International Marketing Management. Part4

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1 International Marketing Management Part4 Deciding Which Markets to Enter Macro environmental analysis 1

2 Sources: Preliminary screening - desk research - personal knowledge&experience Macro Environmental Analysis SLEPT PEST PESTEL 2

3 SLEPT Approach Socioculural Legal Economic Political Technological factors Deciding Which Markets to Enter Micro Environmental Analysis 3

4 Micro Environmental Analysis Customers Competitors Potential demand Distribution chains Suppliers What Influences the Buyer? Cultural factors values, attitudes, beliefs, ideas, artefacts and symbols Social factors primary membership groups (family..) secondary member groups (union, cim..) aspirational groups (MBA!) dissociative groups (hell s angels??) Personal factors age, life cycle, occupation, lifestyle, personality... Psychological factors motivation, perception, learning (& beliefs), attitude 4

5 The Buyer DMU Source:Webster and Wind, 1972 Initiator first suggests buying product or service User Influencer whose comments affect the decision Help define spec, help in evaluation of alternatives Decider Ultimately make all or part of buying decision Buyer Physically makes purchase User Consumes product or service Product requirements and suppliers Formal authority to select supplier - negotiate terms Initiate process / define specs Does Behaviour Change in Relation to What is Purchased? Degree of involvement Source:Assael, 1987 low high Significant difference between brands few many HABITUAL VARIETY (seeking) DISSONANCE (differing of views) COMPLEX 5

6 Porter s Industry Analysis: The 5 Forces Model Source: Porter, 1985 POTENTIAL ENTRANTS SUPPLIERS Bargaining power Threat of rivalry INDUSTRY Competitive rivalry Bargaining power BUYERS Threat of substitution SUBSTITUTES Bargaining Power of Suppliers the strength of the supplier brand the source of supply spans only a small number of suppliers switching supplier substitute products of suppliers forward integration 6

7 Bargaining Power of Buyers where few buyers control a large volume of the market where there are a large number of smaller suppliers fighting for a share of the market the cost of switching supplier is low the supplier s product is a mass-market product and not necessarily differentiated strong customer power threat of backward vertical integration The Threat for Potential Entrants economies of scale access to new distribution channels brand loyalty capital investment competitor retaliation regulatory influence 7

8 Threat of Substitutes a new product or service equivalent a new product replacing an existing product consumer substitution Key Factors Influencing Competitive Rivalry stage of product life cycle of competing product use of specialized production techniques liquidity of competitor ability to achieve differentiation and brand loyalty competitor intentions the relative size of the competitor barrier of exit from the industry number of sellers & degree of products differentiation 8

9 Industry s Competitive Structure One seller Few sellers Many sellers Undifferentiated product Pure monopoly Pure oligopoly Pure competitive Differentiated product Differentiated oligopoly Monopolistic competitive...how does it matter? Roles in the Target Market market leader market challenger market follower market nicher... and main implications... 9

10 DesigningInternational Marketing Plan Market Segmentation & Targeting Marketing Plan S T P Marketing mix: product, place, price, promotion Marketing budget 10

11 Companies that operate on one or more foreign markets must decide how to adapt their strategy to local conditions. At one extreme are companies that use a standardized marketing-mix(world-wide). At the other extreme is adapted marketing-mix, where s producers adjusts marketing-mix to each target market. Determinants of standardization Legal regulations & world-wide standards Common customers needs & preferences Economies of scale in R&D, production & marketing Learning effects in production & marketing Characters of products (industrial vs. customer goods) 11

12 Determinants of adaptation Better adjustment of company s strategy to local preferences Better adjustment of company s strategy to local competition Better adjustment of product usage conditions Character of product (customer vs. industrial goods) More coincide approach with marketing concept Benefits from standardization Lower costs production & marketing costs Clear& common communication message world-wide Easier decision-making process Improve marketing program effectiveness Improve company s competetive position world-wide 12

13 Benefits from adaptation Better adjustment marketing-mix elements to local conditions Less formal decision-making procedures More elastic strategy and its implementation Local initiative & resources are used more efectively Each country (market) is important Global Standardisationor Adaptation? Easier to standarize More difficult to standarize 1. Target markets 2. Positioning 3. Physical product attributes (features) 4. Brand name 5. Packaging 6. Guarantee (warrantee) 7. After sales service 1. Services for the customers 2. Distribution 3. Price 4. Advertising media 5. Sales promotion 6. Sales approach 7. Salespeople training 8. Advertising theme 13

14 Market Segmentation The act of dividing the market into specific groups of consumers who share common needs and who might require separate marketing mixes. In international marketing: The same target segment on different markets Group of markets and then target segments Different target segment, Different markets Product the same Speciffic target segment on each foreign market The same target segment on different markets Examples: Individual clients with high incomes Hobby products International companies High-tech companies Segments& markets with high level of globalization! 28 14

15 The same target segment on different markets High end Market segments Low end A B C D countries 29 Different target segment, Different markets- the same product Major goal cost reductions due to product standardization Needs: adaptedtargeting, positioning, price, promotion& place 30 15

16 Different target segment, Different markets- the same Product High end Market segments Low end A B C D countries 31 Group of markets and then target segments Entire process consists of two parts: Countries groups identification Targeting based on segmentation procedure 32 16

17 Group of markets and then target segments High end Market segments Low end Group A countries Group B 33 Speciffic target segment on each foreign market Segmentation- separately for each market Marketing mix- adapted to local requirements 34 17

18 Speciffic target segment on each foreign market High end Market segments Low end A B C D countries 35 DesigningInternational Marketing Plan International Positioningand Branding 18

19 Positioning positioning is how the product is perceived and evaluated by the target audience relative to competitor products companies must differentiate products or services positioning must promise the benefit the customer will receive should be believable Positioning To standarize To adapt 19

20 International positioning Purchase motivation Consumption pattern Market position Level of industry globalization Market similiarity Positioning level of standardization Country of origin image 39 Steps in Positioning identify differentiating factors in product or services in relation to competitors select the most important differences communicate the position to the target market 20

21 Positioning Strategies Overall Focus Options attribute customer benefit price and quality use / application product user product class (disassociation) competitor Developing a Successful Positioning Strategy How many ideas to promote? -one -two -more...? What to choose? 21

22 Major Positioning Errors underpositioning -brand does not have a clear identity in the eyes of the customer overpositioning -buyers may have too narrow image of a brand confused positioning -too many claims might be made for a brand doubtful positioning -positioning may not be credible in the eyes of buyer International Brand Decisions 22

23 Single market single brand Advantages: Marketing efficiency Permits more focused marketing Eliminates brand confusion Good product with good reputation (halo effect) Disadvantages: Assumes market homogenity Limitted shelf space Single market multiple brands Advantages: Market segmented for varying needs Creates competitive spirit Avoids negative connotation of existing brand Gains more retail shelf space Does not harm existing brand s image Disadvantages: Higher marketing cost Higher inventory cost Loss of economies of scale 23

24 Multiple markets local brand Advantages: Meaningful names Local identification Avoidance of taxation on international brand Allows variations of quantity and quality across markets Disadvantages: Higher marketing cost Higher inventory cost Loss of economies of scale Diffused image Multiple markets global brand Advantages: Maximum marketing efficiency Reduction of advertising costs Elimination of brand confusion Good for culture-free product Good for prestigious product Easy identification/recognition for international travellers Uniform worldwide image Disadvantages: Assumes market homogenity Problems with black and grey markets Possibility of negative connotation Requires quality and quantity consistency Legal complications 24

25 DesigningInternational Marketing Plan Product Decisions Product decisions 25

26 International Product Strategies Straight product Extension (product transfer) Product adaptation Product invention Backward Forward global Straight product extension Standard product(the same as on domesticmarket) without any changes in it s attributes beside really necessary Limited number of geograpgical markets Similiariry of foreign markets Lowcosts Low level of commitment to new markets Typical startegy of standardization Hidden champion or hit&run strategy 26

27 Product adaptation Some features of product are changed according to foreign customers preferences, legal requirements, etc. Adaptation may concern to every product attribute, eg packaging, brand, quality level, etc. But except core product and basic feature. A large number of geographical areas Highly differentiated forein markets High level of commitment to new markets Typical strategy of adaptation Hidden champions or cooperation strategy Product invention New product for new market but the same product category and form - backward the old (former)product, PLC!!! - forward new version of the product which is not offered on domestic market (B2B markets, when SME wants to enter market) large new market large number of geographical areas Highly differentiated forein markets High level of commitment to new markets Typical strategy of adaptation Typical entering strategy investment modes Hidden champion or cooperation strategy 27

28 DesigningInternational Marketing Plan Promotional Decisions Promotion 28

29 Communication at Work Differentiates between competitors, substitutes and alternatives. Reminds and re-enforces past transactions. Makes future dealings desirable. Informs makes potential customers / users aware of offer. Essential to diffuse information. Persuades influences the decision making process. Makes the exchange desirable. Communication at Work Attention Interest Desire Action Attention Interest Desire Conviction Action Satisfaction 29

30 Possible Communications Objectives clarification of customer needs increasing brand awareness increasing product knowledge improving brand image improving company image increasing brand preference stimulating search behaviour increasing trial purchase increasing repeat purchase increasing word-of-mouth recommendation improving financial position increasing co-operation from the trade enhancing the reputation with key stakeholder building up management ego... The Promotional Toolbox -a Bag of Marbles Personal selling? Sponsorship Field marketing Advertising Word of mouth Commerce Internal marketing Packaging Point of Purchase Sales promotion Consumer Audience Channel Audience Stakeholder Audience Corporate identity Website Direct marketing Exhibitions Perception Public relations Branding 30

31 The Principal Characteristics of Communications Tools Communications Advert. Sales promotion PR Personal selling Direct marketing Ability to deliver personal messages Scope for reaching large audiences Low Low Low High High High Medium Medium Low Medium Degree of interaction Low Low Low High High Perceived credibility by target audiences Low Medium High Medium Medium The Principal Characteristics of Communications Tools Costs Advert. Sales promotion PR Personal selling Direct marketing Absolute costs High Medium Low High Medium Cost per contact Low Medium Low High High Wastage levels High Medium High Low Low Level of investment High Medium Low High Medium 31

32 The Principal Characteristics of Communications Tools Control Advert. Sales promotion PR Personal selling Direct marketing Scope for targeting specific audiences Medium High Low Medium High Management s ability to adjust the deployment of the tool ws circumstances change Medium High Low Medium High DesigningInternational Marketing Plan Distribution and Price Decisions 32

33 An institutional arrangement necessary for the entry of a company s products into a new foreign market is known as anentrymode Deciding How to Enter the Market ENTRY MODES EXPORT MODES INTERMEDIATE MODES INVESTMENT MODES 33

34 Deciding How to Enter the Market classification of entry modes Export modes 100% externalizing low control, low risk, low profitability, high flexibility Intermediate modes shared control & risk, moderate profitabilty, split ownership Investment modes 100 % internalizing high control, high risk, full ownership, low flexibility Factors affecting foreign market entry mode decision Internal factors Desired mode characteristics Entry mode decision External factors 34

35 Internal factors affecting market entry mode decision Product complexity Product Product differentiation advantage International experience Firm size Entry mode decision Desired mode characteristics affecting market entry mode decision Risk averse Control Flexibility Entry mode decision 35

36 External factors affecting market entry mode decision Sociocultural distance Country risk/ demand uncertainty Market size/ growth Direct/ indirect trade barriers Entry mode decision Intensity of competition Number of export intermediaries Deciding How to Enter the Market Export modes 1.Indirect export 2.Direct export Intermediate entry modes 3.Cooperative export 1.Contract manufacturing 2.Licensing 3.Franchising 4.Joint venture (strategic alliances) 5.Management contracting Investment modes 1.Domestic-based representatives Source: Hollensen, 1998, pp Foreign sales subsidiary (foreign sales branch) 3.Sales & production subsidiary acquisition 4. Sales & production subsidiary greenfield 36

37 Advantages of Export Modes Indirect exporting: Limited commitment and investment required High degree of market diversifiction is possible Minimal risk (market or political) No export experience required Direct exporting: Access to local market experience and contacts to potential customers Shorter distribution chain Market knowledge acquired More control over marketing-mix Local selling support and services available Export marketing groups: Shared costs and risks of internalization Provide a complete product line or system sales to customers 37

38 Indirect exporting: Disadvantages of Export Modes Direct exporting: No control over marketing mix elements other than product Additional domestic member in the distribution chain may add costs, leaving smaller profit to the producer Lack of contact with the market (no market knowledge acquired) Limited product experience (based on commercial selling) Limited control over market price because of tarrifs and lack of distribution control Some investement in sales organization required (contact from home base with distributors or agents) Cultural differences, providing communication problems and information filtering (transaction costs occur) Possible trade restictions Export marketing groups: Risk of unbalanced relationships (different objectives) Participating firms are reluctant to give up their complete independence 38

What to look for in an intermediary Size of firm Physical facilities Willingness to carry inventories Knowledge/use of promotion Reputation with supplier, customers, and

39 What to look for in an intermediary Size of firm Physical facilities Willingness to carry inventories Knowledge/use of promotion Reputation with supplier, customers, and banks Sales performance record Cost of operations Overall experience Knowledge of English or other relevant languages Knowledge of business methods in manufacturer s country 39

40 Investment Modes- Advantages Company can secure cost economies in the form of cheaper labor or raw materials, foreign-government incentives, freight savings, and so on. Better image in the host country because company creates jobs. Positive aspects of megamarketing practices. Deeper relationship with local customers, distributors, and suppliers enabling better adopt marketing-offer. Company retains full control over investment, production & marketing operations. Better access to the market. Investment Modes- Disadvantages Higher risks (political, legal, financial, marketing, and so on) Higher responsibilities. Bigger requirements for capital, skilled managers, salespeople. Lack of expertise, know-how and experience Threats of potential competition 40

41 Distribution Channel Levels short vs. long channel (from one to threeor morelevels) key factors: - average order size - geographic concentration of customers - seasonality of sales - geographical distance from producer to market -perishability of the product 41

42 Three strategies: Number of intermediaries intensive distribution -as many available outlets as possible hold this product; products for which consumers require a great deal of location convenience selective distribution -more than a few but less than all of the intermediaries exclusive distribution -severely limiting the number of intermediaries; even only one outlet in a certain geographic area supplies a product Intensive distribution Key characteristic include: maximum number of outlets covered to maximize availability target outlets in as many geographical regions as possible consumer convenience products high number of purchasers high purchase frequency impulsive purchase low price 42

43 Selective distribution Key characteristic include: medium level of customers -but likely to be significant less intensive distribution f outlets retailers may require specialist knowledge shopping based products purchase is occasional purchase is more likely to be planned medium price Exclusive distribution Key characteristic include: relatively few customers limited retail outlet close retailer/customer relationship speciality products infrequent purchase high involvement and planned purchase high price 43

44 Price Global Pricing Contract Benefits For customers: Lower prices worldwide coupled with higher level od service Standarization of products and services offered across markets Efficiences in all processes, including NPD, manufacturing, customer service Faster diffusion of innovations globally 44

45 Global Pricing Contract Benefits For suppliers: Easily gain access to new markets and grow the business Consolidate operations and achieve economies of scale Collaborate with customers and develop strong relationships (difficult to brake into for potential competitors) Global Pricing Contract Disadvantages For customers: Supplier might not have capabiliteies to provide consistent quality nad performance across markets Suppliers might use customer s overdependence to extract higher prices Costs of monitoring global contracts might outstrip the benefits 45

46 For suppliers: Global Pricing Contract Disadvantages Local managers resist change Conflict in existing channels of distribution in the new market Might lose the ability to serve other attractive customers 46

Principles of Marketing. Lesson 5 S -T -P. STP procedure. Outline. market segmentation. market targeting. positioning. Part 2

Principles of Marketing. Lesson 5 S -T -P. STP procedure. Outline. market segmentation. market targeting. positioning. Part 2 Principles of Marketing Part 2 1 Lesson 5 STP procedure Outline S -T -P market segmentation market targeting positioning 1 STP What Is It? Segmenting Dividing market according to some set of criteria into