MGMT 4230

International Management
Prof. Pavel Zhelyazkov

MGMT 4230 - International Management - Prof. Pavel

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Global Marketing Strategy

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Is economic globalization bringing cultural
globalization?
“A powerful force drives the world toward a converging commonality, and that force is technology. It has
proletarized communication, transport and travel. The result is a new commercial reality – the emergence
of global markets for standardized consumer products on a previously unimaginable scale or magnitude.

Gone are accustomed differences in national or regional preferences. The globalization of markets is at
hand. With that, the multinational commercial world nears its end, and so does the multinational
corporation. The MNC operates in a number of countries and adjusts its products and practices to each—
at high relative costs. The global corporation operates with resolute consistency—at low relative cost—as
if the entire world were a single entity; it sells the same thing in the same way everywhere.”
Theodore Levitt,
Harvard Business Review, 1989
Inspired a lot of arguments (most notably Friedman’s “The World is Flat” 2005 book)
about how political changes (the fall of communism) and modern technology bring
economic integration and “flatten” the world (i.e., level the playing field)
Economic interdependence facilitates cultural convergence and gradually causes national
cultures and identities to erode
In the “End of History” countries across the world will share the same market-driven
culture and national and ideological borders will cease to matter
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 Levitt was only partially right

While there is some evidence of convergence… … There are still a lot of differences across countries
• Persistent differences in tastes or preferences
• Some homogenization of customer’s tastes due to:
• Path dependencies in tastes (e.g., rice in East Asia)
• Exposure to global media and internet
• Importance of religion in many countries
• Increase in global travel
• Marketing prowess of MNEs
• Differences in infrastructure and distribution
• In the U.S.: urban sprawl that incentivizes use of cars and
• Rise of a cosmopolitan culture, especially among the
allows big-box retailing and weekly shopping behavior
elite and/or younger consumers
• In many other places, denser urban areas where people
• Standardization: spread of coffee, steak, iPhones
walk daily to small scale retailers
• Diversification: global elite expected to eat sushi
and dosa while drinking single malt scotch
• Differences in local regulations and practices

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 Possible market strategies
What is it? Example
• Focus on intermarket segments  segments • Universal commodities such as personal
Global market
that have consistent requirements and computers
segment purchasing behaviors across different countries • Luxury products catering to global elites such as
strategies • Key to international and global standardization luxury cars, watches
strategies • The global teenage segment  greater
convergence than other cohorts

• Develop distinct market segmentation for • Urban vs. rural divide in the U.S. vs. China or
Localized market different markets based on their unique India
circumstances • Race (esp. blacks vs. whites) has different
strategies
• Some dimensions are more relevant in salience in U.S.A. vs. Brazil
some markets than in others • Age cohorts may mean very different things in
• Historical path dependence may shape different countries based on historical
the way that the same segments behave experiences (e.g., 55-75 y. o. cohort in the
in different countries U.S.A. vs. the same generation in China)
• Key to transnational and multidomestic
strategies

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 We will organize our discussion of global
marketing around the 4 Ps framework
Key questions to address
1
• What products does the target segment need?
Product • What are the key features that the target segment requires?

2 • How can we reach the desired customer segment?

Place • What kind of intermediaries, if any, do we require to reach the customer segment?

3
• How should we persuade the customers to choose our product?
Promotion • Do we rely on advertisements to pull in consumers?
• Do we rely on a sales force to push our product to consumers?
4
• How should we price our product, based on our posture in the target market as well as our
Price positioning in other markets?

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1
Important considerations for product
attributes
Key considerations Examples
• There are wide variations in consumer tastes due • McDonalds’ adapts its menu in different countries
Cultural to local traditions and more recent circumstances by incorporating local products and removing
differences • Especially relevant for food products, consumer locally objectionable products (beef in India).
goods and cultural products

• Consumers in more economically developed • Cars sold in developed markets have numerous
countries prefer more options and more extra features relative to models popular in
Economic
performance attributes even at higher price developing markets
development • Consumers in developing markets are less • Microsoft has a special “Windows Starter” edition
demanding for features but prioritize price as well for distribution in developing markets such as India
as product reliability

• Firms need to comply with the local product • The European Union has stringent regulations on
Product and regulations Genetically Modified Organisms (GMOs) and
technical • Also there are differences in local technical certain food processing (chlorine-washed chicken)
standards standards • Different countries have different standard voltage
and power outlets
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2
Key differences between distribution
channels of various countries
Key considerations and examples Implications

• Countries with high retail concentration have few major retailers • High retail concentration makes it easier to
Retail • For example, U.S. market is dominated by large stores to which gain access by negotiating with a smaller
concentration consumers drive for less frequent (weekly) shopping number of players
• Countries with low retail concentration have many small retailers • Smaller required sales force
• Japan  densely populated cities with numerous small retailers • At the same, producers may be at a
to which consumers walk for daily purchases negotiating disadvantage
• Rural China, India  100,000’s small, often difficult to access • Low retail concentration requires a large
villages served by small retailers sales force or a longer channel length
• Long channel length is associated with a larger number of intermediaries • Longer channel length is less economically
between the producer and final retailer efficient as each intermediary adds their
Channel length • For example, in Japan/rural India/rural China there are multiple (2- own mark-up
4) layers of wholesalers to access the fragmented retail sector • At the same time, long channel length is
• Short channel length is associated with few or no intermediaries the only way to access relatively
• For example, the markets the U.S. /UK /Germany are dominated by fragmented/geographically dispersed retail
large retailers that negotiate directly with the producers channels
• Entry of large supermarkets in previously closed markets shortens
channel length, as does electronic retail (e.g., Amazon, Taobao/T-mall)

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Key differences between distribution
channels of various countries
Key considerations and examples Implications

• More exclusive channels are harder for outsiders to access: • High channel exclusivity makes it harder for
Channel • May be due to regulatory/legal restrictions foreign companies to interface with
exclusivity • For example, Local Content Requirements on products consumers
placed via certain channels • Key alternative solutions include:
• May be due to informal practices • Vertically integrate distribution, for
• In Japan, there were strong norms of exclusivity in example by creating own retail network
business relations. Wholesalers/retailers would get a • Leverage the relationships and access of
good deal from manufacturers with the tacit local partners
understanding that they would forego other relationships • Use or create online platforms that
create own link to the customers
• Channel quality refers to the expertise, competencies and skills of • Low channel quality may require a foreign
established retailers in a nation that would allow them to sell and company to vertically integrate into
Channel quality support the products of international businesses retailing and/or after-sales support
• Especially relevant for:
• Products requiring special competencies for selling (e.g., jewelry)
• Products that require reliable after-sales service (for example, cars)

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Key considerations of
international promotion
Nature of the challenge Examples

Cultural • It is challenging to communicate a message across • Advertisements that offend local sensitivities
cultures • For example, in the U.S. race is much more
barriers • Different meanings of the same symbol in sensitive topic
different cultures • Sales practices may be inconsistent with local norms
• Different historical sensitivities (for example, selling medicines in the U.S. vs. U.K.)
• Different social norms and ways of doing business

Regulatory • Tight and diverse regulation on advertising in many • Restrictions on products that can be advertised (e.g.,
constraints jurisdictions alcohol, cigarettes)
• Allowable sales practices may differ across jusrisdictions • Restrictions on advertising claims
• Health benefits in the Netherlands
• Competitive claims in Germany
• Source effect  when the interpretation of a message • Positive source effects  French wine, Swiss
Source effects depends on features of the sender (status, country of watches
origin etc.) • Negative source effects  for example, in many
• Can be positive or negative places Chinese goods are presumed to be of low
quality
• Sometimes source effects can be creatively managed
 the McDonald’s France campaign
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3 Push vs. Pull Marketing Strategies
Explanation Decision criteria
• Personal selling by a sales force • For industrial products or complex new products that require a lot of
as opposed to mass advertising explanation or customer support
Push
• When the retail channel is concentrated with short channel length
strategies • When retail channel quality is poor
• When direct to customer advertising is unfeasible

• Stimulating the demand of the • For consumer goods that do not require complex explanation or
Pull final consumer so that they support
strategies create pressure on the retailers • When the retail channel is fragmented, with long channel length
to carry your product • When sufficient media are available to carry the advertising message
• Relies on advertisements or
product reputation/word of
mouth Such distinction may be obsolete in a world where traditional supply
chains are being disintermediated by on-line platforms

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3 Global vs. local advertising
Pros of globally standardized advertising Cons of globally standardized advertising
• Economies of scale (the same high-quality • Cultural distances still persist, and messages that
advertising can be projected around the globe) could be well received in one culture would be
difficult to understand (or downright offensive) in
• Creates a unified brand image of the company: others
• Especially relevant when advertising markets
are porous, i.e. message intended for one • In many countries there are significant regulatory
audience is accessible to the other audience variations on allowable advertising

• Especially efficient for targeting large intermarket • For countries with unique market segments
segments

• Advertising strategy needs to be aligned with the rest of the strategic positioning
• Sometimes creative compromises are possible – the 1001 Reasons Nokia campaign
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4
Price discrimination is a key tool for
maximizing the income from
Necessary conditions for international price discrimination
Different levels in price elasticity
• Price elasticity is the change in demand as a function of change in price
• More inelastic demand will mean less repercussions to raising prices and will
Price discrimination mean higher optimal prices
• A profit maximizer will set higher prices in markets where price elasticity is lower
• Charging different audiences different • More affluent markets
prices depending on willingness and • Less competitive markets
ability to pay

• Not all international price differences Segregated markets

are price discrimination  some • Price discrimination is impossible to sustain when market permeability permits
markets are costlier to serve than successful arbitrage
others • If arbitrage is possible, then arbitrageurs will purchase products from the cheaper
market for resale in the more expensive mkt, equalizing elasticity in the end
• Segregation is achieved by transportation costs, product perishability, trade
barriers, unique product features

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4 Examples of price discrimination
Price discrimination example Reasons for different elasticities Reason for market segregation

• Prices of fast food (e.g., Big Mac) vary • Different levels of affluence of the • Product perishability (impossible to
dramatically between markets general population buy out Big Macs in Ethiopia and sell
• Differences inspired the Economist’s • A low-end discretionary product (such them to Switzerland)
“Big Mac Index” as fast foods) has bigger international • Service non-tradeability
differences in price elasticity than
staples or luxuries
• Prices of medicines are much higher in • Regulation (many developed countries • Regulatory barriers to medicine re-
the United States than in many impose price controls) importation
developed countries (even neighboring • Many countries have single payer • Pharma companies regularly fight
Canada) systems that maximize bargaining state-level initiatives to re-importation
power versus pharma companies from Canada

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4 MNE price discrimination in action
McDonald’s

• The results are likely to be much different if a different

kind of product had been selected
• Luxury product (often luxury products are more
expensive in developing markets than emerging
ones, due to high level of income inequality)
• Internationally tradeable product (greater
possibility for international arbitrage)

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4 Strategic pricing considerations
What it is Key questions to ask
• Price very cheaply so that you can drive out all • What recourse do the competitors have?
competition from the market • How much staying power does the competition have?
Predatory pricing • After all competition has been driven out, raise • Are there exit barriers that would prevent competitors
the prices from leaving even if they could?
• Are there sufficient barriers to entry to allow you to have the
market for yourself after competitors have left?
• What are the regulatory constraints:
• Anti-dumping regulations?
• Competitive regulation

• Price very cheaply so that you can build up • How much economies of scale/economies of learning are there in
Experience curve economies of scale and scope as soon as the industry?
pricing possible • What recourse do the competitors have?
• What are the regulatory constraints:
• Anti-dumping regulations?

• Aggressive price movements in one market can • In how many markets do we overlap with our key competitors?
Multipoint pricing be reciprocated by competitors in other • Are they in a position to hurt us in any of those other markets if
markets we provoke them in this focal market
strategy • This serves as a constraint on the willingness of • Kodak-Fuji example
companies to initiate a price war
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