other marketing topics

Other Marketing Topics

OTHER MARKETING TOPICS

•Product & services•Global Marketing Issues•Pricing Decisions•Distribution channels•Core concepts

Part 3 – Section B.4. Managing products and services:• The candidate should be able to:

▫ a. distinguish between products and services ▫ b. classify products and services, including consumer

products, industrial products, and other marketable entities

▫ c. demonstrate an understanding of product attributes, branding, packaging, labeling, and product support services d. demonstrate an understanding of product line decisions and product mix decisions

▫ e. demonstrate an understanding of services marketing, including the nature and characteristics of service marketing strategies

▫ f. recognize the unique characteristics of international product and services marketing g. demonstrate an understanding of new product development strategy and product life-cycle

Part 3 – Section B.5. Pricing strategy• The candidate should be able to:

▫ a. identify internal and external factors affecting pricing decisions▫ b. demonstrate an understanding of general pricing approaches,

including cost-based pricing, value-based pricing, and competition-based pricing

▫ c. demonstrate an understanding of new product pricing strategies, including market skimming pricing and market penetration pricing

▫ d. demonstrate an understanding of product mix pricing strategies, including product line pricing, optional product pricing, captive product pricing, by-product pricing, and product bundle pricing

▫ e. demonstrate an understanding of price adjustment strategies including discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, and international pricing

▫ f. recognize that public policy can influence pricing decisions g. demonstrate an understanding of how elasticity and the bargaining power of either the buyeror seller can impact the price

Part 3 – Section B.6. Promotional mix and distribution strategy• The candidate should be able to:

▫ a. define marketing communication mix ▫ b. demonstrate an understanding of the integrated

marketing communication process and recognize the need for integrated marketing communications

▫ c. identify and define the components of the overall communication mix, including promotional tools and promotion mix

▫ d. demonstrate an understanding of the advertising process, including setting advertising objectives, setting the advertising budget, developing advertising strategy, and advertising evaluation

▫ e. demonstrate an understanding of the sales promotion process, including sales promotion objectives, tools, strategy, and evaluation

Part 3 – Section B.6. Promotional mix and distribution strategy• The candidate should be able to:

▫ f. recognize the importance of public relations and identify related tool

▫ g. demonstrate an understanding of the role of the personal selling process as an element of promotional mix

▫ h. define relationship marketing i. demonstrate an understanding of the direct marketing model, its benefits, forms of direct marketing, integrated campaign process, and ethical issues

▫ j. define the nature and functions of distribution channels k. demonstrate an understanding of distribution channel behavior and organizations, including vertical, horizontal, and hybrid marketing systems and channel disintegration trends

▫ l. demonstrate an understanding of distribution channel design decisions, including analysis of consumer service needs, defining channel objectives and constraints, identifying and evaluating major alternatives, and global implementations

Product & services• 1. A product strategy should align the

approaches taken to choosing the product mix and product lines, branding, packaging, and labeling.▫a. Kotler (page 407) broadly defines a product as

“anything that can be offered to a market to satisfy a want or need.” This definition includes not only physical things such as goods, but also services, ideas, information, experiences, places, and people.

▫b. A service is “an act or performance” offered to another party. No transfer of ownership of anything is involved in the performance of a service.

Product & services• 2. The attractiveness of the offering depends on

the features and quality of the product, the mix and quality of the services, and price.

• 3. A product may be analyzed in terms of the customer value hierarchy: ▫ a. Core benefit (e.g., transportation)▫ b. Basic product (a car that simply provides the core

benefit) ▫ c. Expected product (a car with standard features

and quality) ▫ d. Augmented product (a car that exceeds

expectations) e. Potential product (a car that reflects every possible future augmentation and ways to differentiate the product)

Product & services• 4. In industrialized nations, product augmentation

through customer service, delivery options, packaging, financing, etc., is the basis for competition. Hence, the customer’s consumption system must be understood, that is, how the customer acquires, uses, pays for, and maintains the product.

• 5. The relationships among products are described in the product hierarchy: ▫ a. Need family▫ b. Product family (all product classes that satisfy the need

reasonably well) ▫ c. Product class (products that are functionally related) ▫ d. Product line (products that are closely related) ▫ e. Product type (products in a line that share one of the forms of

the product) ▫ f. Product variant, item, or storekeeping unit (a product

distinguished by an attribute such as size or price)

Product & services• 6. Product Classifications

▫ a. Durability and tangibility 1) Nondurable goods (tangibles that are quickly

consumed) 2) Durable goods (tangibles that are multi-use) 3) Services (intangibles that are indivisible, variable, and

perishable)▫ b. Consumer goods

1) Convenience goods (frequent purchase, low effort) 2) Shopping goods (comparison before purchase)

a) Homogeneous (price differentiated) b) Heterogeneous (feature or service differentiated)

3) Specialty goods (special purchasing effort) 4) Unsought goods (customers tend not to think of purchasing)

Product & services

•6. Product Classifications▫C. Industrial goods

1) Materials and parts a) Raw materials (farm products and such

natural products as crude oil or lumber) b) Manufactured materials and parts

(component materials such as cement, tires) 2) Capital items

a) Installation (buildings and certain equipment, such as an elevator)

b) Equipment (portable equipment and tools)

Product & services

•6. Product Classifications▫3) Supplies

a) Maintenance and repair products b) Operating supplies

▫4) Business services a) Maintenance and repair b) Business advisory (e.g., accounting, legal,

or IT)

Product & services• 7. Branding is the development, maintenance, and

protection of a unique identity for the selling firm. Branding results from a large long-term investment in advertising, other forms of promotion, and packaging.▫ a. A brand name is legally protected under U.S.

trademark law for an indefinite period. ▫ b. A brand differentiates the seller’s product in the

minds of customers because it conveys any or a combination of the following meanings: 1) The nature of the user 2) A personality 3) Core values 4) A culture 5) Product benefits 6) Product attributes

Product & services• 7. Branding

▫ c. Brand attributes (price, safety, quality, performance, etc.) are at the lowest level of the brand pyramid, benefits are in the middle, and beliefs and values are at the top. Thus, a brand name should be related in customer perceptions with a key benefit or, preferably, multiple benefits to protect against competitors’ moves and changes in customers’ preferences. 1) A strong brand usually has a strong emotional or

nonrational appeal (the top of the pyramid).• d. Brand identity results not only from choices of the

name, logo, colors, tagline, and symbol, but also from fulfilling the implicit promises to deliver specified benefits to customers. Brand bonding occurs when the total customer experience is consistent with the firm’s promises. Internal branding is necessary to ensure that everyone in the firm acts consistently with those promises.


▫ e. According to Kotler (page 422), brand equity is “the positive differential effect that knowing the brand name has on customer response to the product or service.” It may be measured by the incremental price a customer will pay for the product. An effect of brand equity is customer preferences for the brand when another product is essentially identical. 1) Brand valuation is financial value. Some brands have

valuations in the tens of billions of dollars. 2) Brand equity is a firm asset that correlates with the

degree of customer loyalty. Thus, a brand may progress from being unknown to brand awareness, brand acceptability, brand preference, and brand loyalty. Brand equity is a component of customer equity, so management of brand equity is an important means of enhancing customer lifetime value.

Product & services•7. Branding

▫f. The firm must make the following decisions about branding: 1) Whether to brand (see, for example,

proliferation of generics in supermarkets) 2) Sponsorship

a) Manufacturer (national) brand b) Distributor (private or reseller) brand c) Licensed brand name d) Private brands developed by wholesalers and

resellers

Product & services•7. Branding

▫f. The firm must make the following decisions about branding: 3) Brand names

a) Names for individual products (avoidance of risk to the firm’s brand equity if the product fails)

b) Blanket family names (advantages are lower development cost and immediate name recognition)

c) Family names for different product lines d) Corporate name added to names for individual products


▫ g. Brands may be functional brands (e.g., detergents), image brands (e.g., status symbols), or experiential brands (e.g., theme parks or coffee shops). Development of a brand may be in one of the firm’s existing product categories or in a new product category. 1) Line extension (new items in the same product

category, e.g., new ice cream flavors) 2) Brand extension (new product categories) 3) Multibrands (new brands, i.e., flanker brands, in a

category) 4) New brands (new names and new categories) 5) Co-

branding (dual branding, or an offering using different brand names, e.g.,using one brand as an ingredient of another)


▫h. One effective means of developing and marketing new products is the use of line extensions and brand extensions. The concept behind extension is that consumers are already familiar with the firm’s major brand names. Thus, if a new product carries the same brand name, it will be more likely to succeed. Carrying an established brand name enables a new product to more easily fill a niche in the marketplace. Furthermore, extensions make efficient use of promotional costs because customers are already familiar with the quality of the products created and manufactured under the brand. Most new products are line extensions.

Product & services• 8. Packaging is an element of the product strategy.

It consists of designing and producing the container.▫ a. An effective package makes a good general

impression, attracts attention, is descriptive, and instills confidence.

▫ b. A customer may pay more for a better (more convenient, dependable, or prestigious) package.

▫ c. The package advertises the firm’s and the brand’s image. d. An invention of a new type of package may provide greater customer value, e.g., a better way of dispensing the product. e. Package design begins with deciding what it should do. Other decisions include size, shape, color, materials, text, environmental and safety features, and other matters. These decisions must be consistent with pricing and promotional strategies. 1) Package testing includes not only engineering tests

but also visual, retailer, and customer tests.

Product & services• 9. Labeling identifies the product and brand;

describes the nature and grade of the product (if applicable), the producer, and the content; provides usage instructions; and serves as a promotional tool.▫a. Labels vary greatly in the amount of

information conveyed, not least because legal disclosure requirements differ.

▫b. Under the Federal Trade Commission Act of 1914, labels must not be false, misleading, or deceptive.

▫c. The Fair Packaging and Labeling Act of 1967 established required labeling standards.

Product & services• 10. A product mix contains product lines. A

product line is often created by adding modular elements to a basic platform so as to satisfy different customer wants.▫ a. Analysis of a product line should provide a basis

for decisions about product-line strategies, such as building, maintaining, harvesting, or divesting a product line. 1) A financial analysis should determine the sales and

profits for each item in a product line. This process measures profit margins and the possibilities for increasing sales or profits through price increases or additional promotion.

2) The market profile depicts how items in the product line are situated in relation to the competition. Product mapping is useful in comparing the locations of the firms’ and competitors’ products and customer wants. Mapping may reveal underserved market segments.

Product & services• 10.Product lines.

▫ b. The length should be profit-maximizing but also reflects other objectives. 1) A line may be structured to take advantage of

up selling of a more expensive product or cross-selling of a related product. It may also be diversified to hedge against changes in economic cycles.

2) Longer lines reflect a desire for greater market share and market growth. Shorter lines may indicate an emphasis on profits.

3) Longer lines reflect pressures to use excess capacity and to satisfy customers but also increase costs.

Product & services• 10. A product mix contains product lines.

▫ b. The length should be profit-maximizing but also reflects other objectives. 4) Line stretching may be down market to

provide lower-priced products. The purpose may be to exploit a growth opportunity to move against a low-price competitor that has invaded the firm’s markets, or to shift out of a declining market. a) Upmarket stretching may reflect a search for

growth, greater profit margins, or positioning as a full-product-line seller.

b) Two-way stretching is a middle market firm’s move into the upmarket and the downmarket.

Product & services•10. A product mix contains product lines.

▫ b. The length should be profit-maximizing but also reflects other objectives. 5) Line filling adds products within the firm’s

current range. This strategy may be counterproductive if it results in customer confusion and does not meet a customer need. A line-filling product should be differentiated in the minds of customers so that it has a just-noticeable difference.

Product & services• 10. A product mix contains product lines.

▫c. Line modernization is essential to competitiveness. The issue is whether it should be incremental (less costly but also less competitively effective) or a complete makeover (more costly but giving competitors less time to respond). If markets are evolving quickly, the process should be continuous. 1) Timing is crucial. Premature modernization

may harm sales of existing products, but delayed modernization may allow a competitor to establish an unassailable position.

Product & services

•10. A product mix contains product lines.▫d. If the firm considers featuring certain

products in the line, it must decide whether to support underperforming products or to promote the most successful products.

▫e. Pruning is necessary when financial analysis reveals that a product is hurting profits or when the firm has capacity constraints.

Product & services• 11. The product mix is the product

assortment (everything the firm sells). Analysis of the attributes of the mix helps the firm to determine its marketing strategy and make decisions about its product lines.▫a. The following are the attributes:

1) Width is the number of product lines. 2) Length equals the total items in the mix. 3) Depth equals the variants of each product. 4) Consistency is the degree of the relationship

of the product lines, for example, as to uses by ultimate consumers or choices of distribution channels. b. The firm may grow by adding to any attribute of the product mix.

Product & services• 12. Services Marketing

▫ a. Services are intangible, so customers need tangible evidence of their quality. Hence, customer experience engineering determines the desired perception of that experience and then develops performance and context clues that are consistent with it. An experience blueprint is a visual representation of those clues. 1) Services usually are rendered and consumed at the

same time. Thus, the service provider-customer relationship is vital, and preferred providers charge a higher price.

2) Services vary greatly in quality. Accordingly, quality control must be managed effectively by selective hiring, strong training programs, standardizing the firm’s services, and researching customer satisfaction.

3) Services are perishable. Because they cannot be inventoried, demand variability results in excess supply at nonpeak periods.

Product & services•12. Services Marketing

▫b. Service Marketing Strategies 1) Three more Ps apply:

a) People. The right employees, if well trained and motivated, enhance customer satisfaction because many services require substantial customer-employee interaction.

b) Physical evidence and presentation are what the customer perceives, such as the decorative features of a restaurant.

c) Process. A process is how the service is performed, for example, delivery of health care in a doctor’s office, outpatient clinic, or hospital.

Product & services•12. Services Marketing

▫b. Service Marketing Strategies 2) Service marketing involves external,

internal, and interactive marketing. a) External marketing (firm to customer)

essentially reflects the 4 Ps. b) Internal marketing (firm to employees) is

the effort expended to induce employees to interact effectively with customers.

c) Interactive marketing (employees to customers) should have high functional as well as technical quality. The customer not only should be well served but also perceive that (s)he has been well served


▫b. Service Marketing Strategies 3) Evaluation of services is difficult for customers.

Services tend to lack search qualities, or factors that can be evaluated beforehand. Services usually have experience qualities (factors that can be evaluated during and after performance) and credence qualities (factors that may be difficult to evaluate at any time).

▫a) Consequently, service customers may be less reliant on advertising than on testimonials by friends and users of the service. Moreover, they may rely heavily on physical clues, individual service providers, and prices to assess quality. Finally, customer satisfaction may lead to strong customer loyalty.


▫b. Service Marketing Strategies 4) Non price competitive differentiation is a

major issue for service firms. It may be achieved by a) Varying the offering by including secondary

service features with the primary service features. Innovation should be continuous because these features are readily imitated.

b) Improving delivery through greater reliability, resilience (e.g., coping with customer inquiries and emergencies), and innovation.

c) A superior image


▫ b. Service Marketing Strategies 5) Service quality should be managed so that perceived service

is better than expected service. Consequently, a firm must accurately determine customer expectations and service standards, communicate the nature and quality of the service to avoid distortion of expectations, and ensure that employees perform at least at the level of a consistent set of standards. a) Service quality is a function of

▫i) Reliability of the service▫ii) Responsiveness (motivation of providers to give good

service)▫iii) Assurance (capacity of providers to inspire

confidence)▫iv) Empathy (a caring attitude exhibited by providers)▫v) Tangible factors (appearance of facilities,

communications, employees, etc.)


▫ b. Service Marketing Strategies 5) Service quality

b) Profitable service firms tend to be customer driven and therefore have a strategy for satisfying customer needs. They also set high standards. Moreover, senior management is committed to service quality. Still other characteristics of these firms are use of self-service technologies (e.g., ATMs), monitoring their own and competitors’ performance, encouraging customers to register their complaints, effectively resolving those complaints, and attending to employee satisfaction.


▫ b. Service Marketing Strategies 6) Service firms may improve productivity by

a) Hiring and training better employees b) Changing the quantity-quality tradeoff ratio c) Treating the performance of the service as a

manufacturing process d) Creating a product that reduces the need for a

service e) Performing more substitute services (e.g.,

allowing a nurse practitioner do some physician’s work)

f) Giving customers reasons to provide labor (e.g., ATMs)

g) Using technology effectively and efficiently


▫ b. Service Marketing Strategies 5) Service quality

c. Non service firms, such as equipment makers, may still need to provide product support services.▫1) Customers are concerned about reliability, the rate of

failure, length of time the product will be out of service, service dependability, and costs of maintenance and repair.a) Thus, a buyer calculates the product’s life-cycle cost, not just the purchase cost.

▫2) The firm should determine the services that are most important (and their rank order) and consider all elements of the value chain in developing new products. Proper design may reduce customer support costs.

▫3) Firms may offer different product-service packages. For example, different service contracts may have different effective periods and deductibles.


▫ C. Non service firms, such as equipment makers, may still need to provide product support services. 1) Customers are concerned about reliability, the rate of

failure, length of time the product will be out of service, service dependability, and costs of maintenance and repair. a) Thus, a buyer calculates the product’s life-cycle

cost, not just the purchase cost. 2) The firm should determine the services that are most

important (and their rank order) and consider all elements of the value chain in developing new products. Proper design may reduce customer support costs.

3) Firms may offer different product-service packages. For example, different service contracts may have different effective periods and deductibles.


▫C. Non service firms 4) Services may

a) Be offered presale. They facilitate purchase and use (e.g., finance, installation, or training) or augment value (e.g., warranties).

b) Be offered postsale, for example, by parts-and-service departments, customer service departments, or authorized distributors and dealers.However, a customer that does its own servicing may negotiate for lowerprices on the products it buys.


▫ C. Non service firms 5) The following are trends in support services:

a) Customers are more sophisticated. Such customers may not desire bundled services.

b) Equipment is more reliable and easier to repair. c) Service firms may now handle many different

types of equipment. d) Extended warranties have become less appealing

as reliability improves. e) Customer service competition is restraining price

increases. f) Firms have improved their call handling.

Global Marketing Issues• 1. Methods of Expanding into International Markets

▫ a. Licensing gives firms in foreign countries the right to produce or market products or services within a geographical area for a fee. 1) Licensing a process, patent, trade secret, etc., is a way to

gain a foothold in a foreign market with little immediate risk. However, the licensor may have insufficiency control over the licensee’s operations, profits are lost if the arrangement succeeds, and the licensee ultimately may become a competitor.

▫ b. Exporting is the sale of goods manufactured in one country and then sold in other countries.

▫ c. In a local storage and sale arrangement, products manufactured in one country are then shipped to a marketing facility located in another country.


▫ D. Local component assembly involves shipping individual parts from one country to an assembly facility in a second country. They are then turned into a salable product and sold in the second country or exported to other countries.

▫ e. In multiple or joint ventures, several firms, even competitors, work together to create products that are sold under one or more brand names in different countries. They share responsibility, ownership, costs, and profits.

▫ f. An indirect export strategy operates through intermediaries, such as home-country merchants who buy and resell the product, home-country agents who negotiate transactions with foreign buyers for a commission, cooperatives that represent groups of sellers, and export-management firms that receive fees for administering the firm’s export efforts. Indirect export requires lower investment than direct export and is less risky because of the intermediaries’ expertise.


▫ g. Direct investment has many advantages: (1) cheaper materials or labor, (2) receiptof investment incentives from the host

government, (3) a strong relationship with interested parties in the host

country, (4) control of the investment, (5) a better image in the host country, and (6) market access when domestic contest rules are in effect.

▫ However, direct investment is risky because of exposure to currency fluctuations, expropriation, potentially high exit barriers, and restraints on sending profits out of the country.

Global Marketing Issues• Methods of Expanding into International Markets

▫ h. The internationalization process is of crucial interest to nations that wish to encourage local firms to grow and to operate globally. According to Swedish researchers, it involves the following steps: 1) Lack of regular exports; 2) Export via independent agents to a few markets, with later

expansion to more countries; 3) Creation of sales subsidiaries in larger markets; and 4) Establishment of plants in foreign countries.

▫ i. Attractiveness of a foreign market is a function of such factors as geography, income, climate, population, and the product. Another major factor is the unmet needs of a developing nation, for example, China or India. 1) Entry into a market abroad may be based on many factors,

for example, psychic proximity. Thus, a first-time venture abroad might be in a market with a related culture, language, or laws.

Global Marketing Issues• 2. Limited Entry. It has been suggested that firms

emphasize the triad markets (the U.S., Western Europe, and the Far East). However, such an approach would have very adverse long-term effects on the world economy. Nevertheless, a firm may decide to enter only a few national markets.▫ a. According to Ayal and Zif, the following are factors

indicating that few national markets should be entered: 1) Entry costs are high; 2) Market control costs are high; 3) Product adaptation costs are high; 4) Communication adaptation costs are high; 5) The first countries selected have large populations, high

income, and a high rate of growth; and 6) A dominant firm can erect high entry barriers.

Global Marketing Issues• 3. Organizational Progression of Marketing in the

International Environment▫ a. Export Division. This is the first step for an organization when it

begins selling products beyond its own borders. Generally, a firm’s initial entry is in other markets that share a common language or similar cultural norms.

▫ b. International Division. Large corporations make this step before becoming true global organizations. They generally focus their efforts in certain geographical regions that are led either from a central structure or are locally run and managed. Moreover, operating units report to the head of the division, not to a CEO or executive committee. Operating units may be geographical units, world product groups, or subsidiaries.

▫ c. Global Organization. All elements of the organization are geared toward creating and selling products to a worldwide market. Thus, all elements of the firm can be made to be more efficient in the global arena. These elements include management, production facilities, and the procurement of raw materials and components. 1) Glocalization of a global organization localizes some of its

elements but standardizes other elements.

Global Marketing Issues• 4. Strategies for Global Marketing Organization

▫ a. A multinational strategy adopts a portfolio approach. Its emphasis is on national markets because the need for global integration is not strong. 1) The product is customized for each market and therefore

incurs higher production costs. 2) Decision making is primarily local with a minimum of

central control. 3) This strategy is most effective given large differences

between countries. 4) Also, exchange rate risk is reduced when conducting

business in this manner.▫ b. A global strategy regards the world as one market.

1) The product is essentially the same in all countries. 2) Central control of the production process is relatively

strong. 3) Faster product development and lower production cost are

typical.

Global Marketing Issues• 4. Strategies for Global Marketing

Organization▫ c. A glocal strategy combines some elements of

local responsiveness or adaptation with some elements of global integration. 1) Successful telecommunications firms are examples

of balancing these elements. 2) Local responsiveness is indicated when local

product tastes and preferences, regulations, and barriers are significant.

3) Global integration is indicated when demand is homogeneous and economies of productive scale are large.

Global Marketing Issues• 5. Global vs. Transnational Firms

▫ a. Global firms are primarily managed from one central country. Even though their products may be sold throughout the globe, their headquarters and most of their policy decisions are set from a central base of operations.

▫ b. Transnational firms lack a national identity. These organizations rely on a decentralized structure for management and decision-making. They tend to be more attuned to local customs and market forces because they take much more of their input from a local or regional management team.

Global Marketing Issues• 6. International Trade Practices

▫ a. Regional Free Trade Zones 1) The European Union (EU) is a collection of 25

European nations that have lowered trade barriers among member states and share a common currency and trade policy.

2) The North American Free Trade Agreement (NAFTA) was created among the U.S., Mexico, and Canada. NAFTA will likely be expanded into South American countries.

3) MERCOSUL is a free-trade agreement among South American nations. They include Argentina, Brazil, Uruguay, and Paraguay. Chile and Bolivia are associate members.

4) APEC (the Asian Pacific Economic Cooperation forum) is a collection of 21Pacific-rim nations, including the NAFTA countries, China, and Japan, dedicated to fostering increased trade with each other and the rest of the world.

Global Marketing Issues• 6. International Trade Practices

▫ a. Regional Free Trade Zones b. Cartels. A cartel is an organization of sellers (e.g., the

oil cartel OPEC) who undertake joint action to maximize members’ profits by controlling the supply, and therefore the price, of their product. Under the laws of many nations, such collusive conduct is illegal when engaged in by firms subject to those laws. The reason is that, as a result of the monopolistic and anticompetitive practices of cartels, supply is lower, prices are high, competition is restrained, and the relevant industry is less efficient.

c. Dumping. Dumping is an unfair trade practice that violates international agreements. It occurs when a firm charges a price (1) lower than that in its home market or (2) lessthan the cost to make the product. Dumping may

be done to penetrate a market oras a result of export subsidies.

Global Marketing Issues• 7. International Marketing Programs. Firms that operate

globally must choose a marketing program after considering the need for adaptation to local circumstances. The possibilities lie on a continuum from a purely standardized marketing mix to a purely adapted marketing mix. The former chooses to standardize products, promotion, and distribution. The latter adapts the elements of the mix to each local market. Worldwide standardization of all elements should be the lowest cost marketing strategy. However, even well established global brands ordinarily undergo some adaptation to local markets.▫ a. Product and Promotion

1) Using a straight extension strategy, a higher profit potential exists because virtually no changes are made in the product or its promotion. There is a downside potential if foreign consumers are not familiar with this type of product or do not readily accept it.

2) Using a product adaptation strategy, a firm makes changes in the product for each market but not in its promotion. This strategy can reduce profit potential but may also provide a marketing advantage by considering local wants and needs

Global Marketing Issues 3) Using a product invention strategy, a new product is

created specifically for a certain country or regional market. A product may either include advancements for developed countries or have certain elements removed in places where a lower cost is a key selling point. Backward invention is the reintroduction o an earlier version of the product to meet local needs. This variant of the invention strategy reflects the possibility that different countries may be in different stages of the international product life cycle. Forward invention requires developing a new product for the unique needs of a foreign market.

4) Communication adaptation is a strategy that does not change the products, but advertising and marketing campaigns are changed to reflect the local culture and beliefs.

5) A dual adaptation strategy changes both the product and the promotion to provide the best chance of acceptance in a foreign market.

Global Marketing Issues▫ a. Product and Promotion▫ b. Price

1) The gray market poses difficulties for a firm that sells products at different prices in different countries. In a gray market, products imported from one country to another are sold in a third country, or even in the original exporters country, by persons trying to make a profit from differences in retail prices.

2) The price escalation problem requires setting different prices in different countries. Price escalation is caused by an accumulation of additional costs, e.g., currency fluctuations; transportation expenses; profits earned by importers, wholesalers, and retailers; and import duties. Three strategies address this issue: a) A firm may set a standard price globally. However, this

strategy may result in prices being unprofitable in some markets and too high in others.

Global Marketing Issues▫ a. Product and Promotion▫ b. Price

2) The price escalation b) A firm may set a market-based price in each

market. The drawback of this strategy is that it ignores cost differences. It also may create a gray market situation between certain regions.

c) A firm may set a cost-based price in each market with a standard markup. In a region or country where costs are high, this strategy may result in prices that are too high to be competitive within the local market.

3) A transfer price is the price charged by one subunit of a firm to another. When the subsidiary-buyer is in a foreign country, the higher the transfer price, the higher the potential tariffs. However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.

Global Marketing Issues▫ a. Product and Promotion▫ b. Price▫ c. Distribution channels are a necessity to ensure goods are

successfully transferred from the production facility to end users. These channels include three distinct links that must work smoothly together. 1) The international marketing headquarters (export

department or international division) is where decisions are made with regard to the subsequent channels and other aspects of the marketing mix.

2) Channels between nations carry goods to foreign borders. They include air, land, sea, or rail transportation channels. At this stage, in addition to transportation methods, intermediaries are selected (e.g., agents or trading companies), and financing and risk management decisions are reached.

3) Channels within nations take the goods from the border or entry point to the ultimate users of the products. Among nations, the number of the levels of distribution, the types of channels, and the size of retailers vary substantially.

Global Marketing Issues• 8. Steps to Brand Globally. The following steps should

be taken to minimize the risks of expanding into foreign markets and to maximize growth potential:▫ a. A firm must understand how diverse markets tie

together to form a global branding landscape. Individual countries vary in their historical acceptance of products and services. However, firms may also capitalize on similarities that are found in certain areas and regions.

▫ b. Branding and brand-building must be a process. New markets must be developed from a zero base. Global firms must build awareness of the product and then create sources of brand equity.

▫ c. Establishing a marketing infrastructure is crucial. To create a successful marketing structure, the firm either must merge with the local marketing channels or create a completely new method of distribution.

Global Marketing Issues• 8. Steps to Brand Globally.

▫ d. Integrated marketing communications should be developed. Markets must be approached with a broad range of messages. Sole reliance on advertising should be avoided. Other marketing communications include merchandising, promotions, and sponsorship.

▫ e. The firm may create branding partnerships. Global firms often form alliances with local distribution channels to increase their profitability while decreasing their marketing costs.

▫ f. The firm should determine the ratio of standardization and customization. Products that can be sold virtually unchanged throughout several markets provide a greater profit opportunity for a global firm. However, cultural differences may require extensive customization to appeal to markets in different countries.

▫ g. The firm should determine the ratio of local to global control. Local managers may understand the wants and needs of their market, but the global firm must still retain control of certain elements of the marketing process and strategy.

Global Marketing Issues• 8. Steps to Brand Globally.

▫ h. The firm should establish local guidelines so the local sales and profit goals are met.

▫ i. The firm should create a global brand equity tracking system. This equity system is a set of research processes that provide the marketers with pertinent information.

▫ The marketers can use this tracking system to create both long- and short-term strategies for expanding product sales and reach.

▫ j. The firm should maximize brand elements. Large global firms can achieve much greater expansion rates when the brand elements are successfully employed at the launch of a product or service

Pricing Decisions

• 1. Pricing is the element of the 4 Ps of marketing that generates revenues, not costs. It is an important part of the marketing mix, and pricing alternatives should be test marketed in the same way as new products, packages, and advertising campaigns.▫ a. The firm must determine its pricing objectives; estimate

demand at each price; estimate learning curves and costs for different outputs; estimate costs of different marketing offers; consider competitors’ actions (costs, prices, and offers); choose a pricing strategy; and establish a price.

▫ b. Pricing objectives include profit maximization. Classical economic theory assumes all firms always select the price that results in the highest profit. 1) An alternative objective is target margin maximization.

This objective is stated as a percentage ratio of profits to sales.

2) Volume-oriented objectives set prices to meet target sales volumes or market shares.

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