Question

Should companies standardize, adapt, or formulate a new marketing mix (promotion, price, product, distribution) when entering global markets?

Why or why not?

Explain/give examples.

Answer 1

A preliminary decision that international marketers have to make is the degree to which the company should standardize or adapt its marketing mix around the world. Standardization creates economies of scale in manufacturing, advertising and packaging, thus it may be tempting to standardize as much of the marketing mix as possible across markets.ADVERTISEMENTS:

Rarely can a marketing mix be totally standardized. One or more elements of the marketing mix must be adapted to the local conditions. The fact is that there are real differences among markets and the marketing mix has to be sensitive to such differences. Marketers operating in international markets should have an open mind on the degree of standardization to be adopted in various foreign markets.

They should look at each market closely and decide if any element of the marketing mix can be standardized. Suitability of the marketing mix for the market should be the criterion for choosing it rather than lower cost. However low a cost a marketing mix may incur, it has no value if it is not accepted in the foreign market. A marketing mix should be judged by its effectiveness and not by the cost that it will incur.

The choice is also not between standardization and adaptation, but between the how much to standardize and how much to adapt. Traditionally, marketing oriented multinational corporations have operated somewhat differently in each country. They have provided different product features, packaging, advertising etc.

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The idea has been that markets are different in their requirements and characteristics, and therefore should be served differently. But the counterargument is that communication and technology have made the world smaller, so that everyone in every market wants practically the same products and services.

Thus, there is one big global market for standardized consumer products instead of segmented foreign country markets being served with different products. The truth is somewhere between the two ideas.

Foreign markets are different from each other in some ways but they are similar to each other in some other ways. The challenge is to be able to identify the similarities and the differences, and the areas where these similarities and differences lie.

So instead of adopting a standard marketing mix for all markets or devising a separate mix for each market, the multinational corporation should adapt a marketing mix, working successfully in a market, to make it suitable to another market.

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For instance, the product can be retained but the advertising may have to be changed due to different cultural milieu in the new market. Or the communication theme may remain the same though the distribution channel may have to be adapted to suit local conditions better.

Marketing Mix Decisions:

The major task of marketers is to fix the marketing mix in a way that the mix is suitable for the target country market without the company inventing all the elements of the mix. The company should check if its existing marketing mix elements operating in various markets can be applied to the new market too.

Product:

Companies in some industries like pharmaceuticals can offer standardized products in all markets, as drugs have similar use all over the world. A second situation in which a standard product can be offered across markets is when the brand concept is based on authentic national heritage. Scotch whisky is a fine example.

The third situation in which a product can be standardized is when there is existence of a global market segment of consumers, cutting across nations, who have a common lifestyle and mindset. Gucci fashion accessories and Rolex watches cater to this truly global segment.

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This global segment is increasing in size but national strategies cannot be formulated to cater to this segment, as they are a small proportion of any country, especially the; less developed ones. But it will be reasonable to believe that as prosperity increases in nations of the world, this global segment will become large enough to support national strategies.

But in other situations products have to be modified before they can be made acceptable in foreign markets. The local culture and taste may make some products totally unacceptable. Changes in ingredients and form will have to be made. But a company should always check for changes in cultures and tastes taking place due to the impact of globalization.

A company may find to its surprise that, in the beginning of their foray in the foreign market they had to adapt to the product but in later years its standard product has become more desirable among customers of the foreign market.

Besides variations in consumer preferences, other factors that must be taken into account while adapting products in international markets are the cost considerations, the legal requirements in the country of operation, the compatibility of the product in the environment of the other country, and labeling and instructions required in the product.

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For instance, cost considerations would include the cost of manufacturing with minor or major modifications, or making an entirely new product. One о the main reasons for outsourcing among multinational companies is the lower raw material and labour costs in developing countries that can lower the cost of the product.

Promotion:

Standard promotional campaigns across all the geographical areas that a company operates in can save resources. It also builds a uniform positioning across the world. But it can be dangerous to standardize campaigns even if a common language is understood in the foreign markets.

More than the product, consumers of a country are sensitive to promotional campaigns. Promotional campaigns play on the motivations of consumers to buy a product, and motivations to buy a product can be different even in economically and culturally similar countries.

Each country has its own legends heroes and fairy tales. They may not relate to, or fancy being fed with somebody else’s heroes and heroics. Companies like Coke learned the lesson the hard way in countries like India. Coke started its campaign in India with standard campaigns but when these did not work, it switched to celebrity endorsements using cricketing heroes and film stars.

When a company adopts a different positioning in a foreign market, its promotion campaigns have to reflect the new positioning. Also when brands are used differently in different countries, the promotional campaign will have to be changed accordingly. But even when a brand is used similarly and for the same purpose, it is best to enter a foreign market with a campaign designed for it.

In competitive markets, advertisements have to capture the finer nuances of the culture and motivations of consumers. Ignoring these nuances will be a huge competitive disadvantage against companies who understand and honour these minor differences in their promotional campaigns.

The salesperson who is not initiated into the culture, customs and business practices of the foreign market may damage the prospects of his company. It is imperative that salespersons operating in international markets have a thorough knowledge of the culture, customs and business practices of the foreign market in which they have to operate, irrespective of how weird and unproductive such practices may initially appear to them. The rule of international personal selling is to adopt the method the buyer is comfortable with, without any bias.

Price:

The extra cost of doing business in the foreign market should be considered before deciding upon a price. Middlemen and transportation costs need to be considered and estimated. In some markets the distribution channel may be very long, with big margins being demanded at each level.

There are additional costs of insurance, packaging and shipping in international transportation. The varying rates of taxes and tariffs in different markets also have to be considered. Companies need to protect themselves against the cost of exchange rate fluctuations by forward hedging which allows future payments to be settled at around the exchange rate at which the deal was made.

While quoting a price to an overseas customer, the contract should include clauses such as terms of credit, who will be responsible for the products during transit, and who will pay the insurance and transportation charges.

Currency in which payment is made has an impact on profitability and should be mentioned in the contract. Since the prices charged vary, depending on the quality levels of the goods, the parameters and the standards of quality of the goods should also be specified in the contract.

If a company has to be successful in a foreign market, its offerings have to be competitive in relation to domestic suppliers and other foreign suppliers. Customers do not understand extra costs in doing business in foreign markets and if they have to pay extra for an imported good, they will look for extra value. Before pricing its offerings, a company will have to understand the price-value equation of the customers of the foreign market. Most customers in developing countries demand high value but are not willing to pay high prices. A company will have to engineer the right value in its goods at a price the consumers in a foreign market are willing to pay.

International markets often face the problem of grey markets or parallel imports. This involves the illegal sale of legal trademarks by unauthorized persons or organizations. A manufacturer exports its product to a country. A distributor in this country of import sells the same product to a distributor in another country without the permission or knowledge of the manufacturer.

The distributor in the third country sells the product to customers at a price lower than the authorized distributors of the manufacturer Therefore the product is being sold at two prices in the same market The price in the authored distribution channel is higher and price in the ‘unauthorized’ channel or the grey market is lower, practice undercuts manufacturer’s profits and damages its brand image.

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Gary markets exist because exchange rates, prices at which the manufacturer sells to the authorized distributors, and distribution costs between the three involved countries are such that, the unauthorized distributor in the third country is able to sell the product at a price lower than what the authorized distributor is able to do.

Another phenomenon concerning pricing in international markets is dumping. Dumping is se mg merchandise in another country at a price below the price at which the same merchandise ‘^old m he home market, or selling such merchandise below the costs incurred in production and shipment. Dumping affects the prospects of the domestic industries.

Several countries have formulated anti-dumping laws to counter the threat of such cheap imports. Many countries use anti-dumping laws as a protection measure for their domestic industries. Other countries use anti-dumping laws to prevent invasion о predatory pricing policies of foreign companies.

Sporadic dumping harms the normal growth of domestic industries. In order to prove the effects of dumping, the affected country must demonstrate price discrimination and harm caused to it by such pricing policies.

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Transfer pricing refers to the price at which one division of a company sells products to another division of the same company. It concerns intra corporate exchanges. Appropriate transfer pricing policies are important to generate profits in each division of the corporation.

Across borders, transfer pricing policies acquire complications. The first issue is regarding the price at which transfers occur. This can be fixed on the basis of cost of the product, or on the basis of market determined price or on the basis of negotiated price between the two units of the same company.

However, the best method of setting transfer price is by using the arm’s length policy, whereby both the parties treat each other as independent, unrelated units and negotiate prices. Another issue relates to taxation levels in different countries. Reporting higher incomes in those countries where tax rates are lower, and lower incomes where rates are higher can generate higher profits for a firm.

Company divisions that operate in high tax regimes sell at low prices to other divisions in low tax regimes, thus reporting less income and paying less tax. Those divisions that operate in low tax regimes sell at high prices to report higher incomes. Since the taxation rates are lower, despite having high incomes, such divisions end up paying less tax.

In general, a division of a company that is in a high tax regime sells raw materials or semi-finished products to divisions in the low tax regime or tax haven. Finished goods are sold from lower tax regimes or tax havens to other countries at higher profits, for which fewer taxes are paid.

Place:

In order to determine channel requirements in international markets, it is important to determine the location of potential customers, their information and service requirements while buying the product, price sensitivity and preferences.

It should be noted that while moving into new markets, most firms will encounter well entrenched local or multinational players with established channel networks. Such intermediaries may find little reason to switch over to the new multinationals, or to take on the new product.

An important decision to make is whether to use importers and distributors, or to use the company’s own personnel to distribute a product in a foreign market. Initial costs are lower when importers and distributors are used, so it is often used in the first phase of entering a foreign market. As sales increase, companies set up their own distribution system.

Companies should not assume that foreign distribution systems are the same as they are in their home country. The lengths and complexity of distribution systems vary across markets. Another important consideration is the power wielded by various players in the distribution system. A particular tier may be very powerful and may demand big concessions.

It is also important to understand that independent intermediaries are not interested in maximizing profits of the companies employing them. They may not be interested in developing the international markets for new companies that want to expand.

In such cases, a company may opt for more expensive distribution channels initially, and once they have established their identity in their target market, they switch over to less expensive means. For instance, companies may have to employ direct marketing channels initially and may later switch over to using independent channel intermediaries. Any company that is hoping to establish its own distribution force should be willing to undertake heavy initial expenses in setting up the channel network and hiring and training sales personnel. These expenses are likely to continue for a considerable period of time till the company has established itself in the new market. This must be treated as an investment.

At the same time, due to enormous variations in the economic and legal factors and the physical the terrain, it may be necessary for foreign companies to avail the services of local channel intermediaries in the beginning.

Customers prefer to shop in a particular way and thus channels create utility for customers. Therefore companies should install distribution systems which facilitate customers to shop the way they want to. The company must assess the number of customers, which usually depends on the product and positioning strategy of the company.

For instance, for an industrial product, or for a product with high unit price employing its own salespersons can be a better strategy than using independent intermediaries. Product attributes such as degree of standardization, perishability, service requirements and bulk of the product are important considerations for deciding which type of intermediaries to use.

For instance for those products that require extensive post-sales service, a company’s own salespeople should be used to serve customers. Bulky products require the use of less number of channel intermediaries so as to minimize shipping distances and the number of times the product changes hands between channel intermediaries. For perishable goods, channels must be direct and responsive to ensure delivery of products in the right condition when they reach customers.