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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Guillermo C. Jimenez
Many companies begin their international operations in response to orders from a particular market; others, from the need to match a competitor’s lower-price foreign manufacturing. However, as firms grow internationally it becomes necessary for them to acquire competence in strategic international marketing.
International marketing consists in screening the world to find the most promising markets and then adapting specific marketing strategies to optimally penetrate those markets.
Many firms with success in domestic marketing have failed to execute successful product launches in foreign markets. These prominent marketing failures indicate that international marketing is a difficult and important challenge even for the most sophisticated corporations.
The first challenge of international marketing is to select the most appropriate target markets, which is sometimes referred to as market screening. This requires the firm to conduct international market research. The firm must also select the best market entry mode from among the various alternatives (i.e., sales office, agency, joint venture, subsidiary, etc.).
In light of the characteristics of the foreign market, the firm must decide to what extent it will be necessary to adapt the “marketing mix”. In some markets, it may be necessary to adjust product quality or packaging. In other markets, pricing structures must be adjusted. It may also be necessary to adapt marketing message, advertising, and distribution strategies.
In some markets, legal and cultural constraints prevent certain kinds of advertising. Controversial or offensive advertising may also run afoul of local or international codes of advertising ethics (such as the Consolidated ICC Code).
Marketing is often defined as selling:
These factors (the “Four Ps”: Product, Price, Promotion, Place of distribution) are called the marketing mix. The art of marketing is to adjust the marketing mix to enhance profitability.
The art of international marketing is to adjust or adapt the marketing mix, as necessary, to a more complex, international environment.
Below we explore a few examples of how the marketing mix may be adapted.
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The product itself may require adaptation for international markets:
> Product Quality
As international marketplaces become more competitive, it has become increasingly important for international marketers to project and maintain an image of quality. There are two kinds of quality: performance quality (a product’s technical specifications) and market-perceived quality (how a consumer perceives a product). One of the complexities of international trade is that a product may have exactly the same performance quality in two countries, but be perceived differently by consumers in the two markets. Take the example of a mid-range Mercedes automobile. In Germany the product will be perceived as a rather ordinary car, while in many part of the U.S. it will be perceived as an upscale or premium product, and in most developing countries it will be perceived as an ultra-premium or luxury product. In each instance, the local marketing messages should be tailored for local consumers.
In international trade, it may be a challenge for a company to maintain a quality image, because the goods can be damaged in transit, or poor service by foreign distributors can ruin consumer perceptions. Thus, there was a period of time during which Russian consumers developed a poor perception of chocolate products marketed by top Western firms — because the product was often so damaged and deteriorated during the distribution process that it was unattractive when ultimately purchased. For this reason, Volvo insisted on shipping automobiles pursuant to DDP Incoterms® (Delivered Duty Paid), which normally requires the exporter to absorb greater cost and risk. Volvo was willing to do so because it wanted its product to arrive in perfect condition, and was willing to go to additional expense to assure this quality.
In some cases, local regulations require a product to be adapted — this is referred to as product homologation. The U.S. state of California has become famous for its consumer-protection laws and regulations which require products to be homologated, even those coming from other American states.
> Product Attribute and Benefit Segmentation: Cultural Effects
It may be helpful for international markets to consider their product as a bundle of possible satisfactions. These product attributes or benefits can be separated or segmented, with marketers focusing on different benefits in different markets. Thus, at one point in time Dannon yogurt was simultaneously marketed in the U.S. as a “healthy” food while in France it was marketed as a pleasurable indulgence akin to ice cream. In a similar instance Diet Coke was marketed as Coke Light in Japan (and in France, as well) because the local consumers didn’t respond positively to the idea of dieting, but did want a no-sugar drink.
Rule of thumb for adaptation: the greater the cultural differences between two markets, the more likely a product will require adaptation. An American product may not require adaptation for the Canadian market, while it might require substantial adaptation for a culturally- or geographically-distant market such as Nepal or Saudi Arabia. When Shiseido first tried to market cosmetics in the U.S., it used Japanese lines that required a time-consuming series of steps (Japanese cosmetics brands market their skin care products as a comprehensive six- or seven-step process). Although this was standard in Japan, it was off-putting to American consumers.
> Packaging component
A leading detergent manufacturer found that its leading product was not doing well in a particular developing country. Market research revealed that given the lower purchasing power of its target market, many customers preferred to buy detergent in smaller amounts. Moreover, a good number of customers did their washing in open or communal environments that were very wet, which made the traditional cardboard-box packaging of the company unattractive. The company’s response was to provide single-use packets of detergent in plastic packaging.
Some countries value packaging and presentation much more than other countries. In Japan, one company found that its computers were returned when the plastic[Page205:]wrapping for the instruction manual was slightly ripped. In some East Asian countries, a company’s red-circle trademark was rejected as being reminiscent of the Japanese flag. In China, diapers packaged in pink wrapping were rejected because they were felt to be feminine, for female babies only. Product labelling laws also vary substantially — for example, in Venezuela labels must bear the product’s price, but in Chile this is illegal.
> Support services
Sometimes the service aspect of a product is as important as the product itself (e.g., Swiss watches, Four Seasons hotels, LL Bean repair service).
International price decisions can be looked at strategically (pricing as an “active instrument”) or mechanically (pricing as a “static element”). Companies that view pricing as a static element are likely to encounter difficulties in international expansion. Depending on foreign market conditions, pricing may or may not be fully under a company’s control.
Full-cost pricing treats international sales like domestic sales, in that the final price is based on total costs (fixed + variable costs) plus margin. With variable-cost pricing, the firm’s international pricing is only based on the marginal or incremental cost of producing goods for the foreign market. With variable-cost approaches, the firm may choose to look at international sales as a “bonus,” and so do not need to fully factor in all fixed costs (e.g., amortization of investments in manufacturing, inventory, training, etc.).
> Skimming and Penetration Pricing
Skimming involves charging a relatively high price in markets that are price insensitive and willing to pay premium prices. This was reputedly the policy of several foreign brands in the Brazilian diaper market before P&G arrived and introduced stronger price competition. Penetration pricing, conversely, involves charging low prices in an attempt to stimulate market growth or capture market share.
> International Price Escalation
As a general rule products are more expensive in foreign markets than in domestic markets — the rule of price escalation. One example is that of an American-brand pacemaker which cost US$ 2100 in the U.S., but after import tariffs and intermediary markups were added on, was marketed in Japan at a price over US$ 4000.
Among the elements that lead to international price escalation are:
> Transport, trade finance and insurance costs
> Taxes, tariffs and administrative costs
> Inflation
> Exchange rate fluctuations
> Middleman/Intermediary Costs (Campbell’s Soup at one point estimated that its UK distribution costs were 50% higher than in the U.S.).
> Product adaptation expenses
Since the trend toward price escalation is one of the essential features of the international trade marketplace, exporters have been forced over time to develop strategies for mitigating or eliminating price escalation. Among these are:
> Lowering manufacturing costs a common tactic is to begin manufacturing in a third country to lower costs;
> Seeking lower tariffs , also known “duty management” (Example: in one notable instance of the impact on duties on costs, U.S. customs was challenged when it classified a US$ 2.7 million Faberge egg as “jewelry” rather than as “art” — the difference in customs duties was between a tariff of zero or of US$ 700,000);[Page206:]
> Products can re-engineered to lower tariffs (i.e., manufactured with materials or components that are assessed a lower duty or which can enter the foreign market duty-free);
> Lowering the costs of using distribution channels shortening distribution and supply chains.
> Using Foreign Trade Zones (FTZs) By importing goods into an FTZ , a company can control price escalation by postponing the payment of customs charges and duties. When goods are assembled in an FTZ , the labour costs are not dutiable.
> The Problem of Parallel Imports
With parallel imports (also referred to as “grey markets”), a company faces price competition from within the company’s own network of distributors. The situation develops whenever there is large price differential between a company’s products in different countries. This price differential tempts profit-seeking importers to buy products from distributors in “cheap” markets and to sell them to unauthorized distributors in the more “expensive” markets.
Large brands and manufacturers are often extremely unhappy about parallel imports but find there is little they can do about them, because in most cases the practice is legal.
Tourists are often among the first agents to get involved in parallel imports. Amongst the markets that are prone to grey market competition are the luxury, perfume and designer goods markets. To maintain an image of quality in each country, the products in these industries are priced at the upper end of the scale, but due to differing national economic conditions, this leads to a wide range of prices internationally. Thus, wholesale prices for prestige fragrances in the U.S. can be 25% greater than in other countries, leading to an incentive for grey market imports. In the U.K., the large supermarket chain Tesco has repeatedly angered apparel and sportswear companies by engaging in parallel imports that allow Tesco to undersell authorized distributors. In one instance, Tesco’s Nike Air Max Metallic trainers were priced at US$ 80 while sports shops carried them for US$ 196. Tesco had purchased a large supply of Nike sportswear from overstocked wholesalers in the US.
A few countries have placed some legal restrictions on parallel imports (Taiwan, Hong Kong, Middle East, Australia), but the EU and U.S. continue to allow the practice. One important exception in the U.S. is that parallel imports which have been in any way altered, as by the removal of a bar code or product identification code, may be blocked as infringing upon the brand’s trademark.
> Dumping
Dumping is a price-related phenomenon which is perennially one of the most controversial international trade issues. Many exporters claim, for example, that when they export to the U.S. it is too easy for competing U.S. manufacturers to claim that the foreign exporter is dumping products in the U.S. (selling below cost so as to obtain market share or damage competitors) and it can be a great inconvenience for the foreign exporter to prove that they are not dumping.
Marginal (variable) cost pricing can lead to disputes when the importing country claims that the products are being dumped. Dumping is defined as selling goods in a foreign market at below the price of the same goods in the home market, or below the cost of production. WTO rules allow countries to charge a penalty, a dumping duty, to prevent the negative economic impact of dumping. Assembly in the target country is one of the strategies that vulnerable exporters use to avoid dumping charges.
> Transfer Pricing
Goods are often exported between a company’s network of subsidiaries and/or joint venture partners. In these cases, the prices can be manipulated via intra-company pricing or transfer pricing to enhance the ultimate profit of the company. For example, duties can be lowered by shipping goods into high-tariff countries at minimal transfer prices. Incomes can be reduced for income-tax purposes by shipping goods into high-tax countries at high prices — profits are thus shipped to low-tax countries. [Page207:]
However, it is very important to realize that national tax authorities are well aware of these tax-reduction strategies and therefore have a number of tax and customs regulations which constrain the extent to which transfer pricing is available.
> Leasing and Countertrade — Additional Strategies for Managing Prices
Foreign equipment leasing allows manufacturers to maintain high prices even in markets that are still developing. The manufacturer, or a leasing company, steps in to finance the lease.
Countertrade involves taking partial or full payment in goods rather than in cash. In one instance, the Pepsi brand sold soft drinks to Russia in exchange for Stolichnaya vodka, which Pepsi then sold in the West (the exchange proved quite profitable for Pepsi).
When most people think about product promotion the first concept that comes to mind is advertising. But in practice the promotion field is much broader than just advertising, and is therefore referred to as integrated marketing communications, which comprises also: sales promotions, trade shows, personal selling, direct selling, public relations, digital marketing and social media.
> Cross-cultural Challenges
The size of the global advertising market has been growing faster than global economy for many years. The global advertising market reached nearly US$ 600 billion in 2016. Cross-cultural communications theory provides a framework for understanding why so many companies make mistakes in their international marketing. The process of international communication includes:
Most mistakes in international marketing arise because of failure to account for cultural influences in one of the above steps. For example, in the encoding step — the marketer wants a product to convey coolness, so the colour green is employed; however, people in the tropics might decode green as dangerous. Colour associations are notoriously culturally diverse. While the colour white conveys purity in many Western cultures, in Asian cultures it is frequently associated with mourning. Example: De Beer Diamonds used stylish ads featuring ‘shadow’ figures to convey wedding and anniversary gifts, but these were decoded by Chinese consumers as evoking associations with ghosts and death.
> Linguistic limitations
One problem with trying to standardize brand names worldwide is that words that are innocent in one language sound silly or dirty in another language. Thus, Bacardi tried to sell a drink called Pavane in Germany, but the name sounded to consumers like the German word for baboon (pavian). Tropicana tried to use the Puerto Rican term for orange juice (jugo de china) in Cuba, where it confused consumers who understood the term literally as “Chinese juice.” Low levels of literacy and linguistic diversity in some countries make standard advertising more difficult.
Two techniques for improving the reliability of translations are back translation (translating a text back into its original language) and parallel translation (using two or more translators on the same text and then comparing their translations). A further refinement offered by marketing consultants and translation agencies is localization, in[Page208:]which care is taken to adapt usage to the specific local version of a widely-spoken language. For example, in a pan-Latin American marketing campaign localization would make sure that the same text could be used in Mexico, Colombia and Argentina, for example.
> Cultural Diversity
There are many examples of advertising failures due to lack of cultural knowledge: General Mills introduced cake mixes to Japan by promoting that they are as easy to make as rice — but Japanese homemakers believed that preparation of rice required some skill. P&G’s first advertisements for Pampers in Japan failed because they used an animated stork delivering diapers (a common infant’s story to explain childbirth in the U.S., while in Japan similar stories feature giant peaches that bring babies, not storks).
> Self-Reference Criterion (SRC) and Country-of-Origin Effect (COE)
One of the main obstacles to international trade is that people (including marketing executives) tend to interpret new situations in terms of their own cultural experience, and therefore fail to anticipate crucial differences which may impact the firm. This “cultural myopia” is referred to by international marketing scholars as Self-Reference Criterion (SRC): the assumption that the foreign cultures will be receptive to marketing strategies that have proven successful in the home market.
A related concept from the consumer’s perspective is Country-of-Origin Effect (COE). Consumers associate different countries with different levels of product quality in different market sectors. Thus, for example, French wines, Italian shoes, Swiss watches, and Japanese and German automobiles are renowned for their high quality (though these perceptions evolve and change over time).
Certain countries known for the high degree of international attractiveness of locally-produced goods, such as Italy, France and the U.S., place strict regulations on the ability to use the “Made in Italy” or “Made in USA” label.
International Marketing Failure — Case Example: Paris DisneyA frequently-cited case in which a major company failed to anticipate difficulties due to Self-Reference Criterion and Country-of-Origin Effect is the decision by the Disney Corporation to open a theme park in Paris in 1991. After developing two enormously-successful theme parks in the US, Disney’s first foreign venture was in Japan, through Tokyo Disney. In order to reduce its risks, Disney chose to structure the Tokyo operation as a licensing arrangement, in which Disney took on few of the risks of financing and construction but received a guaranteed royalty stream. As it turned out, however, the Tokyo Disney theme park was so successful that Disney regretted not having taking a larger stake.
Consequently, in planning for the Paris theme park Disney took on much more of the financing and operations risk. However, Disney’s marketing planning proved to be such a failure that within two years of opening the Paris theme park, Disney’s new operation faced the risk of bankruptcy. Were it not for a providential cash infusion by a major Saudi Arabian investor, Paris Disney might have had to close its doors.
Marketing scholars have attributed this initial difficult period to Disney’s failure to adapt its marketing mix for the European market. The promotion of the new venture emphasized traditional American values, as it had in Japan, but it turned out that the US brand had a much more powerful Country-of-Origin Effect in Japan than in France. While Japanese customers had been charmed by Disney characters and flashy marketing campaigns, the French (famously skeptical of American commercialism) were turned off. The product itself (the theme park experience) also had to be adjusted in a number of ways, none more locally important than permitting the serving of wine and beer at the theme park’s luncheon venues — not allowed at the US theme parks, but as it turned out, indispensable in France.
The key element for preventing problems related to SRC is simply to be aware that it exists and to always look for its presence as the potential source of any marketing problem. A systematic approach would be to:
Perhaps the best antidote to negative SRC effects is for the company to work consciously on developing global awareness, as by training its executives in cross-cultural marketing and negotiations. A good international marketing executive will seek to develop objectivity (not always assuming that the home-country method is the right way), tolerance (acceptance of different ways of seeing problems in other countries), and knowledge (understanding of foreign cultures, history, behaviour).
> Legal Constraints
In the EU/EEA, consumer protection and commercial marketing and practices show a high degree of harmonization by means of directives.
Data protection and privacy remain prevalent topics in discussions related to consumer protection and marketing. This issue relates to online behavioural advertising (OBA): the practice of collecting information over time on users’ online actions on a particular device across different unaffiliated websites. Among the goals of OBA are to create interest segments or to allocate viewing behaviour for the purposes of delivering advertisements for that web user’s interests and preferences.
The European Union (EU) General Data Protection Regulation (GDPR) was designed to harmonize data privacy laws across Europe and protect and empower all EU citizens’ data privacy. The EU GDPR entered into force in 2016 and will apply from May 2018.
A key aspect of GDPR is extra-territorial applicability, as the GDPR applies to all companies processing the personal data of subjects residing in the Union, regardless of the company’s location. The GDPR includes increased obligations for consent and strengthens data subject’s rights. The new regulation will have implications for databased marketing activities in the EU.
In the US, there is no existing formal legislation at the federal level that regulates privacy and data protection. The tendency has been for the business sector to lead the way, through self-regulatory codes. The Federal Trade Commission (FTC) has, however, been involved in regulating OBA and in 2010, FTC proposed the “Do Not Track” mechanism to regulate OBA. The FTC also enforces the Children’s Online Privacy Protection Act (COPPA), which applies to the online collection of information from children under 13 years of age.
> Marketing Ethics and Codes of Self-Regulation: ICC Code
Consumer advocates and regulators frequently voice critical perspectives on advertising in the U.S. and Europe, particularly with respect to the marketing of controversial products. Tobacco, alcohol, children-oriented, automobile and pharmaceutical advertising have also been a focus of regulators. Conversely, surveys in Hong Kong, Colombia and Brazil indicated that advertising was more popular and viewed more positively there.
New forms of advertising frequently lead to calls for greater regulation of advertising and marketing communications. Currently, digital advertising practices, including OBA, are subject to greater scrutiny and are susceptible to regulation..
With respect to advertisements that are legal but not necessarily ethical, the advertising sector polices itself by applying self-regulatory codes of marketing and advertising ethics.
Advertising and marketing self-regulation is a system by which the advertising, marketing, agency and media industry set voluntary rules and standards of practice that go beyond their legal obligations. Advertising and marketing self-regulation promotes responsible advertising and marketing communications that help create, enhance and preserve consumer trust and confidence in advertising and marketing[Page210:]communications. Self-regulatory organisations (SROs) are responsible for enforcing industry’s commitment to these rules. They offer consumers increased protection and a cost-effective, accessible and responsive alternative to legal avenues. Depending on the country, SROs provide some or all of the following services to their communities: respond to complaints, monitor advertising, initiate their own investigations, give copy advice — all aimed at efficiently helping prevent and correct problems.
An independent and impartial jury/panel is responsible for interpreting the relevant advertising code, once a complaint regarding an ad has been filed by either the general public or competitors. The jury/panel, is the body responsible for issuing authoritative interpretations of the code and considers cases brought to its attention where a breach of the code is alleged. After examining the advertisement in question, the panel decides whether or not to ask the advertiser to remove the advertisement; although advertisers are not legally obliged to follow the decisions of such committees, they usually do.
Self-regulatory industry panels base their decisions on ethical principles contained in codes of marketing and advertising ethics.
The International Chamber of Commerce’s Consolidated ICC Code of Advertising and Marketing Communication Practice (ICC Code) is widely recognized as the international reference and gold standard for advertising self-regulation. Since its introduction in 1937, it has served as the foundation and cornerstone for the codes of most self-regulatory systems around the world.
The ICC Code is based on the core principles of legality, decency, honesty, and truthfulness in all marketing communications. The ICC Code emphasizes that “all marketing communications should be prepared with a due sense of social and professional responsibility and should conform to the principles of fair competition, as generally accepted in business. No communication should be such as to impair public confidence in marketing.” It also sets out rules for advertising and marketing communications for children and young people. The ICC Code provides that “Special care should be taken in marketing communications directed to or featuring children or young people… such communications should not undermine positive social behaviour, lifestyles and attitudes. Products unsuitable for children or young people should not be advertised in media targeted to them, and advertisements directed to children or young people should not be inserted in media where the editorial matter is unsuitable for them.”
Also, “When personal information is collected from individuals known or reasonably believed to be children 12 and younger, guidance should be provided to parents or legal guardians about protecting children’s privcy if feasible. Children should be encouraged to obtain a parent’s or other appropriate adult’s permission”. Further details are provided for in Article 19 of the ICC Code.
The rapid evolution of digital marketing communications means that developments often outpace legislation, whereas industry standards for self-regulation provide the flexibility to adapt to these changes more quickly and effectively. The ICC Code applies to all forms of marketing communications and digital marketing communications are subject to the Code provisions as is the case for traditional media.
The ICC Code includes a dedicated chapter to address this area with specific provisions for OBA, digital marketing communications and children and elaborates on the principle of identification. The need for identification and transparency is becoming ever more apparent, particularly with respect to current digital marketing practices such as native advertising and influencer marketing. Identification is a key requirement for gaining consumer trust. The ICC Code provides that “marketing communications should be clearly distinguishable as such, whatever their form and whatever the medium used.” There is also a need for clear distinctions between marketing communications and editorial content. The FTC also released specific guidelines on native advertising, which it refers to as “the blending of advertisements with news, entertainment, and other editorial content in digital media.”[Page211:]
Self-regulatory codes of ethical and responsible practices help regulate the marketing and advertising industry effectively, protecting the interests of customers while reducing the need for heavy legal restrictions and regulations.
Self-regulatory codes are deliberately framed in general terms, as it can be very difficult to objectively define what types of advertisements can be considered “decent”. It is assumed that standards of decency vary on a national or cultural basis, and in addition are likely to change over time. In this regard, the ICC Code can flexibly apply to any local law and culture.
With respect to decency, the Consolidated ICC Code provides these guidelines: “Marketing communications should not contain statements or audio or visual treatments which offend standards of decency currently prevailing in the country and culture concerned.”
The Code further stipulates the following:
> Marketing communications should be so framed as not to abuse the trust of consumers or exploit their lack of experience or knowledge. Relevant factors likely to affect consumers’ decisions should be communicated in such a way and at such a time that consumers can take them into account.
> Marketing communications should respect human dignity and should not incite or condone any form of discrimination, including that based upon race, national origin, religion, gender, age, disability, or sexual orientation.
> Marketing communications should not without justifiable reason play on fear or exploit misfortune or suffering.
> Marketing communications should not appear to condone or incite violent, unlawful, or antisocial behaviour.
> Marketing communications should not play on superstition.
One of the reasons that self-regulatory codes are supported by the advertising sector is that advertisers and agencies seek to limit the encroachment on advertising freedom which might be threatened by further regulation.
The ICC Code provides a globally acceptable framework for responsible creativity and communication. The ICC and national advertising associations around the world seek to demonstrate to the public and to governmental decision-makers that industry can self-regulate by respecting codes of responsible practice.
An example of the type of advertisements evaluated by self-regulatory bodies is provided by the provocative advertising campaigns of Benetton designed by photographer Oliviero Toscani, such as the “We, on Death Row” campaign, which featured US prisoners on death row. Other Benetton images included one featuring a nun kissing a priest, and another of a man dying of AIDS in his hospital bed. Benetton’s ads were censured in some countries but allowed in others, thus demonstrating that self-regulatory standards are flexible enough to permit enforcement based on local standards of ethics and decency.
Increasingly, firms are designing and marketing their products to appeal to consumers’ environmental consciousness. Europe is a leader in this trend, and the European Commission has developed an “eco-label” to identify products that meet high standards of environmental-friendliness, with approximately 45,000 labels awarded to date. Germany has a similar well known Blue Angel program. A “cradle-to-grave” analysis is used to determine environmental impact for such labels. Care must also be taken to comply with national regulations and advertising self-regulatory codes of conduct with respect to marketing communications containing environmental claims. The ICC Code provides that marketing communications should not contain any statement or visual treatment likely to mislead consumers in any way about the environmental aspects or advantages of products, or about actions being taken by the marketer in favour of the environment. General environmental claims should either be qualified or avoided. In particular, claims such as “environmentally friendly”, “ecologically safe”, “green”, “sustainable”, “carbon friendly” or any other claim implying [Page212:] that a product or an activity has no impact — or only a positive impact — on the environment, should not be used without qualification unless a very high standard of proof is available. Qualifications should be clear, prominent and readily understandable. Further details are available in Chapter E of the ICC Code.
Media effectiveness differs greatly across cultures. As examples of the diverse media landscape that marketers must face, consider the following examples: in Brazil, it has been common practice to string together as many as 10 to 50 TV commercials; in the Netherlands, there are different TV stations targeting Catholic, Protestant, socialist and neutral groups; in Vietnam, advertising in newspapers is limited to 10% of space and on TV to 5% of broadcast time.
Availability: some countries have too many media, others too few; advertisers must adjust. Example: in China, the national TV station, CCTV, auctions one-year rights to broadcast a 5-second billboard ad in its most popular time for huge sums.
Cost: it may be necessary to bargain for ad rates; ad agencies often get to split discounts with the advertiser. Costs for print advertising vary dramatically: in Europe, one study showed that the cost to reach 1000 readers varied from US$ 1.58 in Belgium to US$ 5.91 in Italy.
> Diversity in Specific Media
> Newspapers While newspapers and other print media are under threat everywhere by competition from free Internet news sources, there remains a great diversity in newspaper relevance from country to country. After decades of consolidation most U.S. cities have just one major newspaper, but many countries have so many that is impossible to obtain complete market coverage. At one count Uruguay had 21 daily newspapers while Turkey had 380. An enormous economy like Japan’s has only 5 national daily newspapers.
> Magazines The cost of reaching consumers varies enormously from country and circulation figures may be unreliable.
> Radio and TV These remain the most popular media worldwide. Some countries still limit the availability of advertising.
> Satellite and Cable TV Satellite TV permits low cost advertising but raises cross-cultural marketing issues because it permits broadcasting to many countries.
> Direct mail There are great variations internationally. One key issue is postal regulations, which vary according to national law. Moreover, mailing lists are often unreliable. Despite this, response rates in new markets have been reported as being extremely high, perhaps because consumers were not yet jaded (e.g., in Russia early direct marketers reported response rates as high as 10%-20% opposed to 2% in U.S.). Direct marketing according to the ICC Code “comprises all communication activities with the intention of offering goods or services or transmitting commercial messages, presented in any medium and aimed at informing and soliciting a response from the addressee, as well as any service directly related thereto.”
> Digital interactive media Referred to in the ICC Code as “any media platform, service or application providing electronic communications, using the Internet, online services, and/or electronic and communication networks, including mobile phone, personal digital assistant and interactive game consoles which allows the receiving party to interact with the platform, service or application”. With emerging technologies, various media platforms, and increasingly easy and convenient access to the internet, digital advertising has seen marked growth over the past years with the trend expected to continue in the same vein. New forms of marketing such as influencer marketing and paid blog posts are becoming more prominent. Data collection on multiple platforms and online advertisements that use the data has given rise to issues, such as the lack of transparency between commercial messages and user-generated content as well as issues related to privacy and data protection.
> Other media which may be useful in specific markets Cinema, video vans, sound trucks, cars painted with ads.[Page213:]
> Global Campaign Execution
Increasingly, international marketing has become the responsibility of large international advertising agencies which have grown by acquiring networks of national agencies. The global agencies seek to provide one-stop services to global companies. Firms may have a difficult choice between an international firm and a domestic firm, because the domestic firm may know the market better. Compensation is often based on the U.S. system of a 15% commission to the agency (as a percentage of media buys), but there has been a proliferation of attempts to find better and more fair payment arrangements, such as those involving incentives or time-based billing.
Sales promotions are especially important in developing countries, where other mass media may be scarce or ineffective. Promotions can include in-store demonstrations, free samples, discounts via coupons, premium offers; reduced price and free offers; charity-linked promotions; prize promotions, etc.
Public relations (PR) is well known as a discipline that can help firms smooth over image problems. However, PR is also a very important sensor of impending political trends, and highly positive PR can serve as a form of promotion.
For an example of the cost of poorly handled international PR, consider the Bridgestone/Firestone tyres disaster, where a Japanese-owned firm badly-managed a product liability crisis in the U.S.
Corporate sponsorships, such as those of sporting events, can be a valuable part of the marketing mix.
There are several options open to companies when it comes to entering a foreign market. International marketing professionals must be familiar with the basic pros and cons of each of entry mode.
The broadest distinction is between strategies that the exporting firm performs on its own (direct export, foreign sales office, foreign subsidiary) and strategies that involve cooperating with a foreign partner (agency, distributorship, franchising/licensing, joint venture, strategic alliance).
Case — Choosing the Right Distribution Channel
The place of sale, or distribution channel, may also need to adjusted or adapted.
Consider the strategic analysis conducted by Ben & Jerry’s, a leading US ice-cream manufacturer, as it sought to decide how to enter the Japanese market.
Two distribution channels that were considered were
In the US, Ben & Jerry’s would never have limited themselves to sales through a single store chain. However, in Japan it made sense to do so because of the inherent complexity of the Japanese market and the size of their main competitor (Haagen- Dazs).
> Direct Control Strategies
An exporting firm may handle its foreign distribution entirely on its own. It may do this either by exporting directly to foreign customers, or by directly controlling a foreign sales operation — either a sales office or subsidiary
> Exporting: Direct or Indirect Early exporting is often opportunistic; it may represent an attempt to skim the cream from the foreign market or absorb overhead. The[Page214:]Internet — Some companies that marketed their products on the Internet expected to only do business domestically but found to their surprise that they were receiving orders from other countries.
> Foreign Sales Office An early form of market entry involves staffing a local sales office in the target market. This is usually seen as a low-cost to test the waters in a foreign market, but it does comprise a certain amount of employment contract risk, since the staff at the sales office will be governed by the host-country labour law. It once happened that an American firm sought to terminate an American employee at their Belgian sales office, but the termination was rejected by local Belgian authorities because it violated local labour law.
> Direct Foreign Investment The classic form of direct foreign investment is the wholly-owned subsidiary. This has the highest costs but potentially the highest returns; greatest control; problems associated with staffing foreign offices. It may be necessary in order to access local low-cost labour, gain access to raw materials, or as a means of gaining market entry. In order to establish a subsidiary a firm may either build or acquire one as follows:
> Cooperative/Contractual Approaches
With a contract-based expansion, the exporting firm lets a foreign firm do most of the work of marketing in a particular country. These arrangements include the very common, long-term approaches of agency, distributorship, licensing, franchising, joint ventures and consortia. Most of these offer rapid entry into a foreign market at a lower level of investment and risk — because the investment and risk are shared with the foreign partner — but offering lower potential profits as well. There are legal restrictions to these arrangements due to competition law that is enforced in most markets, and, at the same time, co-operative arrangements should be organized in such a way as to minimize the impacts on market competition.
> Agency This is quite commonly the first market entry mode for beginning and small exporters. It can be preferable to the sales office because the local commercial agent is generally well-connected and knowledgeable in the local market. Moreover, the incentive of a commission on sales motivates agents to work hard to exploit the market. Difficulties can arise, however, when the exporter and agent have different expectations as to how long the relationship will last. Local law (as for example in the EU, Latin America and Middle East) often provides for a number of minimum legal protections for local agents.
> Distributorship Distributorship is often associated with a higher volume of exports than agency because the exported products must be attractive enough to convince a distributor to purchase them and (usually) to agree to a schedule of minimum purchases over a period of time. Distributors may carry a large inventory of the exporter’s products and may offer after-sales service as well.
> Licensing Often used for the mutual exploitation of patents, trademark rights, technological processes. The licensor provides the valuable intellectual property or knowhow and the licensee provides local manufacturing and/or marketing capability. The risks for the licensor are of choosing the wrong partner or of losing control of the market or the intellectual property which is licensed. While patent and trademark licences generally involve local manufacturing by the licensee, there is also a type of licence called the store licence which provides an alternative, under certain conditions, to the franchise (store licences are attractive as a way to avoid onerous franchising regulations).[Page215:]
> Franchising Franchising is legally similar to licensing in that it involves the transfer of intellectual property and knowhow. However, in franchising the exporter (franchisor) generally exerts a much greater degree of control over the way in which the local partner (the franchisee) does business. On the positive side, franchising is usually a form of shared investment in a business format that has already proven its success. Foreign franchising is often done through a master franchise, in which the master franchisee obtains the right or obligation to sub-franchise in the target market (master franchises may also be referred to as area developer agreements, especially at the regional level within foreign markets). In many countries franchising is a highly-regulated area.
> Joint Ventures Joint ventures (JVs) most commonly come in the form of equity joint ventures, which h means that two parent companies each take an equity stake (ownership of stock or shares) in a jointly-owned subsidiary. JVs are particularly useful when there is a strong need for local expertise, contacts, or manufacturing, and when these can only be contributed by a local partner. Empirical studies of international joint ventures suggest that there is a particularly high failure rate associated with this market entry method, perhaps because there is a strong risk of cultural conflict between the partners. Despite this level of risk, JVs continue to be commonly used and are considered.
> Consortia These structures are similar to JVs but involve a larger number of participants and are especially useful in countries where none of the participants was previously active.
> Strategic International Alliances Companies may agree to cooperate by marketing their products together or by otherwise assisting each other, but without committing to the creation of a JV. Strategic alliances are business relationships between companies that want to share a certain measure of risk and investment to achieve a common objective. One prominent example is found in the airline industry, where strategic alliances have allowed groups of regional or national airlines to cooperatively offer global services.
Market research may help a firm decide upon the correct timing for launching its product in a particular market.
One element is the economic attractiveness of the market sector or category. Key data here are the growth rate in the sector and the maturity of the sector (is the growth rate flattening out or diminishing as the market becomes fully saturated). A relatively open market with a high growth rate is the most attractive in this sense.
In order to make a proper timing decision, the competitive environment of the target market must also be evaluated. In a mature market sector, typically a number of competitors are present and the market is less attractive.
Many firms enter an open market in part because they wish to acquire what is known as first mover advantage. The first brand or company to become known in the market may acquire recognition in the marketplace which confers a lasting advantage. When customers are familiar with one product, they are often reluctant due to change to another brand due to perceived switching costs (they are unfamiliar with the rival brand or how to use it).
However, a young and open market also comprises certain disadvantages, and one of these is the new for the new entrant to absorb the costs of creating publicity and awareness of the new product — these costs are sometimes referred to as pioneering costs.[Page216:]
As firms grow and enter the international sphere, they may go through several phases of international marketing. One way of classifying these phases is found in the “EPRG” scheme — ethnocentric, polycentric, regiocentric and geocentric.
> Domestic market extension — ethnocentric Here the firm just continues to apply its basic domestic approach in foreign markets. These firms strongly reflect their home culture.
> Multi-domestic market extension — polycentric Here the firm treats each market as a separate, unique market for which products and management must be adapted. These firms are deeply embedded in local, national cultures.
> Global marketing concept — geocentric/regiocentric These firms offer standard products at attractive prices to entire regional or global sectors.
In the 1970s, international marketing planning was framed in terms of the debate between standardization vs. adaptation, in the 1980s this became globalization vs. localization and in the 1990s it was global integration vs. local responsiveness. With the growth of e-commerce, digital and social media marketing over the past two decades, firms increasingly refer to an omni-channel approach: marketing via a number of different channels, varying the mix as most appropriate in each market.
Each of these marketing approaches is meant to manage the inherent trade-off between the marketing of global standard products and the marketing of nationally-customized products and promotion. Globally-standard products can be cheaply and efficiently produced and marketed, but may fail to please local markets. Nationally-customized products may suit local tastes, but become so expensive and cumbersome to manage that the entire firm suffers. Most firms will fall somewhere in the middle of these two extremes. Thanks to technology, there is now a trend to try to incorporate and achieve both goals, with what is sometimes called mass customization.
Case Example: NestleNestle has long been known for following a nationally-customized, polycentric marketing strategy. One of the reasons for this is that as a processed-food company,Nestle had to contend with a market sector in which customers are famously partial to their local cuisine and food preferences.Nestle believed that its global product managers should
In practice, this meant that Nestle often expanded by acquiring local producers, then introducing efficiencies to help the local brand compete. Thus, in Poland Nestle acquired the second-best-selling chocolate-maker, then used its marketing acumen to turn it into a contender for first place.
Most Nestle factories produce and sell for the country in which they are located. Nestle strives to adapt flavours to local palates; thus for example Nestle developed cereals in Japan with tastes of seaweed, carrots, coconuts and papaya.
By 2000 Nestle was selling over 8500 products produced in 489 factories in 193 countries.
Although Nestle provides an example of a firm that has successfully managed a diverse, polycentric marketing approach, many other firms have found that they are well-advised to follow a contrary strategy: global harmonization and standardization across the marketing mix.
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Firms that can standardize their products or their promotion can benefit from significant economies of scale. When Black & Decker went to a Pan-European strategy, reducing the range of available motor-sizes from 260 to 8, they were able to offer a cheaper product more efficiently.
Global integration of operations also allows companies to benefit from reverse flows of knowledge: Unilever successfully introduced two global brands that had originally been developed by local subsidiaries.
Case ExampleCompetition between Multi-domestic/Polycentric and Global Strategies
In the early part of the 20th century the Dutch electronics firm Philips gradually grew into the global category leader by following a multi-domestic approach. When Philips introduced televisions into the German and British markets, for example, it tailored the product specifications to local taste preferences. In Philips’s international structure, each country was allowed great autonomy to adapt products and promotion for the local market. This led to a lot of product innovation but also to conflicts between different national organisations and between country units and headquarters.
By the late 1990s Philips was overtaken as the world’s largest electronics company by a Japanese competitor, Matsushita, which followed a completely different — global — marketing strategy. While Philips organized around national units, Matsushita was organized into product/category units that then were responsible for manufacturing and marketing goods worldwide. By centralizing its production in highly-efficient factories, and by lowering costs through long production runs that benefited from economies of scale, Matsushita was able to provide high quality at competitive prices.
However, by 2001 Matsushita was facing its own profitability problems as its global strategy struggled to keep up with a turbulent marketplace in electronics products. It was acknowledged that Matsushita’s product-based structure also led to internal competition and cannibalization, among other drawbacks. Firms continued to find new ways to integrate local responsiveness with the high quality and competitive prices associated with global strategies.
> Phase 1: Market Screening and Preliminary Analysis
It is rarely possible for a company to have enough resources to enter a large number of countries at the same time. More commonly, companies will seek to penetrate markets in a strategic sequence, beginning with the most promising markets first. Determining the most promising markets, and setting the sequence in which these markets will be pursued, is known as market screening.
Market screening involves evaluating a company’s strengths and weaknesses in light of a country’s constraining factors and market potential to determine the relative attractiveness of the country as a priority market. The most common framework for conducting this evaluation is the venerable SWOT analysis (Strengths Weaknesses Opportunities Threats). SWOT evaluations will vary from country to country.
Evidence indicates that cultural distance (the existence or absence of common cultural elements, such as language, currency, historical amity or rivalry, etc.) is a major factor in determining whether a given market is a priority. Firms tend to expand first into countries that are geographically and culturally proximate. Thus, it is not uncommon for U.S. firms to expand first into Canada, and then into the U.K. — countries that share a linguistic and historical commonality. Similarly, French firms often begin their international expansion in Belgium, Luxembourg and Switzerland.
> Phase 2: Adapting the marketing mix to target markets
Consider possible adaptations as regards 1) product, 2) price, 3) promotion, and 4) distribution.[Page218:]
> Phase 3: Developing the Marketing Plan
The country marketing plan begins with a situation analysis and culminates in the selection of an entry mode and a specific action program for launching the brand or new line in the target market. Included in the final plan are budgets and sales and profit expectations.
> Phase 4: Implementation and Control
An evaluation and control system requires the company to continuously monitor implementation of the plan and feedback information on results into future planning.
Since international firms must enter and operate in markets where they have limited knowledge and experience, the need for market research can be even greater than in domestic business. On the other hand, all of the difficulties involved with international communication (which make marketing communications so complicated and difficult) also work to make international market research more challenging.
Among the principal objectives of a market research project are to obtain recent information on the target market in the following areas:
> Economic forecasts
> Sociological and political climate
> Overview of market conditions
> Summary of technological environment
> Competitive situation
> The Research Process
In large firms that must repeatedly analyze new markets before entering them or launching new products in them, it is necessary to develop a standard procedure for the research process. A common sequence of phases in the research process is as follows:
> Define the research problem and establish research objectives;
> Determine the sources of information to fulfill the research objectives;
> Consider the costs and benefits of the research process;
> Gather the relevant data from secondary or primary sources;
> Analyze, interpret, and summarize the results;
> Effectively communicate the results to decision makers.
The ICC/ESOMAR Code provides that “Research which includes all forms of market, opinion and social research and data analytics, is the systematic gathering and interpretation of information about individuals and organisations. It uses the statistical and analytical methods and techniques of the applied social, behavioural and data sciences to generate insights and support decision-making by providers of goods and services, governments, non-profit organisations and the general public.
> Primary and Secondary Data: Problems with Obtaining and Analyzing Results
Primary data is data collected by a researcher from or about an individual for the purpose of research. Since gathering primary data can be a complex process, most firms rely on third parties to assist them with their foreign market research.
Secondary data is data collected for another purpose and subsequently used in research. In developed economies there can be a great deal of secondary data available, while in developing countries it may be negligible. In any case, data is often only available in the foreign country’s language, which can make analysis expensive. Moreover, what is available may not be reliable or comparable. For example, reports have arisen that in certain countries local government authorities have issued false statistical reports being issued on economic conditions. Data may not be comparable to data that a company uses domestically. For example, the data may be based on different terms and definitions (e.g., the definition of a “supermarket” may vary).[Page219:]
As with marketing communications there are language-related challenges in translating questionnaires and responses. Two techniques for improving the reliability of translations are back translation (translating a text back into its original language) and parallel translation (using two or more translators on the same text and then comparing their translations).
> Research on the Internet — a Growing Opportunity
The Internet has been a boon for market research. A great deal of secondary research is now available online, either provided by governmental authorities or by private market research databases. The Internet has greatly facilitated the gathering of primary research. Thus firms make use of the following techniques:
> Online surveys, buyer panels, focus groups
> Web visitor tracking
> Data mining
> Advertising click-through measurement
> Customer identification systems
> E-mail marketing lists
> Embedded research
While these tools are powerful, they do raise concerns related to data privacy and reliability of information. The ability of firms to collect information over time on users’ online actions, or OBA, may be constrained by national data protection legislation. Also, firms must be wary of relying on web-surveys because there is a great risk of sampling error (web-visitor may be atypical and thus not reflect the experience or preferences of the target market).
The ICC/ESOMAR Code is designed to be a comprehensive framework for self-regulation for those engaged in market, opinion and social research and data analytics. It provides a useful resource which sets essential standards of ethical and professional conduct designed to maintain public confidence in research, while also requiring strict adherence to any relevant regional, national and local laws or regulations, and industry/professional codes of conduct that may set a higher standard.
> Responsibility for Conducting, Analyzing and Interpreting Research Information
Ideally, international market researchers will possess cultural understanding of the foreign market, a talent for interpreting findings, and a cautious attitude. Whether the firm relies on internal or external research specialists, the ideal approach is probably to have a local researcher in each country. Today international market research is one of the standard services offered by professional marketing research firms and advertising agencies.
> Estimating Market Demand
This is a perennial challenge in market research because firms must estimate demand in countries where the firm has little or no experience (and which may not be familiar with the exporter’s product). As a result, firms usually resort to a variety of approximation techniques, such as
> Use of secondary statistics/demographics
> Reliance on expert opinion
> Analogy from experiences in known markets
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Test Your Knowledge: International Marketing
True/False
Answers: 1. F 2. F 3. T 4. F 5. T