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International Business: The New Realities

Fifth Edition, Global Edition

Chapter 16

Marketing in the Global

Firm

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Learning Objectives

16.1 Explain global market segmentation.

16.2 Understand standardization and adaptation of
international marketing.
16.3 Describe global branding and product development.
16.4 Explain international pricing.
16.5 Understand international marketing communications.
16.6 Describe international distribution.

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Organizing Framework for Marketing in the

International Firm

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International Marketing
• The cultural, social, political, legal, and regulatory environment of
international markets influences the way the firm develops, adapts,
and markets products and services. It affects pricing, distribution,
and marketing communications. E.g., In high-inflation countries, the
firm must review its prices frequently.
• Global marketing strategy: A plan of action for foreign markets
that guides the firm in deciding:
– how to position itself and its offerings
– which customer segments to target
– the degree to which it should standardize or adapt its marketing
program elements.

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Market Segmentation (1 of 2)

• The process of dividing the firm’s total customer base

into homogeneous clusters that allows management to
formulate unique marketing strategies for each group.
• Within each market segment, customers exhibit similar
characteristics regarding income level, lifestyle,
demographic profile, or desired product benefits.
• Internationally, common market segment variables
include income level, culture, legal system, etc.

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Market Segmentation (2 of 2)

Example
• Caterpillar targets its earthmoving equipment by applying
distinct marketing approaches to several major market
segments. What segments does Caterpillar target?

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Global Market Segment (1 of 2)

• A group of customers that share common characteristics

across many national markets.
• Firms target these buyers with relatively uniform
marketing programs, regarding product, pricing,
communications, and distribution.
• Such segments often follow global media, embrace new
fashions or trends, and have much disposable income.

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Global Market Segment (2 of 2)

Examples
• Young people worldwide who are customers to MTV,
Levi’s
• The global segment of jet-setting business executives
• People worldwide with elevated cholesterol (e.g., Pfizer
and Lipitor)

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Standardization and Adaptation

• Adaptation: Modifying elements of the marketing
program to accommodate specific customer requirements
in individual foreign markets. E.g., Industries in
automaking, publishing, and furniture.
• Standardization: Efforts to make marketing program
elements uniform, so as to target entire regions of
countries, or even the global marketplace, with a similar
product or service. However, targeting the same product
everywhere is not usually feasible.
• Management tries to strike some ideal balance between
adaptation and standardization.

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Tradeoffs Between Standardization and

Adaptation

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Standardized Marketing is Appropriate When:

• Similar market segments exist across countries.

• Customers seek similar features in the product or service.
• Products have universal specifications.
• Business customers have converging expectations or
needs regarding specifications, quality, performance, and
other product attributes.

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Advantages of Standardized Marketing

• Cost reduction. Standardization reduces costs through
economies of scale in design, sourcing, manufacturing, and
marketing. Offering a similar marketing program globally is
more efficient than adapting products and marketing for each
of the numerous individual markets.
• Improved planning and control. Fewer offerings simplify quality
control and reduce the number of replacement parts. Global
marketing is easier to manage than having to develop
numerous campaigns.
• Ability to portray a consistent image and build global brands.
Standardized marketing increases customer interest and
reduces the customer confusion.

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Adaption is Needed Due to:

• Differences in national preferences. Companies adapt their
products to suit the specific, unique wants and needs of
customers in individual markets.
• Differences in living standards and economic conditions. Firms
adjust the pricing and complexity of their products to
accommodate differing income levels worldwide.
• Differences in laws and regulations. E.g., Germany and
Norway restrict advertising directed at children. Packaged
foods in Europe are often labeled in several languages,
including English, French, and Spanish.
• Differences in national infrastructure. The quality and reach of
transportation and communications systems, and of general
infrastructure differ worldwide.

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Standardization and Adaptation: A Balancing

Act

• Adaptation is costly, often requiring major changes to the

marketing mix, especially when many national markets are
involved. Thus, managers usually err on the side of
standardization, that is, they adapt marketing elements only
when necessary.
• Some firms pursue a regional strategy, in
which marketing elements are formulated
across a geographic region.
• Dell balances standardization and
adaptation - the basic machines are identical
worldwide, while the keyboards and software
are adapted to suit local conditions.

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Standardization

Luxury products such as Rolex watches and Gucci clothing are largely standardized around the world.
Pictured is the Champs-Élysées in Paris, one of the world’s leading shopping streets for luxury goods.

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Global Branding (1 of 2)
• Well-known global brands include:
-- Electronics (iPad)
-- Personal care products (Gillette
Fusion)
-- Toys (Barbie)
-- Furniture (IKEA)
-- Food (Cadbury chocolate)
-- Beverages (Coca-Cola)
-- Credit cards (Visa)
-- Movies (e.g., Spider-Man)
-- Pop stars (Lady Gaga)
-- Sports stars (David Beckham)

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Global Branding (2 of 2)

• A strong global brand:

– Increases the efficiency and effectiveness of
marketing programs
– Stimulates brand loyalty
– Allows the firm to charge premium prices
– Increases the firm’s leverage with intermediaries
and retailers
– Enhances the firm’s competitive advantage in
global markets

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Top Global Brands by Region (1 of 2)

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Top Global Brands by Region (2 of 2)

Sources: Based on Forbes, “The World’s Most Valuable Brands: 2017 Ranking,” www.forbes.com ; Interbrand,
www.interbrand.com ; and Hoovers.com company profiles, www.hoovers.com

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Global Product Development

• In developing international products, managers
emphasize their commonalities across countries rather
than the differences between them.
• A basic product incorporates only core features that are
then varied at the margins for individual markets.
• A global new-product planning team is a group within a
firm that determines which product elements will be
standardized and which will be adapted locally, and how
products will be launched.

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International Marketing Opportunity

• The median age in Japan, Italy, and Germany is 43 years
old. These countries have many senior citizens.
• The countries also enjoy high per-capita income,
excellent distribution channels, and well developed health
care systems that support the elderly.
• They represent the most promising target markets for
firms that produce medical equipment, mobility aids, and
other products that appeal to seniors.
• In China, the proportion of seniors is growing rapidly and
represents a promising market as well.

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International Pricing
• Pricing is complex in international
business, due to multiple currencies,
trade barriers, added costs, and typically
longer distribution channels.
• Prices affect sales and profits. An
inverse relationship often exists between
profits and market share.
• Firms face pressure to lower prices
abroad, mainly due to lower income
levels.
• Conversely, prices can escalate due to
tariffs, taxes transportation, intermediary
markups, and after-sales service.

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Factors That Affect International Pricing

• Nature of the market. Local purchasing power and
distribution infrastructure are big factors.
• Nature of the product or industry. A specialized or
highly advanced product, or an industry with few
competitors, may necessitate charging a higher price.
• Type of distribution system. Channels are complex in
some countries, which pushes prices up.
• Location of the production facility. Locating
manufacturing near customers or in countries with low-cost
labor facilitates lower prices.

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Three Pricing Strategies

• Rigid cost-plus pricing. Set a fixed price for all export
markets, by adding a flat percentage to the domestic
price to compensate for the added costs of doing
business abroad.
• Flexible cost-plus pricing. Set price to accommodate
local market conditions, such as customer purchasing
power, demand, and competitor prices.
• Incremental pricing. Set price to cover only variable
costs, not fixed costs. This assumes that fixed costs are
already paid from sales in the home or other countries.

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International Price Escalation

• Various factors can push up prices of the firm’s products

in export markets.
• Causes include multilayered distribution channels,
intermediary margins, tariffs, and other costs associated
with foreign market.
• May result in overly high retail price in the target market,
a competitive disadvantage for the exporter.
• Management can employ various strategies to reduce
price escalation.

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Strategies to Combat International Price

Escalation
• Shorten the distribution channel. That is, bypass some
Intermediaries in the channel.
• Redesign product to remove costly features. E.g., Whirlpool
developed a no-frills washing machine.
• Ship products unassembled, as parts and components, to
qualify for lower import tariffs. Do final assembly in the
foreign market, using low-cost labor or in Foreign Trade
Zones.
• Reclassify the product using a different tariff classification to
qualify for lower tariffs.
• Move production or sourcing to another country to access
lower labor costs or favorable currency rates.
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Strategies for Dealing with Varying Currency

Conditions
When the exporter gains a price advantage
because its home-country currency is
weakening relative to the customer’s
currency, then it should:
When the exporter suffers from a price
disadvantage because its home-country
currency is appreciating relative to the
customer’s currency, then it should:

Stress the benefits of the firm’s low prices to
foreign customers.
Maintain normal price levels, expand the
product line, or add more costly features.
Exploit greater export opportunities in markets
where this favorable exchange rate exists.
Speed repatriation of foreign-earned income
and collections.
Minimize expenditures in the customer’s
currency (for example, for advertising and local
transportation).
Accentuate competitive strengths in nonprice
elements of exporter’s marketing program, such as
product quality, delivery, and services.
Consider lowering prices by improving productivity,
reducing production costs, or eliminating costly
product features.
Concentrate exporting to those countries whose
currencies have not weakened in relation to the
exporter.
Maintain foreign-earned income in the customer’s
currency and delay collection of foreign accounts
receivable (assuming the customer’s currency likely
will regain strength over a reasonable time period).
Maximize expenditures in the customer’s currency.

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Transfer Pricing
• The pricing of intermediate or finished goods exchanged among the
subsidiaries and affiliates of the same corporate family located in different
countries.

• May be used to repatriate profits from countries that restrict MNEs from
taking their earnings out of the country.

• May be used to shift profits out of a high corporate tax county into a low
corporate tax one, thereby increasing company-wide profits.

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Gray Marketing
• Legal importation of genuine products into a country by
other than authorized intermediaries.
• Gray marketers buy the product at a low price in one
country, import it into another country, and sell it there at
a higher price.
• Causes:
– Large difference in pricing of same product between
two countries, often the result of company strategy.
– Exchange rate differences of products priced in two
different currencies.

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Gray Market Activity Harms the Firm

• Risk of tarnished image when customers realize the

product is available at a lower price through alternative
channels.
• Strained relations with distributors, as the latter lose
sales.
• Disrupted company activities, including:
– Sales forecasting,
– Pricing strategies,
– Merchandising, and
– Marketing.

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Strategies to Cope with Gray Markets

• Aggressively cut prices in countries and regions targeted

by gray market brokers.
• Hinder the flow of products into markets where gray
market brokers procure the product.
• Design products with exclusive features that strongly
appeal to customers.
• Publicize the limitations of gray market channels.

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International Advertising
• Firms conduct advertising via media, which includes
direct mail, radio, television, cinema, billboards, transit,
print media, and the Internet.
• Advertising spending on major media amounts to more
than $100 billion in each of Asia-Pacific and Western
Europe.
• In the United States, advertising expenditures total nearly
$200 billion.
• Advertising is influenced by local factors, such as
availability of media, literacy, regulations, culture, and
local customs, as well as the goals of the firm.

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International Distribution
• Distribution is the most inflexible of the marketing
program elements - once established, it may be
difficult to change.

• The most common international distribution

approaches are via independent intermediaries
(for exporters) and establishing a subsidiary
directly in the market (F D I).

• Both types of channels must perform a range of

downstream marketing activities.

• The firm should seek to minimize channel length,

to minimize final prices and decrease complexity.

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Global Account Management

• Under globalization, foreign customers seek uniform and
consistent prices, quality, and customer service.
• Global account management means serving a key global
customer in a consistent and standardized manner,
regardless of where in the world it operates.
• For example, Walmart is a key global account for Procter
& Gamble, purchasing many P&G products.
• Each global customer is assigned a global account
manager, or team, which provides the customer with
coordinated marketing support and service across
various countries.
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