- Understand the differences between domestic and international marketing
- Describe the advantages and disadvantages of a standardized, global approach tomarketing against an adapted, differentiated approach
- Identify the issues in a global marketing mix and problems in its standardization
- Discuss the different promotional strategies for the international market
- Explain the distribution strategies of global marketers
SELLING COOKIES IN CHINA
How difficult can it be to sell chocolate cookies in the global market? Pretty tough, if it is the Chinese market.
American MNE Kraft Foods had a tough time selling its signature product, Oreo cookies in China, since consumers found the traditional US version of the cookie too sweet, a little bitter and expensive. The package was also too big for small Chinese families. Like many other global companies, Kraft also had to ‘dress’ a signature product differently to gain acceptance in the world’s most populous market.
This experience contradicts Theodore Levitt’s prediction about global companies selling products and services in the same way everywhere in the global market. It highlights that brand management in global markets can be tricky and difficult. The experience clearly shows a one-size-fits-all approach to global brands just doesn’t work. Firms targeting global markets have to adapt brands to local conditions if they want their product to sell.
According to Kraft, there are 135 components which make an Oreo cookie, including ‘roastedness’, ‘burntness’, ‘bitterness’ and 132 other ‘nesses’. To create an ‘original’ Oreo for China, Kraft tested more than 20 unique Oreo formulations and finally made the cookie ‘more chocolatey and the cream ‘less cloying’. They also made the original Oreo with a green tea filling and another one with a bright orange centre which was a combination of mango and orange flavour. The round cookie was then developed like a straw for the Chinese consumer, and is now available in that form in Australia and Canada as well.
The earliest ideas on exploring the international market came from Theodore Levitt in 1983, in an article titled ‘The Globalization of Markets’. Levitt explained that technological advances in communication, transportation and travel have made cultural differences insignificant and the consumer all over the world only wants the best that is available. A homogenization of tastes and preferences ensures that ‘everywhere everything gets more and more like everything else’. He used the examples of Coca-Cola and Pepsi as globally standardized products sold everywhere and welcomed by everyone. Both succeeded across multitudes of national, regional and ethnic taste buds trained to a variety of deeply ingrained local preferences of taste, flavor, consistency, effervescence and aftertaste.
Levitt’s ideas became the basis for TNCs to develop advanced, functional, reliable and standardized products, at the right price, on a global scale.
There is a global convergence of taste visible in marketing functions of brands like Gillette. During the 1970s, Gillette had multiple campaigns for its diverse markets. Its most recent product, Sensor, is now being pushed worldwide under the promotion ‘The best a man can get’. Its world promotion is expected to be completely in place within two years, whereas in the past it was not uncommon for the promotion of one product to take more than five years to launch in Europe alone. In particular, large TNCs, recognizing the convergence of the culture of capitalism, are reaping the rewards through large-scale economies and quick market penetration. The moot question that arises, therefore, is concerned with the issue of globalization versus localization in the arena of international marketing. This chapter examines the issue in the context of increasing interconnectedness of markets and a convergence of global tastes and preferences.
INTERNATIONAL MARKET ASSESSMENT
The first step in international marketing strategy is market assessment, an analysis of total market potential through an evaluation of goods and services that can be sold in it. This is followed by developing an appropriate marketing mix to meet that potential. In this context, a firm should examine three basic market indicators:
Market assessment is an analysis of total market potential through an evaluation of goods and services that can be sold in it.
- Market size is the relative size of the market compared to the total world market. This is usually a function of the population of the country and the purchasing power of its citizens.
- Market intensity is the degree of purchasing power in terms of per capita income as well as propensity to purchase and buying patterns.
- Market growth is the propensity for growth based on the above features as well as economic development and infrastructure.
Potential markets may be gauged by the current imports, demographic profiles and changing political and economic conditions. In this context, the breakup of socialist economies and the move to a market-based system in much of the developing world has been a marketing and sales opportunity for many TNCs. The opening vignette clearly explains how Marico initially targeted the Middle East markets due to the demand for its hair oil in the expatriate Indian community.
Forecasting market demand can be an uncertain proposition, as luxury car maker BMW discovered in Korea. It had estimated that there would be few buyers for a convertible, but when it launched the 3-Series convertible, it sold 500 convertibles in the first year. In a fast-changing world, there are no given patterns and therefore predictions are hard to make.
The next step is to examine the financial aspects of the potential markets. This includes factors such as the cost of setting up (rentals, availability of finance, interest rates, etc.), the income distribution of the consumer and buying habits.
The existence of entry barriers, limits on ownership and rules regarding remittance of profits are other factors to be considered. Legal rules regarding protection of patents, trademarks and copyrights similarly have a bearing on decisions regarding potential markets.
THE MARKETING MIX
The marketing mix refers to a set of strategy decisions made in the areas of product, promotion, pricing and distribution to meet consumer needs in a target market.
The marketing mix refers to a set of strategy decisions made in the areas of product, promotion, pricing and distribution to meet consumer needs in a target market.
Also known as the 4Ps, it basically pertains to:
- How to develop the firm’s products?
- How to price these products?
- How to sell (promote) these products?
- How to distribute (place) these products to consumers?
Product, place, promotion and price—the 4Ps of marketing—are collectively known as the marketing mix.
In the context of the TNC, it is important to distinguish between marketing standardization and marketing adaptation of the marketing mix. Standardization refers to the use of the same marketing mix in all world markets, whereas marketing adaptation refers to local responsiveness, that is, changing a part or all of the marketing mix according to conditions in various local markets.
A globally standardized marketing mix has many advantages for an international company. If a firm could export a standard domestic product, it would be able to avail economies of scale arising out of production as well as out of its own learning curve. Similarly, if the firm has a product or service that is homogeneous and consistently used around the globe, a single advertising message can convey its attributes in spite of cultural and national differences. Standardization of advertising campaigns, promotional materials and sales, as well as art work is a huge saving in costs. The efficiencies achieved by global marketing can be translated into cost savings that lead to lower prices for customers that, in turn, give the global marketer a competitive advantage. Despite these advantages, firms often find it necessary to modify their existing marketing mix or develop a new one. The extent of change depends on a host of factors including the type of product, the firm’s cultural environment and the degree of market penetration that is considered desirable.
The marketing mix for products such as steel, chemicals, petroleum, cement, agricultural equipment, computers, electronic instruments, pharmaceuticals and telecommunications equipment are generally standardized. Consumer products such as Coca-Cola, McDonald’s burgers, Levi’s jeans and MTV also have a mass appeal and global usage across different cultures and countries, but undergo adaptation to suit local taste. Take the case of McDonald’s, where adapting to local culture is the way to survive. In the last 50 years, the chain has opened more than 30,000 restaurants in 120 countries, including 155 in India, by adapting its menu and operations to complement the existing eating-out options. While the iconic all-beef Big Mac has been replaced by the mutton and chicken Maharaja Mac in India, a koshervariant in Israel is served minus the cheese. In China, McDonald’s introduced red bean pies, and Norwegian restaurants offer the salmon McLaks burger. It helps that McDonald’s uses the franchising mode of market entry, and about 70 per cent of the chain’s restaurants are owned and operated by local entrepreneurs. Local players understand what their customers want, and know what is acceptable to local customs and values. Since differences in cultures across countries makes it impractical to use the same marketing mix, adaptation to suit local conditions becomes imperative. This essentially requires market segmentation.
Market segmentation is the process of dividing the market into sets of homogeneous customers. Markets may be segmented on the basis of geography, demography, socio-cultural factors and psychological factors. The basic purpose is to optimize consumer satisfaction and buying behaviour through an altered marketing mix. This process enables the marketing manager to adapt to the differences among customers regarding their needs, wants, willingness and ability to purchase a product or service. There are three approaches to market segmentation in international marketing: segmenting the world, segmenting foreign markets and international market segmentation. For example, refrigeration manufacturers market refrigerators with large freezer compartments in the West, where people shop over the weekends and stock up for the entire week or even longer. The same manufacturers market refrigerators with smaller freezer compartments in locations like India, due to the weather, frequent electricity outages and the large vegetarian population.
Market segmentation is the process of dividing the market into sets of homogeneous customers on the basis of geography, demography, socio-cultural factors and psychological factors.
Markets within a geography or country may be further segmented on the basis of consumers’ geographic, demographic and socio-economic characteristics; their lifestyles, personalities and attitudes; as well as their backgrounds, benefits sought, brand loyalty and sensitivity to changes in price, product quality and promotion methods.
McDonald’s in India uses a demographic segmentation strategy with age as the parameter. The main target segments are children, youth and the young urban family. Promoted as an affordable place to eat for young urban families, children are McDonald’s most important customers. In order to attract children, McDonalds introduced the Happy Meal, which has a Walt Disney toy in it, as well as special facilities like a ‘Play Place’ where children can play arcade games and air hockey. Pricing of products is especially aggressive for the teenager, who is McDonald’s most price-sensitive customer. In addition, facilities like Wi-Fi are also provided to attract students to its outlets.
International marketing is concerned with the issues of market assessment, determining the marketing mix and market segmentation.
A product is a bundle of attributes including the physical product, brand name, after-sales service, warranty, instructions for use, packaging, and the company image. It is the central focus of the marketing mix, and directly responsible for customer satisfaction. It is important to remember that the product is more than the physical item, and includes a host of other attributes that make up the ‘total product’. For example, Coca-Cola is a global ‘total product’, but the physical product is multi-domestic; its sweetness varies according to local tastes.
A product is a bundle of attributes including the physical product, brand name, after-sales service, warranty, instructions for use, packaging, and the company image
We can divide products into two broad categories: industrial products, which generally lend themselves to global demands with little or no modification, and consumer products or services, which generally require greater adaptation to meet the demands of the world’s markets. Let us consider the adaptation requirements of each of these categories.
Producer goods, also known as industrial products, can be marketed without any major changes, and the changes made are often cosmetic, such as converting gauges to the metric system or printing instructions in another language. Goods such as the laptop and the photocopying machine may need minor modifications in electrical equipment, which is designed for 110/120 volts in Japan and the US, but for 220 volts in Europe and 240 volts in Australia. Adaptations may often be necessary because of legal requirements such as noise, safety or emissions standards. Similarly, international engineering and construction firms also have identical product strategies, as do goods with a very strong brand appeal such as Intel, which requires very little adaptation in the different markets of the world.
There is a huge range of goods that fall in this category, some of which require modification to meet local market requirements, but others can be sold unchanged to certain market segments. Consumers with a similar economic status, buyer behaviour, tastes and preferences, such as foreign-educated and well-travelled citizens and expatriates, typically have similar demand for luxury items like expensive cars, perfumes and sporting equipment. A bottle of BVLGARI perfume can be sold in the same packaging in Mumbai, Dubai and New York, but the McDonald’s burger has to be modified to meet local tastes and preferences. Reengineering the menu using a regiocentric approach has helped it adapt to the customer’s tastes, value systems, lifestyle, language and perception. Globally McDonald’s was known for its hamburgers, beef and pork burgers. Most Indians are barred by religion not to consume beef or pork. So McDonald’s came up with chicken, lamb and fish burgers to suite the Indian palate. To cater to the vegetarian customer segment, the company came up with a completely new line of vegetarian items like the McVeggie burger and McAlooTikki. The separation of vegetarian and non-vegetarian sections is maintained throughout the various stages of product preparation. It is generally seen that as you go down the socio-economic ladder there are greater dissimilarities among consumers with respect to social and cultural values.
Determinants of Product Adaptation
Income: This is a key determinant of demand for consumer goods. At higher levels of income, consumer’s goods in demand often fall in the category known as Veblen goods, meaning they are in demand for ostentation rather than for their utility. At lower levels of income, the consumer demands goods for their inherent utility and the demand is therefore elastic. For example, Singer Sewing Co. sells simple, hand-powered sewing machines in parts of Africa; while in Europe, it sells a complex line of electrical machines.
Education: The general level of education affects product decisions both directly and indirectly. A highly literate market typically demands more complex products such as computers and other electronic equipment, but demand for such products is limited in areas of high illiteracy.
Consumer tastes and preferences: For years, Oreo cookies, manufactured by the US TNC Kraft Foods Inc., were difficult to sell in China. Consumers found the traditional US version of the Kraft Foods cookie too sweet and too expensive. The package was also too big for small Chinese families. Like many other global companies, Kraft also had to ‘dress’ a signature product differently to gain acceptance in the world’s most populous market. Similarly, Campbell Soup Company had to change the flavor of its tomato soup for the European consumer, and Nestlé sells dozens of varieties of its instant coffee around the world to be able to satisfy the taste buds of its varied consumers. The French prefer top-loading washing machines, the British prefer front loading, the Germans want high-speed machines that remove most of the moisture in the spin-dry process, and the Italians prefer low-speed machines because they dry their clothes in the warm Mediterranean sun. There is just as much variation in colour preferences. Green is unpopular in parts of East Asia because the colour is associated with the dangers of the jungle. Gold is popular in many countries as a symbol of quality and prestige. In the Netherlands, blue is considered warm and feminine, but in Sweden blue is considered cold and masculine.
Product life cycle: Product modification often has to be done because of the limited product life cycle. Ford Motor Company was an extremely profitable venture in Europe during the 1980s, but failure to develop new products soon eroded its competitive advantage. Gillette used a combination of technology and marketing to introduce new products into the market to make up for the declining market shares of its old products.
A product is the central focus of the marketing mix and directly responsible for customer satisfaction. Products need to be adapted for the market according to the consumer’s income, taste and preferences and the product life cycle.
A brand is the identity of a specific product, service or business. A brand can take many forms, including a name, sign, symbol, colour combination or slogan. Brand management in global markets is a tricky and difficult business, contrary to Levitt’s prediction of monolithic global brands. Modern-day managers find that there are actually only a handful of truly global brands in existence. In addition, experience has shown that companies need not always create one-size-fits-all global brands just because the world appears to be shrinking. Indeed, firms recognize that adapting brands to local conditions is often the best approach, and at times they have no choice in the matter because of local conditions.
A brand is the identity of a specific product, service, or business. A brand can take many forms, including a name, sign, symbol, colour combination or slogan.
It is true that global companies need global brands to some extent. However, global branding is not an all-or-nothing proposition. There is a continuum along which firms can decide how global they wish their brands to be, with a single global brand at one extreme and an assortment of nothing but local brands at the other. Global and local brands can be part of a successful marketing mix at any spot along the continuum. Decisions to use a combination of local and global brands—called the ‘hybrid’ approach—depend on many factors, including products, industry, local cultures and the nature of the competition.
The world’s top global brands in 2016 are Apple, Google, Microsoft, Coca-Cola and Facebook.1 Brands get their value from customer perception and a willingness to pay more for their perceived value. People are more likely to use Google than its counterpart Bing, although both will show the same results as search engines. Google is almost a generic term for online searching—being used as a verb more often than as a noun. These brands and others share some common features: They have a consistent name that is easy to pronounce; corporate sales are globally balanced with no dominant market; the essence and positioning of the brand is the same the world over; they address the same customer needs, or the same target segment, in every market; and there is great similarity in execution (pricing, packaging, advertising, etc.) across cultures.
What kinds of products are difficult to become global brands? Food is one category where, literally, differences in tastes from culture to culture compel global companies to adapt to local conditions. At the other end of the spectrum is a company like Intel Corporation, whose products and markets make it easier for executives to establish a truly global brand with a memorable catch-phrase: ‘Intel inside’.
However, MacDonalds and KFC dominate as global brands as a result of their ability to adopt a hybrid approach. Global and local brands can be part of a successful marketing mix at any spot along the continuum. Decisions to use a combination of local and global brands—called the ‘hybrid’ approach—depend on many factors, including products, industry, local cultures and the nature of the competition.
Kentucky Fried Chicken, has 5,000 restaurants in the US and 6,000 in other countries. It has learned that it cannot open restaurants globally based on its US model. In Japan, KFC sells tempura crispy strips, potato-and-onion croquettes in Holland, and in China, KFC’s chicken gets spicier the farther inland one travels.
Another countervailing force is entrenched local brands. Conditions favouring local over global brands include unique market needs; low frequency of purchase so that brand loyalty passes from one generation to another through family traditions; and the relative importance of advertising, which makes it harder for global companies to change loyalty patterns.
A third force going against global brands is the growing concentration of retail buying power, which can lead to heightened price sensitivity on the part of the buyer. For instance, Walmart’s goal to offer low prices everyday can constrain companies wishing to sell their products through Walmart stores.
New Product Development
For most firms, new products are the path to success and growth despite their development being a time-consuming, costly affair fraught with immense challenges. It becomes a gigantic issue when it has to be coordinated across regions or across the world.
Every new product starts with an idea and may originate in any of the firm’s 4 Cs: company, customers, competition and channels. Many new products originate in the R&D labs of large TNCs, which often create organizational structures to foster global or regional innovation. TNCs also capitalize on their global know-how by transplanting new product ideas that were successful in one country to other markets. McDonald’s, for instance, developed the concept of McCafe—an Australian coffee innovation in 1993, and it was successful in the markets of New Zealand, Cyprus and Austria, but failed to take off in the US markets.
Technology plays a dual role in new product development. First it is technological development that has made it necessary for firms to develop new products on account of increasingly short productlife-cycles. Second, technology ensures rapid product development to replace the obsolescence taking place in the market. Firms that are considered market leaders have managed to stay ahead on the strength of their continuous innovation; Apple Inc. is known for the iPod, the iPhone and now the iPad, and Sony Corporation’s successes include the Walkman, the compact disk and the PlayStation.
New product development needs cross-functional integration among R&D, production and marketing to ensure that new products are driven by customer needs and are easy to manufacture, development costs do not escalate too high, and the product reaches the market in minimum time.
Large and successful TNCs often apportion R&D work across global research centres attached to global product divisions for new product development. At this level, the emphasis is on commercialization of technology and design for manufacturing. Further customization of the product for individual markets is done by R&D teams in that particular country. This includes companies like Hewlett-Packard (HP), which has four basic research centres in California, England, Israel and Japan. HP’s thermal inkjet technology was pioneered at its California lab, but was customized at the Singapore subsidiary for the Japanese and other Asian markets.
Promotion is the process of motivating demand for a firm’s goods and services towards a sale. Promotion is the strategy of using communication designed to motivate consumer demand, and is a mix of advertising, sales promotion, personal selling and public relations. Promotional strategies may broadly be classified as push and pull strategies. A push strategy emphasizes personal selling by directing promotion primarily to intermediaries by pushing the product through the distribution system. A pull strategy is directed at the final customer and is designed to coax (‘pull’) the product through the distribution system to the customer. In practice, firms follow strategies that have a mix of both push and pull elements.
Promotion is the process of motivating demand for a firm’s goods and services towards a sale.
A firm’s choice of promotion strategy depends on a host of factors.
Nature of Product
The nature of the product being promoted has a huge bearing on the promotion strategy chosen by the firm. Standardized products such as industrial goods and goods with high brand value allow the firm to follow a uniform promotion strategy worldwide. Consumer goods require greater adaptation in promotion strategy. Automobiles, for instance, may be promoted on the basis of their luxury or convenience characteristics in the US market, but in an emerging market like India they are promoted on the strength of their fuel efficiency and value for money. General Motors Europe has a global promotional strategy, but when it launched its Omega Sedan it held a separate campaign for Germany and Switzerland. Similarly, products like hair oils are marketed on different platforms in different countries, depending on the perception of the consumer.
Products where standardized promotion may be successful are:
- Luxury products (for example, Rolex watches, which appeal to their buyers worldwide);
- Industrial products (for example, ball bearings, which offer users worldwide the same benefits);
- ‘Youth’ products (for example, blue jeans and rap music, which appeal to young people to a marked degree around the world);
- Products in other categories need localized promotion strategies to cope with cultural differences.
Sophistication in this context refers to the consumer’s education and awareness about the product and its features. A sophisticated consumer is pulled towards the product, but an unsophisticated one has to be pushed towards it to create an awareness about product features and the consumer’s demand for it.
This refers to the number of intermediaries in the distribution chain. The chain is likely to be much longer in international business than in domestic business, and this has many implications for the communication process.
Media availability refers to the number of media—such as newspapers, magazines, radio and television, including cable and satellite television—that are available to advertisers. Some countries have all of these media; African countries in general have few of them, whereas Latin America and some Middle Eastern countries have a huge number of newspapers and magazines. However, media availability also has other connotations. Governments place limiting regulations on radio and television. Since 1991, member nations of the European Union require European broadcasters to reserve a majority of broadcasting time (including advertising) for Europeans. This limits advertising by Americans. There are also restrictions on advertisers generally. For example, tobacco advertising is banned in the European Union; there are guidelines on alcohol advertising; advertising as a whole is limited to a percentage of programming time in some countries, and in others, television advertising is restricted to the break between programmes. There are some televising channels that have uninterrupted programming because it is believed that commercial breaks mar the viewing pleasure of consumers.
A firm has the following choices in promotional strategies:
Advertising: It is a non-personal form of promotion attempting to influence consumer buying behaviour. It is done through a variety of media and attempts to lead to buyer action through the impact of its message. As stated earlier, the message and its contents have global appeal and impact for some products, such as Nike, Inc., which uses the slogan ‘Just do it’ all over the world. Panasonic Corporation, on the other hand, uses a local promotion strategy for its dishwashers in Japan. It uses the hygiene and hot water conservation arguement to convince the Japanese housewife, who feels guilty about purchasing a gadget just for the sake of her convenience. Danish toymaker LEGO Group’s successful campaign in the US was a complete flop in Japan because of linguistic, cultural and social differences. Swatch advertisements target the youth around the globe, and use Olympic trackstar Michael Johnson and supermodel Tyra Banks along with the catchphrase ‘time is what you make of it’. The orange drink, Tang is marketed as a breakfast drink in the US but as a ‘throughout the day drink’ in Latin America.
Personal selling: It is a form of direct promotion, useful for products that require an explanation or detailed description. Cosmetic companies such as Avon Products, Inc. and Oriflame Cosmetics SA have used this method very successfully in different parts of the world.
Direct mail: It is a method of personalized advertising by directly approaching the target audience with publicity material. It allows an organization to use its resources effectively and has a very high response rate leading to increased sales.
Sales promotion: It is a widely used tool of marketing. It entails the use of coupons, special offers, distribution of free samples, etc. for a variety of objectives. These include stimulating an impulse purchase, encouraging customer loyalty, penetrating new markets and ensuring repeated purchasing. Promotional techniques need to relate to the specific aim of the exercise (free samples to enter new markets or reduced price offers to encourage repeat purchasing). The use of sales promotion techniques in cross-border campaigns, however, often face serious practical difficulties. For instance, many sales promotion techniques are considered unfair competition in some countries; discount vouchers are considered legal in Spain but not in Germany, ‘lower price for the next purchase’ offers are legal in Belgium but illegal in Denmark.
Promotion strategy of a firm depends on a host of factors, such as nature of the product, availability of media and channel length.
Pricing is an integral aspect of the marketing mix and determines the profitability of the enterprise. Proper pricing ensures both short-term profits and long-term resources, as well as the viability of the enterprise. Pricing in international markets is much more complex due to varying cost structures such as transportation costs and tariffs. For instance, the Ford Escort, which sold at about USD 10,000 in the US, cost double that amount in the United Kingdom, and 10–12 per cent more in other EU markets. Important factors in the pricing decisions include government controls, market diversity, currency fluctuations and price escalation forces.
Government regulations such as floor and support prices are among the important things to be factored in by a TNC. Floor prices intend to support local companies from the cheaper products of more efficient TNCs. Pricing regulations also pertain to dumping, or the selling of goods at cheaper prices in the foreign market as compared to the local market.
Differences in the perception of the consumer about the same product in different markets of the world also permits differential pricing. The TNC is able to offer the same product at different prices in different markets because of the differences in demand elasticity. This is often the case with publishing houses, which introduce a book at a higher price in the domestic market but sell it at a lower price in the foreign market, especially in the developing countries.
Fluctuations in exchange rates cause a product to be priced differently even when there is no change in production cost. For instance, Chinese exports are attractively priced and are huge foreign exchange earners as the government keeps their prices at a devalued rate. US products were similarly attractive in European markets in the 1980s as a result of a devalued dollar and declined in competitiveness as the dollar strengthened in the 1990s.
Some commonly used pricing techniques are as follows:
Predatory pricing:This involves using price as a weapon to drive competitors out of a national market. A good example worldwide was the Japanese practice in the 1970s and early 1980s of selling motor vehicles at a loss in Europe and elsewhere to undercut the competition and establish a Japanese (for example, Toyota Motor Corporation or Honda Motor Co., Inc.) presence. Similarly, television companies such as Panasonic used predatory pricing to enter the US television market.
Multipoint pricing:This compares the effect that a firm’s pricing strategy in one market may have on a rival’s pricing strategy in another market.
Experience curve:This is aggressive pricing designed to increase volume and help the firm realize experience curve economies.
Distribution channels provide the essential link connecting the producer with the consumer.
A firm’s efforts at market assessment, promotion and pricing would all be wasted if the goods in question did not reach the final consumer. Distribution is the most difficult and longest decision of the marketing mix as it cannot be altered easily and also means some loss of control by the firm over the marketing of the product. There are significant differences in distribution systems across the world. Some countries have a concentrated retail system and, thus, a short distribution channel. Other countries have fragmented wholesale/retail systems with long distribution channels. Long distribution channels generally lead to higher prices for consumers, but they may also lead to lower selling costs and thus assist a firm to gain access to the market.
The customer profile, especially the assessment of demand and perceived need, often results in different strategies for different consumers. Competitive channels indicate general acceptability and likelihood of success. Walmart, for instance, has to rely on a joint venture with Bharati Enterprises to access the Indian market to conform with host country FDI policy.
IKEA Systems B.V., on the other hand, has chosen to use a completely different strategy in furniture retail to develop its competitive advantage. The cost of distribution is an important element to be factored in, and often includes the cost of forward and backward linkages that a firm has to establish to get the product to the final consumer. McDonald’s had to ensure that it had the perfect potato for its fries and lettuce for the burger, which involved a five-year investment in farming methods in India.
Distribution norms differ over countries. Finland has a predominance of general retail stores but Italy has a fragmented retail and wholesale structure. In the Netherlands, buyers’ cooperatives deal directly with manufacturers, but Japan has cash-and-carry wholesalers for retail services that do not need financing.
One aspect of distribution strategy is exporting, which is the process of getting products to foreign markets. In this section, we deal with the distribution of products within each market.
Distribution systems may differ for a variety of reasons, including the following:
Physical environment:This may make delivery by air more feasible than delivery by truck. For example, the highlands of New Guinea rely in part on air delivery of goods.
Social customs:For example, door-to-door selling is acceptable in some societies while in others it would be considered anti-social.
Availability of services:The national infrastructure of road, rail, air and telecommunication services will influence the choice of distribution system.
Tradition:For example, in Japan it is common to use many intermediaries between the manufacturer and the final retailer, and it is difficult to avoid these agents even though they add several layers to the distribution system.
The complications in distribution get compounded in a foreign market. The greatest stumbling block is the lack of adequate infrastructure, such as roads and warehousing facilities.
In countries such as Nigeria, TNCs like Nestlé have constructed their own small warehouses, and allow movement of goods only during the day to prevent robbery.
In certain countries such as Japan, there is a multilayered distribution system where national wholesalers sell to regional ones and in turn to local ones. The increase in intermediary levels in turn adds to the price and can also be a hindrance in the case of perishable goods like vegetables. The issue gets further compounded where the retailer is small and has limited space for stocking inventory, causing frequent lack of adequate stock.
- Product attributes need to be varied from country to country to satisfy consumer tastes and preferences. These differences in tastes and preferences are due to differences in culture and the country’s stage of economic development.
- There are significant differences in distribution systems across the world. Some countries have a concentrated retail system and, thus, a short distribution channel. Other countries have fragmented wholesale/retail systems with long distribution channels. Long distribution channels generally lead to higher prices for consumers, but they may also lead to lower selling costs and thus assist a firm to gain access to the market.
- The third P of the marketing mix is promotion or communication strategy. Barriers to communication include cultural differences, source effects, and noise levels. A communication strategy may be a push strategy that emphasizes personal selling, or a pull strategy that emphasizes use of the advertising media.
- Whether a push or a pull strategy is better depends on the type of product, customer sophistication, channel length and the availability of the various types of media. Standardized global advertising suits products such as luxury goods, chemicals and bulk commodities, but for most products some degree of specialized advertising is necessary to meet local tastes and preferences.
- The final P is pricing. Price discrimination relates to differential pricing between countries. For price discrimination to be profitable, national markets must be separate (no cross-border traffic) and their price elasticities of demand must differ.
- Predatory pricing is aggressive pricing designed to undercut the opposition and force it out of the market. Predatory pricing may go hand-in-hand with experience curve pricing to build volume quickly and thus move down the experience curve towards lower production costs.
- Multipoint pricing is concerned with the effects of rival firms’ pricing strategy in different markets. The ability of firms to use price discrimination and predatory pricing is often limited by government anti-dumping regulations and competition policies.
- Market assessment
- Market size
- Market intensity
- Market growth
- Marketing mix
- Market segmentation
- Distribution channels
- Explain the issues involved in the globalization versus localization debate in international marketing.
- What are the elements of a successful marketing mix in an international business?
- Enumerate the complexities of distribution in the global market.
- What are the various promotional strategies, a firm can use?
- Write short notes on:
- The marketing mix
- Brand management
- Develop a classroom discussion around brand logos. Use the Google doodle (which changes everyday) to demonstrate the strength of Google as a top secure brand versus others which often employ brand police to ensure the security of their logo.
- Examine the differences in marketing strategies of the Tata Nano and the Mercedes in India. Give reasons for the differences in strategy.
- Explain the marketing strategy of a firm for expansion in global market. (8)
[B.Com (Hons.), 2017]