Market Segmentation Strategies for Nike - DOC by fza12421


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									International Business: Competing in the Global Marketplace        Third Edition                      149



                Cultural Differences
                Economic Differences
                Product and Technical Standards
                A Typical Distribution System
                Differences Between Countries
                Choosing a Distribution Strategy
                Barriers to International Communication
                Push Versus Pull Strategies
                Global Advertising
                Price Discrimination
                Strategic Pricing
                Regulatory Influences on Prices
                The Location of R&D
                Integrating R&D, Marketing, and Production
                Cross-Functional Teams
                Implications for International Business


1.      Review the debate on the globalization of markets - are all customers the same? or are there
        distinct and significant differences?

2.      Show how some market segments transcend national borders, while in other situations the structure
        of market segments differs significantly across countries.

3.      Better understand the factors that cause firms to alter the marketing mix across countries.

4.      Discuss issues related to the location of R&D facilities and linking marketing and R&D in new
        product development
150             International Business: Competing in the Global Marketplace              Third Edition


A.    Introduction

 1    The focus of this chapter is on how marketing and R&D can be performed in order to 1) lower the
      costs of value creation, and 2) add value by better serving customer needs

 2.   The tension that exists in most international businesses between, on the one hand, the need to
      reduce costs, and on the other hand, the need to be responsive to local conditions is particularly
      predominant in this chapter as we look at the development and marketing of products

B.    The Globalization of Markets?

 1.   This topic isn't new - it was discussed several times in earlier chapters. Having students read the
      passage from Levitt (or reading aloud), and then asking for comments and critique can get a good
      discussion going. Having students give examples of truly global products, products that have
      become global recently, as well as those that will likely continue to be quite different in different
      countries also stimulates discussion.

 2.   The general view is usually that while Levitt overstates the case, he does identify a clear trend.

 3.   The management focus on MTV helps to illustrate the limits of globalized tastes.

C.    Market Segmentation

 1.   Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior
      differs from others in important ways. Firms must adjust their marketing mix from segment to

 2.   In international business, segmentation needs to consider the existence of segments that transcend
      national borders and understand differences across countries in the structure of segments.

 3.   For a segment to transcend national borders, consumers in that segment must have some
      compelling similarities that lead to similarities in purchasing behavior.

 4.   Where such similarities do not exist, there must be some customization if the firm is to maximize
      performance in the market. This customization may be in the product, the packaging, or simply the
      way in which the product is marketed.

 5.   Global market segments are much likely to exist in industrial products (e.g., memory chips,
      chemical products, corporate bonds) than in consumer products.

D.    Product Attributes

 1.   A product can be viewed as a bundle of attributes. Different customers value different attributes,
      and value the same attributes differently.

 2.   Product attributes have to be varied from country to country to account for differences in consumer
      tastes and preferences. In classes with “foreign” students, I have sometimes asked them what
      products they have found to be different in their home country from the country they are studying -
      what products that they thought would be the same did they find to be different. Sometimes they
International Business: Competing in the Global Marketplace         Third Edition                     151

        report even the same brand to be notably different. On occasion this has led into a nice discussion
        of why these differences exist.

 3.     Differences in consumer tastes and preferences between countries are a function of differences in
        culture and economic development.

 4.     Differences in product and technical standards may require the firm to customize product attributes
        from country to country. Within the EU the need to meet differing technical standards is being
        reduced - but some of these previous technical standards have shaped consumer preferences as
        well. Even in advanced products like cellular phones, the new “global” GSM standard for digital
        communication (which allows customers to travel in many countries and still receive calls) has not
        been approved in North America.

E.      Distribution Strategy

 1.     Distribution strategy is about choosing the best channel to deliver a product to the consumer.
        Figure 17.1 illustrates a typical distribution strategy.

 2.     Significant country differences with regard to distribution systems exist. In some countries the
        retail system is very concentrated, whereas in others it is very fragmented. In some countries
        channel length is short, whereas in others it is long. And in some countries distribution channels
        may be difficult to gain access to.

 3.     In countries with concentrated retail systems, a few retailers supply most of the market. In
        Germany, for example, 4 retail chains control 65% of the food market. In nearby Italy, no chain
        controls more than 2% of the market. Such differences clearly affect how a firm gets its products
        to consumers.

 4.     The longer the channel the greater the aggregate mark-up and the higher the price that consumers
        are charged for the final product. Despite this, the benefits of using a longer channel may
        outweigh the drawbacks, particularly if the retail market is very fragmented. The benefits of using
        a longer channel are that longer channels may economize on selling costs and assist the firm to
        gain market access.

 5.     When there are exclusive distribution channels, it can be difficult for outsiders to obtain access to
        markets. Exclusive channels are often based on long established and successful relationships.

 6.     Occasionally in order to gain market access a firm may have to devise an entirely new distribution
        strategy. While costly, this may be the only way to obtain access, and it may even give the firm a
        competitive advantage.

F.      Communication Strategy

 1.     A critical element in the marketing mix is communication strategy; which is the process of
        communicating the attributes of a product to prospective customers.

 2.     A number of different communications channels are available to a firm. These include direct
        selling, sales promotion, direct marketing, and advertising via many different media.

 3.     A firm's communications strategy is partly defined by its choice of channel.
152             International Business: Competing in the Global Marketplace            Third Edition

 4.   The effectiveness of international communication can be hindered by three potentially critical
      variables - cultural barriers, source effects, and noise levels.

 5.   Cultural barriers arise from the difficulty of communicating messages across cultures. The best
      way for a firm to overcome cultural barriers is for it to develop cross-cultural literacy.

 6.   Source effects occur when the receiver of the message (the potential consumer) evaluates the
      message based upon the status or image of the sender. Source effects can be either positive or
      negative. The class can be stimulated to think of some positive and negative source effects
      (German autos vs. German wine, Italian cuisine vs. British cuisine).

 7.   Noise tends to reduce the chance of effective communication. In this context, noise refers to the
      amount of other messages that are competing for a potential consumer's attention.

 8.   The main choice with regard to communication strategy is between a push strategy and a pull
      strategy. A push strategy emphasizes personnel selling whereas a pull strategy emphasizes mass
      media advertising. The choice between push and pull strategies depends upon product type and
      consumer sophistication, channel length, and media availability.

 9.   Push strategies tend to be emphasized more in the following circumstances; 1) for industrial
      products and/or complex new products, 2) when distribution channels are short and 3) when few
      print or electronic media are available. Pull strategies tend to be emphasized more in the following
      circumstances; 1) for consumer goods products, 2) when distribution channels are long and when
      3) sufficient print and electronic media are available to carry the marketing message.

10.   A globally standardized advertising campaign is one in which the same marketing message is used
      the world over. The major benefits of standard advertising are lower costs of ad creation, better
      utilization of creative talent, avoiding confusion created by differences in message. While a
      standardized campaign has economic advantages, it fails to account for differences in culture and
      advertising regulations between countries.

G.    Pricing Strategy

 1.   Price discrimination exists whenever consumers in different countries are charged different prices
      for the same product. Price discrimination can assist a firm in the process of maximizing its

 2.   For price discrimination to work the firm must be able to keep national markets separate and
      different price elasticities of demand must exist in different countries.

 3.   The elasticity of demand is determined by a number of factors, of which income level and
      competitive conditions are probably the most important. In general price elasticities tend to be
      greater in countries with lower income levels and greater numbers of competitors.

 4.   Figures 17.2 and 17.3 can be used to illustrate how price elasticity and price discrimination allow
      firms to maximize profits.

 5.   Predatory pricing involves using the profit gained in one market to support aggressive pricing in
      another market. The objective being to drive competitors out of the market.

 6.   Experience curve pricing involves aggressive pricing to build up accumulated global volume as
      rapidly as possible, thereby moving the firm down the experience curve as rapidly as possible.
International Business: Competing in the Global Marketplace       Third Edition                    153

 7.     The ability of a firm to engage in price discrimination or strategic pricing is limited by
        antidumping regulations and nation competition policy. Antidumping regulations limit firms
        ability to price below cost or below the price in its domestic market. Competition regulations can
        limit firm's ability to charge monopoly prices.

H.      Configuring the Marketing Mix

 1.     Standardization versus customization is not an all or nothing concept. In reality most firms
        standardize some things and customize others. When looking at the overall marketing mix and
        message, one often finds some aspects of standardization and some aspects of customization in all
        products depending on local requirements and overall cost structures.

I.      New Product Development

 1.     New product development is a high risk but high return activity. In order to build up a competency
        in new product development the international business must do two things; 1) disperse R&D
        activities to those countries where new products are being pioneered, and 2) integrate R&D with

 2.     Innovations can make established products obsolete overnight. At the same time, innovations can
        create a host of new product possibilities. To stay abreast of competitors innovations, as well as
        develop their own, firms should have R&D activities in locations that are on the cutting edge of

 3.     The need to adequately commercialize new technologies poses special problems in international
        businesses, since commercialization my require different versions of the product be produced for
        different countries.

 4.     A firm’s new product development efforts need to be closely coordinated with the marketing,
        production, and materials management functions. This integration is critical to making certain that
        customer needs are met and that the company performs all its value creation activities efficiently.

 5.     One way to achieve cross functional integration is to have cross functional product development
        teams. Effective cross functional teams should be led by a heavyweight project manager with
        status in the organization, have members from all the critical functional areas, have members
        located together, have clear goals, and have an effective conflict resolution process.

 6.     This all becomes more difficult when developing products for multiple worldwide markets. Many
        large firms have research centers in limited locations, with product development activities more


The footnotes suggest some appropriate additional readings. Any one of the many “International
Marketing” text books would also be a useful reference. The following may be of particular interest:

Bartlett, Christopher A. and Sumantra Ghoshal 1989. Managing across borders: The transnational solution.
          Boston: Harvard Business School Press.

Clark, Kim B. and Steven C. Wheelwright 1993. Managing new product and process development. New
         York: Free Press.
154              International Business: Competing in the Global Marketplace       Third Edition

Douglas, Susan P. and Yoram Wind 1987. The myth of globalization. Columbia Journal of World
        Business. 22: 19-29

Levitt, Theordore 1983. The globalization of markets. Harvard Business Review. 61(3): 92-102

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