LSM526 Transcripts. Transcript: Course Introduction

Transcription

1 LSM526 Transcripts Transcript: Course Introduction Welcome to this course on distribution strategy and international marketing. This is a very important course for marketers, and one of the reasons I think it's so important is that many people think of these topics as topics where marketing doesn't add the key value within the firm. For distribution strategy, many people think its operations, and cost efficiency that's the key to distribution. And for international marketing, its economic factors, and other kinds of things about political and other kinds of attributes of different markets that lead us to make different decisions about what markets to go into. All of those things are very important. But what I want to stress in this course, is strategic views. And the importance of a marketing view to making these kinds of decisions. For example, in distribution strategy, it's not just about efficiency. But it's about a whole value chain, maximizing the value to a consumer. One of the things I'll talk about that's in there is quite often, we think about, cutting out, different steps in the value chain, the so-called cutting out the middle man to get more, margin for our company. Because we don't want to give margin to other steps within the channel and try to be more, cost efficient. But I want to stress from a marketing standpoint, from a strategic standpoint. Those partners we have in our value chain quite often provide a lot of value to the end consumer. Value that it might be very difficult for us to provide. So, while we might be able to take out cost, we might not be maximizing value proposition to the end consumer. So it's these kinds of factors where we're thinking about not just the standard kind of economic and efficiency and other kinds of factors that go into distribution and international decisions. But also the broader strategic marketing, and consumer kinds of factors that make sure that we're capturing as much value as possible and we're making sure that we're providing a superior value proposition to the end consumer. So I very much hope as we go through channel design factors, as we go through reasons to go into different international markets and in particular as we think about the marketing approach to these different countries and different international markets. You'll see that a balance of economic efficiency and a standard tactile kinds of things 1

2 that people think about in these areas needs to be balanced by a marketing strategy, broad consumer value proposition view. So that we come up with the best possible strategy for the company. Transcript: Strategic Role of Marketing Channels In the first part of this course, we'll be talking about place, one of the four p's of marketing. Channels or distribution are other words that we use to think about how do we get our product or service to our customers in an effective way. Some people think about place or distribution as more of an operations, more of a tactical. How do we go about distributing our product? How do we move inventory through the channel? What I want to talk about it as more a marketing strategy function that we have to think about in terms of how are we beating the competition. And for that we could use the 3 C's framework that's often used in marketing to think about which customers are we targeting? Which segments are we targeting as a company and how are we delivering superior value compared to some competition. Well, we do that through thinking about how we're positioned in the marketplace, to find that value. And one of the ways we do that is through distribution. Now quite often people don't think about that. They think, well, distribution is just making sure it's on the store shelf, the customers are getting it, or we're trying to be efficient. But I'll try to argue that it is in fact a very strategic part of making sure we're meeting the value proposition that we're promising to our customers. Because channels are really about a system. A set of often very different organizations working together to provide a superior value chain compared to the value chain of our competitor. It talks about what the price or cost of our product or service will be, whether it will be there in a place that our customers want to buy it, when they want to buy it, with the service, maybe the aftersale support, or maybe the sale support during the sale that customers want. And lots of things that are around the value proposition in total to the customer and consumer for our product or service. So as we go through the course, we'll try to think about channels and place as a strategic way to win in the marketplace. 2

3 Transcript: Why Not Cut Out the Middleman? One of the first questions we have to ask ourselves in setting up a supply chain is how much should our organization do versus how much should we bring in other organizations? Of course, as we bring in other organizations, distributors, retailers, suppliers, other organizations that do other functions, it makes things more complex, more transactions, more relationships and sometimes more expensive. So quite often there's a thought that well, why don't we cut out some of these organizations? The phrase that's usually used is, cut out the middleman. Instead of us going to intermediary to get to our customer or consumer, why don't we go directly to our customer or consumer, and get those profits. Technology in particular, has led to what's called disintermediation and that's basically a way of using technology to cut out the middle man. And quite often there's a natural tendency to do that is something we should think about. But also something that often goes wrong. And I want to talk for a minute about why it goes wrong. And I want to use as an example, tea farms in Taiwan, which are a famous example of an industry that tried very hard from the government to cut out the middleman but failed miserably. And gives us a lesson as to the number of dimensions. On which we rely on channels to provide superior value and why value chains of different organizations can be more effective than one organization trying to do it all by itself. So tea is grown quite often on many, many, many small plantations that each specialize in different kinds of tea because of the nature of the climate, the soil, the altitude and other kinds of factors. But most tea that's sold to consumers, is actually a blend of many of these different specialized kinds of teas to create an economic and good-tasting tea. So, there has to be this value chain from the very small farmer to larger mixers who put together these very different teas into blends that are then sold in the marketplace. And in Taiwan, there were number of very small farms, and the government, some decades ago, thought that, well, farmers were getting relatively low prices for their tea. Yet, consumers were paying relatively high prices and one of the reasons for this, the government thought was, there is this multi staged value chain that each part of which was taking profits. And that was increasing prices. And then in particular, the government thought they could support farmers, if they could directly ship from the farmers to these mixers. These large warehouse mixing type operations. So they would quote unquote cut out the middle men. Cut out the wholesalers. Cut out the people who would go out to different farmers and buy the different tea. Well, why was this a disaster? One reason is strictly operational, logistical, not strategic. It's that, well, if 3

4 every manufacturer, every one of these mixing operations has to interact with every different farmer. That creates a very large number of transactions that has to happen. Instead, if you have wholesalers who go out to each of the different farms, figure out what kind of tea each farm has, and then bring each of those different kinds to each manufacturer, there's many fewer transactions. So one of the things that middle men do, one of the things that channels do, is create more efficiency by cutting down on the number of transactions. And that's the first economic argument. The operational argument that is often used. But there's many other arguments. There's many other reasons why we use middle men. So even if we can be more efficient, and technology quite often allows us to be more efficient. We still might not be effective in going directly to consumers. That's because there's many other things that channels do. Strategic things that channels do that help create value in the value chain that have to done by somebody. And if our organization takes over that part of the channel, we can't just do part of it, the part we're good at. We have to make sure everything gets done. So, just as a couple examples, these wholesalers really were, very, very knowledgeable. They knew each of the different tea farms. What kinds of tea each tea farm had. They also knew each of the manufacturers, each of the mixers. They knew what kinds of teas they needed. So they were able to go from farm to farm and think about which farm had the right kind of tea for which mixing operation. And bring to the mixing operation the different teas that were appropriate for the kind of end product they wanted to produce. That was something that was very difficult when each of the mixing operations that didn't know all these very different farmers would have to go to many, many different farmers without knowledge of each of them. And the farmers didn't know that much. They just knew their specific kinds of tea. So providing expertise, not just transportation and logistical efficiency is an important part of that. Another thing that the wholesalers did is they gave advice to the tea farmers. They would be able to know what the market demand was at the manufacturing mixing level. And be able to go to farmers and say, well more of this kind of tea, or more of that kind of tea. Or some other kind of changes in their production. How it might help them produce more of what the market needed. So there's many different ways. Just one example to think about, what are the different things that value chains do? And making sure that even though we may be able to quote unquote cut out the middle men, even though our organization may be able to do more in terms of going directly to consumers to try to get profits. If we do that. The value that's provided, the end total quote, unquote size of the pie, how much profits are out there might shrink sufficiently. That the amount of profit available to us is actually lower, because we don't have as effective value chain in creating end value to the consumer. So thinking about channels is not just thinking about distribution efficiency. It's really 4

5 thinking about all the different things that have to be done to provide end value to the consumer and making sure that we're setting up a value chain that does each of those things. Transcript: Ask the Expert: Clarence Lee on Digital Distribution How has digital changed distribution of new products? So digital technology has driven down the marginal cost of delivering the actual product itself. And this is especially true with digital products, software for instance. And the implication of this is that it allows the firm to try different business models as before. One example of this would be subscription business models. A firm could try subscriptions as opposed to the traditional durable pricing goods model. Okay. One example of this is Microsoft. In the old days, when Microsoft is selling Office, it's under this durable pricing goods, pricing model, where for each copy of Office, it charges $100. So if you're the consumer and you wanted to use Office, you would have to drive to the store, pick up that copy, pay $100, and come back home and then install it. And usually on the consumer side, you would purchase this once every couple of years. Now under a new model, the subscription model, Microsoft with Office 365, the consumer can download Office 365 directly from Microsoft's site. And under this subscription model the consumer pays $100 per year for that download. And the consumer can do this all without going to the store as well. On the firm's side, Microsoft, with this new business model, they were able to not only charge the consumer once every year, but also provide more updates and support for the consumer, for this additional value that they can provide. The benefit that comes for the consumer is that, with this subscription model, the consumer could get updates, feature upgrades, and all kinds of additional add ons, that Microsoft would deliver throughout that subscription. And so, in this new world, both the consumer and the firm benefits from this change in just a distribution technology in itself. And that's how technology has impacted this change in distribution. 5

6 Transcript: Decision One: Push or Pull Strategy One of the ways to think about power in channels and how we, as marketers, influence power in channels and, therefore, our profitability, is what's called push versus pull marketing. In push marketing, we try to push our product or service through the channel. We try to give incentives to the channel, either monetary incentives, sales support, other kinds of things, activities and finances that we use to induce the channel to sell our product verses our competitors product. The second kind of activity is called pull marketing, where we go directly to the consumer through advertising or personal sales or other kinds of activities. Where we try to convince the consumer to want our product or service, and then go to the channel, go the store, or other intermediary and want to buy our product. So in deciding how much push marketing should we do, how much pull marketing we should do, one concept to think about is, this is about who owns the customer. Where is the power in the channel, and therefore, how do we have to go about marketing around that reality? As an example, I'd like to use Coke versus Pepsi, two fantastic marketers. Lots of people think they're classic pull marketers because they do lots of television and other kinds of direct marketing to consumers, to create very strong brands that create pull, where consumers go to channels, supermarkets and other places to buy their products. But that's only one part of the story. There's many aspects of Coke and Pepsi marketing that lead them to in fact spend more money on push marketing than they do on pull marketing. So let me give you a couple of examples that might bring that out. Think about a restaurant. We go to most restaurants because we love the food, maybe we love the atmosphere, it's in our neighborhood, we like the location, other kinds of things. Rarely would we choose a restaurant because of what kind of soda they sell. We choose a restaurant because we like that restaurant for other factors. So in a channel sense, in this sense of push and pull marketing, we say the restaurant owns the customer. You go to that restaurant because it's that restaurant, not because of the kind of soda that they sell. That gives the restaurant a lot of power. If Coke or Pepsi want to sell to that restaurant, that restaurant gets to decide which one they want to use. And they can take whichever one gives them the best price or whichever one gives them the best service or whatever other factors. Neither Coke nor Pepsi will have brand power with consumers that they can use to leverage in that situation. 6

7 So that's a classic push marketing kind of situation. The channel member owns the customer. We as the marketer therefore have to give the channel member incentives to push our product versus our competitor's product. And that's the only way we're going to win in the marketplace, because whichever product the channel member pushes, that's the product the consumer will buy. Now, let's think about a supermarket. In a supermarket, there's Coke and Pepsi both on the shelf. And we don't go to a supermarket necessarily because they have Coke or Pepsi. But generally supermarkets will have to carry the different brands that people want or they'll stop going to that supermarket. So, supermarkets will carry both Coke and Pepsi. Therefore, they'll both be available. And consumers will have a choice. They are Coke and Pepsi's advertising. Their pull marketing, their brand building will create much more power with consumers. Because the channel, the supermarket knows that there'll be a preference on the part of consumers. But that doesn't mean that there's no push marketing in supermarkets. Because in fact, supermarkets know there's a lot that they can do. Where they locate Coke versus Pepsi in the store. How much shelf facings they give to Coke or Pepsi. Whether they do a special end of aisle display for Coke or Pepsi, can influence consumer choices even though they might have preferences. Some consumers will be very loyal and buy Coke or Pepsi no matter what the store does. But many consumers will be influenced by what the store does. So the store gains power by these different instore activities. And that creates a need for both Coke and Pepsi to do a tremendous amount of push marketing even in the supermarket situation where their brand power creates some pull, but they also have to do push marketing. So the restaurant is a place where pretty much, it's a push marketing situation. But the supermarket is a place where it's not an either or push or pull, it's a both. Coke and Pepsi want to create pull to create power in the channel, create demand for their products. But because of the realities of the buying situation and because of the power of the retailer, they also have to do push marketing. So this is very much about channel members being both partners in terms of working with you to sell your product to consumers, but also competitors for profits. Where when they have power over that consumer, they can use that power to get more of the margin out of the value chain and reduce your margin. So we as marketers have to understand the role of push, how much we have to incent the channel to push our product, but also the role of pull to create power within the consumer, within the channel to deliver both, end consumer value, sales, as well as a bigger share of that value chain channel pie for us. 7

8 Transcript: Minimizing Channel Conflict Up until now I've been emphasizing some of the things that lead to channel conflict. That we have different organizations in a value chain. Each sort of fighting for their share of the pie. Quite often marketers want to disintermediate. To cut out the middleman, so to speak. To get more of the value in the value chain. We have channel members retailers who want to own the customer. Who want to do things in store to create power over the customer choice? To demand push marketing dollars from marketers. And we do have this, we have to understand that a channel, a value chain is made up of multiple organizations. Each trying to optimize its own situation of the value chain and its own profitability. But there is another side to that. That we have to figure it out a way to cooperate as channel members. Because every channel is part of a value chain. By which one value chain is competing with another value chain, to provide an end superior value proposition to the consumer. And if the value chain that we're part of isn't working well. The end value at the end won't be superior to the customer and therefore the overall pie, the overall amount of sales, amount of profitability available to split up between the channel members will not be maximized. So every channel has to think about ways of providing co-operation. Ways of overcoming the inherent conflict there is in general relationships. And, there's different ways to do that. One of those is sometimes as the channel member who have so much power. Sometimes Walmart and Carrefour create so much power in the channel that they can enforce, different mechanisms to allow the channel to operate very efficiently. Other times, there might be contractual agreements between channel members. Long standing agreements to make sure that this is a long-term relationship. And since it's a long-term relationship, people will balance out, trying to maximize what's best for their own organization versus trying to get reciprocity in making sure they're having a smooth relationship with the other channel members. Sometimes there will be incentives between channel members to try to create smoothness because everybody realizes that making the pipe bigger is better for everybody. So there is different answers for different channels. But it is important to realize that even though a lot of the strategic issues lead to conflict between channels. There is a very large need for cooperation. For a channel, as a supply chain, trying to optimize the value proposition to the end customer, the end 8

9 consumer. The channel has to work together efficiently to compete with other value chains that might be trying to provide the same value to the consumers. And this is a balance that's important for marketers to think about. Transcript: International Expansion I want to turn now towards international marketing. And to think about international marketing like a marketer. And in the end, I want to move towards global marketing. But before doing that, I'd like to talk about international expansion. Why do we market internationally in the first place? An international expansionist's particular view of international marketing. Where it says why do we go into other countries? What are things that motivate us to move out of our home market, into other countries where there might be difficulties of logistics and legal and cultural and other difficulties? Well there's usually three different reasons that we should think about in terms of why we're moving to other countries. The first is to lower costs. That in our home market, we've done the R & D, we've brought production online. We've tested. We've done lots of things to have a successful product or service. We can leverage that investment, and also potentially gain production economies of scale by moving into other markets and increasing our sales. So we can increase profits by lowering the average cost of each sale by spreading our cost over more sales. A second reason that's related but different is just getting more sales. Getting growth by moving into other economies. And thinking about, well, what economies might be right. And one of the first things we think about with that is growing economies. Can people in other economies afford our product or service? So one of the first things companies look at is per-capita GDP. That for different products and services, it requires different levels of GDP before people will really buy enough of a certain product. So particularly with, for example, durable goods. Well cars, dishwashers, televisions. There are certain GDP points. $1,000 a year per household, $3,000 a year, $5,000 a year, $10,000 a year. Where different kinds of goods tend to move in a more rapid growth rate into those kinds of economies, because more and more consumers are able to afford those products. So, take for example the Apple iphone. First introduced in the US. Went very rapidly to Europe, and then moved to Asia, moving from more mature markets to more of the growing markets. And people think of the iphone as one of the great success stories of 9

10 the last ten or 20 years in terms of marketing a new technology which, in fact, it has been. But it hasn't always been smooth. When the iphone moved into Japan, very successful. But a lot of difficulties when it moved into India and China. The iphone is a very premium-priced, a very costly product. You move into more developing economies with lower GDP, lower price points, the competition gets very different and consumer value propositions what consumers want in terms of the latest, greatest product versus the price they're willing to pay changes a lot. So, for example, the 2013 launch of the iphone 5C is very much a response to that kind of an issue to say, well we want to be able to sell an iphone but we have to make sure we're thinking about what's the right price point in different markets. Because consumers are different, competitors are different, and therefore the value of proposition we have to provide in those markets is quite different. The third and last reason why we'd market in other countries is just growth. Quite often, our home market, particularly if we're in a developed country, might be mature. There might be very few growth opportunities, and the growth opportunities might be in other areas. So Coca-Cola in North America. Fairly stagnant market for soda sales. Coke can grow in other kinds of product categories but less so in soda. So the growth opportunities are in other economies that are either less developed or have growing economic conditions that allow for more growth. So, very important reasons why we as marketers look to other markets. For growth, for economies of scale, for increased profitability. Transcript: Global Marketing An aspect of international marketing, very different than the international expansion decision, is the global marketing decision. Global marketing is not so much about how many markets we should be in, but rather what's our approach to those markets. If we're in a number of different countries, and we're thinking about marketing across those many different countries, how standardized should we be? The idea of global marketing is to standardize. To have the same product, the same pricing strategy. The same advertising. The same distribution strategy. The same positioning, the same brand, in many different markets. To taking advantage of economies of scale, and other kinds of things, to go after a more global market. The idea behind the global market is that similarities between people, between consumers across markets in terms of what they care about. The value proposition they're looking for is getting more and more similar. The idea of the quote unquote global village from 10

11 Marshall McLuhan, that technology and travel and other kinds of things are making the experiences we're having. That we all watch the same news. That when disaster happens or war happens or a royal wedding happens in one place around the world everybody around the world can watch and experience those things together. And we're usually experiencing them through technology. And we all experience technology and new technologies and products in similar ways. So, that consumers getting much, much more similar. And, therefore we as marketers can take advantage of that by having more efficient standardized marketing approaches. So, despite more and more marketing being global, for these reasons, I'd also like to mention that there's many problems. And many marketers that have gone to the standardized global marketing strategy have had issues where they've had to retreat from that. Well, why is that? Well, despite many similarities around the globe, the Global Village idea, there still are, in fact, many differences. Different languages. Different cultural beliefs. Different legal issues around what you can and can't do when you're marketing. Different infrastructure for channels. Different competitors. A long list of things where different markets around the world are, in fact, very different. So, these differences require us to think about changes to marketing strategy and that could be any aspect of marketing strategy. Prices could be different because of different channels and different logistical issues in different markets. The product could be different because of different cultural preferences for different kinds of features. Advertising could be different because of different languages or other kinds of factors. So global marketing is very much about what should we standardize and what should we customize. Not just should we standardize or customize. But where can we take advantages of economies of scale and similarities around the world to be more effective marketers. And where do we have to be sensitive and customize our marketing strategy, our product strategy or other aspect of what we're doing to the very real differences that we find in different markets. Transcript: Entering New Markets In this section, I'd like to talk about entering new markets, thinking about choosing the specific markets we want to enter. And separately, I'd like to make a distinction about this, choosing how we enter those markets. First let's talk about choosing the market we want to enter. Like any other marketing decision, we need to think strategically about different elements in what makes up an attractive market. What are the customers like? What are their demands? What's the competition like? What's going to happen if we 11

12 enter the market, and how our competitors can react? And what are other contextual factors that might influence what the right strategy is? First, it's important of course to think about customers. What value propositions do they seek? What benefits that we can provide, or what benefits that it would be difficult for us to provide, are those particular customers looking for? That might relate to things like infrastructure. Do they have different kinds? If we're a detergent manufacturer, do they have different kinds of washing machines? Do they have different habits in terms of what they want out of clean clothes? In some areas, clean clothes means just getting dirt out. In other areas, clean clothes means how fresh they smell or other aspects of cleanliness that might lead to very different value propositions for different products. Secondly, competitors. It's very often that we go into different markets, we'll meet different competition. And quite often, we'll meet entrenched local competitors who will do much more to defend their own turf than they might do to compete in other markets. So, we have to be ready for this. How will they react to our entry? What are their strengths? But in particular also, what are their weaknesses? Because quite often, when we go into particularly less developed markets we can go in as the quote unquote, international brand, the premium brand. A more sophisticated technological brand. And as long as we can deliver on that promise, we can quite often have a very strong competitive position against a local competition. And lastly, we also have to think about contextual factors. Legal and regulatory environment and other kinds of constraints about what we can or can't do in that market that might be very different than the kinds of things we can do in our home market or existing markets. So thinking about our strategic position, thinking about how our value proposition will play out in that market is very important in thinking about what's the right market for us to enter. But what I want to do is contrast the right market for us to enter with how to enter the market. Now of course this is related because choosing the right market to enter has to do with, is there a good way to enter that market. But the things we think about and how to go about entering a market a little more over time, and a little more risk-related than whether that's a good market over time to enter or not. So let me talk a little bit about how to enter market's decision, and then, bring back and contrast that with the where. So when we enter new markets, quite often there's a couple of things that drive our strategy. The first is uncertainty. We think we know what our competitive position might be. We think we might have ideas about how local competitors might react but we're not sure. That creates a relatively high risk situation. 12

13 To lower that risk, we usually want to lower our initial investment. To lower our initial commitment to that market in case we're wrong. Secondly, when we enter new markets we quite often lack knowledge. We might have done some work and some research and think we know about the customers. Think we know about the channels and things like that. But we haven't been on the ground, we haven't experienced it. So quite often, we use local partners because they have knowledge of customers, they have relationships with channels, and they have other things that will help us in entering the market. So one of the ways we lower risk is not by doing a direct investment. And one of the ways we don't do a direct investment is by using local partners. So we use them both for the financial reason but also for this very important knowledge strategic reasons. Of course, not doing the initial investment and using local partners means our margins will be less. We'll have to give margins to those organizations to induce them to work with us in entering the market. So quite often, as we start to gain confidence in the market, we gain sales, we gain local knowledge, we want to get more of that margin back. More of that profits back. So over time, we invest more. We put more manufacturing into a country. We put more of our own sales force into a country. And other kinds of direct commitment investments that might raise our costs, but also will increase our margins in a way that will usually increase our overall profitability. So we think over time, how are we entering a market. What are the things we need to do initially, and how do we lower risk but also be effective in entering a market. And then how will we expand over time in ways that will increase our profits? So two things to think about, they're related, but very different. Which are the most attractive markets? But also within the most attractive markets, what's the right strategy to use in entering those particular markets? Transcript: Organizational Structures for International Markets In this section, I'd like to talk about organizing for international marketing. How do we set about setting up our marketing organization and the support behind that in terms of manufacturing, distribution and other things to take advantage of the needs of a global marketplace? Well there are really very different dimensions that affect this. And two are, I'd call them, what I think those central ones that lead to four different organizational types that we find in the marketplace. The first of these pressures is the need to lower costs. That sometimes the pressure for economies of scale, the pressure to standardize the different products or services or 13

14 marketing activities or pricing or other kinds of things, are very high because we get such strong economies that unless we standardize things we won't be able to get a superior value proposition. A second dimension is, how much are the really very real differences such that the needs in each area require some localization, some customization of our product, or something about our product to meet those very different needs? And if we link these two different pressures, the amount of cost pressures we have to realize economies of scale, and the amount of localization pressures that we need to meet different market benefits desired, we get a matrix with four quadrants. In the upper left quadrant, where cost pressures are very high, we really need standardization. We really get benefit from standardization, but the need to meet specific differences in local needs is low, and we don't have to really customize for those different local needs. We get what are really truly global marketers, marketers who say, I want to standardize around the world. Because if I do that, I can get economies of scale, and I won't have a problem because the differences in local needs are not that great that they outweigh the benefit I get from those economies of scale. The classic global marketers cope, building a single brand around the world. Sure, do they have to customize a little bit in different places? Yes, they have to do that. But in many ways, they're able to get the benefit of having a lot of centralized power that land other corporate headquarters. It really thinks about a global strategy, where they can go to the marketplace with one general strategy around the world and get the benefits of having that one strategy. And since Coke is enjoyed around the world, in many similar ways for many similar reasons, that is not offset by pressures for customization at the local level and on many dimensions. A second approach, as we move down to the lower left, is what's called international exporter. Instead of taking a global approach the international exporter says I have a home market. I'm successful in the home market. And what I'm creating in this home market is actually desired in other markets around the world and I'm going to get extra profits by going internationally. Apple, I think, is a good recent example of that. Apple's an American company that developed extremely successful products in the United States and then has to become even more successful by exporting those products overseas. Like many companies that are international exporters, it starts in the home market and most products are launched in the home market, but then, a lot of extra profits are gained by exporting those products overseas. If we move down to the lower right, we have marketers where there's a much higher need for localization. Where you operate in markets where the demands are very different, so different products or different kinds of marketing campaigns or other things need to be done to meet the needs of the local marketplace. But cost pressures aren't 14

15 that great. Therefore, you can really do that localization effectively, because you don't need the power of economies of scale. Either because each local market is big enough, or because of the nature of the product you're marketing means that the specialization you get from localization outweighs any benefits you get from massive global standardization. Nestle is a great example of such a company. Nestle has different operations around the world, a very small, central marketing organization, very small amount of power and headquarters, that coordinates and gets the benefit of these different local organizations. A lot of power in the local organization to meet the specific needs of each market. Because the different kinds of consumer products that Nestle sells have very real needs that are different in different markets. Different cultures, different languages, different behaviors around washing, around eating, around different kinds of things that Nestle wants to make sure it s being sensitive to. So sure, they'd want to get economies of scale when they learn something in one location they want to transfer it to another location, and they want to get, benefits of standardization where they can. But a lot of power in Nestle rests in the local organization to do what's needed to meet the needs of that local market, which is very much in contrast to Coke where a lot of power rests in the central Atlanta organization to do things in a standardized way around the world. The last quadrant in the matrix is the most difficult. What if there are very real needs for economies of scale, they really can drive cost down, cost and things that are in the way that are important to that product or service. But there really is a lot of need for localization. There really are different benefits wanted in different markets. That makes it difficult for how do we organize? We can't have centralized power, it'd be too standardized, but we can't have too distributed power cause then we're too localized and costs will go up too much. So that's what's often called the transnational organization. A need for a matrix organization. Where there's both local management, local market managers who have a substantial amount of power to meet the local needs, but also global market managers looking around the world to try to get, where possible, the very real needs for standardization. Obviously very difficult to pull off. Phillips is often used as an example of a company that has a very effective matrix organization where they can balance those needs for global standardization against the very really needs in their markets a lot of electronics, a lot of appliances where markets have different infrastructure and different cultural needs. So how can we adapt those different needs, and how can we balance getting standardization, but meeting the needs for customization as well. A very difficult place to be in, but if you do it well, one where you can beat the competition because you've managed to do that balance better than the competition has. I just want to point out that most companies, and you might think about your company, they look like international 15

16 exporters, they have a very important home organization that most R & D most initial new product development is done in the home market. And then, there's what's often called the international organization that takes those products and services and, gets additional profits, additional economies and scale by marketing them around the world. But that's changing. Because markets evolving, markets are getting more global. So the need to think about how to organize. How much of the marketing organization, how much of the power should be centralized, to get the benefit of standardization versus how much is needed in different areas to be able to localize and meet the needs of very real differences across markets is evolving. And so it's important for marketers to think about not just how am I approaching markets, but how am I organized to approach those markets, where's the power, where are the market managers located and how are they focused on this balance of globalization versus localization? Transcript: Customizing Standardizing and the Four PS Up until now we've been talking pretty generally about standardization versus customization. What are the cost pressures? What are the local market pressures? What are the different things that need attending to, in terms of marketing strategy in terms of thinking about customization versus standardization? But, what I want to point out is, it really comes down to specific marketing activities and where do we need to focus on the needs of local markets and where do we not have to do that and get the benefits that you get from standardization. And we can think about that in terms of the standard marketing four Ps. How much does the product have to be customized versus how much do we get economies of scale by making the same product and selling that product in many different markets. How much do we have to customize our pricing strategy, our branding strategy, our place, our promotion? And I'd like to bring out the creativity that can come in and that we really do have to think about all four Ps by an example, and that's the Oreo, my favorite cookie. And most people know the Oreo. The Oreo is two chocolate wafers with a very sugary and sweet white middle. And why do I use the Oreo? Because it's anti what I think most people's intuition is. Most people's intuition is that what we do is we standardize the product. We take one product and we get a lot of economies of scale in production and other kinds of things by making that one product in a very standardized way. And then we get a lot of sales by selling that around the world. But in terms of promotion, we quite often have to customize promotion at different languages, in different cultures we need different advertising. We need different iconography on packaging, and things like that to meet 16

17 the needs of local cultures and local languages and things like that. And that's true that quite often we get standardization in product, but we do customization on promotion. But Nestle Oreos is actually the opposite of that. The product has to be very customized. If you think about an Oreo, the chocolate wafers are a certain kind of cookie and the inside is very sweet. Oreos started out, they're an American cookie. Americans like sweetness. So what do we have in America? We have double stuffed Oreos. Oreos that have twice as much sweet in the middle. And what could be better than more sweetness? So, very popular product in America, but in other cultures that's not so popular. For example in Japan, the Oreo was introduced in Japan. People liked the wafers, but the Japanese, for a number of different historical reasons because of their foods that they like, don't like sweetness as much as Americans. So the middle was not as attractive to Oreos, and in fact, Oreo sold only the wafers as an Oreo cookie for a while without the inside at all, which to Americans would be almost sacrilegious in the sense that that's the best part of the Oreo. So the product had to be customized. What's very interesting about the Oreo example is the brand wasn't, the promotion wasn't. It was positioned in the same way, with the same kind of branding, with the same kind of iconography around it, as an American cookie. And around the world you'll find Oreos sold in a very similar way. But actually, with somewhat different products that are very adapted to local needs. So I think it's a great example of thinking about the four Ps. Not just falling into, well, let's standardize our product, and then let's adapt other things. But really thinking about which P's can you get benefits from standardization. And which Ps can you get benefits from customization. And how do you put those things together, to have the most effective marketing strategy for your product and your markets. Transcript: Adapting Channels Finally, I'd like to bring together the two elements of this course. Distribution channels and international marketing. Because we've talked a lot in international marketing about standardization and customization, and the need to balance those in strategy. Well, when we think about distribution. When I started the course I tried to emphasize a value chain. Different organizations coming together to be effective in providing value to consumers. And quite often we can't do all of these things in our own organization. We need those other organizations. We need the distributors and the retailers and the other members of the value chain. They help provide a superior value proposition to the end consumer. And when it comes to international marketing, that is very true. Because in different markets around the world, the distribution systems, the retail systems, the 17

18 needs of consumers have grown in very different ways historically, economically, culturally, to things that have led to us as marketers needing to adapt to those differences across countries, and therefore having to customize our marketing in terms of our distribution strategy. I'd like to give just two examples of those kinds of needs. The first is, Japan. Japan is well known for having a very long supply chain in terms of its wholesale, retail, distribution network. There's a lot of historical reasons for this, but these are very powerful relationships that are very important within that economy, within that culture, within that society. And therefore going to Japan, and trying to build a distribution system that goes against that established local system, is very difficult. A number of European and American marketers have had difficulties because they've tried to do things in what they think is a more effective efficient way. But one that doesn't meet the needs of that local economy. A second example is India. India is a country that historically has had many, many, many small merchants that are very local and very close to their customers. Very often unsophisticated and actually very high-cost distribution system. But very important within that economy, within that culture, within the history of what's going on in India. So even though some Western retailers and other marketers have tried to enter India to do more efficient and other more what they consider modern marketing, it's quite often met up against this traditional distribution network, and had difficulty doing so. So, as marketers, we really have to think about strategically what are the benefits. But also what are the needs of going into different markets around the world. And I hope you've gotten away from this section, the balance of customization versus standardization. In how we think about markets, and how we organize ourselves to go to market. And how we think about each different aspect of our marketing strategy, in terms of what we should standardize and what we should customize. Transcript: Thank You and Farewell Thank you for taking this course, I hope you found it useful. I hope the discussion of channels and thinking about channel members as both competitors as well as partners in providing value to consumers has been useful for thinking about your channels. And thinking about ways to think about how to make your organization as effective as possible, your value chain as effective as possible. 18

19 But also thinking about how your organization gets the most profits within providing consumer value. I also hope the discussion of international marketing and different ways of thinking about it, thinking about standardization versus customization, global marketing versus which market should you go to. International expansion, has helped you think about international marketing in different ways. Ways that help you help your organization be more efficient and effective. 19