CHAPTER 15 STRATEGIC ELEMENTS OF COMPETITIVE ADVANTAGE SUMMARY In this chapter we focus on factors that help industries and countries

achieve competitive advantage. According to Porter's five forces model, industry competition is a function of the threat of new entrants, the threat of substitutes, the bargaining power of suppliers and buyers, and rivalry among existing competitors. Porter's generic strategies model can be used by managers to conceptualize possible sources of competitive advantage. A company can pursue broad market strategies of low cost and differentiation or the more targeted approaches of cost focus and focused differentiation. Today, many companies are discovering that industry competition is changing from a purely domestic to a global phenomenon. Thus, competitive analysis must also be carried out on a global scale. Global marketers must also have an understanding of national sources of competitive advantage. Porter has described four determinants of national advantage. Factor conditions include human, physical, knowledge, capital, and infrastructure resources. Demand conditions include the composition, size, and growth pattern of home demand. The rate of home market growth and the means by which a nation's products are pulled into foreign markets also affect demand conditions. The final two determinants are the presence of related and supporting industries and the nature of firm strategy, structure, and rivalry. Porter notes that chance and government also influence a nation's competitive advantage. Porter's work has been the catalyst for promising new research into strategy issues, including D'Aveni's work on hypercompetition and Rugman's recent double-diamond framework for national competitive advantage.

DISCUSSION QUESTIONS 1. How can a company measure its competitive advantage? How does a firm know if it is gaining or losing competitive advantage? Cite a global company and its source of competitive advantage? Competitive advantage is defined as arising from a match between a firms distinctive competencies and the factors critical for success within its industry. When a company achieves this match, it will deliver superior perceived value relative to competitors. This definition suggests that, first; a company must have a clear understanding in which it competes, and the overall business environment. If a firms distinctive competencies allow it to attain the low-cost position in its industry, it cannot afford to lose ground to rivals seeking to leapfrog it. If a company competes via differentiation, it must be continually innovative to maintain or enhance the perceived uniqueness of its products. Beyond this, it is necessary for a company to assess customer perceptions.

Sony has an enviable history of first-mover achievements based on its know-how in audio technology: first pocket-sized transistor radio, first consumer VCR, first portable personal stereo, and first compact disc player. Sony entered the video game industry in 1994, but its 64-bit Playstation outsold a competitive product from Sega. After Sony launched the Playstation 2 in 2000, Sega halted production of its Dreamcast game player; the company will now concentrate on developing game software. 2. Outline Porter's five forces model of industry competition. How are the various barriers to entry relevant to global marketing? The five forces model is shown in Figure 15-1. The first force, the threat of new entrants, depends on the presence or absence of barriers to entry. As industries globalize, the threat on new entrants into national markets increases. The issue of government policies is at the heart of the trade dispute between Kodak and Fuji. Similarly as the experience of Toys R Us in Japan shows, access to distribution channels, may be blocked to deter would-be entrants. Strong global brands may also constitute a barrier to entry by providing product differentiation. The second force, the threat of substitute products, limits a companys ability to raise prices. Global competitive pressures often compel companies to search for manufacturing sources low-wage countries. Bargaining power of buyers is the third force. The discussion of keiretsu in Chapter 9 shows how Japanese firms impose discipline and obtain low prices in various industries. Bargaining power of suppliers, the extent to which a company is the 900 pound gorilla in its industry, can be very high in a global industry. For example, Microsofts Windows operating system and Intels Pentium processor have become de facto worldwide standards. This allows the two companies to drive very hard bargains with computer manufacturers and others that depend on their products. Finally, rivalry among competitors can be especially intense in global industries such as automobiles, consumer electronics, and pharmaceuticals. 3. How does the five partners or flagship model developed by Rugman and D'Cruz differ from Porter's five forces model?-NOT APPLICABLE FOR THIS SEMESTER According to Professors Alan Rugman and Joseph D'Cruz, Porter's model is too simplistic given the complexity of today's global environment. Rugman and D'Cruz have developed an alternative framework based on business networks that they call the flagship model (see Figure 10-3). The success of Japanese vertical keiretsu and Korean chaebol, Rugman and D'Cruz argue, is that they adopt strategies that are mutually reinforcing within a business system and foster a collective long-term outlook among the partners. Moreover, the authors note, "long-term competitiveness in global industries is

less a matter of rivalry between firms and more a question of competition between business systems." A major difference between their model and Porter's is that Porter's is based on the notion of corporate individualism and individual business transactions. For example, Microsoft's tremendous supplier power allows it to dictate to, and even prosper at the expense of, the computer manufacturers it supplies with operating systems and applications. The flagship model is evident in the strategies of Ford, Volkswagen, and other global automakers; Sweden's Ikea and Italy's Benetton are additional examples. 4. Give an example of a company that illustrates each of the four generic strategies that can lead to competitive advantage: overall cost leadership, cost focus, differentiation, and differentiation focus. Overall cost leadership: Bic, Wal-Mart Cost focus: IKEA, Kia Differentiation: Kodak, Gillette, Swatch, Nike Differentiation focus: Harley-Davidson, Germanys Mittelstand 5. Briefly describe Hamel and Prahalad's framework for competitive advantage. NOT APPLICABLE FOR THIS SEMESTER Hamel and Prahalad argue that, while Western companies have been preoccupied with outdated concepts such as generic strategies, competitors in Japan have developed a true vision. Strategic intent, in essence, represents an obsession with winning. At the core of the concept are core competencies that link related products. A case in point is Hondas expertise at engine design. Competitive advantage is achieved when a company develops layers of competencies. It should be noted that some industry observers have found fault with Hamel and Prahalads work. For example, how, exactly, does a company go about identifying its core competence? Does the mere obsession with winning lead to success? What if a company is obsessed with winning, but it has joined the wrong battle? 6. How can a nation achieve competitive advantage? Porter identifies four determinants of national competitive advantage: Factor conditions Demand conditions Related and supporting industries Firm strategy, structure, and rivalry In the United States, for example, the patient monitoring equipment industry thrived due to sophisticated demand an active domestic rivalry. The robotics industry in Japan benefited from public policy decisions that led to government support to stimulate domestic demand. In robots, automobiles, consumer electronics, and other industries in

Japan, fierce domestic rivalries are the rule. In Italy, the ceramic tile industry thrived thanks to high per capita demand, vigorous domestic rivalry, and abundance of available factors. 7. According to current research on competitive advantage, what are some of the shortcomings of Porter's models? One criticism of generic strategies is that they are static, rather than dynamic. Porter himself acknowledges this, writing, The firm competing with a differentiation strategymust find a stream of new ways to add to its differentiation, or, minimally, improve its effectiveness in differentiating in old ways. The five forces model provides a good framework for competitor analysis; however, the model has been criticized for placing too much emphasis on entry barriers. Todays competitive environment is much more dynamic than it was when the model was introduced in the late 1970s. Another criticism is that the model does not explain why different companies in the same industry facing the same forces perform differently. 8. What is the connection, if any, between national competitive advantage and company competitive advantage? Explain and discuss. National competitive advantage is the sum of the company competitive advantages in a country. It is derived from company strategy formulation and implementation. It is not to be confused with national endowments or national natural resources. A country may have, for example, an outstanding educational system or an inferior system. In general, a better system is an advantage, but merely having an outstanding education system does not, per se, lead to competitive advantage. Nor does having a poor system preclude competitive advantage. National competitive advantage should not be confused with comparative advantage, which refers to the economic fact that a country can gain from specialization and trade. Every country can take advantage of the law of comparative advantage, and every country that protects local industry presents an obstacle to the realization of the gains from comparative advantage.

CHAPTER 7 SEGMENTATION, TARGETING, AND POSITIONING SUMMARY The global environment must be analyzed before a company pursues expansion into new geographic markets. Through global market segmentation, a company can identify and group customers or countries according to common needs and wants. Demographic segmentation can be based on country income and population, age, ethnic heritage, or other variables. Psychographic segmentation groups people according to attitudes, interests, opinions, and lifestyles. Behavioral segmentation utilizes user status and usage rate as segmentation variables. Segmentation can also be based on the benefits buyers seek. Global teens and global elites are two examples of global market segments. After marketers have identified segments, the next step is targeting: The identified groups are evaluated and compared, and one or more segments with the greatest potential is selected from them. The groups are evaluated on the basis of several factors, including segment size and growth potential, competition, and compatibility and feasibility. Target market assessment also entails a thorough understanding of the product-market in question and determining marketing model drivers and enabling conditions in the countries under study. The timing of market entry should take into account whether a first-mover advantage is likely to be gained. After evaluating the identified segments, marketers must decide on an appropriate targeting strategy. The three basic categories of global target marketing strategies are standardized marketing, concentrated (niche) marketing, and differentiated (multisegment) marketing. Positioning a product or brand to differentiate it in the minds of target customers can be accomplished in various ways: positioning by attribute or benefit, positioning by quality/price, positioning by use or user, and positioning by competition. In global marketing global consumer culture positioning (GCCP), foreign consumer culture positioning (FCCP), and local consumer culture positioning (LCCP) are additional strategic options. DISCUSSION QUESTIONS 1. Identify the five basic segmentation strategies. Give an example of a company that has used each one. Global market segmentation identifies and groups customers or countries according to common needs and wants. Coca-Cola has identified and grouped both customers and countries. Demographic segmentation is based on measurable population statistics such as age, gender, income, occupation, and geography. Volkswagen, Citroen, Chrysler, and other automakers have identified China as an attractive segment based on the sheer size of its population.

Psychographic segmentation divides people into lifestyle or personality segments based on assessments of activities, interests, and opinions. Porsche established psychographic profiles of its U.S. owners. Behavior segmentation focuses on whether or not a populations members use a product, and, for users, how often, how much, and how loyally they use it. Visa International and other credit card companies target Asian countries, where credit card utilization is much lower than in the United States. Conversely, tobacco companies such as Philip Morris and B.A.T. are targeting China and other Asian countries because, compared with the West, a relatively higher proportion of Asian adults smoke. Benefit segmentation divides the market according to the benefits buyers seek from a product or the problem that the product solves for them. 2. Explain the difference between segmenting and targeting. Market segmentation divides a population or market into groups with one or more common characteristics. Targeting selects one or more market segments and a target market strategy. 3. Compare and contrast standardized, concentrated, and differentiated global marketing. Illustrate each strategy with an example from a global company. Standardized (or undifferentiated) global marketing represents mass marketing on a global scale. This has been the key to the global success of companies such as Kodak, Bic, the Coca-Cola Company, Levi Strauss and Gillette. Conversely, a company engaged in differentiated marketing targets several different segments by offering a unique marketing mix to each. Whirlpool is a good example. Its Baulkneckt brand is for upscale consumers, appliances with the Whirlpool brand are positioned in the middle of the market, and Ipnis is at the low end. Concentrated marketing represents a niche strategy for serving a narrowly-defined segment. Rolls-Royce automobiles carry exclusive prices that only affluent consumers can afford. Similarly, the Body Shop caters to consumers who wish to purchase natural beauty aids and cosmetics that have not been tested on animals. 4. American Izuzu Motors recently introduced the AXIOM SUV in the United States with a base sticker price of $25,985. The base price for a Honda CRV is $18,750; prices for Toyota's RAV4 start at $16,365. Assess Isuzu's decision to target the U.S. market for sport utility vehicles. Isuzus decision should be based on answers to the following questions. Is the market segment currently large enough to present Isuzu an opportunity to make a profit? If not today, is there growth potential to make it attractive in terms of Isuzus long-term strategy? Even if a narrow segment can be served profitably in the U.S., the target segment exists in several countries.

The SUV vehicle segment is an example of growth from 1990 to 2000, with over 3 million sold in 2000. Reacting to high demand, manufacturers from outside the U.S. drew up plans for their own versions. Consultants predict that by 2006, 79 separate SUV models will target American buyers. As U.S. growth slows, the SUV segment is growing in other countries. In addition, differentiated global marketing, or multisegment targeting, targets two or more market segments with multiple marketing mix offerings; while the AXPIOM SUV targets the high-end of the market, the Toyota RAV4 targets the lower end. 5. What is positioning? Identify the different positioning strategies presented in the chapter and give examples of companies or products that illustrate each. Positioning represents marketers attempts to differentiate their products from all competing products in terms of consumers mental images and representations. The positioning strategies identified in the chapter include attribute or benefit, quality/price, use or user, and a companys competition. Toothpastes, detergents, and similar consumer products are often positioned by attribute. Premium spirits such as vodka and gin are positioned at the high end of the quality/price continuum. 6. What is global consumer culture positioning (GCCP)? What other strategic positioning choices do global marketers have? Global consumer culture positioning (GCCP) is defined as a strategy that identifies the brand as a symbol of a particular global culture or segment. It has proven effective for communicating with global teens, cosmopolitan elites, and globe-trotting laptop warriors (e.g., Sonys My First Sony line is positioned as the brand for youngsters around the globe). Another option is foreign consumer culture positioning (FCCP), associating users, use occasions, or production origins with a foreign country or culture (e.g., the name Hagen-Dazs implies Scandinavia though the ice cream is American). Local consumer culture positioning (LCCP) associates the brand with local cultural meanings and norms, local consumption, or local production (e.g., LCCP is seen in Budweisers U.S. ads featuring Clydesdale horses, associated with rural America). 7. What is a high-touch product? Explain the difference between high-tech product positioning and high-touch product positioning. Can some products be positioned using both strategies? Explain. High-tech products are sophisticated, technologically complex, and/or difficult to explain or understand. (e.g., Cell phones and audio/video components are high-tech categories with strong global positions). High-tech global consumer positioning works well for special interest products associated with leisure or recreation (e.g., Adidas sports equipment).

For high-touch products, emotional motives rather than rational ones energize consumers. High-touch products may represent personal indulgence, self-image, or interpersonal relationships (e.g., luxury perfume, designer fashions). Some high-touch products are linked with the joy or pleasure found in lifes little moments. Leisure, romance, and materialism are three themes that cross borders well. Professionalism and experience are advertising themes that work well for high-tech products such as global financial services. Products can be positioned globally as both high-tech and high-touch when they satisfy rational criteria and evoking an emotional response (e.g., Nokia, the cell phone leader, combines technical performance with fashion).

CHAPTER 10 PRODUCT AND BRAND DECISIONS SUMMARY The product is the most important element of a companys marketing program. Global marketers face the challenge of formulating coherent product and brand strategies on a worldwide basis. A product can be viewed as a collection of tangible and intangible attributes that collectively provide benefits to a buyer or user. A brand is a complex bundle of images and experiences in the mind of the customer. In most countries, local brands compete with international brands and global brands. A global product meets the wants and needs of a global market. A global brand has the same name and a similar image and positioning in most parts of the world. Many global companies leverage favorable brand images and high brand equity by employing combination (tiered) branding, cobranding, and brand extension strategies. Companies can create strong brands in all markets through global brand leadership. Maslows hierarchy is a needsbased framework that offers a way of understanding opportunities to develop local and global products in different parts of the world. Some products and brands benefit from the country-of-origin effect. Product decisions must also address packaging issues such as labeling and aesthetics. Also, product warranty policies must be appropriate for each country market. Product and communications strategies can be viewed within a framework that allows for combinations of three strategies: extension strategy, adaptation strategy, and creation strategy. Five strategic alternatives are open to companies pursuing geographic expansion: product-communication extension; product extension-communication adaptation; product adaptation-communication extension; product-communication adaptation; and product invention. The strategic alternative(s) that a particular company chooses will depend on the product and the need it serves, customer preferences and purchasing power, and the costs of adaptation versus standardization. Product transformation occurs when a product that has been introduced into new country markets serves a different function or is used differently than originally intended. When choosing a strategy, management should consciously strive to avoid the not invented here syndrome. Global competition has put pressure on companies to excel at developing standardized product platforms that can serve as a foundation for cost-efficient adaptation. New products can be classified as discontinuous, dynamically continuous, or continuous innovations. A successful product launch requires an understanding of how markets develop: sequentially over time or simultaneously. Today, many new products are launched in multiple national markets as product development cycles shorten and product development costs soar. DISCUSSION QUESTIONS

1. What is the difference between a product and a brand? A product can be defined as a collection of tangible and intangible attributes. The former include physical features, design attributes, and packaging. The chrome on a HarleyDavidson motorcycle is a physical attribute, as are cup holders in a minivan. Intangible product attributes include such things as reputation, mystique, or a distinguished heritage. A brand is defined in the text as a symbol about which consumers have beliefs or perceptions. A more complete definition would describe a brand as a complex bundle of images, promises, and experiences in the customers mind that represent a promise by a particular company about a particular product. In other words, brand represents the relationship that marketing has established with a customer. 2. How do local, international, and global products differ? Cite examples. A local product or brand is perceived to have potential in a single national or regional market. Coca-Colas Georgia-brand canned coffee is an example cited in the text. Vegemite is a vegetable food spread popular only in Australia. International products or brands are those originally intended for a single home-country market or a specific geographic region; however, marketers are aware of extension possibilities. For example, GE recently experienced success in exporting full-sized refrigerators to Japan where consumers have responded favorably to the simple designs. A typical Japanese refrigerator from Matsushita has three doors and a special chilling compartment for fish. The Smart car is an example of an international product; it was specifically designed for the needs of the European market. If the European launch is successful, Smart may be exported to the U.S. and other markets. Global products are designed to meet the needs of a global market rather than the needs of an individual country market or a well-defined regional market. The Sony Walkman, Colgates Total toothpaste, and Cisco Systems network routers are all examples of products developed for the global market. 3. What are some of the elements that make up a brand? Are these elements tangible or intangible? The components of a brand image are shown in Figure 10-1. At the heart of the brand is a persons expertise with it. In addition, the brand name and logo, company name, packaging, after-sales service, and attitudes of family and friends help define the brand. These elements are intangible; however, many brands include tangible aspects. Examples include the contoured Coke bottle, the three-pronged Mercedes hood ornament. 4. What criteria should global marketers consider when making product design decisions? A standardized global product platform can offer potential cost savings. Customer preferences, costs, country laws and regulations, and environmental compatibility are all noted in the text as factors affecting design decisions. For example, Europes Single Market means a common harmonized standard for many products. This creates an opportunity for many companies to design pan-European products, subject to remaining

cultural differences between European countries. However, product safety provisions in Europe are still established on a country-by-country basis. 5. How can buyer attitudes about a products country of origin affect marketing strategy? If buyers feel positive about a country, a company should consider playing up the country-of-origin in its marketing communications. For example, Volkswagens Fahrvehrgnugen campaign from the early 1990s proclaimed the companys German roots, even though many of the cars it sells are assembled in low-wage countries like Mexico. Made in U.S.A. is part of the appeal of Harley-Davidson; similarly, Switzerland is synonymous with high-quality watches in various price ranges. Russia and the South Africa are two countries in which policy makers and business leaders have an uphill battle in combating negative country-of-origin perceptions. While Russia is synonymous with high-quality vodka (a fact played up in ads for Stolichnaya), few other consumer products benefit from an association with the former Communist country. Similarly, South Africa produces very fine wines at attractive prices, but American consumers have been unresponsive even though apartheid has ended. Vietnam is another country that may encounter negative bias, at least in the United States. Over time, lingering biases may evaporate and attitudes can be changed. Meanwhile, in countries for which negative biases exist, country of origin should be downplayed in packaging and marketing communications. 6. Identify several global brands. What are some of the reasons for the global success of the brands you chose? Depending on what a particular students home country is, he or she may mention CocaCola, Kodak, Sony, Mercedes-Benz, or Nike. As discussed in the text, Nike has tremendous brand vitality, due in part to the use of celebrity athletes in its ads. An interesting discussion topic would be potential long-term damage to the Coke brand stemming from the product recalls in Europe during summer 1999. 7. Briefly describe various combinations of product-communication strategies available to global marketers. When is it appropriate to use each? Keegans product-communication strategy mix is a conceptual tool that has been widely cited in the marketing literature. As outlined in the text, the five strategies and their uses include: Product-Communication Extension, used when a product fulfills the same function and use conditions are the same Product Extension/Communication Adaptation, used when a product fulfills the same function but use conditions are different. Product/Communication Adaptation, used when both need to be fulfilled and use conditions are different.

Invention, used to satisfy needs on a worldwide basis using a new communications strategy.

8. Compare and contrast the three categories of innovation discussed in the chapter. Which type of innovation do flat panel widescreen HDTVs represent? Products that create new markets and consumption patterns are called discontinuous innovations (e.g., the VCRs impact is explained by time shifting: it freed viewers from programming schedules). Dynamically continuous innovations refer to products that share certain features with earlier generations while incorporating new features (e.g., Sony's Walkman). Such products cause relatively smaller disruptions of previously existing consumption patterns. Continuous innovation refers to products that are new and improved versions of existing ones and require less R&D expenditure to develop than dynamically continuous innovations. Continuous innovations cause minimal disruption of existing consumption patterns and require the least amount of learning. The Flat-screen TV is a continuous innovation although it represents a departure from the cathode-ray tube (CRT) technology. Thanks to innovative liquid-crystal display (LCD) and plasma-gas technologies used to manufacture screens for personal computers, TV sets are sleek, sexy, and cool. With their sharper, brighter pictures, they enhance the enjoyment of viewing wide-screen DVD movies at home.

CHAPTER 11 PRICING DECISIONS SUMMARY Pricing decisions are a critical element of the marketing mix that must reflect costs, competitive factors, and customer perceptions regarding value of the product. In a true global market, the law of one price would prevail. Pricing strategies include market skimming, market penetration, and market holding. Novice exporters frequently use cost-plus pricing. International terms of a sale such as ex-works, F.A.S., F.O.B., and C.I.F. are known as Incoterms and specify which party to a transaction is responsible for covering various costs. These and other costs lead to price escalation, the accumulation of costs that occurs when products are shipped from one country to another. Expectations regarding currency fluctuations, inflation, government controls, and the competitive situation must also be factored into pricing decisions. Global companies can maintain competitive prices in world markets by shifting production sources as business conditions change. Overall, a companys pricing policies can be categorized as ethnocentric, polycentric, or geocentric. Several additional pricing issues are related to global marketing. The issue of gray market goods arises because price variations between different countries lead to parallel imports. Dumping is another contentious issue that can result in strained relations between trading partners. In the United States, proof of price discrimination and injury are required in dumping cases. Transfer pricing is an issue because of the sheer monetary volume of intra-corporate sales and because country governments are anxious to generate as much tax revenue as possible. Three options are available: cost-based transfer pricing, market-based transfer pricing, and negotiated transfer pricing. Various forms of countertrade play an important role in todays global environment. Barter, counterpurchase, offset, compensation trading, and switch trading are the main countertrade options. DISCUSSION QUESTIONS 1. What are the basic factors that affect price in any market? What considerations enter into the pricing decision? One factor is the price floor, which can be linked to product cost or some other consideration. For example, in the fall of 1996, Florida tomato growers concerned about cheap tomatoes from Mexico persuaded the U.S. government to impose a price floor of 21 cents per pound on Mexican tomatoes. A second basic factor is the price ceiling, an upper limit created when comparable products are available. As industries globalize, consumers should enjoy lower prices unless national or regional protective barriers are erected to imports. The U.S. market for entry-level luxury cars is crowded with imported nameplates, and price competition in the entry-level category is fierce among Lexus, Infiniti, Mercedes-Benz, and BMW. In the Mercosur countries, on the other hand, external tariffs on motor vehicles are still as

high as 70 percent. Thus, many consumers in Brazil, Argentina, Uruguay, and Paraguay must buy locally produced vehicles at high prices. Finally, between these two extremes there is an optimum price. Many Japanese companies have struggled to find the optimum price in view of a strong and fluctuating yen. Some pricing considerations include: Whether or not a products quality is reflected in the price How to price to different segments. Determining the latitude to adjust prices if costs change. Enforcement of dumping laws. 2. Define the various types of pricing strategies and objectives available to global marketers. The three strategies discussed in the chapter are market skimming, penetration pricing, and market holding or status quo pricing. Market skimming is appropriate in the introductory phase of the product life cycle if there is little competition or few acceptable substitutes. Skimming can be the quickest way for a company to recoup product development and marketing costs. When Thomson SAs RCA unit launched its 18-inch Direct Satellite system in 1994, the basic unit sold for $699. By 1996, the price had fallen by several hundred dollars as competing DSS brands came onto the market. However, by that time RCA had already sold one million units at the higher price. With a penetration pricing strategy, a relatively low price is established in an effort to gain market share. This strategy has historically been favored by Japanese companies that take a longer-term view of profitability. RCA has clearly switched form skimming to penetration as DSS enters the growth phase of the product life cycle. Status quo pricing is particularly important in global marketing because currency fluctuations can drive up product prices in export markets. To avoid a sales decline, a company should be prepared to adjust prices. Another option is to try to cut fixed or variable costs. 3. Identify some of the environmental constraints on global pricing decisions. Currency fluctuations are an important consideration in global marketing. Inflation is another factor in the economic environment that may force a company to make frequent price changes. Government regulations can hinder or prohibit a companys efforts to adjust costs. Finally, the presence or absence of competitors directly affects a companys flexibility with prices. In the absence of competitive restraints, a company can charge whatever the market will bear. In Switzerland, for example, there is little competition for imported Chevy S pickup trucks, so the price per vehicle is nearly double the typical price paid in the U.S.

4. Why do price differences in world markets often lead to gray marketing? Price differentials mean opportunity to engage in arbitrage. Buy low, sell high is the operative phase, and many entrepreneurs are quick to capitalize on the chance to make some quick money. On the consumption side, many buyers jump at the chance to save money. They are willing to ignore issues such as buying from authorized dealers. 5. What is dumping? Why was dumping such an important issue during the Uruguay Round of GATT negotiations? Dumping is the practice of selling goods in foreign markets at prices that are lower than the cost of production or lower than the home-country price. During the GATT negotiations, government representatives from some countries expressed concern that enforcement of U.S. antidumping policies always favored the U.S. For its part, the U.S. negotiators were concerned about the relative absence of due process in overseas dumping cases. 6. What is a transfer price? Why is it an important issue for companies with foreign affiliates? Why did transfer pricing in Europe take on increased importance in 1999? A transfer price if the price one unit of a company charges to another company unit for goods and services. Transfer prices can be determined on the basis of the market, or by negotiation between the companys various units. Companies under the jurisdiction of U.S. tax laws must comply with Section 482, the portion of the Internal Revenue Code that deals with controlled intracorporate transfers. 7. What is the different between ethnocentric, polycentric, and global pricing strategies? Which one would you recommend to a company that has global market aspirations? An ethnocentric pricing policy calls for the price of a particular product to be the same in every part of the world. When management uses this approach it foregoes opportunities to set prices higher in countries where a lower price is required. A polycentric approach relies on adaptation of country managers who attempt to be as responsive as possible to local market conditions. One problem with the polycentric approach is that it creates conditions in which gray marketing can flourish. A geocentric pricing approach balances the desire for long-term returns on investment with shorter-term considerations such as market share. The geocentric approach is most appropriate for a company with a global strategy and global aspirations. 8. If you were responsible for marketing CAT scanners worldwide (average price, $1,200,000) and your country of manufacture was experiencing a strong and appreciating currency against almost all other currencies, what options are available to you to maintain your competitive advantage in world markets?

The real issue here is not just options for adjusting prices, but options that will allow the marketer to maintain competitive advantage. One option is to shift manufacture to one or more weak-currency countries. If that is not feasible, another medical-products company could become license under license. Another is to keep manufacturing in the strong currency country, focusing on cost-cutting efficiencies and/or product innovation and improvements that will differentiate the scanners. A lower cost, no frills model can be developed for some markets. 9. Compare and contrast the different forms of countertrade. Companies barter when buyers are unable to pay in cash, or when a countrys currency is not freely convertible in foreign exchange markets. Barter is a category of countertrade in which goods, but no money, is exchanged. Other forms of countertrade, including countertrade, offset, and compensation trading, may also involve exchanging money or credit.

CHAPTER 12 GLOBAL MARKETING CHANNELS AND PHYSICAL DISTRIBUTION

SUMMARY
A channel of distribution is the network of agencies and institutions that links producers with users. Physical distribution is the movement of goods through channels. Business to-consumer marketing uses consumer channels; business-to-business marketing employs industrial channels to deliver products to manufacturers or other types of organizations. Channel decisions are difficult to manage globally because of the variation in channel structures from country to country. Marketing channels can create place utility, time utility, form utility, and information utility for buyers. The characteristics of customers, products, middlemen, and environment all affect channel design and strategy. Consumer channels may be relatively direct, utilizing direct mail or door-to-door selling, as well as manufacturer-owned stores. A combination of manufacturers' sales force, agents-brokers, and wholesalers may also be used. Piggyback marketing is a distribution innovation in which one manufacturer gains distribution in a particular country market by riding along with the products of another manufacturer. Channels for industrial products are less varied, with manufacturer's sales force, wholesalers, and dealers or agents utilized. Global retailing is a growing trend as successful retailers expand around the world in support of growth objectives. Retail distribution takes many different forms, including department stores, specialty retailers, supermarkets, convenience stores, discount stores, warehouse clubs, hypermarkets, supercenters, category killers, and outlet malls. Selection, price, store location, and customer service are a few of the competencies that can be used strategically to enter a new market. It is possible to classify retailers in a matrix that distinguishes companies offering few product categories with an own-label focus; many categories-own-label focus; few categories-manufacturerbrand focus; and many categories-manufacturer-brand focus. Global retail expansion can be achieved via organic growth, franchising, acquisition, and joint venture. Transportation and physical distribution issues are critically important in a companys value chain because of the geographical distances involved in sourcing products and serving customers in different parts of the world. A companys supply chain includes all the firms that perform support activities such as generating raw materials or fabricating components. Logistics integrates the activities of all companies in a firms value chain to ensure an efficient flow of goods through the supply chain. Important activities include order processing, warehousing, and inventory management. To cut costs and improve efficiency, many companies are reconfiguring their supply chains by outsourcing some or all of these activities. Six transportation modesair, truck, water, rail, pipeline, and Internetare widely used in global distribution. Distributing products around the globe is made easier by containerization and intermodal transportation.

DISCUSSION QUESTIONS 1. In what ways can channel intermediaries create utility for buyers? The major categories of channel utility are: place utility (the availability of a product or service in a location that is convenient to a potential customer), time utility (the availability of a product or service when desired by a customer), form utility (the availability of the product processed, prepared, in proper condition and/or ready to use), and information utility (the availability of answers to questions and general communication about useful product features and benefits).

2. What factors influence the channel structures and strategies available to global marketers? Factors include customer characteristics, product characteristics, middleman characteristics, and environmental characteristics. In Latin America, low per-capita incomes and limited access to traditional sources of credit are two customer characteristics that contributed to the emergence of the low-volume pulperia. In Japan, relationship-oriented car buyers expect car salespersons to visit them at home. As described in the chapter, the distribution of wine is partly determined by the product characteristics of bulk and heat sensitivity. Although many wineries also engage in direct sales, either via delivery service or by selling to visitors, exporting wine necessitates use of intermediaries who, as described, create utility as they move the wine. Middlemen characteristics are particularly important in Japan, where both the multilayered wholesale and retail systems are extremely fragmented. Relationships with channel intermediaries tend to be long term. Termination can be difficult and expensive; also, the tendency of intermediaries to cherry pick the best lines means newcomers to the market may have problems finding a distributor. An example of environmental characteristics can be seen in the success of direct selling by Avon in China, Russia, and Latin America where the retail infrastructure is underdeveloped. 3. What is cherry picking? What approaches can be used to deal with this problem? Cherry picking occurs when a channel member prefers to carry product lines with proven demand from well-known manufacturers. Intermediaries tend to favor product lines that do not require push. If a channel intermediary is not interested in a companys product, the company may have to bypass the particular intermediary by setting up its own

distribution organization. Alternatively, the company can offer to subsidize the effort of the distributors own sales force. If the company succeeds in establishing a presence in the market, it may ultimately succeed in attracting the attention of the erstwhile cherry picker. 4. Compare and contrast the typical channel structures for consumer products and industrial products. Consumer channels tend to exhibit more variety and be longer (have more intermediaries) compared with industrial channels. This is due in part to the fact that there are typically more customers for retail products than for industrial goods, and consumers purchase smaller quantities on a more frequent basis. Also, the increased complexity and cost of industrial products, as well as the information needs of customers, combine to keep industrial channels relatively short and direct. Direct, short channels are especially appropriate if a product requires a great deal of service support after the sale. 5. Identify the different forms of retailing, and cite an example of each form. Identify retailers from as many different countries as you can. The standard retail classifications are covered in the chapter. Students should be able to identify and describe the attributes of each type, e.g., department store, specialty retailer, category killer, etc. Make sure the students understand the meaning of own label (private label) versus a focus on manufacturers brands. Working at the board, compile a list of examples of each type from different countries. Which of the companies is international or global in scope? Why? 6. Identify the four retail market expansion strategies discussed in the text. What factors determine the appropriate mode? The four strategies include organic, franchise, chain acquisition, and joint venture. The combination of factors affecting choice of mode is shown in the matrix: culturally close/easy to enter; culturally close/difficult to enter; culturally distant/easy to enter; culturally distant/difficult to enter. 7. Briefly discuss the global issues associated with physical distribution and transportation logistics. Cite one example of a company that is making efficiency improvements in its channel or physical distribution arrangements. One issue is finding the most cost-effective mode for moving goods between far-flung global production, distribution, and retail units. Companies have a variety of transportation options available: trucks provide flexibility and excellent coverage; water is a low-cost, but slow mode for bulky products; air, by contrast, fastest but also the most expensive. Many companies will use intermodal (i.e., multimodal) transportation in which a container moves via various modes. Both inbound and outbound logistics must be managed to achieve optimum levels of services and speed. In Chapter 13, 3M and Laura Ashley are both discussed as companies that have improved their distribution

efforts.3M established a distribution center in the Netherlands and invested millions in a truck fleet to provide daily service on the Continent. Laura Ashley has subcontracted with FedExs Business Logistics Service to provide air service between Asian Factories and the companys retail stores. Previously, output from Asian factories was shipped to the companys distribution center in Wales and then sent back to Asia to stock the retail stores. 8. What special distribution challenges exist in Japan? What is the best way for a nonJapanese company to deal with these challenges? In Japan, exclusive distribution arrangements can keep some competitors out of the market. As noted in the Chapter 11 discussion of keiretsu, Japans unique form of industrial groups also creates a strong sense of interdependence among Japanese companies. Generally, strong social relationships are required to obtain channel support. Non-Japanese companies should follow the example of Toys R Us by choosing a local partner, cultivating the necessary relationships, and using diplomacy and homegovernment contacts when necessary to level the playing field.

CHAPTER 13 GLOBAL MARKETING COMMUNICATIONS DECISIONS I: ADVERTISING AND PUBLIC RELATIONS SUMMARY Marketing communicationsthe promotion P of the marketing mixincludes advertising, public relations, sales promotion, and personal selling. When a company embraces integrated marketing communications, it recognizes that the various elements of a company's communication strategy must be carefully coordinated. Global advertising consists of the same advertising appeals, messages, artwork, and copy in campaigns around the world. The effort required to create a global campaign forces a company to determine whether or not a global market exists for its product. The trade-off between standardized and adapted advertising is often accomplished by means of pattern advertising, which can be used to create localized global advertising. Many advertising agencies are part of larger advertising organizations. Advertisers may place a single global agency in charge of worldwide advertising; it is also possible to use one or more agencies on a regional or local basis. The starting point in ad development is the creative strategy, a statement of what the message will say. The people who create ads often seek a big idea that can serve as the basis for memorable, effective messages. The advertising appeal is the communication approachrational or emotionalthat best relates to buyer motives. The selling proposition is the promise that captures the reason for buying the product. The creative execution is the way an appeal or proposition is presented. Art direction and copy must be created with cultural considerations in mind. Perceptions of humor, male-female relationships, and sexual imagery vary in different parts of the world. Media availability varies considerably from country to country. When selecting media, marketers are sometimes as constrained by laws and regulations as by literacy rates. A company utilizes public relations (PR) to foster goodwill and understanding among constituents both inside and outside the company. In particular, the PR department attempts to generate favorable publicity about the company and its products and brands. The PR department must also manage corporate communications when responding to negative publicity. The most important PR tools are press releases, media kits, interviews, and tours. Many global companies make use of various types of corporate advertising, including image advertising and advocacy advertising. Public relations is also responsible for providing accurate, timely information, especially in the event of a crisis. DISCUSSION QUESTIONS 1. In what ways can global brands and global advertising campaigns benefit a company? The Chapter 11 opening quotation by the Colgate executive applies here; You get a lot more benefit and you can do a lot more with a global brand than you can with a local

brand. Fundamentally, a strong brand is an intangible asset that adds value to the business. The potential benefits from global brands include economies of scale in potential benefits from global brands include economies of scale in both advertising and production and improved access to distribution channels. As consumer tastes and preferences continue to converge, consumer products companies in particular will have opportunities to build global brands and use global campaigns. Also, as people from around the globe travel more freely, they will be confused if they see a particular product with an unfamiliar name or package. 2. How does the "standardized versus localized" debate apply to advertising? In general, advertising can be used to inform or persuade. If a global market exists for a product, or if a global product is developed from the ground up, opportunities to standardize some, if not all elements, should be explored. Pattern advertising represents a middle point on the standardized/localized continuum. In pattern advertising, a standardized basic message is used with modifications tailored to individual markets. At Coca-Cola, for example, a TV ad could include a wide shot of hundreds of children singing together, plus a close-up of a youngster from the local country market. Other localizations can include translating words and lyrics or making adjustments to copy or are direction. For example, when Benetton refrains from running a particular execution of its United Colors of Benetton print campaign in a particular country, it is using pattern advertising. 3. What is the difference between an advertising appeal and creative execution? The message appeal relates to an individuals or organizations buying motives. Motives may be rational or emotional. Much advertising for consumer packaged goods and popular brands appeals to emotions as opposed to intellect, whereas business-to-business advertising is generally designed to be consistent with the more rational nature of corporate buying situations. Execution refers to how the message is presented. 4. When creating advertising for world markets, what are some of the issues that art directors and copywriters should take into account? Art direction concerns an ads visual presentation. Long-running campaigns can link various executions to a given theme; print for Absolut vodka and Benetton are two examples. Visuals must be appropriate for every market; the Benetton case shows that care should be used when creating ads with shocking or controversial images. Copywriters create the written text that will appear in global ads, must take care that the message is properly encoded. Back translation should be employed to ensure that copy is correctly rendered in target languages. Copywriters must also work with art directors to make sure that the tone of a particular ad is appropriate; in some countries, for example, logical, rational appeals are best; in other countries ads that appeal to sentiment or emotion are likely to be better received.

5. How do the media options available to advertisers vary in different parts of the world? What can advertisers do to cope with media limitations in certain countries? Media availability varies widely in world markets. Even when a particular media vehicle is available, government regulations can limit, or even prohibit, some or all types of advertising. This is especially true where government owns the broadcasting companies. Broadcast advertising is frequently restricted by the government. Even if broadcast media are available, information about listener or viewer audiences may be hard to obtain compared with industrialized countries, where such information forms the basis for advertising rates. One favorable trend in broadcasting is the privatization of industry in some parts of the world which should create a more favorable climate for advertising. Another trend is the rapid diffusion of small satellite dishes around the world including countries such as China where broadcasting had been limited. The growth of global satellite broadcasting also means improved prospects for both television advertising in general and for development of pan-regional or global ads. 6. How does PR differ from advertising? Why is PR especially important for global companies? The key difference is that advertising is paid communication from an identified sponsor. In that sense, the advertiser has control over message content, and to a lesser extent, the place, time, or context in which the message appears. By contrast, public relations practitioners attempt to place stories in the media by distributing press releases, holding press conferences. However, there is no guarantee that the media will actually use or publish the information; if it is published, the advertiser does pay for the space (in print media) or the time (broadcast media). Moreover, the medias spin in reporting the story may be different from what the company or publicist intended. It is also true, however, that the media sometimes report information and stories exactly as they have been submitted. In television news reporting, this is especially true when companies supply stations and networks with video news releases. In such cases, the story is presented as though the reporter has personally researched and prepared it when, in fact, the facts and views are those of the company or its PR representative. 7. What are some of the ways PR practices vary in different parts of the world? Global PR practitioners may be called upon to build consensus, create trust, and anticipate conflicts. The means to achieve these objectives may vary. PR often depends on press releases that result in stories appearing in newspapers and magazines. PR firms may also work with companies to create corporate ads in which the company advocates its position on a certain issue. In countries with high levels of illiteracy, getting publicity in print media is not effective. In some countries, PR practitioners must develop creative alternative communication channels. Dance, songs, storytelling, and the town crier are a few of the possibilities.