class: middle, title-slide # Marketing ## 2: Global, Ethical, and Sustainable Marketing ### Dennis A. V. Dittrich ### 2021 --- layout: true <div class="my-footer"> <span><img src="img/tcb-logo.png" height="40px"></span> </div> --- # Marketing on the Global Stage .col-7[ Arguments for a single marketplace * Greenhouse effect * Global warming __World trade__ refers to the flow of goods and services among different countries. * Not all countries participate equally * Requires flexibility in order to serve needs of remote markets * Countertrade ] ??? Greenhouse effect is the turning of our atmosphere into a kind of greenhouse as a result of the addition of carbon dioxide and other greenhouse gases. Global warming is a warming of the planet that may have disastrous results. Did you know that the currency of as many as 70 percent of all countries (including China) is not convertible, meaning that it cannot be spent or exchanged outside the country’s borders? This makes it difficult for all countries to participate equally and requires flexibility from firms in order to serve the needs of customers in remote markets. In some countries, because sufficient cash or credit is simply not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return for tax breaks from the local government. This countertrade accounts for between 20 and 25 percent of all world trade. --- # North American Merchandise Trade Flows !(img02/solomon_rprc9e_fullppt_021.png) ??? Not all nations participate equally in world trade. Knowing who does business with whom is essential to developing an overseas marketing strategy. As this figure shows, North America trades merchandise most heavily with Asia, Europe, and Latin America. --- .row[ .col-6[ !(img02/solomon_rprc9e_fullppt_022.png) ] .col-6[ ## Steps in the Decision Process to Enter Global Markets ]] ??? Entering global markets involves a sequence of decisions. • Step 1. “Go” or “no go”—is it in our best interest to focus exclusively on our home market or should we cast our net elsewhere as well? • Step 2. If the decision is “go,” which global markets are most attractive? Which country or countries offer the greatest opportunity for us? • Step 3. What market-entry strategy and thus what level of commitment is best? As we’ll see, it’s pretty low risk to simply export products to overseas markets, while the commitment and the risk is substantial if the firm decides to build and run manufacturing facilities in other countries (though the payoff may be worth it). • Step 4. How do we develop marketing mix strategies in the foreign markets— should we standardize what we do in other countries, or develop a unique localized marketing strategy for each country? Each of these decisions will be examined in more detail on the following slides. --- # Should We Go Global? .col-7[ Consider: Domestic and global market conditions and opportunities Your **competitive advantage** * Home-court advantage * Will what made the company successful domestically translate into a new foreign market? ] ??? The globalization decision is whether or not a firm can and should actually go global. Leadership in the organization must make this key decision. In examining market conditions, a firm may see that it has saturated the market in its domestic country, and foreign expansion is attractive because it may mean more sales and profits. Similarly, the company must look at opportunities that make sense in foreign countries. Once Starbucks, for example, had locations throughout the United States, in 1996 they expanded overseas, first in Tokyo. Since then, when Starbucks realized global expansion was possible, they now have over 24,000 locations in over 70 countries. Competitive advantage: If it wants to go global, a firm needs to examine the competitive advantage that makes it successful in its home country. Will this leg up “travel” well to other countries? --- # Initiatives in International Cooperation and Regulation .row[.col-7[ Initiatives in international regulation and cooperation help trade. * General Agreement on Tariffs and Trade (GATT) * World Trade Organization (WTO) * World Bank * International Monetary Fund (IMF) ]] .row[.col-7[ Protectionism restricts trade * Quotas, Embargoes, Tariffs Economic communities help to promote trade * NAFTA,EU ] .col-5[ .question[ Do you know products that are associated with import quotas, an embargo, or tariffs? How do you feel about these trade restrictions? ] ] ] ??? Unfortunately, even the most formidable competitive advantage does not guarantee success in foreign markets because the local government may “stack the deck” in favor of domestic competitors and which hinder foreign competitors from expanding into markets. Two initiatives in particular have been helpful in reducing trade barriers: General Agreement on Tariffs and Trade (GATT): Following World War II, the United Nations created the this International treaty for the purpose of reducing import tax levels and trade restrictions. World Trade Organization (WTO). Later, in 1984, GATT created the World Trade Organization. The World Trade Organization’s purpose is to supervise and liberalize international trade and WTO members account for over 97% of world trade. Its most important functions include overseeing the implementation, administration and operation of the covered agreements, as well as providing a forum for negotiation and for settling disputes. Unfortunately, product piracy abroad continues to be a problem, costing American firms millions of dollars annually. WEBSITE NOTES: Visit the WTO for more information. In particular, it might be beneficial to look at the RESOURCES FOR STUDENTS (http://www.wto.org/english/forums_e/students_e/students_e.htm) Governments that enact a policy of protectionism set import quotas, or use embargoes (trade prohibition with a country), or tariffs (taxes on imported goods) to restrict foreign competition. Economic communities are composed of groups of countries that band together to promote trade among themselves while facilitating trade with countries outside of the community. From a marketing standpoint, economic communities are helpful in setting policies related to product content, advertising, and packaging labels. The most well known economic communities include NAFTA and the European Union. However, there are a number of other economic communities around the world, as shown in Table 2.1. --- ## Major Economic Communities Around the World .small[ Community | Member Countries ---|--- Andean Community | Bolivia, Colombia, Ecuador, Peru Association of Southeast Asian Nations (ASEAN) | Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam Central American Common Market (CACM) | Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama Common Market for Eastern and Southern Africa (CoMESA) | Burundi, Comoros, democratic republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe European Union (EU) | Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden MErCoSUr | Brazil, Paraguay, Uruguay, Argentina North American Free trade Agreement (NAFtA) | Canada, Mexico, United States South Asian Preferential trade Arrangement (SAPtA) | Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka ] ??? Economic communities are groups of countries that band together to coordinate trade policies and ease restrictions on the flow of products and capital across their borders. For instance, the North American Free Trade Agreement (NAFTA) and the European Union (EU). Economic communities are important for marketers as they set policies on areas such as product content, labeling, and advertising regulations. --- # Analyzing the Marketing Environment .col-7[ Understanding external environment is essential no matter what! When entering foreign markets, knowledge of local conditions is critical. * Helps you to figure out where to go and what strategies are likely to be most effective ] --- # Elements of the Marketing Environment !(img02/solomon_rprc9e_fullppt_023.png) .caption[__Source:__ “World Trade Report,” World Trade Organization,[www.wto.org/english/res_e/publications_e/wtr15_e.htm](https://www.wto.org/english/res_e/publications_e/wtr15_e.htm) ] ??? DISCUSSION NOTE: Ask students to identify one or more recent trends in the environment, and then challenge them to determine if A) a new product has recently been introduced to capitalize on that trend or B) how a firm might incorporate knowledge of this trend into their marketing planning. LECTURE NOTES: Elements outside the firm that may affect it either positively or negatively must be constantly scanned and monitored by businesses on an ongoing basis as part of their strategic planning process. In particular, marketers seek to identify economic, competitive, technological, legal/political/ethical, and sociocultural trends, because these trends manifest as opportunities or threats to the business. Because these factors are external to the firm, marketers cannot directly control them, but they can respond to them via planning. --- # The Economic Environment .col-7[ Marketers need to understand the state of the economy from different perspectives * Overall economic health (e.g., GDP, Forex Rate) * Current stage of the business cycle ] ??? Indicators of overall economic health include: Gross Domestic Product (GDP), which is the total dollar value of goods and services it produces within its borders in a year. Foreign exchange rate (forex), which the price of a nation’s currency in terms of another currency. The Economist magazine has developed its Big Mac Index based on the theory that with purchasing power parity, the exchange rate would equalize prices for goods and services. For instance, the BMI shows that a McDonald’s Big Mac, which costs an average of $4.62 in the United States would cost nearly $8.00 in Norway, over $5.00 in Brazil, and $2.16 in South Africa. --- ## The Economic Environment: Overall Economic Health .col-7[ Indicators of economic health * **Gross Domestic Product** (GDP) * **Foreign Exchange Rates** (Forex) * Economic Infrastructure ] ??? Gross domestic product (GDP): Total dollar value of goods/services a country produces within its borders in a year. GDP differs from Gross National Product (GNP), which is the value of all goods and services produced by a country’s citizens or organizations Foreign Exchange Rate (forex) The price of a nation’s currency in terms of another currency. The Economist magazine has developed its Big Mac Index based on the theory that with purchasing power parity, the exchange rate would equalize prices for goods and services across countries. Economic infrastructure Quality of country’s distribution, financial, and communications systems --- ## The Economic Environment: Levels of Development .col-7[ **Least Developed Country** (LDC) * Economic base is often agricultural **Developing countries** * Economy shifts emphasis from agriculture to industry **Developed countries** * Offer wide range of opportunities for international marketers ] ??? When marketers scout the world for opportunities, it helps if they consider a country’s level of economic development to understand the needs of people who live there and the infrastructure conditions with which they must contend. In doing so, they also look at what steps the country is taking to reduce poverty, inequality, and unemployment. Analysts also take into account a country’s standard of living, which is an indicator of the average quality and quantity of goods and services a country consumes. Based on these factors, the level of economic development of a particular nation can be determined. Least developed countries are at the lowest stage of economic development. Standard of living is low, and such countries represent poor choices for firms to seeking to market discretionary items and luxury products. Agriculture often forms the basis of the economy. Opportunities for expansion into these types of countries are limited to firms that sell inexpensive goods that are staples (e.g., rice) or otherwise related to necessities (cloth for clothing). When an economy shifts its emphasis from agriculture to industry, standards of living, education, and the use of technology rise. These countries are developing countries. Currently, developing countries are strong markets for products such as PCs. Marketers also see such countries as the future for products related to skin care and mobile phones. Brazil, Russia, India, and China are amongst the largest developing countries, and are commonly referred to as BRIC countries. Developed countries include as the United States, United Kingdom, Canada, Australia, France, Italy, Germany, and Japan and as such are the most sophisticated markets available offering a variety of lucrative opportunities to global marketers. Collectively, these countries are often referred to as the Group of Eight, or G8 for short. Bottom of the Pyramid markets --- # Bottom of Pyramid Markets .row[.col-7[ __Bottom of the Pyramid__ (BOP) markets present big opportunities and challenges. * 4 billion+ consumers, living on less than $2 daily * $5 billion+ in collective spending power ] .col-5[ .question[ Do you know of any products that are specifically targeting the _Bottom of the Pyramid_? ] ] ] ??? BOP consumers represent a huge marketing opportunity with purchasing power parity of $5 billion per year. Effectively serving such markets creates unique challenges to marketing organizations, often resulting in new innovations. DISCUSSION NOTES: For instance, BOP consumers in India and other markets cannot afford large containers of shampoo and other personal care products. As a result companies such as Unilever and Procter and Gamble sell shampoo in individual-use sachet packets. --- ## The Economic Environment: Business Cycles .col-7[ The __business cycle__ describes the overall pattern of changes or fluctuations in an economy. * Prosperity * Recession * Recovery * Depression Inflation .question[ Not all products and services suffer during a recession. Our text describes how consumers “traded down” during the recession of 2008. Identify some other instances where people might opt for less expensive alternatives! ] ] ??? * The business cycle describes the overall pattern of changes or fluctuations of an economy. * All economies go through cycles of prosperity (high levels of demand, employment, and income), recession (falling demand, employment, and income), and recovery (gradual improvement in production, lowering unemployment, and increasing income). A severe recession is a depression, a period during which prices fall but there is little demand because few people have money to spend and many are out of work. Inflation occurs when prices and the cost of living rise while money loses its purchasing power because the cost of goods escalates. * The business cycle is especially important to marketers because of its effect on customer purchase behavior. During times of prosperity, consumers buy more goods and services. DISCUSSION NOTE #2: Not all products and services suffer during a recession. The text describes how consumers “traded down” during the recession of 2008. Challenge students to identify some other instances where people might opt for less expensive alternatives (e.g., fixing a car, or buying a used vehicle rather than a new car). --- # The Competitive Micro- & Marcoenvironment .row[.col-7[ Competition in the microenvironment involves consumer decision making at three levels. * Competition for discretionary income * Product competition * Brand competition ].col-5[.question[ Can you identify examples for of these levels of competition? ] ] ] .row[.col-7[ Marketers also need to understand the big picture—the overall **structure of their industry**. * Monopoly * Oligopoly * Monopolistic competition * Perfect competition ]] ??? A second important element of a firm’s external environment is the competitive environment. We differentiate between the competitive micro- and macro-environments. Competition at the microenvironment occurs at three different levels: 1. At the broadest level, marketers compete for consumer’s discretionary income (the money left over after people have paid for necessities). This level of competition includes ALL possible uses —for example, a consumer might choose to make a larger payment on a credit card, spend discretionary funds buying a new cell phone, eating out at a restaurant, or attending a movie. 2. Product competition: Competition at this levels consists of alternate products that satisfy the same consumer’s needs/wants. For example, an individual desiring Internet access has the choice of DSL or satellite internet. 3. Brand competition: The most direct form of competition occurs among brands offering similar goods/services (with respect to perceived benefits). DISCUSSION NOTES: 1. Discretionary income competition —could be literally anything 2. Product competition —land-based phone systems, Internet based phone systems (VOIP), email 3. Brand competition —Students should have no trouble listing the brand names of a variety of smart phones --- # Technological Environment .col-7[ Technology: * Provides firms with important competitive advantages * Profoundly affects marketing activities * Can transform industries Patent: * Legal document giving inventors exclusive rights to produce/sell a particular invention in that country ] ??? Competition within the macroenvironment relates to the overall structure of the industry. Monopoly: A monopoly exists when one seller controls a market. Because the seller is “the only game in town,” it feels little pressure to keep prices low or to produce quality goods or services. Within the United States, monopolies are limited as they violate antitrust regulations and limit competition. Utility companies that serve a given area are probably the closest example of a monopoly in the United States. Oligopolies: In an oligopoly, there are a relatively small number of sellers, each holding substantial market share, in a market with many buyers. Because there are few sellers, the actions of each directly affect the others. Airline industries would be an example. Monopolistic competition occurs when there are many sellers who compete for buyers in a market. Each firm, however, offers a slightly different product, and each has only a small share of the market. This form of competition probably best characterizes the overall structure that competition takes within the United States. Perfect competition: exists when there are many small sellers, each offering basically the same good or service. In such industries, no single firm has a significant impact on quality, price, or supply. Perfect competition is truly rare. Agricultural markets may be the closest example. --- # Political and Legal Environment .col-7[ Refers to local, state, national, and global laws and regulations that affect business U.S. business laws generally have two purposes * Fair competition * Consumer protection from unfair practices ] ??? The technological environment profoundly affects marketing activities and can provide firms with an important competitive advantage. Of course, the Internet and continuing innovations in Internet applications is the biggest technological change in marketing. For example, it’s affected distribution by allowing some firms to sell direct while reaching a much larger market. It has also created an entirely new venue for marketing communications, including email, banner ads, web sites, social networking. Technology can transform industries making existing products obsolete. Think about the music industry as an example —your parents listened to vinyl records and eight track tapes, technologies which have been replaced now by digital formats. When firms develop a new process or implement a new technology in the creation of a product, they typically apply for a patent as a means of protecting their investment. --- # Political and Regulatory Constraints on Trade .col-7[ **Political actions** of a government may constrain business * Economic Sanctions * Nationalization * Expropriation **Regulatory constraints** on trade often restrict the marketing of goods. * Local content rules **Human rights** issues may limit foreign countries’ business opportunities. * U.S. Generalized System of Preferences (GSP) ] ??? LECTURE NOTES: * Political actions of a government often constrain business. For example, invasions, wars, and even actions such as a newspaper printing cartoons that highly offend those of a certain nationality or religion can trigger retaliatory action around the globe. In such times, it’s common for symbols of the offending country’s culture, like McDonald’s Golden Arches for the United States, to be the first target of boycotts, demonstrations, vandalism, and in some cases destruction. * Beyond these types of actions or of course a declaration of war, commonly imposed constraints include economic sanctions, nationalization, and expropriation. Economic sanctions prohibit trade with another country and cut off access to markets (as the United States has done with several countries, including Cuba and North Korea). Although serious in nature, economic sanctions can be lifted over time. Nationalization occurs when a domestic government takes over the businesses and facilities of a foreign entity doing business within it’s borders, and reimburses the foreign company (often not for the full value). Expropriation is even more serious, and happens when a domestic government seizes a foreign company’s assets without any reimbursement. * While the potential for any of these actions occurring in a global market cannot be predicted with 100% accuracy, it certainly needs to be considered. Firms that have frequent regime changes are particularly worrisome. To keep track of the level of political stability or instability in foreign countries, firms often engage in formal or informal analyses of the potential political risk in various countries, or hire specialized consulting firms to do this for them. * Governments and economic communities regulate what products are allowed in the country, what products should be made of, and what claims marketers can make about them. For example, local content rules are a form of protectionism that stipulates a certain proportion of a product must consist of components supplied by industries in the host country or economic community. For example, under NAFTA rules, cars must have 62.5 percent of their components made in North America to be able to enter Mexico and Canada duty-free. * Some governments and companies actively try to protect human rights by denying business opportunities to countries that mistreat their citizens. (for example, those that use child labor or which pay wages far below local poverty levels). * The U.S. Generalized System of Preferences (GSP) is a program Congress established to promote economic growth in the developing world. GSP regulations allow developing countries to export goods duty-free to the United States. The catch is that each country must constantly demonstrate that it is making progress toward improving the rights of its workers. * While some people think it’s not our government’s place or a business’s place to dictate how other countries or firms treat their citizens, establishing work conditions standards for foreign business partners is not only the ethical and socially responsible thing to do, it’s also a smart business practice as abuse of foreign labor in the construction of American goods can make for very bad publicity at home. --- .row[ .col-7[ # Sociocultural Environment Refers to characteristics of a society, its people, and its cultural values and beliefs * Demographics * Cultural Values * Social norms * Language * Consumer Ethnocentrism .question[ What countries do you associate with ‘wine’? What does that say about the global wine industry? ] .question[ … marketers sometimes “borrow” imagery from other cultures to communicate with local customers. This ad is for a Mexican restaurant in Brazil. Do you know of other examples? ] ] .col-5[!(img02/solomon_rprc9e_fullppt_024.jpg) ]] ??? The sociocultural environment refers to the characteristics of the society, the people who live in that society, and the culture that reflects the values and beliefs of the society. Whether at home or in global markets, marketers need to understand and adapt to the customs, characteristics, and practices of its citizens as these factors affect people’s responses to products and promotional messages in any market. Demographics: Examining statistics that measure observable aspects of the population, including its size, age, gender, ethnicity, income, education, occupation, and family structure is the first step in this process, as it is helpful in predicting the size of markets for many products. The use of demographics is discussed in more detail in Chapter 7. Cultural values every society has a set of cultural values, or deeply held beliefs about right and wrong ways to live, that it imparts to its members. Differences in values between one country and another often explain why marketing efforts that are a big hit in the United States can flop abroad. For example, One important dimension on which cultures differ is their emphasis on collectivism versus individualism. In collectivist cultures, such as those we find in Venezuela, Pakistan, Taiwan, Greece, and others, people tend to subordinate their personal goals to those of a stable community. In contrast, consumers in individualist cultures, such as the United States, Australia, Great Britain, Canada, and the Netherlands, tend to attach more importance to personal goals than they do to those of the larger community. This difference can be a big deal to marketers who appeal to one extreme or the other—try selling a garment that is “sure to make you stand out” to consumers who would much prefer to “fit in.” Social norms are specific rules dictating what is right or wrong, acceptable, or unacceptable. Norms flow from values and dictate how people within a country dress, speak, and otherwise behave. For example, beef is taboo in India, while few Americans could even stomach the thought of eating dog meat or horsemeat, food which is common elsewhere abroad. Customs are related to norms. In the contest of meals, a custom would dictate when dinner should begin (6 pm or 7 pm in the U.S.United States vs. 9 pm or later in Europe.). Customs can also relate to things such as eye contact, personal space, and whether giving one kiss or two on the cheek is a proper greeting. Marketers who don’t know the local customs when working abroad are at a severe disadvantage in transacting businesses. Language barriers can be very problematic, particularly when slogans or brands names are “literally” translated from one language to another. The textbook discussed several examples of poorly translated phrased that misrepresent the intended message. For example, when Coors Brewing Company put its slogan, "Turn it loose" into Spanish; it was read as "Suffer from diarrhea". Thus it’s vital for marketers to work with local people who understand the subtleties of language to avoid confusion. Finally, it’s important to understand that ethnocentrism is common. Consumer Ethnocentrism is the tendency to prefer products or people of one’s own culture. In many countries, the willingness to try goods made in other countries comes slowly. DISCUSSION NOTE: As a counterpoint to the discussion of ethnocentrism … marketers often “borrow” imagery from other cultures to communicate with local customers. This ad is for a Mexican restaurant in Brazil. --- # How Global Should a “Global” Marketing Strategy Be? .col-7[ Disney made several mistakes when it opened Hong Kong Disneyland * Bigger is better Unlike its giant American parks, which Chinese customers are accustomed to, HK Disneyland can easily be seen in a single day. * Cinderella who? Chinese visitors are most familiar with characters from Disney’s more recent movies, rather than traditional characters. .question[What changes should Disney make to its Hong Kong Disneyland marketing mix as a result of these discoveries? ] ] ??? --- ### Market-Entry Strategies .small[ Strategy | Exporting Strategy | Contractual Agreements || Strategic Alliances | Direct Investment ---|--- Level of risk| Low | Medium || Medium |High Level of control | Low | Medium || Medium | High Options | Sell on its own rely on export merchants | License a local firm to produce the product |Franchising: A local firm adopts your entire business model | Joint venture, where firm and local partner pool their resources | Complete ownership, often buying a local company Advantages | Low investment, lowest risk of financial loss<br/>Can control quality<br/>Avoid difficulties of producing some products in other countries | Avoid barriers to entry<br/>Limit financial investment and thus risk| Local franchisee avoids barriers to entry<br/>Limit financial investment and risk | Easy access to new markets<br/>Preferential treatment by governments and other entities| Maximum freedom and control<br/>Avoid import restrictions Disadvantages| May limit growth opportunities<br/>Perceived as a “foreign” product| Lose control over how product is produced & marketed, could tarnish company & brand image<br/>Potential unauthorized use of formulas, designs, or other IP|Franchisee may not use the same-quality ingredients or procedures, thus damaging brand image| High level of financial risk| Highest level of commitment & financial risk<br/>Potential for nationalization or expropriation ] ??? Evaluating WHICH market-entry strategy is most appropriate for a given country can be difficult, as there are pros and cons with each approach. In addition, firms often rely on assessments of country risk. Country risk is “the threat that a country will become politically or economically unstable.” One source of information that can be very helpful is the Country Risk Web site, which can be found at www.countryrisk.com/. WEB SITE NOTES: The Web site is divided into several sections. The Guide section of the site serves as a portal to other Web Country resources. Specifically, visitors to this Web site can find background information, ratings on a variety of topics, and helpful statistics. Corruption ratings, political stability information, and many other helpful pieces of information are available on the site. Also of interest in the Reviews section of the Web site provides both editorial and user contributed country analyses. --- # Exporting .row[ .col-7[ Should the company sell products on its own or rely on local business partners? __Export merchants__ are intermediaries a firm uses to represent it in other countries. * Understand local market, know prospective buyers, and may be better able to negotiate terms ] .col-5[ !(img02/solomon_rprc9e_fullppt_025.jpg) ]] ??? Exporting: If a firm chooses to export, it must decide whether it will attempt to sell its products on its own or rely on intermediaries to represent it in the target country. These specialists, or export merchants, understand the local market and can find buyers and negotiate terms. The advantages and disadvantages of exporting and other strategies are displayed on the slide. Many consumers want familiar products that are produced in foreign countries. The ad depicted on this slide is a German ad for “crisps” (potato chips) that reads, “Discover Africa’s spiciest secret.” --- # Contractual Agreements .col-7[ In a __licensing agreement__ , one firm (the licensor) gives another (the licensee) the right to produce and market its product in a specific country. __Franchising__ is a form of licensing in which the franchisee obtains the right to adopt an entire way of doing business. * McDonalds in India ] ??? Contractual Agreements: The next level of commitment a firm can make to a foreign market is a contractual agreement with a company in that country to conduct some or all of its business there. Two of the most common forms of contractual agreements are licensing and franchising: In a licensing agreement, a firm (the licensor) gives another firm (the licensee) the right to produce and market its product in a specific country or region in return for royalties on goods sold. Franchising is a form of licensing that gives the franchisee the right to adopt an entire way of doing business in the host country. Again, there is a risk to the parent company if the franchisee does not use the same-quality ingredients or procedures, so firms monitor these operations carefully. --- # Strategic Alliances .col-7[ __Strategic alliances__ allow companies to pool resources for common goals. * Joint ventures often allow easier access to new markets. ] ??? Firms that choose to develop an even deeper commitment to a foreign market enter a strategic alliance with one or more domestic firms in the target country. These relationships often take the form of a joint venture in which two or more firms create a new entity to allow the partners to pool their resources for common goals. --- # Direct Investment .col-7[ __Direct investment__ is when a firm expands internationally through ownership. Often when it buys a business in the host country outright ] ??? Direct investment: An even deeper level of commitment occurs when a firm expands internationally through ownership, often when it buys a business in the host country outright. Instead of starting from scratch in its quest to become multinational, buying part or all of a domestic firm allows a foreign firm to take advantage of a domestic company’s political savvy and market position in the host country. --- # Standardization vs. Localization .col-7[ To what extent will company need to adapt marketing communications to local market? Will the same product appeal to people there? Will it have to be priced differently? How will the company get the product into people’s hands? ] ??? In addition to “big picture” decisions about how a company will operate in other countries, managers must decide how to market their product in each country. They may need to modify the famous Four Ps—product, price, promotion, and place—to suit local conditions. This decision boil down to a choice between following a policy of standardization or localization for the marketing mix strategy. If a standardization strategy is chosen, the same strategy used in the home market is applied in the same way abroad. Proponents of standardization argue that the world has become so small that basic needs and wants are the same everywhere, so why not enjoy economies of scale by spreading the costs of product development and promotional materials across multiple markets? In contrast, those in favor of localization feel that the world is not that small; you need to tailor products and promotional messages to local environments. These marketers feel that each culture is unique, with a distinctive set of behavioral and personality characteristics. Once the basic strategy of standardization or localization is chosen, it’s time to tweak the marketing mix. --- # Tweaking the Global Marketing Mix: # Product Strategies .row[ .col-5[ Product decisions * Straight extension * Product adaptation * Product invention * Backward invention ] .col-7[ !(img02/solomon_rprc9e_fullppt_026.jpg) ] ] ??? Once firm establishes whether it will adopt standardization or localization strategy, it can then plan for the four Ps. A firm has three choices when it decides on a product strategy: 1. Sell the same product in the new market. 2. Modify it for that market. 3. Develop a brand-new product to sell there. A straight extension strategy is used when a firm offers the same product in both domestic and foreign markets. A product adaptation strategy occurs when a firm offers a similar but modified product in foreign markets. The product invention variation requires a firm to develop a new product for foreign markets. By contrast, backward invention occurs when a firm develops a less advanced product to serve the needs of people living in countries without electricity or other elements of a developed infrastructure. The ad depicted here is a Turkish ad for CNN that illustrates that we all have at least a few things in common. --- # Tweaking the Global Marketing Mix: # Price, Promotion, Place Strategies .col-7[ Promotion decisions Price decisions * Free trade zones * Gray markets * Dumping Place / Distribution decisions ] ??? * Promotion Decisions: Marketers must also decide whether it’s necessary to modify how they speak to consumers in a foreign market. Some firms endorse the idea that the same message will appeal to everyone around the world, while others feel the need to customize it. As you might expect, many marketers at least choose to translate the message into the dominant language, but the prevalence of English world wide does allow marketers the flexibility of running an English language ad globally. However, clever ad executions can avoid the language barrier entirely. During the 2006 World Cup, MasterCard ran ads that appeared in 39 countries, so its ad agency came up with a spot called “Fever,” in which 100-odd cheering fans from 30 countries appear. There’s no dialogue, so it worked in any language. * Price decisions . . . You may be surprised to learn that it is often more expensive to manufacture a product IN a foreign market than at home. This is because there are higher costs stemming from transportation, tariffs, differences in currency exchange rates, and the need to source local materials. To ease the financial burden of tariffs on companies that import goods, some countries have established free trade zones. These are designated areas where foreign companies can warehouse goods without paying taxes or customs duties until they move the goods into the marketplace. Costs are important of course, because the influence the ultimate price set for the product. One danger of pricing too high is that competitors will find ways to offer their product at a lower price, even if they do so illegally. Gray market goods are items that are imported without the consent of the trademark holder. While gray market goods are not counterfeit, they may be different from authorized products in warranty coverage and compliance with local regulatory requirements. For example, some of you may have gotten your hands on the International version of the textbook for this course, which is only supposed to be sold outside of the United States. This would be an example of a gray market good. Another unethical and often illegal practice is dumping, in which a company prices its products lower than it offers them at home. This removes excess supply from home markets and keeps prices up there. * Distribution Decisions . . . Getting your product to consumers in a remote location can be quite a challenge. It’s essential for a firm to establish a reliable distribution system if it’s going to succeed in a foreign market. For example, in least developed countries, marketers may run into problems when they want to package, refrigerate, or store goods for long periods. --- # Ethics is Job One in Marketing Planning .row[.col-7[ Marketing action cannot establish long-term relationships if it is shown to be unethical. * Consequences of low ethical standards can be damaging to firms and managers. * Stockholders may lose investment. * Jobs may be lost. * Confidence in the economy suffers. ] .col-5[ .question[ Can you think of any significant business scandals? How many involved unethical actions of marketers? ] ]] ??? Businesses touch many stakeholders and need to do what’s best for all of them where possible. However, sometimes the interests of various stakeholders and the firm may not align. This can lead to unethical behavior on the part of marketers and other firm employees. For example, Wal-Mart was the target of a US DOJ investigation that alleged the company bribed Mexican officials in order to open more stores. GlaxoSmithKline pled guilty to the promotion of drugs for unapproved uses, failure to report safety data, and improper marketing. DISCUSSION NOTES: Can students think of other significant business scandals? How many involved unethical actions of marketers? --- # Importance of Ethical Marketing Practices .col-7[ __Business ethics__ are basic values that guide a firm’s behavior. * What constitutes ethical behavior is often different for different people. * Ethical philosophies guide how people make such decisions. * A __code of ethics__ is a written standard to which everyone in the organization must subscribe. .question[ Are business people, generally, or marketers, specifically, any more or less ethical than other professionals? ] ] ??? DISCUSSION NOTES: Is business ethics an oxymoron? Are business people, generally, or marketers, specifically, any more or less ethical than other professionals? What ethical philosophies are most likely to guide doctors? Lawyers? Policemen? Military? Accountants? --- # Some Common Ethical Philosophies .col-7[ **utilitarian approach** Ethical philosophy that advocates a decision that provides the most good or the least harm. **rights approach** Ethical philosophy that advocates the decision that does the best job of protecting the moral rights of all. **fairness or justice approach** Ethical philosophy that advocates the decision that treats all human beings equally. **common good approach** Ethical philosophy that advocates the decision that contributes to the good of all in the community. **virtue approach** Ethical philosophy that advocates the decision that is in agreement with certain ideal values. ] ??? What constitutes ethical behavior is often different for different people. Table 2.6 depicts how various ethical philosophies may guides people’s decisions. For example, if one uses utilitarianism as a means of making a decision on different safety features to include in a new product, the ethical choice is the one that provides the most good and the least harm. As another example, the fairness or justice approach suggests that the ethical decision about employee compensation is to pay everyone the same or to be able to justify why one salary is higher than another. --- # AMA Code of Ethics .row[.col-6[ __Ethical Values__ * Honesty * Responsibility * Fairness * Respect * Transparency * Citizenship ] .col-6[ __Ethical Norms__ * Do no harm * Foster trust in the marketing system * Embrace ethical values ]] ??? DISCUSSION NOTES: To help marketers adhere to ethical behavior in their endeavors, the American Marketing Association (AMA) developed the code of ethics that we reproduce in Table 2.7. Note that this code spells out norms and expectations relating to all aspects of the marketing process, from pricing to marketing research. --- # Is Marketing Unethical? .col-7[ Marketing serves the rich and exploits the poor. Products are not safe Poor quality products Planned obsolescence Easy consumer credit makes people buy things they don’t need or can’t afford. .question[ What can marketers do to overcome these (mis-)perceptions? ] ] ??? Marketing serves the rich and exploits the poor: Many marketers are concerned about their bottom line, but they also want to provide a better quality of life for all consumers, that is, the societal marketing concept. But there are exceptions. For example, because of decreasing sales of cigarettes in developed countries, tobacco companies target smokers in LDCs and developing countries and thus contribute to the health problems of those populations. Products are not safe: Whether marketers are truly dedicated to providing their customers with the safest products possible or because of the fear of government regulation and liability issues, most firms do make safe products and, if they find a problem, quickly notify customers and recall the defective product. GM, however, in 2014 found itself embroiled in a huge scandal after choosing in 2005 not to recall 2.6 million cars with ignition switches that were known to be faulty. Instead, GM continued to use the switches, which could cut off power to the engine, disabling the airbags and power steering and brakes. The faulty switches were linked to at least 13 deaths. Poor-quality products: Many people bemoan the loss of U.S. manufacturing, feeling that imported products such as textiles and furniture are of poor quality. Product quality, however, is determined by what consumers want in a product. Do you want a refrigerator that lasts 50 years? Planned obsolescence: In order to remain profitable, marketers must offer new products after an existing product has been on the market a period of time. For example, just when we all decided we had to trade in our old HCD TV for an LED smart TV, the OLED (organic light-emitting diode) TVs are hitting the market at prices beginning around $5,000. For many people, this is a good thing, as it increases their enjoyment of TV. Marketing creates interest in products that pollute the environment: Yes, it is true that those gas-guzzling SUVs remain on the market and that commercial fertilizers, pesticides, and insecticides continue to pollute the environment as farmers try to produce more and better food. Many would argue, however, that those chemicals would not be available unless there were a demand for them. Moreover, use of these chemicals increases crop yields and helps in reducing global hunger. Easy consumer credit makes people buy things they don’t need and can’t afford: Many are concerned about businesses such as payday loan and car title loan companies that charge interest rates that can exceed 400 percent annually. Their customers typically are people with limited financial resources and even less knowledge about how to manage their money. DISCUSSION NOTES: Do students agree or disagree with these common criticisms or are they mischaracterization of the discipline? What can marketers do to overcome these perceptions? o --- # Ethical/Sustainable Decisions in the Real World: .col-7[ Smombie– smartphone zombie Injuries and deaths are increasing because people walk and text. .question[ Should phone companies voluntarily protect phone users from getting hurt while using apps?] ] ??? From the Ripped from the Headlines Feature: A new term has emerged known as “smombie” – essentially, a “smartphone zombie.” Texting, checking email, and using apps has become convenient on our phones, but people tend to not pay attention when they are walking. This has resulted in serious injuries and even a few deaths. Whose responsibility is it to protect the consumer? Is it the phone companies? The cell phone manufacturers? App designers? Governments? --- # Developing a Sustainable Marketing Mix .col-7[ **Target marketing strategies** * Green customers **Product strategies** * Fair trade suppliers **Price strategies** **Place/Distribution strategies** * Locavorism **Promotion strategies** ] ??? Target marketing strategies: Marketers need to understand the attitudes of their customers toward sustainability. What is the potential market for sustainability focused goods and services? What environmentally friendly products will consumers be likely to purchase, and which will they not? Then they can successfully target green customers—those consumers who are most likely to actively look for and buy products that are eco-friendly. Product strategies: Sustainable product strategies include the production of more environmentally friendly products, such as electric automobiles, and the use of environmentally friendly and recycled materials in products and in packaging. Long-term sustainability requires that marketers also understand how consumers use, store, and dispose of products. Price strategies: Many consumers would like to buy green products, but they don’t because the price is higher than comparable traditional products. Sustainable marketing practices aim to establish prices for green products that are the same or close to the prices of other products. Place/distribution strategies: Sustainable distribution strategies can include retailers who focus on a reduction in the use of energy in order to benefit from both monetary savings and the loyalty of green consumers. Both producers and retailers can choose to buy from nearby suppliers to reduce dependence on long-haul trucking, which is a major source of air pollution. Promotion strategies: The most obvious sustainable promotion strategies are those that inform customers of the firm’s commitment to the planet and future generations through advertising and other messages. But there are other opportunities. The cost of creating a TV commercial is enormous and may take two or three days of shooting to complete. Some firms have begun to “reuse” old commercials while letting customers know that this is their way of practicing sustainability. --- # Sustainable Customer Behavior .col-7[ A sustainability approach doesn’t end with an improvement in the manufacturing process. Marketers need to motivate customers. Consumers can be a part of sustainable marketing practices. ] ??? Marketers should motivate customers to seek out, pay for, and use sustainable options. When consumers become knowledgeable about environmental concerns and environmentally friendly products, they become part of sustainable marketing practices.