TOPIC 10 (BBA 210)

GLOBAL MARKETING AND R&D

LEARNING OBJECTIVES
After completion of this topic you should be able to:

 Explain why it might make sense to vary the attributes of a product from
country to country.
 Articulate why and why a firm’s distribution strategy might vary among
countries.
 Identify why and how advertising and promotional strategies might vary
among countries.
 Explain why and how a firm’s pricing strategy might vary among countries.
 Discuss how the globalisation of the world economy is affecting new product
development within the international business firm.

1. INTRODUCTION
In topic 10, we looked at the roles of global production and logistics in an
international business. In this topic, we continue our focus on specific business
functions by examining the roles of marketing and research and development (R&D)
in an international business. We focus on how marketing and R&D can be performed
so they will reduce the costs of value creation and add value by better serving
customer needs.

In topic 4 we spoke of the tension in most international businesses between the

needs to reduce costs and at the same time to respond to local conditions, which
tends to raise costs. This tension continues to be a persistent theme in this chapter.
A global marketing strategy that views the world's consumers as similar in their
tastes and preferences is consistent with the mass production of a standardized
output. By mass-producing a standardized output, the firm can realize substantial
unit cost reductions from experience curve and other economies of scale. This is
basically the strategy that Levi Strauss adopted until the late 1990s, but as the
opening case makes clear, by then it was no longer working. Ignoring country
differences in consumer tastes and preferences can lead to failure. Thus, an
international business's marketing function must determine when product
standardization is appropriate and when it is not, and adjust the marketing strategy
accordingly. Moreover, even if product standardization is appropriate, the way in
which a product is positioned in a market, and the promotions and messages used
to sell that product, may still have to be customized to resonate with local
consumers. Similarly, the firm's R&D function must be able to develop globally
standardized products when appropriate, as well as products customized to local
requirements when that makes most sense.2

We consider marketing and R&D within the same chapter because of their close
relationship. A critical aspect of the marketing function is identifying gaps in the
market so the firm can develop new products to fill those gaps. Developing new

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products requires R&D—thus the linkage between marketing and R&D. A firm
should develop new products with market
needs in mind, and only marketing can define those needs for R&D personnel. Also,
only
marketing can tell R&D whether to produce globally standardized or locally
customized
products. Research has long maintained that a major contributor to the success of
new product
introductions is a close relationship between marketing and R&D.3

In this topic, we begin by reviewing the debate on the globalization of markets.

Then we discuss the issue of market segmentation. Next we look at four elements
that constitute a firm's marketing mix: product attributes, distribution strategy,
communication strategy, and pricing strategy. The marketing mix is the set of
choices the firm offers to its targeted markets. Many firms vary their marketing mix
from country to country, depending on differences in national culture, economic
development, product standards, distribution channels, and so on. In the opening
case, for example, we saw how Levi Strauss has adjusted its marketing mix from
country to country, changing product design, distribution strategy, pricing, and
promotion strategy to better match local conditions. In the case of Levi Strauss,
varying the marketing mix to take local differences into account has been a good
thing: The firm has stopped the erosion of its sales and has started to gain market
share again.

The topic closes with a look at new-product development in an international

business and at its implications for the organization of the firm's R&D function.

2. THE GLOBALIZATION OF MARKETING AND BRANDS

Theodore Levitt argued that world markets were becoming increasingly similar
making it unnecessary to localize the marketing mix. Levitt’s theory has become a
lightning rod in the debate about globalization. The current consensus is that while
the world is moving towards global markets, cultural and economic differences
among nations limit any trend toward global consumer tastes and preferences. In
addition, trade barriers and differences in product and technical standards also limit
a firm's ability to sell a standardized product to a global market.

3. MARKET SEGMENTATION
Market segmentation involves identifying distinct groups of consumers whose
purchasing behaviour differs from others in important ways.

Markets can be segmented by:

 geography
 demography
 socio-cultural factors
 psychological factors

Firms need to be aware of two key market segmentation issues:

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 1. The differences between countries in the structure of market segments.
2. The existence of segments that transcend national borders.

When segments transcend national borders, a global strategy is possible.

4. PRODUCT ATTRIBUTES
A product is like a bundle of attributes. Products sell well when their attributes
match consumer needs. If consumer needs were the same everywhere, a firm could
sell the same product worldwide. But, consumer needs vary from country to country
depending on culture and the level of economic development.

4.1 Cultural Differences

Countries differ along a range of cultural dimensions including:
 tradition
 social structure
 language
 religion
 education

While there is some cultural convergence among nations, Levitt’s vision of global
markets is still a long way off.

4.2 Economic Development

A country’s level of economic development has important marketing implications.
Consumers in highly developed countries tend to demand a lot of extra
performance attributes. Consumers in less developed nations tend to prefer more
basic products

4.3 Product and Technical Standards

Levitt’s notion of global markets does not allow for the national differences in
product and technological standards that force firms to customize the marketing
mix.

5. DISTRIBUTION STRATEGY
A firm’s distribution strategy (the means it chooses for delivering the product to the
consumer) is a critical element of the marketing mix. How a product is delivered
depends on the firm’s market entry strategy. Firms that manufacture the product
locally can sell directly to the consumer, to the retailer, or to the wholesaler. Firms
that manufacture outside the country have the same options plus the option of
selling to an import agent.

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Fig 10.1 A Typical Distribution System

5.1 Differences between Countries

There are four main differences in distribution systems:

1. Retail concentration
2. Channel length
3. Channel exclusivity
4. Channel quality

5.1.1 Retail Concentration

In a concentrated retail system, a few retailers supply most of the market.
In a fragmented retail system there are many retailers, no one of which has a
major share of the market.

Developed countries tend to have greater retail concentration, while developing

countries are more fragmented.

5.1.2 Channel Length -- Channel length refers to the number of intermediaries

between the producer and the consumer.

When the producer sells directly to the consumer, the channel is very short.
When the producer sells through an import agent, a wholesaler, and a retailer, a
long channel exists.

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Countries with fragmented retail systems tend to have longer channels, while
countries with concentrated systems have shorter channels

The Internet is helping to shorten channel length as is the emergence of large

stores like Wal-Mart and Tesco.

5.1.3 Channel Exclusivity -- An exclusive distribution channel is one that is difficult for
outsiders to access. Japan's system is an example of a very exclusive system.

5.1.4 Channel Quality -- Channel quality refers to the expertise, competencies and skills
of established retailers in a nation, and their ability to sell and support the products
of international businesses.

The quality of retailers is good in most developed countries, but is variable at best
in emerging markets and less developed countries.

Firms may find that they have to devote considerable resources to upgrading
channel quality.

5.2 Choosing A Distributive Strategy

The choice of distribution strategy determines which channel the firm will use to
reach potential consumers.

The optimal strategy depends on the relative costs and benefits of each alternative.

Since each intermediary in a channel adds its own mark-up to the products, there is
generally a critical link between channel length and the firm's profit margin.

So, when price is important, a shorter channel is better.

A long channel can be beneficial because it economizes on selling costs when the
retail sector is very fragmented and can offer access to exclusive channels.

6. COMMUNICATION STRATEGY
Communicating product attributes to prospective customers is a critical element in
the marketing mix.

How a firm communicates with customers depends partly on the choice of channel.

Communication channels available to a firm include:

 Direct selling
 Sales promotion
 Direct marketing
 Advertising

6.1 Barriers to International Communication

International communication occurs whenever a firm uses a marketing message to
sell its products in another country.

The effectiveness of a firm's international communication can be jeopardized by:

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 1. Cultural barriers
2. Source and country of origin effects
3. Noise levels

6.1.1 Cultural Barriers -- It can be difficult to communicate messages across cultures. A

message that means one thing in one country may mean something quite different
in another.

To overcome cultural barriers, firms need to develop cross-cultural literacy, and use
local input when developing marketing messages

6.1.2 Source and Country of Origin Effects -- Source effects occur when the receiver of the
message evaluates the message on the basis of status or image of the sender.
Firms can counter negative source effects by deemphasizing their foreign origins.

Country of origin effects refer to the extent to which the place of manufacturing
influences product evaluations.

6.1.3 Noise Levels -- Noise refers to the amount of other messages competing for a
potential consumer’s attention.

In highly developed countries, noise is very high.

In developing countries, noise levels tend to be lower.

6.2 Push versus Pull Strategies

Firms have to choose between two types of communication strategies:
 A push strategy emphasizes personal selling
 A pull strategy emphasizes mass media advertising

The choice between the strategies depends upon:

1. Product type and consumer sophistication
2. Channel length
3. Media availability

6.2.1 Product Type and Consumer Sophistication --Firms in consumer goods industries that are
trying to sell to a large market segment usually use a pull strategy.

Firms that sell industrial products typically prefer a push strategy.

6.2.2 Channel Length -- A pull strategy can work better with longer distribution channels

6.2.3 Media Availability -- A pull strategy relies on access to advertising media.

When media is not easily available, a push strategy may be more attractive.

In general, a push strategy is better:

 for industrial products and/or complex new products
 when distribution channels are short
 when few print or electronic media are available

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A pull strategy is better:
 for consumer goods products
 when distribution channels are long
 when sufficient print and electronic media are available to carry the
marketing message.

6. 3 Global Advertising
Standardizing advertising worldwide has both pros and cons.

Standardized advertising makes sense when:

 it has significant economic advantages
 creative talent is scarce and one large effort to develop a campaign will be
more successful than numerous smaller efforts
 brand names are global

Standardized advertising does not make sense when:

 cultural differences among nations are significant
 country differences in advertising regulations block the implementation of
standardized advertising

Some firms have been trying tactics to capture the benefits of global
standardization while responding to individual cultural and legal environments.

So, some features of a campaign are standardized while others are customized to
local markets.

7. PRICING STRATEGY
International pricing is an important element in the marketing mix.

There are three issues to consider:

 The case for price discrimination
 Strategic pricing
 Regulations that affect pricing decisions

7.1 Price Discrimination

Price discrimination occurs when firms charge consumers in different countries
different prices for the same product .

Firms using price discrimination hope it will boost profits.

For price discrimination to work:

 the firm must be able to keep national markets separate
 different price elasticities of demand must exist in different countries

The price elasticity of demand is a measure of the responsiveness of demand for

a product to changes in price. When a small change in price produces a large
change in demand, demand is elastic. When a large change in price produces only
a small change in demand, demand is inelastic.

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Income level and competitive conditions are the two most important determinants
of a country’s elasticity of demand for a certain product . Typically, price elasticities
are greater in countries with lower income levels and larger numbers of
competitors.

Figure 10.2: Elastic and Inelastic Demand Curves

7.2 Strategic Pricing

Strategic pricing has three aspects:
1. Predatory pricing
2. Multi-point pricing
3. Experience curve pricing

7.2.1. Predatory Pricing --Predatory pricing involves using the profit gained in one
market to support aggressive pricing designed to drive competitors out in another
market.

After the competitors have left, the firm will raise prices.

7.2.2 Multi-point Pricing --Multi-point pricing refers to the fact that a firm’s pricing
strategy in one market may have an impact on a rival’s pricing strategy in another
market. Aggressive pricing in one market may elicit a competitive response from a
rival in another critical market.

For managers, it is important to centrally monitor pricing decisions around the

world.
Aggressive pricing in one market may elicit a response from rivals in another
market.

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7.2.3. Experience Curve Pricing --Firms that are further along the experience curve have a
cost advantage relative to firms further up the curve.

Firms pursuing an experience curve pricing strategy price low worldwide in an

attempt to build global sales volume as rapidly as possible, even if this means
taking large losses initially.

The firm believes that when it has moved down the experience curve, several years
in the future, it will be making substantial profits and have a cost advantage over its
less aggressive competitors.

7.3 Regulatory Influences on Prices

The use of either price discrimination or strategic pricing may be limited by national
or international regulations.

A firm’s ability to set its own prices may be limited by:

1. Antidumping regulations
2. A competition policy

7.3.1 Antidumping Regulations -- Dumping occurs whenever a firm sells a product for a
price that is less than the cost of producing it. Antidumping rules set a floor under
export prices and limit a firm’s ability to pursue strategic pricing.

7.3.2 Competition Policy --

Most industrialized nations have regulations designed to promote competition and
restrict monopoly practices. The regulations can be used to limit the prices that a
firm can charge

8. CONFIGURING THE MARKETING MIX

Standardization versus customization is not an all or nothing concept. Most firms
standardise some things and customise others. Firms should consider the costs and
benefits of standardising and customising each element of the marketing mix.

9. NEW PRODUCT DEVELOPMENT

Today, competition is as much about technological innovation as anything else. The
pace of technological change is faster than ever. Product life cycles are often very
short.

New innovations can make existing products obsolete, but at the same time, open
the door to a host of new opportunities. Firms today need to make product
innovation a priority. This requires close links between R&D, marketing, and
manufacturing.

9.1 The Location of R&D

New product ideas come from the interactions of scientific research, demand
conditions, and competitive conditions.

The rate of new product development is greater in countries where:

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  More money is spent on basic and applied research and development
 Demand is strong
 Consumers are affluent
 Competition is intense

9.2 Integrating R&D, Marketing, and Production

New product development has a high failure rate. To reduce the chance of failure,
new product development efforts should involve close coordination between R&D,
marketing, and production.

This integration will ensure that:

 Customer needs drive product development
 New products are designed for ease of manufacture
 Development costs are kept in check
 Time to market is minimised

9.3 Cross-Functional Teams

Cross-functional integration is facilitated by cross-functional product development
teams.

Effective cross functional teams should:

 Be led by a heavyweight project manager with status in the organization.
 Include members from all the critical functional areas.
 Have members located together.
Establish clear goals.
 Develop an effective conflict resolution process.

9.4 Building Global R&D Capabilities

To adequately commercialize new technologies, firms need to integrate R&D and
marketing.

Commercialization of new technologies may require firms to develop different

versions for different countries.

This may require R&D centres in North America, Asia, and Europe that are closely
linked by formal and informal integrating mechanisms with marketing operations in
each country in their regions, and with the various manufacturing facilities.

10. SUMMARY
This topic discussed the marketing and R&D functions in international business. A
persistent theme of the chapter is the tension that exists between the need to
reduce costs
and the need to be responsive to local conditions, which raises costs. The chapter
made these
major points:

1. Theodore Levitt argued that due to the advent of modern communications

and transport technologies, consumer tastes and preferences are becoming
global, which is creating global markets for standardized consumer products.

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 However, many commentators regard this position as extreme, arguing that
substantial differences still exist between countries.
2. Market segmentation refers to the process of identifying distinct groups of
consumers whose purchasing behaviour differs from each other in important
ways. Managers in an international business need to be aware of two main
issues relating to segmentation: the extent to which there are differences
between countries in the structure of market segments, and the existence of
segments that transcend national borders.
3. A product can be viewed as a bundle of attributes. Product attributes must be
varied from country to country to satisfy different consumer tastes and
preferences.
4. Country differences in consumer tastes and preferences are due to
differences in culture and economic development. In addition, differences in
product and technical standards may require the firm to customize product
attributes from country to country.
5. A distribution strategy decision is an attempt to define the optimal channel
for delivering a product to the consumer.
6. Significant country differences exist in distribution systems. In some
countries, the retail system is concentrated; in others, it is fragmented. In
some countries, channel length is short; in others, it is long. Access to
distribution channels is difficult to achieve in some countries, and the quality
of the channel may be poor.
7. A critical element in the marketing mix is communication strategy, which
defines the process the firm will use in communicating the attributes of its
product to prospective customers.
8. Barriers to international communication include cultural differences, source
effects, and noise levels.
9. A communication strategy is either a push strategy or a pull strategy. A push
strategy emphasizes personal selling, and a pull strategy emphasizes mass
media advertising. Whether a push strategy or a pull strategy is optimal
depends on the type of product, consumer sophistication, channel length,
and media availability.
10.A globally standardized advertising campaign, which uses the same
marketing message all over the world, has economic advantages, but it fails
to account for differences in culture and advertising regulations.
11.Price discrimination exists when consumers in different countries are charged
different prices for the same product. Price discrimination can help a firm
maximize its profits. For price discrimination to be effective, the national
markets must be separate and their price elasticities of demand must differ.
12.Predatory pricing is the use of profit gained in one market to support
aggressive pricing in another market to drive competitors out of that market.
13.Multipoint pricing refers to the fact that a firm's pricing strategy in one
market may affect rivals' pricing strategies in another market. Aggressive
pricing in one market may elicit a competitive response from a rival in
another market that is important to the firm.
14.Experience curve pricing is the use of aggressive pricing to build
accumulated volume as rapidly as possible to quickly move the firm down the
experience curve.
15.New-product development is a high-risk, potentially high-return activity. To
build a competency in new-product development, an international business

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 must do two things: disperse R&D activities to those countries where new
products are being pioneered, and integrate R&D with marketing and
manufacturing.
16.Achieving tight integration among R&D, marketing, and manufacturing
requires the use of cross-functional teams.

Critical Thinking and Discussion Question

Imagine you are the marketing manager for a Zambian manufacturer of disposable
diapers.
Your firm is considering entering the Brazilian market. Your CEO believes the
advertising
message that has been effective in Zambia will suffice in Brazil. Outline some
possible objections to her belief. Your CEO also believes that the pricing decisions in
Brazil can be delegated to local managers. Why might she be wrong?

10. REFERENCES
Clark, K. B. and Wheelwright, S. C. (1993) Managing New Product and Process
Development, New
York: Free Press.
Hill, C. W. L. (2014) International Business: Competing in the Global Marketplace,
9th Edition, New
York: McGraw-Hill.
Kotabe, M. Srinivasan, S. and Aulakh, P. S. (2002) Multinationality and Firm
Performance: The
Moderating Role of R&D and Marketing Capabilities, Journal of International
Business
Studies 33, no. 1, pp. 79−97.
Ruekert, R. W. and Walker, O. C. (1987) Interactions between Marketing and R&D
Departments in Implementing Different Business-Level Strategies, Strategic
Management
Journal 8, pp. 233–48;

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