© 2001 prentice hall16-1 international business by daniels and radebaugh chapter 16 marketing

© 2001 Prentice Hall 16-1

International Businessby

Daniels and Radebaugh

Chapter 16Marketing


ObjectivesTo introduce techniques for assessing market sizes for given

countriesTo describe a range of product policies and the circumstances

in which they are appropriateTo contrast practices of standardized versus differentiated

marketing programs for each country in which sales are made

To emphasize how environmental differences complicate the management of marketing worldwide

To discuss the major international considerations within the marketing mix: product, pricing, promotion, branding, and distribution


IntroductionDomestic and international marketing principles are similar

• Environmental differences often cause managers to apply these principles differently abroad

– managers may interpret foreign information incorrectly

Market Size AnalysisTotal market potential—estimate of the possible sales of a

product for all companies, and the estimate of your own company’s market-share potential

Present income and population are the major indicators for potential sales of most products As incomes change, product demand may change Other factors affect demand

– managers cannot project potential demand perfectly


OPERATIONS

OBJECTIVES

STRATEGY

Modes Functions• MARKETING• Exporting and importing• Global manufacturing• Supply chain management• Accounting• Finance• Human resources

OverlayingAlternatives

MEANS

EXTERNAL INFLUENCES

COMPETITIVE ENVIRONMENT

PHYSICAL AND SOCIETAL FACTORS

Marketing in International Business


0.0 0.1 0.2 0.3 0.4 0.5 0.6

0

5,000

10,000

15,000

20,000

25,000

Per Capita Televisions

Per

Cap

ita

Inco

me

at P

PP

Germany

South Africa

Argentina

Ireland

Ecuador

Portugal

CongoLaos

Guinea PhilippinesIndonesia

Per Capita Televisions and Per Capita Income at PPP


Gap AnalysisMethod for estimating a company’s potential sales by

identifying market segments it is not serving adequately• Sales potential exists when sales are lower than the

estimated market potential• Usage gap—less product sold by all competitors than

potential– growth potential for all competitors

• Distribution gap—sales lost to competitors who distribute where the company does not

– company misses geographic or intensity coverage• Product line gap—sales lost to competitors who have

product variations the company does not• Competitive gap—remaining unexplained sales lost to

competitors who may have a better image or lower prices


Potential sales for allcompetitors

A Actual sales for all competitors

B

Sales lost to competitors

Usage gap

Product linegap

Company’scurrent sales

Distributiongap

Competitivegap

Gap Analysis


Product PolicyProduct orientation—companies focus on production with little

emphasis on marketing• Assumes that customers want lower prices or higher

quality• Price most important factor in selling many commodities

– marketing boosts sales of some commodities• Passive sales occur when:

– advertising spills over– foreign buyers seek unaltered domestic product

Sales orientation—company tries to sell same product in domestic and international markets

• Assumes that customers are similar globally• Takes active marketing approach• Effective when consumers are similar and product

information spillover exists


Product Policy (cont.)Customer orientation—company wants to penetrate markets in

a given country• Geographic area taken as a given• Extremes of approach

– develop products tailored for foreign market– responds to requests from purchasing agents

Strategic marketing orientation—combines production, sales, and customer orientation

• Companies vary products abroad without deviating very far from their experience

• Can retain some economies of standardization• Product designed for global market segment

Societal marketing orientation—considers potential environmental, health, social, and work-related problems that may arise

• Concerned about product disposal and changes that increase social desirability of product


Reasons for Product AlterationLegal reasons—meant to protect customers

• Related to health and safety• Laws on packaging to protect the environment• International product standards an issue

– both consumer and economic resistance to standardization

Cultural reasons—difficult to predict foreign consumers’ reaction to a product

• Examination of cultural differences may pinpoint possible problem areas

Economic reasons—personal incomes and infrastructures affect product demand

• Foreign consumers must have sufficient income– purchase of items in small quantities may necessitate

new types of packaging• Poorer infrastructures require more durable products

ability to deal with utility outages


Alteration CostsSome product alterations are inexpensive, but have important

influence on product demand• Must compare alteration costs with the cost of lost sales

from no alterations• Compromise strategy between uniformity and diversity

– rely on standardization while altering some end characteristics

Extent and Mix of the Product LineNarrowing the product line for foreign markets

• Offer only a few products, perhaps as entry strategy• Based on considerations of sales and costs associated

with selling one product as opposed to family of products• Broadening the product line may gain distribution

economies


Product Life Cycle ConsiderationsCountries differ in either the shape or length of a product’s life

cycle• Product facing declining sales in one country may have

growing or sustained sales in another

PricingCompanies place importance on price, which must:

• Be low enough to gain sales• Be high enough to guarantee flow of funds• Assure short-term profits and long-term viability

Governmental intervention—every country has laws that affect prices

• May set either minimum or maximum prices– price controls may prompt companies to lower

product quality• WTO—countries may restrict imports that come in at

prices below those charged in the exporting country


Pricing (cont.)Greater market diversity

• Variations among countries create natural market segments

• Substantial competition in some countries limits discretion in setting prices

– near-monopoly markets permit greater discretion• Country-of-origin stereotypes limit pricing• Diversity in buying on credit affects sales

Price escalation in exporting• Price usually goes up by more than transport and duty

costs• Price escalation in export sales occurs because:

– distribution channels are longer

– tariffs are passed on to consumers


Cost of Production = $1.00 and Markup = $.50

Tariff Wall

Tariff = $.15

Importer’s Cost =$1.90 and

Markup = $.95

$1.50

$1.75

$1.90

$2.85

Transport Cost

= $.25

Price Escalation in Exporting If CompaniesUse Cost-Plus Pricing


Pricing (cont.)Currency value and price changes

• Pricing in volatile currencies can be troublesome• Pricing decisions must consider

– replacement costs– effects of inflation on:

» exchange rates of currencies» readjustment of prices to reflect cost increases

– basis for taxation of profits• Spillover in buying occurs if similar goods are priced

differently in different countries– gray market—handling of goods through unofficial

distributors» ruins relations with official distributor» causes competition among company’s plants» complicates spotting counterfeit goods


IF SOLD AND COLLECTEDAS SOON AS INVENTORY IS ACQUIREDCost 1,000Markup 500Sales price 1,500 - Cost 1,000Taxable income 500Tax @ 40% 200Income after taxes 300

IF SOLD AND COLLECTED A YEARAFTER INVENTORY IS ACQUIREDReplacement cost 1,360Markup on replacement 320Sales price 1,680 - Original cost 1,000Taxable income 680Tax @ 40% 272Income after taxes 408

Assume: Cost at beginning is 1,000 36% inflation 40% tax rate 30% profit goal on replacement

cost after taxes

Effect of Taxing and Inflation on Pricing


Pricing (cont.)Fixed versus variable pricing—there are country-to-country

differences in:• Whether manufacturers set prices• Whether prices are fixed or bargained in stores• Where bargaining occurs• How sale prices can be used

Retailers’ strength with suppliers• Dominant retailers with clout can get suppliers to offer

them lower prices


PromotionPresentation of messages intended to help sell a product or

servicePush-pull mix

• Push—uses direct selling techniques– used when

» distribution system is tightly controlled» indirect tax on advertising is high

• Pull—relies on mass media – used when:

» contact limited between salespeople and customers

» product price is high in relation to consumer income


Promotion (cont.)Standardization of advertising programs

• Standardized advertising means similar, not identical, messages in different markets

• Advantages of standardized advertising include:– some cost savings– better quality of advertising at local level– rapid entry into different countries

• Usually implies using a global advertising agency• Translation—usually required when sales intended in a

country with a different language– difficult to translate some messages

• Legality—countries have different laws– consumer protection – advertising some products may be forbidden

• Message needs—economic and cultural factors suggest different advertising appeals


BrandingBrand—an identifying mark for products or services

• Trademark—a legally registered brand• Provides instant recognition, thereby saving promotional

costs• Language factors—brand names may carry a different

association in another language– pronunciation presents other problems– different alphabets present other problems

• Brand acquisitions—frequent method of international expansion

• Country-of-origin images—images of products are affected by where they are made

• Generic and near-generic names– if a brand name is used for a class of product, the

company may lose the trademark» name becomes generic -- available for anyone to

use


DistributionThe course—physical path or legal title—that goods take

between production and consumption• Must decide on method of distribution among and within

countries• Company may enter a market gradually by limiting

geographic coverageDifficulty of standardization—distribution a difficult function to

standardize internationally• Numerous factors influence how goods will be distributed

in a given country– distribution norms differ

Choosing distributors and channels• Internal handling—more likely when:

– volume is high– product requires direct dealing with customer– the customer is global– distribution can be a competitive advantage


Distribution (cont.)Choosing distributors and channels (cont.)

• Distributor qualifications—include:– financial capability– connections with customers– fit with a company’s product– status of personnel, facilities, and equipment

• Spare parts and repair—important for sales, especially for expensive products

• Gaining distribution—distributors choose companies and products to represent

– choose products with greatest profit potential– companies—may need to provide incentives

» may use successful products as bait for new products

» must convince distributors that product and company are viable


Distribution (cont.)Hidden costs in foreign distribution

• Infrastructure conditions—roads, warehousing• Number of levels in the distribution system

– multitiered wholesalers that sell to each other before product reaches the retailer

• Retail inefficiencies—trust levels of owners– preference for counter service vis-à-vis self-service

• Operating-hours restrictions – limit efficiencies of large retailers

Internet and electronic commerce • Opportunity to promote products worldwide• Hard to differentiate marketing program• Must deliver goods expeditiously• Advertising must comply with laws of each country


Rest of World

United States

Europe

0

50

100

150

200

250

300

1995 1997 1999 2001* 2003* 2005*

Total

* Estimate

Growth of the Global On-Line Population

© 2001 prentice hall16-1 international business by daniels and radebaugh chapter 16 marketing

Documents

sales potential

companys potential sales

marketing slide

prentice hall16

competitors b sales

actual sales

possible sales

product demand