Week 8:Market selection, entry strategies, and

developing new goods & services

Prepared by Alistair Hodgson & Robin Roberts

Learning objectives

After attending today’s lecture and studying chapters 8 & 9 you should be able to:• Identify market selection strategies• Discuss the major decision criteria for choosing a mode of

market entry• Discuss the key advantages and disadvantages of the

major market entry strategies• List the factors that affect the timing of entry to new

markets• Understand the reasons for and risks associated with

exiting a business

Learning objectives

• Discuss the forces that affect the appropriate level of customisation or standardisation for products marketed internationally

• Identify international product strategies• Explain the nature and process of multinational diffusion• Describe the major stages of new product development

(NPD) strategies for international marketing

Scene Setter: Pie Face

• Pie Face was well-established in the Australian market– Rapid expansion in South-East Queensland– Focus on opening franchises in CBD areas– Based upon traditional, popular Australian

products (the pie – meat pie in particular & coffee)– How did this translate overseas?– How did Pie Face select a country to open in?

Overview

• The ‘right’ market entry decisions can have a heavy impact on the firm’s performance in global markets

• Several key decisions need to be made:• target product and market• goals of the target markets• mode of entry• time of entry• marketing mix plan• control system to monitor performance

Deciding to go overseas

• When selecting a country to enter, companies consider a range of factors including:• cultural differences• political risk• logistics• economic conditions of the host country

Deciding to go overseas

• Selecting a target market• a crucial step in developing an international

expansion strategy usually starts with a large pool of possibilities and then narrows down– do a preliminary screening• select indicators and collect data• determine the importance of country indicators• rate the countries on each indicator• compute the overall score for each country• Think back to the chart shown in Week 3

Deciding to go overseas

Figure 8.1

Choosing the mode of entry

• External criteria– market size and growth– Risk (political & economic)– government regulations– competitive environment– local infrastructure

• Internal criteria– organisational objectives– need for control– internal resources, assets and capabilities– flexibility

Choosing the mode of entry

• External decision criteria– is the market large enough to be interesting?• Starbucks in India (clearly sizable, but is it accessible?)• Issue of timing with market entry

– how do government regulations affect the situation?• EU has strict regulations regarding genetically

modified (GM) food

Choosing the mode of entry

• Market attractiveness also plays a part– what type of country are you dealing with? • 5 Main Types:

– Platform Countries (can be used as a base for operations; to gather information within a region, i.e. Singapore & Hong Kong)

– Emerging Countries– Growth Countries (BRIC countries)– Maturing Countries– Established Countries

Choosing the mode of entry

• Internal decision criteria– organisational objectives– need for control: can be used for IP reasons; the size of the

company; brand identity– internal resources, assets and capabilities: limited assets >

restricted operations (licensing or export)– flexibility

• Entry mode – a transaction cost explanation• Trade-off between low-control (reduced resource

commitment) vs. high-control (high-resource commitment)

What are the options?

• Exporting• Licensing• Franchising• Contract manufacturing• Joint ventures• Wholly owned subsidiaries• Strategic alliances

*We’ll focus on those in bold

Exporting

• Indirect exporting– use of a home based intermediary (trading house; broker etc.)– Pros: minimal risk; instant foreign market exposure– Cons: Little control over product marketing strategy > poor pricing

strategy or weak distribution could follow

• Cooperative exporting– an agreement with another organisation to use its distribution network

to sell exporter’s goods > more control (within limits) and also protects resources

• Direct exporting– company sets up its own export organisation and relies on a foreign

based intermediary > the most control but expensive

Licensing

• A contractual transaction where the organisation and the licensor offers some proprietary assets (i.e. trademarks, patents, production techniques) to a foreign organisation, the licensee, in exchange for royalty fees– e.g. Tokyo Disneyland is operated by Oriental Land

Organisation under license from Disney

Licensing

Advantages• highly profitable

penetration strategy• local governments may

favour it• lower exposure to

economic and political conditions

Disadvantages• revenue may be dwarfed

by potential income earned through outright ownership• Particularly if the venture is

a success

• lack of enthusiasm on the part of the licensee

• Licensee can become potential new competitor

Franchising

• Franchisor– an organisation that gives the franchisee the right

to use its trade names, business models and know-how in a given territory for a specific time in return for payment• Arrangements specify a particular business model to

follow – this is usually well-developed with franchises• Also enables the right to distribute goods/services using

the franchisor’s brand• McDonald’s is possibly the most famous franchisor of all

Franchising

Table 8.2

Franchising

Advantages• organisation capitalises

on a winning formula with long history of development

• capitalises on local knowledge of the franchisee

• preserves the capital of the franchisor

Disadvantages• revenue may be dwarfed

by potential income earned through outright ownership

• finding suitable and experienced franchisees in developing markets could be difficult > significant potential risks to the brand

Joint ventures

• Cooperative joint venture– an agreement between the partners to collaborate,

that does not involve any equity investment• i.e. one partner offers manufacturing technology; the

second provides effective distribution channels• Common form of joint venture when major

organisation partners with smaller local entity

• Equity joint venture– an arrangement where the partners agree to raise

capital in proportion to the equity stakes agreed upon

Joint ventures

Advantages• has potential for higher

returns than either licensing or franchising– reflecting the investment

risk

• higher degree of control• Greater emphasis on

complementary skills

Disadvantages• has potential for greater

losses than either licensing or franchising– reflecting the investment

risk

• lack of trust (likely in a range of situations)

• developing a future competitor (particularly in developing nations)

Drivers of successful joint ventures

• Pick the right partner

• Establish clear objectives from the beginning

• Bridge cultural gaps

• Gain the commitment and respect of top management

• Use an incremental approach (overly ambitious ventures often fail > better to start small and develop)

Timing of entry

• Timing of entry can be critical– too early means a lost investment• Hong Kong based restaurant chain Café de Coral’s early

investment and subsequent withdrawal from strategic locations in China

– too late means lost opportunity• Starbucks entered Australian market in 2000,

then closed 61 stores in 2008 citing failure to attract customers from the European style coffee culture that Australians prefer– In contrast to the UK (Starbucks helped to define coffee

culture)– Also in contrast to India, as was shown earlier

Exit strategies

• What are some of the reasons for why a company might exit a market?

– sustained losses– Volatility (

see recent companies threatening to pull out of Scotland, or at least relocate)

– premature entry– ethical reasons– intense competition– resource reallocation

Exit strategies

• Risks of exit– fixed costs of exit• paying workers for severance

– disposition of assets• fire sale of assets or lack of potential buyers due to

specialised nature of the business– signal to other markets• may signal overall global weakness

– long-term opportunities• can you get back in later? Boost Juice Bars initially

failed in China and then attempted to re-enter the market

Standardisation versus customisation

Basic Recap• Should the company aim for a standardised or country-

tailored product strategy?• There are five common forces that favour a more

standardised approach:1. common customer needs2. global customers3. economies of scale4. time to market5. regional market agreements

Standardisation versus customisation

• Modular approach– consists of developing a range of product parts that can be used

worldwide in different product configurations• Enables extensive (and inexpensive) customisation

• Core-product (platform approach)– Core product with attachments for customisation

• Key Issues– overstandardisation: initiative and experimentation is stifled at the

local subsidiary level– overcustomisation: product loses its differentiation from the local

brands– foreignness: the characteristic that provides the cachet and

differentiation from the local brands

International product strategies

There are essentially three strategies:1. Extension• using the same product or communication strategy that the

home market uses

2. Adaptation• making changes to the product or communication strategy

to suit the local marketplace

3. Invention• designing new products from scratch

International product strategies

Figure 9.1

Strategic option 1

Product and communications extension – dual extension• Market a standardised product using a

uniform communication strategy (this ad on multiple Shiseido Youtube channels)

• Japanese cosmetic organisation, Shiseido– markets in Europe, North and South America, and across

the Asia-Pacific region– Some new products introduced over time in N. America,

but still falls within a dual extension strategy

Strategic option 2

Product extension – communications adaptation• The same product is chosen

but a different communications

strategy applies

– Dove localised its ‘Campaign for Real Beauty’

• feminist and advertising groups praised the brand in Europe and the United States

• in China, the notion of ‘real beauty’ flopped

– Belief that typical advertising images are attainable.

Strategic option 3

Product adaptation – communications extension

• Organisations may adapt their product but maintain the same communications globally

– BP adapts the energy product in 100 countries to suit the local market due to regulations, however, it maintains a core global message in its communications

– The brand remains consistent

Strategic option 4

Product and communications adaption – dual adaption• Differences in both the cultural and physical

environments across countries call for a dual adaptation approach– Sony launched a version of its Walkman flash-

memory portable digital music player developed in China for the Chinese market by Chinese engineers

– it displays the lyrics of Chinese songs and is only sold in China • Marketing promotions are unique to the Chinese market

Strategic option 5

Product invention

• Inventing a whole new product for a foreign market

– Samsung runs six design centres

• London, Rome, Los Angeles, San Francisco, Shanghai and Seoul

• Obviously more expensive, but leads to rapid product development– These products can then be sold in other markets

Multinational diffusion

• Not all markets are ready for new products at the same rate– speed and pattern of market penetration can vary• Asahi breaks into the market successfully in Thailand

(despite initially being aimed just at Japanese nationals living in the country)– Leads to extensive operations within Thailand > export of Asahi

products from Thailand (brewed under licence) to other regional countries

• Fosters fails twice to break into the Chinese marketHow can we tell who will succeed

and who will fail?

Multinational diffusion

• Essentially driven by three factors:

1. Individual

2. Personal influences

3. Product characteristics

Multinational diffusion

Individual differences• Individuals differ in willingness to try new

products– early adopters: eager to experiment– late adopters: wait and see

Multinational diffusion

Personal influences

• Word-of-mouth of previous adopters

• Good (but long – 10 minutes – video discussing the influence of word-of-mouth marketers)

• Non-personal factors, such as media advertising have less of an impact

Multinational diffusion

Product characteristics

• Relating to the nature of the product itself– relative advantage (what is the perceived value that the

product offers when compared with existing alternatives?)– Compatibility (are there switching costs involved in

adopting the new product? Is the product compatible with pre-existing consumer values?)

– Complexity (is the product user friendly?)– Trialability (can the product be used over a limited period?)– Observability (are the benefits of the product clear?)

Multinational diffusion – is it all the same?

Figure 9.2

Developing new products forinternational markets

New product development steps:

• The idea

• Screening (similar to country screening – unsuitable product ideas are abandoned)

• Test marketing

• Timing of entry

Developing new products forinternational markets

Test marketing• Testing the product ‘live’ in the marketplace after

internal prototyping– McDonald’s– Mars Corporation– Think back to the use of Columbus, Ohio from Week 6 lecture

• Testing in similar markets– test Australia then release in UK

• Not testing at all is also an option– IKEA is keen not to signal to competitors– IKEA perhaps more-dependent upon its brand identity

Developing new products forinternational markets

Timing of entry• Waterfall strategy– a phased rollout• introducing the product into the home market• rolling the product into advanced markets• rolling the product into less advanced markets

• Customisation of a product takes time > need to separate market entry

• Phased rollout is less immediately demanding on an organisation’s resources

• Risk of alienating consumers in later markets

Developing new products forinternational markets

Timing of entry• Sprinkler strategy– simultaneous worldwide entry, with the global

rollout taking place within one to two years– Global segments make this possible– Concern over competitive preemption in overseas

markets also a factor• Games console manufacturers a perfect example here

– Affordability issues in some markets– Production needs to keep up with demand

Summary

You should now have an understanding of:• Market selection strategies• The major decision criteria for choosing a mode of

market entry• The key advantages and disadvantages of the major

market entry strategies― exporting― licensing― franchising

― joint ventures

Summary

• The factors that affect the timing of entry to new markets• The reasons for and risks associated with exiting a business

• The forces that affect the appropriate level of customisation or standardisation for products marketed internationally

• International product strategies• The nature and process of multinational diffusion• The major stages of new product development (NPD)

strategies for international marketing

Questions

Any Questions?