– Media kits– Press conferences– Tours– Articles in trade and professional journals– TV and radio talk show appearances– Special events

Public Relations Practices around the World• Public relations practices can be affected by:

– Cultural traditions– Social and political contexts– Economic environments

• Public relations professionals must understand these differences and tailor the message appropriately

Sales Promotion• Sales promotion refers to any paid consumer or trade communication program of limited duration that adds tangible value

to a product or brand– Price vs. non-price promotions– Consumer vs. trade promotions

• Provide a tangible incentive to buyers• Reduce the perceived risk associated with purchasing a product• Provide accountability for communications activity• Provide method of collecting additional data for database

Global or Local• In countries with low levels of economic development, low incomes limit the range of promotional tools available• Market maturity can also be different from country to country• Local perceptions of a particular promotional tool or program can vary• Local regulations may rule out use of a particular promotion in certain countries• Trade structure in the retailing industry can affect the use of sales promotions

Issues and Problems

• Fraud– Pepsi promotion with Apple

• Regulations vary by country• Cultural dispositions to coupons and other sales promotions

– Malaysians see coupon usage as embarrassing– Islam frowns on gambling so sweepstakes may not work

Sampling• Provides consumer with opportunity to try product at no cost• May be distributed in stores, in the mail, through print media, at events, or door-to-door

*e.g. : Kikkoman soy sauce launched a sampling program in supermarkets in the U.S.; today the U.S. contributes 85% of profit from international operations

CouponingPrinted certificates entitle the bearer to a price reduction or some other special consideration for purchasing a particular product.*e.g. : - Couponing accounts for 70% of consumer promotion spending in the U.S.

- Free-standing inserts, in-pack, on-pack, cross coupons

Personal Selling• Person-to-person communication between a company representative and a prospective buyer• Focus is to inform and persuade prospect• Short-term goal: make a sale• Long-term goal: build a relationship

Hurdles• Political Risks – unstable or corrupt governments change the rules for the sales team• Regulatory Hurdles – Governments can set up quotas or tariffs that affect the sales force• Currency Fluctuations – increase and decrease in local currencies can make certain products unaffordable• Market Unknowns – lack of knowledge of market conditions, the accepted way of doing business, or positioning of the

product may derail the sales team’s efforts

The Strategic/Consultative Selling Model

• Personal Selling Philosophy – Commitment to the marketing concept and a willingness to adopt the role of problem solver/partner.

• Relationship Strategy – Game plan for establishing and maintaining high-quality relationships with prospects/customers.• Product Strategy – Plan that can assist the sales representative in selecting and positioning products to satisfy customer

needs.• Customer Strategy – Plan that ensures that the sales professional will be maximally responsive to customer needs.• Presentation Strategy – Consists of setting objectives for each sales call and establishing a presentation plan to meet those

objectives.

Evolved in response to:• Increased competition • More complex products• More emphasis on customer needs• Long-term relationships

The Presentation Plan

• Approach Initial contact with the customer/prospect Must completely understand the decision-making process and the roles of each participant

• Presentation Prospect’s needs are assessed and matched to the company’s products The style and message of the presentation must be tailored to the audience

• Demonstration Salesperson has the opportunity to tailor the communication effort to the customer Can show how the product can meet the customer’s needs

• Negotiation Ensures that both the customer and the salesperson come away from the presentation winners

• Close Ask for the sale Must be culturally sensitive

• Servicing the sale To ensure customer satisfaction

o Implementation process must be outlinedo Customer service program established

Sales Force Nationality• Expatriates

Advantages Disadvantages– Superior product knowledge– Demonstrated commitment to service standards– Train for promotion– Greater HQ control

– Higher cost– Higher turnover– Cost for language and cross-cultural training

• Host-country nationalsAdvantages Disadvantages

– Economical– Superior market knowledge– Language skills– Superior cultural knowledge– Fast implementation

– Needs product training– May be held in low esteem– Language skills may not be important– Difficult to ensure loyalty

• Third-country nationalsAdvantages Disadvantages

– Cultural sensitivity– Language skills– Economical– Allows regional sales coverage

– May face identification problems– May be blocked for promotions– Income gaps– Needs product and/or company training– Loyalty not assured

• Other International Personal Selling Approach Exclusive license arrangements Contract manufacturing or production Management-only agreements Joint ventures

Special Forms of Marketing Communications• Direct Marketing

– Direct mail– Catalogs– Infomercials, teleshopping

• Support Media • Event Sponsorship

– Concerts, sporting events– Product placement in movies

• Product Placement

Direct Marketing vs. Mass Marketing

Direct Marketing Mass Marketing

• Marketer adds value (creates place utility) by arranging for delivery of product to customer’s door.

• Marketer controls the product all the way through to delivery.

• Direct response advertising is used to generate an immediate inquiry or order.

• Repetition is used within the ad/offer.• Customer perceived higher risk because product is bought

unseen. Recourse may be viewed as distant or inconvenient.

• Product benefits do not typically include delivery to customer's door.

• Marketer typically loses control as product is turned over to distribution channel intermediaries.

• Advertising is used for cumulative effect over time to build image, awareness, loyalty, and benefit recall. Purchase action is deferred.

• Repetition is used over a period of time.• Customer perceives less risk due to direct contact with

product. Recourse is viewed as less distant.

CatalogsMagazine-style publication that features photographs, illustrations, and extensive information about a company’s products.

Infomercials and Teleshopping• An infomercial is a form of paid TV in which a particular product is demonstrated, explained, and offered for sale to viewers

who call a toll-free number on the screen.• Teleshopping on channels like HSN and QVC is exclusively devoted to demonstration and selling.

Interactive Television• ITV allows viewers to interact with the programming content they are viewing.• In the U.K., more than half of pay-TV subscribers use ITV.• Remote controls have buttons to push to order products shown on screen.

Sponsorships• A company pays a fee to be associated with an event, team, athletic association, or sports facility.• Combines elements of PR and sales promotion.• Draws media attention.

Product Placement• Arranging to have the company’s products and brand names appear in TV shows, movies, and other types of entertainment.• Marketers also lend or donate products to celebrities and other public figures.