Page CS1-2

CASE 1-1 Starbucks—Going Global Fast

Starbucks Coffee Tea and Spices opened for business in Seattle, WA, in 1971. You can still visit the
original location. The original logo is a bit more spicy and evokes a seafaring tradition using the
surname of the first mate in Herman Melville’s classic Moby Dick. The original owners bought Peet’s
Coffee in Seattle and sold the Starbucks Coffee operation and brand name to Howard Schultz in 1987.
At that point in time, coffee was the commodity most studied by marketers around the world. Profit
margins were generally low as everyone “understood” how to market coffee.
Then Schultz began to expand the offering to both a high-priced product and an attractive service, a
friendly third place to meet beyond home and the office. While the fast expansion of Starbucks around
the world slowed some during the 2008–09 Great Recession, it has resumed since. The company now
has more than 33,000 stores in over 80 countries.
As far back as 1999 Starbucks was reviled by globalization critics. The World Trade Organization held
its international meetings in Seattle in 1999, and protestors specifically targeted the 6th Avenue and
Pine Street location—one pundit opined that it was easier to break Starbucks’ windows than attack a
can of Coke.
Still, the vast majority of stores are in the United States, with about 9,000 company-owned stores and
another 6,000 licensed operations. The Chinese market dominates Starbucks’ international sales with
more than 4,700 stores, followed by Japan, Canada, the United Kingdom, and South Korea in that
order. One of the first stores opened in China was in the Forbidden City in Beijing. Initially the
Chinese government allowed that store placement, but a few years later the public forced its closure as
being too intrusive, particularly for a foreign company. As with many other Western companies,
however, 2022 also saw Starbucks‘ exit from Russia brought on by Putin’s invasion of Ukraine. The
company ended its 15-year presence in the country and announced it was permanently closing 130
stores in Russia. Starbucks now faces competition from large U.S. competitors such as McDonald’s
and its new McCafés, and in some regions even its old pal Peet’s.
In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business
in Japan, beyond cafés and into convenience stores, with a line of chilled coffee in plastic cups. The
move gives the Seattle-based company a chance to grab a chunk of Japan’s $10 billion market for
coffee sold in cans, bottles, or vending machines rather than made to order at cafés. It is a lucrative but
fiercely competitive sector, but Starbucks, which has become a household name since opening its first
Japanese store, is betting on the power of its brand to propel sales of the new drinks. Also, introducing
tea to the menu in 2015 caused a 7 percent increase in sales. Stores in Japan now number close to
1,700.
Starbucks is working with Japanese beverage maker and distributor Suntory Ltd. The “Discoveries”
and “Doubleshot” lines are the company’s first forays into the ready-to-drink market outside North
America, where it sells a line of bottled and canned coffee. It also underscores Starbucks’
determination to expand its presence in Asia by catering to local tastes. For instance, the new product
comes in two variations—espresso and latte—that are less sweet than their U.S. counterparts, as the
coffee maker developed them to suit Asian palates. Starbucks officials said they hope to establish their
product as the premium chilled cup brand, which, at 210 yen ($1.87), will be priced at the upper end
of the category.
Starbucks faces steep competition. Japan’s “chilled cup” market is teeming with rival products,
including Starbucks lookalikes. One of the most popular brands, called Mt. Rainier, is emblazoned
with a green circle logo that closely resembles that of Starbucks. Convenience stores also are packed
with canned coffee drinks, including Coca-Cola Co.’s Georgia brand and brews with extra caffeine or
made with gourmet coffee beans.
Schultz declined to speculate on exactly how much coffee Starbucks might sell through Japan’s
convenience stores. “We wouldn’t be doing this if it wasn’t important both strategically and
economically,” he said.
The company has no immediate plans to introduce the beverage in the United States, though it has in
the past brought home products launched in Asia. A green tea frappuccino, first launched in Asia, was
later introduced in the United States and Canada, where company officials say it was well received.
Starbucks has done well in Japan, although the road hasn’t always been smooth. After cutting the
ribbon on its first Japan store in 1996, the company began opening stores at a furious pace. New shops
attracted large crowds, but the effect wore off as the market became saturated. The company returned
to profitability, and net profits jumped more than sixfold to 3.6 billion yen in 2007, declined again to
2.7 billion yen in 2009, and increased again to 6 billion yen by 2013.
In Japan, the firm successfully developed a broader menu for its stores, including customized products
—smaller sandwiches and less-sweet desserts. The strategy increased same-store sales and overall
profits. The firm also has added 175 new stores since 2006, including some drive-through service. But
McDonald’s also has attacked the Japanese market with the introduction of its McCafé coffee shops.
Starbucks opened its first store in Africa in 2016, hoping to tap into an expanding consumer class,
despite an overall weakness in the economy. It planned to open up just 12 to 15 stores initially, despite
a capacity on the continent of 150 stores, according to company estimates.
In 2018, China was opening a new store every 15 hours. By 2022, store count in China surpassed
5,500, almost one-sixth of its global total stores. Shanghai now boasts the largest Starbucks store in the
world. Starbucks is pushing “a coffee culture in China where the reward will be healthy, long-term,
profitable growth for decades to come,” CEO Kevin Johnson said. Meanwhile, in North America,
Starbucks is struggling to maintain growth above inflation rates.
Page CS1-3

Questions
As a guide, use Exhibit 1.3 and its description in Chapter 1, and do the following:
1. Identify the controllable and uncontrollable elements that Starbucks has encountered in entering
global markets.
2. What are the major sources of risk facing the company? Discuss potential solutions.
3. Critique Starbucks’ overall corporate strategy.
4. What advice would you have for Starbucks in Africa? In China?
Visit www.starbucks.com for more information.
Sources: Stanley Holmes, Drake Bennett, Kate Carlisle, and Chester Dawson, “Planet Starbucks: To Keep Up the Growth It Must Go Global Quickly,” BusinessWeek,
December 9, 2002, pp. 100–110; Ken Belson, “Japan: Starbucks Profit Falls,” The New York Times, February 20, 2003, p. 1; Ginny Parker Woods, “Starbucks Bets Drinks Will
Jolt Japan Sales,” Asian Wall Street Journal, September 27, 2005, p. A7; Amy Chozick, “Starbucks in Japan Needs a Jolt,” The Wall Street Journal, October 24, 2006, p. 23;
“McCafe Debuts in Japan, Challenging Starbucks, Other Coffee Shops,” Kyoto News, August 28, 2007; “Starbucks Japan Sees 55% Pretax Profit Jump for April–December,”
Nikkei Report, February 6, 2008; Alexandra Wexler, “Starbucks Opens First Africa Store,” The Wall Street Journal, April 22, 2016, p. B6; Sherisse Pham, “China Is Getting
Nearly 3,000 New Starbucks,” money.cnn.com, May 16, 2018; investor.starbucks.com, May 2022; see the most recent annual report at www.starbucks.com; Heather Haddon,
“Starbucks to Exit from Russia,” The Wall Street Journal, May 23, 2022, online.
 Page CS1-4

CASE 1-2 Nestlé: The Infant Formula

Controversy
Nestlé Alimentana of Vevey, Switzerland, one of the world’s largest food-processing companies with
worldwide sales of over $100 billion, has been the subject of an international boycott. For over 20
years, beginning with a Pan American Health Organization allegation, Nestlé has been directly or
indirectly charged with involvement in the death of Third World infants. The charges revolve around
the sale of infant feeding formula, which allegedly is the cause for mass deaths of babies in the Third
World.
In 1974 a British journalist published a report that suggested that powdered-formula manufacturers
contributed to the death of Third World infants by hard-selling their products to people incapable of
using them properly. The 28-page report accused the industry of encouraging mothers to give up breast
feeding and use powdered milk formulas. The report was later published by the Third World Working
Group, a lobby in support of less-developed countries. The pamphlet was entitled “Nestlé Kills Babies”
and accused Nestlé of unethical and immoral behavior.
Although there are several companies that market infant baby formula internationally, Nestlé received
most of the attention. This incident raises several issues important to all multinational companies.
Before addressing these issues, let’s look more closely at the charges by the Infant Formula Action
Coalition and others and the defense by Nestlé.

The Charges
Most of the charges against infant formulas focus on the issue of whether advertising and marketing of
such products have discouraged breast feeding among Third World mothers and have led to misuse of
the products, thus contributing to infant malnutrition and death. Following are some of the charges
made:
A Peruvian nurse reported that formula had found its way to Amazon tribes deep in the jungles of
northern Peru. There, where the only water comes from a highly contaminated river—which also
serves as the local laundry and toilet—formula-fed babies came down with recurring attacks of
diarrhea and vomiting.
Throughout the Third World, many parents dilute the formula to stretch their supply. Some even
believe the bottle itself has nutrient qualities and merely fill it with water. The result is extreme
malnutrition.
One doctor reported that in a rural area, one newborn male weighed 7 pounds. At 4 months of age,
he weighed 5 pounds. His sister, aged 18 months, weighed 12 pounds, what one would expect a 4-
month-old baby to weigh. She later weighed only 8 pounds. The children had never been breast fed,
and since birth their diets were basically bottle feeding. For a 4-month-old baby, one can of formula
should have lasted just under three days. The mother said that one can lasted two weeks to feed both
children.
 In rural Mexico, the Philippines, Central America, and the whole of Africa, there has been a
dramatic decrease in the incidence of breast feeding. Critics blame the decline largely on the
intensive advertising and promotion of infant formula. Clever radio jingles extol the wonders of the
“white man’s powder that will make baby grow and glow.” “Milk nurses” visit nursing mothers in
hospitals and their homes and provide samples of formula. These activities encourage mothers to
give up breast feeding and resort to bottle feeding because it is “the fashionable thing to do or
because people are putting it to them that this is the thing to do.”

The Defense
The following points are made in defense of the marketing of baby formula in Third World countries:
Nestlé argues that the company has never advocated bottle feeding instead of breast feeding. All its
products carry a statement that breast feeding is best. The company states that it “believes that
breast milk is the best food for infants and encourages breast feeding around the world as it has
done for decades.” The company offers as support of this statement one of Nestlé’s oldest
educational booklets on “Infant Feeding and Hygiene,” which dates from 1913 and encourages
breast feeding.
However, the company does believe that infant formula has a vital role in proper infant nutrition as
a supplement, when the infant needs nutritionally adequate and appropriate foods in addition to
breast milk, and as a substitute for breast milk when a mother cannot or chooses not to breast-feed.
One doctor reports, “Economically deprived and thus dietarily deprived mothers who give their
children only breast milk are raising infants whose growth rates begin to slow noticeably at about
the age of three months. These mothers then turn to supplemental feedings that are often harmful
to children. These include herbal teas and concoctions of rice water or corn water and sweetened,
condensed milk. These feedings can also be prepared with contaminated water and are served in
unsanitary conditions.”
Mothers in developing nations often have dietary deficiencies. In the Philippines, a mother in a poor
family who is nursing a child produces about a pint of milk daily. Mothers in the United States
usually produce about a quart of milk each day. For both the Filipino and U.S. mothers, the milk
produced is equally nutritious. The problem is that there is less of it for the Filipino baby. If the
Filipino mother doesn’t augment the child’s diet, malnutrition develops.
Many poor women in the Third World bottle-feed because their work schedules in fields or factories
will not permit breast feeding. The infant feeding controversy has largely to do with the gradual
introduction of weaning foods during the period between three months and two years. The average
well-nourished Western woman, weighing 20 to 30 pounds more than most women in less-developed
countries, cannot feed only breast milk beyond five or six months. The claim that Third World
women can breast-feed exclusively for one or two years and have healthy, well-developed children is
outrageous. Thus, all children beyond the ages of five to six months require supplemental feeding.

Weaning foods can be classified as either native cereal gruels of millet or rice, or Page CS1-5
commercial manufactured milk formula. Traditional native weaning foods are usually
made by mixing maize, rice, or millet flour with water and then cooking the mixture. Other weaning
foods found in use are crushed crackers, sugar and water, and mashed bananas.
 There are two basic dangers to the use of native weaning foods. First, the nutritional quality of the
native gruels is low. Second, microbiological contamination of the traditional weaning foods is a
certainty in many Third World settings. The millet or the flour is likely to be contaminated, the
water used in cooking will most certainly be contaminated, and the cooking containers will be
contaminated; therefore, the native gruel, even after it is cooked, is frequently contaminated with
colon bacilli, staph, and other dangerous bacteria. Moreover, large batches of gruel are often made
and allowed to sit, inviting further contamination.
Scientists recently compared the microbiological contamination of a local native gruel with ordinary
reconstituted milk formula prepared under primitive conditions. They found both were
contaminated to similar dangerous levels.
The real nutritional problem in the Third World is not whether to give infants breast milk or formula
but how to supplement mothers’ milk with nutritionally adequate foods when they are needed.
Finding adequate locally produced, nutritionally sound supplements to mothers’ milk and teaching
people how to prepare and use them safely are the issues. Only effective nutrition education along
with improved sanitation and good food that people can afford will win the fight against dietary
deficiencies in the Third World.

The Resolution
In 1974, Nestlé, aware of changing social patterns in the developing world and the increased access to
radio and television there, reviewed its marketing practices on a region-by-region basis. As a result,
mass media advertising of infant formula began to be phased out immediately in certain markets and,
by 1978, was banned worldwide by the company. Nestlé then undertook to carry out more
comprehensive health education programs to ensure that an understanding of the proper use of its
products reached mothers, particularly in rural areas.
“Nestlé fully supports the WHO [World Health Organization] Code. Nestlé will continue to promote
breast feeding and ensure that its marketing practices do not discourage breast feeding anywhere. Our
company intends to maintain a constructive dialogue with governments and health professionals in all
the countries it serves with the sole purpose of servicing mothers and the health of babies.” This quote
is from “Nestlé Discusses the Recommended WHO Infant Formula Code.”
In 1977, the Interfaith Center on Corporate Responsibility in New York compiled a case against
formula feeding in developing nations, and the Third World Institute launched a boycott against many
Nestlé products. Its aim was to halt promotion of infant formulas in the Third World. The Infant
Formula Action Coalition (INFACT, successor to the Third World Institute), along with several other
world organizations, successfully lobbied the World Health Organization to draft a code to regulate the
advertising and marketing of infant formula in the Third World. In 1981, by a vote of 114 to 1 (three
countries abstained, and the United States was the only dissenting vote), 118 member nations of WHO
endorsed a voluntary code. The eight-page code urged a worldwide ban on promotion and advertising
of baby formula and called for a halt to distribution of free product samples or gifts to physicians who
promoted the use of the formula as a substitute for breast milk.
In May 1981, Nestlé announced it would support the code and waited for individual countries to pass
national codes that would then be put into effect. Unfortunately, very few such codes were
forthcoming. By the end of 1983, only 25 of the 157 member nations of the WHO had established
national codes. Accordingly, Nestlé management determined it would have to apply the code in the
absence of national legislation, and in February 1982, it issued instructions to marketing personnel
that delineated the company’s best understanding of the code and what would have to be done to
follow it.
In addition, in May 1982 Nestlé formed the Nestlé Infant Formula Audit Commission (NIFAC),
chaired by former Senator Edmund S. Muskie, and asked the commission to review the company’s
instructions to field personnel to determine if they could be improved to better implement the code. At
the same time, Nestlé continued its meetings with WHO and UNICEF (United Nations Children’s
Fund) to try to obtain the most accurate interpretation of the code. NIFAC recommended several
clarifications for the instructions that it believed would better interpret ambiguous areas of the code; in
October 1982, Nestlé accepted those recommendations and issued revised instructions to field
personnel.
Other issues within the code, such as the question of a warning statement, were still open to debate.
Nestlé consulted extensively with WHO before issuing its label warning statement in October 1983,
but there was still not universal agreement with it. Acting on WHO recommendations, Nestlé
consulted with firms experienced and expert in developing and field testing educational materials so
that it could ensure that those materials met the code.
When the International Nestlé Boycott Committee (INBC) listed its four points of difference with
Nestlé, it again became a matter of interpretation of the requirements of the code. Here, meetings held
by UNICEF proved invaluable, in that UNICEF agreed to define areas of differing interpretation—in
some cases providing definitions contrary to both Nestlé’s and INBC’s interpretations.
It was the meetings with UNICEF in early 1984 that finally led to a joint statement by Nestlé and
INBC on January 25. At that time, INBC announced its suspension of boycott activities, and Nestlé
pledged its continued support of the WHO code.

Nestlé Supports WHO Code

The company has a strong record of progress and support in implementing the WHO code, including
the following:
Immediate support for the WHO code, May 1981, and testimony to this effect before the U.S.
Congress, June 1981.
Issuance of instructions to all employees, agents, and distributors in February 1982 to implement
the code in all Third World countries where Nestlé markets infant formula.

Establishment of an audit commission, in accordance with Article 11.3 of the WHO code, Page CS1-6
to ensure the company’s compliance with the code. The commission, headed by Edmund
S. Muskie, was composed of eminent clergy and scientists.
Willingness to meet with concerned church leaders, international bodies, and organization leaders
seriously concerned with Nestlé’s application of the code.
 Issuance of revised instructions to Nestlé personnel, October 1982, as recommended by the Muskie
committee to clarify and give further effect to the code.
Consultation with WHO, UNICEF, and NIFAC on how to interpret the code and how best to
implement specific provisions, including clarification by WHO/UNICEF of the definition of
children who need to be fed breast milk substitutes, to aid in determining the need for supplies in
hospitals.

Nestlé Policies
As mentioned earlier, by 1978 Nestlé had stopped all consumer advertising and direct sampling to
mothers. Instructions to the field issued in February 1982 and clarified in the revised instructions of
October 1982 to adopt articles of the WHO code as Nestlé policy include the following:
No advertising to the general public.
No sampling to mothers.
No mothercraft workers.
No use of commission/bonus for sales.
No use of infant pictures on labels.
No point-of-sale advertising.
No financial or material inducements to promote products.
No samples to physicians except in three specific situations: a new product, a new product
formulation, or a new graduate physician; limited to one or two cans of product.
Limitation of supplies to those requested in writing and fulfilling genuine needs for breast milk
substitutes.
A statement of the superiority of breast feeding on all labels/materials.
Labels and educational materials clearly stating the hazards involved in incorrect usage of infant
formula, developed in consultation with WHO/UNICEF.

Even though Nestlé stopped consumer advertising, it was able to maintain its share of the Third World
infant formula market. In 1988 a call to resume the seven-year boycott was made by a group of
consumer activist members of the Action for Corporate Accountability. The group claimed that Nestlé
was distributing free formula through maternity wards as a promotional tactic that undermined the
practice of breast feeding. The group claimed that Nestlé and others, including American Home
Products, have continued to dump formula in hospitals and maternity wards and that, as a result,
“babies are dying as the companies are violating the WHO resolution.” In 1997 the Interagency Group
on Breastfeeding Monitoring (IGBM) claimed Nestlé continues to systematically violate the WHO
code. In 2008 the International Baby Food Action Network (IBFAN), based in Malaysia, accused
Nestlé and the other manufacturers of “ . . . violating the Code, or stretching the restrictions, with
abandon.” Nestlé’s response to these accusations is included on its website (see www.nestle.com for
details).
The boycott focus is Taster’s Choice Instant Coffee, Coffeemate Nondairy Coffee Creamer, Anacin
aspirin, and Advil.
Representatives of Nestlé and American Home Products rejected the accusations and said they were
complying with World Health Organization and individual national codes on the subject.

The New Twists of the 21st Century

2001
A new environmental factor has made the entire case more complex: As of 2001 it was believed that
some 3.8 million children around the world had contracted the human immunodeficiency virus (HIV)
at their mothers’ breasts. In affluent countries, mothers can be told to bottle-feed their children.
However, 90 percent of the child infections occur in developing countries. There the problems of
bottle feeding remain. Further, in even the most infected areas, 70 percent of the mothers do not carry
the virus, and breast feeding is by far the best option. The vast majority of pregnant women in
developing countries have no idea whether they are infected or not. One concern is that large numbers
of healthy women will switch to the bottle just to be safe. Alternatively, if bottle feeding becomes a
badge of HIV infection, mothers may continue breast feeding just to avoid being stigmatized. In
Thailand, pregnant women are offered testing, and if found HIV positive, are given free milk powder.
But in some African countries, where women get pregnant at three times the Thai rate and HIV
infection rates are 25 percent compared with the 2 percent in Thailand, that solution is much less
feasible. Moreover, the latest medical evidence indicates that extending breast feeding reduces the risk
of breast cancer.

2004
In 2004 the demand for infant formula in South Africa outstripped supply as HIV-infected mothers
made the switch to formula. Demand grew 20 percent in that year, and the government investigated
the shortages as Nestlé scrambled to catch up with demand. The firm reopened a shuttered factory and
began importing formula from Brazil.
Meanwhile, back in the States the Department of Health and Human Services (HHS) developed an
advertising campaign to promote breast feeding by America mothers. The ads included material on the
health problems formula babies were more likely to experience—including insulin syringes and
inhalers. The formula producers lobbied HHS, and the Department “watered down” its campaign,
relegating it to ineffectiveness.

2006
Two years later, Massachusetts became the first state to ban formula in gift bags provided to maternity
patients. The governor at the time, Mitt Romney, reversed the decision. Just one month later a
prominent formula maker announced it would build a new plant in that state. The company denied the
plant placement was related to Romney’s executive order.

2010
One-hundred thirty countries have restricted advertising of infant formula in response to the WHO
recommendations. However, a study in 2010 reported over 500 violations of those restrictions in 46 of
those countries. Health experts have complained that consumers exposed to such advertising often
believe formula is better than breast feeding. Some of these ads claim (without providing evidence)
that formula-fed babies will be smarter than breast-fed ones!
Among the relentless and egregious behaviors of formula manufactures is the case of Mead Johnson
introducing a chocolate-flavored product it labeled as “Toddler Formula.” Critics pointed out the
ingredients for their Enfagrow included 19 grams of sugar per a 7-ounce serving. The company
countered the criticism by referring to the similar amounts of sugars in fruit juices and chocolate milk.
The medical experts described the dangers associated with childhood obesity with which all three
products are associated. The product, introduced in February, was taken of the shelf by the company
in March. Interestingly, the weak addictive qualities of chocolate’s psychoactive ingredients (that is,
caffeine and theobromine) did not enter the debate at the time.

Page CS1-7

2018
Trump administration delegates to the World Health Assembly meetings in Geneva specifically
opposed a resolution that member countries act to specifically “protect, promote, and support
breastfeeding.” The U.S. delegates threatened other nations leading the effort to strengthen
governments’ restrictions on formula promotion, promising punitive trade and aid sanctions.

2022
It seems a perfect storm of factors led to the frightening shortage of infant formula in the United
States in 2022. In that year store shelves were emptied of baby formula, and large retailers resorted to
rationing of the product. Although it is scientifically clear that breast feeding is best for infants, for
both medical and career reasons, formula becomes an important substitute for many families in the
United States.
Part of the formula shortage in that year was caused by the COVID pandemic. Indeed, the disruptions
in global and local supply chains have been unprecedented and uniquely widespread.
An important second causal factor was the February 2022 closure of a large infant formula plant in
Michigan due to potential contamination. The U.S. Food and Drug Administration recalled several
brands produced at that single, but very large plant.
In the months that followed, sales of formula exploded. The hoarding behavior of consumers was
partially to blame. Then as families began to work through their stockpiles, overall sales dropped. The
unusual volatility made production planning difficult. Apparently the manufacturers and their
marketing researchers had learned from the 2004 formula shortages in South Africa.
Finally, the restrictive international trade policies of the Trump administration made things worse.
Imports from Canada and Europe were precluded by nationalistic trade regulations ordered by Trump.
A 17.5 percent tariff was applied at the time. Even though European formulas are often better quality
than American ones, differences in labeling laws have prevented imports from across the Atlantic.
As news of the shortage hit prime-time news shows, both Congress and the Biden administration took
measures to ameliorate the shortages.

The Issues
Many issues are raised by this incident and the ongoing swirl of cultural change. How can a company
deal with a worldwide boycott of its products? Why did the United States decide not to support the
WHO code? Who is correct, WHO or Nestlé? A more important issue concerns the responsibility of a
multinational corporation (MNC) marketing in developing nations. Setting aside the issues for a
moment, consider the notion that, whether intentional or not, Nestlé’s marketing activities have had an
impact on the behavior of many people. In other words, Nestlé is a cultural change agent. When it or
any other company successfully introduces new ideas into a culture, the culture changes and those
changes can be functional or dysfunctional to established patterns of behavior. The key issue is, What
responsibility does the MNC have to the culture when, as a result of its marketing activities, it causes
change in that culture? Finally, how might Nestlé now participate in the battle against the spread of
HIV and AIDS in developing countries?

Questions
1. What are the responsibilities of companies in this or similar situations?
2. What could Nestlé have done to have avoided the accusations of “killing Third World babies” and
still market its product?
3. After Nestlé’s experience, how do you suggest it, or any other company, can protect itself in the
future?
4. Assume you are the one who had to make the final decision on whether or not to promote and
market Nestlé’s baby formula in Third World countries. Read the section titled
“Ethical and Socially Responsible Decisions” in Chapter 5 as a guide to examine the social
responsibility and ethical issues regarding the marketing approach and the promotion used. Were
the decisions socially responsible? Were they ethical?
5. What advice would you give to Nestlé now in light of the new problem of HIV infection being
spread via mothers’ milk?
6. Comment on the implications of both the COVID pandemic and the infant formula shortage for
globalization and international commerce.
This case is an update of “Nestle in LDCs,” a case written by J. Alex Murray, University of Windsor, Ontario, Canada, and Gregory M. Gazda and Mary J. Molenaar,
University of San Diego. The case originally appeared in the fifth edition of this text. The case draws from the following: “International Code of Marketing of Breastmilk
Substitutes” (Geneva: World Health Organization, 1981); INFACT Newsletter, Minneapolis, February 1979; John A. Sparks, “The Nestle Controversy—Anatomy of a Boycott”
(Grove City, PA: Public Policy Education Funds); “WHO Drafts a Marketing Code,” World Business Weekly, January 19, 1981, p. 8; “A Boycott over Infant Formula,”
BusinessWeek, April 23, 1979, p. 137; “The Battle over Bottle-Feeding,” World Press Review, January 1980, p. 54; “Nestle and the Role of Infant Formula in Developing
Countries: The Resolution of a Conflict” (Nestle Company, 1985); “The Dilemma of Third World Nutrition” (Nestle SA, 1985), 20 pp.; Thomas V. Greer, “The Future of the
International Code of Marketing of Breastmilk Substitutes: The Socio-Legal Context,” International Marketing Review, Spring 1984, pp. 33–41; James C. Baker, “The
International Infant Formula Controversy: A Dilemma in Corporate Social Responsibility,” Journal of Business Ethics 4 (1985), pp. 181–90; Shawn Tully, “Nestle Shows How to
Gobble Markets,” Fortune, January 16, 1989, p. 75. For a comprehensive and well-balanced review of the infant formula issue, see Thomas V. Greer, “International Infant
Formula Marketing: The Debate Continues,” Advances in International Marketing 4 (1990), pp. 207–25. For a discussion of the HIV complication, see “Back to the Bottle?,” The
Economist, February 7, 1998, p. 50; Alix M. Freedman and Steve Stecklow, “Bottled Up: As UNICEF Battles Baby-Formula Makers, African Infants Sicken,” The Wall Street
Journal, December 5, 2000; Rone Tempest, “Mass Breast-Feeding by 1,128 Is Called a Record,” Los Angeles Times, August 4, 2002, p. B1; “South Africa: Erratic Infant Formula
Supply Puts PMTCT at Risk,” All Africa/COMTEX, August 22, 2005; Hillary Parsons, “Response. We’re Not Trying to Undermine the Baby-Milk Code,” The Guardian, May
22, 2007, p. 35; Annelies Allain and Yeong Joo Kean, “The Baby Food Peddlers,” Multinational Monitor 29, no. 1 (2008), pp. 18–19; Marian Nestle, “Chocolate Baby Formula:
From Cradle to Grave?,” The Atlantic, April 29, 2010, online; Julie Wernau, “Chocolate and Vanilla-Flavored Formulas for Toddlers Are Criticized,” Los Angeles Times, May 6,
2010, online; John L. Graham, Spiced: The Global Marketing of Psychoactive Substances (Charleston, SC: CreateSpace, 2016); Olga Kazan, “The Epic Battle between Breast Milk
and Infant Formula Companies,” The Atlantic, July 10, 2018, online; Derek Thomas, “What’s behind America’s Shocking Baby-Formula Shortages?,” The Atlantic, May 12,
2022, online; David Leonhardt, “The Baby Formula Crisis,” The New York Times, May 13, 2022, online; Linsay Wise, “House Eyes Relaxing Baby Formula Rules,” The Wall
Street Journal, May 14, 2022, p. A3.
 Page CS1-8

CASE 1-3 Coke and Pepsi Learn to Compete

in India
The Beverage Battlefield
In 2007, the president and CEO of Coca-Cola asserted that Coke has had a rather rough run in India,
but now it seems to be getting its positioning right. Similarly, PepsiCo’s Asia chief asserted that India
is the beverage battlefield for this decade and beyond.
Even though the government had opened its doors wide to foreign companies, the experience of the
world’s two giant soft drink companies in India during the 1990s and the beginning of the new
millennium was not a happy one. Both companies experienced a range of unexpected problems and
difficult situations that led them to recognize that competing in India requires special knowledge,
skills, and local expertise. In many ways, Coke and Pepsi managers had to learn the hard way that
“what works here” does not always “work there.” “The environment in India is challenging, but we’re
learning how to crack it,” says an industry leader.

The Indian Soft Drink Industry

In India, over 45 percent of the soft drink industry in 1993 consisted of small manufacturers. Their
combined business was worth $3.2 million. Leading producers included Parle Agro (hereafter Parle),
Pure Drinks, Modern Foods, and McDowells. They offered carbonated orange and lemon-lime
beverage drinks. Coca-Cola Corporation (hereafter Coca-Cola) was only a distant memory to most
Indians at that time. The company had been present in the Indian market from 1958 until its
withdrawal in 1977 following a dispute with the government over its trade secrets. After decades in the
market, Coca-Cola chose to leave India rather than cut its equity stake to 40 percent and hand over its
secret formula for the syrup.
Following Coca-Cola’s departure, Parle became the market leader and established thriving export
franchise businesses in Dubai, Kuwait, Saudi Arabia, and Oman in the Gulf, along with Sri Lanka. It
set up production in Nepal and Bangladesh and served distant markets in Tanzania, Britain, the
Netherlands, and the United States. Parle invested heavily in image advertising at home, establishing
the dominance of its flagship brand, Thums Up.
 Timothy Hellum/Alamy Stock Photo

Thums Up is a brand associated with a “job well done” and personal success. These are persuasive
messages for its target market of young people aged 15 to 24 years. Parle has been careful in the past
not to call Thums Up a cola drink, so it has avoided direct comparison with Coke and Pepsi, the
world’s brand leaders.
The soft drink market in India is composed of six product segments: cola, “cloudy lemon,” orange,
“soda” (carbonated water), mango, and “clear lemon,” in order of importance. Cloudy lemon and
clear lemon together make up the lemon-lime segment. Prior to the arrival of foreign producers in
India, the fight for local dominance was between Parle’s Thums Up and Pure Drinks’ Campa Cola.
In 1988, the industry had experienced a dramatic shakeout following a government warning that BVO,
an essential ingredient in locally produced soft drinks, was carcinogenic. Producers either had to
resort to using a costly imported substitute, estergum, or had to finance their own R&D in order to
find a substitute ingredient. Many failed and quickly withdrew from the industry.
Competing with the segment of carbonated soft drinks is another beverage segment composed of
noncarbonated fruit drinks. These are a growth industry because Indian consumers perceive fruit
drinks to be natural, healthy, and tasty. The leading brand has traditionally been Parle’s Frooti, a
mango-flavored drink, which was also exported to franchisees in the United States, Britain, Portugal,
Spain, and Mauritius.

Opening Indian Market

In 1991, India experienced an economic crisis of exceptional severity, triggered by the rise in imported
oil prices following the first Gulf War (after Iraq’s invasion of Kuwait). Foreign exchange reserves fell
as nonresident Indians (NRIs) cut back on repatriation of their savings, imports were tightly
controlled across all sectors, and industrial production fell while inflation was rising. A new
government took office in June 1991 and introduced measures to stabilize the economy in the short
term, then launched a fundamental restructuring program to ensure medium-term growth. Results
were dramatic. By 1994, inflation was halved, exchange reserves were greatly increased, exports were
growing, and foreign investors were looking at India, a leading Big Emerging Market, with new eyes.
The turnaround could not be overstated; as one commentator said, “India has been in economic
depression for so long that everything except the snake-charmers, cows and the Taj Mahal has faded
from the memory of the world.” The Indian government was viewed as unfriendly to foreign investors.
Outside investment had been allowed only in high-tech sectors and was almost entirely prohibited in
consumer goods sectors. The “principle of indigenous availability” had specified that if an item could
be obtained anywhere else within the country, imports of similar items were forbidden. As a result,
Indian consumers had little choice of products or brands and no guarantees of quality or reliability.
Following liberalization of the Indian economy and the dismantling of complicated trade rules and
regulations, foreign investment increased dramatically. Processed foods, software, engineering plastics,
electronic equipment, power generation, and petroleum industries all benefited from the policy
changes.

Page CS1-9

PepsiCo and Coca-Cola Enter the Indian Market

Despite its huge population, India had not been considered by foreign beverage producers to be an
important market. In addition to the deterrents imposed by the government through its austere trade
policies, rules, and regulations, local demand for carbonated drinks in India was very low compared
with countries at a similar stage of economic development. In 1989, the average Indian was buying
only 3 bottles a year, compared with per-capita consumption rates of 11 bottles a year in Bangladesh
and 13 in Pakistan, India’s two neighbors.
PepsiCo entered the Indian market in 1986 under the name “Pepsi Foods Ltd. in a joint venture with
two local partners, Voltas and Punjab Agro.” As expected, very stringent conditions were imposed on
the venture. Sales of soft drink concentrate to local bottlers could not exceed 25 percent of total sales
for the new venture, and Pepsi Foods Ltd. was required to process and distribute local fruits and
vegetables. The government also mandated that Pepsi Foods’ products be promoted under the name
“Lehar Pepsi” (“lehar” meaning “wave”). Foreign collaboration rules in force at the time prohibited
the use of foreign brand names on products intended for sale inside India. Although the requirements
for Pepsi’s entry were considered stringent, the CEO of Pepsi-Cola International said at that time,
“We’re willing to go so far with India because we want to make sure we get an early entry while the
market is developing.”
 Oleksandr Rupeta/Alamy Stock Photo

In keeping with local tastes, Pepsi Foods launched Lehar 7UP in the clear lemon category, along with
Lehar Pepsi. Marketing and distribution were focused in the north and west around the major cities of
Delhi and Mumbai (formally Bombay). An aggressive pricing policy on the one-liter bottles had a
severe impact on the local producer, Pure Drinks. The market leader, Parle, preempted any further
pricing moves by Pepsi Foods by introducing a new 250-ml bottle that sold for the same price as its
200-ml bottle.
Pepsi Foods struggled to fight off local competition from Pure Drinks’ Campa Cola, Duke’s lemonade,
and various brands of Parle. The fight for dominance intensified in 1993 with Pepsi Foods’ launch of
two new brands, Slice and Teem, along with the introduction of fountain sales. At this time, market
shares in the cola segment were 60 percent for Parle (down from 70 percent), 26 percent for Pepsi
Foods, and 10 percent for Pure Drinks.
In May 1990, Coca-Cola attempted to reenter India by means of a proposed joint venture with a local
bottling company owned by the giant Indian conglomerate Godrej. The government turned down this
application just as PepsiCo’s application was being approved. Undeterred, Coca-Cola made its return
to India by joining forces with Britannia Industries India Ltd., a local producer of snack foods. The
new venture was called “Britco Foods.”
 Sue Cunningham Photographic/Alamy Stock Photo

Among local producers, it was believed at that time that Coca-Cola would not take market share away
from local companies because the beverage market was itself growing consistently from year to year.
Yet this belief did not stop individual local producers from trying to align themselves with the market
leader. Thus, in July 1993, Parle offered to sell Coca-Cola its bottling plants in the four key cities of
Delhi, Mumbai, Ahmedabad, and Surat. In addition, Parle offered to sell its leading brands Thums Up,
Limca, Citra, Gold Spot, and Mazaa. It chose to retain ownership only of Frooti and a soda
(carbonated water) called Bisleri.

Fast Forward to the New Millennium

Seasonal Sales Promotions—2006 Navratri Campaign
In India the summer season for soft drink consumption lasts 70 to 75 days, from mid-April to June.
During this time, over 50 percent of the year’s carbonated beverages are consumed across the country.
The second-highest season for consumption lasts only 20 to 25 days during the cultural festival of
Navratri (“Nav” means nine and “ratri” means night). This traditional Gujarati festival goes on for
nine nights in the state of Gujarat, in the western part of India. Mumbai also has a significant Gujarati
population that is considered part of the target market for this campaign.
As the Regional Marketing Manager for Coca-Cola India stated, “As part of the ‘think local—act local’
business plan, we have tried to involve the masses in Gujarat with ‘Thums Up Toofani Ramjhat,’ with
20,000 free passes issued, one per Thums Up bottle. [‘Toofan’ means a thunderstorm and ‘ramjhat’
means ‘let’s dance,’ so together these words convey the idea of a ‘fast dance.’] There are a number of
[retail] on-site activities too, such as the ‘buy one—get one free’ scheme and lucky draws where one can
win a free trip to Goa.” (Goa is an independent Portuguese-speaking state on the west coast of India,
famed for its beaches and tourist resorts.)
For its part, PepsiCo also participates in annual Navratri celebrations through massive Page CS1-10
sponsorships of “garba” competitions in selected venues in Gujarat. (“Garba” is the name
of a dance, done by women during the Navratri festival.) The executive vice president for PepsiCo
India commented: “For the first time, Pepsi has tied up with the Gujarati TV channel, Zee Alpha, to
telecast ‘Navratri Utsav’ on all nine nights. [‘Utsav’ means festival.] Then there is the mega offer for
the people of Ahmedabad, Baroda, Surat, and Rajkot where every refill of a case of Pepsi 300-ml.
bottles will fetch one kilo of Basmati rice free.” These four cities are located in the state of Gujarat.
Basmati rice is considered a premium-quality rice. After the initial purchase of a 300-ml bottle,
consumers can get refills at reduced rates at select stores.

The TV Campaign
Both Pepsi-Cola and Coca-Cola engaged in TV campaigns employing local and regional festivals and
sports events. A summer campaign featuring 7UP was launched by Pepsi with the objectives of
growing the category and building brand awareness. The date was chosen to coincide with the India–
Zimbabwe One-Day cricket series. The new campaign slogan was “Keep It Cool” to emphasize the
product attribute of refreshment. The national campaign was to be reinforced with regionally adapted
TV campaigns, outdoor activities, and retail promotions.
A 200-ml bottle was introduced during this campaign in order to increase frequency of purchase and
volume of consumption. Prior to the introduction of the 200-ml bottle, most soft drinks were sold in
250-ml, 300-ml, and 500-ml bottles. In addition to 7UP, Pepsi Foods also introduced Mirinda Lemon,
Apple, and Orange in 200-ml bottles.
In the past, celebrity actors Amitabh Bachchan and Govinda, who are famous male stars of the Indian
movie industry, had endorsed Mirinda Lemon. This world-famous industry is referred to as
“Bollywood” (the Hollywood of India based in Bombay).

Pepsi’s Sponsorship of Cricket and Football (Soccer)

After India won an outstanding victory in the India–England NatWest One-Day cricket series finals,
PepsiCo launched a new ad campaign featuring the batting sensation Mohammad Kaif. PepsiCo’s
lineup of other cricket celebrities includes Saurav Ganguly, Rahul Dravid, Harbhajan Singh, Zaheer
Khan, V. V. S. Laxman, and Ajit Agarkar. All of these players were part of the Indian team for the
World Cup Cricket Series. During the two months of the Series, a new product, Pepsi Blue, was
marketed nationwide. It was positioned as a “limited edition,” icy-blue cola sold in 300-ml, returnable
glass bottles and 500-ml plastic bottles, priced at 8 rupees (Rs) and Rs 15, respectively. In addition,
commemorative, nonreturnable 250-ml Pepsi bottles priced at Rs 12 were introduced. (One rupee was
equal to US 2.54 cents in 2008.)
In addition to the sponsorship of cricket events, PepsiCo also has taken advantage of World Cup
soccer fever in India by featuring football heroes such as Baichung Bhutia in Pepsi’s celebrity and
music-related advertising communications. These ads featured football players pitted against sumo
wrestlers.
To consolidate its investment in its promotional campaigns, PepsiCo sponsored a music video with
celebrity endorsers including the Bollywood stars, as well as several nationally known cricketers. The
new music video aired on SET Max, a satellite channel broadcast mainly in the northern and western
parts of India and popular among the 15–25-year age group.

Coca-Cola’s Lifestyle Advertising

While Pepsi’s promotional efforts focused on cricket, soccer, and other athletic events, Coca-Cola’s
India strategy focused on relevant local idioms in an effort to build a “connection with the youth
market.” The urban youth target market, known as “India A,” includes 18–24-year-olds in major
metropolitan areas.
Several ad campaigns were used to appeal to this market segment. One campaign was based on use of
“gaana” music and ballet. (“Gaana” means to sing.)
The first ad execution, called “Bombay Dreams,” featured A. R. Rahman, a famous music director.
This approach was very successful among the target audience of young people, increasing sales by
about 50 percent. It also won an Effi Award from the Mumbai Advertising Club. A second execution
of Coke’s southern strategy was “Chennai Dreams” (Chennai was formerly called Madras), a 60-
second feature film targeting consumers in Tamil Nadu, a region of southern India. The film featured
Vijay, a youth icon who is famous as an actor in that region of south India.
Another of the 60-second films featured actor Vivek Oberoi with Aishwarya Rai. Both are famous as
Bollywood movie stars. Aishwarya won the Miss World crown in 1994 and became an instant hit in
Indian movies after deciding on an acting career.
This ad showed Oberoi trying to hook up with Rai by deliberately leaving his mobile phone in the taxi
that she hails, and then calling her. The ad message aimed to emphasize confidence and optimism, as
well as a theme of “seize the day.” This campaign used print, outdoor, point-of-sale, restaurant and
grocery chains, and local promotional events to tie into the 60-second film. “While awareness of soft
drinks is high, there is a need to build a deeper brand connect” in urban centers, according to the
Director of Marketing for Coca-Cola India. “Vivek Oberoi—who’s an up and coming star today, and
has a wholesome, energetic image—will help build a stronger bond with the youth, and make them feel
that it is a brand that plays a role in their life, just as much as Levi’s or Ray-Ban.”
In addition to promotions focused on urban youth, Coca-Cola India worked hard to build a brand
preference among young people in rural target markets. The campaign slogan aimed at this market was
“thanda matlab Coca-Cola” (or “cool means Coca-Cola” in Hindi). Coca-Cola India calls its rural
youth target market “India B.” The prime objective in this market is to grow the generic soft drink
category and to develop brand preference for Coke. The “thanda” (“cold”) campaign successfully
propelled Coke into the number three position in rural markets.
Continuing to court the youth market, Coke has opened its first retail outlet, Red Lounge. The Red
Lounge is touted as a one-stop destination where the youth can spend time and consume Coke
products. The first Red Lounge pilot outlet is in Pune, and based on the feedback, more outlets will be
rolled out in other cities. The lounge sports red color, keeping with the theme of the Coke logo. It has
a giant LCD television, video games, and Internet surfing facilities. The lounge offers the entire range
of Coke products. The company also is using the Internet to extend its reach into the public domain
through the website www.happiness.coca-cola.com. The company has created a special online
“Sprite-itude” zone that provides consumers opportunities for online gaming and expressing their
creativity, keeping with the no-nonsense attitude of the drink.
Coca-Cola’s specific marketing objectives are to grow the per capita consumption of soft Page CS1-11

drinks in the rural markets, capture a larger share in the urban market from competition, and increase
the frequency of consumption. An “affordability plank,” along with introduction of a new 5-rupee
bottle, was designed to help achieve all of these goals.

The “Affordability Plank”

The purpose of the “affordability plank” was to enhance affordability of Coca-Cola’s products,
bringing them within arm’s reach of consumers, and thereby promoting regular consumption. Given
the very low per capita consumption of soft drinks in India, it was expected that price reductions
would expand both the consumer base and the market for soft drinks. Coca-Cola India dramatically
reduced prices of its soft drinks by 15 to 25 percent nationwide to encourage consumption. This move
followed an earlier regional action in North India that reduced prices by 10 to 15 percent for its
carbonated brands Coke, Thums Up, Limca, Sprite, and Fanta. In other regions such as Rajasthan,
western and eastern Uttar Pradesh, and Tamil Nadu, prices were slashed to Rs 5 for 200-ml glass
bottles and Rs 8 for 300-ml bottles, down from the existing Rs 7 and Rs 10 price points, respectively.
Another initiative by Coca-Cola was the introduction of a new size, the “Mini,” expected to increase
total volume of sales and account for the major chunk of Coca-Cola’s carbonated soft drink sales.
The price reduction and new production launch were announced together in a new television ad
campaign for Fanta and Coke in Tamil. A 30-second Fanta spot featured the brand ambassador, actress
Simran, well-known for her dance sequences in Hindi movies. The ad showed Simran stuck in a traffic
jam. Thirsty, she tosses a 5-rupee coin to a roadside stall and signals to the vendor that she wants a
Fanta Mini by pointing to her orange dress. (Fanta is an orangeade drink.) She gets her Fanta and sets
off a chain reaction on the crowded street, with everyone from school children to a traditional “nani”
mimicking her action. (“Nani” is the Hindi word for grandmother.) The director of marketing
commented that the company wanted to make consumers “sit up and take notice.”

A New Product Category

Although carbonated drinks are the mainstay of both Coke’s and Pepsi’s product lines, the Indian
market for carbonated drinks is now not growing. It grew at a compounded annual growth rate of only
1 percent between 1999 and 2006, from $1.31 billion to $1.32 billion. However, the overall market for
beverages, which includes soft drinks, juices, and other drinks, grew 6 percent from $3.15 billion to
$3.34 billion.
To encourage growth in demand for bottled beverages in the Indian market, several producers,
including Coke and Pepsi, launched their own brands in a new category, bottled water. This market
was valued at 1,000 crores.1
Pepsi and Coke responded to the declining popularity of soft drinks or carbonated drinks and the
increased focus on all beverages that are noncarbonated. The ultimate goal is leadership in the
packaged water market, which is growing more rapidly than any other category of bottled beverages.
Pepsi is a significant player in the packaged water market with its Aquafina brand, which has a
significant share of the bottled water market and is among the top three retail water brands in the
country.
Coca-Cola introduced its Kinley brand of bottled water and in two years achieved a 28 percent market
share. It initially produced bottled water in 15 plants and later expanded to another 15 plants. The
Kinley brand of bottled water sells in various pack sizes: 500 ml, 1 liter, 1.5 liters, 2 liters, 5 liters, 20
liters, and 25 liters. The smallest pack was priced at Rs 6 for 500 ml, while the 2-liter bottle was Rs 17.
The current market leader, with 40 percent market share, is the Bisleri brand by Parle. Other
competing brands in this segment include Bailley by Parle, Hello by Hello Mineral Waters Pvt. Ltd.,
Pure Life by Nestlé, and a new brand launched by Indian Railways, called Rail Neer.

Contamination Allegations and Water Usage

Just as things began to look up for the American companies, an environmental organization claimed
that soft drinks produced in India by Coca-Cola and Pepsi contained significant levels of pesticide
residue. Coke and Pepsi denied the charges and argued that extensive use of pesticides in agriculture
had resulted in a minute degree of pesticide in sugar used in their drinks. The result of tests conducted
by the Ministry of Health and Family Welfare showed that soft drinks produced by the two companies
were safe to drink under local health standards.
PepsiCo began a public relations offensive, placing large advertisements in daily newspapers saying,
“Pepsi is one of the safest beverages you can drink today.”
The company acknowledged that pesticides were present in the groundwater in India and found their
way into food products in general. But, it said, “compared with the permitted levels in tea and other
food products, pesticide levels in soft drinks are negligible.”
After all the bad press Coke got in India over the pesticide content in its soft drinks, an activist group
in California launched a campaign directed at U.S. college campuses, accusing Coca-Cola of India of
using precious groundwater, lacing its drinks with pesticides, and supplying farmers with toxic waste
used for fertilizing their crops. According to one report, a plant that produces 300,000 liters of soda
drink a day uses 1.5 million liters of water, enough to meet the requirements of 20,000 people. Other
unsubstantiated reports surfaced that farmers in India were spraying Coke on their crops because it is
one-tenth the cost of pesticide but just as effective at killing bugs.
The issue revolved around a bottling plant in Plachimada, India. Although the state government
granted Coke permission to build its plant in 1998, the company was obliged to get the locally elected
village council’s go-ahead to exploit groundwater and other resources. The village council did not
renew permission in 2002, claiming the bottling operation had depleted the farmers’ drinking water
and irrigation supplies. Coke’s plant was closed until the corporation won a court ruling allowing it to
reopen.
The reopening of the plant in 2006 led students of a major midwestern university to call for Page CS1-12
a ban on the sale of all Coca-Cola products on campus. According to one source, more than 20
campuses banned Coca-Cola products, and hundreds of people in the United States called on Coca-
Cola to close its bottling plants because the plants drain water from communities throughout India.
They contended that such irresponsible practices rob the poor of their fundamental right to drinking
water, are a source of toxic waste, cause serious harm to the environment, and threaten people’s
health.
In an attempt to stem the controversy, Coca-Cola entered talks with the midwestern university and
agreed to cooperate with an independent research assessment of its work in India; the university
selected the institute to conduct the research, and Coke financed the study. As a result of the proposed
research program, the university agreed to continue to allow Coke products to be sold on campus.
In 2008 the study reported that none of the pesticides were found to be present in processed water
used for beverage production and that the plants met governmental regulatory standards. However, the
report voiced concerns about the company’s use of sparse water supplies. Coca-Cola was asked by the
Delhi-based environmental research group to consider shutting down one of its bottling plants in India.
Coke’s response was that “the easiest thing would be to shut down, but the solution is not to run away.
If we shut down, the area is still going to have a water problem. We want to work with farming
communities and industries to reduce the amount of water used.”
The controversies highlight the challenges that multinational companies can face in their overseas
operations. Despite the huge popularity of the drinks, the two companies are often held up as symbols
of Western cultural imperialism.

The Battleground Shifts

Coca-Cola turned a profit in India in 2010 for the first time since its reentry in 1993. Coca-Cola now
leads the industry in sales: It owns the #1 and #2 brands, Thums Up and Coke, respectively. Rather
than killing the Thums Up brand, Coca-Cola executives wisely have maintained that name, with its
nationalistic popularity. The nonalcoholic beverage industry also has experienced a growth surge in the
past decade, at some 10 percent per year. And now the competitive battle is shifting from urban areas
to the vast rural regions of India.
In a community relations campaign, Coke also pointed out the company is supporting sustainable
development and inclusive growth by focusing on issues relating to water, environment, healthy living,
women empowerment, sanitation, and social advancement. In 2010 Coca-Cola India launched its
5by20 initiative, which is the company’s global program to empower economically 5 million women
entrepreneurs across six segments by 2020.
In 2017, Coke and Pepsi were once again accused of nonsustainability in the production of their
products. More than a million wholesalers and small retailers in India’s soft drink channel boycotted
the products, along with other carbonated drinks, over allegations of the amount of water used. Amit
Srivastava, director at the NGO India Resource Centre, said, “According to our research Coca-Cola is
the number one buyer of sugarcane in India and Pepsi is number three. If you take into account the
water used for sugarcane, then we’re using 400 litres of water to make a bottle of Cola. . . . Sugarcane
is a water-guzzling crop. It is the wrong crop for India.” The controversy was heightened by a severe
drought that small farmers faced that year in the Tamil Nadu region in southern India.
The Indian Beverage Association (IBA), which represents many soft drink manufacturers, said it was
disappointed with the boycott. “Coca-Cola and PepsiCo India together provide direct employment to
2,000 families in Tamil Nadu and more than 5,000 families indirectly. . . . IBA hopes that good sense
will prevail and that consumers will continue to have the right to exercise their choice in Tamil Nadu,”
it said.
In 2017 government officials levied a “sin tax” of 40 percent on sweetened, carbonated soda drinks in
India, hoping for a large, positive impact on public health. In 2020 the IBA officially asked for its
repeal for cola drinks. The debate continues amid mixed results for marketers and policymakers.

Questions
1. The political environment in India has proven to be critical to company performance for both
PepsiCo and Coca-Cola India. What specific aspects of the political environment have played key
roles? Could these effects have been anticipated prior to market entry? If not, could developments in
the political arena have been handled better by each company?
2. Timing of entry into the Indian market brought different results for PepsiCo and Coca-Cola India.
What benefits or disadvantages accrued as a result of earlier or later market entry?
3. The Indian market is enormous in terms of population and geography. How have the two companies
responded to the sheer scale of operations in India in terms of product policies, promotional
activities, pricing policies, and distribution arrangements?
4. “Global localization” (glocalization) is a policy that both companies have implemented successfully.
Give examples for each company from the case.
5. How can Pepsi and Coke confront the issues of water use in the manufacture of their products?
How can they defuse further boycotts or demonstrations against their products? How effective are
activist groups like the one that launched the campaign in California? Should Coke address the
group directly or just let the furor subside?
6. Which of the two companies do you think has better long-term prospects for success in India?
7. What lessons can each company draw from its Indian experience as it contemplates entry into other
Big Emerging Markets?
8. Comment on the decision of both Pepsi and Coke to enter the bottled water market Page CS1-13
instead of continuing to focus on their core products—carbonated beverages, and cola-
based drinks in particular.
9. Recently Coca-Cola has decided to enter the growing Indian market for energy drinks. The
competition in this market is fierce with established firms including Red Bull and Sobe. With its new
brand Burn, Coke initially targeted alternative distribution channels such as pubs, bars, and gyms
rather than large retail outlets such as supermarkets. Comment on this strategy.
This case was prepared by Lyn S. Amine, Ph.D., Professor of Marketing and International Business, Distinguished Fellow of the Academy of Marketing Science, President,
Women of the Academy of International Business, Saint Louis University, and Vikas Kumar, Assistant Professor, Strategic Management Institute, Bocconi University, Milan,
Italy. Dr. Lyn S. Amine and Vikas Kumar prepared this case from public sources as a basis for classroom discussion only. It is not intended to illustrate either effective or
ineffective handling of administrative problems. The case was revised in 2005 and 2008 with the authors’ permission. Sources: Lyn S. Amine and Deepa Raizada, “Market
Entry into the Newly Opened Indian Market: Recent Experiences of US Companies in the Soft Drinks Industry,” in Developments in Marketing Science, XVIII, proceedings of
the annual conference of the Academy of Marketing Science, Roger Gomes (ed.) (Coral Gables, FL: AMS, 1995), pp. 287–92; Jeff Cioletti, “Indian Government Says Coke
and Pepsi Safe,” Beverage World, September 15, 2003; “Indian Group Plans Coke, Pepsi Protests after Pesticide Claims,” AFP, December 15, 2004; “Fortune Sellers,” Foreign
Policy, May/June 2004; “International Pressure Grows to Permanently Close Coke Bottling Plant in Plachimada,” PR Newswire, June 15, 2005; “Indian Village Refuses Coca-
Cola License to Exploit Ground Water,” AFP, June 14, 2005; “Why Everyone Loves to Hate Coke,” Economist Times, June 16, 2005; “PepsiCo India to Focus on Non-cola
Segment,” Knight Ridder Tribune Business News, September 22, 2006; “For 2 Giants of Soft Drinks, a Crisis in a Crucial Market,” The New York Times, August 23, 2006; “Coke
and Pepsi Try to Reassure India That Drinks Are Safe,” The New York Times, August 2006; “Catalyst: The Fizz in Water,” Financial Times Limited, October 11, 2007;
“Marketing: Coca-Cola Foraying into Retail Lounge Format,” Business Line, April 7, 2007; “India Ops Now in Control, Says Coke Boss,” The Times of India, October 3, 2007;
“Pepsi: Repairing a Poisoned Reputation in India; How the Soda Giant Fought Charges of Tainted Products in a Country Fixated on Its Polluted Water,” Business Week, June
11, 2007, p. 48; “Coca-Cola Asked to Shut Indian Plant to Save Water,” International Herald Tribune, January 15, 2008; “Coca Cola: A Second Shot at Energy Drinks,”
DataMonitor, January 2010; “Coca-Cola India: Winning the Hearts and Taste Buds in the Hinterland,” The Wall Street Journal, May 4, 2010; Vidhi Doshi, “Indian Traders
Boycott Coca-Cola for ‘Straining Water Resources,’” The Guardian, March 1, 2017; Ratna Bhushan, “Remove Colas from Sin Tax: IBA Writes to FM, GST Council; Says Tax
Treatment ‘Discriminatory,’” Economic Times, August 24, 2020, online; cseindia.org/sin-tax-for-redemption, accessed 2022.
 Page CS1-14

CASE 1-4 Marketing Microwave Ovens to a

New Market Segment
You are the Vice President of International Marketing for White Appliances, an international company
that manufactures and markets appliances globally. The company has a line of microwave ovens—some
manufactured in the United States and some in Asia—that are exported to the U.S. market and Europe.
Your company markets several high-end models in India that are manufactured in the United States.
Your presence in the Indian market is limited at this time.

Africa Studio/Shutterstock

White Appliances has traditionally sold to the high-income segment of the Indian market. However,
India is in the midst of a consumer boom for everything from soda pop to scooters to kitchen
appliances. Demand for microwave ovens initially jumped 27 percent in two years amid surging
demand for kitchen conveniences. Sales have been spurred by declining import tariffs and rising
salaries, as well as the influx of companies reaching to all ends of the market. India has about 17
million households—or 90 million people that belong to the country’s middle class, earning between
$4,500 and $22,000 annually. Another 287 million are “aspirers,” those that hope to join the middle
class. Their household income is between $2,000 and $4,500. In 2010, these two groups combined
number 561 million. Furthermore, significant numbers of Indians in America are repatriating to their
homeland and taking their American spending habits and expectations back home with them. After
preliminary analysis, you and your team have come to the conclusion that in addition to the market for
high-end models, a market for microwave ovens at all price levels exists.
Several international companies like Samsung, Whirlpool, and LG Electronics India are entering the
market with the idea that demand can be expanded with the right product at the right price. There are,
however, several challenges in the Indian market, not the least of which is the consumer’s knowledge
about microwaves and the manner in which they are perceived as appliances.
In conducting research on the market, your research team put together a summary of comments from
consumers and facts about the market that should give you a feel for the market and the kinds of
challenges that will have to be dealt with if the market is to grow and if White Appliances is to have a
profitable market share.
Five top consumer durables companies are in the race to sell the oven, but to sell the product, they
first must sell the idea. The players do not agree on the size of the market or what the oven will do
for the Indian family.
It may be a convenient and efficient way to cook, but microwave ovens were invented with European
food in mind. “Only when Indian eating habits change can the microwave ovens market grow in a
big way,” says one market leader in appliances.
Some companies disagree with the previous statement. Their contention is that all Indian dishes can
be prepared in a microwave; people only need to know how to use one.

Consumer comments were mixed.

One housewife commented, “The microwave oven was the first purchase after my wedding. I bought
it only because I liked it and I had the money. But I must say its performance surprised me.”
“Men no longer have an excuse for not helping in cooking. My husband, who never before entered
the kitchen, now uses the microwave oven to cook routinely.”
“Somebody gifted it to me, but food doesn’t taste the same when cooked in a microwave whatever
the company people may claim.”
“Microwave ovens will be very useful, and they are fast becoming as essential as a fridge.”
“Ovens are of great use to bachelors. They can make curries every day or sambhar every day. If you
heat in a regular oven sambhar or dal for the second or third time, it will have a burnt smell. The
microwave oven will not get you any such problem. It will be heated and at the same time as fresh as
if it was made now.”
“Some people say that using a microwave oven is lazy and getting away from the traditional ‘Indian
culture’ of always fresh food. I say that microwaves are of greatest use when you are very busy and
not lazy. There are times when piping hot food rapidly becomes cold, especially in winter and a
microwave is the easiest, quickest, and cleanest way to heat up, so it even has applications in a
traditional family running on ‘Indian Culture’ mode.”

To the chagrin of microwave oven marketers, the Indian perception of the gadget remains gray. Yet, for
the first time in the some seven years that it’s been officially around, optimism toward the microwave
has been on the upswing.
A microwave oven is beginning to replace the demand for a second television or a bigger Page CS1-15
refrigerator. The middle-income consumer comes looking for novelty, value, and
competitive pricing.
The penetration level of microwave ovens remains shockingly minuscule, under 1 percent. The top
seven cities make up nearly 70 percent of the market, with Delhi and Mumbai (Bombay) recording
the highest sales. But the good news is that the microwave is beginning to be seen in smaller towns.
 When asked about the nonurban market, one microwave oven company executive commented, “We
know it’s an alien concept for the rural consumer, but we want to do our homework now to reap the
benefits years later. Once the consumer is convinced a microwave can actually be part of daily
cooking, the category will grow immensely.”
Apart from styling and competitive pricing, marketers acknowledge that cracking the mind-set that
microwaves are not suited to Indian food holds the key to future growth.
People who own microwaves usually have cooks who may not be using the gadget in any case. Even
consumers who own microwave ovens don’t use them frequently; usage is confined to cooking
Western food or reheating.
With consumers still unclear on how to utilize the microwave oven for their day-to-day cooking,
marketers are shifting away from mass marketing to a more direct marketing–oriented approach to
create awareness about the benefits of the product.
The challenge in this category is to get the user to cook in the microwave oven rather than use it as a
product for reheating food. Keeping this in mind, companies are expecting an increasing number of
sales for microwave ovens to come from the semi urban/rural markets. We are seeing an increasing
number of sales coming from the upcountry markets.
“Elite fad or smoke-free chullah for low-fat paranthas? Which way will the microwave oven go in the
Indian market?” asks one company representative.
Most agree on a broadly similar strategy to expand the Indian market: product and design
innovation to make the microwave suited to Indian cooking; local manufacturing facility to promote
innovation while continuing to import high-end models, reduce import content to cut costs, boost
volumes, and bring down prices.
Even as early as 1990, the microwave was touted as a way to cook Indian food. Julie Sahni, the
nation’s best-known authority on Indian cooking, has turned her attention to the microwave. And
her new cookbook sets a new threshold for the microwave cook. Simply cooked lentils, spicy dal,
even tandoori chicken—with its distinctive reddish color—come steaming from the modern
microwave with the spices and scents of an ancient cuisine. Cynics who think microwave cooking is
bland and unimaginative will eat their words.

Exhibit 1 A Customer’s Evaluation of the LG Robogrill Microwave

One customer’s lengthy evaluation of the LG Robogrill Microwave posted on

MouthShut.com, India’s first, largest, and most comprehensive Person to Person (P2P)
Information Exchange, follows:
We bought our LG Robogrill Microwave about 10 months ago. The microwave has all the
features mentioned in the official description, in addition to many other helpful features.

For a complete review by this customer, see www.mouthshut.com and select

Microwave Ovens, then select LG on the menu, then select model #LGMH-685 HD.

For many, the microwave is a complicated appliance that can be used incorrectly and thus be a failure
in the mind of the user. Some companies now marketing in India appear to give poor service because
they do not have a system to respond to questions that arise about the use of microwaves. It appears
that consumer education and prompt reply to inquiries about microwave use are critical.

An interesting Internet site to get product comparisons and consumer comments is

www.mouthshut.com. For specific comments about one brand of microwave oven, visit
www.mouthshut.com/product-reviews/LG_767war-925045495.html. Another site that gives some
insights into Indian cooking and microwave ovens is www.indianmirror.com.

Market Data
In the early days, microwave ovens did not figure at all in the consumer’s purchase list. Kelvinator’s
Magicook made a high-profile entry some seven years ago. What went wrong, according to an analyst,
was the pricing, which was nothing less than Rs 20,000, and sizes that were too small to accommodate
large Indian vessels.
Efforts to grow the market are concentrated in large urban areas with routine fare such as organized
cookery classes, recipe contests, and in-house demos, giving away accessories such as glass bowls,
aprons, and gloves as freebies and hosting co-promotions. “To change the way you look, just change
the way you cook” was a recent tagline by one of the companies.
What will really spur the category’s growth will be a change in eating habits. One company piggybacks
on “freshness,” a tactic the company adopts for all its product lines.
Even though consumer durables sales have been cycling up and down over the last 10 years, the
microwave oven segment, which accounts for 70 percent of unit sales in the consumer durables
industry, bucked the overall trend. The strength of microwave oven sales is attributed to the steady
price reduction from Rs 7,000 for the lowest priced to Rs 5,000 over the last two years. While sales are
predominantly in the urban areas, semiurban towns have emerged as a key growth driver for the
category.
There is some difference of opinion on the right price for the ovens. For the microwave market to take
off, its price would have to be below Rs 7,000, says one company. Since microwave ovens were
introduced locally, prices have been all over the place. For example, one company prices its ovens
between Rs 7,000 and 18,000, another between Rs 12,500 and 15,000, and an oven with grill functions
goes for Rs 17,900.
From wooing the supermom to courting the single male, the journey of microwave ovens has just
begun. Once perceived as a substitute to the toaster oven and grill (OTG), microwaves today,
according to companies with large shares of this segment, are more than just a reheating device.
According to one analyst, the product category is going through a transition period, and Page CS1-16

modern consumers are more educated about an OTG than they are about a microwave. This analyst
believes there is demand for both microwave and OTG categories.
Microwave companies face a chicken-and-egg question on price and sales. Prices will not come down
easily until volumes go up, while volume depends on prices.
The product is a planned purchase and not an impulse buy. Samsung has set up call centers where
customers can call and get all their queries pertaining to the Samsung microwave oven answered.
Besides the basic, low-end models that lead sales, the combination (convection and microwave)
models are showing a steady increase in sales.
Although the concept of microwave ovens is Western, microwave technology has advanced to a level
that even complex cooking like Indian cooking is possible.
One of the older company marketing managers, who has worked in microwave marketing most of his
career, is somewhat skeptical about the prospects of rapid growth of the Indian market. He remarked
that the microwave oven first introduced in the U.S. market in about 1950 did not become popular
across all market segments until about the mid-1970s. Of course, now almost every household in the
United States has at least one microwave.
One U.S. marketer of coffee makers, blenders, crock pots, and other small appliances is exploring the
possibility of distributing its appliances through Reliance retail stores. Until recently, Reliance
Industries Ltd., the second-largest company in India, has been in industrial and petroleum products,
but it has now entered the retail market. Reliance is modeling itself after Walmart, and the U.S.
marketer sees Reliance reaching the market for its appliances. India’s Reliance Industries Ltd. plans to
open thousands of stores nationwide over the next five years and also is building a vast network of
suppliers.
Today entry-level ovens are becoming an integral part of modern kitchens of various income levels in
tier I and II cities. In 2017 Panasonic entered the solo microwave range market, keeping in mind the
needs of young, single professionals and students whose cooking requirements are limited. “Many of
our customers are students, young professionals and migrants, who find it easier to cook using
microwave ovens. Our entry-level solo microwave ovens that come at a price range of Rs 5,790–6,390
have picked up traction in these segments,” says Gaurav Minocha, head, Appliances, Panasonic
India.1
Nearly 15 million microwave units were sold in India in 2022. The fast-growing stand-alone oven (as
compared to built-in) category constitutes 10–12 percent of the market in volume terms. Seventy
percent of ovens are bought by the young and first-time buyers in smaller cities. However, the overall
penetration of microwave ovens in India is only 6 percent of the population. The stand-alone oven
segment growth in India has cooled from 12 percent over the last decade, but is still expected to grow
7 percent over the next five years.

Assignment
Your task is to develop a strategy to market White Appliance’s microwave ovens in India. Include
target market(s), microwave oven features, price(s), promotion, and distribution in your program. You
also should consider both short-term and long-term marketing programs. Some of the issues you may
want to consider are
Indian food preparation versus Western food preparation.
Values and customs that might affect opinions about microwave ovens.
The effects of competition in the market.
You also may want to review the Country Notebook—A Guide for Developing a Marketing Plan in the
text for some direction.
 Page CS1-17

CASE 1-5 A Social Entrepreneur Explores

Alternative Business Models during the
COVID-19 Pandemic
It was late April 2020 and Rawan Hudaifa was sitting in her home office in Ankara, Turkey,
contemplating the future of her social enterprise, Tina Zita (TZ).1 Hudaifa, a migrant from Syria—
along with a Turkish friend and mentor—had started a catering business in May 2019 with a mission to
empower women migrants economically by hiring them as chefs and offering them fair wages. The
business also utilized cooking as a way to build community among women migrants, as well as connect
them to Turkish customers and strengthen customers’ awareness of migrant cultures. Hudaifa often
said that, “Cooking can be our common language.”
Hudaifa had just spoken with one of her best customers who had called to cancel a 50-person catering
order due to the public health risk associated with gathering in-person during the COVID-19
pandemic. The call did not come as a surprise to Hudaifa, as her five other regular customers had
recently canceled their orders as well. Hudaifa began to accept that the COVID-19 pandemic would
not end soon and that TZ needed to pivot its business model. She asked herself, “What changes can I
make to Tina Zita to ensure it survives the pandemic?”

Background
Hudaifa was currently completing her degree in nutrition and dietetics at Ankara Yıldırım Beyazıt
University and earned income as an Arabic-English interpreter for various development projects. She
hoped to one day draw a salary from TZ so she could focus on it full-time after she graduated.
The idea for TZ grew out of Hudaifa’s experience volunteering with a community organization in
Ankara that served mothers who were Syrian refugees. These women, who used their special family
recipes to cook meals together, wanted to sell their homemade food to the Turkish community. While
the women were talented cooks, Hudaifa observed that they had limited business experience and were
unfamiliar with Turkey’s business regulations. Also, tensions between Syrian refugees and the host
community fueled by high competition for jobs made it difficult to reach Turkish customers.
Inspired by these women, Hudaifa used her personal funds to create TZ. It was established as a social
enterprise—a business that is driven by a social mission while also seeking to generate a profit. Hudaifa
wanted to support migrant women seeking to earn an income for their families and connect with the
Turkish community. Social enterprises were new in Turkey but were gaining popularity in line with
global trends. Still, the ecosystem supporting social entrepreneurship in Turkey was nascent and
limited.2

The Product
3
TZ was a full-service catering business that specialized in Levantine3 cuisine, which aligned with the
background of its five chefs. Some examples of TZ’s dishes included ma’amoul (cookies stuffed with
dates), falafel (fried chickpea balls), hummus (seasoned chickpea puree), and sambousek (pastries
filled with meat). Customers raved about TZ’s food, noting the bold flavors, fresh ingredients, beautiful
presentation, and generous portions.

MikeDotta/Shutterstock

TZ also provided setup at the start of events and cleanup afterward. Much care was put into
presentation, resulting in beautiful spreads, complete with handmade tablecloths and platters of food
expertly garnished. Each dish had a sign placed next to it with its name and a brief description.
Customers were provided with literature on TZ’s background, the chefs’ personal stories, and the
dishes served.

Target Market
Ankara, Turkey’s capital and second-largest city, was home to many government officials and
diplomats. But unlike Istanbul, Turkey’s iconic tourist destination and largest city with countless food
options, Ankara offered limited cuisines from other countries.
TZ targeted nongovernmental organizations, foundations, universities, and other mission-oriented
organizations that would value not only TZ’s product but also its mission. TZ’s Turkish co-founder
leveraged her existing connections among Ankara’s nonprofit community to reach new customers
because these organizations often employed Turks. TZ now had six regular customers, each hiring TZ
about twice a month. TZ marketed its services online, through Instagram, Facebook, LinkedIn, and its
own website.
In addition, TZ occasionally offered ticketed events featuring live cooking demonstrations, Page CS1-18

which generated interest in the business, as well as revenue.

 Design Pics

Team
Hudaifa oversaw TZ and made key administrative and management decisions, often in consultation
with her co-founder. TZ also had a customer relations manager, an event coordinator, and a social
media manager. These five people were TZ’s core volunteers. The goal was to start paying them a
salary once TZ began generating enough revenue to do so.
All five of TZ’s chefs were women who had been forced to leave Syria due to the civil war. Each helped
shape TZ’s brand with their personal stories and recipes. Some had professional careers—including
nursing and engineering—before coming to Turkey. The chefs often delivered food orders and attended
events to set up the buffets, serve food, and clean up. When TZ started, core volunteers would lead
setup and serving of dishes at events, enabling them to gain experience in catering, which they all
needed. The core volunteers then trained the chefs. As chefs became more involved with on-site
catering and serving Turkish customers, they developed food service and Turkish language skills, and
required less assistance from the core volunteers.

Costs
Labor was one of TZ’s major costs. With a mission to empower women migrants economically, TZ
paid its chefs above the minimum wage in Turkey. Paying fair wages was made possible by Hudaifa and
her friends serving as volunteers.
Food ingredients were another key cost. TZ reimbursed chefs for fresh ingredient purchases, plus the
stock of staple ingredients used in the chefs’ home kitchens.
Other costs included:
Monthly business permit fee, a requirement of the Turkish government for formally registered
businesses.
Transportation, including any van rental, gas, and public transportation expenses.
Serving items, such as platters, utensils, and tablecloths.
Coffee and tea machines.
Basic cooking equipment for live demonstrations.
Marketing and promotional materials.
Miscellaneous items such as basic supplies, web hosting, and banking.

TZ did not cover the fixed costs associated with running chefs’ home kitchens.

Impacts of COVID-19 in Turkey

At the time TZ’s customer canceled its event, Turkey had 117,589 confirmed cases of COVID-19, and
3,031 deaths due to the virus.4 Globally, the pandemic was surging. Like many countries, the Turkish
government took steps to curb the spread of COVID-19 by shutting down segments of the economy.
On March 16, 2020, a nationwide shutdown was announced that included closing many public
gathering places. With little scientific knowledge about this new disease and its ability to spread, and
regardless of the government-ordered shutdown, people were hesitant to gather in groups. The
combination of public fear, the ban on public gatherings, decreased job security, and concerns around
food hygiene and safety hit the food service industry particularly hard.
Demand for catering in Ankara plunged. While confirmed cases had dropped in Turkey by late April
2020, most public spaces were still closed and there was no certainty around when they would reopen.
TZ was left without a customer base.

Exploring a Business Model Pivot

Hudaifa cared deeply about the well-being of her chefs. Most were now the primary income earners in
their households because their husbands and other family members had lost their jobs for reasons
linked to the pandemic. The chefs were counting on Hudaifa to find a way to keep TZ running and
provide them with income. Additionally, Hudaifa needed to continue paying the monthly business
permit fee. The call from her customer canceling an event confirmed to Hudaifa that TZ would need to
develop a new strategy to survive the pandemic.
Prior to this call, Hudaifa had asked some of her regular customers about their needs now Page CS1-19
that in-person operations had ceased. Most were not interested in purchasing anything from TZ at the
time. Based on this information, and driven by the fact that many employees in her customer
organizations were now working remotely and separately, Hudaifa considered shifting TZ’s target
market from organizations to individuals.
During the pause in TZ’s catering operations due to COVID-19, Hudaifa had done some market
research to help generate ideas for new products. Her list included:
Gift sets with sweet pastries, coffee, dried figs, extra virgin olive oil, and a teacup.
Frozen prepared meals.
Live virtual cooking workshops, for which TZ had already started to pilot and charged a small fee.
Handmade textiles. Some of the chefs knew how to make handicrafts.
Pickles, jams, and other nonperishable products that could be prepared in a home kitchen.
Meal kits with ingredients and recipes for at-home preparation.
TZ merchandise, including clothing and coffee mugs promoting TZ’s mission.

Hudaifa was also open to exploring other ideas that leveraged TZ’s existing assets and kept her chefs
employed.

Questions
1. Conduct a SWOT analysis. What are TZ’s strengths, weaknesses, opportunities, and threats?
2. What is unique about TZ? What is TZ’s value proposition?
3. What was TZ’s target market pre-pandemic? How did the needs of the target market change as a
result of the pandemic?
4. Hudaifa must make changes to TZ for it to survive the pandemic. How can Hudaifa determine what
changes to TZ would be most successful?
5. What is a specific change that you think TZ should make for it to survive the pandemic? What
action steps can Hudaifa take to initiate the change? Be prepared to make a two- to five-minute pitch
to the class.
6. Based on your response to Question 5, revise the value proposition you created in Question 2.
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.
© 2021 Kristin Babbie Kelterborn. This case was written by Kristin Babbie Kelterborn with contributions from Amy Gillett, both of the Entrepreneurship Development Center
at the William Davidson Institute at the University of Michigan. The case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective
handling of a situation. The case should not be considered criticism or endorsement and should not be used as a source of primary data. Rawan Hudaifa of Tina Zita was a
participant in the Livelihoods Innovation through Food Entrepreneurship (LIFE) Project implemented by the Center for International Private Enterprise (CIPE).
 Page CS1-20

CASE 1-6 Living in a Box . . . The Way of the

Future?
This story, all names, characters, and incidents described are fictitious. No identification with actual
persons, companies, places, or products is intended or should be inferred.
Evolve is a pilot project in Denmark using shipping containers as sustainable homes. And, after
its start in 2014, the project has become a rousing success with over 200 homes in use and many more
on order across multiple European countries. Sal Hatgan, director of Sustainable Solutions Company
(SSCo), notes that thousands of shipping containers are left dormant annually because countries like
the United States import more than they export. It’s simply too expensive to ship empty containers
back to their country of origin.
So, companies such as SSCo have focused on finding a use for these products. SSCo is poised to show
leadership in the home sector and global sustainable home development movement by quantifying the
environmental and social values created by these homes.
Lars Hatgan, CEO, was tasked with determining SSCo’s next steps to ensure that the company
maintained a leadership position and expanded market share. Research identified the United States as
a key untapped market. Now Hatgan must present and sell a strategy for infiltrating the U.S. market to
management.

showcake/iStockphoto/Getty Images

Industry Background
Statistics show that, in 2013, there were approximately 4 million 25-foot shipping containers “left
over.” Some people suggested just melting them down and then reusing the steel, but to do that would
use a huge amount of energy.
Other past solutions included recycling the containers into swimming pools, restaurants, or even some
building units. And given the focus on alternative, reasonable housing, it was inevitable that a company
such as SSCo would attempt to repurpose these units into homes.
Evolve has been a cooperative venture between Sustainable Solutions Company, several engineering
and research firms, and the Danish government to develop and test a sustainable housing complex.
Consumers in Denmark have been particularly receptive to new and creative forms of housing, given
the high cost of homes and limited amount of available property.

Sustainable Solutions Company

Sustainable Solutions Company, based in Oregon, was originally created in 2010 as a home
improvement company. It moved into energy-efficient home products, such as solar panels, and
sustainable home improvement solutions, such as eco-friendly decking and reclaimed wood products.
With headquarters in eco-friendly Portland, Oregon, today SSCo is an international company,
providing a range of sustainable products for homes and offices, as well as creative solutions for home
building. SSCo’s home building solutions division, which started in 2012, has grown by 75 percent,
primarily due to the widespread popularity of shipping container homes. As shown in Exhibit 1,
this trend is expected to continue.

Exhibit 1 Net Sales for Home Building Solutions

The first recognized container shipping home was developed in 2009. Since opening its home building
solutions division, SSCo has become the industry leader in creating new, energy-efficient, sustainable
housing. Prices range from a 160-foot one-bedroom home currently offered at $15,000 to a home made
from six or more containers for about $250,000. Of course, site development and labor cost extra. And
custom homes can be created in any number of sizes and styles, but the prices for those can easily top
half a million dollars. Every home reflects SSCo’s commitment to energy efficiency and sustainability,
incorporating those elements in fixtures, features, and design.
Page CS1-21

SSCo’s Sustainability Strategy

In order to become the world leader in sustainable home solutions and to address social, economic,
and environmental responsibility, SSCo has identified three main goals to help achieve its vision:
1. Creating value for customers.
2. Developing new products for the housing market.
3. Providing long-lasting and creative solutions to individual needs.

SSCo will focus on the challenges of demographic growth, urbanization, and climate change as well as
resource scarcity to achieve a competitive advantage.

SSCo and Denmark

Denmark has long been a champion of environmental accounting; it often uses statistics to promote
the increased relationship between the environment and economy and its impact on policy. This made
Denmark the perfect candidate for an initial shipping container housing development.
The average price of housing in Denmark is about $220 per square foot, while shipping container
homes are about half that cost (at $100 per square foot). And the Danish government has supported
this endeavor by absorbing some of the development costs through a variety of subsidies and
entitlements.

Loren W. Linholm
SSCo and the SER Research Methodology
As the world population increases, there is renewed focus on urbanization and wealth accumulation.
Together, these dynamics have resulted in a higher consumption of natural resources, which has had
significant implications for the environment as well as the global community. SER (Social and
Environmental Responsibility, a worldwide forum dedicated to corporate environmental
accountability) has developed a standardized approach to measure the impact of these problems in a
variety of geographic settings. Their approach addresses regulations and standards, stakeholder
actions, and market dynamics.
Initially, there was little competition in the shipping container home market; however, given the supply
of containers and interest in alternative housing forms, the market has become increasingly
competitive. So, consumers and now municipalities often have based their decisions on direct financial
costs only. Social and environmental costs were rarely accounted for because relevant data were not
easily or readily available. However, SER’s research methodology now offers baseline data from a
variety of sources, including the Evolve project.
SSCo, in conjunction with SER, has used this analysis to develop an approach called Page CS1-22

Bottom Line Cost of Ownership (BLCO). This estimates the total cost of acquisition and operation of
an asset over the entirety of its ownership period. In the case of container homes, the BLCO included
costs such as land development, architectural fees, container cost, maintenance, taxes, and insurance.
In addition, it quantifies socioeconomic and environmental costs and benefits to society, such as reuse
of the shipping containers, lower carbon footprint, and other energy efficiencies.

BLCO analysis of shipping container homes showed significantly lower costs, as depicted in Exhibit
2.

Exhibit 2 Comparison of BLCO of Shipping Container Homes versus Traditional Builds (per square foot costs)

Financial costs Container Traditional

Environmental and socioeconomic costs $100 $220

Weather resistance 150

Heating/cooling 50 58

Land disturbance 22 (Heat pump)

45
10
Note: These costs were estimates based on average traditional new home builds in the United States. However, comparable percentages apply to all current
locales in which SSCo is operating.

Opportunity for Container Homes in the United

States
U.S. Growing Interest in Sustainable Homes
There is a growing demand in the United States for sustainable homes, especially as a garage suite, in-
law apartment, lake front or woodland getaway, or tiny house. In addition, cities and planned
communities are taking steps to fight urban sprawl by allowing more density in established
neighborhoods. Finally, new home buyers are intrigued by finding an affordable alternative to
apartment living.

The U.S. Home Building Industry

In the United States, housing units grew from about 132 million in 2011 to about 142 million at the
end of 2021.1 A custom-built, 1,000-square-foot home costs about $225,000 on average. A similar-size
container home would cost half that amount. During a time when more and more people are focused
on becoming homeowners, the pull of shipping container homes becomes obvious. Just look at home
building shows on television! Where, originally, many shows focused on larger homes, increasingly we
are seeing shows focused on Tiny Homes and RV Living.
In addition, we are seeing more financial support and tax incentives provided by the federal and local
governments, to support energy-efficient and sustainable homes. This applies to individual consumers
and municipalities. Although it is clear that, as a country, the United States is struggling to find
momentum in promoting this type of home construction, increased awareness makes the United States
a prime candidate for SSCo’s offerings.

SSCo’s Competition in the United States

Several other companies, including HomeToGo and Custom Homes, have entered the market with an
initial focus on the United States. HomeToGo focuses on small units of one or two bedrooms and
offers only simple builds containing the basics. Custom Home offers larger units (often six to eight
containers) with high-end custom finishes and exterior add-ons, such as pools. SSCo carries a full line
of offerings, which—at this point—gives them a competitive edge.
In addition, SSCO has started to focus on disaster relief, a reasonably new market for container
homes. This alternative can help those who have lost their homes in hurricanes, forest fires, floods,
and so on—offering a fast and reasonable alternative to completely rebuilding their original home.

Furthering BLCO
Considering all of the factors influencing home building in the United States, Hatgan believes that the
future of container homes is strong. And as the United States focuses more on making rapidly
expanding cities more sustainable, efficient, and livable, container building will grow in popularity.
Hatgan, though, now needs to convince SSCo executives that the BLCO method, already successful in
the Denmark pilot, could benefit SSCo in the U.S. market as well. He knows the advantages of this
methodology, but how can he effectively bring it to a larger, more competitive market? What points
should he focus on specifically relating to the United States? How much emphasis will the United
States place on this research methodology? And will the methodology be successful here as it was in
Denmark?
It’s time for Hatgan to develop a presentation that will convince SSCo executives that this is the
correct path.

Questions
1. What would you describe as the societal by-products of U.S. home building, especially in urban
areas?
2. How can SSCo use the BLCO method to gain competitive advantage in the United States?
3. What are the market and nonmarket advantages and risks faced by SSCo in the U.S. market? Are
these risks relevant in other countries as well?
4. What are some advantages and disadvantages of utilizing these types of sustainability methodologies
and metrics for measuring success, especially across international markets?
 Page CS2-1
Cases 2
THE CULTURAL ENVIRONMENT OF GLOBAL
MARKETING

Anat Givon/AP Images

OUTLINE OF CASES

2-1 The Not-So-Wonderful World of EuroDisney—to Paris, Hong Kong, Shanghai, and Beyond
2-2 Cultural Norms, Fair & Lovely, and Advertising
2-3 Starnes-Brenner Machine Tool Company: To Bribe or Not to Bribe?
2-4 When International Buyers and Sellers Disagree
2-5 McDonald’s and Obesity
2-6 Ultrasound Machines, India, China, and a Skewed Sex Ratio
2-7 Counterfeit Mobile Phones in Southeast Asia
2-8 Careem: MENA Ride-Hailing Leader Strategizes Future Growth as an Uber Subsidiary
 Page CS2-2

CASE 2-1 The Not-So-Wonderful World of

EuroDisney*—to Paris, Hong Kong,
Shanghai, and Beyond
Bonjour, Mickey!
In April 1992, EuroDisney SCA opened its doors to European visitors. Located by the river Marne
some 20 miles east of Paris, it was designed to be the biggest and most lavish theme park that Walt
Disney Company (Disney) had built to date—bigger than Disneyland in Anaheim, California; Disney
World in Orlando, Florida; and Tokyo Disneyland in Japan.
Much to Disney management’s surprise, Europeans failed to “go goofy” over Mickey, unlike their
Japanese counterparts. Between 1990 and early 1992, some 14 million people had visited Tokyo
Disneyland, with three-quarters being repeat visitors. A family of four staying overnight at a nearby
hotel would easily spend $600 on a visit to the park. In contrast, at EuroDisney, families were reluctant
to spend the $280 a day needed to enjoy the attractions of the park, including les hamburgers and les
milkshakes. Staying overnight was out of the question for many because hotel rooms were so high
priced. For example, prices ranged from $110 to $380 a night at the Newport Bay Club, the largest of
EuroDisney’s six new hotels and one of the biggest in Europe. In comparison, a room in a top hotel in
Paris cost between $340 and $380 a night.
Financial losses became so massive at EuroDisney that the president had to structure a rescue package
to put EuroDisney back on firm financial ground. Many French bankers questioned the initial
financing, but the Disney response was that their views reflected the cautious, Old World thinking of
Europeans who did not understand U.S.-style free market financing. After some acrimonious dealings
with French banks, a two-year financial plan was negotiated. Disney management rapidly revised its
marketing plan and introduced strategic and tactical changes in the hope of “doing it right” this time.

A Real Estate Dream Come True

The Paris location was chosen over 200 other potential sites stretching from Portugal through Spain,
France, Italy, and into Greece. Spain thought it had the strongest bid based on its yearlong, temperate,
and sunny Mediterranean climate, but insufficient acreage of land was available for development
around Barcelona.
In the end, the French government’s generous incentives, together with impressive data on regional
demographics, swayed Disney management to choose the Paris location. It was calculated that some
310 million people in Europe live within two hours’ air travel of EuroDisney, and 17 million could
reach the park within two hours by car—better demographics than at any other Disney site. Pessimistic
talk about the dismal winter weather of northern France was countered with references to the success
of Tokyo Disneyland, where resolute visitors brave cold winds and snow to enjoy their piece of
Americana. Furthermore, it was argued, Paris is Europe’s most-popular city destination among tourists
of all nationalities.

Spills and Thrills

Disney had projected that the new theme park would attract 11 million visitors and generate over $100
million in operating earnings during the first year of operation. By summer 1994, EuroDisney had lost
more than $900 million since opening. Attendance reached only 9.2 million in 1992, and visitors spent
12 percent less on purchases than the estimated $33 per head.
If tourists were not flocking to taste the thrills of the new EuroDisney, where were they going for their
summer vacations in 1992? Ironically enough, an unforeseen combination of transatlantic airfare wars
and currency movements resulted in a trip to Disneyworld in Orlando being cheaper than a trip to
Paris, with guaranteed good weather and beautiful Florida beaches within easy reach. A brief but
painful recession in the Western world of the early 1990s didn’t help.
EuroDisney management took steps to rectify immediate problems in 1992 by cutting rates at two
hotels up to 25 percent, introducing some cheaper meals at restaurants, and launching a Paris ad blitz
that proclaimed “California is only 20 miles from Paris.”

An American Icon
One of the most worrying aspects of EuroDisney’s first year was that French visitors stayed away; they
had been expected to make up 50 percent of the attendance figures. A park services consulting firm
framed the problem in these words: “The French see EuroDisney as American imperialism—plastics at
its worst.” The well-known, sentimental Japanese attachment to Disney characters contrasted starkly
with the unexpected and widespread French scorn for American fairy-tale characters. French culture
has its own lovable cartoon characters such as Astérix, the helmeted, pint-sized Gallic warrior, who
has a theme park located near EuroDisney.
Hostility among the French people to the whole “Disney idea” had surfaced early in the planning of
the new project. Paris theater director Ariane Mnouchkine became famous for her description of
EuroDisney as “a cultural Chernobyl.” In fall 1989, during a visit to Paris, French Communists pelted
Michael Eisner with eggs. The joke going around at the time was, “For EuroDisney to adapt properly
to France, all seven of Snow White’s dwarfs should be named Grumpy (Grincheux).”
Early advertising by EuroDisney seemed to aggravate local French sentiment by emphasizing glitz and
size rather than the variety of rides and attractions. Committed to maintaining Disney’s reputation for
quality in everything, more detail was built into EuroDisney. For example, the centerpiece castle in the
Magic Kingdom had to be bigger and fancier than in the other parks. Expensive trams were built along
a lake to take guests from the hotels to the park, but visitors preferred walking. Total park construction
costs were estimated at FFr 14 billion ($2.37 billion) in 1989 but rose by $340 million to FFr 16 billion
as a result of all these add-ons. Hotel construction costs alone rose from an estimated FFr 3.4 billion
to FFr 5.7 billion.
EuroDisney and Disney managers unhappily succeeded in alienating many of their Page CS2-3

counterparts in the government, the banks, the ad agencies, and other concerned organizations. A
barnstorming, kick-the-door-down attitude seemed to reign among the U.S. decision makers: “They had
a formidable image and convinced everyone that if we let them do it their way, we would all have a
marvelous adventure.” One former Disney executive voiced the opinion, “We were arrogant—it was like
‘We’re building the Taj Mahal and people will come—on our terms.’”

Storm Clouds Ahead

Disney and its advisors failed to see signs at the end of the 1980s of the approaching European
recession. Other dramatic events included the Gulf War in 1991, which put a heavy brake on vacation
travel for the rest of that year. Other external factors that Disney executives have cited were high
interest rates and the devaluation of several currencies against the franc. EuroDisney also encountered
difficulties with regard to competition—the World’s Fair in Seville and the 1992 Olympics in Barcelona
were huge attractions for European tourists.
Disney management’s conviction that it knew best was demonstrated by its much-trumpeted ban on
alcohol in the park. This rule proved insensitive to the local culture because the French are the world’s
biggest consumers of wine. To them a meal without un verre de rouge is unthinkable. Disney relented.
It also had to relax its rules on personal grooming of the projected 12,000 cast members, the park
employees. Women were allowed to wear redder nail polish than in the United States, but the taboo on
men’s facial hair was maintained. “We want the clean-shaven, neat and tidy look,” commented the
director of Disney University’s Paris branch, which trains prospective employees in Disney values and
culture. EuroDisney’s management, however, did compromise on the question of pets. Special kennels
were built to house visitors’ animals. The thought of leaving a pet at home during vacation is
considered irrational by many French people.
Plans for further development of EuroDisney after 1992 were ambitious. The initial number of hotel
rooms was planned to be 5,200, more than in the entire city of Cannes on the Côte d’Azur. Also
planned were shopping malls, apartments, golf courses, and vacation homes. EuroDisney would design
and build everything itself, with a view to selling at a profit. As a Disney executive commented,
“Disney at various points could have had partners to share the risk, or buy the hotels outright. But it
didn’t want to give up the upside.”
“From the time they came on, Disney’s Chairman Eisner and President Wells had never made a single
misstep, never a mistake, never a failure,” said a former Disney executive. “There was a tendency to
believe that everything they touched would be perfect.” The incredible growth record fostered this
belief. In the seven years before EuroDisney opened, they took the parent company from being a
company with $1 billion in revenues to one with $8.5 billion, mainly through internal growth.

Telling and Selling Fairy Tales

Mistaken assumptions by the Disney management team affected construction design, marketing and
pricing policies, and park management, as well as initial financing. Disney executives had been
erroneously informed that Europeans don’t eat breakfast. Restaurant breakfast service was downsized
accordingly, and guess what? “Everybody showed up for breakfast. We were trying to serve 2,500
breakfasts in a 350-seat restaurant [at some of the hotels]. The lines were horrendous. And they didn’t
just want croissants and coffee; they wanted bacon and eggs.”
In contrast to Disney’s American parks, where visitors typically stay at least three days, EuroDisney is
at most a two-day visit. Energetic visitors need even less time. One analyst claimed to have “done”
every EuroDisney ride in just five hours. Typically, many guests arrive early in the morning, rush to the
park, come back to their hotel late at night, and then check out the next morning before heading back
to the park.
Vacation customs of Europeans were not taken into consideration. Disney executives had
optimistically expected that the arrival of their new theme park would cause French parents to take
their children out of school in mid-session for a short break. It did not happen unless a public holiday
occurred over a weekend. Similarly, Disney expected that the American-style short but more frequent
family trips would displace the European tradition of a one-month family vacation, usually taken in
August. However, French office and factory schedules remained the same, with their emphasis on an
August shutdown.
In promoting the new park to visitors, Disney did not stress the entertainment value of a visit to the
new theme park; the emphasis was on the size of the park, which “ruined the magic.” To counter this,
ads were changed to feature Zorro, a French favorite; Mary Poppins; and Aladdin, star of the huge
moneymaking movie success. A print ad campaign at that time featured Aladdin, Cinderella’s castle,
and a little girl being invited to enjoy a “magic vacation” at the kingdom where “all dreams come true.”
Six new attractions were added in 1994, including the Temple of Peril, Storybook Land, and the
Nautilus attraction. Donald Duck’s birthday was celebrated on June 9—all in hopes of positioning
EuroDisney as the number one European destination of short duration, one to three days.
Faced with falling share prices and crisis talk among shareholders, Disney was forced to step forward
in late 1993 to rescue the new park. Disney announced that it would fund EuroDisney until a financial
restructuring could be worked out with lenders. However, it was made clear by the parent company,
Disney, that it “was not writing a blank check.”
In June 1994, EuroDisney received a new lifeline when a member of the Saudi royal family agreed to
invest up to $500 million for a 24 percent stake in the park. The prince had an established reputation
in world markets as a “bottom-fisher,” buying into potentially viable operations during crises when
share prices are low. The prince’s plans included a $100 million convention center at EuroDisney. One
of the few pieces of good news about EuroDisney is that its convention business exceeded expectations
from the beginning.

Management and Name Changes

Frenchman Philippe Bourguignon took over at EuroDisney as CEO in 1993 and was able to navigate
the theme park back to profitability. He was instrumental in the negotiations with the firm’s bankers,
cutting a deal that he credits largely for bringing the park back into the black.
Perhaps more important to the long-run success of the venture were his changes in marketing. The pan-
European approach to marketing was dumped, and national markets were targeted separately. This
new localization took into account the differing tourists’ habits around the continent. Separate
marketing offices were opened in London, Frankfurt, Milan, Brussels, Amsterdam, and Madrid, and
each was charged with tailoring advertising and packages to its own market. Prices were cut by 20
percent for park admission and 30 percent for some hotel room rates. Special promotions also were
run for the winter months.
The central theme of the new marketing and operations approach is that people visit the Page CS2-4

park for an “authentic” Disney day out. They may not be completely sure what that means, except that
it entails something American. This approach is reflected in the transformation of the park’s name.
The “Euro” in EuroDisney was first shrunk in the logo, and the word “land” added. Then, in October
1994 the “Euro” was eliminated completely; the park was next called Disneyland Paris, and now
Disneyland Resort Paris.
In 1996, Disneyland Paris became France’s most visited tourist attraction, ahead of both the Louvre
Art Museum and the Eiffel Tower. In that year, 11.7 million visitors (a 9 percent increase from the
previous year) allowed the park to report another profit.

Theme Park Expansion in the Twenty-First Century

With the recovery of Disneyland Paris, Disney embarked on an ambitious growth plan. In 2001 the
California Adventure Park was added to the Anaheim complex at a cost of $1.4 billion, and Walt
Disney Studios Theme Park was added to Disneyland Paris. Through agreements with foreign
partners, Disney opened Disney-Sea in Tokyo and Disneyland Hong Kong in 2006, and Disney opened
its first park in mainland China, in Shanghai, in 2016, at a cost of $5.5 billion. However, in 2017, the
park’s 11 million visitors topped estimates of its first full year of operation by 10 percent.
A decade after being slammed for its alleged ignorance of European ways with EuroDisney, Disney
wanted to prove it had gotten things right the second time around. The new movie-themed park, Walt
Disney Studios adjacent to Disneyland Paris, is designed to be a tribute to moviemaking—but not just
the Hollywood kind. The Walt Disney Studios blends Disney entertainment and attractions with the
history and culture of European film since French camera-makers helped invent the motion picture.
The park’s general layout is modeled after an old Hollywood studio complex, and some of the rides
and shows are near replicas of Disney’s first film park, Disney-MGM Studios. Rather than celebrating
the history of U.S. Disney characters, the characters in the new theme park speak six different
languages. A big stunt show features cars and motorcycles that race through a village modeled after the
French resort town of St. Tropez.
Small details reflect the cultural lessons learned. “We made sure that all our food venues have covered
seating,” said one executive, recalling that, when EuroDisney first opened, the open-air restaurants
offered no protection from the rainy weather that assails the park for long stretches of the year.
On the food front, EuroDisney offered only a French sausage, drawing complaints from the English,
Germans, Italians, and everyone else about why their local sausages weren’t available. This time
around, the park caters to the multiple indigenous cultures throughout Europe—which includes a wider
selection of sausages.
Unlike Disney’s attitude with its first park in France, “Now we realize that our guests need to be
welcomed on the basis of their own culture and travel habits,” says the Disneyland Paris chief
executive. Disneyland Paris today is Europe’s biggest tourist attraction—even more popular than the
Eiffel Tower—a turnaround that showed the park operators’ ability to learn from their mistakes.
The root of Disney’s problems in EuroDisney may be found in the tremendous success of Japan’s
Disneyland. The Tokyo park was a success from the first day, and it has been visited by millions of
Japanese who wanted to capture what they perceived as the ultimate U.S entertainment experience.
Disney took the entire U.S. theme park and transplanted it in Japan. It worked because of the Japanese
attachment to Disney characters. Schools have field trips to meet Mickey and his friends to the point
that the Disney experience has become ingrained in Japanese life. In the book Disneyland as Holy
Land, University of Tokyo professor Masako Notoji wrote: “The opening of Tokyo Disneyland was, in
retrospect, the greatest cultural event in Japan during the ’80s.” With such success, is there any wonder
that Disney thought it had the right model when it first went to France? The Tokyo Disneyland
constitutes a very rare case in that the number of visitors has not decreased since the opening.

2005—Bankruptcy Pending
In early 2005, Disneyland Paris was again on the verge of bankruptcy. The newest park attraction at
Disneyland Paris, Walt Disney Studios, which featured Hollywood-themed attractions such as a ride
called “Armageddon—Special Effects” based on a movie starring Bruce Willis, flopped. Guests said it
lacked attractions to justify the entrance price, and others complained it focused too much on
American, rather than European, filmmaking. Disney blames other factors: the post-9/11 tourism
slump, strikes in France, and a summer heat wave in 2003. The French government came to the aid of
Disneyland Paris with a state-owned bank contribution of around $500 million to save the company
from bankruptcy.
A new Disneyland Paris CEO, a former Burger King executive, introduced several changes in hopes of
bringing the Paris park back from the edge of bankruptcy. To make Disneyland Paris a cheaper
vacation destination, the CEO lobbied the government to open up Charles de Gaulle airport to more
low-cost airlines. Under his direction, Disneyland Paris created its first original character tailored for a
European audience: the Halloween-themed “L’Homme Citrouille,” or “Pumpkin Man.” He
also has introduced a one-day pass giving visitors access to both parks in place of two separate tickets.
He is planning new rides, including the Tower of Terror, and other new attractions. If these changes
had failed to bring in millions of new visitors, Disney and the French government might once again
have been forced to consider dramatic measures.
Even though French President Jacques Chirac called the spread of American culture an “ecological
disaster” and the French government imposes quotas on non-French movies to offset the influence of
Hollywood and officially discourages the use of English words such as “e-mail,” Disneyland Paris was
important to the French economy. In light of France’s 10 percent unemployment at the time,
Disneyland Paris was seen as a job-creation success. The company accounted for an estimated 43,000
jobs and its parks attracted over 12 million visitors a year, more than the Louvre Museum and the
Eiffel Tower combined. By 2008 Disneyland Paris was experiencing increases in park attendance, and
the turnaround appeared to be working.
Disney’s Great Leap into China
Disney’s record with overseas theme parks has been mixed. Tokyo Disneyland is a smash hit with 25
million visitors a year, and Disneyland Paris, opened in 1992, was a financial sinkhole that took a
while to turn around. Disney was determined not to make the same cultural and management mistakes
in China that had plagued Disneyland Paris.
Disney took special steps to make Hong Kong Disneyland culturally acceptable. “Disney has Page CS2-5
learned that they can’t impose the American will—or Disney’s version of it—on another continent.”
“They’ve bent over backward to make Hong Kong Disneyland blend in with the surroundings.” “We’ve
come at it with an American sensibility, but we still appeal to local tastes,” says one of Hong Kong
Disneyland’s landscape architects.
Desiring to bring Disneyland Hong Kong into harmony with local customs from the beginning, it was
decided to observe feng shui in planning and construction. Feng shui is the practice of arranging
objects (such as the internal placement of furniture) to achieve harmony with one’s environment. It
also is used for choosing a place to live. Proponents claim that feng shui has effects on health, wealth,
and personal relationships.
The park’s designers brought in a feng shui master who rotated the front gate, repositioned cash
registers, and ordered boulders set in key locations to ensure the park’s prosperity. He even chose the
park’s “auspicious” opening date. New construction often was begun with a traditional good-luck
ceremony featuring a carved suckling pig. Other feng shui influences include the park’s orientation to
face water with mountains behind. Feng shui experts also designated “no fire zones” in the kitchens to
try to keep the five elements of metal, water, wood, fire, and earth in balance.
Along with following feng shui principles, the park’s hotels have no floors that are designated as fourth
floors because 4 is considered an unlucky number in Chinese culture. Furthermore, the opening date
was set for September 12, 2006, because it was listed as an auspicious date for opening a business in
the Chinese almanac.
But the park’s success wasn’t a sure thing. The park received more than 5 million visitors in its first
year, but short of its targeted 5.6 million, and the second year was equally disappointing, with
attendance dropping nearly 30 percent below forecasts. Many of those who came complained that it
was too small and had little to excite those unfamiliar with Disney’s cast of characters.
Disneyland is supposed to be “The Happiest Place on Earth,” but Liang Ning isn’t too happy. The
engineer brought his family to Disney’s new theme park in Hong Kong from the southern Chinese city
of Guangzhou one Saturday in April with high hopes, but by day’s end, he was less than spellbound. “I
wanted to forget the world and feel like I was in a fairytale,” he says. Instead, he complains, “it’s just
not big enough” and “not very different from the amusement parks we have” in China. Hong Kong
Disneyland has only 16 attractions and only one a classic Disney thrill ride, Space Mountain,
compared with 52 rides at Disneyland Paris.
After the first year’s lackluster beginning, Disney management introduced five new attractions and
added “It’s a Small World,” the ride made famous at the flagship Disneyland in Anaheim, California. A
variety of other new entertainment offerings were due in 2008.
Guests’ lack of knowledge of Disney characters created a special hurdle in China. Until a few years
ago, hardly anyone in mainland China knew Mickey Mouse and Donald Duck even existed. Disney
characters were banned for nearly 40 years, so knowledge of Disney lore is limited. China was the first
market where Disney opened a park in which there had been no long-term relationship with attendees.
It was the Chinese consumer who was expected to understand Disney, or so it seemed. Chinese
tourists unfamiliar with Disney’s traditional stories were sometimes left bewildered by the Hong Kong
park’s attractions.
To compensate for the lack of awareness of Disney characters and create the mystique of a Disney
experience, Disney launched numerous marketing initiatives designed to familiarize guests with
Disneyland. One of the first buildings upon entering the park exhibits artwork and film footage of
Disney history, from the creation of Mickey Mouse through the construction of Hong Kong
Disneyland. Tour groups are greeted by a Disney host who introduces them to Walt Disney, the park’s
attractions, characters, and other background information. For example, the character Buzz Lightyear
explains Toy Story and the Buzz Lightyear Astro Blaster attraction.
Even though there were complaints about the park size and the unfamiliarity of Disney characters,
there were unique features built with the Asian guest in mind that have proved to be very popular.
Fantasy Gardens, one of the park’s original features, was designed to appeal to guests from Hong Kong
and mainland China who love to take pictures. At five gazebos, photo-happy tourists can always find
Mickey, Minnie, and other popular characters who will sign autographs and pose for photos and
videos. Mulan has her own pavilion in the garden, designed like a Chinese temple. Mickey even has a
new red-and-gold Chinese suit to wear. Restaurants boast local fare, such as Indian curries, Japanese
sushi, and Chinese mango pudding, served in containers shaped like Mickey Mouse heads.
All in all, Hong Kong Disney is Chinese throughout. It’s not so much an American theme park as
Mickey Mouse coming to China. The atmosphere is uncomplicated and truly family oriented. It is
possible to have a genuine family park experience where six-year-olds take precedence. However, early
advertising that featured the family missed its mark somewhat by featuring a family consisting of two
kids and two parents, which did not have the impact it was supposed to have because China’s
government limits most couples to just one child. The error was quickly corrected in a new TV
commercial, which the company says was designed to “forge a stronger emotional connection with
Mickey.” The revised ad featured one child, two parents, and two grandparents together sharing
branded Disney activities, such as watching a movie and giving a plush version of the mouse as gifts.
“Let’s visit Mickey together!” says the father in the commercial, before scenes at the park set to
traditional Chinese music.
Many other aspects of the park have been modified to better suit its Chinese visitors. The cast
members are extremely diverse, understand various cultures, and, in many cases, speak three
languages. Signs, audio-recorded messages, and attractions are also in several languages. For example,
riders can choose from English, Mandarin, or Cantonese on the Jungle River Cruise.
Disney runs promotions throughout the year. For example, the “Stay and Play for Two Days”
promotion was created mainly to give mainland tourists a chance to experience the park for a longer
period of time. Because many Chinese tourists cross into Hong Kong by bus, they arrive at Disneyland
mid-day. With this promotion, if a guest stays at a Disneyland hotel and purchases a one-day ticket, the
guest is given a second day at the park for free.
Special Chinese holidays feature attractions and decorations unique to the holiday. For the Page CS2-6
February 7, 2008, New Year holiday (the Year of the Rat), Disney suited up its own house
rodents, Mickey and Minnie, in special red Chinese New Year outfits for its self-proclaimed Year of the
Mouse. The Disneyland Chinese New Year campaign, which lasts until February 24, features a logo
with the kind of visual pun that only the Chinese might appreciate: the Chinese character for “luck”
flipped upside-down (a New Year tradition), with mouse ears added on top. Inside the park, vendors
hawk deep-fried dumplings and turnip cakes. The parade down Main Street, U.S.A., is joined by the
“Rhythm of Life Procession,” featuring a dragon dance and puppets of birds, flowers, and fish, set to
traditional Chinese music. And, of course, there’s the god of wealth, a relative newcomer to the regular
Hong Kong Disneyland gang, joined by the gods of longevity and happiness, all major figures in
Chinese New Year celebrations.
The Hong Kong park has been reducing its losses since opening, from more than $170 million early on
to $92.5 million in 2010, to $44.1 million in 2017, but still in the red. There are broader implications
for Disney from the performance of the Hong Kong theme park than just its financial health. From the
outset, executives at the business’s Burbank headquarters viewed Hong Kong Disneyland as a
springboard to promote awareness of the Disney name among the mainland Chinese population and
cement ties with Beijing. Indeed, the $5.5 billion Shanghai Disney Resort opened on June 16, 2016.
Disney holds a 43 percent stake there. The new park ultimately will be 50 percent larger than the Hong
Kong park, which recently announced a $1.4 billion upgrade to be completed in 2023. Even though
330 million Chinese live within a three-hour drive of Shanghai, the company will have to work very
hard to repeat the successes of the U.S. and Japanese parks’ attendance levels, at well over 20 million
visitors per year. The most the Hong Kong park has attracted is some 6 million visitors, although
Disney claims the opening of the Shanghai park has not hurt attendance levels in Hong Kong.
In 2017, the Walt Disney Co. announced it would buy out all other shareholders of EuroDisney (the
parent company of Disneyland Paris) and invest $1.6 billion in the struggling park, which lost 858
million euros in 2016, including a one-time asset-related charge. In a bit of rare good news, gross
revenues were up 3 percent in 2017. Meanwhile, in Asia, the billionaire chief executive of Disney’s
main rival in China, The Wanda Group (which acquired AMC Theaters in the United States in 2012),
predicted that his company’s dozens of local theme parks will “win out” over Disney’s Shanghai park.
“The frenzy of Mickey Mouse and Donald Duck and the era of blindly following them has passed.”
The COVID-19 pandemic ravaged theme park attendance worldwide, with the top 20 parks suffering a
72.2 percent drop in attendance from 2020 to 2021. Visitors at Disneyland Paris itself decreased from
9.75 to 1.92 million. The Walt Disney Company’s Theme Park Division suffered a staggering $2.6
billion loss and fired 28,000 employees, as parks were shuttered and visitors were stuck in their homes
during coronavirus lockdowns. Recovery is slow, but crowds are gingerly returning as mask
requirements drop and daily attendance limits rise.
Innovations in guest experience continue, such as the “Premier Access” feature, introduced at
Disneyland Paris, which allows guests to pay a few euros per ride extra to skip the lines. The much-
anticipated Avengers Campus coming to Disney parks was announced to be opening first at
Disneyland Paris’s Walt Disney Studios Park in July of 2022. Maybe Tony Stark and crew can save the
Disney day.
Questions
1. What factors contributed to EuroDisney’s poor performance during its first year of operation? What
factors contributed to Hong Kong Disney’s poor performance during its first year?
2. To what degree do you consider that these factors were (a) foreseeable and (b) controllable by
EuroDisney, Hong Kong Disney, or the parent company, Disney?
3. What role does ethnocentrism play in the story of EuroDisney’s launch?
4. How do you assess the cross-cultural marketing skills of Disney?
5. Why did success in Tokyo predispose Disney management to be too optimistic in its expectations of
success in France? In China? Discuss.
6. Why do you think the experience in France didn’t help Disney avoid some of the problems in Hong
Kong? Do you think the Shanghai park will benefit, as it is now open?
7. Assume you are a consultant hired to give Disney advice on the issue of where and when to go next.
Pick three locations and select the one you think will be the best new location for “Disneyland X.”
Discuss. Given your choice of locale X for the newest Disneyland, what are the operational
implications of the history of the four Disney parks abroad for the new park?
* The official name has been changed from “EuroDisney” to “Disneyland Resort Paris.”
This case was prepared by Lyn S. Amine, Ph.D., Professor of Marketing and International Business, Distinguished Fellow of the Academy of Marketing Science, and President,
Women of the Academy of International Business, Saint Louis University, and graduate student Carolyn A. Tochtrop, Saint Louis University, as a basis for class discussion
rather than to illustrate either effective or ineffective handling of a situation. The original case appearing in prior editions has been edited and updated to reflect recent
developments. Sources: “An American in Paris,” BusinessWeek, March 12, 1990, pp. 60–61, 64; Asahi Shimbun, “Tokyo Disney Prospers in Its Own Way,” Asahi Evening News,
April 22, 2003; Chester Dawson, “Will Tokyo Embrace Another Mouse?,” BusinessWeek, September 10, 2001; “Euro Disney Gets Its Rights Issue Thanks to Underwriting
Banks but Success in Balance,” Euroweek, February 11, 2005; “EuroDisney’s Prince Charming?,” BusinessWeek, June 13, 1994, p. 42; “Saudi to Buy as Much as 24% of
EuroDisney,” The Wall Street Journal, June 2, 1994, p. A4; Bernard J. Wolfson, “The Mouse That Roared Back,” Orange County Register, April 9, 2000, p. 1; “Disney Applies
Feng Shui to Hong Kong Park,” AP Online, June 27, 2005; Michael Schuman, “Disney’s Great Leap into China,” Time, July 11, 2005; Michael Schuman, “Disney’s Hong Kong
Headache,” Time, May 8, 2006; “A Bumpy Ride for Disneyland in Hong Kong; Despite Fixes, Some Observers Say Troubles Could Follow Company to Shanghai,” Washington
Post, November 20, 2006; Dikky Sinn, “Hong Kong Government Unhappy with Disneyland’s Performance,” AP Worldstream, December 4, 2007; Elaine Kurtenbach, “Reports:
Shanghai Disneyland May be Built on Yangtze Island; City Officials Mum on Talks,” AP Worldstream, December 4, 2007; Lauren Booth, “The Wonderful World of Mandarin
Mickey … ,” The Independent on Sunday, July 22, 2007; Mark Kleinman, “Magic Kingdom Fails to Cast Its Spell in the Middle Kingdom … ,” The Sunday Telegraph (London),
February 25, 2007; Paula M. Miller, “Disneyland in Hong Kong,” China Business Review, January 1, 2007; Jeffrey Ng, “Hong Kong Disneyland Seeks New Magic,” The Wall
Street Journal, December 19, 2007; Geoffrey A. Fowler, “Main Street, K.K.; Disney Localizes Mickey to Boost Its Hong Kong Theme Park,” The Wall Street Journal, January 23,
2008; “A Chinese Makeover for Mickey and Minnie,” The New York Times, January 22, 2008; “Mickey in Shanghai,” BusinessWeek, November 16, 2009, p. 6; Chester Yung,
“Hong Kong Says Loss at Theme Park Shrank,” The Wall Street Journal, January 20, 2010, p. B4; Ronald Grover, Stephanie Wong, and Wendy Leung, “Disney Gets a Second
Chance in China,” Bloomberg Businessweek, April 18, 2011, pp. 21–22; Brooks Barnes, “In Bow to Cross-Cultural Cooperation, Disney Shanghai Opens Gates,” The New York
Times, June 17, 2016; Hugo Martin, “Disney to Invest Big Money on a Struggling Euro Disney,” Los Angeles Times, February 10, 2017; “Taking the Mickey?,” The Economist,
March 18, 2017; Denise Tsang and Cannix Yau, “Hong Kong Disneyland Falls Further into Red as Losses Double in 2017 to Hit HK$345 Million,” South China Morning Post,
February 20, 2018; Ryan Parker, “Disney Takes $2.6 Billion Theme Park Hit Amid Pandemic,” Hollywood Reporter, February 11, 2021, online; Spencer Jakab, “Disney’s French
Revolution, and What It Might Mean for a Theme Park Near You,” The Wall Street Journal, July 9, 2021, online; see latest attendance figures from the Themed Entertainment
Association, teaconnect.org, accessed 2022.
 Page CS2-7

CASE 2-2 Cultural Norms, Fair & Lovely, and

Advertising
Fair & Lovely, a branded product of Hindustan Unilever Ltd. (HUL), is touted as a cosmetic that
lightens skin color. On its website ( hul.co.in), the company calls its product “the miracle worker,”
“proven to deliver one to three shades of change.” While tanning is the rage in Western countries, skin
lightening treatments are popular in Asia.
According to industry sources, the top-selling skin lightening cream in India is Fair & Lovely from
Hindustan Unilever Ltd. (HUL), followed by CavinKare’s Fairever brand. HUL’s Fair & Lovely brand
dominated the market with a 90 percent share until CavinKare Ltd. (CKL) launched Fairever. In just
two years, the Fairever brand gained an impressive 15 percent market share. HUL’s share of market for
the Fair & Lovely line generates about $60 million annually. The product sells for about 23 rupees
($0.29) for a 25-gram tube of cream.

The rapid growth of CavinKare’s Fairever ( www.cavinkare.com) brand prompted HUL to increase
its advertising effort and to launch a series of ads depicting a “fairer girl gets the boy theme.” One
advertisement featured a financially strapped father lamenting his fate, saying, “If only I had a son,”
while his dark-skinned daughter looks on, helpless and demoralized because she can’t bear the
financial responsibility of her family. Fast-forward and plain Jane has been transformed into a gorgeous
light-skinned woman through the use of a “fairness cream,” Fair & Lovely. Now clad in a miniskirt, the
woman is a successful flight attendant and can take her father to dine at a five-star hotel. She’s happy
and so is her father.
In another ad, two attractive young women are sitting in a bedroom; one has a boyfriend and,
consequently, is happy. The darker-skinned woman, lacking a boyfriend, is not happy. Her friend’s
advice: Use a bar of soap to wash away the dark skin that’s keeping men from flocking to her.
HUL’s series of ads provoked CavinKare Ltd. to counter with an ad that takes a dig at HUL’s Fair &
Lovely ad. CavinKare’s ad has a father–daughter duo as the protagonists, with the father shown
encouraging the daughter to be an achiever irrespective of her complexion. CavinKare maintained that
the objective of its new commercial is not to take a dig at Fair & Lovely but to “reinforce Fairever’s
positioning.”
Skin color is a powerful theme in India, and much of Asia, where a lighter color represents a higher
status. While Americans and Europeans flock to tanning salons, many across Asia seek ways to have
“fair” complexions. Culturally, fair skin is associated with positive values that relate to class and
beauty. One Indian lady commented that when she was growing up, her mother forbade her to go
outdoors. She was not trying to keep her daughter out of trouble but was trying to keep her skin from
getting dark.
Brahmins, the priestly caste at the top of the social hierarchy, are considered fair because they
traditionally stayed inside, poring over books. The undercaste at the bottom of the ladder are regarded
as the darkest people because they customarily worked in the searing sun. Ancient Hindu scriptures
and modern poetry eulogize women endowed with skin made of white marble.
Skin color is closely identified with caste and is laden with symbolism. Pursue any of the “grooms” and
“brides wanted” ads in newspapers or on the web that are used by families to arrange suitable alliances,
and you will see that most potential grooms and their families are looking for “fair” brides; some even
are progressive enough to invite responses from women belonging to a different caste. These ads,
hundreds of which appear in India’s daily newspapers, reflect attempts to solicit individuals with the
appropriate religion, caste, regional ancestry, professional and educational qualifications, and,
frequently, skin color. Even in the growing numbers of ads that announce “caste no bar,” the adjective
“fair” regularly precedes professional qualifications. In everyday conversation, the ultimate compliment
on someone’s looks is to say someone is gora (fair). “I have no problem with people wanting to be
lighter,” said a Delhi beauty parlor owner, Saroj Nath. “It doesn’t make you racist, any more than
trying to make yourself look younger makes you ageist.”
Bollywood (India’s Hollywood) glorifies conventions on beauty by always casting a fair-skinned actress
in the role of heroine, surrounded by the darkest extras. Women want to use whiteners because it is
“aspirational, like losing weight.”
Even the gods supposedly lament their dark complexion—Krishna sings plaintively, “Radha kyoon gori,
main kyoon kala? (Why is Radha so fair when I’m dark?).” A skin deficient in melanin (the pigment
that determines the skin’s brown color) is an ancient predilection. More than 3,500 years ago,
Charaka, the famous sage, wrote about herbs that could help make the skin fair.
Indian dermatologists maintain that fairness products cannot truly work as they reach only the upper
layers of the skin and so do not affect melanin production. Nevertheless, for some, Fair & Lovely is a
“miracle worker.” A user gushes that “The last time I went to my parents’ home, I got compliments on
my fair skin from everyone.” For others, there is only disappointment. One 26-year-old working woman
has been a regular user for the past eight years but to no avail. “I should have turned into Snow White
by now, but my skin is still the same wheatish color.” As an owner of a public relations firm
commented, “My maid has been using Fair and Lovely for years and I still can’t see her in the dark. . . .
But she goes on using it. Hope springs eternal, I suppose.”
The number of Indians who think lighter skin is more beautiful may be shrinking. Sumit Isralni, a 22-
year-old hair designer in his father’s salon, thinks things have changed in the last two years, at least in
India’s most cosmopolitan cities, Delhi, Mumbai, and Bangalore. Women now “prefer their own
complexion, their natural way,” Isralni says; he prefers a more “Indian beauty” himself: “I won’t judge
my wife on how fair her complexion is.” Sunita Gupta, a beautician in the same salon, is more critical.
“It’s just foolishness!” she exclaimed. The premise of the ads that women could not become airline
attendants if they are dark-skinned was wrong, she said. “Nowadays people like black beauty.” It is a
truism that women, especially in the tropics, desire to be a shade fairer, no matter what their skin
color. Yet, unlike the approach used in India, advertisements elsewhere usually show how to use the
product and how it works.
Commenting on the cultural bias toward fair skin, one critic states, “There are attractive Page CS2-8

people who go through life feeling inferior to their fairer sisters. And all because of charming
grandmothers and aunts who do not hesitate to make unflattering comparisons. Kalee Kalooti is an oft-
heard comment about women who happen to have darker skin. They get humiliated and mortified over
the color of their skin, a fact over which they have no control. Are societal values responsible? Or
advertising campaigns? Advertising moguls claim they only reflect prevailing attitudes in India. This is
possibly true, but what about ethics in advertising? Is it correct to make advertisements that openly
denigrate a majority of Indian people—the dark-skinned populace? The advertising is blatant in their
strategy. Mock anyone who is not the right color and shoot down their self-image.”
A dermatologist comments, “Fairness obtained with the help of creams is short-lived. The main reason
being, most of these creams contain a certain amount of bleaching agent, which whitens facial hair,
and not the skin, which leads people to believe that the cream worked.” Furthermore, “In India the
popularity of a product depends totally on the success of its advertising.”
HUL launched its television ad campaign to promote Fair & Lovely but withdrew it after four months
amid severe criticism for its portrayal of women. Activists argued that one of the messages the
company sends through its “air hostess” ads demonstrating the preference for a son who would be able
to take on the financial responsibility for his parents is especially harmful in a country such as India
where gender discrimination is rampant. Another offense is perpetuating a culture of discrimination in
a society where “fair” is synonymous with “beautiful.” AIDWA (All India Women’s Democratic
Association) lodged a complaint at the time with HUL about their offensive ads, but Hindustan
Unilever failed to respond.
The women’s association then appealed to the National Human Rights Commission alleging that the
ad demeaned women. AIDWA objected to three things: (1) the ads were racist, (2) they were
promoting son preference, and (3) they were insulting to working women. “The way they portrayed the
young woman who, after using Fair & Lovely, became attractive and therefore lands a job suggested
that the main qualification for a woman to get a job is the way she looks.” The Human Rights
Commission passed AIDWA’s complaints on to the Ministry of Information and Broadcasting, which
said the campaign violated the Cable and Television Network Act of 1995—provisions in the act state
that no advertisement shall be permitted that “derides any race, caste, color, creed and nationality”
and that “Women must not be portrayed in a manner that emphasizeds passive, submissive qualities
and encourages them to play a subordinate secondary role in the family and society.” The government
issued notices of the complaints to HUL. After a year-long campaign led by the AIDWA, Hindustan
Unilever Limited discontinued two of its television advertisements for Fair & Lovely fairness cold
cream.
Shortly after pulling its ads off the air, HUL launched its Fair & Lovely Foundation, vowing to
“encourage economic empowerment of women across India” by providing resources in education and
business to millions of women “who, though immensely talented and capable, need a guiding hand to
help them take the leap forward,” presumably into a fairer future.
HUL sponsored career fairs in over 20 cities across the country, offering counseling in as many as 110
careers. It supported 100 rural scholarships for women students passing their 10th grade, a
professional course for aspiring beauticians, and a three-month Home Healthcare Nursing Assistant
course catering to young women between the ages of 18 and 30 years. According to HUL, the Fair &
Lovely Academy for Home Care Nursing Assistants offers a unique training opportunity for young
women who possess no entry-level skills and therefore are not employable in the new economy job
market. The Fair & Lovely Foundation plans to serve as a catalyst for the economic empowerment for
women across India. The Fair & Lovely Foundation will showcase the achievements of these women
not only to honor them but also to set an example for other women to follow.
AIDWA’s campaign against ads that convey the message “if she is not fair in color, she won’t get
married or won’t get promoted” also has resulted in some adjustment to fairness cream ads. In revised
versions of the fairness cream ads, the “get fair to attract a groom” theme is being reworked with
“enhance your self-confidence” so that a potential groom himself begs for attention. It is an attempt at
typifying the modern Indian woman, who has more than just marriage on her mind. Advertising focus
is now on the message that lighter skin enables women to obtain jobs conventionally held by men. She
is career-oriented, has high aspirations, and, at the same time, wants to look good. AIDWA concedes
that the current crop of television ads for fairness creams are “not as demeaning” as ones in the past.
However, it remains against the product; as the president of AIDWA stated, “It is downright racist to
denigrate dark skin.”
Although AIDWA’s campaign against fairness creams seems to have had a modest impact on changing
the advertising message, it has not slowed the demand for fairness creams. Sales of Fair & Lovely, for
example, have been growing 15 to 20 percent year over year, and the $318 million market for skin care
has grown by 42.7 percent in the last three years. Says Euromonitor International, a research firm:
“Half of the skin care market in India is fairness creams and 60 to 65 percent of Indian women use
these products daily.”
Recently, several Indian companies were extending their marketing of fairness creams beyond urban
and rural markets. CavinKare’s launch of Fairever, a fairness cream in a small sachet pack priced at Rs
5, aimed at rural markets where some 320 million Indians reside. Most marketers have found rural
markets impossible to penetrate profitably due to low income levels and inadequate distribution
systems, among other problems. However, HUL is approaching the market through Project Shakti, a
rural initiative that targets small villages with populations of 2,000 people or less. It empowers
underprivileged rural women by providing income-generating opportunities to sell small, lower-priced
packets of its brands in villages. Special packaging for the rural market was designed to provide single-
use sachet packets at 50 paise for a sachet of shampoo to Rs 5 for a fairness cream (for a week’s
usage). The aim is to have 100,000 “Shakti Ammas,” as they are called, spread across 500,000 villages
in India by year-end. CavinKare is growing at 25 percent in rural areas compared with 15 percent in
urban centers.
In addition to expanding market effort into rural markets, an unexpected market arose when a research
study revealed Indian men were applying women’s fairness potions in droves—but on the sly. It was
estimated that 40 percent of boyfriends/husbands of girlfriends/wives were applying white magic
solutions that came in little tubes. Indian companies spotted a business opportunity, and Fair &
Handsome, Menz Active, Fair One Man, and a male bleach called Saka were introduced to the male
market. The sector expanded dramatically when Shah Rukh Khan, a highly acclaimed Bollywood actor
likened to an Indian Tom Cruise, decided to endorse Fair & Handsome. Worldwide spending on men’s
grooming products was forecast by PRNewswire to grow an average of 6.5 percent per year over the
next five years through 2027, with India expected to grow even faster.
Page CS2-9
A recent product review in www.mouthshut.com praises Fair & Lovely fairness cream:
“[Fair & Lovely] contains fairness vitamins which penetrate deep down our skin to give us radiant
fairness.” “I don’t know if it can change the skin color from dark to fair, but my personal experience is
that it works very well, if you have a naturally fair color and want to preserve it without much
headache.” “I think Riya Sen has the best skin right now in Bollywood. It appears to be really soft and
 tender. So, to have a soft and fair skin like her I recommend Fair & Lovely Fairness Lotion or Cream.”
Yet “skin color isn’t a proof of greatness. Those with wheatish or dark skin are by no way inferior to
those who have fair skin.”
Here are a few facts from Hindustan Unilever Ltd.’s homepage:
Lever Limited is India’s largest Packaged Mass Consumption Goods Company. We are leaders in Home and Personal
Care Products and Food and Beverages including such products as Ponds and Pepsodent. We seek to meet everyday
needs of people everywhere—to anticipate the aspirations of our consumers and customers and to respond creatively
and competitively with branded products and services which raise the quality of life. It is this purpose which inspires
us to build brands. Over the past 70 years, we have introduced about 110 brands.
Fair & Lovely has been specially designed and proven to deliver one to three shades of change in most people. Also its
sunscreen system is specially optimized for Indian skin. Indian skin, unlike Caucasian skin, tends to “tan” rather than
“burn” and, hence, requires a different combination of UVA and UVB sunscreens.

You may want to visit Fair & Lovely’s homepage www.hul.co.in/brands/personal-care/fair-and-

lovely.html for additional information about the product.

Questions
1. Is it ethical to sell a product that is, at best, only mildly effective? Discuss.
2. Is it ethical to exploit cultural norms and values to promote a product? Discuss.
3. Is the advertising of Fair & Lovely demeaning to women, or is it promoting the fairness cream in a
way not too dissimilar from how most cosmetics are promoted?
4. Will HUL’s Fair & Lovely Foundation be enough to counter charges made by AIDWA? Discuss.
5. In light of AIDWA’s charges, how would you suggest Fair & Lovely promote its product? Discuss.
Would your response be different if Fairever continued to use “fairness” as a theme of its
promotion? Discuss.
6. Propose a promotion/marketing program that will counter all the arguments and charges against
Fair & Lovely and be an effective program.
7. Now that a male market for fairness cream exists, is the strength of AIDWA’s argument weakened?
8. Comment on using “Shakti Ammas” to introduce “fairness cream for the masses” in light of
AIDWA’s charges.
9. Listen to “In India, Skin-Whitening Creams Reflect Old Biases,” NPR, November 12, 2009.
10. The Advertising Standards Council of India, a self-regulated advertiser group, has issued a new set
of guidelines that will ban all ads that depict those with darker skin as being inferior in any way. See
https://digiday.com/marketing/four-ads-wont-see-indian-television-ever/. How do you think this will
affect Fair & Lovely as a brand? How should HUL deal with the news?
Sources: Nicole Leistikow, “Indian Women Criticize ‘Fair and Lovely’ Ideal,” Women’s eNews, April 28, 2003; Arundhati Parmar, “Objections to Indian Ad Not Taken Lightly,”
Marketing News, June 9, 2003, p. 4; “Fair & Lovely Launches Foundation to Promote Economic Empowerment of Women,” press release, Fair & Lovely Foundation,
www.hul.com.in (search for foundation), March 11, 2003; Rina Chandran, “All for Self-Control,” Business Line (The Hindu), April 24, 2003; Khozem Merchant and Edward
Luce, “Not So Fair and Lovely,” Financial Times, March 19, 2003; “Fair & Lovely Redefines Fairness with Multivitamin Total Fairness Cream,” press release, Hindustan
Unilever Ltd., May 3, 2005; “CavinKare Launches Small Sachet Packs,” Business India, December 7, 2006; “Analysis of Skin Care Advertising on TV During January–August
2006,” Indiantelevision.com Media, Advertising, Marketing Watch, October 17, 2006; “Women Power Gets Full Play in CavinKare’s Brand Strategy,” The Economic Times (New
Delhi, India), December 8, 2006; Heather Timmons, “Telling India’s Modern Women They Have Power, Even over Their Skin Tone,” The New York Times, May 30, 2007; “The
Year We Almost Lost Tall (or Short or Medium-Height), Dark and Handsome,” The Hindustan Times, December 29, 2007; “India’s Hue and Cry over Paler Skin,” The Sunday
Telegraph (London), July 1, 2007; “Fair and Lovely?,” University Wire, June 4, 2007; “The Race to Keep up with Modern India,” Media, June 29, 2007; Aneel Karnani, “Doing
Well by Doing Good—Case Study: ‘Fair & Lovely’ Whitening Cream,” Strategic Management Journal 28, no. 13 (2007), pp. 1351–57; “In India, Skin-Whitening Creams Reflect
Old Biases,” NPR, November 12, 2009; “Global Male Grooming Products Market (2022 to 2027),” www.prnnewswire.com, accessed 2022.
 Page CS2-10

CASE 2-3 Starnes-Brenner Machine Tool

Company: To Bribe or Not to Bribe?
The Starnes-Brenner Machine Tool Company of Iowa City, Iowa, has a small one-person sales office
headed by Frank Rothe in Latino, a major Latin American country. Frank has been in Latino for
about 10 years and is retiring this year; his replacement is Bill Hunsaker, one of Starnes-Brenner’s top
salespeople. Both will be in Latino for about eight months, during which time Frank will show Bill the
ropes, introduce him to their principal customers, and, in general, prepare him to take over.
Frank has been very successful as a foreign representative in spite of his unique style and, at times,
complete refusal to follow company policy when it doesn’t suit him. The company hasn’t really done
much about his method of operation, though from time to time he has angered some top company
people. As President Jack McCaughey, who retired a couple of years ago, once remarked to a vice
president who was complaining about Frank, “If he’s making money—and he is (more than any of the
other foreign offices)—then leave the guy alone.” When McCaughey retired, the new chief immediately
instituted organizational changes that gave more emphasis to the overseas operations, moving the
company toward a truly worldwide operation into which a loner like Frank would probably not fit. In
fact, one of the key reasons for selecting Bill as Frank’s replacement, besides Bill’s record as a top
salesperson, is Bill’s capacity to be the classic so-called organization man. He understands the need for
coordination among operations and will cooperate with the home office so that the Latino office can
be expanded and brought into the mainstream.
The company knows there is much to be learned from Frank, and Bill’s job is to learn everything
possible. The company certainly doesn’t want to continue some of Frank’s practices, but much of his
knowledge is vital for continued, smooth operation. Today, Starnes-Brenner’s foreign sales account for
about 25 percent of the company’s total profits, compared with about 5 percent only 10 years ago.
The company is actually changing character, from being principally an exporter, without any real
concern for continuous foreign market representation, to having worldwide operations, where the
foreign divisions are part of the total effort rather than a stepchild operation. In fact, Latino is one of
the last operational divisions to be assimilated into the new organization. Rather than try to change
Frank, the company has been waiting for him to retire before making any significant adjustments in its
Latino operations.
Bill Hunsaker is 36 years old, with a wife and three children; he is a very good salesperson and
administrator, though he has had no foreign experience. He has the reputation of being fair, honest,
and a straight shooter. Some back at the home office see his assignment as part of a grooming job for a
top position, perhaps eventually the presidency. The Hunsakers are now settled in their new home after
having been in Latino for about two weeks. Today is Bill’s first day on the job.
When Bill arrived at the office, Frank was on his way to a local factory to inspect some Starnes-
Brenner machines that had to have some adjustments made before being acceptable to the Latino
government agency buying them. Bill joined Frank for the plant visit. Later, after the visit, we join the
two at lunch.
Bill, tasting some chili, remarks, “Boy! This certainly isn’t like the chili we have in America.”
“No, it isn’t, and there’s another difference, too. The Latinos are Americans and nothing angers a
Latino more than to have a ‘Gringo’ refer to the United States as America as if to say that Latino isn’t
part of America also. The Latinos rightly consider their country as part of America (take a look at the
map), and people from the United States are North Americans at best. So, for future reference, refer to
home either as the United States, States, or North America, but, for gosh sakes, not just America. Not
to change the subject, Bill, but could you see that any change had been made in those S-27s from the
standard model?”
“No, they looked like the standard. Was there something out of whack when they arrived?”
“No, I couldn’t see any problem—I suspect this is the best piece of sophisticated bribe taking I’ve come
across yet. Most of the time the Latinos are more ‘honest’ about their mordidas than this.”
“What’s a mordida?” Bill asks.
“You know, kumshaw, dash, bustarella, mordida; they are all the same: a little grease to expedite the
action. Mordida is the local word for a slight offering or, if you prefer, bribe,” says Frank.
Bill quizzically responds, “Do we pay bribes to get sales?”
“Oh, it depends on the situation, but it’s certainly something you have to be prepared to deal with.”
Boy, what a greenhorn, Frank thinks to himself, as he continues, “Here’s the story. When the S-27s
arrived last January, we began uncrating them and right away the jefe engineer (a government official)
—jefe, that’s the head person in charge—began extra-careful examination and declared there was a vital
defect in the machines; he claimed the machinery would be dangerous and thus unacceptable if it
wasn’t corrected. I looked it over but couldn’t see anything wrong, so I agreed to have our staff
engineer check all the machines and correct any flaws that might exist. Well, the jefe said there wasn’t
enough time to wait for an engineer to come from the States, that the machines could be adjusted
locally, and we could pay him and he would make all the necessary arrangements. So, what do you do?
No adjustment his way and there would be an order canceled; and maybe there was something out of
line—those things have been known to happen. But for the life of me, I can’t see that anything had been
done since the machines were supposedly fixed. So, let’s face it, we just paid a bribe, and a pretty darn
big bribe at that—about $1,200 per machine. What makes it so aggravating is that that’s the second one
I’ve had to pay on this shipment.”
“The second?” asks Bill.
“Yeah, at the border, when we were transferring the machines to Latino trucks, it was hot and they
were moving slow as molasses. It took them over an hour to transfer 1 machine to a Latino truck and
we had 10 others to go. It seemed that every time I spoke to the dock boss about speeding things up,
they just got slower. Finally, out of desperation, I slipped him a fistful of pesos and, sure enough, in the
next three hours they had the whole thing loaded. Just one of the local customs of doing business.
Generally, though, it comes at the lower level where wages don’t cover living expenses too well.”
There is a pause, and Bill asks, “What does that do to our profits?”
“Runs them down, of course, but I look at it as just one of the many costs of doing business—I do my
best not to pay, but when I have to, I do.”
Hesitantly, Bill replies, “I don’t like it, Frank. We’ve got good products, they’re priced right, Page CS2-11
we give good service, and we keep plenty of spare parts in the country, so why should we
have to pay bribes? It’s just no way to do business. You’ve already had to pay two bribes on one
shipment; if you keep it up, the word’s going to get around and you’ll be paying at every level. Then all
the profit goes out the window—you know, once you start, where do you stop? Besides that, where do
we stand legally? The Foreign Bribery Act makes paying bribes like you’ve just paid illegal. I’d say the
best policy is to never start: You might lose a few sales, but let it be known that there are no bribes; we
sell the best, service the best at fair prices, and that’s all.”
“You mean the Foreign Corrupt Practices Act, don’t you?” Frank asks, and continues, in an I’m-not-
really-so-out-of-touch tone of voice, “Haven’t some of the provisions of the Foreign Corrupt Practices
Act been softened somewhat?”
“Yes, you’re right, the provisions on paying a mordida or grease have been softened, but paying the
government official is still illegal, softening or not,” replies Bill.
Oh boy! Frank thinks to himself as he replies, “Look, what I did was just peanuts as far as the Foreign
Corrupt Practices Act goes. The people we pay off are small, and, granted, we give good service, but
we’ve only been doing it for the last year or so. Before that I never knew when I was going to have
equipment to sell. In fact, we only had products when there were surpluses stateside. I had to pay the
right people to get sales, and besides, you’re not back in the States any longer. Things are just done
different here. You follow that policy and I guarantee that you’ll have fewer sales because our
competitors from Germany, Italy, and Japan will pay. Look, Bill, everybody does it here; it’s a way of
life, and the costs are generally reflected in the markup and overhead. There is even a code of behavior
involved. We’re not actually encouraging it to spread, just perpetuating an accepted way of doing
business.”
Patiently and slightly condescendingly, Bill replies, “I know, Frank, but wrong is wrong and we want to
operate differently now. We hope to set up an operation here on a continuous basis; we plan to operate
in Latino just like we do in the United States. Really expand our operation and make a long-range
market commitment, grow with the country! And one of the first things we must avoid is unethical. . .
.”
Frank interrupts, “But really, is it unethical? Everybody does it; the Latinos even pay mordidas to other
Latinos; it’s a fact of life—is it really unethical? I think that the circumstances that exist in a country
justify and dictate the behavior. Remember, ‘When in Rome, do as the Romans do.’”
Almost shouting, Bill blurts out, “I can’t buy that. We know that our management practices and
relationships are our strongest point. Really, all we have to differentiate us from the rest of our
competition, Latino and others, is that we are better managed and, as far as I’m concerned, graft and
other unethical behavior have got to be cut out to create a healthy industry. In the long run, it should
strengthen our position. We can’t build our future on illegal and unethical practices.”
Frank angrily replies, “Look, it’s done in the States all the time. What about the big dinners, drinks,
and all the other hanky-panky that goes on? Not to mention PACs’ [Political Action Committee]
payments to congresspeople, and all those high speaking fees certain congresspeople get from special
interests. How many congresspeople have gone to jail or lost reelection on those kinds of things? What
is that, if it isn’t mordida the North American way? The only difference is that instead of cash only, in
the United States we pay in merchandise and cash.”
“That’s really not the same and you know it. Besides, we certainly get a lot of business transacted
during those dinners even if we are paying the bill.”
“Bull. The only difference is that here bribes go on in the open; they don’t hide it or dress it in foolish
ritual that fools no one. It goes on in the United States and everyone denies the existence of it. That’s
all the difference—in the United States we’re just more hypocritical about it all.”
“Look,” Frank continues, almost shouting, “we are getting off on the wrong foot and we’ve got eight
months to work together. Just keep your eyes and mind open and let’s talk about it again in a couple of
months when you’ve seen how the whole country operates; perhaps then you won’t be so quick to
judge it absolutely wrong.”
Frank, lowering his voice, says thoughtfully, “I know it’s hard to take; probably the most disturbing
problem in underdeveloped countries is the matter of graft. And, frankly, we don’t do much advance
preparation so we can deal firmly with it. It bothered me at first; but then I figured it makes its
economic contribution, too, because the payoff is as much a part of the economic process as a payroll.
What’s our real economic role, anyway, besides making a profit, of course? Are we developers of
wealth, helping to push the country to greater economic growth, or are we missionaries? Or should we
be both? I really don’t know, but I don’t think we can be both simultaneously, and my feeling is that, as
the company prospers, as higher salaries are paid, and better standards of living are reached, we’ll see
better ethics. Until then, we’ve got to operate or leave, and if you are going to win the opposition over,
you’d better join them and change them from within, not fight them.”
Before Bill could reply, a Latino friend of Frank’s joined them, and they changed the topic of
conversation.

Questions
1. Is what Frank did ethical? By whose ethics—those of Latino or the United States?
2. Are Frank’s two different payments legal under the Foreign Corrupt Practices Act as amended by
the Omnibus Trade and Competitiveness Act of 1988?
3. Identify the types of payments made in the case; that is, are they lubrication, extortion, or
subornation?
4. Frank seemed to imply that there is a similarity between what he was doing and what happens in the
United States. Is there any difference? Explain.
5. Are there any legal differences between the money paid to the dockworkers and the money paid the
jefe (government official)? Any ethical differences?
6. Frank’s attitude seems to imply that a foreigner must comply with all local customs, but some would
say that one of the contributions made by U.S. firms is to change local ways of doing business. Who
is right?
7. Should Frank’s behavior have been any different had this not been a government contract?
8. If Frank shouldn’t have paid the bribe, what should he have done, and what might have been the
consequences?
 9. What are the company interests in this problem?
10. Explain how this may be a good example of the SRC (self-reference criterion) at work.
11. Do you think Bill will make the grade in Latino? Why or why not? What will it take?
12. How can an overseas manager be prepared to face this problem?
 Page CS2-20

CASE 2-4 When International Buyers and

Sellers Disagree
No matter what line of business you’re in, you can’t escape sex. That may have been one conclusion
drawn by an American exporter of meat products after a dispute with a German customer over a
shipment of pork livers. Here’s how the disagreement came about.
The American exporter was contracted to ship “30,000 lbs. of freshly frozen U.S. pork livers,
customary merchantable quality, first rate brands.” The shipment had been prepared to meet the
exacting standards of the American market, so the exporter expected the transaction to be completed
without any problem. But when the livers arrived in Germany, the purchaser raised an objection: “We
ordered pork livers of customary merchantable quality—what you sent us consisted of 40 percent sow
livers.”
“Who cares about the sex of the pig the liver came from?” the exporter asked.
“We do,” the German replied. “Here in Germany we don’t pass off spongy sow livers as the firmer
livers of male pigs. This shipment wasn’t merchantable at the price we expected to charge. The only
way we were able to dispose of the meat without a total loss was to reduce the price. You owe us a
price allowance of $1,000.”
The American refused to reduce the price. The determined resistance may have been partly in reaction
to the implied insult to the taste of the American consumer. “If pork livers, whatever the sex of the
animal, are palatable to Americans, they ought to be good enough for anyone,” the American thought.
It looked as if the buyer and seller could never agree on eating habits.

Questions
1. In this dispute, which country’s law would apply, that of the United States or of Germany?
2. If the case were tried in U.S. courts, who do you think would win? In German courts? Why?
3. Draw up a brief agreement that would have eliminated the following problems before they could
occur:
a. Whose law applies.
b. Whether the case should be tried in U.S. or German courts.
c. The difference in opinion as to “customary merchantable quality.”
4. Discuss how SRC may be at work in this case.
 Page CS2-21

CASE 2-5 McDonald’s and Obesity

The Problem
Governments and influential health advocates around the world, spooked that their nations’ kids will
become as fat as American kids, are cracking down on the marketers they blame for the explosion in
childhood obesity. Across the globe, efforts are under way to slow the march of obesity.
In the United States, roughly 30 percent of American children are overweight or obese. According to
the U.S. Centers for Disease Control and Prevention (CDC), an estimated 64.5 percent of Americans
tip the scales as overweight or obese, the highest percentage of any country in the world. However,
adults and kids in other countries are catching up.
The World Health Organization reports these key facts regarding obesity:
Worldwide obesity has nearly tripled since 1975.
In 2016, more than 1.9 billion adults, 18 years and older, were overweight. Of these, over 650 million
were obese.
39 percent of adults aged 18 years and over were overweight in 2016, and 13 percent were obese.
Most of the world’s population live in countries where overweight and obesity kill more people than
underweight.
39 million children under the age of 5 were overweight or obese in 2020.
Over 340 million children and adolescents aged 5–19 were overweight or obese in 2016.
Obesity is preventable.

The World
The World Heart Federation also reports that globally there are now more than 1 billion overweight
adults and that at least 400 million of those are obese. An estimated 155 million children are
overweight worldwide, including 35 million to 45 million who are obese.1

Global Reactions to Obesity

One of the perplexing questions is why there has been a relatively sudden increase of obesity
worldwide. Some opine that fast-food portion sizes are partly to blame; the average size order of
French fries has nearly tripled since 1955. Some people say advertising is to blame, particularly ads
aimed at children, such as those that use celebrities to market high-calorie foods. According to USA
Today, one study found that the average American child sees 10,000 food ads a year, mostly for high-fat
or sugary foods and drinks.
Traditionally, in developing countries, the poorest people have been the thinnest, a consequence of
hard physical labor and the consumption of small amounts of traditional foods. But when these people
in poor countries migrate to cities, obesity rates rise fastest among those in the lowest socioeconomic
group.
Marketers are struggling against a crackdown on food advertising amid growing concern over obesity
throughout the world. Marketers are trying to avert a clampdown with greater self-regulation. But
despite a slew of individual company efforts to shift new-product and marketing focus to healthier
offerings, the industry has, until now, largely shied away from defending itself more broadly.

McDonald’s Response
For the last few years, McDonald’s has reacted to the obesity issues in several ways in the United
Kingdom and other countries. Concerned about consumer reaction to the film Super Size Me,2
McDonald’s Corp. broke a U.K. campaign called “Changes” with poster ads that omit the Golden
Arches for the first time, replacing them with a question mark in the same typeface and the tagline
“McDonald’s. But not as you know it.” Promoting ongoing menu changes, the posters feature items
such as a salad, a pile of free-range eggshells, pieces of fruit, and cups of cappuccino. The effort
preceded a direct-mail campaign to 17 million households touting healthier menu items and smaller
portion sizes.
McDonald’s aim was to cause people to think differently about McDonald’s and to make the public
aware of new products. “There’s no intention to abandon the Arches” but only to focus attention on
the “healthy” additions to the menu. Despite the new campaign, research showed the chain hadn’t
received the hoped-for awareness for some of the newer items on its menu, including the all-white-meat
Chicken Selects and the fruit bags. More worrisome, a research study revealed that frequent users
didn’t like to admit to friends that they ate at McDonald’s. “We don’t want to have closet loyalists.”
One researcher urged more time for McDonald’s “Changes” campaign to get traction. “The market
position and market stature of McDonald’s in the U.K. is not nearly as strong as it is in the U.S. and
accordingly, you have to stick with the program longer,” he said. But he warned that the “Changes”
campaign could backfire. “Trying to suppress the logo is not likely to change the hearts and minds of
many fast-food voters in Europe.”
In anticipation of the release of the documentary Super Size Me in the United Kingdom, McDonald’s
in London went on the defensive with full-page newspaper ads discussing the film. The ads, headlined
“If you haven’t seen the film ‘Super Size Me,’ here’s what you’re missing,” have appeared in the film-
review sections of six newspapers to coincide with filmmaker Morgan Spurlock’s appearance at the
annual Edinburgh film festival. The copy describes it as “slick and well-made” and says McDonald’s
actually agrees with the “core argument” of the film—“If you eat too much and do too little, it’s bad for
you.” However, it continues: “What we don’t agree with is the idea that eating at McDonald’s is bad for
you.” The ad highlights some of McDonald’s healthier menu items such as grilled chicken salad and
fruit bags. A spokeswoman for McDonald’s said it ran the ads to ensure there was a “balanced debate”
about the film. Super Size Me distributor Tartan Films has retaliated by running identical-looking ads
in newspapers promoting the film.
As a direct response to government calls for food marketers to promote a more active lifestyle,
McDonald’s U.K. launched an ad campaign aimed at kids, featuring Ronald McDonald and animated
fruit and vegetable characters called Yums. In two-minute singing-and-dancing animated spots, the
Yums urge, “It’s fun when you eat right and stay active.”
Even though McDonald’s plans to expand its healthier menu offerings, it does so cautiously, so people
remember that the Golden Arches at its core still mean burgers and fries.
McDonald’s, throughout Europe and elsewhere, is testing ways to address the obesity issue. In
Scandinavia, for example, popular healthy local foods have been added to the McMenu, like cod
wrapped in rye bread in Finland. In Norway, some outlets sell a salmon burger wrapped in rye bread.
In Sweden, no salt is added to the food served. In Australia, McDonald’s took a different approach—it
reduced its budget for ads directed to kids by 50 percent.
McDonald’s French operation raised the ire of the parent company when it ran a print ad in a
women’s magazine quoting a nutritionist’s suggestion that kids shouldn’t eat at the restaurant more
than once a week. While the ad was meant to promote McDonald’s and seems reasonable because the
French only visit quick-service restaurants every two weeks on average anyway, such a campaign would
have been heresy in the United States. McDonald’s Corp. later issued a statement claiming that “the
majority of nutritionists” believe McDonald’s can fit into a balanced diet. Later, the company recruited
a pair of French nutritionists who declared the Big Mac and cheeseburger healthier than traditional
French fare such as quiche.
Marketers in France have lobbied hard to be allowed to use positive lifestyle messages in Page CS2-23

ads—like emphasizing the importance of physical exercise and a balanced diet—rather than grim health
warnings. France’s Ministry of Health appears to be listening and is now expected to let marketers
choose among three or four positive health messages. Industry experts say the government changed its
mind out of fear that strong warnings might backfire, causing anxiety among consumers about eating.
Moreover, France may hope its new law, if not too extreme, will become a blueprint for Europe.
Although McDonald’s responded to the obesity issue with menu changes and reworking its
advertising, McDonald’s didn’t stop advertising to children. The chief executive of McDonald’s pooh-
poohed the idea that McDonald’s should “go dark on communications” to kids—two-and-a-half million
U.K. customers every day, a fair portion of them under 16 years. McDonald’s is keeping children
firmly in its marketing sights. School’s out, ads for the kids’ big summer movie releases are slapped on
burger boxes, and a trip to McDonald’s is on the holiday menu. McDonald’s defense is that
McDonald’s Ronnie’s Yum-Chum friends are positively bursting with healthy advice. There’s even a
song: “Don’t let your Yum-Chums get glum, put healthy stuff in your tum.”
One of the casualties of the obesity turmoil may have been the tie between McDonald’s and Disney’s
line of cartoon characters, a marvel for attracting young children to the Golden Arches. Disney failed
to renew its 10-year exclusive partnership with McDonald’s. Both parties insist it was a mutual
decision that would allow each to seek more profitable promotions. However, the growing concern
over the obesity epidemic may have proved critical for Disney, which has become increasingly worried
that its links to McDonald’s would damage its family-friendly image. For its part, McDonald’s may
have wanted to avoid being linked to box-office flops such as Treasure Planet.

The Market’s Reaction

Initially, McDonald’s sales worldwide, as well as in England, suffered. However European sales growth
in the following year was 5.8 percent, outstripping even U.S. growth. Some 320,000 more people a day
than the year before visited McDonald’s in Britain. Around 90 percent of them are buying traditional
products such as burgers, fries, and ice cream rather than the healthier sandwiches and salads the
chain stocks. The estimates mark a big turnaround for McDonald’s, which bounced back after negative
publicity about fat content in its food. McDonald’s changed menu—with such items as porridge,
smoothies, and chicken wraps—is one reason for the growing business.
The government has spent large sums on promoting healthier diets and the message to eat five
portions of fruit and vegetables a day as obesity levels continue to rise. There’s been enough publicity
about the relentless rise and impact of obesity, but from the figures, it seems the public is choosing to
ignore them. More than 88 million visits were made to McDonald’s worldwide restaurants in one
month, up 10 million on the previous year.

The Prince Chimes In

Just as the focus on obesity was giving away to concerns about anorexia and the pressure being put on
young girls by so-called size-zero models at a British Fashion Week, Prince Charles, Prince of Wales
and future King of England, tipped the scales back in the direction of obesity. On a royal visit to the
Middle East, the Prince suggested that McDonald’s was to blame for an obesity epidemic among
children. Charles asked: “Have you got anywhere with McDonald’s? Have you tried getting it banned?
That’s the key.” His comments were reported internationally, with reactions that were more positive for
McDonald’s than one would expect.
Positive comments from several sources attested to the effectiveness of the work that McDonald’s had
done to improve its image. Health advocates and nutritionists said a ban on McDonald’s was
“certainly not the answer” to Britain’s obesity epidemic. Even the press ran articles favorable to
McDonald’s. One referred to the Prince as a hypocrite because his company, Duchy Originals (one of
the United Kingdom’s leading brands of organic food and drink)3 offered fast foods whose fat and
calorie content were no better, if not worse, than McDonald’s. The Duchy Originals’ Cornish pasty
carries 264 calories per 100 g, considerably more than the 229 per 100 g of the Big Mac, and the fat
content is 13.6 g per 100 g, which is higher than the 11.12 g in the Big Mac. A medium portion of fries
from McDonald’s contains 298 calories per 100 g; again, this amount is considerably less than the 464
per 100 g contained in the Duchy Original Organic Hand Cooked Vegetable Crisps. A 100 g serving of
Duchy Original’s Organic Lemon Tart has 337 calories (one-third more than the McDonald’s Apple
Pie).
The Prince’s comments were later downplayed, stressing that he was merely advocating a balanced
diet, especially for children, and wanted to make the point that burgers and chips were not the only
foods available to them.
McDonald’s took a conciliatory tact stating, “The comment made by the Prince of Wales appears to
be an off-the-cuff remark that, in our opinion, does not reflect either our menu or where we are at as a
business. We know that other Royal Family members have visited and have probably got a more up-to-
date picture of us.” Prince Harry certainly does not share his father’s distaste for McDonald’s and
often eats its burgers. He even took advantage of a “buy one get one free” offer, then wolfed down two
chicken burgers outside a McDonald’s in Plymstock, Devon.
In 2018, the U.K. government told fast-food chains and supermarket ready-meal makers to cut the
calories in lunches and dinners to 600 calories, and breakfasts to 400. A box meal from KFC currently
has around 1,400 calories, while a Big Mac and regular fries contain 845. In 2019, U.K. Big Macs
started featuring bacon. In 2020, McDonald’s reintroduced to the U.K. market the 731-calorie Grand
Big Mac for the third time. Tam Fry, of the National Obesity Society in Britain, said: “It is quite
irresponsible to see McDonald’s has ignored our recommendations. . . .”

Questions
1. How should McDonald’s respond when ads in some locations around the world promoting healthy
lifestyles featuring Ronald McDonald are equated with Joe Camel and cigarette ads? Should
McDonald’s eliminate Ronald McDonald in its ads?

2. Discuss the merits of the law proposed by some countries that would require fast-food Page CS2-24
companies either to add a health message to commercials or pay a 1.5 percent tax on
their ad budgets. Propose a strategy for McDonald’s to pay the tax or add health messages, and
defend your recommendation.
3. If there is no evidence that obesity rates fall in those countries that ban food advertising to children,
why bother?
4. The broad issue facing McDonald’s U.K. is the current attitude toward rising obesity and increasing
government regulation. The company seems to have tried many different approaches to deal with
the problem, but the problem persists. List all the problems facing McDonald’s and critique its
various approaches to solve the problems.
5. Based on your response to Question 4, recommend both a short-range and long-range plan for
McDonald’s to implement.
Sources: Jardine and Laurel Wentz, “U.K. Not Feeling the Love; McD’s Puts Slogan on Ice,” Advertising Age, September 13, 2004; “Thinking Locally,” Advertising Age, March 7,
2005; Alexandra Jardine and Laurel Wentz, “It’s a Fat World After All,” Advertising Age, March 7, 2005; Steven Gray and Janet Adamy, “McDonald’s Gets Healthier—but
Burgers Still Rule,” The Wall Street Journal, February 23, 2005; Stephanie Thompson, “Europe Slams Icons as Food Fights Back,” Advertising Age, January 3, 2005; Emma Ross,
“Obesity Hurting Health of European Children,” Associated Press, June 3, 2005; J. E. Brody, “Globesity,” The New York Times, April 19, 2005; “Disney Drops $1 bn
McDonald’s Deal Amid Health Fears,” Belfast Telegraph, May 10, 2006; “McDonald’s Defies Critics with an Even Bigger Big Mac,” The Independent (London), April 24, 2006;
“McDonald’s Set to Fight Message in Movie: Chain Warns Franchisees About ‘Fast Food Nation,’” Crain’s Chicago Business, April 10, 2006; “McDonald’s . . . Now with Ethical
Sauce. Fast-food Giant Takes on the Critics with Soft Lights, Comfy Sofas and the Promise of Great Career Prospects,” Mail on Sunday (London), April 23, 2006; “Prince
Wants McDonald’s Off the Middle East Menu as Prince Charles Advises Health Workers in the Middle East to Ban McDonald’s,” The Aberdeen Press and Journal, February 28,
2007; “So Why Does Charles Think McDonald’s Is the Root of All Food Evil?,” The Scotsman, February 28, 2007; “McDonald’s Health Wins Back Customers,” The
Independent (London), January 18, 2007; “Sure, McDonald’s ‘Health Kick’ Is a Ruse—but It’s Better Than Nothing,” The Independent (London), July 23, 2007; “UK’s
McDonald’s Outlets Selling More Burgers Than Ever Before,” Hindustan Times, January 7, 2008; “McDonald’s Answer to Obesity Fears—a Boom in Burger Sales,” Evening
Standard (London), January 7, 2008; Kate Lally, “Obesity Could Mean Changes to McDonald’s, KFC and Burger King Menus,” Nottinghamshire Live, January 17,
2018; Dominik Lemanski, “McDonald’s Ignores Obesity Advice as It Brings Back 731-Calorie Grand Big Mac,” Daily Star, February 5, 2020, online.
 Page CS2-25

CASE 2-6 Ultrasound Machines, India,

China, and a Skewed Sex Ratio
In many small towns in India, there’s little electricity, less running water, and no paved roads. But
there are plenty of ultrasound machines, like those sold by General Electric and other companies. A
scan costs a week’s wages, or about $8. The accompanying social issue is large and difficult: Families
want male offspring, not female, which fetuses get aborted regularly. Those who decry the practice
point out that the skewed sex ratio in India is clearly linked to increased sales of ultrasound machines.
That puts GE, the top seller, under a glaring spotlight. The fast-growing economy of India presents
challenges of government and legal regulations, as well as difficult business problems.
“Ultrasound is the main reason why the sex ratio is coming down, meaning, there are increasingly
fewer boys than girls,” says Kalpana Bhavre, a government official in charge of women and child
welfare. Daughters can represent decades of debt repayment for dowries paid at the time of marriage.
The cost of an ultrasound “is nothing” in comparison, Bhavre says.
GE joint ventures the sales of ultrasound machines in the country with Wipro, a large Indian
outsourcing company. Company officials insist they have put safeguards in place and will give up sales
if needed to curtail the practice of aborting female fetuses. According to V. Raja, chief executive of GE
Healthcare South Asia, “We stress emphatically that the machines aren’t to be used for sex
determination. . . . This is not the root cause of female feticide in India.”
Doctors in India paint a different picture. They see GE and other sophisticated marketers of the
machines positioning ultrasound equipment as essential for a healthy pregnancy, although the scans
aren’t often necessary for low-risk mothers. The medical community accuses GE of exploiting a
traditional demand for boys. As scans become more affordable in a growing economy, the social
problem of aborting female fetuses for cultural preferences has become more pronounced. Activists
and prosecutors say GE isn’t doing enough to prevent the unlawful use of the machines. A criminal
case was filed in Hyderabad against the Wipro/GE joint venture and Erbis Engineering Company,
which distributes the machines for Japan’s Toshiba Corp., for supplying machines to unregistered
clinics performing illegal sex-selection scans. The companies respond that the doctors and clinics
should be held responsible, not the manufacturers of the machines, much like drivers of cars who
cause accidents—the car companies aren’t at fault.

An Important Market
Like many multinationals, GE relies on India as a critical market, both for outsourcing to cut costs and
for growth for its heavy equipment and other products. Ultrasound machine sales are not disclosed,
but Wipro’s GE sales in India topped $250 million in 2006, up from $30 million in 1995. The total
market for ultrasound sales in India reached $77 million in 2006, increasing annually by about 10
percent, according to estimates. GE is the clear market leader, but other suppliers include Siemens,
Phillips, and Mindray International Medical, a low-cost Chinese competitor.
India has struggled with a skewed ratio of male-to-female births for a long time. Female infanticide, the
killing of newborn baby girls, continues to plague Indian society. The United Nations Children’s fund
said in a recent report that unless “urgent action is taken,” sex selection as a practice will continue to
increase along with use of ultrasound service. The “alarming decline in the child sex ratio” is likely to
lead to increases in child marriage, trafficking of women for prostitution, and other societal crises, the
report said.
The official Indian census in 2001 showed a steep decline in the relative number of girls aged 0–6 years
from 10 years earlier: 927 girls for every 1,000 boys compared with 945 in 1991. In much of northwest
India, the number of girls fell below 900 for every 1,000 boys. In the northern state of Punjab, the
figure was below 800 for the same time period.

Wider Gap
In 2004, only China today had a wider gender gap, with 832 girls born for every 1,000 boys among
infants aged 0–4 years, according to UNICEF. China’s sales of GE ultrasound machines outpace those
in India by 3-to-1. The Chinese government has promised a better gender balance, including more
tightly regulating ultrasound machines. Observers see China more likely than India to be able to
monitor and enforce its rules than India, given the nature of China’s central-command government
and its past success in controlling its population growth.
Sons, as breadwinners, are seen as better able to take care of aging parents, whose funeral pyres sons
light at death, according to Indian tradition. The National Family Health Survey of India indicated
that 90 percent of parents with two sons did not intend to have any more children. But 38 percent of
families with two daughters wanted to have more children, hoping for sons. The majority of India is
Hindu, which has restrictions on abortions, but women find loopholes.
In the early 1990s, GE jumped out to a lead in ultrasound sales, as it started to make the machines in
India. Wipro’s vast distribution and service network to deliver was a big advantage. It used salespeople
for cheaper machines in remote markets. GE also enlisted the help of banks to facilitate doctors’
financing the purchase of their machines. GE’s 15 models range in price from the high end of
$100,000 to more affordable machines with less sophisticated options at around $7,500
GE boosted sales by pitching machines to rural area doctors, lowering prices by refurbishing used
equipment, and selling laptop machines, targeted to small-town doctors. The company has kept prices
down by refurbishing old equipment and marketed laptop machines to doctors who traveled frequently.
GE also offered discounts to doctors who were fashionably first to adopt and show off their new
technology, a former GE employee reported. Without going into detail, Mr. Raja, the head of GE
Healthcare South Asia, admits the company is “aggressive” in selling machines to doctors and clinics.
However, he maintains that ultrasound machines have important benefits for both mother and baby.
As the machines become more affordable and common, women do not have to travel long hours to
urban areas where the scans will likely cost more, he says.
The government of India has attempted to regulate sales. In 1994 it passed a law to outlaw sex
selection and gave local authorities the right to search clinics and confiscate equipment that had
anything to do with sex selection. Now any clinic with an ultrasound machine must register with the
local government and provide a statement that it won’t aid in sex selection. More than 30,000
ultrasound clinics registered. Many, however, are still unregulated and operate without oversight.
As for GE, it has helped with compliance. It informed its sales reps of the regulation, had customers
also provide affidavits that they wouldn’t use the machines for sex selection, and followed up with
periodic audits. GE executives note that in 2004, the year it began implementing these new measures,
company sales fell about 10 percent from the year before, especially for low-priced black-and-white
ultrasound machines. Only in 2005 did GE return to the sales level it had attained before the
regulations were in place, says Mr. Raja.
Complying with Indian law can be difficult. Sometimes doctors resell the machines to other physicians
who do not register them—GE tracks that. Various Indian states interpret registration regulations
differently. Activists who battle illegal sex-selection abortion have GE constantly under tight scrutiny.

Criminal Case
In 2005, inspectors seized an ultrasound machine sold to a clinic by Wipro, suspecting the machine
was being used for sex selection. The clinic couldn’t produce documentation that it had registered the
machine for the previous two years. Wipro, three doctors, and a technician were charged in a criminal
case. The clinic’s owner admitted the machine wasn’t registered at the time but was used by a “free-
lance” radiologist who had the proper documentation but wasn’t present when the inspection team
arrived. She denied the clinic engages in sex-selection scans.
Other suits have been filed by authorities in Hyderabad, where only 16 percent of clinics could furnish
addresses for its patients, making it nearly impossible to check whether the women had abortions after
their scans. The authorities seized nearly a third of ultrasound machines in the region, and also filed
suit against Erbis, Toshiba’s distributor.
GE maintains that if there’s any suspicion that a machine will be used in a manner contrary to law, it
will not make the sale.
Dr. Manish Gupta says he is offered bribes to disclose the sex of the fetus during an ultrasound scan;
he refuses. However, the certificate of registration of his machine is not in plain sight in his office, in
violation of Indian law. A social activist asked for the registration but was shown an application
instead, which was for a different clinic. “I must have forgotten it at home,” Dr. Gupta said. It is not
clear how Dr. Gupta obtained the GE machine. He said he bought it from a company representative
but could not show documentation of the purchase. GE says it does not disclose details of sales to
individual customers.
The government of the Datia district, like the rest of India, has tried to increase the number of girls.
For poor families with girls, local officials provide housing, school uniforms, and books at no charge.
When girls enter ninth grade, they are given free bicycles by the government. But the ratio of girls to
boys hasn’t increased at all over the space of 10 years.
Mr. Raja, head of GE Healthcare in South Asia, maintains that it’s the responsibility of government,
not companies, to change attitudes about the preference for boys. “What’s really needed is a change in
mindsets. A lot of education has to happen and the government has to do it,” he says. India’s Ministry
of Health, which has charged 422 doctors with using ultrasounds for sex selection, agrees. “Mere
legislation is not enough to deal with this problem,” the ministry said in a press release. “The situation
could change only when the daughters are not treated as a burden and the sons as assets.”

Question
What should GE management do in India about this problem, if anything? In China?
Sources: Peter Wonacott, “Medical Quandry: India’s Skewed Sex Ratio Puts GE Sales in Spotlight,” The Wall Street Journal, April 18, 2007, pp. A1, A8. Licensed from Dow
Jones Reprint Services, Document J000000020070418e34i00032; Paul Glader, “GE Is Latest to Make Handheld Ultrasound,” The Wall Street Journal, February 12, 2010,
online; Suryatapa Bhattacharya, “The Unintended Consequences of a Crackdown on Sex Selection in India, The Wall Street Journal, February 2, 2016.
 Page CS2-28

CASE 2-7 Counterfeit Mobile Phones in

Southeast Asia
Recently, multiple wireless provider stores in several Southeast Asian countries have been fined and
ordered to restock their mobile phones. And why is that? Because in Southeast Asia, counterfeiting of
mobile phones occurs frequently, and often customers are unaware that they are not purchasing “the
real thing.” Of course, plenty of consumers know that they are buying knock-offs. The price is usually
the tip-off. The concern is that, not only does the technical quality suffer, but the phones also may be
unsafe to use.

Jensen Walker/DreamPictures/Blend Images

In fact, multiple sources indicate that the purchase and use of counterfeit phones might be as high as
29 percent in these markets. With the users of cell phones in this area expected to number over 330
million by the end of 2017, companies such as Lorton, a major cell phone provider, have become
increasingly concerned with protecting their technology. The success of their products, to date, has
been based on reliability and ease of use. But currently, the counterfeit products look and feel the same
as Lorton cell phones and seem to exhibit many of the same features.

Cell Phone Usage in Specific Southeast Asian Countries in 2017

Now, Southeast Asian governments are working with international trade associations to investigate the
growth of the counterfeit market. After inspecting the business licenses, authorized permits of brand
use, and the purchasing channels of over 500 stores in four countries, officials noted that many of
them carry imitations of the most popular Lorton brands.

ferrantraite/E+/Getty Images
Counterfeit products are rampant in this part of the world—from watches, clothes, perfumes, and
luxury items to electronics. And while the fake items generally are sold for a fraction of the actual cost
in retail stores, the counterfeit phones are selling for about the same price as the real thing offered in
Lorton stores. This is interesting, given that owning your own intellectual property—at one time—was
considered culturally very bad in a society that promotes sharing and equality.
Yet, despite consumer complaints and recognition of the counterfeit products by local officials, Lorton
has not yet been able to figure out the source of these products. And, as one wireless insider has
suggested, “Perhaps the company isn’t really sure how to handle the situation.”
One intellectual property lawyer commented, “The popularity of the Lorton brand is increasing
exponentially, so perhaps the company is simply taking its time to develop a strategy.” For Lorton to
build up its Southeast Asian market share swiftly before more counterfeiters enter the field, even the
current focus on these counterfeit products could help achieve that objective by gearing up the sales.

Licensed vs. Counterfeit Technology

Licensed Better The Same Counterfeit Better

Technical support 62% 9% 29%
Reliability 42% 19% 39%
Features 31% 38% 31%
1. Percentage of people who believe that licensed products are better than counterfeit products .

2. Population of 1,000 Cell Phone Users

And as the middle class expands in these countries, it is anticipated that rip-offs will Page CS2-29
expand, perhaps even to copying Lorton stores themselves. This speaks to the high demand
for Lorton products throughout this area. So, to find the perfect way to take over this market, Lorton
will have to find the best way to build demand while avoiding too much competition.
Who said that “imitation is the sincerest form of flattery”?

Question
Assume you are the CEO of a new firm that has perfected a package of software applications for
medium- and large-sized companies to help manage intellectual property applications (patents,
trademarks, copyrights). Licenses for companies in the United States have sold briskly, at $2,000 per
company for more than a year. Now you have heard rumors that your software is being pirated in
Southeast Asia. Ironic, isn’t it?
Write a briefing for your board of directors with a specific plan of action to address this leakage of your
intellectual property into the Southeast Asian market.
Source: Rayna Hollander, “Southeast Asia Could Be a Leader in Mobile Internet Usage Next Year,” Business Insider, December 13, 2017, https://www.businessinsider.com.
CASE 2-8 Careem: MENA Ride-Hailing
Leader Strategizes Future Growth as an
Uber Subsidiary
Careem’s employees had reason to celebrate. It was early January 2020, and the Dubai-based ride-
hailing service’s $3.1 billion acquisition by Uber was official. Careem, which operated throughout the
Middle East and North African (MENA) region, would be a wholly owned subsidiary of Uber but
continue doing business under its own brand. The company would have more stability and access to
resources, and its founders would enjoy a considerable payday.
But for Mudassir Sheikha, Careem’s co-founder and chief executive officer, the acquisition made things
complicated. Careem and Uber still needed approval from Morocco, Pakistan, and Qatar to complete
the transition, and obtaining regulatory approval to operate in Egypt, Jordan, and Saudi Arabia had
proven time consuming. Sheikha also had to consider the acquisition’s aftermath. How would the two
company cultures mesh? Would Careem maintain autonomy and true brand independence? Would
Sheikha clash with Uber CEO Dara Khosrowshahi? And how would his Captains, the title Careem
gave its drivers, react to working for an American company?
As he sat in his United Arab Emirates office in Dubai, across the Persian Gulf from Iran, Sheikha had
to decide how to allocate and prioritize Careem’s resources in the short- and long-term. He had two
weeks to make a decision, which he would announce at an all-staff meeting, giving his employees
important direction in the wake of the Uber acquisition.

Careem's Formation and Growth

Sheikha, a Pakistani citizen, met with Magnus Olsen, a Swedish citizen, to discuss business in
2012. Both men worked in the Dubai offices of management consulting firm McKinsey & Company
and the challenges of booking cars for McKinsey’s clients’ short-term use quickly came up in their
conversation. In the MENA region, the ride-hailing system at the time relied on inconsistent service
providers, booked through paper transactions and cash payments. The drivers’ lack of reliability
reflected poorly on McKinsey because appearances and trust were crucial in client relationships. Also,
the cash payments and paper receipts did not comply with the firm’s 21st-century bookkeeping
standards.
Sheikha and Olsen frequently discussed ideas to add value and create jobs for individuals across the
MENA region. The projects were far-reaching, touching sectors like healthcare and education. A
ridesharing service, while not groundbreaking, was a place to start. Sheikha and Olsen believed they
could offer existing taxi and car service drivers better employment opportunities. Drivers often
complained they had few opportunities for work, which resulted in difficulty feeding their families and
educating their children.
Three months later, on September 3, 2012, Sheikha and Olsen launched a new ride-hailing business
and website, and secured McKinsey as their first client. They named the company Careem, combining
the commonly used English word for automobile with the Arabic word for generous, “kareem.”
Initially, the booking procedure required extensive human interaction. After McKinsey employees
booked cars on the Careem website, Sheikha and Olsen received an e-mail with the details. They then
called and texted a list of 20 previously vetted drivers. Communication between Careem and the
contracted drivers frequently took the form of coded text messages: A for arrived, S for started ride,
and E for ended ride.
In the subsequent weeks and months, McKinsey employees began hiring Careem drivers for
personal use. Sheikha and Olsen soon had more requests than they could handle and their website
booking model was no longer feasible. In February 2013, Careem launched the first version of its
mobile application, which allowed trip booking, navigation, and payment with minimal input.
In September 2013, Careem secured $1.7 million in funding from STC Ventures and in the next few
months expanded into major cities in Saudi Arabia, Lebanon, and Egypt.
Over its eight-year history, Careem had grown from a small ride-hailing service with one client in one
city to a major global business with services spanning ridesharing, courier services, food delivery,
monetary services, and bus, bicycle, and scooter rentals. By 2019, the company directly employed
nearly 2,000 people and provided contract opportunities to one million drivers in 14 MENA countries.

Uber
The world's largest ridesharing platform, Uber began expanding aggressively into the MENA region in
2015. Valued at approximately $82.4 billion and armed with resources dwarfing those of all other
MENA-region ridesharing companies, Uber was Careem’s fiercest competitor. By the end of 2019,
Uber operated in Egypt, Bahrain, Jordan, Lebanon, Qatar, Saudi Arabia, and UAE (see Exhibit 1).

Exhibit 1 Careem and Uber Locations

 Source: Created by the authors based on interviews with Careem employees and www.simplemapper.net.

Careem's Work Culture

Sheikha and Olsen founded Careem with a focus on providing employee solutions tailored to the local
environment, in addition to generating profits. Along with Abdulla Elyas, the Enwani CEO who was
made partner when Careem acquired his food delivery service, Sheikha and Olsen believed deeply in
an employee-first approach, a deviation from typical MENA business practices. The partners' beliefs
were reflected in Careem's mission: “To simplify and improve the lives of people and build a lasting
institution that inspires.”
MENA region countries had long been characterized by high power distance, which meant the
population accepted and expected unequal power distribution. Many businesses in the region used
classic management models with centralized leadership and decision making. Socially, customs
dictated subordinates refer to their superiors using titles like “sir” or “maam.” Careem’s founders took
a different approach, using the adaptive management style made popular by Silicon Valley companies
and removing power distance. For example, Careem eliminated titles and single-user offices. The
company installed long meeting tables with multiple chairs, where all employees sat together to foster
collaboration and accelerate decision making. Careem also allowed country-specific solutions. For
example, it recognized the UAE government wanted to decrease the country’s carbon footprint and
therefore purchased a fleet of electric cars. Additionally, the company expanded its sexual harassment
education program in Egypt due to that country’s high sexual harassment rates.
While Captains were not technically Careem employees, the company recognized they were its most
important source of income. As such, Careem used individual Captains’ earnings and ratings to give
substantial bonuses on major holidays, such as Eid, the annual Muslim celebration after Ramadan.
The company arranged an emergency Captains’ fund to supply interest-free loans covering emergency
setbacks like hospital visits, funerals, or overdue utility bills. Careem also offered its Captains zero-
interest car repair loans in the event of breakdowns or accidents. In addition, the company stayed in
constant contact with its drivers via a service hotline, listening to issues they encountered and
suggestions to improve services.
By most accounts, Uber did not communicate as well as Careem with its MENA-based drivers and
passengers. Uber used e-mail, the same model it employed in the United States. Captains and
passengers using both Uber and Careem said they disliked the approach. They said the lack of direct
access to customer service representatives made them uncomfortable, and expressing grievances via e-
mail did not produce results. In the MENA region, they said, e-mail was used primarily in professional
and academic settings, not in customer service. Customers said they preferred to talk to someone who
spoke their language and could provide personalized solutions. “Whenever something goes wrong, like
the timing or the car’s cleaning or whatever it is, Careem hears me out and never hangs up the phone
without being sure that I’m happy,” one Careem passenger said.

Competition
Careem had two main sources of competition: traditional taxis and other transportation network
companies, primarily Uber and Jeeny (see Exhibit 2). In many MENA countries, the local taxi
services were either government-owned and franchised, or government-licensed.

Exhibit 2 MENA Rideshare Market

 Source: Interviews with Careem employees.

Careem executives knew competing against government-controlled industries differed from

competing with standard market participants like Uber. Especially in the MENA region, government
agencies could alter, create, or redact laws directly affecting Careem’s ability to deploy services.
Furthermore, government ministries relying on income from state-licensed companies actively
protected their interests from private company threats.

Exploring the MENA Region

The MENA region included 19 countries containing approximately 6 percent of the global population
by the end of 2019. It spanned from Morocco in Northwest Africa to Iran in Asia. The region was
characterized by spotty Internet connections but good cell phone service, a lack of official maps, street
names, and addresses, and limited access to traditional financial services. The MENA region’s
population primarily spoke different dialects of Arabic, except in Iran, where Farsi was the official
language, Turkey where Turkish was the official language and Israel, where Hebrew was the official
language. The region shared many conservative cultural traditions, and its people tended to be family
oriented.
Muslims made up 93 percent of the MENA region’s inhabitants at the time of a 2017 survey, and
Islamic social tenets were widespread. For example, Fridays drew many people to mosques for prayer.
However, MENA countries differed on certain religious practices. Some countries, such as Egypt,
Qatar, and UAE, had invested heavily in entertainment (e.g., jazz clubs, restaurants, and night clubs)
to attract tourists. UAE, Dubai, and Abu Dhabi permitted alcohol in their world class nightclubs,
restaurants, and hotels. Saudi Arabia permitted no alcohol consumption and was one of the most
socially restrictive countries in the world. However, to decrease oil dependency and diversify the
economy through tourism, the crown prince Mohammed Bin Salman changed Saudi law in June 2017
to allow concerts and music festivals.

Regional Challenges
Job Title
One of the first dilemmas Careem encountered was the title to give its drivers. Wealthy MENA
families often employed private chauffeurs, commonly referred to as drivers. The families typically
recruited the chauffeurs from a pool of Southeast Asian workers, many of whom were employed in
other working-class jobs like construction and janitorial services. Thus, the term “driver” connoted an
undesirable position and servitude. Many MENA citizens had adopted the English word “captain” into
their regional dialects, as the Arabic word meaning the same, kubtan, was archaic and not widely used.
The term, however, granted authority and was associated with reputable positions like airline pilots
and ship captains. Therefore, Careem began to refer to its contract drivers as Captains.

Religious Holidays
Islamic events and holidays were widely observed in the MENA region at the time of Careem’s
acquisition. During the holy month of Ramadan, Muslims refrained from eating, drinking, smoking,
and carnal activities from sunrise to sunset to experience sacrifice and increase their appreciation of
possessions and life. Companies and government agencies decreased work hours so employees could
be with their families. Establishments like restaurants and coffee shops opened after sunset and stayed
open until sunrise. As a result, ride requests significantly decreased during daylight hours.
Careem therefore introduced a promotion, “Build Connects,” during Ramadan. Muslims were
encouraged to donate to charity during the month, so the company offered Careem Rewards for each
ride taken during Ramadan. Customers could redeem the rewards for charitable donations. For
example, passengers could use their rewards, through the company, to feed a child for a day, purchase
school supplies, or sponsor an orphan. Careem matched the rewards and reimbursed Captains who
picked up and delivered donated items to local food drives or women's shelters.

Gender
By 2020, women in the MENA region still faced many cultural, religious, and regulatory barriers in
society and the workplace. For example, MENA society had long expected women to shoulder the
majority of childrearing and housework but they did not have the same rights as men in terms of
travel, marriage, divorce, and professional pursuits. Until June 23, 2018, Saudi Arabia was the only
country in the world banning female drivers. In UAE, however, women had the same constitutional
rights as men in terms of access to education, healthcare, work, and social benefits.
As of 2019, Careem had more than one million Captains; however, less than 1% were female (see
Exhibit 3). The company had targeted 20,000 Captinahs—a concatenation of the English word
“captain” and Arabic female suffix “ah”—by the end of 2020.

Exhibit 3 Careem Captains by Country and Year (less than 1

percent female)
 Source: Created by the authors based on interviews with Careem employees.

To attract more female drivers, Careem added a “female lens” feature to its app. The lens allowed
Captinahs to accept ride requests only from female passengers and ignore requests from high crime
areas. Captinahs also were given instant priority access to Careem’s 24-hour emergency call
center. The company began promoting its efforts through a #shedriveschange campaign, but it was
legislative changes that proved critical for growing the Captinah ranks—2,000 women joined the
company when Saudi Arabia lifted its female driving ban.
MENA women faced issues outside the workplace, as well. A female’s reputation was considered
sacred in the region; thus, women often either felt or were made to feel uncomfortable in social
situations. For example, entering or leaving a stranger’s car in public could harm a woman’s
reputation. Females rarely initiated conversations and/or physical contact with male strangers in
public, which affected their role as either Captinahs or passengers (see Exhibit 4).

Exhibit 4 Careem Passenger Gender Percentage

Country Female Male

Bahrain 62% 38%
Egypt 73% 27%
 Country Female Male
Iraq 71% 29%
Jordan 66% 34%
Kuwait 64% 36%
Lebanon 55% 45%
Oman 59% 41%
Palestinian Territories 57% 43%
Qatar 63% 37%
Saudi Arabia 78% 22%
UAE 54% 46%
Source: Created by the authors based on interviews with Careem employees.

Female passengers in UAE and Egypt said in interviews they felt “extremely safe and comfortable in
Careem cars, even more so than Uber.” A female passenger in Saudi Arabia lauded Careem’s customer
service, app features, and safety. “[Careem is] so much better than the random unsafe taxis on the
street.”
The company conducted detailed background checks on all Captains and required them to place
decals on their cars to identify them. Captains received extensive training on interacting with women.
The Careem app reinforced the training by reminding Captains not to initiate small talk when picking
up female passengers. The app also masked passenger and driver phone numbers and required
Captains’ cars to be equipped with rear-view cameras to minimize eye contact with female passengers
via rear-view mirrors.

Payment
The MENA region was the least banked in the world as of late 2019, and Careem customers greatly
preferred cash over debit or credit cards in most countries (see Exhibit 5). The practice stemmed
from lack of bank access, trust in the banking system, and financial service knowledge. Many Muslims
believed Islam forbade interest on financial instruments such as loans and deposits. Most MENA
consumers used “cash on delivery” when ordering products online, from small everyday items to
expensive electronics. Consumers felt it gave them a chance to inspect the item they ordered before
paying, as well as the opportunity to return it right away, if necessary.

Exhibit 5 Transaction Types Handled by Careem

Country Credit Card Debit Card Cash

Bahrain 28% 33% 39%
Egypt 1% 2% 97%
Iraq 1% 1% 98%
Jordan 4% 46% 50%
Kuwait 16% 41% 43%
 Country Credit Card Debit Card Cash
Lebanon 4% 28% 68%
Morocco 6% 21% 73%
Oman 8% 36% 56%
Palestinian Territories 1% 1% 98%
Qatar 23% 28% 49%
Saudi Arabia 12% 54% 34%
UAE 33% 59% 8%
Source: Created by the authors based on interviews with Careem employees.

Careem recognized its customers’ potential payment challenges early and implemented a “pay with
cash" option. Olsen said the company would not have been successful without it.
Although it presented logistical challenges, the system involved contracting with local banks and
financial firms to receive payments on Careem’s behalf. The Careem app calculated how much
Captains owed, based on a per-ride percentage, and then the Captains deposited the money at a
convenient bank location. Sheikha and Olsen at first viewed the solution as inelegant but workable.
They then realized Careem could capitalize on the arrangement, allowing customers to give Captains
cash in excess of their fares, then deposit the balance into an account. The system, which became the
Careem Wallet app, also increased Captains’ social standing, as Careem entrusted them with large
amounts of cash.

Taxi Drivers
Like Uber, Careem faced protests and lawsuits from taxi drivers believing Captains were operating
illegally without proper licenses. In 2017, 42 Egyptian taxi drivers filed a civil lawsuit against Careem
and Uber. Ultimately, the Egyptian government sided with rideshare companies and allowed them to
continue operation. Careem faced similar backlash from taxi drivers when it launched in the
Palestinian Territories in June 2017 and ceased operations just four months after launch. However,
Careem negotiated with the Palestinian Territories Transport Ministry in March 2018 and reached a
deal by agreeing its fares would not be lower than the local taxis’. Additionally, Careem provided
Palestinian taxi drivers access to its platform so they could receive ride requests.

The Acquisition
Uber announced it would acquire Careem for $3.1 billion on March 26, 2019. The payment would
consist of $1.7 billion in convertible notes priced at $55 per share, and $1.4 billion in cash. The deal
was completed on January 2, 2020. Careem and Uber agreed to operate independently from each
other.
Uber and Careem executives believed the decision to maintain two separate brands would be mutually
beneficial. First, competitors would have more difficulty entering a market with two existing brands.
The Uber brand would likely appeal to expatriates and tourists, while locals would be more likely to
use Careem. The two companies would abide by the competition rules created by each country’s
transport ministry, and the acquisition approval stated neither company could increase fares beyond
each country’s annual inflation rate. Internally, Careem and Uber agreed not to solicit each other’s
drivers, nor advertise in a way that harmed the other brand.
Second, Careem would have access to Uber's vast resources while continuing its mission in the MENA
region under its established brand. Third, Uber would have access to Careem’s established
infrastructure to launch new products and services. Fourth, the move appeased governments and
consumers harboring animosity toward Uber, a company some might have seen as imperialistic if it
eliminated the Careem brand. Many MENA consumers felt protective of Careem, and might have
considered boycotting Uber because they attributed the region’s political tension, in part, to American
interference.

Careem's Future
Sheikha wanted Careem to remain focused on its original mission even after the Uber acquisition: to
build a lasting organization improving and simplifying the lives of the company’s employees, Captains,
and customers. He believed Careem could achieve its mission by leveraging its infrastructure across
the MENA region and expanding its services. For example, Careem had recently launched an
affordable small-item delivery service called Careem Box.
Sheikha did not want ridesharing-related activities to constrain Careem. Where most apps served a
single purpose, he envisioned Careem as a superapp, seamlessly meeting customers’ daily financial and
nonfinancial needs. A superapp user might be able to search and pay for products, track their delivery,
and communicate with others about their purchases. Careem planned to increase Careem Wallet’s
utility service, allowing consumers to make purchases online and send money to other users across
countries.
Sheika had a lot to consider and his decisions would affect many stakeholders he cared about. Could
Careem become a superapp? Or, should the company focus on growing its existing business by
negotiating with MENA governments and working with Uber as an ally? How might the new Uber
relationship affect Careem’s existing expansion plans? Would the pressure Uber faced to be profitable
affect Careem’s decisions? Should Careem focus more on MENA-specific challenges, such as Captain
recruitment?
Sheikha knew he had to solidify his vision within weeks, as Careem entered a new stage in its
evolution.

Questions
1. How do you think the UBER brand will help generate new business for Careem, or do you think
that even matters? Why or why not?
2. These two company cultures are different, and customers can feel it. How would you address this
challenge, from a customer-facing point of view?
3. What are the pricing challenges?
4. What are the marketing service delivery issues of operating this business in a culturally
distinct setting? What are those cultural elements that will make marketing and delivering the
service interesting/challenging in this context?
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. ©2020 Christopher Groening and Ahmad Al Asady. This case
was written by Christopher Groening, Associate Professor of Marketing, and Ahmad Al Asady, PhD student, both of Kent State University. The case was prepared as the basis
for class discussion rather than to illustrate either effective or ineffective handling of a situation. The case should not be considered criticism or endorsement and should not be
used as a source of primary data. The opening situation in this case is fictional. A representative of Uber Middle East FZ LLC reviewed and approved the case before
publication.
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Uber and Careem to Continue Operations,” Reuters, April 7, 2018, https://www.reuters. com/article/us-egypt-uber/egyptian-court-allows-uber-and-careem-to-continue-operations-
idUSKBN1HE0MX, accessed January 28, 2020; “Careem Re-Enters Ramallah, Brings Local Taxis onto the Platform,” Albawaba, April 11, 2018, https://www.albawaba.com/
business/pr/careem-re-enters-ramallah-bring-local-taxis-platform-1115580, accessed January 20, 2020; Michelle Evans, “Careem Shares Plans to Become the Super App of the
Middle East,” Forbes, March 11, 2019, https://www.forbes.com/sites/michelleevans1/2019/03/11/careem-shares-plans-to-become-super-app-of-the-middle-east/#4f0dffbb5d02,
accessed January 29, 2020.
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Cases 3
ASSESSING GLOBAL MARKET OPPORTUNITIES

TonyV3112/Shutterstock

OUTLINE OF CASES

3-1 International Marketing Research at the Mayo Clinic

3-2 Swifter, Higher, Stronger, Dearer
3-3 Marketing to the Bottom of the Pyramid
3-4 Continued Growth for Zara and Inditex
3-5 Club Med and the International Consumer
3-6 Gillette: The 11-Cent Razor, India, and Reverse Innovation
3-7 Amazon in Emerging Markets
 Page CS3-2

CASE 3-1 International Marketing Research

at the Mayo Clinic
The Mayo Clinic, known for treating international leaders, recently saw the president of a central
Africa country in its halls. Teodoro Obiang Nguema Mbasogo, the president of the Republic of
Equatorial Guinea, was in Rochester, Minnesota, for a checkup, clinic officials confirmed. Security
officers and limousines—not an uncommon sight in Rochester—signaled his visit.
Nguema Mbasogo assumed the leadership of his country with a coup that overthrew his uncle. His
country recently began working with the U.S. Agency for International Development, under the
leadership of a dean of the University of Minnesota’s Hubert H. Humphrey Institute of Public Affairs,
to improve Equatorial Guinea’s social services. Dean J. Brian Atwood of the institute is overseeing this
effort. He went to Equatorial Guinea in June, and a second meeting is scheduled for this month.
The Mayo Clinic has a long international history, providing care to international patients since its
inception. Despite its history and reputation, however, the marketing staff continues to monitor the
international market to gauge the level of awareness, reputation, and attractiveness of the Mayo Clinic
around the world. This institution has used word-of-mouth marketing to maintain its global reputation.
Marketing, as most formally defined, historically was not a critical factor in delivering patients to Mayo
Clinic. Indeed, the marketing department at Mayo Clinic has existed for only the past 20 years, and
patients have been coming for care for more than a century. The Clinic believes that the marketing
department provides valuable information to physicians and their support staff—information that helps
them deliver better care, highlights their patients’ wants and needs, and educates them as to what’s
going on in the marketplace.
In reality, however, it’s the providers themselves—the doctors, nurses, receptionists, and all the rest of
the allied health staff—who bring in business by creating positive experiences for patients. Patients who
leave Mayo Clinic highly satisfied with their care will return to their communities in the United States
and elsewhere and say good things to their family and friends. And these family members and friends
in turn travel to Mayo Clinic when they need tertiary or quaternary medical care. Although the
marketing division strives to provide excellent internal support, it is the doctors and other care
providers who have created and maintained a brand of healthcare excellence.
Despite the hype surrounding what has been presented as the highly lucrative international
marketplace, “international” is not something new at Mayo Clinic. Experience and research indicate
that “international” is a part of who the Clinic is, as well as how the market defines it. Nearly 100 years
ago, the founders, a family of physicians named “Mayo,” created an international legacy by traveling
around the world to compare notes and surgical approaches with physicians across the globe. In some
cases, they even returned with international patients who were in need of additional expertise. As in so
many other areas of medical practice, the current Mayo Clinic continues in these traditions.
In recent years, however, it has begun to study the international patient population in particular and
the international marketplace in general. These studies fall into a few categories and grow in number in
proportion to the organization’s understanding (or perhaps greater understanding of how much it does
not know) of the international marketplace.
First, the Mayo Clinic tracks international patient trends rather carefully, which seems like an obvious
place to start. But as in most data tracking, the value of the concept is significantly more
straightforward than the logistics of acquiring consistently reliable data. Internal data systems must be
coordinated—a significant undertaking for any institution, and particularly hard when dealing with a
large and complicated infrastructure. To give a simple example, data fields must be made uniform—not
just on one data system, but on all of them. Rather than a free-text field, for example, that allows a
registrant to enter Venzuela, or Venosuela, or Vensuala, or maybe even Venezuela, the Mayo Clinic
pushes for a predefined field that provides standardized information.
The Clinic monitors international data by the quarter, carefully watching trends over time by country
or region, tracking significant changes in volume, hospitalization rates, and percentage of new patients
out of any given market. For example, it knows it has between 9,000 and 10,000 patients, depending
on the year, from more than 160 different countries annually. Some are third-generation patients—
maybe their grandfather was cured there in the 1930s—and others are brand new. Some are neighbors
from Ontario or Monterrey; others come all the way from Indonesia. Some markets are significantly
less predictable than others, and some countries deliver more “new” patients than others. The Mayo
Clinic probes further to figure out why.
Second, it conducts research with internal salespeople—the physicians and their support staff who
deliver care to international patients. Through carefully moderated focus groups, the Clinic identifies
the things that are going smoothly, as well as the barriers to providing excellent care. And where
appropriate, it makes recommendations for change.
Third, just as with U.S.-based patients, the healthcare institute conducts both quantitative and
qualitative research in the international marketplace, including research with patients, international
physicians, and international healthcare consumers, designed to help it understand why people choose
to leave their own communities for healthcare, why some of them come to Mayo Clinic, and why
others do not. It works hard to understand how healthcare decisions are made so it can better assist
decision makers, physicians, and their staff in providing care. The Clinic positions itself to offer
counsel on where to best expend valuable institutional resources, both human and financial.
Page CS3-3

Global Market Research

The marketing department conducts periodic and ongoing patient satisfaction studies with
international patients, measuring their assessment of various aspects of the care provided. To date, the
Mayo Clinic has surveyed nearly 1,500 patients in 20 countries, in four different languages. As any
market researcher knows, sound patient satisfaction research requires great attention to detail to
ensure reliable data. Not surprisingly, international data collection offers significant additional
challenges. For example, according to the Mayo Clinic:
The quality of our own data. The name and address fields designed for clean U.S. addresses often are not sufficient to
hold reliable international detail. If we want to do it right, we must manually “clean” thousands of patient records
before fielding our studies.
 Varying quality of international postal and telecommunications infrastructure. This variance can create significant
problems for either phone or mail surveys; consequently, international studies take a lot more time than U.S.-based
studies and require much more patience.
Cultural dynamics. In some countries, individuals may be suspicious of an international call; in others, they may spend
a lot of time outside of their homes. In still others, a nonfamily “gatekeeper” must be diplomatically convinced to
transfer the call to the targeted respondents. These cultural dynamics pose further delays and require special
sensitivities.
High standards for quality. Our own standards for quality compel us to maintain high quality language- and culture-
specific fielding of our various research projects. These studies, whether managed internally or through an external
vendor, require more oversight than we are accustomed to with U.S.-based research.

Despite these challenges, however, this international research has taught the Mayo Clinic a lot.
International patient satisfaction studies demonstrate that the key driver of patients’ satisfaction seems
to hold across borders. This is excellent care—manifested by listening, explaining, and thoroughness on
the part of Mayo Clinic physicians. Other factors in the healthcare experience are important—for
example, quality of language interpretation and waiting times—but they do not consistently correlate
with overall satisfaction.
The power of word-of-mouth is also confirmed in the international marketplace. Most international
patients indicate that friends or relatives provided their most important influence in choosing Mayo
Clinic. This finding reinforces the most powerful marketing “tool”—satisfied patients who say good
things about Mayo Clinic and influence others’ healthcare decisions. Exhibit 1 indicates the factors
influencing choice of Mayo Clinic by patients from Latin America and the Middle East.

Exhibit 1 Which Was Most Important in Your Decision to Choose

Mayo Clinic?

International Patient Satisfaction

N = 331 Middle Eastern patients; 755 Latin American patients.

Formal focus groups with international patients and nonpatients in six cities around the world
attempted to learn more about how those populations make healthcare decisions, and whether the
process is the same or different from U.S. healthcare consumers. As it turns out, for most aspects of
decision making, the process is very similar to that of U.S. consumers. However, for a few others, the
process is quite different.
The areas with the most differences across borders relate to the role of health insurance. Three co-
sponsored international research projects have provided some good lessons and demonstrated that
international healthcare insurance is as different from that in the United States as it is across countries
and regions. Furthermore, many assumptions taken for granted in the U.S. market—for example, name
recognition—simply do not hold in certain international markets. Exhibit 2 is a graph of responses
from a satisfaction study of patients from Latin America and the Middle East, showing the different
history of Mayo Clinic brand awareness in those regions

Exhibit 2 How Long Ago Did You First Hear of Mayo Clinic?

International Patient Satisfaction

N = 331 Middle Eastern patients; 755 Latin American patients.

Mayo Clinic awareness among patients was much more recent in the Middle East than in Latin
America. Other studies, however, showed that awareness among nonpatients—even those who have
purchased health insurance policies that offer them Mayo Clinic care as a benefit—is not as strong.
The international healthcare insurance market is expanding rapidly, and many providers Page CS3-4

view this expansion as a significant opportunity to glean additional patients from outside the United
States. Commercial and noncommercial contracts comprise a significant body of business in U.S.
healthcare. If this business could be expanded to provide patients from markets outside the United
States, all the better. However, healthcare systems vary significantly from country to country, and the
knowledge and use of health insurance vary even more. To study these differences in detail, the Mayo
Clinic cosponsored two quantitative studies of healthcare insurance policyholders—in particular,
holders of policies that offer some degree of coverage for care at Mayo Clinic.
The first study consisted of face-to-face interviews with 400 policyholders in a particular country and
delivered a great deal of information regarding policyholders’ preferences, healthcare behavior, and
demographics. In this country, as throughout most of the world, the public healthcare system exists as
a universal “safety net” for all citizens. Even in markets where the private insurance market has
expanded, the public system continues to offer care for all citizens. Therefore, if a private insurance
policy does not offer adequate coverage, especially for high-cost procedures, the public system is used
to reduce the consumer’s financial burden.
The private policy might cover, for example, access to primary and secondary care at private rather
than public clinics as well as the price of a private room, or the option of receiving care at a more
upscale facility. But for high-cost, life-threatening procedures, the co-pay or deductible for having these
procedures conducted exclusively in the private sector remains significant. The end result, of course, is
that the lower-cost procedures are transferred to the private system, while the higher-cost procedures
remain in the public safety net. The implication for U.S. tertiary providers is that, while private
insurance might reduce some of the financial risk for traveling out of country for care, in many cases
the risk is not completely eliminated. Therefore, the policies might not deliver the volume of patients
initially anticipated.
Other factors, such as a lack of brand awareness and limited perceived need for U.S. medical care, may
be impediments to attracting patients in the international healthcare insurance market. In the first
study, when the Clinic probed for brand awareness among those 400 consumers who had purchased a
health insurance policy touting Mayo Clinic coverage as a benefit, no unaided recall of that coverage
emerged as a benefit of the policy. (See Exhibit 3.) In an aided list, Mayo Clinic coverage was
ranked as the least important benefit of the policy, on a par with eyeglass coverage at the bottom of the
list.

Exhibit 3 Recall of Plan Benefits (unaided)

N = 400 individuals who had purchased a health insurance policy advertising Mayo Clinic coverage as a benefit.

Furthermore, when asked to name a leading medical center in the United States, most policyholders
(72 percent) did not know a single one. Twenty-five percent named Mayo Clinic, and the other 2
percent named other U.S. medical centers. It was no real surprise that citizens in the studied country
were not familiar with Mayo Clinic. However, the Clinic was surprised that policyholders who had
purchased an insurance product that very publicly advertised the Mayo Clinic benefit were unable to
name Mayo Clinic as a leading U.S. medical center.
As it turned out, many of these policyholders had no intention of leaving their home country for
medical care. They were buying insurance to facilitate care in the more desirable private system.
Furthermore, most felt that the healthcare in their own country was very good and that there would be
little if any reason to ever leave home to obtain care elsewhere. This phenomenon emerges repeatedly
in research with U.S. patients. Most believe in the abilities of their own doctor and feel very confident
about medical care in their own community. Even though “quality” may be regionally or culturally
defined, almost everyone considers his or her doctor to be a good one.
A second cosponsored study consisted of 353 phone interviews with individuals who had Page CS3-5

purchased a healthcare insurance policy specifically for international coverage. Once again, confidence
in local care was very high—in fact, significantly higher than in the country of the first study.
Nonetheless, this group of individuals had purchased a product that offered them coverage for medical
care outside their home country, should they decide it was necessary or appropriate. In this study,
aided brand recognition among policyholders was higher than in the first; when asked directly whether
they had heard of Mayo Clinic, 75 percent responded affirmatively. But when asked unaided to name
the best medical centers in the United States, the vast majority (nearly 70 percent) of policyholders
indicated they did not know. And while the majority had heard of Mayo Clinic, fewer than 10 percent
were aware of any benefit of their health insurance policy that related to Mayo Clinic.
Both of these studies offered substantially more information about the nature of international
insurance agreements, policyholders’ wants and needs, and their disposition toward traveling out of
country for medical care. But they also showed that the knowledge of the Mayo brand is limited
outside the United States and that a high number of policyholders do not necessarily translate into a
high number of patients. This research has taught the Clinic to be more selective, to be cautious in
expending significant resources to pursue insurance arrangements, and to conduct further research to
expand understanding.

The Future
“International” will continue to be part of who the Mayo Clinic is. In 2020, it opened a hospital in
central London, in partnership with Oxford University Clinic, then later that year bought out Oxford’s
share, becoming sole owner of the first overseas Mayo Clinic. Its doctors, hailing from all corners of
the globe, will continue to collaborate with their colleagues around the world. Mayo Clinic researchers
will conduct clinical trials in collaboration with researchers on many continents. Students and
residents will continue to offer rich diversity, as Mayo international alumni now number over 1,500,
representing 67 countries. But most important, Mayo Clinic will strive to provide the best medical care
possible to those patients around the world who need it the most.
To support that mission, members of the “marketing” department will continue to support the medical
staff by studying patients’ wants, needs, preferences, and behavior patterns and learning all that they
can about the ever-changing, rich, and diverse worldwide healthcare market. In the end, outstanding
medical care and sensitive service to patients and families will be the most productive marketing
strategy because it creates positive word-of-mouth about something very important—healthcare. As the
stories of satisfied patients churn—sometimes for decades—in the minds of their friends and family,
Mayo Clinic remains an option if they ever need the care it offers.

Question
Assume you are the new marketing vice president at Mayo Clinic. The CEO and the board have
decided to expand their international sales revenues by 100 percent over the next five years. Write a
memo to your staff outlining the marketing research that will be needed to support such a strategy. Be
specific about sources of secondary data and the best places and media for gathering primary data.
Also, be specific about the best methods to use.
Sources: Misty Hathaway and Kent Seltman, “International Marketing Research at the Mayo Clinic,” Marketing Health Services 21, no. 4 (Winter 2001), pp. 18–23; Jeff Kiger,
“African President Gets Checkup at Mayo Clinic,” Post-Bulletin, September 21, 2007; “Mayo Clinic Builds Center for International Patients,” Post-Bulletin, February 3, 2009;
Alia Paavola, “Mayo Clinic Buys Out Partner, Takes Control of 6-Story London Facility,” Becker Hospital Review, July 23, 2020, online.
 Page CS3-6

CASE 3-2 Swifter, Higher, Stronger, Dearer

Television and sport are perfect partners. Each has made the other richer. But is the alliance really so
good for sport?
Back in 1948, the BBC, Britain’s public broadcasting corporation, took a fateful decision. It paid a
princely £15,000 (£27,000 in today’s money) for the right to telecast the Olympic Games to a domestic
audience. It was the first time a television network had paid the International Olympic Committee
(IOC, the body that runs the Games) for the privilege—but not the last. The rights to the 1996 Summer
Olympics, which opened in Atlanta on July 19, 1996, raised $900 million from broadcasters around
the world. In 2011, NBC agreed to a $4.38 billion contract with the IOC to broadcast the Olympics
through the 2020 games, the most expensive television rights deal in Olympic history. NBC then
agreed to a $7.75 billion contract extension on May 7, 2014, to air the Olympics through the 2032
games (see Exhibit 1).

Exhibit 1 Olympic Broadcast Rights Fees,* $bn (world totals)

 Source: International Olympic Committee.
*Rights for 2000 to 2008 Games. Rights for 2010 and 2012 Games packaged.
†For winter games two years earlier.

Page CS3-7

The Olympics are only one of the sporting properties that have become hugely valuable to
broadcasters. Sport takes up a growing share of screen time (as those who are bored by it know all too
well). When you consider the popularity of the world’s great tournaments, that is hardly surprising.
Sportsfests generate audiences beyond the wildest dreams of television companies for anything else.
According to Nielsen Media Research, the number of Americans watching the Super Bowl, the main
annual football championship, average over 200 million annually. The top eight television programs in
America are all sporting events. Some 3 billion people watched some part of the 2020 (delayed until
2021) Summer Olympic Games in Tokyo—reportedly the most expensive games ever put on. That’s
over half of humankind, although ratings for NBC were down some 42 percent from the 2016 Rio
games, due to COVID-19 complications such as no fans in the stands. Still, an NBC executive said the
games will be “very, very profitable” for the network.
The reason television companies love sport is not merely that billions want to tele-gawk at ever-more-
wonderful sporting feats. Sport also has a special quality that makes it unlike almost any other sort of
television program: immediacy. Miss seeing a particular episode of, say, The Office, and you can always
catch the repeat and enjoy it just as much. Miss seeing your team beat hell out of its biggest rival, and
the replay will leave you cold. “A live sporting event loses almost all its value as the final whistle goes,”
says Steve Barnett, author of a British book on sport. The desire to watch sport when it is happening,
not hours afterward, is universal: A study in South Korea by Spectrum, a British consultancy, found
that live games get 30 percent of the audience, while recordings get less than 5 percent.
This combination of popularity and immediacy has created a symbiotic relationship between sport and
television in which each is changing the other. As Stephen Wenn, of Canada’s Wilfrid Laurier
University, puts it, television and the money it brings have had an enormous impact on the Olympic
Games, including on the timing of events and their location. For instance, an Asian Olympics poses a
problem for American networks: Viewers learn the results on the morning news.
The money that television has brought into professional basketball has put some of the top players
among the world’s highest-paid entertainers: Many are getting multiyear contracts worth over $100
million. Rugby has begun to be reorganized to make it more television friendly; other sports will
follow. And, though soccer and American football draw the largest audiences, television also has
promoted the popularity of sports that stir more local passions: rugby league in Australia, cricket in
India, table tennis in China, snooker in Britain.
What is less often realized is that sport is also changing television. To assuage the hunger for sports,
new channels are being launched at a tremendous pace. In America, ESPN, a cable network owned by
Capital Cities/ABC, started a 24-hour sports news network in 1997; in Britain, BSkyB, a satellite
broadcaster partly owned by Rupert Murdoch, has three sports channels. Because people seem more
willing to pay to watch sport on television than to pay for any other kind of programming, sport has
become an essential part of the business strategy of television empire-builders such as Murdoch.
Nobody in the world understands the use of sports as a bait for viewers better than he.
Going for Gold
To understand how these multiple effects have come about, go back to those vast sums that television
companies are willing to pay. In America, estimates of total spending on sports rights by television
companies is about $20 billion a year. Easily the most valuable rights are for American football. One of
the biggest sporting coups in the United States was the purchase by Fox, owned by Murdoch’s News
Corporation, of the rights to a year of National Football League games for about $4 billion. Rights for
baseball, basketball, and ice hockey are also in the billion-dollar range.
Americans are rare in following four main sports rather than one. America is also uncommon in
having no publicly owned networks. As a result, bidding wars in other countries, though just as fierce
as in America, are different in two ways: They are often fought between public broadcasters and new
upstarts, many of them pay channels, and they are usually about soccer.
Nothing better illustrates the change taking place in the market for soccer rights than the vast deal
struck in 1997 by Kirch, a German group owned by a secretive Bavarian media mogul. The group
spent $2.2 billion for the world’s biggest soccer-broadcasting rights: to show the finals of the World
Cup in 2002 and 2006 outside America. That is over six times more than the amount paid for the
rights to the World Cups of 1990, 1994, and 1998.
Such vast bids gobble up a huge slice of a television company’s budget. In America, reckons London
Economics, a British consultancy, sport accounts for around 15 percent of all television-program
spending. For some television companies, the share is much larger.
The problem is that the value of sport to viewers (“consumer surplus,” as economists would put it) is
much larger than the value of most other sorts of programming. Public broadcasters have no way to
benefit from the extra value that a big sporting event offers viewers. But with subscription television
and with pay TV, where viewers are charged for each event, the television company will directly collect
the value viewers put on being able to watch.
Therefore, many people (especially in Europe) worry that popular sports will increasingly be available
only on subscription television, which could, they fear, erode the popular support upon which public
broadcasters depend. In practice, these worries seem excessive. Although far more sport will be shown
on subscription television, especially outside America’s vast advertising market, the most popular
events are likely to remain freely available for many years to come, for two reasons.
First, those who own the rights to sporting events are rarely just profit maximizers: They also have an
interest in keeping the appeal of their sport as broad as possible. They therefore may refuse to sell to
the highest bidder. For example, the IOC turned down a $2 billion bid from Murdoch’s News
Corporation for the European broadcasting rights to the Olympic Games between 2000 and 2008 in
favor of a lower bid from a group of public broadcasters. Sometimes, as with the sale of World Cup
rights to Kirch, the sellers may stipulate that the games be aired on “free” television.
Second, the economics of televising sport means that the biggest revenues are not necessarily earned
by tying up exclusive rights. Steven Bornstein, the boss of ESPN, argues that exclusive deals to big
events are “not in our long-term commercial interest.” Because showing sport on “free” television
maximizes the audience, some advertisers will be willing to pay a huge premium for the big occasion.
So will sponsors who want their names to be seen emblazoned on players’ shirts or on billboards
around the field.
It is not only a matter of audience size. Sport is also the most efficient way to reach one of the world’s
most desirable audiences from an advertiser’s point of view: young men with cash to spend. Although
the biggest audiences of young men are watching general television, sporting events draw the highest
concentrations. Thus, advertisers of products such as beer, cars, and sports shoes can pay mainly for
the people they most want to attract.
There are other ways in which sport can be indirectly useful to the networks. A slot in a summer game
is a wonderful opportunity to promote a coming autumn show. A popular game wipes out the audience
share of the competition. And owning the rights to an event allows a network plenty of scope to
entertain corporate grandees who may then become advertisers.
For the moment, though, advertising revenue is the main recompense that television Page CS3-8

companies get for their huge investments in sport. Overall, according to Broadcasting & Cable, a trade
magazine, sport generates 10 percent of total television advertising revenues in America. The biggest
purchasers of sports rights by far in America are the national networks. NBC alone holds more big
sports rights than any other body has held in the history of television. It can obviously recoup some of
the bill by selling advertising: For a 30-second slot during the Super Bowl, by most estimates, networks
are now asking and getting around $5 million.
Such deals, however, usually benefit the networks indirectly rather than directly. The Super Bowl is a
rarity: It has usually made a profit for the network that airs it. “Apart from the Super Bowl, the World
Series and probably the current Olympics, the big sports don’t usually make money for the networks,”
says Arthur Gruen of Wilkowsky Gruen, a media consultancy. “But they are a boon for their affiliate
stations, which can sell their advertising slots for two or three times as much as other slots.” Although
Fox lost money on its NFL purchase, it won the loyalty of affiliate stations (especially important for a
new network) and made a splash.
Almost everywhere else, the biggest growth in revenues from showing sports will increasingly come
from subscriptions or pay-per-view arrangements. The versatility and huge capacity of digital
broadcasting make it possible to give subscribers all sorts of new and lucrative services.
In America, DirectTV and other digital satellite broadcasters have been tempting subscribers with
packages of sporting events from distant parts of the country. “They have been creating season tickets
for all the main events, costing $100–150 per season per sport,” says John Mansell, a senior analyst
with Paul Kagan, a California consultancy. In Germany, DF1, a satellite company jointly owned by
Kirch and BSkyB, has the rights to show Formula One motor racing. It allows viewers to choose to
follow particular teams, so that Ferrari fanatics can follow their drivers, and to select different camera
angles.
In Italy, Telepiu, which launched digital satellite television in 1997, offers viewers a package in
September that allows them to buy a season ticket to live matches played by one or more teams in the
top Italian soccer leagues. The system’s “electronic turnstile” is so sophisticated that it can shut off
reception for subscribers living in the catchment area for a home game, to assuage clubs’ worries that
they will lose revenue from supporters at the gate. In fact, top Italian clubs usually have to lock out
their fanatical subscribers to avoid overcapacity.
Most skillful of all at using sports rights to generate subscription revenue is BSkyB. It signed an
exclusive contract with the English Premier League that has been the foundation of its success. Some
of those who know BSkyB well argue that £5 billion of the business’s remarkable capital value of £8
billion is attributable to the profitability of its soccer rights.

Winner Take All

Just as the purchase of sporting rights enriches television companies, so their sale has transformed the
finances of the sports lucky enough to be popular with viewers. On the whole, the biggest beneficiaries
have not been the clubs and bodies that run sports, but the players. In the same way as rising revenues
from films are promptly dissipated in vast salaries to stars in Hollywood, so in sport the money coming
in from television soon flows out in heftier payments to players.
In America, the market for sportsmen is well developed and the cost of players tends to rise with the
total revenues of the main sporting organizations. Elsewhere, the market is newer and so a bigger slice
of the revenues tends to stick to the television companies. “The big difference between sports and
movies is the operating margins,” says Chris Akers, chairman of Caspian, a British media group, and
an old hand at rights negotiations. “Hollywood majors have per-subscriber deals. No sports federation
has yet done such a deal.”
Guided by the likes of Akers, they soon will. Telepiu’s latest three-year soccer contract gives the
television firm enough revenue to cover its basic costs, guarantees the soccer league a minimum sum,
and then splits the takings down the middle. In Britain, BSkyB is locked in dispute with the Premier
League over the terms of the second half of its rights deal: Should the league then be able to opt for
half the revenue from each subscriber on top of or instead of a fixed hunk of net profits?
The logical next step would be for some clubs or leagues to set up their own pay-television systems,
distributing their games directly by satellite or cable. A few people in British soccer are starting to look
with interest at America’s local sports networks, such as the successful Madison Square Garden cable
network, and to wonder whether Europe might move the same way.
If it does, not all teams will benefit equally. In America, football has an elaborate scheme to spread
revenues from national television across teams. But in other sports, including baseball, the wealth and
size of a team’s local market mean large differences in rights from local television. The New York
Yankees now make more than $50 million a year from local television rights. At the other end of the
scale, the Milwaukee Brewers make $6 million to $7 million a year.
Not all players benefit equally, either. Television has brought to sport the “winner-take-all”
phenomenon. It does not cost substantially more to stage a televised championship game than a run-of-
the-week, untelevised match. But the size of the audience, and therefore the revenue generated, may be
hugely different. As a result, players good enough to be in the top games will earn vastly more than
those slightly less good, who play to smaller crowds.

The Referee’s Whistle

The lure of money is already altering sport and will change it more. Increasingly, games will be
reorganized to turn them into better television. British rugby-union officials are squabbling over the
spoils from television rights. Professional rugby, whose audiences had been dwindling, won a contract
worth £87 million over five years from BSkyB in exchange for switching its games from winter to
summer. Purists were aghast.
Other reorganizations for the benefit of television will surely come. Murdoch wants to build a rugby
superleague, allowing the best teams around the world to play each other. A European superleague for
soccer is possible. “At the moment, Manchester United plays AC Milan every 25 years: it’s a joke,”
complains one enthusiast.
Sports traditionalists resist changing their ways for the likes of Murdoch. So far, the big sporting
bodies have generally held out against selling exclusive pay-television rights to their crown jewels, and
have sometimes deliberately favored public broadcasters. Regulators have helped them, intervening in
some countries to limit exclusive deals with pay-television groups. Britain passed a law to stop
subscription channels tying up exclusive rights to some big events, such as the Wimbledon tennis
championship. In Australia, a court threw out News Corporation’s attempt to build a rugby
superleague as the lynchpin of its pay-television strategy.
The real monopolists are not the media companies, however, but the teams. Television Page CS3-9

companies can play off seven or eight Hollywood studios against each other. But most countries have
only one national soccer league, and a public that loves soccer above all other sports. In the long run,
the players and clubs hold most of the cards. The television companies are more likely to be their
servants than their masters.

Questions
1. The following are the prices paid for the American television broadcasting rights of the summer
Olympics since 1980: Moscow—NBC agreed to pay $85 million; 1984 in Los Angeles—ABC paid
$225 million; 1988 in Seoul—NBC paid $300 million; 1992 in Barcelona—NBC paid $401 million;
1996 through 2008—NBC paid $3.6 billion; 2010—NBC paid $820 million; 2012 in London—NBC
paid $1.18 billion for its American broadcast rights. NBC has purchased the U.S. broadcast rights to
all the Olympic Games through 2020 for $4.38 billion, then extended through 2032 for $7.75
billion. Assume you have been charged with the responsibility of determining the IOC and local
Olympic Committee’s asking prices for the Paris 2024 television broadcast rights for five different
markets: Japan, China, Australia, the European Union, and Brazil. Determine a price for each, and
justify your decisions.
2. Your instructor may assign you to represent either the IOC or any one of the television networks in
each of the five countries that have been asked to bid for the broadcast rights for the Paris 2024
Games. Prepare to negotiate prices and other organizational details.
3. Assume that peace in the Middle East has been achieved. Yes, it’s a big assumption! Now, prepare a
marketing plan for the Olympic Games in Jerusalem in 2028. See
https://hbr.org/2011/07/bring-the-olympics-to-jerusale for ideas and inspiration. See
www.Olympic.org for additional information, such as the Olympic Marketing Fact File 2021
edition.
Sources: Adapted from The Economist, July 20, 1996, pp. 17–19. Also see Mark Hyman, “The Jets: Worth a Gazillion?,” BusinessWeek, December 6, 1999, pp. 99–100; Mark
Hyman, “Putting the Squeeze on the Media,” BusinessWeek, December 11, 2000, p. 75; Alan Abrahamson, “NBC Wins Rights to 2010, 2012 Olympics,” Los Angeles Times, June
7, 2003, p. C1; Matthew Futterman and Shira Ovide, “Concern about Prices May Delay Bidding for Olympics,” The Wall Street Journal, January 15, 2010; Joe Flint, “NBC
Secures the Olympics through 2020,” Los Angeles Times, June 8, 2011, pp. D1, D16; Richard Sandomir, “NBC Extends Olympic Deal into Unknown,” May 7, 2014,
online; Lillian Rizzo and Suzanne Vranica, “NBC Draws Its Lowest Summer Olympics Ratings Ever for Tokyo Games,” The Wall Street Journal, August 9, 2021, online.
 Page CS3-10

CASE 3-3 Marketing to the Bottom of the

Pyramid
Professor C. K. Prahalad’s seminal publication, The Fortune at the Bottom of the Pyramid, suggests an
enormous market at the “bottom of the pyramid” (BOP)—a group of some 4 billion people who subsist
on less than $2 a day. By some estimates, these “aspirational poor,” who make up three-fourths of the
world’s population, represent $14 trillion in purchasing power, more than Germany, the United
Kingdom, Italy, France, and Japan put together. Demographically, it is young and growing at 6 percent
a year or more.
Traditionally, the poor have not been considered an important market segment. “The poor can’t afford
most products”; “they will not accept new technologies”; and “except for the most basic products, they
have little or no use for most products sold to higher income market segments”—these are some of the
assumptions that have, until recently, caused most multinational firms to pay little or no attention to
those at the bottom of the pyramid. Typical market analysis is limited to urban areas, thereby ignoring
rural villages where, in markets like India, the majority of the population lives. However, as major
markets become more competitive and in some cases saturated—with the resulting ever-thinning profit
margins—marketing to the bottom of the pyramid may have real potential and be worthy of
exploration.
One researcher suggested that American and European businesses should go back and look at their
own roots. Sears, Roebuck was created to serve the lower-income, sparsely settled rural market. Singer
sewing machines fashioned a scheme to make consumption possible by allowing customers to pay $5 a
month instead of $100 at once. The world’s largest company today, Walmart, was created to serve the
lower-income market. Here are a few examples of multinational company efforts to overcome the
challenges in marketing to the BOP.
Designing products for the BOP is not about making cheap stuff but about making technologically
advanced products affordable. For example, one company was inspired to invent the Freeplay, a
windup self-power–generating radio, when it learned that isolated, impoverished people in South
Africa were not getting information about AIDS because they had no electricity for radios and could
not afford replacement batteries.

BOP Marketing Requires Advanced Technology

The BOP market has a need for advanced technology, but to be usable, infrastructure support must
often accompany the technology. For example, ITC, a $2.6 billion a year Indian conglomerate, decided
to create a network of PC kiosks in villages. For years, ITC conducted its business with farmers
through a maze of intermediaries, from brokers to traders. The company wanted farmers to be able to
connect directly to information sources to check ITC’s offer price for produce, as well as prices in the
closest village market, in the state capital, and on the Chicago commodities exchange. With direct
access to information, farmers got the best price for their product, hordes of intermediaries were
bypassed, and ITC gained a direct contact with the farmers, thus improving the efficiency of ITC’s
soybean acquisition. To achieve this goal, it had to do much more than just distribute PCs. It had to
provide equipment for managing power outages, solar panels for extra electricity, and a satellite-based
telephone hookup, and it had to train farmers to use the PCs. Without these steps, the PCs would
never have worked. The complex solution serves ITC very well. Now more than 10,000 villages and
more than 1 million farmers are covered by its system. ITC is able to pay more to farmers and at the
same time cut its costs because it has dramatically reduced the inefficiencies in logistics.
The vast market for cell phones among those at the BOP is not for phones costing $200 or even $100
but for phones costing less than $50. Such a phone cannot simply be a cut-down version of an existing
handset. It must be very reliable and have lots of battery capacity, as it will be used by people who do
not have reliable access to electricity. Motorola went thorough four redesigns to develop a low-cost cell
phone with battery life as long as 500 hours for villagers without regular electricity and an extra-loud
volume for use in noisy markets. Motorola’s low-cost phone, a no-frills cell phone priced at $40, has a
standby time of two weeks and conforms to local languages and customs.

BOP Marketing Requires Creative Financing

There is also demand for personal computers but, again, at very low prices. To meet the needs of this
market, Advanced Micro Devices markets a $185 Personal Internet communicator—a basic computer
for developing countries—and a Taiwan company offers a similar device costing just $100.
For most products, demand is contingent on the customer having sufficient purchasing power.
Companies have to devise creative ways to assist those at the BOP to finance larger purchases. For
example, Cemex, the world’s third-largest cement company, recognized an opportunity for profit by
enabling lower-income Mexicans to build their own homes. The company’s Patrimonio Hoy Programme,
a combination builder’s “club” and financing plan that targets homeowners who make less than $5 a
day, markets building kits using its premium-grade cement. It recruited 510 promoters to persuade new
customers to commit to building additions to their homes. The customers paid Cemex $11.50 a week
and received building materials every 10 weeks until the room was finished (about 70 weeks—
customers were on their own for the actual building). Although poor, 99.6 percent of the 150,000
Patrimonio Hoy participants have paid their bills in full. Patrimonio Hoy attracted 42,000 new
customers and is expected to turn a $1.5 million profit next year.
One customer, Diega Chavero, thought the scheme was a scam when she first heard of it, but after
eight years of being unable to save enough to expand the one-room home where her family of six lived,
she was willing to try anything. Four years later, she has five bedrooms. “Now I have a palace.”
Another deterrent to the development of small enterprises at the BOP is available sources of adequate
financing for microdistributors and budding entrepreneurs. For years, those at the bottom of the
pyramid needing loans in India had to depend on local moneylenders, at interest rates up to 500
percent a year. ICICI Bank, the second-largest banking institution in India, saw these people as a
potential market and critical to its future. To convert them into customers in a cost-effective way,
ICICI turned to village self-help groups.
ICICI Bank met with microfinance-aid groups working with the poor and decided to give Page CS3-11

them capital to start making small loans to the poor—at rates that run from 10 percent to 30 percent.
This sounds usurious, but it is lower than the 10 percent daily rate that some Indian loan sharks
charge. Each group was composed of 20 women who were taught about saving, borrowing, investing,
and so on. Each woman contributes to a joint savings account with the other members, and based on
the self-help group’s track record of savings, the bank then lends money to the group, which in turn
lends money to its individual members. ICICI has developed 10,000 of these groups, reaching 200,000
women. ICICI’s money has helped 1 million households get loans that average $120 to $140. The
bank’s executive directory says the venture has been “very profitable.” ICICI is working with local
communities and NGOs to enlarge its reach.

BOP Marketing Requires Effective Distribution

When Unilever saw that dozens of agencies were lending microcredit loan funds to poor women all
over India, it thought that these would-be microentrepreneurs needed businesses to run. Unilever
realized it could not sell to the bottom of the pyramid unless it found low-cost ways to distribute its
product, so it created a network of hundreds of thousands of Shakti Amma (“empowered mothers”)
who sell Lever’s products in their villages through an Indian version of Tupperware parties. Start-up
loans enabled the women to buy stocks of goods to sell to local villagers. In one case, a woman who
received a small loan was able to repay her start-up loan and has not needed to take another one. She
now sells regularly to about 50 homes and even serves as a miniwholesaler, stocking tiny shops in
outlying villages a short bus ride from her own. She sells about 10,000 rupees ($230) of goods each
month, keeps about $26 profit, and ploughs the rest back into new stock. While the $26 a month she
earns is less than the average $40 monthly income in the area, she now has income, whereas before
she had nothing.
Today about 1,300 poor women are selling Unilever’s products in 50,000 villages in 12 states in India
and account for about 15 percent of the company’s rural sales in those states. Overall, rural markets
account for about 30 percent of the company’s revenue.
In another example, Nguyen Van Hon operates a floating sundries distributorship along the Ke Sat
River in Vietnam’s Mekong Delta—a maze of rivers and canals dotted with villages.
His boat is filled with boxes containing small bars of Lifebuoy soap and single-use sachets of Sunsilk shampoo and
Omo laundry detergent, which he sells to riverside shopkeepers for as little as 2.5 cents each. At his first stop he makes
deliveries to a half dozen small shops. He sells hundreds of thousands of soap and shampoo packets a month, enough
to earn about $125—five times his previous monthly salary as a junior Communist party official. “It’s a hard life, but it’s
getting better.” Now, he “has enough to pay his daughter’s schools fees and soon … will have saved enough to buy a
bigger boat, so I can sell to more villages.” Because of aggressive efforts to reach remote parts of the country through
an extensive network of more than 100,000 independent sales representatives such as Hon, the Vietnam subsidiary of
Unilever realized a 23 percent increase in sales last year to more than $300 million.

BOP Marketing Requires Affordable Packaging

As one observer noted, “the poor cannot be Walmartized.” Consumers in rich nations use money to
stockpile convenience. We go to Sam’s Club, Costco, Kmart, and so on, to get bargain prices and the
convenience of buying shampoos and paper towels by the case. Selling to the poor requires just the
opposite approach. They do not have the cash to stockpile convenience, and they do not mind frequent
trips to the village store. Products have to be made available locally and in affordable units; fully 60
percent of the value of all shampoo sold in India is in single-serve packets.
Nestlé is targeting China with a blitz of 29 new ice cream brands, many selling for as little as 12 cents
with take-home and multipack products ranging from 72 cents to $2.30. It also features products
specially designed for local tastes and preferences of Chinese consumers, such as Nestlé Snow Moji, a
rice pastry filled with vanilla ice cream that resembles dim sum, and other ice cream flavors like red
bean and green tea. The ice cream products are distributed through a group of small independent
saleswomen, which the company aims to expand to 4,000 women soon. The project is expected to
account for as much as 24 percent of the company’s total rural sales within the next few years.

BOP Marketing Creates Health Benefits

Albeit a promotion to sell products, marketing to BOP does help improve personal hygiene. The World
Health Organization (WHO) estimates that diarrhea-related diseases kill 1.8 million people a year and
noted that better hand-washing habits—using soap—is one way to prevent their spread. In response to
WHO urging, Hindustan Lever Company introduced a campaign called “Swasthya Chetna” or
“Glowing Health,” which argues that even clean-looking hands may carry dangerous germs, so use
more soap. It began a concentrated effort to take this message into the tens of thousands of villages
where the rural poor reside, often with little access to media.
“Lifebuoy teams visit each village several times,” using a “Glo Germ” kit to show schoolchildren that
soap-washed hands are cleaner. This program has reached “around 80 million rural folk,” and sales of
Lifebuoy in small affordable sizes have risen sharply. The small bar has become the brand’s top seller.

Update
BOP marketing has undergone a reality check and a shot in the arm recently. On the one hand, many
companies have discovered that low-price, low-margin, high-volume sales are difficult when
infrastructure and product knowledge are lacking. Scaling a marketing effort in villages is hard, and
high-touch sales are expensive. On the other hand, the sheer size of the opportunity continues to be
attractive. Millions of consumers are no longer bound in hopelessness. If companies can localize and
bundle base products, offer an enabling service, and form peer groups to support usage, success is
possible. For example, multitudes in rural Ghana are threatened by malaria. S.C. Johnson introduced a
homemaker’s club, providing gift baskets of malaria-reducing products, such as mosquito abatement.
Members take part in coaching sessions that are fun and interactive, including dancing. Some products
come with refillable containers of home-cleaning products, for example. Early indicators pace sales
ahead of projections in Ghana.
Page CS3-12

Questions
1. As a junior member of your company’s committee to explore new markets, you have received a
memo from the chairperson telling you to be prepared at the next meeting to discuss key questions
 that need to be addressed if the company decides to look further into the possibility of marketing to
the BOP segment. The ultimate goal of this meeting will be to establish a set of general guidelines to
use in developing a market strategy for any one of the company’s products to be marketed to the
“aspirational poor.” These guidelines need not be company or product specific at this time. In fact,
think of the final guideline as a checklist—a series of questions that a company could use as a start in
evaluating the potential of a specific BOP market segment for one of its products.
2. Marketing to the BOP raises a number of issues revolving around the social responsibility of
marketing efforts. Write a position paper either pro or con on one of the following:
a. Is it exploitation for a company to profit from selling soaps, shampoo, personal computers, and
ice cream, and so on, to people with little disposable income?
b. Can making loans to customers whose income is less than $100 monthly at interest rates of 20
percent to purchase TVs, cell phones, and other consumer durables be justified?
c. One authority argues that squeezing profits from people with little disposable income—and often
not enough to eat—is not capitalist exploitation but rather that it stimulates economic growth.
Sources: C. K. Prahalad, The Fortune at the Bottom of the Pyramid (Philadelphia: Wharton School Publishing, 2004); Stefan Stern, “How Serving the Poorest Can Bring Rich
Rewards,” Management Today, August 2004; Kay Johnson and Xa Nhon, “Selling to the Poor: There Is a Surprisingly Lucrative Market in Targeting Low-Income Consumers,”
Time, April 25, 2005; Cris Prystay, “India’s Small Loans Yield Big Markets,” Asian Wall Street Journal, May 25, 2005; C. K. Prahalad, “Why Selling to the Poor Makes for Good
Business,” Fortune, November 15, 2004; Alison Maitland, “A New Frontier in Responsibility,” Financial Times, November 29, 2004; Normandy Madden, “Nestle Hits Mainland
with Cheap Ice Cream,” Advertising Age, March 7, 2005; Ritesh Gupta, “Rural Consumers Get Closer to Established World Brands,” Ad Age Global, June 2002; Alison Overholt,
“A New Path to Profit,” Fast Company, January 1, 2005; Patrick Whitney, “Designing for the Base of the Pyramid,” Design Management Review, Fall 2004; C. K. Prahalad and
Stuart Hart, “Fortune at the Bottom of the Pyramid,” Strategy & Business 26 (2002); C. K. Prahalad and Aline Hammond, “Serving the World’s Poor, Profitably,” Harvard
Business Review, September 2002; “The Invisible Market,” Across the Board, September/October 2004; Anuradha Mittal and Lori Wallach, “Selling Out the Poor,” Foreign Policy,
September/October 2004; G. Pascal Zachary, “Poor Idea,” New Republic, March 7, 2005; “Calling an End to Poverty,” The Economist, July 9, 2005; Susanna Howard, “P&G,
Unilever Court the World’s Poor,” The Wall Street Journal, June 1, 2005; Rajiv Banerjee and N. Shatrujeet, “Shoot to the Heart,” Economic Times, July 6, 2005; David Ignatius,
“Pennies from the Poor Add Up to Fortune,” Korea Herald, July 7, 2005; Rebecca Buckman, “Cell Phone Game Rings in New Niche: Ultra Cheap,” The Wall Street Journal,
August 18, 2005, p. B4; “It’s Good Business, but a Strategy That Saves Lives as Well,” The Boston Globe, June 10, 2007; “Global Executive: See the Poor as Entrepreneurs,
Consumers,” Star Tribune (Minneapolis, MN), July 30, 2007; “The Right Package; It Started with Shampoo but Now Sachets Have Overtaken Shop Shelves,” India Today,
December 31, 2007; “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits,” South Asian Journal of Management, April 1, 2007; “The Legacy That
Got Left on the Shelf—Unilever and Emerging Markets,” The Economist, February 2, 2008; Erik Simanis, “Reality Check at the Bottom of the Pyramid,” Harvard Business
Review, June 2012; Jason Haber, “Why the Bottom of the Consumer Pyramid Should Be Your New Target Market,” Entrepreneur, May 26, 2016.
 Page CS3-13

CASE 3-4 Continued Growth for Zara and

Inditex
Circa 2008
Pablo Isla, CEO of Zara’s parent company Inditex, is in a hurry. Zara is known as a global trendsetter
and pacesetter in the fashion industry, but Isla is trying to push the tempo even more than ever before.
He is attempting to expand and open new stores and markets at a pace never witnessed before, as rivals
try to catch up. A looming economic recession may hamper these efforts, but that isn’t stopping
Inditex from trying new ways to succeed. For example, innovations in how managers order and display
goods will speed up bringing new fashions to the customer—more cargo routes for shipping those
goods, for example. Isla, previously a tobacco executive, knows that slow and steady will not win the
race.
Inditex is the world’s second largest retailer of clothing; only Gap Inc. sells more. Zara faces a
dilemma faced by other companies that try to keep ahead of the game by changing it: Rivals see the
successful tactics of the pioneer and mimic them. Current economic times are not helping, as stock
analysts are watching, too. Inditex shares are down nearly 24 percent in the last 12 months, weighed
down by fears of a recession in Spain, where a third of the company’s $12 billion in annual revenue is
generated. That isn’t stopping Zara, though, moving forward with expansion, even as consumers are
tapping the brakes on spending. In the U.S., retailers turned in their worst monthly sales results in
nearly five years in January; many are cutting jobs and locations. Marks & Spencer posted its worst
quarterly sales numbers in two years and warned that next year wouldn’t be much different.
Competitors are watching Zara’s logistics innovations. Its strategy is selling inexpensive trendy
clothing—what the industry calls “fast fashion”—Zara has been so successful in attracting well-heeled
customers that luxury fashion retailers such as Gucci, Burberry, and Louis Vuitton have updated their
own logistics ways to get new fashions onto the shelves of stores faster. “They’re a fantastic case study
in terms of how they manage to get product to their stores so fast,” Stacey Cartwright, chief financial
officer of Burberry Group PLC, says. “We are mindful of their techniques.” So is Forever 21, which can
get new fashions into stores in six weeks; Benetton restocks its stores now every few days. Even
Patagonia is getting in on the game, doubling the number of new styles it offers each year.
Zara comprises 60 percent of Inditex’s sales, with seven smaller store brands contributing, such as
upscale Massimo Dutti and Bershka for younger consumers. Inditex opened 560 stores in the last 12
months, including locations such as Croatia, Colombia, Guatemala, and Oman, to reach 3,691 stores
in 96 countries. It has no plans of slowing down next year.
Zara opened its first store in 1975 in La Coruña, a port town near Arteixo in a remote corner of
northern Spain. Two things it did well: dialing in to customer tastes and a manufacturing process that
started at the final product’s price and worked backward to get it made inexpensively. In the 80s
Inditex became known for world-class logistics, selling “fast fashion.” Portugal saw the first store
outside of Spain in 1989, followed by New York and the rest of the globe.
Zara keeps its collections small, which sell out quickly and create a sense of exclusivity with minimal
markdown. Products are shipped directly from factories to stores. Two-thirds of its merchandise is
manufactured in Spain and nearby countries, unlike competitors who source in Asia. All of its
warehousing and distribution is in Spain.
Speed is the company’s hallmark. If a piece of fashion is selling well—or flops—employees at
headquarters (dubbed “the Cube”) quickly tell designers to keep up the fashion or come up with
something else—fast. In the basement, a mockup of store layout and lighting is done and photographed
to show managers around the world how products should be displayed. To help new stores hit the
ground running, new shops are not opened in August, a traditionally slow sales month.
Cost-cutting is another mantra. New software schedules employees based on sales volumes at different
times of the day, taking advantage of efficiencies at peak selling times. The flexible scheduling reduced
staff hours and cost by 2 percent, a large number in retailing. Alarm tags are attached at the factories,
not at the stores, saving employee time. Inditex figures that allows salespeople to spend 3 percent more
time serving customers instead of dealing with product. “In the past, a shipment would come in the
morning, and the staff wouldn’t have it unpacked till noon. They were just giving away three hours of
prime selling time,” Mr. Isla says.
Also, store managers use new hand-held computers that show how garments are selling, by rank, so
that hot-selling items can be reordered in less than an hour, instead of a process that previously took
about three hours. The orders show up in two days, lightning fast in the clothing retailing world. Also,
combining Inditex’s brands into larger shipping volumes has allowed more efficient logistics in less
time. Air France–KLM Cargo planes from Spain make their way to Bahrain with goods for stores in
the Middle East, fly on to Asia, and return to Spain with raw materials and half-finished clothes.
In spite of these gains in efficiency, some experts foresee challenges in keeping production so close to
home, especially when Zara stores are opening increasingly distant from Spain. “The efficiency of the
supply chain is coming under more pressure the farther abroad they go,” warns Nirmalya Kumar, a
professor at London Business School. The company compensates for a loss in logistics productivity by
charging more for products sold overseas. Zara merchandise costs upwards of 40 percent more in the
U.S. than in Spain, for example. Such a difference could send mixed signals to a “cheap-chic” market.
Nevertheless, the company decided to keep operations close to home even in a globalizing fashion
world.

Circa 2009
Europe’s largest fashion retailer, Inditex, announced a major online ramp-up for Zara, it’s flagship
brand. The current economic recession has hammered sales by 7.6 for the first half of this fiscal year.
Inditex also owns the specialty brands of Massimo Dutti, Pull and Bear, and Bershka. The company’s
reputation in the business is forward-thinking information technology to monitor and control
production and inventories. More than 4,400 stores in 73 countries send in data to help headquarters
spot trends and modify product lines based on consumer tastes.
Competitors such as Sweden’s H&M, however, beat Inditex to the Internet punch. Zara Home
launched an Internet presence for furnishings in 2007 but delayed doing so for Zara clothing, citing
the difficulty of selling over the Internet collections that change fashion so quickly because of the
complexity of managing and selling its fast-changing collections online. Many industry observers were
surprised by Wednesday’s announcement that Zara will launch online sales next year for its
Autumn/Winter 2010 collection. “There had been some concern that Inditex was falling behind
competitors on e-commerce,” said Anne Critchlow, an analyst at Société Générale.
Initially, Zara plans to launch online sales in Spain, France, Germany, Italy, the U.K., and Portugal,
rolling out later in Zara’s other markets. In the medium term, Inditex also may launch its other six
brands online, said Chief Executive Pablo Isla. “The Internet is becoming a more and more relevant
channel, so it would be logical to continue expanding online with the other formats,” he said. Neither
H&M nor Inditex discloses what proportion of sales comes from their online operations. Competitor
Gap Inc. generated about 8 percent of its Gap-branded sales in the United States over the Internet.
For the first half ended July 31, Inditex’s net profit fell to €375 million ($550.4 million) from €406
million a year earlier, while sales were up 6.6 percent at €4.86 billion. Sales in stores open at least a
year, however, fell by an annual 2 percent in the fiscal first half, compared with a decline of .7 percent
in the second half, and operating costs grew 8 percent as Inditex continued to expand globally. The
retailer opened 166 new stores in the first half, down from 249 a year earlier. Inditex’s gross margin
decreased to 55.3 percent of sales from 56.4 percent a year earlier. The decline was attributed to a
stronger dollar, which is making imported materials more costly, and putting upward pricing pressures
in the company’s main market, Spain.

Circa 2010
Spanish fashion retailer Inditex SA launched its Zara online store in the United States in the fall of
2011, seeking to widen its clientele beyond the big cities where it currently operates, Chief Executive
Pablo Isla said. Early indications for the U.S. were good: A Zara app was downloaded by more
prospective clients in the U.S. than in any other market, Isla said.
Speaking to Dow Jones Newswires after the presentation of Inditex’s 2009 results, Isla said that more
than a million iPhone users had downloaded the app since it was first released in December of that
year. “It’s a market where Internet sales are very important, and it’s a way of accessing all those clients
that are interested in Zara,” said Isla. The app allows shoppers to check out what’s new in the Zara
collection, and to find the nearest shop.
Inditex, based in La Coruña, northwestern Spain, that year soared past Gap Inc. to become the most-
selling fashion retailer in the world, with more than 4,600 stores. Zara, which is present in 76
countries, rolled out an online store first later that year in six European countries, and then
progressively added the remaining countries where Zara operates. Inditex entered the United States
early, in 1994, but expanded rather slowly, focusing store openings in large cities like New York,
Miami, and Los Angeles.
“We have to prioritize at every step, and ours are twofold: growing in Europe and in Asia,” Isla said.
Inditex is opening almost all of its new stores outside its Spanish home market, which currently
accounted for 31.8 percent of group sales in 2011. The weight of Spain was expected to drop to 20
percent of total sales, while Europe, excluding Spain, was expected to rise to 50 percent and Asia, 20
percent. The remaining 10 percent would come from the Americas.

Page CS3-15

Circa 2018
In 2018, Spain-based Zara holds the position of the world’s largest clothing retailer. Owned by Inditex,
its strategy is being hailed as one to bring people into stores and into the brand, rather than pushing
clothing and branding out to the customer, as rival H&M is known for. It is introducing an augmented
reality experience in its stores. Shoppers can use their mobile phones to see models wearing fashions
in the store, by clicking on sensors in the shop or displayed on windows equipped with AR. It has been
launched in 120 stores worldwide as such to bring shoppers inside.
In observing H&M and Zara, two brands often compared with each other, Zara has long been known
as a retailer that “pulls” customers into its brand, while H&M tries to “push” products out to the
market. The two brands basically differ in what they perceive to be the essence of marketing. H&M
clings to the traditional 4Ps of marketing—Product, Price, Promotion, and Place—where the company
and the brand are the focus.
Zara has replaced the traditional four Ps of marketing with what it calls the four Es—Experience
replaces Product; Exchange is the new Price; Evangelism is the new Promotion; and Every Place
eclipses Place—putting the customer, not the company, at the center. “While Zara is an excellent
purveyor of product, it also capitalizes on the store experience by continuously offering reasons for
customers to visit the stores and catch the hottest trends at affordable prices,” according to Shelley E.
Kohan, assistant professor at Fashion Institute of Technology.
Zara customers typically visit a store every other month, compared with other retailers who see their
customers in the store two or three times a year. Customers not only flock to Zara stores, but also its
social media presence. It has 25 million Facebook followers, 16 million Instagram fans, and a million
followers on Twitter.
Today’s customers demand the brand be everywhere the customer is. The company’s store location
strategy thus is another factor in its success. Zara currently has 2,213 stores in 93 physical markets and
39 online markets. The main locations are in the most visible markets that draw in loyal Zara
shoppers. “Zara has the courage to continually strengthen their portfolio of stores by closing
unprofitable ones, opening new markets, and expanding sister brands in existing markets (Zara Home,
Massimo Dutti),” according to Kohan.

Circa 2022
Zara continues to dominate the global fashion retailing market, although a Chinese fast-fashion rival,
Shein, is closing fast. Its recent market valuation topped $100 billion, more than that of Zara ($60
billion) and H&M ($20 billion) combined. It’s factories crank out more than 6,000 items each day.
Yet, Marta Ortega Pérez, daughter of Zara founder Amancio Ortega, labeled by the The Wall Street
Journal as “the secret to Zara’s success,” is not concerned. Sporting a $50 turtleneck for a recent
interview, she said, “I think it’s important to build bridges between high fashion and high street,
between the past and the present, between technology and fashion, between art and functionality.”
Her company is succeeding on several fronts. Zara’s well-known manufacturing system has nine
factories, with nine distribution centers in Spain and another in the Netherlands, as well as around
2,000 vendors and suppliers across locations in Morocco, Turkey, India, and China. Its supply chain
responds to consumer tastes in very short lead times with low inventory. International high-street
competitors such as H&M, Topshop, and Aritzia are hard-pressed to match its breadth and reach of
product. Zara sells more than 450 million items per year of womenswear alone, and new items arrive
twice a week at Zara stores and online, including an ever-growing array of bags, shoes, lingerie,
menswear, children’s clothing, home goods, and perfume as well as Zara’s recently launched bridal
wear and cosmetics lines.
Luxury-world icon Giorgio Armani, which offers a similarly wide array of categories, had net revenue
of $1.9 billion in 2020. Zara’s revenue for the same year was $16.7 billion. But while a cropped,
tailored tweed jacket from Chanel might be $8,550, one with similar lines from Zara sells for around
$120.

Questions
1. What are the ways that Inditex ensures that “fast fashion” is truly fast?
2. What are the important attributes of a “fast fashion” retailer to customers? To store managers?
3. Why would a retailer introduce its online store country by country? Why was Inditex slow to
embrace online sales when it is so tech-savvy in other ways?
4. Briefly describe five opportunities for continued growth during the next five years for Zara’s parent,
Inditex SA.
5. Pick one of the five opportunities and outline the advantages and disadvantages of pursuing it.
6. Take a look at its U.S. website. What is good and what is bad about it?
Sources: Cecilie Rohwedder, “Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic Rivals,” The Wall Street Journal, February 20, 2009, online; Christopher
Bjork, “Zara Is to Get Big Online Push,” The Wall Street Journal, September 17, 2009, online; Christopher Bjork, “Zara Has Online Focus for U.S. Expansion, Inditex CEO
Says,” Dow Jones Newswires, March 17, 2010; Armorel Kenna, “Zara Plays Catch-up with Online Shoppers,” Bloomberg BusinessWeek, August 29, 2011, pp. 24–25; Pamela N.
Danziger, “Why Zara Succeeds: It Focuses on Pulling People in, Not Pushing Product out,” Forbes, April 23, 2018, online; Elisa Lipsky-Karasz, “Why Marta Ortega Pérez Is the
Secret to Zara’s Success,” WSJ Magazine, August 31, 2021, online; Bruce Einhorn, “Shein’s $100 Billion Value Would Top H&M and Zara Combined,” Bloomberg News, April
4, 2022, online.
 Page CS3-20

CASE 3-5 Club Med and the International

Consumer

David A Litman/Shutterstock

It was still raining in New York on May 31, 2018, when Claire Moreau,1 CMO (chief marketing
officer) of Club Med Sales, Inc. (C.M.S.), returned to her office. She sat and went over in her mind the
events of the meeting she had just attended. When the bookings for summer 2018 of C.M.S. had gone
4 percent below those of the previous summer, a meeting with C.M.S.’s advertising agency had been
called to examine the situation.
The advertising agency’s answer to the dip in sales was to e-mail a $300 discount coupon for
September vacations (of at least one week) to people who had been to Club Med in the recent past.
Club Med’s immediate reaction had been, “Was a discount suitable for the Club Med customer?” It
became clear during the meeting that no specific definition of a Club Med customer existed. No formal
market research had yet been done on the American consumer. Did Club Med need to do this
research? If so, what kind should be done, and where? What could be done in the short term to help
boost sales? Were there other more important issues that should be addressed?

History
From its inception as a nonprofit venture in 1950, Club Méditerranée, C.M.S.’s parent, was a unique
enterprise. Shelter for vacationers was furnished in a way never before seen in France. Gilbert Trigano,
part-owner of a family tent-making business, rented the required tents to Club Med with no down
payment.
In 1954, Gilbert Trigano formally joined Club Méditerranée and turned it into a profit-making
business. The original concept of the straw hut village was born. It was meant to create a Polynesian,
“back-to-nature” atmosphere. The huts were bare of any luxury, and the showers were communal.
Outdoor activities were the main focus of daily life. From this type of village came the image that Club
Méditerranée had represented to the present day—sun, sea, and sport.
Club Méditerranée expanded quickly, often adding one or two resorts per year. In 1956, the first ski
resort opened in Switzerland. Club Méditerranée moved into what would become known as the
American zone in 1968. However, Europe continued to be its main target. By 2016, Club Med was
represented in 40 countries by 66 villages. Financially, Club Méditerranée had been profitable through
2016, but profits took a dip in 2017. (See Exhibit 1.) However, an indication of Club Méditerranée’s
success was that it had become a household word in France, where it was known simply as “le Club.”

Exhibit 1 Financial Statements, Club Méditerranée S.A. (Millions of Euros)

2016 US $1 = €0.778 2017 US $1 = €0.894

Gross income 1,459 1,408
Gross margins 880 868
62.1% 62.0%
Earnings 2 (9)
Consolidated EPS 0.02 (0.36)
Hotel days spent in zone (winter and
summer) in 000s
Americas 1,353 1,388
All other zones 6,623 6,367
Average bed occupancy rate
Americas 67.8% 66.2%
Europe/Africa 70.1% 72.2%
Asia 64.8% 66.7%

The Club Med concept was unique. Any package vacation that Club Méditerranée offered had the
same basics: a prepaid, fixed-price holiday including airfare, meals (with unlimited wine and beer),
sports, sports instruction, and other activities such as a discothéque, arts and crafts, classical concerts,
and cabaret shows at night. Sports were varied and included pastimes such as archery, snorkeling,
deep-sea diving, horseback riding, and yoga, as well as standard favorites like swimming, tennis, sailing,
golf, and many others. Vacationers could choose either to take part or not in these activities. The
villages also contained other facilities such as a shop, car rental, and an excursions office, which were
all within walking distance. Club Med was famous for selecting the best available beach area in every
country where it had summer villages.
A no-hassle, relaxed atmosphere was created because Club Méditerranée arranged meals and leisure
time. Each village staff member (called Gentil Organisateur or GO) had responsibilities in an area
such as applied arts, sports, excursions, food, bar, or receptions. There were about 80–100 of these
organizers per village. They would move to a different village every six months. The GOs were
encouraged to mix with the vacationers (called GMs for Gentils Membres) and performed the various
roles of hosts, friends, teachers, and entertainers rather than staff.
Another aspect of the Club Med concept was the absence of the real world in the form of Page CS3-21
clocks, phones, radios, money, tips, and rigid dress code; people could dress casually or more formally
as they wished. Extra drinks were purchased using prepaid bead necklaces.
Club Méditerranée had ensured that it was fundamentally different from other packaged tours. First,
the homogeneity of the villages provided a predictable fantasy within a Club Méditerranée world
anywhere, so that Club Méditerranée was not really selling a destination like other tour groups.
Second, the way of life in the village, with its lack of money and formality, broke down the established
barriers of class and wealth among vacationers.
Furthermore, Club Méditerranée had overcome the seasonality problem by opening some resorts all
year round and by providing both winter and summer vacation locations. Also, Club Méditerranée had
been operating for a long time and had built up much goodwill—70 percent of their European
vacationers had been to Club Méditerranée before.
Bloomberg Businessweek had called Club Méditerranée “the innovative French vacation specialist.” The
company earned this reputation by refusing to sit back and let its proven formula work. It was
continually adjusting and adding to its offerings. Its success was so great that it received the
compliment of having the “capacity to anticipate the needs of [its] clients.”
Broadly speaking, a whole range of holiday makers were represented among the Club Med customers.
However, there was a larger representation of office workers, executives, and professional people. Club
Méditerranée had not yet examined its customer base in detail.

The American Market and Club Med Sales, Inc.

The Economic Climate
According to the U.S. Department of Commerce, the number of American tourists going traveling
abroad had increased. (See Exhibit 2.) One point that favored Club Med in the travel industry was
that packaged tours generally remained popular; however, perhaps because of the lingering recession
of 2009, many people were taking cheaper or shorter holidays or staying closer to home.

Exhibit 2 Destinations of U.S. Travelers Abroad, 2015 to 2017*

2015 (000s) 2016 (000s) 2017 (000s)

Canada† 11,595 11,887 12,008
Mexico‡ 20,084 20,307 20,546
Europe 9,674 11,245 11,408
Caribbean and Central America 8,080 8,829 9,052
South America 1,973 1,703 1,703
 2015 (000s) 2016 (000s) 2017 (000s)
Other areas 10,187 6,725 6,830

Total 61,593 60,696 61,547

*Includes business travel; excludes cruises, travel by military personnel, and other government employees stationed abroad.
†Visitors staying one or more nights in Canada.
‡Visitors staying one or more nights in Mexico.

Competition in the airline industry in recent years had contributed to substantial changes in the
packaged tour business. Price wars had slashed travelers’ costs, uncovering a new mass market for
cheap air travel. The number of travel agents had increased from 7,000 in 2007 to over 22,000 in 2016.
Travel agents demanded higher commissions when group selling became a large part of their business.
With the subsequent increase in commissions, it became even more attractive to set up an agency. As
in Europe, travel agents were the primary channel for sales in the travel business.
Club Med felt that it occupied a unique position in the market and had no directly comparable
competitors. However, its closest competition did come from other packaged tour operators.
As a result of deregulation, some prices for airline tickets had recently dropped dramatically. Club
Med had not yet incorporated these decreases into its prices as aggressively as some competitors. The
following table gives an example of the price structure, comparing a trip with Club Med from Los
Angeles to Cancun, Mexico, to a competitive package sold by a packaged tour operator.

CLUB MED COMPETITIOR

(one-week vacation) (one-week vacation)
Before $1,695* $1,405†
decrease
After $1,645 $1,100
decrease
*Includes airfare, shelter, all meals, all sports, and other activities.
†Includes airfare, hotel, and breakfast.

It was estimated that some 30 million residents of the United States had gone on packaged tours in
2017, including about 14 million who had taken cruises. Many others took vacations to “sun
destinations” without using packaged tours. For example, it was projected that in 2018 about 3.5
million people from the U.S. mainland would go to Puerto Rico, a destination that was within the
same geographical area as seven Club Med villages. Another 5.5 million were expected to go to the
Caribbean islands, and 2.2 million to Bermuda alone. Exhibit 2 gives a breakdown by destination of
U.S. travelers abroad during 2015–2017.

Club Méditerranée in North America

In the mid-1970s, Club Méditerranée started to target the North American market specifically. In
1980, Club Méditerranée was restructured so that marketing and operations were more closely linked.
North and South America made up the American zone, which had its own profit responsibilities. By
2016, North Americans represented 9 percent of the Gentils Membres worldwide (60 percent were
from Europe/Africa and 21 percent from Asia), but less than 1 percent of the North American
population were Club Med clients. Total sales in North America were almost $540 million in 2017,
representing some 140,000 Gentils Membres. In 2011, Claire Moreau took charge of the American
zone. She made the improvement of Club Med’s image in the North American market her first priority
as there was a feeling in the organization that an image of sexual permissiveness was deterring many
Americans from patronizing the Club. Club Méditerranée felt that the North American market
represented a sound base for growth.
By the beginning of 2018, Claire felt she was well on the way to achieving the goals she had Page CS3-22
set, but challenges remained. Revenues and profits had been slipping, but she felt good progress had
been made toward improving Club Med’s image. Club Med spent several million dollars a year on
image-oriented consumer advertising, emphasizing the uniqueness of the concept. In the past,
campaigns had generated considerable favorable public relations for the organization, and it had been
nominated for a prestigious CLIO award in the advertising industry. The 2015 “happiness” 22-language
global advertising campaign of Club Med experiences being shared with family and friends seemed to
be well-received. The problem of eroding financial performance remained, however.

Club Med Sales, Inc., Strategy

Organization
In the organization in the American zone sales promotion area, there were seven regional sales
managers (about 35 years old) who supervised 17 district sales managers. (In contrast, one single
airline had 40 sales representatives for the New York market alone).

Marketing
All the regional and district sales managers were former GOs. They were to make sales calls to the
travel agents, give them brochures, and talk to them about the Club Med concept. No formal system
had been set up regarding which agents to visit at what time. As a result, each representative
performed his or her job differently. Each one also operated independently in developing creative ideas
to boost sales. Some representatives had consumer shows where people could hear about the Club
Med concept. Others participated in professional travel shows or ran cooperative advertising with their
own copy. This arrangement was consistent with the company culture, which allowed the person
running a Club Med village to be his or her own master in designing enjoyable vacation programs.
Regional representatives were earning over $150,000 a year with an additional bonus up to 25 percent,
while district representatives earned a straight $105,000 a year. These figures did not include expenses,
which were approximately $600,000 for all representatives, including travel.
Claire Moreau was the final decision maker for sales promotion and advertising. The total marketing
budget for 2018 for the U.S. market is presented in Exhibit 3.

Exhibit 3 Total U.S. Marketing Budget, 2018 (Millions of Dollars)

Advertising $ 12*
“Push”† 5
Brochures 3
Reservation Center (toll-free 1-800 number) 6
Travel agents’ commission (10% of sales) 12
Miscellaneous 2
$ 40
*Advertising in 2015 had been $7.5 million.
†Sales managers’ salaries and expenses, trade advertising, travel agents, familiarization trips, promotional material directed at travel agents.

Club Med used the words “tactical” and “image” to distinguish between its two types of advertising.
Image advertising intended to build up in people’s minds a long-term concept of Club Med and what it
represented. Television, Internet ads, magazines, and sometimes billboards were considered the most
effective media for this type of advertising. Tactical advertising, on the other hand, was a call for action
in the short term that would generate revenue the following week. Club Med used radio and newspaper
for this type of sales-oriented advertisement. One-third of the advertising budget was currently
allocated to tactical advertising.
Eighty-six percent of C.M.S.’s sales came through travel agents. Club Med had a reservation center in
Phoenix with 100 reservation employees who serviced the public as well as the bookings from agents.
(In contrast, only 35 percent of Club Med sales were through travel agents in the French market.)
American travel agents received a 10 percent commission from Club Med, the usual rate given for
business (such as airplane tickets). Competitors, however, frequently raised commissions with special
promotions. For example, if a travel agent’s volume exceeded a certain level, the commission would be
increased, or if travel agents sold packages during certain periods, they earned more. Sometimes a
direct cash bonus was offered for selling certain packages. Large travel agent organizations that did a
sizeable volume of business for a competitor often got a higher base commission. The net effect of
these programs was that travel agents could sometimes earn 15 percent commissions and, on rare
occasions, even as much as 20 percent. Club Med did not have such offers.

The Advertising Agency Meeting

The climate of the meeting was tense because Claire Moreau was not pleased that bookings had
dropped to 4 percent below the sales of the previous summer, doing little to reverse the recent decline
in sales and profits. The advertising agency had reserved a conference room in the Hotel Meridien in
New York and had asked its own CEO to make an elaborate presentation (booklet, PowerPoint, and
past TV spots shown on video as well as current summer newspaper and Internet advertising). The
agency was anxious to appease Claire, whom they sensed was very concerned.
Francois Fornier also was attending the meeting. Along with 10 representatives from the agency,
Francois had been invited to the meeting to be briefed on C.M.S.’s advertising strategy because he had
recently been promoted to a managerial role to assist CMO Claire Moreau with major responsibilities
in sales and marketing.
One of the main ideas presented by the advertising agency was to e-mail recent Club Med members a
gift certificate coupon for a $200 discount on a September holiday. Otherwise, despite the dip in
bookings, the agency proposed to continue the same newspaper advertising campaign that had started
in April.
When asked for his opinion about the discount idea, Francois said: Page CS3-23

The advertisements you just showed me, used mostly in the winter, appear to be targeted at an upscale customer. If
Club Med is attracting that kind of person, how will they react to a discount on the same holiday they paid full price
for last year? I’d worry that they might wonder just who will start coming to Club Med. We might lose this upscale
customer and attract another kind. Is that what we want?

Furthermore, Claire felt that the present advertising campaign was not aggressive enough and would
not attract sales in the short term. Also, September was the end of the season, and Claire questioned
waiting so long before attempting to remedy such an immediate problem.
The agency indicated that it felt Club Med was overreacting and that business would pick up. “Don’t
worry; our plan will work,” the agency replied. It also suggested that bookings would increase if the
agency sweetened the sales opportunities for the travel agents.
Claire then tested this assumption on the agency personnel:
You seem sure that the Club Med customer will rush to the villages because of a $200 discount. But who is the Club
Med customer?

Taken aback, the agency admitted that, without any recent formal market research, it could not
accurately describe the Club Med customer. This answer strengthened Francois’s resolve to examine
the discount suggestion more closely. He remarked that it would be a good idea to do some market
research. The agency agreed.
After the meeting, Claire and Francois talked over the potential for market research. Claire encouraged
Francois to develop a research proposal, and also to offer other suggestions that would address the
problem. Both agreed that, in the short run, it was important to stay within the current $40 million
marketing budget (see Exhibit 3).
Preliminary enquiries by Francois the next day provided a list of the different types of research and
their associated costs. (See Exhibit 4.)

Exhibit 4 Comparative Direct Costs per Completed Response*

DATA COLLECTION METHOD APPROXIMATE COST

1. Mail survey (costs depend on return rate, incentives, and follow- $12–22
up procedure)

2. Internet survey (site access, mailing list, follow-up) $12–15

3. Phone interviews
 DATA COLLECTION METHOD APPROXIMATE COST
a. 7-minute interview with head of household in metropolitan $15–20
area, depending on market chosen

b. 15-minute interview with small segment of national $35–45

population from central station

4. Personal interviews

a. 10-minute personal interview in middle-class suburban $40–50

area (2 callbacks and 10 percent validation)

b. 40- to 60-minute interview of national probability sample $70–60

(3 callbacks and 10 percent validation)

c. Executive (VIP) interviews (1–2 hours) $450

d. One focus group of 15 people (includes analysis and a $5,000–7,000

report on the session)
*Including travel and telephone charges, interviewer compensation, training, and direct supervision expenses.

Francois returned to his hotel and thought through the situation. There were several important
questions. What should Club Med do in the short term to improve its bookings? Was a market
research study necessary, and, if so, what kind and where? What did they need to know, and what will
they do with the results when they get them? Francois was aware that Club Med Sales had not done
formal market research before and that, for results to be used effectively, the project would have to be
carefully implemented in the organization.

Questions
1. Describe the Club Med experience for the international consumer. What are the elements of Club
Med’s unique offering that cross cultural boundaries?
2. Do you think Club Med should perform a market research study for American consumers? If so,
come up with a list of questions to ask or issues to explore. What would you like to know, and how
would you ask the right questions to get that information?
3. If you answered “Yes” to a research study, what kind of methods (from those listed in Exhibit 4)
do you think would be effective in performing the research?
4. Should Club Med offer the $300 Internet “discount coupon” (for a week’s stay) to its past
customers for the upcoming booking season? What effect do you think it would have?
Copyright ©1987 by IMD - International Institute for Management Development, Lausanne, Switzerland (www.imd.ch). No part of this publication may be reproduced, stored
in a retrieval system or transmitted in any form or by any means without the permission of IMD. Some data and dates have been updated/disguised.
 Page CS3-24

CASE 3-6 Gillette: The 11-Cent Razor, India,

and Reverse Innovation
In April of 2010, Gillette released its Guard razor, capturing 50 percent of the Indian shaving market
in just six months. The Guard was a lightweight, disposable-blade razor that was developed after a year
of research that involved observing Indian men as they purchased and used razors in their daily lives.
The result was a 15-rupee (US$0.34) razor with 5-rupee (US$0.11) blades, uniquely designed for
Indian men. To help the Guard reach the 50 percent milestone, Gillette had been aggressively
promoting the product throughout the country of India, with billboards and TV commercials featuring
Bollywood actors shaving with the razor. The price of the Guard was higher than that of the market-
leading double-edge blades, but the new razor offered a close shave without the frequent cuts that
resulted from quick-rusting, double-edge models.
In contrast, Gillette’s leading product in the U.S.—the Gillette Fusion ProGlide—was Gillette’s most
technologically innovative razor, with five blades on the skin contact surface. Gillette’s frequent TV
commercials touted the ability of the Fusion ProGlide to give a comfortable, close shave, while
enabling men to create elaborate facial hair designs. At $9.99 for the razor and $16.99 for a four-pack
of blade cartridges, the Fusion ProGlide was not only Gillette’s most advanced razor, but it was also
Gillette’s most expensive and most profitable razor.
John Sebastian,1 Gillette’s manager of male grooming products, sat at his desk at company
headquarters in Boston, Massachusetts, holding a Gillette Guard and a Gillette Fusion ProGlide in his
hands, pondering next steps. Sebastian had been given the task of analyzing market conditions and
making a recommendation to the vice president of male grooming for the Gillette Guard global
strategy. There were over a billion men in low-income countries who potentially would be willing to try
the Guard. The Guard could be a viable low-cost option for many Americans. Despite the fact that the
premium-priced Fusion ProGlide was Gillette’s best-selling razor, not every American was willing to
pay such a high price. Many Americans were especially price sensitive due to the state of the economy,
which was slowly recovering from the 2008 financial crisis. Introducing the Guard to the U.S. market
could allow Gillette to dominate the low end of the shaving industry and boost sales in a slow-growing
market. On the other hand, Gillette’s high-margin products like the Fusion ProGlide might suffer if the
Guard began to cannibalize sales. Sebastian was preparing for the meeting with his supervisor, during
which he would offer his strategy recommendations to the vice president of male grooming for the
Gillette Guard. The meeting was quickly approaching.

Company History
The Gillette Company was founded in 1901 by King C. Gillette to manufacture his invention—the
disposable-blade safety razor. At the time, the leading shaving products were straight-edge razors. (See
Exhibit 1.) After repeated use, the blade of a straight-edge razor becomes misaligned and must be
realigned and polished by stropping the blade—dragging it along a strip of leather or canvas. While
looking through a Montgomery Ward mail-order catalog in 1895, Gillette noticed that Montgomery
Ward guaranteed that it would replace any defective razor, with the disclaimer if “properly used and
stropped on a good smooth strop.” Gillette recognized an opportunity to manufacture and sell a razor
with disposable blades that would not require maintenance. Patented in 1904, Gillette’s “safety razor,”
as it came to be known, consisted of a razor (handle and blade compartment) and a disposable double-
edge razor blade. (See Exhibit 2.) Because customers would need to continuously buy new blades,
disposable razors would provide a steady, continuous source of revenue for Gillette. The company’s
original safety razor sold for $5 in 1904 (about $135 in 2015 dollars), and a pack of blades that would
last a year cost $1.

Exhibit 1 Straight-Edge Razor

productpackshotphotography/iStockphoto/Getty Images

Exhibit 2 Safety Razor

arobinson343/iStockphoto/Getty Images

After expiration of the patent in 1921, Gillette feared that low-cost imitators would erode Page CS3-25

his margins. Rather than simply reduce his prices, he took a two-pronged approach. First, shortly
before the patent was set to expire, Gillette released an upgraded version of the razor with a price of $5
and marked down the original razor to $1. This new upgrade kept Gillette ahead of competitors at the
high end of the market. Increased sales of Gillette’s original razor provided an even bigger boost to
profits. The new, lower price convinced large numbers of customers to try the razor. Second, Gillette
strategized that once these customers owned the razor, they would be forced to buy the blades at full
price to continue using the razor. Recognizing the continuous stream of profits that resulted from
getting the razor into the hands of customers, Gillette began selling razors at low, promotional prices,
and even giving them away as a means to create demand for the high-margin blades. This method of
selling an initial product at a low price to stimulate demand for a higher-margin-related product is used
in many industries but is still referred to as the “razor-and-blades” business model.
Throughout the 20th century, Gillette lived up to its slogan, “The best a man can get,” by continuously
developing and releasing the next “best” razor to the market every few years. Gillette’s innovations
included a “Twist to Open” double-edge razor (Aristocrat, released in 1934), a two-blade razor (Trac II,
1971), a razor with a pivoting head (Atra, 1977), a razor with spring-loaded blades (Sensor, 1990), a
three-blade razor (Mach 3, 1998), and a five-blade razor (Fusion, 2006). Several variations of these
products also were sold, including a women’s version of the Mach 3 (Venus), battery-powered razors
that vibrated for an ever-closer shave (e.g., Fusion Power), and razors with various combinations of
features such as color schemes and lubricating strips. Gillette also developed several disposable razors
in which the entire razor, not just the blade, was to be thrown away after the blade became dull.
Gillette expanded into the electric shaver market in 1967 by purchasing Braun, a German consumer
products manufacturer. Electric shavers, in general, are faster and safer than shaving with a manual
razor but are not able to provide the close shave of a traditional razor.
From the 1950s through the end of the 20th century, Gillette expanded into product lines outside of
shaving by purchasing market-leading brands such as Duracell, Liquid Paper, and Cricket Lighters.
Razors remained Gillette’s core business, however, consistently accounting for more than half of the
company’s profits. The 1990s were an especially prosperous time for Gillette. The company developed
innovative new products in all of its major product categories, while experiencing rapid growth in new
markets such as China and Eastern Europe. Gillette’s stock price grew more than tenfold from the late
1980s to the late 1990s. But by the early 2000s, the company’s rate of innovation and international
expansion had slowed, and, with it, Gillette’s sales. Gillette’s earnings came in below estimates for 15
consecutive quarters, due in part to what board member Warren Buffett commented were
unrealistically high estimates.
Jim Kilts was hired as Gillette chief executive officer (CEO) in 2001. Kilts’ mission was to reinvigorate
the company, turning it around by reducing costs and reinvesting the savings into aggressive research
and development. This new strategy brought Gillette back to profitability, and it posted six consecutive
quarters of record profits. Despite the company’s rebound, Kilts believed that relying so heavily on
razors would endanger the company in the long run. Gillette merged with Procter & Gamble (P&G) in
2005 to take advantage of the marketing and distribution strength of P&G’s global organization.
Although billed as a merger, the deal was essentially a $57 billion acquisition of Gillette. After 2005,
several business units were separated from Gillette, returning the company’s focus to its core business—
shaving products and personal care items, such as antiperspirant and body wash.

Gillette in 2010
By 2010, Gillette’s male shaving product line was led by the Fusion ProGlide, a reengineered version
of the Fusion razor with five thin blades. The Fusion ProGlide was backed by a national advertising
campaign featuring celebrities including actor Adrien Brody and hip-hop musician André 3000 with
highly stylized facial hair. Retailing for US$10.99 (US$11.99 for the battery-powered vibrating version)
with a four-pack of blade cartridges that retailed for US$16.99, the Fusion ProGlide was Gillette’s best-
selling and most profitable product. Gillette’s next most-expensive product was the Mach 3, which
retailed for US$6.99 with a four-pack of blade cartridges selling for US$10.49. Gillette also sold several
types of disposable razors, with prices as low as US$0.65 each when purchased in a multipack. The
company benefited from a “trade-up” strategy—consumers often moved up from Gillette’s less-
expensive products to its more-expensive ones, but rarely moved down the price scale. In this sense,
cannibalization of the sales of existing products in favor of newer, more profitable ones was a
fortuitous circumstance.
Gillette’s brand recognition, market share, and advantages in technology and manufacturing had kept
it at the top of the razor market since the company’s founding. Gillette’s leading competitor—Schick—
held a 15 percent global market share compared to Gillette’s 70 percent. Throughout the 2000s,
however, Schick put pressure on Gillette as the two companies engaged in what the media referred to
as the “Razor Wars.” Schick was the first company to release a razor with four blades: the Quattro.
Gillette’s Fusion ProGlide was then the first razor with five blades. Schick quickly followed with its
own five-blade razor—the Hydro 5. Volume growth in the U.S. shaving industry had been stagnant for
several years, with sales growth derived primarily from price increases attached to new, innovative
products.
Gillette, however, faced stiff competition in the disposable razor category, which was at the low end of
the razor market. Gillette’s lowest-cost razors offered advanced features such as dual blades, pivoting
heads, and lubricating strips. Competitors such as Bic, Wilkinson Sword, and Schick not only sold
products that rivaled Gillette’s disposable razors in terms of features and price, but also produced bare-
bones versions of the products. These very-low-end razors could be purchased for as low as US$0.20
when purchased in a multipack.
Gillette also faced competition from store brands (“private labels”), or razors that would be a brand
unique only to that store (such as “Great Value” in Walmart). Otherwise, nationally branded products
were primarily sold to retailers that, in turn, sold the products to consumers. Throughout the 1990s,
the retail industry underwent consolidation, with Walmart becoming the largest player and Gillette’s
largest customer. Walmart’s purchasing power, as well as its low-priced store brands, enabled it to
place downward price pressure on its suppliers. Despite the lower prices, however, the store brands did
not take significant market share from name-brand products.

International Strategy
By 2010, Gillette held 70 percent of the global market share for razors. The market share varied by
region, and Gillette’s individual country strategies of product development and pricing differed based
on characteristics of the country, such as consumer income levels. Europe and Australia resembled the
U.S. market, where consumers were willing to pay premium prices for premium products. To stay
ahead of competitors, Gillette introduced its high-end razors and put significant money and effort
behind marketing the innovative products. By the year 2000, there were limited opportunities for
growth in these regions. In less-mature markets, however, there were still huge opportunities for
growth. Hundreds of millions of low-income consumers in countries such as China and India often
shaved with double-edge blades instead of using Gillette’s products. Only wealthy consumers in these
countries could afford Gillette’s high-end razors, so Gillette focused on marketing its lower-cost
products, rather than promoting higher-cost razors.
India, in particular, represented a massive untapped market for Gillette. Of the 1.2 billion Page CS3-26
people in India, many belonged to a group referred to as the “Base of the Pyramid” in economic terms
—the 4 billion people in the world who lived on US$1 to US$3 a day. In India, despite the fact that
such consumers had low incomes, the sheer number of potential customers made the region very
attractive to Gillette. The majority of low-income men in India—roughly 400 million—shaved using
double-edge razors, which cost only 1.5 rupees to 2 rupees (US$0.05) per blade. Double-edge blades
were inexpensive, but they rusted easily and often caused cuts. Instead of trying to sculpt elaborate
facial hair designs with a razor, many low-income Indian men would be satisfied with a blade that
could give them a good shave without nicking their skin and drawing blood. The leading double-edge
razor producer—Super-Max—held 15 percent market share. As of 2009, Gillette’s top two razors in
India—the Vector and the Mach 3—held only 13 percent and 9 percent market share, respectively. (See
Exhibit 3.)

Exhibit 3 Gillette Competition

Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. ©2013
Ryan Atkins. This case was developed by Ryan Atkins, Lecturer at the University of Georgia, Terry College of Business.
The case was created to be a basis for class discussion rather than to illustrate either the effective or ineffective
handling of a situation.

Gillette Guard Development

Gillette realized that it needed to change its approach to product development and pricing to achieve
success in the low-income Indian market. Gillette’s previous marketing process in India involved little
more than repackaging its existing razors and changing the language on the labels. The Mach 3, which
was one of Gillette’s leading razors in the U.S., had only 9 percent market share in India because the
price for the product was too high for most Indian consumers. Gillette’s lower-priced offering—the
Vector—was closer to the appropriate price point, but it still could not win over more than 13 percent
of the market. The Vector was a rebranded Gillette Atra, a product that was introduced in the U.S. in
1977 but had been discontinued.
Gillette turned to reverse innovation to develop the Guard. The traditional path of a new innovation
involves research and development in wealthy Western countries, where plenty of capital is available
for investment, followed by market entry in low-income countries. Reverse innovation turns the process
around, beginning with the development of an innovation in a low-income country, then perhaps
introducing it in higher-income countries. For the new Indian razor, Gillette began with a price
customers would be willing to pay, and then it built the features around the price.
A team of product development personnel was assembled and given the task of learning what it is that
Indian men wanted from a razor. The team spent thousands of hours studying and observing the
Indian market first hand, following Indian men as they shopped for and used razors. The team also
conducted interviews and in-home visits, and fine-tuned its product ideas with thousands of
consumers. Every element of the razor was viewed through the eyes of the low-income Indian
consumer.
The Gillette team learned several lessons from its research. The company learned that Indian men
purchased razors primarily in kiranas—small local shops—instead of at large retailers. Gillette also
learned that Indian men often do not shave every day, and when they do shave, it often happens while
sitting on the floor with a bowl of water and a hand-held mirror, rather than standing at a sink with a
large mirror. Through the course of its interviews, the team learned that Indian consumers valued
affordability first and foremost, followed by safety and ease of use.
The team developed the Gillette Guard to address each specific need. For safety, the Guard included a
safety comb and an easy-to-hold grip. For affordability, the lubrication strip was abandoned; only a
single blade was used, and the Guard contained 80 percent fewer parts compared to the Gillette
Vector. For ease of use, the razor was lighter than double-edge razors and many American razors, easy
to rinse, flexible enough to reach areas that are difficult to reach with a double-edge razor, and able to
cut longer hair because many Indian men did not shave every day. (See Exhibit 4.)
Page CS3-27

Exhibit 4 Gillette
Guard
 Editorial Image, LLC/Alamy Stock Photo

Gillette also set up its manufacturing and distribution with the Indian consumer in mind. Labor costs
were much lower in India than in the U.S., and Gillette minimized shipping costs through the use of
local production. On the distribution side, Gillette developed relationships with a number of the local
kiranas to ensure that they would stock the Guard. This approach to distribution was vastly different
from the company’s U.S. strategy, which focused on a few large retailers.
The Indian market’s response to the Gillette Guard was extremely favorable. In a survey, customers
preferred the Gillette Guard 6-to-1 over double-edge razors. The positive perception of the Guard,
along with its price that was not much more than double-edge razors, meant that the Guard became an
affordable luxury for many customers. The Guard managed to surpass 50 percent of the razor market
by volume only six months after its launch in October 2010. Whether or not these customers would
trade up to higher-cost razors, as they often did in the U.S., remained to be seen, but Albert Carvlaho,
Gillette’s Vice President of Male Grooming for Emerging Markets, felt confident that they would,
saying, “When they start enjoying a better shave, they’ll be more open to all solutions.”

Opportunities and Challenges

The tremendous success of the Guard left Gillette with opportunities. Hundreds of millions of
potential customers in China, Indonesia, and other low-income countries still shaved with double-edge
razors. Gillette could immediately release the Guard, in its present form, in each of these countries.
On the other hand, lessons learned in the Indian market may not have applied to every country. Just as
American products did not necessarily transfer easily to India, the Indian product may not have
transferred easily to China. If they did, the possibilities of damaging stockouts loomed large if
production could not keep up with demand.
Gillette’s next decision was whether or not it should complete the reverse innovation process by
releasing the Guard in the U.S. Gillette had been profitable in recent years despite stagnating volume
growth in the U.S. market, primarily due to high-margin products like the Fusion ProGlide. Industry
analysts questioned the sustainability of this strategy. If Gillette chose to release the Guard in the U.S.,
the low price would surely attract customers, but this option carried some risk. The Guard may not
meet the quality demands of American customers, and even if it did, it could cannibalize sales of
Gillette’s higher-margin products such as the Mach 3 and Fusion ProGlide. Usually cannibalization
worked the other way around: trading up from a low-priced product to a high-priced one. As John
Sebastian prepared to deliver his recommendation to the vice president of male grooming, he
considered the ripple effects each option would have on Gillette and its markets around the world. His
recommendation could determine the direction of the company, as well as his career, for years to
come.

Questions
1. Describe the razor-and-blades business model.
2. How and why do U.S. razor consumers differ from razor consumers in India?
3. How did Gillette’s product development process differ for the Gillette Guard when compared to its
previous product development processes?
4. Should Gillette release the Gillette Guard in the U.S.? Should it release the product in other low-
income countries besides India?
Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. ©2013 Ryan Atkins. This case was developed by
Ryan Atkins, Lecturer at the University of Georgia, Terry College of Business. The case was created to be a basis for class discussion rather than to illustrate
either the effective or ineffective handling of a situation. Sources: Ellen Byron, “Gillette’s Latest Innovation in Razors: the 11-Cent Blade,” The Wall Street Journal,
October 1, 2010, accessed January 25, 2013; Randal C. Picker, “The Razors-and-Blades Myth(s),” University of Chicago Law Review 78, no. 1 (2011), p. 227; The
Gillette Company, Form 10-Q Quarterly Report, March 31, 2005 (Boston: The Gillette Company); Kenneth Roman, “The Man Who Sharpened Gillette,” The Wall
Street Journal, September 5, 2007, accessed January 25, 2013; Chris Isidore, “P&G to Buy Gillette for $57B,” CNNMoney, January 28, 2005, accessed January
25, 2013; Walmart.com, Retail prices, accessed January 25, 2013; “Triple Blades Hone Trade-up Pitch,” DSN Retailing Today 42, no. 5 (2003); Susan McGinnis
Narr, “The Razor Wars,” CBS News: Early Show, December 5, 2007; Emily Glazer, “A David and Gillette Story,” The Wall Street Journal, April 12, 2012, accessed
January 25, 2013; Vijay Govindarajan and Chris Trimble, “Is Reverse Innovation Like Disruptive Innovation?,” HBR Blog Network, September 30, 2009; “Gillette
Guard Fact Sheet,” ed. Proctor & Gamble, 2013; Vijay Govindarajan, “P&G Innovates on Razor-Thin Margins,” HBR Blog Network, April 16, 2012, accessed
January 25, 2013; Lauren Coleman-Lochner, “Why Proctor & Gamble Needs to Shave More Indians,” Bloomberg BusinessWeek, June 9, 2011, accessed July 1,
2015; “How Gillette Execs Spent a Fortune Developing a Razor for India Using MIT Student Focus Groups … Without Considering the Country’s Lack of Running
Water,” Daily Mail, October 3, 2013, accessed July 1, 2015; Srinivas Reddy and Christopher Dula, “Gillette’s ‘Shave India Movement,’” Ft.com/management,
November 4, 2013.
 Page CS3-28

CASE 3-7 Amazon in Emerging Markets

In the spring of 2014, Amazon.com, Inc. (Amazon), saw its chief competitor in China, Alibaba Group,
file documents with the SEC for an initial public offering that could be one of the largest in history. At
the same time, its main competitor in Brazil, MercadoLibre, sustained an approximate 40 percent loss
in stock price despite several years of profitability, and its two chief competitors in India, Flipkart and
Snapdeal, formed separate mergers with other related firms. The intense battle for control of a
country’s e-wallet was nothing new to Diego Piacentini, senior vice president of International
Consumer Business, and Jeff Bezos, founder and CEO. Their decision to launch Amazon.in in June
2013 marked Amazon’s eleventh country-specific portal after 19 years of operation. China was
Amazon’s first emerging market website, and India only its third. Compared to its experience in China
and Brazil, Amazon followed a different business model and strategy in India. What led to the differing
approaches and which, if any, of Amazon’s emerging markets’ strategies and investments would
succeed? The case starts by examining Amazon’s entry into India and then turns to Amazon’s
experience in China and Brazil.

Amazon’s International Expansion

Incorporated in 1994, Amazon had evolved from a small online vendor of books and other
information-based products in 1997 into a global “customer-centric” company serving consumers,
sellers, and developers with operations in 22 countries. Amazon’s international expansion started in
1998 when it acquired Bookseller, Ltd. (bookseller.co.uk) in the United Kingdom and Telebook, Inc.
(telebuch.de) in Germany. These two sites gave rise to what became Amazon.co.uk and Amazon.de,
respectively. It was early in 2000, during this initial European expansion, that Amazon hired
Piacentini, who had been Apple’s general manager for Europe. Since his hiring, Amazon launched
nine other country-specific websites, in Italy, France, Spain, Japan, China, Mexico, Brazil, Canada,
and Australia. In other countries such as Costa Rica and South Africa, Amazon located customer
service, software development, fulfillment, or back office operations.
In 2013, Amazon’s Germany, UK, and Japan sites accounted for 85 percent of total international
revenues of $30.0 billion. Overall, Amazon’s international markets (excluding its Canadian site) made
up 40 percent of Amazon’s total revenues of $74.4 billion (see Appendix B for consolidated
financial results). However, despite a growth of 14 percent in net sales between 2012 and 2013,
Amazon’s international business had seen a period of declining rate of growth since 2011 (see
Appendix C for a geographic breakout). Would this declining growth rate foreshadow what was to
come for Amazon’s international markets, or be merely water under the bridge according to Bezos and
Amazon’s “marathon” mind-set of emphasizing customer service and long-term gains in sacrifice of
short-term profits?

The Indian E-Commerce Market

On June 5, 2013, Amazon officially entered the Indian market with its launch of Amazon.in. Although
the Indian government had liberalized its strict foreign direct investment (FDI) laws in September
2012, the resulting regulations still forbid foreign multibrand retailers from having over 51 percent
ownership.1 As a result, Amazon could not replicate its U.S. business of selling its own products in
addition to serving as a selling platform for third-party vendors. In India, Amazon would only be able
to function as a pure marketplace that would connect domestic sellers to buyers in the market. For
Amazon, these FDI considerations would be only the first hurdle encountered in the nascent but fast-
growing Indian e-commerce market.
According to World Bank data, as of 2013 India had approximately 189.1 million Internet users (15.1
percent of the 1.25 billion population) compared with only 60.7 million (5 percent of the population)
just four years earlier (see Appendix D for a list of Internet users per 100 population for select
countries). The Associated Chambers of Commerce and Industry of India estimated the Indian e-
commerce industry at $16 billion in 2013, a large increase from estimates of $8.5 billion in 2012 and
$2.5 billion in 2009.2 On the other hand, Forrester Research reported that Indian e-commerce was
worth only $1.6 billion in 2012 after online travel sales were factored out of the estimates.3 Fast
growth was less debated; analysts from the Indian retail consultancy Technopak believed that the
country’s e-commerce industry could grow 61 times over the next decade.4
Overall, mom-and-pop stores dominated India’s half-trillion-dollar retail market. According to
Deloitte’s India group, organized retail in India comprised only 17 percent of the market versus over
85 percent of the market in the U.S.5 Moreover, in addition to stringent laws on FDI, India still had
considerable import duties on certain foreign products. According to the International Chamber of
Commerce, India ranked 64th out of 75 countries for overall trade and FDI openness in 2013.6
In terms of transportation infrastructure, many of India’s roads were in poor condition and Page CS3-29
overly congested. Even on the better roads, such as between New Delhi in the north and Mumbai on
the western coast, driving took almost twice the amount of time it took to drive the same distance in
the U.S., according to Google Maps. In addition, nearly 70 percent of India’s population lived in
remote rural areas, which in some cases had limited access to major highways. Thirty-three percent of
villages in India, primarily in the northern states, lacked all-weather roads, making them almost
inaccessible during the monsoon season.7 Furthermore, addresses in India were notoriously difficult
to find due to nonsequential numberings, lack of street signs, and narrow, winding streets. It was
instead commonplace in India to describe locations with directions via landmarks.8 Retailers had
tended to prefer commercial airfreight for delivery, but this option had led to increased delivery costs
and a high risk of merchandise being offloaded to accommodate passengers.9
Over the past few years, India had experienced a series of major power failures allegedly due to a
shoddily constructed electricity infrastructure. For example, in soaring temperatures on June 10, 2014,
in New Delhi, 16 million people were subject to power blackouts due to unmanageable demand.10
This power failure came only two years after a record-breaking electricity crisis in 2012 in which 600
million people were left without power for two days.11
India also still had a highly impoverished population. In 2013, OECD researchers estimated that 42
percent of India’s 1.24 billion people lived on less than $1.25 a day, reflective of its $4,000 GDP per
capita.12 Much of India’s growth in computing and consumer spending, however, came from a

13
growing middle class of over 160 million people.13 The Brookings Institution predicted that India’s
middle-class consumption would surpass that of the U.S. by the year 2030.14 However, despite a
growing population heavily involved in spending, cash payments remained dominant over credit or
debit card payments in day-to-day commerce in India. Business Today cited that people in India
averaged only six noncash payments each year. As a result, a “cash on delivery” system had become
widely accepted in the e-tailing space and accounted for roughly 50 to 80 percent of all e-commerce
payments.15

Competition in India
The Indian e-commerce market’s promise of rapid growth had already attracted several players,
domestic and international, to the Indian e-tailing scene. Some of the largest in terms of revenue and
market share included Flipkart, Snapdeal, and eBay.

Flipkart
In 2007, two ex-Amazon employees, Sachin Bansal and Binny Bansal (no relation), launched Flipkart,
which became the leading domestic e-tailing company in India (https://www.flipkart.com). Having
copied some of Amazon’s business model throughout the country, Flipkart’s founders had been able to
capture 4.9 percent of the very fragmented Indian e-commerce market by 2013 (Amazon held 1.6
percent and eBay 1.2 percent).16 Flipkart found quick success by developing its own logistics network
and by adopting the “cash on delivery” payment option in 2010 in order to adjust to the cash-centric
payment habits of Indian consumers. Since its launch in 2007, Flipkart had been dependent primarily
on funding from venture capital firms.

Snapdeal
Although they founded Snapdeal.com as an e-coupon website in 2010 (similar to Groupon in the
U.S.), Kunal Bahl and Rohit Bansal decided to revamp their site after a trip to China in 2011 during
which they witnessed the dynamic growth of the Chinese e-tailing giant Alibaba. Using Alibaba for
inspiration, Bahl and Bansal re-created Snapdeal.com in 2011 as an e-commerce marketplace (https://
www.snapdeal.com). Valued at $1 billion in June 2014, Snapdeal had relied heavily on funding from its
investors.17 The largest of these was American e-commerce firm eBay, which invested $50 million in
2013 and was the largest investor in Snapdeal’s approximately $134 million round of funding in the
first quarter of 2014.18 Other investors in this round included Intel Capital, Saama Capital, Nexus
Venture Partners, Bessemer Venture Partners, and Kalaari Capital.19
Attempting to replicate Alibaba’s business model in India, Snapdeal offered 5 million products from
over 30,000 sellers—much more than Flipkart’s network of 3,000 sellers as of May 2014. Similar to
Alibaba’s logistics strategy, Snapdeal opened 40 fulfillment centers in 15 cities across India with which
it stored and shipped sellers’ products for a fee.20 Snapdeal planned to open 35 more within the next
year.21

eBay
The American e-commerce giant entered the Indian market in 2005 after it acquired Baazee.com,
India’s largest online marketplace at the time, for $50 million plus acquisition costs.22 Initially, eBay
took a cautious approach in India while other e-commerce startups were aggressively investing to grab
market share early on. In its infancy, eBay.in concentrated only in selling gift items such as chocolates
and flowers from third-party traders.23 However, eBay has since invested heavily to ensure its place as
a leader in the Indian e-commerce market. By 2014, eBay India listed over 2,000 specific product
categories from 45,000 traders.24 Similar to its model in the U.S., eBay was functioning solely as a
marketplace in India, and offered products for auction as well as for a set price.
Much of its investment had gone into logistics options for its traders as well as into other Page CS3-30
companies. In 2012, eBay.in launched its PowerShip program option, in which eBay coordinated
shipping for its member traders among its logistics partners in India—FedEx, BlueDart, DTDC, and
Aramex. For set PowerShip rates, eBay’s logistics partners would pick up products packaged in eBay
packing material directly from sellers and ship them to the buyers. With PowerShip, sellers could offer
prepayment or cash-on-delivery options to be handled by their eBay Paisapay account, an escrow
account that transferred money from buyer to seller after receipt of the purchased goods.
As mentioned above, eBay’s investments included funding Indian e-commerce retailer Snapdeal. In
return for its investment, eBay acquired permission to access Snapdeal’s 20-million-person user
database as well as its logistics network.25

Amazon’s India Approach

Prior to Amazon.in, Amazon already had thousands of employees in India performing customer
service, software development, and back office functions.26 In addition, in February 2012, Diego
Piacentini and Amazon’s VP for International Expansion, Amit Agarwal, led Amazon’s investment in
Junglee.com, an online product review site that listed over 10 million products, toward the Indian
market. Through the site, customers could compare reviews, pricing, and shipping details for each
product listed.27 Piacentini and Agarwal were determined to formulate a strategy that would best
leverage their learnings from nearly a decade of operations in China. Rather than making piecemeal
investments over their first few years of operation, Piacentini and Agarwal decided to invest big from
the start. They recognized that their competitors had a head start of five to nine years to adapt their
businesses to the Indian market, and so Amazon needed to develop a competitive strategy.
Agarwal brought local knowledge and deep company experience to this endeavor. The Mumbai-born
new vice president and country manager for Amazon India had joined Amazon in 1999 after earning
his computer science degrees at the Indian Institute of Technology–Kanpur and Stanford University.
He rose through the ranks from software development at Amazon headquarters to managing director
of Amazon’s Development Center in Bangalore and then “Shadow and Technical Advisor” to Bezos.
After the launch of Amazon.in in June 2013, much of Amazon’s initial Indian investments went to its
core strength in logistics, as the company learned to adjust to the difficulties of distribution in India.
Just prior to the launch, Amazon had completed the construction of a 150,000-square-foot fulfillment
center just outside Mumbai. It later built one of similar size in Bangalore to serve southern India. With
so much of India’s retail space dominated by local mom-and-pop shops, Agarwal and Piacentini
decided to offer a “Fulfillment by Amazon” program in which Amazon enabled sellers to store their
products at an Amazon distribution center and have Amazon handle the delivery for a fee. Eventually
three out of every four orders on Amazon.in were fulfilled by Amazon.28
Agarwal and Piacentini decided to further differentiate Amazon from its Indian competitors by being
the first e-tailer to offer next-day shipping for the orders it fulfilled. In order to compensate for the
difficulty of locating addresses and to ensure timely delivery of its sellers’ products, Agarwal also
added PIN code (postal codes similar to ZIP codes in the U.S.) and landmark fields on the delivery
information page, reaching 21,000 PIN codes versus other retailers’ 12,000.29
Since Amazon would function solely as a marketplace in India, seller acquisition was a major priority
for establishing market share. To attract domestic sellers across India, Piacentini and Agarwal offered
sellers a promotion for a two-year membership agreement with the first year free of cost. After the first
year, members were only required to pay Rs 499 ($8.27) per month in addition to Amazon’s
commission charge of 4–8 percent (4 percent for most electronics, 8 percent for watches and jewelry)
and a Rs 10 ($0.17) “closing fee” for each transaction. Piacentini and Agarwal also stressed educating
Indian sellers on Amazon’s platform and services. For small retailers with little to no online selling
experience, Amazon offered a pilot service called “Mainstreaming Sellers/SMEs” to teach them how
to transact online, catalogue their products, and accept online payments. In addition, sellers could
utilize the “Fulfillment by Amazon” option to give responsibility for delivery to Amazon.30
In order to attract buyers from India’s growing number of Internet users, Piacentini and Agarwal
offered multiple incentives for those who referred customers to or bought products from Amazon.in.
In the beginning stages of operation in India, Amazon offered free shipping for the orders it fulfilled. It
also offered permanent free shipping on all orders fulfilled by Amazon over Rs 499.31 Piacentini and
Agarwal also introduced the Amazon Associates Program, which offered a commission to all online
publishers (e.g., bloggers, businesses, authors, nonprofits, and personal websites) who directed their
viewers to Amazon.in via a link to a “contextually relevant product.” If a purchase was made, the
commission for referrals would range between 5 percent for consumer electronics and 10 percent for
most other product categories, such as books and movies, and would cover all purchases made by the
referred customer.32 Piacentini and Agarwal also attracted buyers by replicating the cash-on-delivery
option it had offered in China. In addition to online payment options such as credit cards, debit cards,
and bank transfers, cash-on-delivery would allow Amazon customers to pay for their merchandise at
the time of delivery. However, this option had tended to delay payments to Amazon up to one week.33
E-retailers in India appeared to be fighting to offer the largest selection of products at the Page CS3-31

lowest cost and with the fastest delivery times. Just after Amazon introduced next-day delivery,
Flipkart announced that it would be offering “In-a-Day Guarantee” delivery. Soon after, both
companies began to offer same-day delivery in a number of cities if ordered before a certain time.34
While Amazon waited for its rivals to take the lead on the e-tailing side for many years in India, the
firm had entered China a decade earlier in 2004.

The World’s Largest Market: China

In 2002, China had an estimated 27 million online consumers,35 rising to over 80 million in
2004.36 By 2014, the country was expected to reach 650 million online consumers.37 In 2002, China’s
e-commerce market was valued at an estimated $1.3 billion, growing to over $16 billion by 2005–
2006.38 At the start of 2014, China’s e-commerce market was valued at over $300 billion, expected to
reach $540 billion by 2015. Growing at a compound annual rate of nearly 70 percent, China’s e-
commerce market was scheduled to surpass the U.S. as the largest e-commerce market in the world.39
According to World Bank data, China recorded 621.7 million Internet users in 2013, approximately 46
percent of China’s 1.4 billion population and more than double the amount of Internet users in the
U.S. at 266.2 million.
At an investor conference in 2013, Jack Ma, founder and chairman of Chinese e-commerce giant
Alibaba Group, remarked, “In other countries, e-commerce is a way to shop, in China it is a
lifestyle.”40 Chinese consumers were known to use social media extensively. According to McKinsey
& Co., China’s 300 million users of social media spent more than 40 percent of their time on the
Internet browsing blogs and social networking sites.41 Using popular social media sites such as
WeChat and Weibo, Chinese users often accessed and posted product reviews, got buy/don’t buy
product advice from “key opinion leaders” and friends, and saw advertisements of featured products
from retailers.42
Chinese consumers were also becoming very active shoppers on mobile devices. With the largest
volume of mobile e-commerce transactions in the world, China expected purchases via mobile device
to reach $41.4 billion by 2015 from only $7.8 billion in 2012. This volume of mobile transactions
attested to the Chinese consumer’s craving for fast shopping at any time of the day.43
China, however, did not represent a consistent market from region to region. KPMG International
highlighted that customers in “tier-1” cities such as Beijing and Shanghai varied drastically in their
shopping preferences and purchasing decisions from other consumers in smaller markets, such as
Xi’an and Fuzhou. Sales volume for higher-end goods, such as cars, jewelry, and handbags, was much
greater in Shanghai than in smaller coastal and inland cities. This trend was also true for brand loyalty,
as consumers in China’s smaller markets favored different products and tended to stress current
fashion styles less than those in larger cities.44
By operating in a communist-led country, Amazon faced limitations on its operations that it had not
encountered in its prior international experience. Chinese law regulated and restricted Amazon’s
Internet content, as well as its sale of any media-related products or services. In addition, Chinese law
demanded that Amazon’s website, www.amazon.cn, be operated by a Chinese-owned corporation in
order to comply with local ownership laws.45

Competition in China, 2004–2014

While the Chinese online commerce market had consolidated significantly by 2014, the competitive
landscape in the nascent market of 2004 was far more fragmented. All the players started with
somewhat different business models that would continue to evolve. Central competitors in the early
battle for Chinese market share included Alibaba and Jingdong.

Alibaba
Founded in 1999 by Chinese entrepreneur Jack Ma, Alibaba.com was launched in Hangzhou as an
online forum for Chinese manufacturers to sell their products to domestic and overseas buyers. In
2002, Alibaba made its first profit, only $1. It “badly trailed” EachNet, according to The Wall Street
Journal.46 By 2014, Alibaba Group with Jack Ma as chairman operated several web services, including
two of China’s largest e-commerce sites, Taobao.com and Tmall.com. However, faced by competition
from eBay EachNet, little- known Alibaba’s quest for market share in the early 2000s was not easy.
In response to the eBay-Eachnet acquisition, Alibaba launched Taobao.com in 2003 as a way of
preventing eBay from taking away its customer base.47 Taobao.com began as a marketplace and
auction site that would later serve as a pure marketplace that connected merchants of all sizes to a
network of millions of consumers. According to Helen Wang, author of The Chinese Dream, given that
Chinese users at the time were unfamiliar with Internet auctions, only 10 percent of Taobao’s product
listings were available for auction, as opposed to 40 percent for eBay EachNet. Alibaba also offered
longer and more flexible listing periods for its auction products. Furthermore, to cater to China’s 300
million cell phone users (compared with only 90 million Internet users at the time), Taobao offered its
buyers and sellers the option of communicating via instant messaging and voice mail.48
The marketing strategies of the two companies also reflected their different knowledge and Page CS3-32
experience. eBay purchased exclusive rights to Internet ads on major Chinese portals Sina, Sohu, and
Netease, whereas Ma blitzed the major TV channels with Taobao ads. At the time, many more Chinese
were in front of their TVs than on the Internet. Most importantly, Taobao charged no commission fees
to its sellers. Signing up was very easy—even five minutes was enough to register on the site.49 Many of
these differences appealed to the Chinese and helped Taobao to quickly overtake eBay Eachnet. In
2013, Taobao recorded 7 million sellers and over 800 million product offerings.50
Tmall was Alibaba’s next offering. It was a business-to-consumer marketplace designed for bigger
merchants and major labels, such as Nike and Gap. Each business selling products on Tmall was
required to pay a deposit to set up its business and then charged a fee on each transaction. Created in
2008 as part of Taobao.com, Tmall.com officially became its own website in June 2011.51 By the end
of 2012, Tmall had attained a 51.5 percent share of the Chinese business-to-consumer marketplace (see
https://www.tmall.com for Tmall’s homepage and https://world.taobao.com for Taobao’s homepage).
In 2013, combined transaction volume for the two sites equaled $240 billion, more than the
transactions for Amazon and eBay combined (approximately $100 billion and $75 billion, respectively)
(see Appendix E to compare Alibaba with major western Internet companies). According to The
Wall Street Journal, Alibaba controlled nearly 80 percent of all Chinese e-commerce in 2013.52
Alibaba Group filed for an initial public offering in the U.S. on May 6, 2014, with analysts valuing the
company at over $150 billion. Alibaba sought to be listed on the New York Stock Exchange (NYSE)
with the ticker BABA. As of the time of the case, Alibaba had since filed various amendments
throughout the summer in response to requests for additional information for SEC approval. The
expected IPO date had been pushed back to September 2014.

Jingdong Mall/JD.com
Other major competition came from Jingdong Mall (JD.com), formerly known as 360buy.com.
Reportedly founded in 1998, its marketplace went online in 2004. In 2012, Jingdong Mall had a
53
market share of 22.7 percent, making it China’s third-largest Internet retailer.53 Total merchandise
sales reached $16.39 billion in 2013.54 In March 2014, TenCent Holdings, a leader in online games
and mobile messaging (through WeChat) agreed to acquire a 15 percent stake in JD.com for $215
million, in a move to enter the rapidly growing mobile commerce market.55

Amazon’s China Experience

Amazon first entered China in 2004 by acquiring Joyo.com for $75 million. Amazon’s entry came at a
time when China’s GDP was growing at a rate near 10 percent each year, accompanied by a small but
growing Internet user base of 94.6 million people (7.3 percent of the 1.3-billion-person population) and
an e-commerce market estimated to be worth $8.6 billion. In 2004, Joyo.com had 5.2 million
registered users as well as projected revenues of $15 million.56 Within six months of the acquisition, a
little earlier than expected from the time of due diligence, the management team had departed.57
For its first year in China, Amazon operated under Joyo.com’s domain name, mainly offering books,
DVDs, and CDs to its customers in China’s largest cities of Beijing, Shanghai, and Guangzhou.
Despite the departure of Joyo’s management team, the transition was seamless to the Chinese
consumer.58 By 2007, Amazon had increased its product offerings thirty-two-fold, offering electronics,
baby products, beauty care products, and watches. With $26.1 million in sales in the last quarter of
2006, Joyo.com’s market share had reached 12 percent.59 In 2007 Amazon changed the domain name
from joyo.com to amazon.cn, with Joyo Amazon as its name in Chinese. Amazon was renamed
Amazon China in 2011, pronounced in Mandarin as “Yamashi.”60 Amazon finally launched its Kindle
e-reader in China in June 2013.
Amazon strived to replicate the acclaimed customer experience it delivered to consumers in developed
markets. For instance, Piacentini liked to tell an anecdote about the delivery of a new Harry Potter
book in Chinese on its publication date in 2005. Amazon China delivered 5,000 books on schedule.
However, when a competitor undercut Amazon’s price by 5 RMB (less than $1), Amazon issued a
refund for the difference to the customers, who were not expecting a refund. This gained Amazon
much positive publicity, and Piancentini hailed it to be the firm’s best public relations and marketing
move in China for the year.61
Amazon had to drastically adjust its logistics operation in China. To start, Amazon used Joyo.com’s
three existing fulfillment centers located in Beijing, Shanghai, and Guangzhou. From there, Amazon
distributed orders to its other 30 delivery centers across the country.62 Piacentini and his team
eventually expanded Amazon’s distribution network by creating 15 fulfillment centers across China, its
largest logistics operation outside the U.S. Differently from its U.S. model at the time, Amazon played
a large role in the last leg of the delivery process. Amazon started to handle deliveries in-house by
hiring employees to transport the merchandise the “last mile” to the customer. Instead of vans or
trucks, however, intra-city deliveries in China were commonly carried out on bicycles or scooters due
to China’s tendency for traffic-filled roads.63 When Amazon entered China in 2004, overnight
deliveries had only recently been made possible due to new developments in truck, rail, and aerial
transport.64
Amazon initially faced payment challenges similar to those it encountered later on in India. Page CS3-33
In the early 2000s, many Chinese customers were reluctant to pay in advance for their purchases with
a credit card. As a result, Amazon’s China team adopted Joyo.com’s cash-on-delivery option.
Furthermore, Amazon began to offer free shipping on all purchases through its site. Joyo.com also
offered product recommendations to customers based on their past purchase history, something that
had proved successful in other Amazon markets.65
Despite its early investment and efforts, Amazon’s share of the Chinese business-to-consumer e-
commerce market stood at a mere 3.5 percent at the end of 2012.66 However, as noted by Piacentini,
Amazon had at least made its way into the top five e-commerce websites by January 2014.67 On the
one hand, Piacentini knew there had been mistakes in China, but on the other hand, the glass was half
full.

Another Emerging Market: Brazil

Amazon launched Amazon Brazil (home to Amazon’s namesake) in December 2012, just six months
before launching its India site. Brazil joined China and India as one of the world’s largest emerging
markets, ranked seventh in the world by GDP at $2.2 trillion. In 2013, 51.6 percent of Brazilians used
the Internet, or 103.4 million people out of a population of 200.4 million. According to McKinsey &
Company, 85 percent of Brazil’s population would have access to mobile broadband by 2015, a
population that had increasingly used mobile applications to purchase products and follow retailers.68
Despite a record 7.5 percent GDP growth rate in 2010, however, Brazil experienced an economic
downturn from the end of 2013 through the first half of 2014. Brazil’s GDP growth rate reached a
mere 2.3 percent in 2013 and was expected to grow by only 1.5 percent through 2014. Low retail sales,
declining commodity exports, and reduced production levels served as evidence of the downturn.69 At
the start of 2014, Brazil’s e-commerce market was valued at over $11 billion.70
In 2014, Brazil ranked 116th in the World Bank’s “Ease of Doing Business” measure, ranking as low as
159th out of 189 countries in ease of paying taxes. Parts of Brazil also varied drastically in terms of
transportation infrastructure. Many major rail, road, and port construction projects that were started
in the 1970s during the “Economic Miracle” period in Brazil had been left unfinished across the
country. For example, over half of the Trans-Amazonian Highway, intended to connect the eastern and
western regions of Brazil in 1972, remained unpaved as well as impassable during rainy seasons.
According to Brazil’s National Confederation of Transportation, 69 percent of Brazil’s roads remained
in poor condition, often narrow and dotted with potholes.71 Brazil’s poor roadways, inefficient
railways, and crowded airspace had led the World Economic Forum to rank Brazil 104th out of 142
countries measured in terms of “quality of overall infrastructure.” Brazil ranked behind both China
(69th) and India (86th).72

Competition in Latin America

MercadoLibre
Launched in 1999 by Stanford MBA student Marcos Galperin, MercadoLibre (MercadoLivre in
Portuguese, meaning “free market” in English) served as Brazil’s largest e-commerce marketplace for
buyers and sellers (https://www.mercadolivre.com.br). With headquarters in Buenos Aires, Argentina,
MercadoLibre offered country-specific sites in 13 countries throughout Latin America and in Brazil
and Portugal. Benefitting from first-mover advantage in Brazil in October 1999, MercadoLibre’s
marketplace had 20.2 million unique buyers and 5.1 million unique sellers by 2013. MercadoLibre’s
Brazil site accounted for 43.7 percent of its total revenues of $472.6 million, reaching $206.4 million in
2013, 14.9 percent higher from the year before.
In addition to its marketplace, MercadoLibre offered MercadoPago, an escrow-based payment service
that was one of the firm’s most important revenue streams—enabling payments for transactions in an
environment where credit card penetration was limited. Other business lines include MercadoEnvios, a
shipping solution for sellers; Advertising Services; Classified; and Online Stores Service, which gave
sellers the ability to create their own web stores integrated with the MercadoLibre marketplace.73

Saraiva
Saraiva, Brazil’s largest bookstore chain and leading book publisher, was another competitor for
Amazon. Selling books, CDs, and DVDs from its Internet site (www.livrariasaraiva.com.br), Saraiva
offered 15,000 Portuguese e-book titles in 2013, as opposed to Amazon’s 13,000.74 Perhaps in
response, Amazon added 15,000 more e-books at the start of 2014. Amazon was rumored to have been
in talks to buy Saraiva’s Internet business in October 2012, just months before starting its Kindle Store
in December. As of 2012, Saraiva refused to sell any of its own published 2,500 e-books to its
competition, including Amazon.75

Page CS3-34

Amazon’s Approach in Brazil

Faced with webs of tax codes, labor laws, logistics challenges, and strong competition from established
Latin American e-commerce player MercadoLibre, Amazon ultimately launched in Brazil by only
introducing its Kindle (e-book) Store. Estimates suggested that Brazilians purchased 435 million books
in 2012, valued at $2 billion.76 However, e-books accounted for only 3 percent of these sales.77 Upon
its launch, Amazon listed 1.4 million e-book titles on its site, 13,000 of which were offered in
Portuguese.78 Amazon’s launch of its Kindle Store, however, came only after lengthy negotiations with
Brazilian book publishers who wanted control over pricing in fear of Amazon’s aggressive discounting
strategies. To date, Amazon had formalized contracts with over 30 book publishers, prominently
including the Distribuidora de Livros Digitais (DLD) group, whose seven publishers controlled close
to 35 percent of the market and whose demands caused Amazon to delay its entry into the country.79
As of February 2014, Amazon had increased its e-book selection to 28,000 titles in Portuguese, Brazil’s
national language.80
In addition to its Kindle Store, Amazon introduced its Kindle e-reader in Brazil in February 2014. As
of then, Amazon planned to leave logistics to its external partners in Brazil.81 In June 2014, Amazon’s
Kindle Paperwhite retailed for R$479 (USD 215.62) on Amazon.com.br, nearly twice its price in the
U.S. of $119.82 This significant price difference could most likely be attributed to Brazil’s high duties
on electronics imports. Amazon offered customers the option to pay for the Kindle in up to 12
installments, given the predilection for Brazilian consumers to use payment plans for expensive

83 84
products.83 Amazon also offered free shipping on its Kindle products.84 The Kindle may not be the
only physical product Amazon would choose to sell moving forward.

Other Markets: Diversity in Geography, Products,

and Customers
Most recently, similar to its approach in Brazil, Amazon launched its Kindle Store in Mexico in
August 2013 (www.amazon.com.mx), its 12th international expansion as of July 2014.85 On the other
side of the globe, Amazon was also making a move. According to Forbes’ Russian language site,
Amazon established its first office in Russia, rumored to be headed by HBS graduate Arkady Vitrouk,
director for Kindle Content at Amazon EU.86 With 76.5 million Internet users (53.3 percent of the
population) and an e-commerce industry expected to grow to $36 billion by 2015 from only $12 billion
in 2012, according to Morgan Stanley, Russia would be an attractive market for Internet retailers in the
years to come.87 However, Russian laws, political uncertainty, and poor infrastructure would inhibit e-
commerce growth in this market.
Previously, in 2008, Amazon was rumored to have entered an exclusive distribution agreement with
the Saudi Arabian e-commerce firm Taufeer.com to become a part of its e-channel retailers program.
Through Taufeer.com, Amazon would be able to sell its products to millions of people across the
Middle East.88 According to an article from March 15, 2009, in Asharq Al-Awsat, an Arabic
international newspaper, Amazon had sent $280 million of merchandise to the Kingdom of Saudi
Arabia since 2007.89 However, no mention of such an agreement existed in Amazon’s company
records and the Taufeer.com website was defunct as of 2014.
While Piacentini spearheaded Amazon’s international strategy, the rest of Amazon’s leadership
continued to focus on developments in new products, services, and logistics. In order to increase its
role in logistics, Amazon had tried its own hand at delivery with Amazon Fresh in select cities across
the U.S. It had also been experimenting with 30-minute delivery using drone technology.
In terms of new products and services, Amazon introduced the second generation of the Kindle
Paperwhite, the Kindle Fire HDX, and its Amazon Fire Phone in the year leading up to July 2014.
Furthermore, Amazon was expanding its Amazon Web Services (AWS) to reach over 190 countries.90
In December 2011, Amazon announced a Sao Paulo Region for AWS (
https://aws.amazon.com/pt/), and later introduced a Beijing Region in December 2013 (
www.amazonaws.cn).91 Amazon also catered to AWS customers on the Indian subcontinent by
opening Edge locations in Chennai and Mumbai in July 2013.92 Through offerings such as AWS and
its Kindle Store, it seemed that Amazon’s international strategy could perhaps transcend the domain
of physical consumer products.
Whether Amazon would choose to continue its expansion in Latin America, capitalize on Page CS3-35
Russia’s dynamic e-commerce growth, export its business model to the Middle East, or stay focused on
its current markets, the road to success in emerging markets would not be an easy one for Bezos and
Piacentini. However, according to Bezos’s oft-repeated mantra, “it’s still Day 1” for Amazon, for every
one of its markets around the world.
Acknowledgments
The authors thank Nowfal Khadar (MBA, 2014) for his insights in the creation of the India portion of
this case.

Questions
1. Did Amazon succeed in China? What did it learn?
2. Did Amazon make sensible choices in its emerging markets entry strategies? Consider location,
entry mode, and timing.
3. How should companies and investors measure success in emerging markets?
4. Should Amazon enter additional emerging markets immediately? If so, why and where? If not, why
not and where should its focus be? More broadly, how sustainable is Amazon’s simultaneous pursuit
of geographic, horizontal, and vertical expansion?

APPENDICES

Appendix A1 Amazon Country-Specific Web Pages

Country Web URL Launch Year

Germany www.Amazon.de 1998
United Kingdom www.Amazon.co.uk 1998
France www.Amazon.fr 2000
Japan www.Amazon.co.jp 2000
Canada www.Amazon.ca 2002
China www.Amazon.cn 2004
Austria www.Amazon.de1 2009
Italy www.Amazon.it 2010
Spain www.Amazon.es 2011
Brazil www.Amazon.com.br2 2012
India www.Amazon.in June 2013
Mexico www.Amazon.com.mx2 August 2013
Australia www.Amazon.com.au2 November 2013
1Amazon Austria (www.Amazon.at) operates within Amazon Germany (Amazon.de)

2Web page functions solely as a Kindle Store

Source: “History & Timeline,” Amazon.com, July 2014, online.

Page CS3-36
Appendix A2 Amazon Global (Non-U.S.) Locations

North America
Development
Canada Centers Fulfillment Centers Subsidiaries
Toronto Delta, British Columbia AbeBooks.com
Vancouver Mississauga, Ontario Victoria, British
Columbia
Mexico Corporate Offices
Mexico City
Costa Rica Customer Service
Heredia
San Jose
Africa
South Africa Development
Center
Cape Town
Egypt Egypt Subsidiary
The Book Depository
Alexandria
Morocco Customer Service
Center
Rabat
Europe
Luxembourg European
Headquarters
Luxembourg City
France Corporate Offices Fulfillment Centers Amazon Web Services
Paris Montelimar Sevrey Marseille
Saran (Orléans) Paris
Germany Corporate Offices Fulfillment Centers Customer Service
Center
Munich Augsburg Leipzig Berlin
Werne Pforzheim Regensburg
Development Koblenz Rheinberg
Centers
Dresden Bad Hersfeld Amazon Web Services
Berlin Frankfurt
North America
Development
Canada Centers Fulfillment Centers Subsidiaries
Ireland Development Customer Service Amazon Web Services
Center Center
Dublin Cork Dublin
The Development Amazon Web Services
Netherlands Center
The Hague Amsterdam
Italy Corporate Offices Fulfillment Center Amazon Web Services
Milan Castel San Giovanni Milan
Poland Amazon Web
Services
Warsaw
Romania Development
Center
Iasi
Slovakia Corporate Office
Bratislava
Spain Corporate Office Fulfillment Center Amazon Web Services
Pozuelo de Alarcon, San Fernando de Madrid
Madrid Henares
Sweden Amazon Web
Services
Stockholm
United Corporate Offices Fulfillment Centers Customer Service
Kingdom Center
Slough, Berkshire Hemel Hempsted Page CS3-37

Edinburgh, Scotland
Hertfordshire
Development Marston Gate, Milton Amazon Web Services
Centers
Edinburgh, Scotland Keynes London
London, England Swansea, Wales
Dunfermline, Fife,
Scotland
United Kingdom Gourock, Inverclyde,
Subsidiaries Scotland
North America
Development
Canada Centers Fulfillment Centers Subsidiaries
dpreview.com— Doncaster, South
London Yorkshire
IMDb—Slough, Petersborough,
Berkshire Cambridgeshire
Rugeley, Staffordshire
Asia
China Corporate Fulfillment Centers Customer Service
Headquarters Center
Beijing Beijing Chegdu Beijing
Guangzhou Wuhan Amazon Web Services
Shenyang Xiamen Beijing
Suzhou Xi’an (Hong Kong)
India Corporate Offices Fulfillment Centers Customer Service
Center
Bangalore Mumbai Hyderabad
Chennai Bangalore Amazon Web Services
Hyderabad Mumbai
Chennai
Japan Corporate Fulfillment Centers Customer Service
Headquarters Centers
Meguro Daito Sakai Sapporo
Ichikawa Takimi Sendai
Kawagoe Tosu Amazon Web Services
Kawashima Tachiyo Tokyo
Odawara Osaka
The Amazon Web
Philippines Services
Manila
South Korea Amazon Web
Services
Seoul
Singapore Amazon Web
Services
Singapore
Taiwan Amazon Web
Services
 North America
Development
Canada Centers Fulfillment Centers Subsidiaries
Taipei
South America
Brazil Corporate Offices Amazon Web Services
Sao Paulo Sao Paulo
Rio de Janeiro
Australia
Corporate Offices Amazon Web Services
Melbourne Melbourne Sydney
Sydney Sydney
Brisbane
Source: “Amazon’s Global Locations,” Amazon.com, July 2014, online.

Page CS3-38

Appendix B Amazon Consolidated Financial Results ($millions, except per share data)

Year Ended December 31

Statements of Operations: 2013 2012 2011 2010 2009
Net sales $ 74,452 $ 61,093 $ 48,077 $ 34,204 $ 24,509
Income from operations $ 745 $ 676 $ 862 $ 1,406 $ 1,129
Net income (loss) $ 274 $ (39) $ 631 $ 1,152 $ 902
Basic earnings per share $ 0.60 $ (0.09) $ 1.39 $ 2.58 $ 2.08
Diluted earnings per share $ 0.59 $ (0.09) $ 1.37 $ 2.53 $ 2.04
Weighted average shares used in computation of earnings per share:
Basic 457 453 453 447 433
Diluted 465 453 461 456 442
Statements of Cash Flows:
Net cash provided by (used $ 5,475 $ 4,180 $ 3,903 $ 3,495 $ 3,293
in) operating activities
Purchases of property and (3,444) (3,785) (1,811) (979) (373)
equipment, incl. internal-
use software and
development
Free cash flow $ 2,031 $ 395 $ 2,092 $ 2,516 $ 2,920
Source: 2013 Amazon.com Annual Report, April 10, 2014, http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual.
 Appendix C Amazon Partial Break-out of International Revenues ($millions)

Year Ended December 31

2013 2012 2011
Germany $10,535 $8,732 $7,230
Japan 7,639 7,800 6,576
United Kingdom 7,291 6,478 5,348
Source: 2013 Amazon.com Annual Report, April 10, 2014, http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual.

Appendix D Internet Users (per 100 people)

Country 2009 2010 2011 2012 2013

Brazil 39.2 40.7 45.7 48.6 51.6
China 28.9 34.3 38.3 42.3 45.8
France 71.6 77.3 77.8 81.4 81.9
Germany 79.0 82.0 81.3 82.3 84.0
India 5.1 7.5 10.1 12.6 15.1
Japan 78.0 78.2 79.1 86.3 86.3
Mexico 26.3 31.1 37.2 39.8 43.5
Russian Federation 29.0 43.0 49.0 63.8 61.4
South Africa 10.0 24.0 34.0 41.0 48.9
Turkey 36.4 39.8 43.1 45.1 46.3
United Arab Emirates 64.0 68.0 78.0 85.0 88.0
United Kingdom 83.6 85.0 85.4 87.5 89.8
United States 71.0 71.7 69.7 79.3 84.2
Source: “Internet Users (per 100 people),” World Bank, 2014, online.

Page CS3-39

Appendix E1 Comparison of Selected Electronic

Commerce/Technology Companies
 Source: Osawa, Juro, Paul Mozur, and Rolfe Winkler. “Alibaba Flexes Muscles Before IPO.” The Wall Street Journal. 15
April 2014.

Appendix E2 Comparative Metrics, Selected Electronic

Commerce/Technology Companies 2013

Note: Alibaba total includes Taobao and Tmall only.

Source: Osawa, Juro, Paul Mozur, and Rolfe Winkler. “Alibaba Flexes Muscles Before IPO.” The Wall Street Journal. 15
April, 2014.

Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan. ©2014 Amy Nguyen-Chyung and Elliot Faulk. This case was
written by Elliot Faulk and Amy Nguyen-Chyung (Assistant Professor of Strategy) of the Ross School of Business at the University of Michigan. It was created as a basis for
class discussion, not to illustrate either the effective or ineffective handling of a business situation. Secondary research was performed to accurately portray information about
the featured organization and to extrapolate the decision points presented in the case; however, company representatives were not involved in the creation of this case.
 Page CS4-1
Cases 4
DEVELOPING GLOBAL MARKETING STRATEGIES

©John Graham

OUTLINE OF CASES

4-1 Tambrands—Overcoming Cultural Resistance

4-2 Futuram’s Risk Management Strategy
4-3 Sales Negotiations Abroad for MRI Systems
4-4 National Office Machines—Motivating Japanese Salespeople: Straight Salary or
Commission?
4-5 AIDS, Condoms, and Carnival
4-6 Making Socially Responsible and Ethical Marketing Decisions: Selling Tobacco to Third
World Countries
4-7 The Obstacles to Introducing a New Product into a New Market
4-8 Mary Kay in India
4-9 Noland Stores Cleans Up Its Act
 Page CS4-2

CASE 4-1 Tambrands—Overcoming Cultural

Resistance
Tambrands only sells one product: tampons. And 45 percent of what it sells it sells in one country: the
United States. Competitors such as Playtex Products and Kimberly-Clark are constantly at its heels.
The stakes of success or failure are high, complicated by the fact that new customers are hard to come
by—70 percent of women in the U.S. already use tampons.
In foreign markets, however, company executives try to paint a different picture. The opportunity
seems massive: Only 100 million women of the 1.7 billion eligible to use tampons do so. In
approaching the global market, the company split up the world into three segments, based on the
resistance levels of women in using tampons, rather than geography. Despite differences in the
segments, Tambrands is trying to reach each segment with a uniform approach.
Segment 1 is comprised of women who already use tampons and are very familiar with the product.
These consumers are based in countries such as the United States, the United Kingdom, and Australia.
In segment 2, in countries such as France, Israel, and South Africa, about half of women use tampons.
Cultural barriers there exist such as concerns about virginity and blocking natural flow. The company
tries to overcome these issues with gynecology-based scientific research. Segment 3 is the most
challenging but potentially the most lucrative group, based in countries like China and Russia. These
consumers also share virginity concerns but have an additional issue in how to use a tampon without
feeling uneasy, a message Tambrands needs to get across. Advertising approaches differ by country, but
Tambrands is trying to convey a consistent image for its Tampax tampons. The common thread is
women holding a blue box of Tampax with the tagline, “Tampax. Women Know.” No doubt tampons
are near the top of the list of products that are difficult to market globally.

Global Expansion
One consultant has said that the biggest hurdle to expanding the global market for tampons is
addressing religious and cultural traditions that suggest that insertion is basically wrong. The third
segment looks attractive from a marketing standpoint, but could be a huge pitfall.
Tambrands takes a different approach to advertising. Rather than stressing comfort, like many
products do, Tambrands faces the cultural and usage issues directly. In Brazil for example, selling
tampons is a delicate issue because of the fear of young women that they will lose their virginity.
Instead of tampons, beach going women in bikinis use pads and a waist wrap like a sweater to hide
usage. Tambrands new ad campaign in Brazil states, “Of course, you’re not going to lose your
virginity.” In China, another tough market, the strategy is more direct. An ad shows a Chinese woman
putting a tampon into a test tube filled with blue water. “No worries about leakage,” declares a
voiceover. The creative director of a Tampax $65 million global ad campaign for 27 countries wants to
stress frankness about tampons in a way women haven’t heard before.
However, being a single-product company, it is a risky proposition for Tambrands to engage in a global
campaign and to build a global distribution network all at the same time. Tambrands concluded that
the company could not continue to be profitable if its major market was the United States and that to
launch a global marketing program was too risky to do alone.

Procter & Gamble Acquires Tambrands

The company approached Procter & Gamble about a buyout, and the two announced a $1.85 billion
deal. The move puts P&G back in the tampon business for the first time since its Rely brand was
pulled in 1980 after two dozen women who used tampons died from toxic shock syndrome. Procter &
Gamble plans to sell Tampax as a complement to its existing feminine-hygiene products, particularly in
Asia and Latin America. Known for its innovation in such mundane daily goods as disposable diapers
and detergent, P&G has grown in recent years by acquiring products and marketing them
internationally. “Becoming part of P&G—a world-class company with global marketing and distribution
capabilities—will accelerate the global growth of Tampax and enable the brand to achieve its full
potential. This will allow us to take the expertise we’ve gained in the feminine protection business and
apply it to a new market with Tampax.” Market analysts applauded the deal. “P&G has the worldwide
distribution that Tampax so desperately needs,” said a stock market analyst. “Tambrands didn’t have
the infrastructure to tap into growth in the developing countries and P&G does.”
Page CS4-3

P&G Creates a Global Model

Despite the early promise that Brazil seemed to offer with its beach culture and mostly urban
population, P&G abandoned Tambrands’s marketing efforts there as too expensive and slow-growing.
Instead, it set out to build a marketing model that it could export to the rest of Latin America and
eventually the globe. P&G began studying cities in Mexico and chose Monterrey, an industrial hub of 4
million people—with 1.2 million women as its target customers—as a prime test spot. Research and
focus groups of Mexican women in Monterrey resulted in a new marketing approach based on
education.
The prevailing attitude in Latin America is that tampons are not for young women, especially in
countries that are predominantly Catholic. Only 4 percent of Italian women use tampons, for example.
In countries without adequate public health education in the schools, the concept is difficult to convey.
P&G reports that it finds many open boxes of tampons in stores, showing that many women are
curious about what exactly the product is and how it works.
Groups of young women in Mexico get together in homes of friends to learn about a product that is a
mystery to them. P&G pays the hostess, much like a Tupperware party, to explain tampons. She shows
a chart of the female body and gives out samples, stressing the freedom of discretion of tampons. A
few guests giggle. The presenter shows a slide deck about puberty and pours blue liquid through a
stand-up model of a woman’s reproductive system so the girls can see what happens inside their bodies
during periods. The tampon absorbs the blue liquid and the host explains that virginity isn’t lost using
a tampon. Still, when girls bring sample tampons home, mothers often say not to use them, and the
girls, even rebellious ones, agree. Both mother and daughter cite virginity fears, where marrying as a
virgin is the expected norm.
In-home demonstrations are accompanied by P&G representatives who speak to women in stores,
schools, gyms, even after the late shift in factories. They try to approach the subject with delicacy and
dignity. They try to avoid using the word “tampon,” which sounds very much like the Spanish word
“tampone,” which means plug. The product is called an “internal absorbent,” or just “Tampax.”
The campaign seemed to be paying off. Sales in Mexico tripled in the first year of the new marketing
campaign launch. Based on this success, P&G then went to Venezuela, a relatively small (23 million),
urban population with similar attitudes toward the importance of virginity. The more tropical weather
was a plus, as well, where women dress in more revealing clothing—it was thought that internally worn
tampons might appeal to consumers.
P&G marketers concluded Tampax advertising could be more promiscuous in Venezuela, but the
strategy backfired. Listing misconceptions, like “will I lose my virginity?” a P&G slogan touted, “La
ignorancia es la madre de todo los mitos,” or translated as “ignorance is the mother of all myths.”
Consumers were offended—one said, “In a Latin culture, ignorance and mother don’t go together.” The
idea was scrapped.
Instead, P&G settled on ads such as “Es Tiempo De Cambiar Las Reglas” for billboards, buses, and
magazines. Marketers realized that Venezuelans understand the pun: “Reglas” is the slang they use for
periods, but the tagline also translates as “It’s time to change the rules.”

Getting the Message Online

P&G always has been an early and aggressive adopter of new media, dating back to radio and
television. Continuing in this vein, Procter & Gamble is stepping up its Internet activity to use the web
as a marketing medium. P&G’s idea is to attract consumers to interactive sites that will be of interest
to particular target groups, with the hope of developing deeper relationships with consumers. Its first
step was to launch a website for teenage girls with information on puberty and relationships,
promoting products such as Clearasil, Sunny Delight, and Tampax. The website, www.beinggirl.com,
was designed with the help of an advisory board of teenage girls.
This site has been expanded to include an online interactive community for teen girls between 14 and
19 years of age, which urges teenage girls to get the most out of life. The site includes a variety of
subjects that interest teen girls, as well as an interactive game that lets girls pick from five available
“effortless” boyfriends. Characters range from Mysterious and Arty to Sporty. The chosen boyfriend
will send confidence-boosting messages and provide girls with a series of “Effortless Guides” to things
like football. If the girl gets bored of her boyfriend, she can dump him using a variety of excuses, such
as “It’s not you, its me,” and choose another. As one company source stated, “interactive websites have
become the number one medium, and boys are the number one topic for teenage girls.”
A feature of the site, “urban myths,” discusses many of the concerns about the use of tampons and
related products. Visit www.beinggirl.co.uk for the British market and www.beinggirl.co.in for a
comparable site for India. Hindustan Unilever has a similar campaign built around the Sunsilk Gang of
Girls (see www.hul.co.in/brands-in-action/detail/Sunsilk/303990/), including a Facebook page.
Public Health for Young Girls
In those markets where the web is not readily available to the target market, a more direct and personal
approach entails a health and education emphasis. The P&G brands Always and Tampax joined forces
with HERO, an awareness-building and fund-raising initiative of the United Nations Association, to
launch the “Protecting Futures” program, designed to help give girls in Africa a better chance at an
education.
Sub-Saharan Africa girls will miss four days of school in a month because of periods. Research shows
that 1 in 10 school-age girls in Africa skips school during menstruation or drops out at puberty
because of lack of sanitary, private facilities in schools. These absences might cause a girl to be home
10 to 20 percent of days when school is in session, handicapping her chances for educational success.
Protecting Futures works with HERO to bring puberty education to schoolchildren all over Africa. It
also adds or upgrades restroom facilities in school buildings. P&G supports this cause through its Live,
Learn, Thrive initiative, which has helped over 50 million children in need.
Also, the Tampax and Always brands took part in sponsoring the HERO Youth Ambassador program
through their teen-focused website. Twenty-four youth from across the United States became Youth
Ambassadors and traveled to Namibia and South Africa to become part of the Protecting Futures
program. Their experiences were documented in a series of webisodes to help teens to become global
citizens.
All of this effort was done with the idea that better health education and the use of the company’s
products would result in fewer days absent from school and, thus, better education for female students.

Questions
1. Tambrands indicated that the goal of its global advertising plan was to “market to each cluster in a
similar way.” Discuss this goal. Should P&G continue with Tambrands’s original goal adapted to the
new educational program? Why? Why not?
2. For each of the three clusters identified by Tambrands, identify the cultural resistance that must be
overcome. Suggest possible approaches to overcoming the resistance you identify.
3. In reference to the approaches you identified in Question 2, is there an approach that can be used to
reach the goal of “marketing to each cluster in a similar way”?
4. P&G is marketing in Venezuela with its “Mexican” model. Should the company reopen the Brazilian
market with the same model? Discuss.
5. A critic of the “Protecting Futures” program comments, “If you believe the makers of Tampax
tampons, there’s a direct link between using Western feminine protection and achieving higher
education, good health, clean water and longer life.” Comment.
Sources: Yumiko Ono, “Tambrands Ads Aim to Overcome Cultural and Religious Obstacles,” The Wall Street Journal, March 17, 1997, p. B8; Sharon Walsh, “Procter & Gamble
Bids to Acquire Tambrands; Deal Could Expand Global Sales of Tampax,” The Washington Post, April 10, 1997, p. C01; Ed Shelton, “P&G to Seek Web Friends,” The European,
November 16, 1998, p. 18; Emily Nelson and Miriam Jordan, “Sensitive Export: Seeking New Markets for Tampons, P&G Faces Cultural Barriers,” The Wall Street Journal,
December 8, 2000, p. A1; Weekend Edition Sunday, NPR, March 12, 2000; “It’s Hard to Market the Unmentionable,” Marketing Week, March 13, 2002, p. 19; Richard Weiner,
“A Candid Look at Menstrual Products—Advertising and Public Relations,” Public Relations Quarterly, Summer 2004; “Procter & Gamble and Warner Bros. Pictures Announce
‘Sisterhood’ between New Movie and Popular Teen Web Site,” PR Newswire, June 1, 2005; “Tampax Aims to Attract Teens with New ‘Effortless’ Message,” Revolution (London),
May 2006; “It’s Back; Dotcom Funding Has Jumped 10 Times to $166 Million,” Business Today, May 2006; “Emerging Markets Force San Pro Makers to Re-examine
Priorities,” Euromonitor International, November 2007; “Tampax and Always Launch Protecting Futures Program Dedicated to Helping African Girls Stay in School,” USA,
Discussion Lounge, Africa, December 4, 2007; “Can Tampons Be Cool?,” Slate, January 15, 2007, http://www.Slate.com; “Where Food, Water Is a Luxury, Tampons Are
Low on Priorities,” Winnipeg Free Press, February 10, 2008.
 Page CS4-5

CASE 4-2 Futuram’s Risk Management

Strategy
This story, all names, characters, and incidents described are fictitious. No identification with actual
persons, companies, places, or products is intended or should be inferred.
Normally, when Futuram is mentioned in newspapers, it’s usually for a new genetically engineered
seed. Yet this agricultural biotech firm, based in California, has turned to financial engineering to
ensure its profits.
At its January 2019 annual meeting, Futuram announced a profit of over $1B from its agricultural
products and technology solutions designed to improve farm productivity and product quality. And
while investors were pleased with this number, they were absolutely stunned by the fact that Futuram
made an even larger profit ($1.8B) from financial derivative transactions. Futuram, in order to protect
its profits against a weakening dollar, made large trades in foreign exchange options. These trades
doubled Futuram’s profits!
Some investors lauded management for making shrewd financial decisions. Others expressed concern
that the company was deviating too much from its mission, citing that Futuram was never intended to
be primarily a financial institution. So, do you think that Futuram is making wise financial decisions?
Or is the company heading down a new path that might endanger its bottom line?

Background
With headquarters in Sacramento, California, Futuram is a market leader in agricultural
biotechnology. As of 2019, its product line focused on crop science and agricultural biologicals. It
produces genetically modified (GM) seed for soybeans, sugar beets, and corn. In addition, it provides
fertilizers and herbicides to ensure more successful crop production. Its seed division is one of the top
suppliers of vegetable and fruit seeds worldwide.
 Jeff Roberson/AP Images

The company started in the late 1940s as a chemical company and focused its research on antiseptics
and pain relievers. Its owner, Thomas Warder, responding to the increasingly competitive
pharmaceutical industry, refocused Futuram’s research efforts on herbicides and fertilizers that would
improve farm yield. Since the early 2000s, Futuram has been recognized as a world leader in helping
farmers grow foods more sustainably, while protecting our natural resources.
Futuram is a publicly traded company, with 6 million ordinary shares held by the Warder family and 9
million shares held primarily by institutional investors.

Risk Management Policy

Futuram’s risk management policy was developed in response to poor performance and earnings in
the 1990s. Management learned its lesson, responding to
1. Lack of long-term debt and high cash balances. In fact, the company’s liabilities consisted of
minimal bank loans.
2. Exposure to a weaker dollar in the foreign exchange market. The company was promoting and
selling its product worldwide but had not focused attention on a weakening U.S dollar.

Hedging Foreign Currency Risk

Futuram chose to use derivatives for hedging foreign currency risk, or foreign-exchange risk—the risk
that a change in currency exchange rates will adversely impact a business.
In particular, the company focused on at-the-money exchange options. These options would lock in the
exchange rate close to the current spot rate.
For example, the US$–€ exchange rate stood at a spot rate of $1.33 per €. If Futuram bought one-year
put options on the U.S. dollar, at a strike of $1.31 per €, it would have the right to sell U.S. dollars one
year from now at a predetermined exchange rate of $1.31 per €. In this way, the company locked in a
minimum amount of euros it would obtain per U.S. dollar during conversion. Of course, the company
did not have to sell the U.S dollars at that rate and time, but this offered Futuram a level of protection
that it wanted.
Futuram decided that it would hedge its sales against negative movements in the exchange rate for the
next two years. To do this, the company bought and rolled over a portfolio of put options with various
maturities of up to two years. As of June 30, 2017, Futuram held options with a notional amount of €8
billion and a market value of about €0.5 billion. This means that if Futuram had exercised these put
options on June 30, 2017, it would sell about €8 billion worth of dollars at the predetermined exchange
rate given by the strike of the put options. That amount (€8 billion) was roughly two times the
company’s annual sales outside of the United States. So, the company’s goal of hedging against
exposure two years out would be met.
Futuram and its competitors differed in their approach to foreign exchange risks. While Futuram did
not believe you could ever outwit the market, certain competitors, such as The B. W. Group,
determined that their computer models could fairly accurately forecast exchange rates. Those
competitors did not choose to hedge against foreign exchange risks as heavily as Futuram did.

The Gordon Acquisition

In October 2016, Futuram acquired a 25 percent stake in Gordon, the England-based world leader in
animal husbandry and related computer hardware and software design. This move surprised analysts,
who believe that the company should stay focused on its core business of crop science. Gordon, a
much larger and more prominent company, was struggling to improve profitability. Its sales topped
$3B, while Futuram sales were less than $1B.
Futuram management believed they had a strong case supporting this decision. They had several
objectives:
1. Prevent outside investors from taking over and dismantling the company because Futuram depended
on Gordon for access to specific computer hardware and software that aided agricultural
development. In fact, Gordon’s programs offered the primary support for Futuram’s agricultural
innovations.
2. The two companies also were developing sustainability programs, which they deemed critical to
future corporate growth. Any takeover or breakup of Gordon by an unrelated party would
jeopardize these developments.

Critics noted that this seemed to be less about future development than about two Page CS4-6

companies protecting each other from possible hostile takeovers or capital market pressures for
improving profitability.
Gordon was a potential target for takeover and breakup, as it had been struggling for many years to
achieve and maintain a satisfactory level of profitability. Many analysts argued that the company
suffered from large inefficiencies. In particular, analysts criticized the use of profits from its animal
husbandry division to support expansion of its technology division.
For many years, the company had benefited from an old English law limiting the voting rights of any
shareholder to a maximum of 25 percent. Futuram was counting on a repeal of that mandate by the
European Commission. And, indeed, that was what happened. In February 2016, Futuram acquired
additional stock, raising its stake in Gordon to 29 percent.
It also announced that it had purchased enough call options on Gordon’s ordinary shares so that it
faced no price risk in this planned increase in its stake. Then, in November 2016, Futuram announced
that it had exercised options for the acquisition of an additional 3.5 percent of ordinary shares of
Gordon, increasing its stake to 32.5 percent.
Increasing its stake above 30 percent triggered, by law, a requirement to make a mandatory offer for
the remaining Gordon shares. Futuram, however, offered only the minimum price, as legally required:
€85.30 per ordinary share, 16 percent below the prevailing market price at the time. Not surprisingly,
few shareholders were interested in this offer. So, Futuram still held 29.8 percent of Gordon’s ordinary
shares and had options to buy another 3 percent. The mandatory offer expired in March. This left
Futuram free, should it choose, to increase its stake in Gordon up to 50 percent.
As you can see, Futuram used call options on Gordon stock extensively to build its stake in the
company. Management cited this choice as one that helped it hedge against the risk that its actions
would cause Gordon’s stock price to increase. It was unknown how many options Futuram held;
however, analysts believed it to be a significant number.

Evaluating Futuram’s Risk Management Decisions

Futuram’s foreign exchange hedges and the acquisition of the England-based Gordon stake
dramatically increased Futuram’s bottom line in 2019. On sales of about $4 billion, Futuram reported
pretax profits of $2.8 billion, up from $1 billion in 2018. Profits from its Gordon stock option trades
accounted for $1 billion of these profits. A further $.8 billion came from Futuram’s share of Gordon’s
profits, and thus “only” about $1 billion from its core business. Notice how much more profit came
from trades in financial derivatives than from its basic business.
Needless to say, these results garnered praise from many analysts. Some, however, criticized Futuram’s
management, noting that this was a matter of luck, not skill. This group believes that Futuram risks
much by not focusing on its core strengths and mission.

Conclusion
Futuram had been considered a company that emphasized cautious risk management. However, the
enormous profits garnered from transactions in financial derivatives led some analysts to question its
risk management approach. Should Futuram be involved in derivatives transactions on this scale? Was
its approach to growing its stake in Gordon a wise decision?
Questions
1. Chapter 18, “Pricing for International Markets,” discusses the financial side of marketing,
including currency fluctuations and foreign exchange variations. Discuss the risks and benefits of
financial activities outside the scope of traditional marketing.
2. What do you think of the Gordon purchase? Does it help the Futuram international marketing
effort?
3. Futuram is a recognized leader in its field. Does making money in nonmarketing ways have a
negative impact on its image?
4. Finally, what do you think of Futuram’s financial decisions in this case? How do these decisions
matter to the company’s long-term success?
 Page CS4-7

CASE 4-3 Sales Negotiations Abroad for

MRI Systems
International sales of General Medical’s Magnetic Resonance Imaging (MRI) systems have really
taken off in recent months. Your representatives are about to conclude important sales contracts with
customers in both Tokyo and Rio de Janeiro. Both sets of negotiations require your participation,
particularly as final details are worked out. The bids you approved for both customers are identical (see
Exhibits 1 and 2). Indeed, both customers had contacted you originally at a medical equipment
trade show in Las Vegas, and you had all talked business together over drinks at the conference hotel.
You expect your two new customers will be talking together again over the Internet about your
products and prices as they had in Las Vegas. The Japanese orders are potentially larger because the
doctor you met works in a hospital that has nine other units in the Tokyo/Yokohama area. The
Brazilian doctor represents a very large hospital in Rio, which may require more than one unit. Your
travel arrangements are now being made. Your local representatives will fill you in on the details. Best
of luck!

Garnet Photo/Shutterstock

Exhibit 1 Price Quotation

Deep Vision 2000 MRI (basic unit) $1,200,000

Product options
2D and 3D time-of-flight (TOF) angiography for capturing fast flow 150,000
Flow analysis for quantification of cardiovascular studies 70,000
X2001 software package 20,000
 Service contract (2 years’ normal maintenance, parts, and labor) 60,000

Total price $1,500,000

Exhibit 2 Standard Terms and Conditions

Delivery 6 months
Penalty for late delivery $10,000/month
Cancellation charges 10% of contract price
Warranty (for defective machinery) parts, one year
Terms of payment COD

[Note: Your professor will provide you with additional material that you will need to complete this case.]
 Page CS4-8

CASE 4-4 National Office Machines—

Motivating Japanese Salespeople: Straight
Salary or Commission?
National Office Machines (NOM) of Dayton, Ohio, manufacturer of cash registers, electronic data
processing equipment, adding machines, and other small office equipment, recently entered into a
joint venture with Nippon Cash Machines (Nippon) of Tokyo, Japan. Last year, NOM had domestic
sales of over $1.4 billion and foreign sales of nearly $700 million. In addition to the United States, it
operates in most of western Europe, the Mideast, and some parts of the Far East. In the past, it had no
significant sales or sales force in Japan, though the company was represented there by a small trading
company until a few years ago. In the United States, NOM is one of the leaders in the field and is
considered to have one of the most successful and aggressive sales forces found in this highly
competitive industry.
Nippon is an old-line cash register manufacturing company organized in 1882. At one time, Nippon
was the major manufacturer of cash register equipment in Japan, but it has been losing ground since
1970 even though it produces perhaps the best cash register in Japan. Last year’s sales were 9 billion
yen, a 15 percent decrease from sales the prior year. The fact that it produces only cash registers is one
of the major problems; the merger with NOM will give it much-needed breadth in product offerings.
Another hoped-for strength to be gained from the joint venture is managerial leadership, which is
sorely needed.
Fourteen Japanese companies have products that compete with Nippon; other competitors include
several foreign giants such as IBM, National Cash Register, and Unisys of the United States and Sweda
Machines of Sweden. Nippon has a small sales force of 21 people, most of whom have been with the
company their entire adult careers. These salespeople have been responsible for selling to Japanese
trading companies and to a few larger purchasers of equipment.
Part of the joint venture agreement included doubling the sales force within a year, with NOM
responsible for hiring and training the new salespeople, who must all be young, college-trained
Japanese nationals. The agreement also allowed for U.S. personnel in supervisory positions for an
indeterminate period of time and for retaining the current Nippon sales force.
One of the many sales management problems facing the Nippon/American Business Machines
Corporation (NABMC, the name of the new joint venture) was which sales compensation plan to use.
That is, should it follow the Japanese tradition of straight salary and guaranteed employment with no
individual incentive program, or the U.S. method (very successful for NOM in the United States) of
commissions and various incentives based on sales performance, with the ultimate threat of being fired
if sales quotas go continuously unfilled?
The immediate response to the problem might well be one of using the tried-and-true U.S.
compensation methods because they have worked so well in the United States and are perhaps the
kind of changes needed and expected from U.S. management. NOM management is convinced that
salespeople selling its kinds of products in a competitive market must have strong incentives to
produce. In fact, NOM had experimented on a limited basis in the United States with straight salary
about 10 years ago, and it was a bomb. Unfortunately, the problem is considerably more complex than
it appears on the surface.
One of the facts to be faced by NOM management is the traditional labor–management relations and
employment systems in Japan. The roots of the system go back to Japan’s feudal era, when a serf
promised a lifetime of service to his lord in exchange for a lifetime of protection. By the start of
Japan’s industrial revolution in the 1880s, an unskilled worker pledged to remain with a company all
his useful life if the employer would teach him the new mechanical arts. The tradition of spending a
lifetime with a single employer survives today mainly because the vast majority of workers and
companies like it that way. The very foundations of Japan’s management system are based on lifetime
employment, promotion through seniority, and single-company unions. Although that system has
come under scrutiny and pressure, it has actually changed very little. There is almost no chance of
being fired, pay raises are regular, and there is a strict order of job-protecting seniority.
Japanese workers at larger companies still are protected from outright dismissal by union contracts
and an industrial tradition that some personnel specialists believe has the force of law. Under this
tradition, a worker can be dismissed after an initial trial period only for gross cause, such as theft or
some other major infraction. As long as the company remains in business, the worker isn’t discharged,
or even furloughed, simply because there isn’t enough work to be done.
Besides the guarantee of employment for life, the typical Japanese worker receives many fringe benefits
from the company. Bank loans and mortgages are granted to lifetime employees on the assumption
that they will never lose their jobs and therefore the ability to repay. Just how paternalistic the typical
Japanese firm can be is illustrated by a statement from the Japanese Ministry of Foreign Affairs that
gives the example of A, a male worker who is employed in a fairly representative company in Tokyo:
To begin with, A lives in a house provided by his company, and the rent he pays is amazingly low when compared with
average city rents. The company pays his daily trips between home and factory. A’s working hours are from 9:00 a.m. to
5:00 p.m. with a break for lunch, which he usually takes in the company restaurant at a very cheap price. He often
brings home food, clothing, and other miscellaneous articles he has bought at the company store at a discount ranging
from 10 percent to 30 percent below city prices. The company store even supplies furniture, refrigerators, and
television sets on an installment basis, for which, if necessary, A can obtain a loan from the company almost free of
interest.
In case of illness, A is given free medical treatment in the company hospital, and if his indisposition Page CS4-9
extends over a number of years, the company will continue paying almost his full salary. The company
maintains lodges at seaside or mountain resorts where A can spend the holidays or an occasional weekend with the
family at moderate prices. . . . It must also be remembered that when A reaches retirement age (usually 55) he will
receive a lump-sum retirement allowance or a pension, either of which will assure him a relatively stable living for the
rest of his life.

Even though A is only an example of a typical employee, a salesperson can expect the same treatment.
Job security is such an expected part of everyday life that no attempt is made to motivate the Japanese
salesperson in the same manner as in the United States; as a consequence, selling traditionally has
been primarily an order-taking job. Except for the fact that sales work offers some travel, entry to
outside executive offices, the opportunity to entertain, and similar side benefits, it provides a young
person with little other incentive to surpass basic quotas and drum up new business. The traditional
Japanese bonuses are given twice yearly, can be up to 40 percent of base pay, and are no larger for
salespeople than any other functional job in the company.
As a key executive in a Mitsui-affiliated engineering firm put it recently, “The typical salesman in Japan
isn’t required to have any particular talent.” In return for meeting sales quotas, most Japanese
salespeople draw a modest monthly salary, sweetened about twice a year by bonuses. Selling more
doesn’t mean one gets paid more. Manufacturers of industrial products generally pay little or no
commission or other incentives to boost their businesses. Any commission paid is traditionally given
back to the office to host a group lunch or some kind of outing, like a round of bowling.
Besides the problem of motivation, a foreign company faces other different customs when trying to put
together and manage a sales force. Class systems and the Japanese distribution system, with its
penchant for reciprocity, put a strain on the creative talents of the best sales managers, as Simmons,
the U.S. bedding manufacturer, was quick to learn.
In the field, Simmons found itself stymied by the bewildering realities of Japanese marketing,
especially the traditional distribution system that operates on a philosophy of reciprocity that goes
beyond mere business to the core of the Japanese character: A favor of any kind is a debt that must be
repaid. To lead another person on in business and then turn against that person is to lose face,
abhorrent to most Japanese. Thus, the owner of large Western-style apartments, hotels, or
developments buys his beds from the supplier to whom he owes a favor, no matter what the
competition offers.
In small department and other retail stores, where most items are handled on consignment, the bond
with the supplier is even stronger. Consequently, all sales outlets are connected in a complicated web
that runs from the largest supplier, with a huge national sales force, to the smallest local distributor,
with a handful of door-to-door salespeople. The system is self-perpetuating and all but impossible to
crack from the outside.
However, there is some change in attitude taking place as both workers and companies start discarding
traditions for the job mobility common in the United States. Skilled workers are willing to bargain on
the strength of their experience in an open labor market in an effort to get higher wages or better job
opportunities; in the United States, it’s called shopping around. And a few companies are showing a
willingness to lure workers away from other concerns. A number of companies are also plotting how to
rid themselves of deadwood workers accumulated as a result of promotions by strict seniority.
Toyo Rayon company, Japan’s largest producer of synthetic fibers, started reevaluating all its senior
employees every five years with the implied threat that those who don’t measure up to the company’s
expectations have to accept reassignment and possibly demotion; some may even be asked to resign. A
chemical engineering and construction firm asked all its employees over 42 to negotiate a new contract
with the company every two years. Pay raises and promotions go to those the company wants to keep.
For those who think they are worth more than the company is willing to pay, the company offers
retirement with something less than the $30,000 lump-sum payment the average Japanese worker
receives at age 55.
More Japanese are seeking jobs with foreign firms as the lifetime-employment ethic slowly changes.
The head of student placement at Aoyama Gakuin University reports that each year the number of
students seeking jobs with foreign companies increases. Bank of America, Japan Motorola, Imperial
Chemical Industries, and American Hospital Supply are just a few of the companies that have been
successful in attracting Japanese students. Just a few years ago, all Western companies were places to
avoid.
Even those companies that are successful work with a multitude of handicaps. American companies
often lack the intricate web of personal connections that their Japanese counterparts rely on when
recruiting. Furthermore, American companies have the reputation for being quick to hire and even
quicker to fire, whereas Japanese companies still preach the virtues of lifelong job security. Those U.S.
companies that are successful are offering big salaries and promises of Western-style autonomy.
According to a recent study, 20- to 29-year-old Japanese prefer an employer-changing environment to a
single lifetime employer. They complain that the Japanese system is unfair because promotions are
based on age and seniority. A young recruit, no matter how able, has to wait for those above him to be
promoted before he too can move up. Some feel that if you are really capable, you are better off
working with an American company.
Some foreign firms entering Japan have found that their merit-based promotion systems have helped
them attract bright young recruits. In fact, a survey done by Nihon Keizai Shimbun, Japan’s leading
business newspaper, found that 80 percent of top managers at 450 major Japanese corporations
wanted the seniority promotion system abolished. But, as one Japanese manager commented, “We see
more people changing their jobs now, and we read many articles about companies restructuring, but
despite this, we won’t see major changes coming quickly.”
A few U.S. companies operating in Japan are experimenting with incentive plans. Marco and
Company, a belting manufacturer and Japanese distributor for Power Packing and Seal Company, was
persuaded by Power to set up a travel plan incentive for salespeople who topped their regular sales
quotas. Unorthodox as the idea was for Japan, Marco went along. The first year, special one-week trips
to Far East holiday spots like Hong Kong, Taiwan, Manila, and Macao were inaugurated. Marco’s sales
of products jumped 212 percent, and the next year, sales were up an additional 60 percent.
IBM also has made a move toward chucking the traditional Japanese sales system (salary plus a bonus
but no incentives). For about a year, it has been working with a combination that retains the
semiannual bonus while adding commission payments on sales over preset quotas. “It’s difficult to
apply a straight commission system in selling computers because of the complexities of the product,”
an IBM Japan official said. “Our salesmen don’t get big commissions because other employees would
be jealous.” To head off possible ill feeling, therefore, some nonselling IBM employees receive
monetary incentives.
Most Japanese companies seem reluctant to follow IBM’s example because they have Page CS4-10

doubts about directing older salespeople to go beyond their usual order-taking role. High-pressure
tactics are not well accepted here, and sales channels are often pretty well set by custom and long
practice (e.g., a manufacturer normally deals with one trading company, which in turn sells only to
customers A, B, C, and D). A salesperson or trading company, for that matter, is not often encouraged
to go after customer Z and get it away from a rival supplier.
The Japanese market is becoming more competitive and there is real fear on the part of NOM
executives that the traditional system just won’t work in a competitive market. However, the
proponents of the incentive system concede that the system really has not been tested over long
periods or even adequately in the short term because it has been applied only in a growing market. In
other words, was it the incentive system that caused the successes achieved by the companies, or was it
market growth? Other companies following the traditional method of compensation and employee
relations also have had sales increases during the same period.
The problem is further complicated for NABMC because it will have both new and old salespeople.
The young Japanese seem eager to accept the incentive method, but older ones are hesitant. How do
you satisfy both since you must, by agreement, retain all the sales staff?
A study done by the Japanese government on attitudes of youth around the world suggests that
younger Japanese may be more receptive to U.S. incentive methods than one would anticipate. In a
study done by the Japanese prime minister’s office, there were some surprising results when Japanese
responses were compared with responses of similar-aged youths from other countries. Exhibit 1
summarizes some of the information gathered on life goals. One point that may be of importance in
shedding light on the decision NOM has to make is a comparison of Japanese attitudes with young
people in 11 other countries—the Japanese young people are less satisfied with their home life, school,
and working situations and are more passive in their attitudes toward social and political problems.
Furthermore, almost one-third of those employed said they were dissatisfied with their present jobs
primarily because of low income and short vacations. Asked if they had to choose between a difficult
job with responsibility and authority or an easy job without responsibility and authority, 64 percent of
the Japanese picked the former, somewhat less than the 70 to 80 percent average in other countries.

Exhibit 1 Life Goals

Another critical problem lies with the nonsales employees; traditionally, all employees on the same
level are treated equally, whether sales, production, or staff. How do you encourage competitive,
aggressive salesmanship in a market unfamiliar with such tactics, and how do you compensate
salespeople to promote more aggressive selling in the face of tradition-bound practices of paternalistic
company behavior?
Page CS4-11

Questions
1. What should NABMC offer—incentives or straight salary? Support your answer.
2. If incentives are out, how do you motivate salespeople and get them to compete aggressively?
3. Design a U.S.-type program for motivation and compensation of salespeople. Point out where
difficulties may be encountered with your plan and how the problems are to be overcome.
4. Design a pay system you think would work, satisfying old salespeople, new salespeople, and other
employees.
5. Discuss the idea that perhaps the kind of motivation and aggressiveness found in the United States
is not necessary in the Japanese market.
6. Develop some principles of motivation that could be applied by an international marketer in other
countries.
 Page CS4-12

CASE 4-5 AIDS, Condoms, and Carnival

The rise in AIDS cases in the state of São Paulo is most marked for married women with children.
Government officials decided they must take aim at basic culture in all of Latin America: Men don’t
practice safe sex. Officials have started aggressively promoting the female condom. According to a
report from the Pan American Conference on AIDS in Lima, Peru, last month, women make up the
fastest-growing group of HIV. And 90 percent of the people, 30.6 million, who have AIDS live in poor
countries.
Brazil has the largest population in South America (205 million) and the second-highest number of
HIV cases in the Americas, after the U.S., according to the UN. One reason: Although condom use
has increased sharply, it is still a sensitive subject in this predominantly Roman Catholic country.
Another reason is the high cost. At 75 cents each, they are more expensive in Brazil than in any other
country in the world. Another reason is the machismo of Latin American men. Only 14 percent of
heterosexual men used condoms last year, an AIDS prevention program funded by the U.S. Agency for
International Development reported. Studies show that many women do not ask their partner to use a
condom, even if they knew he was having sex with others. They are afraid of getting beaten and losing
economic support, according to one hospital official. Men also have affairs—almost 50 percent of those
in stable relationships, the Pan American Health Organization reports.
AIDS is the most frequent cause of death of women of childbearing age in São Paulo state. Public
health officials are thus trying to promote the female condom. The hope is that it will help women—
especially poor women—protect themselves and their children. But it’s a tough sell, at $2.50 apiece—
triple the price of most male condoms. The Family Health Association is asking the government to cut
taxes and subsidize the price to make them affordable to many poor Brazilians. Nonetheless, many
women with AIDS said they would have been no more likely to use a female condom than a regular
one, even though 75 percent of the women and 63 percent of the men said they approved of the female
condoms.
A big part of the problem is that 80 percent of women and 85 percent of men in Brazil believe they are
not at risk of contracting HIV, according to a study conducted by the Civil Society for the Well-Being
of the Brazilian Family. Health officials also note that 40 percent of married women undergo
sterilization as a more affordable method to circumvent the Catholic church’s stance against birth
control.
Brazil’s Health Ministry has added a new ingredient to the heady mix that makes up the Page CS4-13

country’s annual Carnival—condoms. The ministry will distribute 10 million condoms next month,
along with free advice on how to prevent the spread of AIDS, at places like Rio de Janeiro’s
sambadrome, where bare-breasted dancing girls attract millions of spectators every year.
“It’s considered as a period of increased sexual activity,” a spokeswoman at the ministry’s AIDS
coordination department said on Monday. “The euphoria provoked by Carnival and the excessive
consumption of alcohol make it a moment when people are more likely to forget about prevention,”
she explained.
What is Brazil teaching other countries with rising cases? First, don’t be prudish. Brazil, where most
people are Catholic, distributes condoms en masse, as in 20 million being given away every month. In
February the number rises by 50 percent because of Brazil’s carnival season. Drug users also get help.
Users are offered clean needles, so that 74 percent of them say they don’t share needles. In addition,
prostitutes and their clients are also encouraged by campaigns that promote condom use.
A second lesson is to treat freely (and for free), as Brazilian government stipulates health care at no
cost. This is important because having to pay for drug treatment discourages people from completing
their full regimen, which fosters the growth of viruses that are drug-resistant. It’s expensive to provide
free treatment, of course. The government recently spent $395 million on anti-HIV drugs, almost two-
thirds of it on expensive patented drugs.
The third lesson is to mobilize volunteers. In 1992, Brazil had 120 charities and voluntary groups that
helped with AIDS. That number has risen to 500. Voluntarism works. The Global Fund (the main
distributor of anti-AIDS funding to poor countries) looked at the success of its donations. It found that
the best value for the money is support dedicated to volunteer groups.
The fourth lesson is in the math. One of the mantras that has sustained Brazil’s anti-AIDS program is
“if you think action is expensive, try inaction.” The government spent $1.8 billion on anti-AIDS drugs
between 1996 and 2002, but this saved Brazil more than $2.2 billion in hospital costs with early
treatment in those years.
While AIDS has stabilized in Brazil to manageable levels, complacency among public health and
government officials (who have other battles to fight, such as perceptions of corruption) seems to be
the biggest concern. New AIDS cases are soaring among young males, with reported illnesses nearly
quadrupling from 2006 to 2020 among males aged 15–29, with over 26,000 cases in 2020 alone.

India
The small barbershop owned by S. Mani in a southern Indian city resembles many others in the world:
scissors, combs, razors—plus condoms.
A blue box full of condoms, at no cost, is displayed prominently as Mani trims hair and give advice on
safe sex, a new facet of his 20-year career. “I start by talking about the family and children,” Mani says,
as he trims a client’s moustache. “Slowly, I get to women, AIDS, and condoms.”
Talking about sex with family or counselors, or buying condoms at a drugstore, is just too
embarrassing for many Indian men. There’s one place they talk freely: the barbershop. India is training
barbers like Mani to be at the forefront of fighting AIDS.
Six years after it was first detected in India, the world’s second-most-populous nation, this country of
1.3 billion has seen rapid spread of AIDS. Already, up to 3 million people are infected with HIV—the
largest number of cases of any country in the world, according to UNAIDS, the United Nations’ AIDS
agency.
But India has bigger fish to fry: widespread tuberculosis and malaria, which make officials in many
Indian states reluctant to take on AIDS in meaningful ways. Further, Indians see HIV as a Western
“disease of decadence”—some officials deny that their state even has any prostitution and drug use.
“Some Indian states are still in total denial or ignorance about the AIDS problem,” says Salim
Habayeb, a World Bank physician who oversees an $84 million loan to India for AIDS prevention
activities.
Tamil Nadu is the state in India with the third-highest incidence of AIDS in the country—it has been
open about its problem, and turned to barbers for help. Before that, it was the first state to implement
widespread AIDS education in the schools and the general population, rather than just only high-risk
groups.
In just two years, AIDS awareness in Tamil Nadu jumped to 95 percent of those polled, from 64
percent, according to Operations Research Group, an independent survey group. “Two years ago, it
was very difficult to talk about AIDS and the condom,” says P. R. Bindhu Madhavan, director of the
Tamil Nadu State AIDS Control Society, the autonomous state agency managing the prevention effort.
AIDS prevention takes center stage at a venue of national culture: the cinema. People in this state are
among the most movie going of any in this country that’s crazy about films. Half of the state’s 630
theaters screen an AIDS-awareness short (for a fee) before the feature film. The spots have stern
warnings infused into melodramatic musicals. In rural areas, where theatres are scarce, the mobile gets
the job done. The method looks like those used by multinationals, such as Colgate-Palmolive, for rural
advertising. Bright red-and-blue trucks travel the country roads, playing music from popular movie
soundtracks with lyrics rewritten to address AIDS issues. In villages, a screen is raised on the back of
the truck and hundreds gather for the movie.
In one short, a young husband’s infidelity gives him AIDS, he dies, his family is financially Page CS4-14
ruined, then his wife dies, also infected. The couple’s orphan, a toddler, is alone. The sad story is
followed up with a message from an AIDS educator—and a free pack of condoms and an AIDS
brochure are offered.
Tamil Nadu’s innovations haven’t been all smooth sailing. The national TV station was reluctant to
show AIDS commercials featuring the Hindu gods of chastity and death. Even then the network
charged commercial, not public service, rates. The network also refused to air a three-minute ad in
which a woman tells her husband, a truck driver, to practice safe sex on the road. Infidelity was
deemed taboo for Indian TV in homes. Commercial satellite stations agreed to run the spot.
The state of Tamil Nadu has had success in recruiting prostitutes to promote AIDS awareness. For 12
months, 37-year-old prostitute “Vasanthi” has been giving out free condoms to colleagues. An NGO
trained her to spread the word about AIDS and other sexually transmitted diseases. The state pays
Vasanthi, a mother of three, and others like her, $14 a month, about what she makes from hosting a
client. Before Vasanthi participated in the program, she didn’t know that the condom could help
prevent AIDS. Nowadays, if any client refuses to wear a condom, “I kick him out, even if it takes using
my shoes,” she says. “I’m not flexible about this,” she says. More men are also carrying their own
condoms.
Barbers such as Mani can be thanked for that. Men pick up their free condom on their way out of the
shop. So far the state of Tamil Nadu has recruited 5,000 barbers for the cause, who receive AIDS
education at meetings each Tuesday—their day off. The barbers receive no compensation to be AIDS
counselors; it seems they take pride in their new responsibility.
Over the centuries, India’s barbers have been culturally admired as traditional healers and trusted
advisers. “If you want to get to the king’s ears, you tell his barber,” says Madhavan, the state AIDS
director. Reinforcing this image of haircutting and healing, the barber trade group in the state is called
the Tamil Nadu Medical Barber Association.
One evening, a 30-something man walked into Aruna Hair Arts, exchanged greetings with his barber
Swami, then left with a fistful of condoms grabbed from the dispenser. “That’s OK,” Swami says
approvingly. “He’s a regular customer.”
A local NGO helps to restock barbers with condoms by giving each shop self-addressed order forms.
But the central government hasn’t always been able to keep up with supply, for reasons such as red
tape to price disputes with suppliers. Tamil Nadu has started obtaining condoms from other sources,
but they cost too much to give away. So a transition is under way to charge two rupees (six cents) to
customers for a two-condom “pleasure pack.” The barbers receive 25 percent commission. To date, the
only perk of a barber participating in the program has been a complimentary wall calendar with a list
of AIDS prevention methods.
About 30 percent of barbers asked by the state have turned down the opportunity to participate in the
AIDS awareness program, fearing that they would offend customers. But those who take part counter
that conveying the AIDS message isn’t bad for business. “We give the message about AIDS, but we still
gossip about women,” says barber N. V. Durairaj at Rolex Salon.
Global cola war combatants Coke and Pepsi may soon both be enlisted in the common battle against
HIV/AIDS. Their massive marketing networks of more than 1 million outlets throughout India can
reach consumers of all walks of life to encourage condom use and spread awareness of AIDS, where
social marketing has failed. “Realizing their reach, we have appealed to the cola companies PepsiCo
and Coca-Cola to allow us to piggyback on their advertisement, including possible slogans on their soft
drinks bottles,” a senior health ministry official said. “We have also asked them to help us with the
distribution of condoms through their outlets in remote areas.” Requests for help from these
multinational marketing powerhouses have been met with encouraging responses.
The National AIDS Control Organisation (NACO) enlisted the help of Coke and Pepsi for support
after “advertainments” featuring cricket stars advising the need for safe sex were well received. The
stars, in some campaigns, even carried condoms along with their cricket equipment. Endorsed by 10
countries, including India, the International Cricket Council (ICC) has been aggressively promoting
awareness about HIV/AIDS through safe sex advertising. NACO also wants to broadcast the campaign
widely with celebrity endorsers at a time when sensitive films about HIV/AIDS like Phir Milenge
(“We’ll Meet Again”) and My Brother Nikhil have struck a responsive chord among viewers.
This is an important effort, as the Indian government recently enacted restrictions on condom
advertising on TV—such can run only between 10 p.m. and 6 a.m.—declaring condom ads “indecent”
viewing for children.
Recently India has been seen as falling behind in innovative condom product development efforts and
promotion. The country’s condom usage rate stands around 5.6 percent.

London International Group

London International Group (LIG) is recognized worldwide as a leader in the development of latex
and thin-film barrier technologies. LIG has built its success on the development of its core businesses:
the Durex family of branded condoms, Regent medical gloves, and Marigold household and industrial
gloves. These are supported by a range of noncore health and beauty products.
With operational facilities in over 40 countries, 12 manufacturing plants that are either Page CS4-15

wholly or jointly owned, and an advanced research and development facility based in Cambridge,
England, LIG is well placed to expand into the new emerging markets of the world.
Durex is the world’s number one condom brand in terms of quality, safety, and brand awareness. The
Durex family of condom brands includes Sheik, Ramses, Hatu, London, Kohinoor, Dua Lima,
Androtex, and Avanti. Sold in over 130 countries worldwide and leader in more than 40 markets,
Durex is the only global condom brand.
The development of innovative and creative marketing strategies is key to communicating successfully
with target audiences. Consumer marketing initiatives remain focused on supporting the globalization
of Durex. A series of innovative yet cost-effective projects have been used to communicate the global
positioning “Feeling Is Everything” to the target young-adult market, securing loyalty.
The Durex Global Survey, together with a unique multimillion-pound global advertising and
sponsorship contract with MTV, has successfully emphasized the exciting and modern profile of Durex
and presented significant opportunities for local public relations and event sponsorship, especially in
emerging markets like Taiwan.
LIG continues to focus on education, using sponsorship of events such as the XI Annual AIDS
Conference held in Vancouver and other educational initiatives to convey the safer sex message to
governments, opinion formers, and educators worldwide.

Japan
London Okamoto Corporation, the joint venture company between London International Group and
Okamoto Industries, announced the Japanese launch of Durex Avanti, the world’s first polyurethane
male condom.
This is the first time an international condom brand will be available in Japan, the world’s most
valuable condom market, which is estimated to be worth $433 million. About 550 million condoms
are sold annually in Japan, nearly the same as in the United States, which has twice the population.
Durex Avanti already has been successfully launched in the U.S. and Great Britain and will be
launched in Italy and other selected European countries within a year.
Durex Avanti condoms are made from Duron, a unique polyurethane material twice as strong as latex,
which enables them to be made much thinner than regular latex condoms, thereby increasing
sensitivity without compromising safety. In addition, Durex Avanti condoms are able to conduct body
heat, creating a more natural feeling, and are the first condoms to be totally odorless, colorless, and
suitable for use with oil-based lubricants.
Commenting on the launch, Nick Hodges, chief executive of LIG, said, “Japan is a very important
condom market; with oral contraceptives still not publicly available, per capita usage rates for
condoms are among the highest in the world. Our joint venture with Okamoto, Japan’s leading
condom manufacturer, gives us instant access to this strategically important market.”
The joint venture with Okamoto, which is the market leader in Japan with a 53 percent share, was
established with the specific purpose of marketing Durex Avanti. Added Takehiko Okamoto, president
of Okamoto, “We are confident that such an innovative and technically advanced product as Durex
Avanti, coupled with our strong market franchise, will find significant consumer appeal in Japan’s
sophisticated condom market.”
Durex Avanti, which is manufactured at LIG’s research and development center in Cambridge,
England, has taken over 10 years to develop and represents an investment by LIG of approximately
£15 million.

Questions
1. Comment on the Brazilian and Indian governments’ strategies for the prevention of AIDS via the
marketing of condoms.
2. How is the AIDS problem different in the United States compared with Brazil and India?
3. Would the approaches described in Brazil and India work in the United States? Why or why not?
4. Suggest additional ways that London International Group could promote the prevention of AIDS
through the use of condoms worldwide.
5. Do you think it would be a good idea for Coke and Pepsi to participate in a condom distribution
program in India, Brazil, and the United States?
Sources: “Half a Million Brazilians Are Infected with the AIDS Virus,” Associated Press, December 21, 1996; Andrea McDaniels, “Brazil Turns to Women to Stop Dramatic
Rise in AIDS Cases. Sao Paulo Pushes Female Condom to Protect Married Women from Husbands, but Costs of Devices Are High,” Christian Science Monitor, January 9,
1998, p. 7; “Brazil to Hand out 10 Million Condoms during Carnival,” Chicago Tribune, January 19, 1998, p. 2; Miriam Jordan, “India Enlists Barbers in the War on AIDS,”
The Wall Street Journal, September 24, 1996, p. A18; Caro Ezzell, “Care for a Dying Continent,” Scientific American, May 2000, pp. 96–105; Ginger Thompson, “In Grip of
AIDS, South Africa Cries for Equity,” The New York Times, May 10, 2003, p. 4; “Roll Out, Roll Out—AIDS in Brazil,” The Economist, July 30, 2005, p. 376; “AIDS Campaign
May Soon Piggyback on Pepsi, Coke,” Hindustan Times, August 30, 2005, http://www.HindustanTimes.com; “A Portrait in Red—AIDS in Brazil,” The Economist, March 15,
2008, p. 38. See http://www.durex.com; Marc Margolis, “Brazil’s AIDS Fight Falls Victim to Success,” Bloomberg, December 15, 2017; Jeffrey Gettleman and Shuasini Rah,
“India Restricts Condom Ads on TV,” The New York Times, December 17, 2017, p. A11; Arijit Ghosh, “India’s Condom Market Must Look Beyond Flavours and Textures.
World’s Innovating,” The Print, June 13, 2021. Also see latest statistics and trends from the World Health Organization, http://www.who.int/gho/hiv/en/;
https://www.avert.org; http://unaids.org, accessed 2022.
 Page CS4-16

CASE 4-6 Making Socially Responsible and

Ethical Marketing Decisions: Selling Tobacco
to Third World Countries
Strategic decisions move a company toward its stated goals and perceived success by traditional
measures. Strategic decisions also reflect the firm’s social responsibility and the ethical values on
which such decisions are made. They reflect what is considered important and what a company wants
to achieve.

josefkubes/Shutterstock

Mark Pastin, writing on the function of ethics in business decisions, observes:

There are fundamental principles, or ground rules, by which organizations act. Like the ground rules of individuals,
organizational ground rules determine which actions are possible for the organization and what the actions mean.
Buried beneath the charts of organizational responsibility, the arcane strategies, the crunched numbers, and the
political intrigue of every firm are sound rules by which the game unfolds.

The following situations reflect different decisions made by multinational firms and governments and
also reflect the social responsibility and ethical values underpinning the decisions. Study the following
situations in the global cigarette marketplace carefully and assess the ground rules that guided the
decisions of firms and governments.

Exporting U.S. Cigarette Consumption

In the United States, 480,000 deaths, about one in five, are related to smoking each year. About 204
billion cigarettes were sold in the U.S. in 2020, with sales shrinking rapidly. Unit sales have been
dropping about 1 to 2 percent a year, and sales have been down by almost 5 percent in the last 10
years. The U.S. Surgeon General’s campaign against smoking, higher cigarette taxes, nonsmoking rules
in public areas, and the concern Americans have about general health have led to the decline in
tobacco consumption. Faced with various class-action lawsuits, the success of states in winning
lawsuits, and pending federal legislation, tobacco companies have stepped up their international
marketing activities to maintain profits.
Even though companies have agreed to sweeping restrictions in the United States on cigarette
marketing and secondhand smoke and to bolder cancer-warning labels, they are fighting as hard as ever
in the Third World to convince the media, the public, and policymakers that similar changes are not
needed. In seminars at luxury resorts worldwide, tobacco companies invite journalists, all expenses
paid, to participate in programs that play down the health risks of smoking. It is hard to gauge the
influence of such seminars, but in the Philippines, a government plan to reduce smoking by children
was “neutralized” by a public relations campaign from cigarette companies to remove “cancer
awareness and prevention” as a “key concern.” A slant in favor of the tobacco industry’s point of view
seemed to prevail.
At a time when most industrialized countries are discouraging smoking, the tobacco industry is avidly
courting consumers throughout the developing world using catchy slogans, obvious image campaigns,
and single-cigarette sales that fit a hard-pressed customer’s budget. The reason is clear: The Third
World is an expanding market. As an example, Indonesia’s per capita cigarette consumption
quadrupled in less than 10 years. Increasingly, cigarette advertising on radio and television is being
restricted in some countries, but other means of promotion, especially to young people, are not
controlled.
China, with more than 300 million smokers, produces and consumes about 1.4 trillion cigarettes per
year, more than any other country in the world. Estimates are that China has more smokers than the
United States has people. Just 1 percent of that 1.4 trillion cigarette market would increase a tobacco
company’s overseas sales by 15 percent and would be worth as much as $300 million in added revenue.
American cigarette companies have received a warm welcome in Russia, where at least 50 percent of
the people smoke. Consumers are hungry for most things Western, and tobacco taxes are low. Unlike
in the United States and other countries that limit or ban cigarette advertising, there are few effective
controls on tobacco products in Russia. Russia, the world’s fourth largest cigarette market, has proved
to be an extremely profitable territory for British American Tobacco (BAT). BAT Russia, established
in 1949, sold 75 billion cigarettes in Russia in 2020, giving it almost one-fourth of the market share.
BAT was one of the few multinational companies that continued selling its product in Russia after
Putin invaded Ukraine in 2022, but eventually reversed course and exited the market.

Advertising and Promotion

In the African nation of Gambia, smokers send in cigarette box tops to qualify for a chance to win a
new car. In Argentina, smoking commercials fill 20 percent of television advertising time. And in
crowded African cities, billboards that link smoking to the good life tower above the sweltering
shantytowns. Such things as baby clothes with cigarette logos, health warnings printed in foreign
languages, and tobacco-sponsored contests for children often are featured in tobacco ads in Third
World countries. Latin American tobacco consumption rose by more than 24 percent over a 10-year
period.
Critics claim that sophisticated promotions in unsophisticated societies entice people who cannot
afford the necessities of life to spend money on a luxury—and a dangerous one at that. The
sophistication theme runs throughout the smoking ads. In Kinshasa, Zaire, billboards depict a man in
a business suit stepping out of a black Mercedes as a chauffeur holds the door. In Nigeria, promotions
for Graduate brand cigarettes show a university student in his cap and gown. Those for Gold Leaf
cigarettes have a barrister in a white wig and the slogan, “A very important cigarette for very important
people.” In Kenya, a magazine ad for Embassy cigarettes shows an elegant executive officer with three
young men and women equivalent to American yuppies. The most disturbing trend in developing
countries is advertising that associates tobacco with American affluence and culture. Some women in
Africa, in their struggle for women’s rights, defiantly smoke cigarettes as a symbol of freedom.
Billboards all over Russia feature pictures of skyscrapers and white sandy beaches and slogans like
“Total Freedom” or “Rendezvous with America.” They aren’t advertising foreign travel but American
cigarette brands.
Every cigarette manufacturer is in the image business, and tobacco companies say their Page CS4-17

promotional slant is both reasonable and common. They point out that in the Third World a lot of
people cannot understand what is written in the ads anyway, so the ads zero in on the more
understandable visual image. “In most of the world, the Marlboro Man isn’t just a symbol of the Wild
West; he’s a symbol of the West.” “You can’t convince people that all Americans don’t smoke.” In
Africa, some of the most effective advertising includes images of affluent white Americans with
recognizable landmarks, such as the New York City skyline, in the background. In much of Africa,
children as young as five are used to sell single cigarettes, affordable to other children, to support their
own nicotine habits. Research shows that worldwide nearly one-fourth of all teenage smokers smoked
their first cigarette before they were 10 years old.
The scope of promotional activity is enormous. In Kenya, a major tobacco company is the fourth-
largest advertiser. Tobacco-sponsored lotteries bolster sales in some countries by offering as prizes
expensive goods that are beyond most people’s budgets. Gambia has a population of just 640,000, but
a tobacco company lottery attracted 1.5 million entries (each sent in on a cigarette box top) when it
raffled off a Renault car.
Evidence is strong that the strategy of tobacco companies is to target young people as a means of
expanding market demand. Report after report reveals that adolescents receive cigarettes free as a
means of promoting the product. For example, in Buenos Aires, a Jeep decorated with the yellow
Camel logo pulls up in front of a high school. The driver, a blond woman wearing khaki safari gear,
begins handing out free cigarettes to 15- and 16-year-olds on lunch recess. Teens visiting MTV’s
websites in China, Germany, India, Poland, and Latin America were given the chance to click on a
banner ad that led them to a questionnaire about their exposure to cigarette ads and other marketing
tools in their countries. Some 10,000 teens responded to the banner ads. “In the past week, more than
62 percent of teenagers in these countries have been exposed to tobacco advertising in some form,” the
17-year-old SWAT (Students Working against Tobacco) chairman told Reuters. “The tobacco
companies learned that marketing to teens and kids worked in this country, but since they can’t do it
here anymore, they’ve taken what they learned to other countries.” At a video arcade in Taipei, free
American cigarettes are strewn atop each game. “As long as they’re here, I may as well try one,” says a
high school girl.
In Malaysia, Gila-Gila, a comic book popular with elementary school students, carries a Lucky Strike
ad. Attractive women in cowboy outfits regularly meet teenagers going to rock concerts or discos in
Budapest and hand them Marlboros. Those who accept a light on the spot also receive Marlboro
sunglasses.
According to the American Lung Association Tobacco Policy Trend Alert, the tobacco industry at one
time offered candy-flavored cigarettes in an attempt to continue to target teens.1 Advertising and
promotion of these products use hip-hop imagery, attractive women, and other imagery to appeal to
youth in similar ways that Joe Camel did a decade ago. Marketing efforts for candy-flavored cigarettes
came after the Master Settlement Agreement prohibited tobacco companies from using cartoon
characters to sell cigarettes. Researchers recently released the results of several surveys that showed
that 20 percent of smokers ages 17 to 19 smoked flavored cigarettes.
In Russia, a U.S. cigarette company sponsors disco parties where thousands of young people dance to
booming music. Admission is the purchase of one pack of cigarettes. At other cigarette-sponsored
parties, attractive women give cigarettes away free.
In many countries, foreign cigarettes have a status image that also encourages smoking. A 26-year-old
Chinese man says he switched from a domestic brand to Marlboro because “You feel a higher social
position” when you smoke foreign cigarettes. “Smoking is a sign of luxury in the Czech Republic as
well as in Russia and other Eastern countries,” says an executive of a Czech tobacco firm that has a
joint venture with a U.S. company. “If I can smoke Marlboro, then I’m a well-to-do man.”
The global tobacco companies insist that they are not attempting to recruit new smokers. They say
they are only trying to encourage smokers to switch to foreign brands. “The same number of cigarettes
are consumed whether American cigarettes or not” was the comment of one executive.
Although cigarette companies deny they sell higher tar and nicotine cigarettes in the Third World, one
British tobacco company does concede that some of its brands sold in developing countries contain
more tar and nicotine than those sold in the United States and Europe. A recent study found three
major U.S. brands with filters had 17 milligrams of tar in the United States, 22.3 in Kenya, 29.7 in
Malaysia, and 31.1 in South Africa. Another brand with filters had 19.1 milligrams of tar in the United
States, 28.8 in South Africa, and 30.9 in the Philippines. The firm says that Third World smokers are
used to smoking their own locally made product, which might have several times more tar and
nicotine. Thus, the firm leaves the tar- and nicotine-level decisions to its foreign subsidiaries, who tailor
their products to local tastes.
C. Everett Koop, the retired U.S. Surgeon General, was quoted in a recent news conference as saying,
“Companies’ claims that science cannot say with certainty that tobacco causes cancer were flat-footed
lies” and that “sending cigarettes to the Third World was the export of death, disease, and disability.”
An Oxford University epidemiologist has estimated that, because of increasing tobacco consumption
in Asia, the annual worldwide death toll from tobacco-related illnesses will more than triple over the
next two decades.
Perhaps 100 million people died prematurely during the 20th century as a result of tobacco, making it
the leading preventable cause of death and one of the top killers overall. According to the World
Health Organization, each year smoking causes 4 million deaths globally, and it expects the annual toll
to rise to 10 million in 2030.

Government Involvement
Third World governments often stand to profit from tobacco sales. Brazil collects 75 percent of the
retail price of cigarettes in taxes, some $100 million a month. The Bulgarian state-owned tobacco
company Bulgartabac contributes almost $30 million in taxes to the government annually. Bulgartabac
is a major exporter of cigarettes to Russia, exporting 40,000 tons of cigarettes annually.
Tobacco is Zimbabwe’s largest cash crop. One news report from a Zimbabwe newspaper reveals strong
support for cigarette companies. “Western anti-tobacco lobbies demonstrate unbelievable hypocrisy,”
notes one editorial. “It is relatively easy to sit in Washington or London and prattle on about the so-
called evils of smoking, but they are far removed from the day-to-day grind of earning a living in the
Third World.” It goes on to comment that it doesn’t dispute the fact that smoking is addictive or that it
may cause diseases, but “smoking does not necessarily lead to certain death. Nor is it any more
dangerous than other habits.” Unfortunately, tobacco smoking has attracted the attention of a
particularly “sanctimonious, meddling sector of society. They would do better to keep their opinions to
themselves.”
Generally, smoking is not a big concern of governments beset by debt, internal conflict, Page CS4-18

drought, or famine. It is truly tragic, but the worse famine becomes, the more people smoke—just as
with war, when people who are worried want to smoke. “In any case,” says one representative of an
international tobacco company, “people in developing countries don’t have a long enough life
expectancy to worry about smoking-related problems. You can’t turn to a guy who is going to die at age
40 and tell him that he might not live up to 2 years extra at age 70.” As for promoting cigarettes in the
Third World, “If there is no ban on TV advertising, then you aren’t going to be an idiot and impose
restrictions on yourself,” says the representative, “and likewise, if you get an order and you know that
they’ve got money, no one is going to turn down the business.”
Cigarette companies figure China’s self-interest will preserve its industry. Tobacco provides huge
revenues for Beijing because all tobacco must be sold through the China National Tobacco Company
monopoly. Duty on imported cigarettes is nearly 450 percent of their value. Consequently, tobacco is
among the central government’s biggest source of funding, accounting for more than $30 billion in
income in 2005. China is also a major exporter of tobacco.

Focus on Developing Markets

Lawsuits, stringent legislation against advertising, laws restricting where people can smoke, and other
antismoking efforts on the part of governments have caused tobacco companies to intensify their
efforts in those markets where restrictions are fewer and governments more friendly. As part of a
strategy to increase its sales in the developing world, Philip Morris International (PMI) was spun off
from Philip Morris USA in 2008 to escape the threat of litigation and government regulation in the
United States. The move frees the tobacco giant’s international operations of the legal and public-
relations headaches in the United States that have hindered its growth. Its practices are no longer
constrained by American public opinion, paving the way for broad product experimentation.
A new product, Marlboro Intense, is likely to be part of an aggressive blitz of new smoking products
PMI will roll out around the globe.
The Marlboro Intense cigarette has been shortened by about a half inch and provides seven power-
packed puffs, compared to about eight draws on average for a milder smoke. The attraction of Intense
is for customers who have limited time to duck outside a building, because of bans on indoor smoking,
for a fast nicotine rush, and can’t finish a regular-sized cigarette. PMI executives estimate there might
be 50 markets that would be a good fit for the Marlboro Intense.
Other new products in the pipeline include cigarettes with tobacco flavored with cloves, for example,
that pack double the tar and nicotine of regular U.S. cigarettes. Marlboro Mix 9 was introduced in
Indonesia in 2007 with elevated levels of nicotine and tar, clove-flavored, exported to other southeast
markets as well. The Marlboro Filter Plus, another innovation, is on the shelves in South Korea,
Russia, Kazakhstan, and Ukraine. Its special filter made of carbon, cellulose acetate, and a tobacco
plug purportedly lowers the tar level while providing a smoother taste.
And there’s China, which has a massive market for cigarettes and its own brands that PMI is
distributing all over the world. Its 350 million smokers are 50 million more potential cigarette
customers than the entire population of the U.S., according to Euromonitor.
Developed countries have seen smoking rates edge lower, but some developing countries have
experienced jumps in smoking rates where PMI has strong market presence, demonstrated by
increases in Pakistan (42 percent since 2001), Ukraine (36 percent), and Argentina (18 percent).

Antismoking Promotions
Since the early 1990s, multinational tobacco companies have promoted “youth smoking prevention”
programs as part of their “Corporate Social Responsibility” campaigns. The companies have partnered
with third-party allies in Latin America, most notably nonprofit educational organizations and
education and health ministries, to promote youth smoking prevention. Even though there is no
evidence that these programs reduce smoking among youths, they have met the industry’s goal of
portraying the companies as concerned corporate citizens.
In fact, a new study proves that youth smoking prevention ads created by the tobacco industry and
aimed at parents actually increase the likelihood that teens will smoke. The study, “Impact of Televised
Tobacco Industry Smoking Prevention Advertising on Youth Smoking-Related Beliefs, Intentions and
Behavior,” published in the December 2006 issue of the American Journal of Public Health, sought to
understand how the tobacco industry uses “youth smoking prevention” programs in Latin America.
Tobacco industry documents, so-called social reports, media reports, and material provided by Latin
American public health advocates were all analyzed. The study is the first to examine the specific effect
of tobacco company parent-focused advertising on youth. It found that ads that the industry claims are
aimed at preventing youth from smoking actually provide no benefit to youth. In fact, the ads that are
created for parental audiences also are seen by teens and are associated with stronger intentions by
teens to smoke in the future.
Brazil has the world’s strictest governmental laws against smoking, consisting of highly visible
antismoking campaigns, severe controls on advertising, and very high tax rates on smoking products. It
was the first Latin American country to outlaw flavored cigarettes in 2012. Despite these obstacles, the
number of smokers in Brazil continues to grow, although the pace of increase is slowing. In 2020,
there were approximately 48 million smokers in the country (20 percent of men, 12 percent of
women), up from 44 million in 2006 and 38 million in 1997. Factors driving this trend include the low
price of cigarettes, which are among the lowest in the world; the easy access to tobacco products; and
the actions taken by the powerful tobacco companies to slow down antismoking legislation in Brazil.

Assessing the Ethics of Strategic Decisions

Ethical decision making is not a simplistic “right” or “wrong” determination. Ethical ground rules are
complex, tough to sort out and prioritize, tough to articulate, and tough to use.
The complexity of ethical decisions is compounded in the international setting, which comprises
different cultures, different perspectives of right and wrong, different legal requirements, and different
goals. Clearly, when U.S. companies conduct business in an international setting, the ground rules
become further complicated by the values, customs, traditions, ethics, and goals of the host
countries, each of which has developed its own ground rules for conducting business.
Prominent American ethicists have developed a framework to view the ethical implications Page CS4-19
of strategic decisions by American firms. They identify three ethical principles that can guide
American managers in assessing the ethical implications of their decisions and the degree to which
these decisions reflect these ethical principles or ground rules. They suggest asking themselves if their
corporate strategy is acceptable according to the ethical ground rules listed in the box.

Principles Question
Utilitarian ethics Does the corporate strategy optimize the “common good” or
(Bentham, Smith) benefits of all constituencies?

Rights of the parties Does the corporate strategy respect the rights of the
(Kant, Locke) individuals involved?

Justice or fairness Does the corporate strategy respect the canons of justice or
(Aristotle, Rawls) fairness to all parties?

These questions can help uncover the ethical ground rules embedded in the tobacco consumption
situation described in this case. These questions lead to an ethical analysis of the degree to which this
strategy is beneficial or harmful to the parties and, ultimately, whether it is a “right” or “wrong”
strategy, or whether the consequences of this strategy are ethical or socially responsible for the parties
involved. These ideas are incorporated in the decision tree in Exhibit 1.
Exhibit 1 A Decision Tree for Incorporating Ethical and Social
Responsibility Issues into Multinational Business Decisions
 Page CS4-20

Researchers Laczniak and Naor discuss the complexity of international ethics or, more precisely, the
ethical assumptions that underlie strategic decisions for multinationals.2 They suggest that
multinationals can develop consistency in their policies by using federal law as a baseline for
appropriate behavior as well as respect for the host country’s general value structure. They conclude
with four recommendations for multinationals:
1. Expand codes of ethics to be worldwide in scope.
2. Expressly consider ethical issues when developing worldwide corporate strategies.
3. If the firm encounters major ethical dilemmas, consider withdrawal from the problem market.
4. Develop periodic ethics-impact statements, including impacts on host parties.

See www.who.int, the World Health Organization’s website, for more details regarding the current
tobacco controversy.

Questions
1. Use the model in Exhibit 1 as a guide and assess the ethical and social responsibility implications
of the situations described.
2. Can you recommend alternative strategies or solutions to the dilemmas confronting the tobacco
companies? To governments? What is the price of ethical behavior?
3. Should the U.S. government support the efforts of U.S. companies in selling tobacco abroad?
4. Should a company be forced to stop marketing a harmful product that is not illegal, such as
cigarettes?
Sources: “Smoke over the Horizon; U.S. Gains in Tobacco Control Are Being Offset Internationally,” The Washington Post, July 23, 2006; “Death and Taxes: England Has
Become the Latest in a Series of Countries to Vote for Restrictions on Smoking in Public Places,” Financial Management (UK), April 1, 2006; “Trick or Treat? Tobacco
Industry Prevention Ads Don’t Help Curb Youth Smoking,” PR Newswire, October 31, 2006; “China Exclusive: China, with One Third of World’s Smokers, Promises a ‘Non-
Smoking’ Olympics,” Xinhua News Agency, May 29, 2006; “Tobacco Consumption and Motives for Use in Mexican University Students,” Adolescence, June 22, 2006; “A Change
in the Air: Smoking Bans Gain Momentum Worldwide,” Environmental Health Perspectives, August 1, 2007; “Adams Won’t Kick the BAT Habit: The Head of British American
Tobacco Is Stoical About the Looming Ban on Smoking in Public Spaces: BAT will Adapt,” The Sunday Telegraph London, June 10, 2007; “Heart Disease, Stroke Plague Third
World,” Associated Press, April 4, 2006, online; “Get a Detailed Picture of the Tobacco Industry in Brazil,” M2 Press Wire, December 20, 2007; Vanessa O’Connell, “Philip
Morris Readies Global Tobacco Blitz; Division Spin-off Enables Aggressive Product Push; High-Tar Smokes in Asia,” The Wall Street Journal, January 29, 2008; “The Global
Tobacco Threat,” The New York Times, February 19, 2008; “How to Save a Billion Lives; Smoking,” The Economist (London), February 9, 2008; “Whether Here or There,
Cigarettes Still Kill People,” The Wall Street Journal, February 4, 2008; “British American Tobacco to Continue Selling Cigarettes in Russia,” The Guardian, March 2, 2022,
online; World Health Organization, 2022.
 Page CS4-21

CASE 4-7 The Obstacles to Introducing a

New Product into a New Market
Refer to the text for our descriptions of introduction failures, such as Mattel’s introduction of blonde
Barbie ( Chapter 5), the Play Pump ( Chapter 3), and Taco Bell in Mexico ( Chapter 9). With
those stories in mind, write critiques of (1) Philip’s efforts in marketing cook stoves in Africa and
India ( Chapter 13) and (2) LEGO’s introduction of a new girl’s line, analyzing why it eventually
reversed course, offering only gender-neutral products ( Chapter 8).

B Christopher/Alamy Stock Photo

 Page CS4-22

CASE 4-8 Mary Kay in India

Sheryl Adkins-Green couldn’t ask for a better assignment. As the newly appointed vice president of
brand development at Mary Kay, Inc., she was responsible for development of the product portfolio
around the world, including global initiatives and products specifically formulated for global markets.
She was enthusiastic about her position, noting that, “There is tremendous opportunity for growth.
Even in these economic times, women still want to pamper themselves, and to look good is to feel
good.”
Getting up to speed on her new company and her new position topped her short-term agenda. She was
specifically interested in the company’s efforts to date to build the Mary Kay brand in India.

The Mary Kay Way

Shelly Katz/The LIFE Images Collection/Getty Images

Mary Kay Ash founded Mary Kay Cosmetics in 1963 with her life savings of $5,000 and the support
of her 20-year-old son, Richard Rogers, who currently serves as executive chairman of Mary Kay, Inc.
Mary Kay, Inc., is one of the largest direct sellers of skin care and color cosmetics in the world with
more than $3 billion in annual sales. Mary Kay brand products are sold in more than 40 markets on
five continents. The United States, China, Russia, and Mexico are the top four markets served by the
company. The company’s global independent sales force exceeds 3.5 million. About 65 percent of the
company’s independent sales representatives reside outside the United States.
Mary Kay Ash’s founding principles were simple and time-tested, and remain a fundamental company
business philosophy. She adopted the Golden Rule as her guiding principle, determining the best
course of action in virtually any situation could be easily discerned by “doing unto others as you would
have them do unto you.” She also steadfastly believed that life’s priorities should be kept in their
proper order, which to her meant “God first, family second, and career third.” Her work ethic,
approach to business, and success have resulted in numerous awards and recognitions, including, but
not limited to, the Horatio Alger American Citizen Award, recognition as one of “America’s 25 Most
Influential Women,” and induction into the National Business Hall of Fame.
Mary Kay, Inc., engages in the development, manufacture, and packaging of skin care, makeup, spa
and body, and fragrance products for men and women. It offers anti-aging, cleanser, moisturizer, lip
and eye care, body care, and sun care products. Overall, the company produces more than 200
premium products in its state-of-the-art manufacturing facilities in Dallas, Texas, and Hangzhou,
China. The company’s approach to direct selling employs the “party plan,” whereby independent sales
representatives host parties to demonstrate or sell products to consumers.

Growth Opportunities in Asia-Pacific Markets

Asia-Pacific markets represent major growth opportunities for Mary Kay, Inc. These markets for Mary
Kay, Inc., include Australia, China, Hong Kong, India, Korea, Malaysia, New Zealand, the Philippines,
Singapore, and Taiwan.
China accounts for the largest sales revenue outside the United States, representing about 25 percent
of annual Mary Kay, Inc., worldwide sales. The company entered China in 1995 and currently has
some 200,000 independent sales representatives, or “beauty consultants,” in that country, with
branches in 35 major Chinese cities.
Part of Mary Kay’s success in China has been attributed to the company’s message of female
empowerment and femininity, which has resonated in China, a country where young women have few
opportunities to start their own businesses. Speaking about the corporate philosophy at Mary Kay,
Inc., KK Chua, President, Asia-Pacific, said, “Mary Kay’s corporate objective is not only to create a
market, selling skin care and cosmetics; it’s all about enriching women’s lives by helping women reach
their full potential, find their inner beauty and discover how truly great they are.” This view is echoed
by Sheryl Adkins-Green, who notes that the Mary Kay brand has “transformational and aspirational”
associations for users and beauty consultants alike.
Mary Kay, Inc., learned that adjustments to its product line and message for women were necessary in
some Asia-Pacific markets. In China, for example, the order of life’s priorities—“God first, family
second, and career third”—has been modified to “Faith first, family second, and career third.” Also,
Chinese women aren’t heavy users of makeup. Therefore, the featured products include skin cream,
anti-aging cream, and whitening creams. As a generalization, whitening products are popular among
women in China, India, Korea, and the Philippines, where lighter skin is associated with beauty, class,
and privilege.
Page CS4-23

Mary Kay, India

Mary Kay, Inc., senior management believed that India represented a growth opportunity for three
reasons. First, the Indian upper and consuming classes were growing and were expected to total over
500 million individuals. Second, the population was overwhelmingly young and optimistic. This
youthful population continues to push consumerism as the line between luxury and basic items
continues to blur. Third, a growing number of working women have given a boost to sales of cosmetics,
skin care, and fragrances in India’s urban areas, where 70 percent of the country’s middle-class women
reside.
Senior management also believed that India’s socioeconomic characteristics in 2007 were similar in
many ways to China in 1995, when the company entered that market (see Exhibit 1). The Mary
Kay culture was viewed as a good fit with the Indian culture, which would benefit the company’s
venture into this market. For example, industry research has shown that continuing modernization of
the country has led to changing aspirations. As a result, the need to be good looking, well-groomed,
and stylish has taken a newfound importance.

Exhibit 1 Social and Economic Statistics for India in 2007 and China in 1995.

India 2007 China 1995

Population (million) 1,136 1,198
Population age distribution (0–24; 25–49; 50+) 52%, 33%, 15% 43%, 39%, 18%

Urban population 29.2% 29.0%

Population/square mile 990 332
Gross domestic product (U.S.$ billion) 3,113 728

Per capita income (U.S.$) $950 $399

Direct-selling sales percent of total cosmetic/skin care sales 3.3% 3.0%

Mary Kay initiated operations in India in September 2007 with a full marketing launch in early 2008.
The initial launch was in Delhi, the nation’s capital and the second most populated metropolis in
India, and Mumbai, the nation’s most heavily populated metropolis. Delhi, with per capita income of
U.S.$1,420, and Mumbai, with per capita income of $2,850, were among the wealthiest metropolitan
areas in India.
According to Rhonda Shasteen, chief marketing officer at Mary Kay, Inc., “For Mary Kay to be
successful in India, the company had to build a brand, build a sales force, and build an effective supply
chain to service the sales force.”

Building a Brand
Mary Kay, Inc., executives believed that brand building in India needed to involve media advertising;
literature describing the Mary Kay culture, the Mary Kay story, and the company’s image; and
educational material for Mary Kay independent sales representatives. In addition, Mary Kay, Inc.,
became the cosmetics partner of the Miss India Worldwide Pageant 2008. At this event, Mary Kay
Miss Beautiful Skin 2008 was crowned.
Brand building in India also involved product mix and pricing. Four guidelines were followed:
1. Keep the offering simple and skin care focused for the new Indian sales force and for a new
operation.
2. Open with accessibly priced basic skin care products in relation to the competition in order to
establish Mary Kay product quality and value.
3. Avoid opening with products that would phase out shortly after launch.
4. Address the key product categories of Skin Care, Body Care, and Color based on current market
information.

Brand pricing focused on offering accessibly priced basic skin care to the average middle-class Indian
consumer between the ages of 25 and 54. This strategy, called “mass-tige pricing,” resulted in product
price points that were above mass but below prestige competitive product prices. Following an initial
emphasis on offering high-quality, high-value products, Mary Kay introduced more technologically
advanced products that commanded higher price points. For example, the company introduced in
March 2009 the Mary Kay Mela-CEP Whitening System, consisting of seven products, which was
specifically formulated for Asian skin. This system was “… priced on the lower price end of the prestige
category with a great value for money equation,” said Hina Nagarajan, country manager for Mary Kay,
India.

ismagination/Shutterstock

Page CS4-24

Building a Sales Force

According to Adkins-Green, “Mary Kay’s most powerful marketing vehicle is the direct selling
organization,” which is a key component of the brand’s marketing strategy. Mary Kay relied on its
Global Leadership Development Program directors and National Sales directors and the Mary Kay
Sales Education staff from the United States and Canada for the initial recruitment and training of
independent sales representatives in India. New independent sales representatives received two to
three days of intensive training and a starter kit that included not only products, but also information
pertaining to product demonstrations, sales presentations, professional demeanor, the company’s
history and culture, and team building.
“Culture training is very important to Mary Kay (independent sales representatives) because they are
going to be the messengers of Mary Kay,” said Hina Nagarajan. “As a direct-selling company that
offers products sold person-to-person, we recognize that there’s a personal relationship between
consultant and client with every sale,” added Rhonda Shasteen. By 2012, there were some 4,500
independent sales representatives in India present in some 200 cities, mostly in the northern, western,
and northeastern regions of the country.

Darios/Shutterstock

Creating a Supply Chain

Mary Kay, India, imported products into India from China, Korea, and the United States. Products
were shipped to regional distribution centers in Delhi and Mumbai, India, where Mary Kay Beauty
Centers were located. Beauty Centers served as order pick-up points for the independent sales
representatives. Mary Kay beauty consultants purchased products from the company and, in turn, sold
them to consumers.

Looking Ahead
Mary Kay, Inc., was planning to continue to invest in product development, company infrastructure,
and building its brand in India. “There is a tremendous opportunity for growth,” says Sheryl Adkins-
Green. India represents a particularly attractive opportunity. Developing the brand and brand portfolio
and specifically formulating products for Indian consumers will require her attention to brand
positioning and brand equity.

Questions
1. A positioning statement briefly identifies the target market and needs satisfied, the category in
which the product competes, and the unique attributes or benefits provided. What information
should be included in a written positioning statement for Mary Kay?
2. How would you draft a formal, written positioning statement for Mary Kay using the information
detailed in Question 1?
3. Is Mary Kay a global brand? Why or why not?
4. What advice would you have for the management of Mary Kay in developing markets going
forward?
 Page CS4-25

CASE 4-9 Noland Stores Cleans Up Its Act

This story, all names, characters, and incidents described are fictitious. No identification with actual
persons, companies, places, or products is intended or should be inferred.
Noland Stores, Inc., a large multinational retail corporation based in the United States that specializes
in casual active-wear for men and women, came under attack from multiple media and institutional
sources when it claimed that it had no stake in the Bukra factory disaster in Indonesia in 2016. The fire
that consumed this large factory and several surrounding buildings killed hundreds of workers and
residents.
Investigators proved that Noland Stores had criticized the Bukra management team for inadequate
safety conditions onsite but continued to use the factory to provide goods. This disaster focused
attention on Noland’s seeming inability to track sustainability in its supply chain.

A Developing Nation
The geographic position and natural resources of Indonesia have shaped its development. Indonesia is
a Southeast Asian country consisting of 17,000 to 18,000 islands of which only slightly more than 900
are inhabited. The country’s strategic sea-lane position fostered international trade, and it is this trade
that has shaped its history. See Exhibit 1 for a map of Indonesia.

Exhibit 1 Map of Indonesia

Indonesia, with its cheap and abundant labor supply, is appealing to foreign businesses. Noland was
only one of many companies that, faced with high labor costs, chose to move capital to other places.
However, in the spring of 2019, Sonya Ratmuten, the chair of International Human Rights (IHR)—a
nonprofit that researches and certifies living and working conditions in various Third World countries
—presented a paper at a global organization symposium, citing that Noland had denied workers and
residents substantial severance and death benefits. The factory owner had disappeared, leaving the
building in ruins and employees out of work.
Part of the IHR’s mission statement notes that it promotes “strategies for better environmental, health
and safety conditions.” To that end, IHR provided “corporate honor status” and associated benefits to
those companies that promoted its agenda. Its status recommendations also allow companies to
receive benefits in foreign lands. Noland had been a member in good standing for 10 years.
Noland Stores sourced much of its own brand apparel from the Bukra factory. Claiming that it had no
responsibility for the disaster, Noland chose not to provide any financial support for the employees or
the residents displaced by the fire. The IHR declared that Noland was in violation of its rules of
conduct and that honor status in the group would be terminated. In addition, it would support media
ads and protests suggesting that people boycott Noland’s apparel.

Noland Supply Chain

Like other retail operations, Noland outsourced most of its production. Its network included over
1,000 independent factories located in 50 countries, as shown in Exhibit 2.

Exhibit 2 Distribution of Noland Production Facilities

Noland’s products were designed, produced, and marketed just for the company. The company itself
established contracts with a select group of product suppliers. However, Noland’s supply chain was
complicated. Its product suppliers could easily outsource parts or even all of production directly or
through agents. The contracts did not necessarily set time parameters; rather, Noland provided
suppliers with nonbinding forecasts that were routinely updated. The contracts, however, did define the
business relationship; it also set standards for quality, labor, environmental, and key performance
indicators.
Page CS4-26

Workplace Guidelines and Policies

Noland, ever concerned with promoting a wholesome image, actually published the names of its
suppliers worldwide. Its values were clearly noted in the corporate mission statement: reliability,
honesty, commitment, and open-mindedness. It was expected that all contractors and suppliers would
honor these values. In addition, Noland stated that workers in these supplier operations should
Work no more than 55 hours per week.
Be paid a living wage (defined as meeting basic needs and working to a better future).
Understand their rights and local labor laws.
Have the opportunity to get an education for themselves and their children.
Be allowed to form groups and advocate for improvements to their working conditions without fear.
Work in a safe environment.

Noland used its SED (supplier enforcement division) to supervise and monitor its direct suppliers.
The majority of this division of 125 people operated in the field. They were expected to ensure that
suppliers were meeting the standards mentioned above. Although ideally this division would make
“surprise visits” to suppliers, in reality there were too few inspectors and too many operations.
Typically, an inspector would monitor the supplier’s compliance to specific indicators, such as
Commitment.
Quality.
Communication (both upwards and downwards).
Employee satisfaction.
Training procedures.
Safety measures.

Suppliers were scored from 1 to 6 on each of these measures. Suppliers that averaged 1–2 in all
categories were considered top suppliers; 3–4 required training in specific categories, as needed; and
5–6 were considered at risk. Any suppliers that rated a 6 in safety, quality, or employee satisfaction
would receive a notice of possible termination. These suppliers had 60 days to show substantial
improvement and move out of the 5–6 range. To maintain their corporate status in IHR, Noland had
to send the results of these inspections to the IHR organization.
When hiring a new supplier, Noland would locate a factory that could produce the product. Then it
would use a “sample process” to create an initial line. This measures quality and production capacity.
At this point, SED would conduct an inspection of the property. Those factories that were substandard
were not contracted as suppliers. Of this group, about 35 percent were considered borderline. These
factories were given six months to show the necessary improvements. Then a second inspection would
certify whether or not the factory measured up to Noland’s supplier standards.
NOLAND’S FOREIGN LABOR ISSUES
As recently as 2010, Noland found itself under attack for using sweatshop labor in Asian factories. In
fact, thousands of employees—many of whom were women and children—received substandard wages
and were forced to labor 12–14 hours a day in unsafe working conditions. Noland was found culpable
because it had not increased payment to these suppliers for over seven years. Neither did it penalize
suppliers for labor rights violations, such as gathering and protesting. When Noland decided to join
IHR in 2013, it began to change some of these practices.

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INTERNATIONAL HUMAN RIGHTS

ENFORCEMENT EFFORTS
As the focus on sustainability has become more apparent, the IHR has emphasized that basic human
rights often are tied in to sustainability issues. Therefore, its impact as a monitoring agency is
increasing in importance. Citing code compliance issues and the failure of remediation efforts to
counteract harm to workers is a primary focus.
The IHR was founded in 2000 as a collaborative effort inviting participation from multinational
companies. It is committed to promoting fair labor standards. Members are required to meet certain
standards, and for that, they receive one of several status indicators. These indicators allow the
corporation to benefit from individual country tax incentives or other benefits.

ISSUES AT THE BUKRA FACTORY

The Bukra factory, an apparel factory in Indonesia, was owned by Yu Nam, a Chinese citizen.
According to the IHR, certain violations became apparent as early as 2014, when the company chose
not to pay severance to those employees who might be terminated. A year later, as the company was
suffering financially, the company mandated that employees work for two weeks without pay. The
owner was nowhere to be found, but an overseer had been appointed to make sure the factory met
production goals. In order to do this, certain equipment was not replaced and safety standards were
marginalized. During this time, Noland Stores insisted that it was working with management to correct
the problems, but nothing was done.
Then, in 2016, a fire destroyed the factory and several surrounding buildings, killing over Page CS4-27

274 workers and residents. As of early 2018, Noland Stores was claiming that it did not owe the
workers’ families any compensation—that this was Yu Nam’s responsibility. The IHR disagreed and
issued a ruling that Noland was partially responsible and should contribute to the remediation process.
Noland had not reported the violations as required of all IHR members.

Indonesian Response
Yu Nam, the owner of the Bukra factory, declared bankruptcy. As a Chinese citizen with no other
businesses in Indonesia, he simply did not pay the restitution required by Indonesian courts.
Noland Stores, on the other hand, has multiple factories in Indonesia. While it has not paid any
compensation to date, the company has encouraged its other factories to hire unemployed workers
from Bukra. Unfortunately, these opportunities often require a move or a long commute. In the long
run, fewer than 10 percent of the unemployed workers have found positions.
In addition, Noland is fighting the IHR ruling, claiming that its inspections showed no problems
during the year before the fire. It also certified that it was unaware of any labor rights issues during the
previous years. Therefore, it is meeting with the IHR to maintain its status as a “gold member” and the
benefits it receives as such.

Conclusion
As Sonya Ratmuten prepares for the meeting with Noland corporate officers, she reviews all of the
documents provided in this case. The IHR has found Noland Stores to be in violation of IHR
standards due to its refusal to provide severance and death benefits to former Bukra workers. The
questions weighing on her mind for the committee were: How should Noland be penalized for this
indiscretion? Should additional pressure be brought to bear on the company? To what extent are
companies truly responsible for their suppliers’ problems? How can they supervise their
subcontractors better to ensure standards are met? Such events do occur in the extended supply chain
—are there any other mechanisms to ensure that workers are protected?

Questions
1. What are some points and counterpoints in the debate over “sweatshops”? That is, should
manufacturers be forced to leave factories and countries that violate fair labor standards? What are
the consequences of doing so?
2. Should companies like Noland Stores be held responsible for what goes on in the factories in their
global supply chain? If so, what do you recommend Noland Stores do at this point, if anything?
3. Given the totality of factors, what would your decision be regarding Noland Stores’ standing with
the IHR?