Chapter Seventeen Global Marketing and R&D 17 - Opening Case • Kodak entered Russia in the early 1990’s - Country was deep in the middle of a turbulent transition from a communist economy to a new democracy - Russian consumers had little knowledge of Kodak’s products - The consumer market for photography was underdeveloped - Apart from state-run stores, there was little or no infrastructure in place for distributing photographic equipment, film, and processing - Consumers were poor and lacked the ability to afford all but the most inexpensive cameras McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - Opening Case • Kodak’s entry into Russia is widely regarded as a major success because it accounts for a significant portion of $2.59 billion in international sales and growth rate of 26% • Reasons for Kodak’s success include - A clear and consistent marketing message communicated through a number of media - They invested in promoting a corporate image as a firm that takes a stand against corruption and black-market practices - The product strategy has been to sell lower-end film and cameras in Russia - Encouraged major enterprises to give cameras to valued employees - Built a distribution channel through franchising McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - The Globalization of Markets and Brands • Important to determine when product standardization is appropriate in an international market • Firms may need to vary marketing mix in each different country • Globalization may be the exception rather than the rule in many consumer goods markets and industrial markets McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - Market Segmentation • Refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways • Segments can based on: - Geography Demography Socio-cultural factors Psychological factors McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - Market Segmentation • Two main issues relating to segmentation: - Extent of differences between countries in the structure of market segments - Existence of segments that transcend national borders McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - Product Attributes • Cultural differences • Economic development • Product and technical standards McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - Cultural Differences • Differ along dimensions such as social structure, language, religion, and education • Impact of tradition • Some tastes and preferences becoming cosmopolitan McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 10 Economic Development • Consumer behavior is influenced by economic development - Consumers in highly developed countries tend to demand extra performance attributes in their products • Price not a factor due to high income level - Consumers in less developed countries value basic features as more important • Price a factor due to lower income level - Cars: no air-conditioning, power steering, power windows, radios, and cassette players • Product reliability is more important McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 26 Media Availability • Pull strategy - Relies on access to advertising media - Common in developed nations • Push strategy - Media availability limited by law - All electronic media state owned with no commercial policy McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 27 Global Advertising • Standardized: - Significant economic advantages - Scarce creative talent - Many global brand names • Non-standardized: - Cultural differences - Advertising regulations can be a restriction McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 28 Pricing Strategy • Three aspects of international pricing strategy - Price discrimination - Strategic pricing - Regulatory influence on prices McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 29 Price Discrimination • Said to occur when consumers in different countries are charged different prices for the same product • Two conditions necessary - National markets kept separate to prevent arbitrage • Capitalization of price differentials by purchasing product in countries where prices are lower and reselling where prices are higher - Different price elasticities of demand in different countries • Greater in countries with low income levels and highly competitive conditions McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 30 Elastic and Inelastic Demand McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 31 Strategic Pricing • Predatory pricing - Using price as a competitive weapon to drive weaker competition out of a national market - Firms then raise prices to enjoy high profits - Firms normally have profitable position in another national market McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 32 Strategic Pricing • Multipoint pricing strategy - Two or more international firms compete against each other in two or more national markets - A firm’s pricing strategy in one market may impact a rival in another market Kodak and Fuji McGraw-Hill/Irwin International Business, 6/e â 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 33 Strategic Pricing • Experience curve pricing - Firms price low worldwide to build market share - Incurred losses are made up as company moves down experience curve, making substantial profits - Cost advantage over its less-aggressive competitors McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 34 Regulatory Influences on Prices • Antidumping regulations - Selling a product for a price that is less than the cost of producing it - Antidumping rules vague, but place a floor under export prices and limit a firm’s ability to pursue strategic pricing • Article of GATT allows action against an importer if the product is sold at ‘less than fair value’ and causes ‘material injury to a domestic industry’ • Competition policy - Regulations designed to promote competition and restrict monopoly practices McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 35 tion pe ti y str i D Di Str stribu ate tio gy n ct es u d ut o b Pr ttri A Differences Here it on ibu ’t Re v o G Culture McGraw-Hill/Irwin International Business, 6/e Stan d Com Ec on om ards Configuring the Marketing Mix Pric i Stra ng tegy Co m m St un r a ic a te ti g y on s gs Requires Variation Here © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 36 New Product Development • The location of R & D - Rate of new product development greater in countries where • • • • More money spent on R&D Underlying demand is strong Consumers are affluent Competition is intense McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 37 Integrating R&D, Marketing and Production • Integrating R&D, production and marketing ensures - Project development driven by customer needs New products are designed for ease of manufacture Development costs are kept in check Time to market is minimized McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 38 Integrating R&D, Marketing and Production • High failure rate ratio - Between 33 % and 60% of new products fail to earn adequate profits • Reasons for failure: - Limited product demand - Failure to adequately commercialize product - Inability to manufacture product cost-effectively McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 39 Cross-Functional Product Development Teams • Objective of team to take a product development project from the initial concept development to market introduction • Effective teams must have - “Heavyweight “ project manager One member from each key function Physically co-located to facilitate communication Clear plan and goals Own process for communication and conflict resolution McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved 17 - 40 Looking Ahead to Chapter 18 • Global Human Resource Management - The Strategic Role of International HRM Staffing Policy Training and Management Development Performance Appraisal Compensation International Labor Relations McGraw-Hill/Irwin International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved ... conditions McGraw -Hill/ Irwin International Business, 6/e © 2007 The McGraw -Hill Companies, Inc., All Rights Reserved 17 - 30 Elastic and Inelastic Demand McGraw -Hill/ Irwin International Business, 6/e... International Business, 6/e © 2007 The McGraw -Hill Companies, Inc., All Rights Reserved 17 - 13 Typical Distribution System McGraw -Hill/ Irwin International Business, 6/e © 2007 The McGraw -Hill Companies,... - Firms deal directly with retailers McGraw -Hill/ Irwin International Business, 6/e © 2007 The McGraw -Hill Companies, Inc., All Rights Reserved 17 - 17 Channel Exclusivity • Degree to which it