Transcript The four Ps of international marketing are

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CHAPTER 7:
Marketing
Chapter 7:
MARKETING
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Key Terms
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marketing
secondary data
primary data
centralized strategy
decentralized strategy
e-distribution
sales agent
trade show
Chapter 7:
MARKETING
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royalty
target market
ethnocentrism
demographic
information
 discretionary income
 competitive advantage
 economies of scale
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Chapter Objectives
By the time you finish this chapter, you should be able to:
 Identify the activities that make up marketing
 Describe the modifications made to goods and
services to adapt to the cultures of other countries
 Identify the challenges an international company
may encounter with regard to ethics, values,
language, and business practices in the various
countries in which it operates
 Explain the importance of understanding consumer
differences
 Identify strategies used by companies to enter
foreign markets
Chapter 7:
MARKETING
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Marketing Activities
Marketing
The sum total of all the activities involved in getting
goods and services from the original producer to the
ultimate consumer.
© iStockphoto.com
These activities include market research, product
development, pricing, advertising and promotion,
sales, and logistics.
Chapter 7:
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Fundamentals of International Business
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What is marketing?
 All the activities required to get products and
services from the original producer to the
ultimate consumer.
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Market research
Production
Development
Pricing
Advertising
Promotion
Sales
Logistics
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Marketing Activities
Market research finds or collects data to help
solve marketing problems. Companies can
use secondary data or primary data to gather
their research. For example, an entrepreneur
would like to start up his own hair salon in
Oakville. He would like to know the
demographic profile of Oakville, such as
“what are the most effective advertising
techniques?”; “which is the best location to
set up?” “where will I source my products?”
Chapter 7:
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Marketing Activities
Secondary data is collected by someone other
than the user, for example censuses and
surveys. Many companies use Statistics
Canada to gather demographic information
such as the income levels of families in a
community. Companies can also pay
agencies to perform studies on international
markets – to get info on population,
competition , demand and supply for
products.
Chapter 7:
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Fundamentals of International Business
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Marketing Activities
Primary data on the other-hand, is observed or
collected by a business and relates
specifically to its needs or problems. For
example, if Mrs. M. currently operates a hair
salon, she might survey her clients to see
which shampoo products they prefer, and
what they like or don’t like about her salon.
This is referred to as primary data because
the information is being received directly from
the consumers of Mrs. M’s product/service.
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Marketing Activities
Product Development
Most companies use market research to help develop
new products, taking consumer reaction into account.
Market research is a major part of product
development, as companies don’t want to risk the
high costs involved without some assurance that they
will be successful.
For example, if Mrs. M. wanted to introduce a new
shampoo into her salon, she would use her primary
market research to help her determine exactly what
her customers want in a shampoo.
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Marketing Activities
The price of a product must take
into account the amount of labour,
the cost of materials, and overhead
(such as electricity). In other words, you
need to make a profit and cover your
costs!
Items that are sold in stores are
marked up, as the retailer needs
to make money on the items it sells.
Chapter 7:
MARKETING
Fundamentals of International Business
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© iStockphoto.com
Pricing
Marketing Activities
Advertising and Promotion
Advertising and promotion are needed to convince
the customer to buy the product.
© iStockphoto.com
Businesses must identify the best way to reach their
target market, taking into consideration the cost of
different methods. For example, an Internet ad or
brochure is much less
expensive than a
magazine ad or
television commercial.
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Marketing Activities
Sales
Businesses must determine the best way to
sell their product. Sales methods or venues
may include:
 Selling products to retailers
 Opening their own retail store
 Selling online
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
Marketing Activities
Logistics
Logistics consists of the flow of goods and
services both into and out of an organization. It
consists of transportation, inventory
management, warehousing and storage, and
packaging. (we will look at Logistics in more
depth in the next chapter)
Chapter 7:
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
The four Ps of international marketing
are:
1. Product
2. Place
3. Price
4. Promotion
Chapter 7:
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
1. Product
Canadian products sold outside of Canada
must usually be modified to adapt to the
culture, language, or laws of the foreign
market.
These modifications usually occur in the
following areas:
 Packaging
 Ingredients
 Style
Chapter 7:
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Fundamentals of International Business
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The Four Ps of International Marketing
1.Product:
Package Weights – Canada is on the metric system
which uses grams and kilograms to express
weight. The US does not use the metric system –
they use the imperial system (ounces and
pounds). Therefore if Canada sold products to the
US, they would need to express weight in ounces
and pounds.
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Fundamentals of International Business
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The Four Ps of International Marketing
1. Product:
Package colours: Colours have symbolic meanings,
but these vary from one culture to another. White
is a symbol of purity in Canada but death in China.
Yellow is the colour of cowardice in Canada, but
symbolizes courage in Japan. Marketers should
research the cultural preference of consumers in
the country they are exporting to in order to avoid
costly mistakes.
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The Four Ps of International Marketing
1. Product
Packaging Legal requirements: Every country differs
in terms of environmental regulations with respect
to packaging. For example, many countries place
excessive fee structures on imported goods if they
don’t comply with environmental regulations (that
is, if they are environmentally unfriendly).
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Fundamentals of International Business
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The Four Ps of International Marketing
1. Product
Package Labelling requirements – Every country has
specific requirements for ingredients and food
value labelling so it is important to know what
these are before exporting. For example, in
California, cars must have a label that provides
consumers with the vehicle’s global warming
score.
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Fundamentals of International Business
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The Four Ps of International Marketing
1. Product
Package Language requirements: Must be in the
homeland language. Countries such as Ireland,
Switzerland, India and Canada have language
regulations that require two or more languages to
appear on packages.
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Fundamentals of International Business
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The Four Ps of International Marketing
1. Product
Ingredients: Many countries have strong
taboos, both religious and cultural, that
prohibit the use of certain products,
particularly food items.
For example, Hindus do not eat beef. If a
potato chip manufacturer wanted to sell
snacks in India, they would have to make
sure the chips were not fried in beef fat.
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
1. Product
Style: Fashion and style are difficult to export.
What the people of one country find fashionable,
people from another country would find
embarrassing. Marketers therefore have to adapt
their products to meet the needs of the target
market. For example, a hockey t-shirt would not
sell readily in London England since they are
generally unfamiliar with hockey. Soccer on the
other hand would be very successful.
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
2. Place
A centralized strategy is a marketing strategy in
which all of a company’s manufacturing and
marketing is performed in one location.
A decentralized strategy is a marketing strategy in
which a company sets up a manufacturing plant in
another nation, or hires a sales force there, or even
licenses its brand to a local manufacturer, rather than
performing all manufacturing and marketing in one
location.
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
2. Place
Centralized strategy: This is useful for a company
that might only have Canadian domestic operations.
Take for example a chocolate company based in
Winnipeg, Manitoba. This company sells chocolate
to major retailers in Canada – they will have sales
people travel across the country to market their
product. There is no need for this company to have
factories in Toronto and Montreal. All of its marketing
can be done from it’s home base.
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The Four Ps of International Marketing
2. Place
Decentralized strategy: Say the chocolate company
became very popular and the research determines
that this chocolate would be popular in international
markets. Since it would be difficult to manufacture
and ship all over the world, the company might
decide to set up a manufacturing plant in another
nation. This means that the chocolate company is
considering a decentralized strategy.
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The Four Ps of International Marketing
2. Place – cont’d
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E-commerce
The use of the Internet by businesses to sell products
and services to customers in a much larger areas than
could be reached through a traditional retail location;
using e-distribution, any business anywhere in the world
can be an international business.
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
E-commerce
The internet and e-commerce have tremendously changed
the way international marketing is performed. Now, a
business in any city in the world that is close to a
transportation hub, can be an international business.
Companies like Amazon, can stay in their respective
cities and do business anywhere on the planet without
leaving their local base.
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
2. Place – cont’d
E-commerce
This market strategy is also known as e-distribution. It can
be more effective than opening a retail store. Amazon
uses this strategy. There is no “Amazon Store” in
physical terms – Amazon is a virtual company.
The advantage of e-commerce is that even the smallest
companies can compete with large conglomerates.
However, their success in competitiveness depends on
the quality of their web-site (hence web-site design is a
huge market these days)
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
E-commerce
E-commerce and e-distribution can turn any local retail
operation into a global one; all that is required is a website. There are many types of e-commerce transactions:
 B2C (business to consumer)
 B2G (business to government)
 B2B (business to business)
 C2C (consumer to consumer like Amazon and Ebay)
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
E-commerce
 B2C – Business to Customer (B2C), sometimes referred to
as Business to Consumer, describes the activities of businesses in
selling products and/or services.
 For example, someone buying a television set from an electronics
retailer would be a B2C transaction. The transaction preceding this,
eg, the purchase of components, screens, plastics etc. by the
manufacturer, and the sale of the set from the manufacturer to the
retailer would be B2B transactions.
 Many B2C transactions now take place online, eg, the purchase of
books from amazon.com, CDs/DVDs from play.com, or even doing
the shopping online at Michaels Crafts and Banana Republic.
Chapter 7:
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
E-commerce
B2G – “Business to Government”, means
the business sells everything from
computer paper to construction equipment
to various levels of the government.
Several B2G companies offer on-line
services to governments.
http://yourbusiness.azcentral.com/examples-b2g24322.html
Chapter 7:
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
E-commerce
B2B – “Business to business” – These are
companies which sell to all stages of the
distribution channel – including suppliers,
distributors, transporters, manufacturers,
wholesalers, and other businesses that
the typical consumer does not use.
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Sales agent
An individual hired and paid a commission by a
company to market its product to potential buyers
and distributors, often in a foreign country.
Trade show
A collection of manufacturers and distributors of
similar products who rent space, set up display
booths, and sell to registered buyers seeking
products for their retail businesses.
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The Four Ps of International Marketing
2. Place – cont’d
Branch plants
Building and staffing a branch plant is the most
expensive market entry strategy, but could be the
most effective.
The three major advantages to owning a branch plant
in a foreign country are:
 Shipping costs are lower
 Import regulations and tariffs are not an issue
 Product modifications are easier
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Licensing Agreements
A licensing agreement is a contract giving someone
the right to use a patent or trademark. The most
famous ones are for professional sports teams and
Disney character.
Manufacturers pay the owner of the trademark a fee,
usually a royalty, which is a percentage of the sale of
the licensed product.
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Three types of licensing agreements:
1. Manufacturing agreements—the rights to
manufacture a product – for example the
license would allow the licensee to use the
same manufacturing process, same recipe,
and the same ingredients as were used to
make the original. For example, Krave Candy
sells rights to a manufacturer in India to use
the same recipe for it’s brand of Clodhopper
candy.
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Three types of licensing agreements:
2. Distribution agreements—the rights to sell a
product. For example, many retailers try to find a
competitive edge by selling products that on
other retailer carries. For example, Walmart
might own exclusive distribution rights to carry
Sony products –this means that no other retailer
can carry Sony. Walmart would pay Sony a fee
for exclusive distribution rights.
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Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Three types of licensing agreements:
3. Franchising agreements—grants the
ownership of a manufacturing or distribution
company to a local franchisee. For example, an
entrepreneur wants to open up a Subway in
India. They would negotiate with Subway for the
use of the company logo, its established process,
and its expertise in management, store design,
advertising etc. In return, Subway would collect
a franchise fee, which is equal to a percentage of
the franchisee’s sales revenue.
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Fundamentals of International Business
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The Four Ps of International Marketing
Number of Subway Restaurant franchise locations worldwide
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MARKETING
Fundamentals of International Business
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The Four Ps of International Marketing
2. Place – cont’d
Read page 197 – Disney’s Licensed Merchandise
Sales to Hit $30 Billion.
Questions:
1. What are the two major age demographics that
Disney targets?
2. Who are the main target customers for Disney
licensed products?
3. Where does the growth in Disney licensed products
come from?
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MARKETING
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
2. Place – cont’d
Acquisitions
The most effective way for a company to deal with
competition in a foreign or domestic market is to buy
the company it competes with, then close it or use its
marketing connections to expand its market.
For example, Alcan the giant aluminum company based in
Montreal, wanted a greater presence in the European
market. Alcan purchased French aluminum company
Pechiney in Dec. 2003 for $5billion. The acquisition
doubled Alcan’s size, enhanced it’s leadership position
in core smelting technology and gave into the
aerospace market in Europe.
Chapter 7:
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Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
3. Price
 Companies that use a centralized market entry
strategy find that they must increase the price of
their product when selling in foreign markets
 Sometimes the price of their product increases to
the point that it is no longer competitive
 A centralized pricing strategy means that the
company has one domestic head office, say
Vancouver, Canada. The Canadian office exports
products to the US for example. There are no
branch offices in the US.
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The Four Ps of International Marketing
3. Price – cont’d
These increases in price arise because of added
expenses in the following areas:
 Labour costs: Labour in foreign countries is often
much cheaper than in Canada.
 Shipping costs: The cost to ship goods long
distances must be factored into their price.
 Duties and tariffs: Some countries charge a tax on
imports to protect local industries.
 Legal costs: Modifications to conform to standards
in a foreign market can be expensive.
Chapter 7:
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Fundamentals of International Business
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The Four Ps of International Marketing
3. Price – cont’d
In conclusion, anyone trying to market a product in
another country must consider whether the price of
the product in the foreign market is competitive. This
is why major companies like the decentralized market
entry strategy. A branch plant in another country, US
for example, hires local labour, pays no duties or
tariffs, takes advantage of much lower shipping costs,
and conforms to local rules and regulations, thereby
eliminating the extra costs associated with product
modification.
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Fundamentals of International Business
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The Four Ps of International Marketing
4. Promotion
There are three ways to promote and advertise
products when selling in a foreign market:
1. Use existing ads: Saves money, but markets
must be similar. For example, Tim Horton
runs the popular promotional campaign “Roll
up the Rim to Win”. This campaign is
effective in both Canada and the US. Tim
Hortons saves advertising dollars since it only
uses ONE strategy.
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Fundamentals of International Business
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The Four Ps of International Marketing
4. Promotion
There are three ways to promote and advertise
products when selling in a foreign market:
2. Translate ads: Replicating an ad campaign in
another language is difficult. When translating
ads, companies will use television ads and just
dub in the language of the foreign market.
Mentos, the mint candy, uses the translation
approach.
Chapter 7:
MARKETING
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Four Ps of International Marketing
4. Promotion
There are three ways to promote and advertise
products when selling in a foreign market:
3. Create new ads: Expensive, but the Internet
has made customizing promotions much easier.
Some companies like PepsiCo, create new ads
for each target market. For example, PepsiCo’s
Gatorade brand is sold as a sports drink around
the world. In North America, ads for the drink
focus on football players, whereas in Finland,
ads focus on soccer due to soccer’s popularity in
Europe.
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Fundamentals of International Business
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The Two Cs of International Marketing
After a company has decided on its
product, price, place, and promotion,
it must ensure that there is enough
demand for its product.
© iStockphoto.com
Demand involves two factors (often
referred to as the two Cs of
international marketing):
Chapter 7:
MARKETING
1. Consumers
2. Competition
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.
The Two Cs of International Marketing
1. Consumers
A business must determine its target market. This is
the segment of the consumer market to which a
particular good is targeted.
Target markets are typically defined by demographic
information, which is statistical data about various
aspects (age, gender, etc.) of the population.
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The Two Cs of International Marketing
Canadian businesses wanting to sell abroad must
avoid ethnocentrism, the belief that your own culture,
values, beliefs, and customs represent the right way
of doing things, and that other value systems are not
important. This involves visiting the country in which
you want to include in your marketing plan – you look
around the local shops, eat in local restaurants, and
observe people’s daily customs and style of dress.
McDonalds Canada is very different from McDonalds in
Finland. These changes are based on the
demographic profiles of consumers in each nation.
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The Two Cs of International Marketing
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Ways to avoid ethnocentric thinking:
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 Visit the country you want to
include in your marketing plan.
 Read country profiles, especially
information provided by the
Department of Foreign Affairs
and International Trade.
 Offer your product on the Internet
in the language of the target
nation to determine if there is
demand for it.
Fundamentals of International Business
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The Two Cs of International Marketing
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A business entering a foreign market must determine
whether consumers will be able to afford to buy its
product.
Discretionary income is the money remaining
from an individual’s salary or
wages after all essential living
expenses, including rent and
groceries, have been paid.
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The Two Cs of International Marketing
2. Competition
Similar products that already exist in a foreign market
are a major marketing problem. There are two types
of competition:
 Direct: Businesses that provide products or
services that are almost identical to those offered
by the company are direct competitors.
 Indirect: Consumers in every country have a
certain amount of discretionary income, and
regular spending habits. Any product that vies for
consumers’ spending money is competition.
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The Two Cs of International Marketing
2. Competition
Direct Competition: For example, Lays chips has
several direct competitors: Hostess, Miss Vickie’s,
Presidents Choice, Old Dutch.
Indirect Competition: An indirect competitor to Lays
chips might be candy or popcorn. That is, instead of
buying chips (which is a snack food), a consumer can
also decide to buy popcorn instead. Companies use
many strategies to persuade consumers to buy their
product (packaging, low pricing, incentives, coupons,
etc)
Chapter 7:
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The Two Cs of International Marketing
Competitive advantage
In global economies, competitive advantage refers to
one country’s specific resources, labour pool,
location, and other attributes that give it a competitive
advantage on the world economic stage.
In marketing, competitive advantage refers to the ability
of one company to produce a product more cheaply
than another company. A company has a competitive
advantage when it has an edge over companies that
make similar products.
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The Two Cs of International Marketing
Typical competitive advantages are:
 Lower production costs: According to the theory of
economies of scale, the more products you can
make in one factory, using the same labour and
sharing overhead costs, the cheaper each
individual unit is to make.
 Lower distribution costs: Companies with factories
in their target market have lower costs.
 Product differentiation: Difference in flavour,
quality, packaging, scent, organic, etc.
 Brand equity: The number of consumers that can
identify the brand. Example, “iPod” for MP3 player.
This means that Apple has exceptional brand
equity.
Fundamentals of International Business
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The Two Cs of International Marketing
Brand Equity:
In Chapter 1, page 15, we looked at the top global
brands. It is not surprising that Coca-Cola topped the
list. On the international scene, many brands such
as Coca-Cola have global brand equity, meaning
consumers around the world recognize them
because of the exposure the brands have had in
various media, such as television, movies, and in
major cities around the work.
Top Ten Global Brands: Coca Cola, IBM, Microsoft,
General Electric, Nokia, McDonalds, Google, Toyota,
Intel, Disney.
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Foreign Marketing and Canadian Shopping Habits
 Canadian Consumers Shop Globally: In an era of
globalization, Canadians prefer to shop on-line (GAP,
Bay, Sears, Costco). Canadians spent $12.8 billion
on internet purchases in 2007, representing a 61%
increase compared with 2005.
 This allows Canadians to shop for fashion from New
York City, candy from London, shoes from Japan, and
olive oil from Italy, without leaving their home.
 Therefore, it is no longer good business sense to
carry only Canadian or US made goods.
 It is more lucrative for businesses to have a wider
selection from different parts of the world.
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Foreign Marketing and Canadian Shopping Habits
 Canadian Consumers Shop Locally: Many
Canadians look for Canadian-made products to buy
or Canadian retailers from whom to purchase
products. They will buy pizza at Boston Pizza
instead of Pizza Hut or buy hardware at RONA
instead of Home Depot.
 With the increase in foreign ownership of Canadian
manufacturer and sellers, buying Canadian is
becoming more difficult.
 Savvy businesses might take advantage of their
Canadian history or products and remind their
customers that they are proudly Canadian.
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Fundamentals of International Business
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