CH-15 Global Marketing and the Digital Revolution – Global Marketing : Book Guide

Chapter 15 Global Marketing and the Digital Revolution SUMMARY A. The digital revolution has created a global electronic marketplace. The revolution has gained momentum over the course of 70-plus years, during which time technological breakthroughs included the digital mainframe computer; the transistor; the integrated circuit; the personal computer; the spreadsheet, the PC operating system; and the Internet, which originated as an initiative of the Defense Advanced Research Projects Agency (DARPA). Three key innovations by Tim Berners-Lee, URLs, http, and html, led to the creation in the early 1990s of the World Wide Web. B. The digital revolution has resulted in a process known as convergence, meaning that previously separate industries and markets are coming together. In this environment, the innovator’s dilemma means that company management must decide whether to invest in current technologies or try to develop new technologies. Although leading firms in an industry often develop sustaining technologies that result in improved product performance, the revolution has also unleashed a wave of disruptive technologies that are creating new markets and reshaping industries and value networks. C. E-commerce is growing in importance for both consumer and industrial goods marketers. Generally, commercial Web sites can have a domestic or global focus; in addition, they can be classified as promotion sites, content sites, or transaction sites. . Global marketers must take care when designing Web sites. Country-specific domain names must be registered and local-language sites developed. In addition to addressing issues of technology and functionality, content must reflect local culture, customs, and aesthetic preferences. Cybersquatting can hinder a company’s effort to register its corporate name as an Internet destination. D. The Internet is a powerful tool for advertisers; click-through rates are one measure of effectiveness. Another trend is paid search advertising. New products and services spawned by the digital revolution include: broadband, which permits transmission of streaming media over the Internet; mobile commerce (m-commerce), which is made possible by Wi-Fi, Bluetooth, and other forms of wireless connectivity; telematics, and global positioning systems (GPS); and short message service (SMS). Smartphones are creating new markets for mobile music downloads, including ringtones, true tones, and full-track music files; they can also be used for mobile gaming and Internet phone service using VoIP. LEARNING OBJECTIVES 1 List the major innovations and trends that underlie the digital revolution 2 Define value network and explain the difference between sustaining technologies and disruptive technologies 3 Identify current trends in global e-commerce and explain how global companies are expanding their presence on the Web 4 Identify the most important new products and services that have been introduced in the past decade DISCUSSION QUESTIONS 15-4. Briefly review the key innovations that culminated in the digital revolution. What is the basic technological process that made the revolution possible? Answer: The origins of the digital revolution can be traced back to the mid-twentieth century; between 1937 and 1942, Atanasoff and Berry developed the electronic digital computer. In 1947, William Shockley and two colleagues at AT&T's Bell Laboratories invented a "solid state amplifier," or the transistor. This was a critical innovation because the vacuum tubes used in computers and electronics products were large, consumed a large amount of power, and generated heat. In the mid-1950s, Sony licensed the transistor from Bell Labs; Sony engineers boosted the yield of the transistor and created the market for transistor radios. During the 1950s, Noyce and Kilby invented the silicon chip, the integrated circuit or IC, the transistor’s modern form which harnessed power in a reliable, low-cost way. The IC permitted the development of the personal computer, whose appearance marked the next phase of the digital revolution. The basic technological processes that made the computer revolution possible were innovations including binary arithmetic, regenerative memory, parallel processing, and separation of memory and computing functions. The silicon chip, the integrated circuit permitted the development of the personal computer. 15-5. What is convergence? How is convergence affecting Sony? Kodak? Nokia? Answer: Convergence refers to the coming together of previously separate industries and product categories; new technologies affect the business sector(s) in which a company competes. Sony’s core businesses use digital technology and involve digitizing and distributing sound, images, and data; this is an example of convergence. Sony’s competitors include Dell, Kodak, and Nokia. Convergence presents challenges (e.g., Kodak, the leader in photography- products for more than a century faces competitors such as Gateway because of convergence). 15-6. What is the innovator's dilemma? What is the difference between sustaining technology and disruptive technology? Briefly review Christensen's five principles of disruptive innovation. Answer: According to Christensen, executives are so committed to a current, profitable technology that they fail to provide adequate investment in new, riskier technologies. Companies listen to and respond to the needs of established customers; Christensen calls this situation the innovator’s dilemma. Dominant firms—"well managed" firms—lead in developing and/or adopting sustaining technologies, incremental or radical innovations that improve product performance. Most new technologies developed by established companies are sustaining in nature; new entrants lead in developing disruptive technologies that redefine performance. Christensen’s five principles of disruptive innovation include: • Companies depend on customers and investors for resources. The best innovations are user-driven; however, listening to established customers may lead to missed opportunities for disruptive innovation. • Small markets don't solve the growth needs of large companies. Small organizations can respond to the opportunities for growth in a small market; large organizations should create independent units for new technologies. • Markets that don't exist can't be analyzed. Companies should embrace agnostic marketing, the assumption that no one knows if a disruptive product can be used before using it. • An organization's capabilities define its disabilities. • Technology supply may not equal market demand. Some products offer more sophistication than required. 15-7. What is the Long Tail? What implications does this have for market segmentation? Answer: “One of the most interesting aspects of the digital revolution has been noted by Chris Anderson, the editor of Wired magazine and author of The Long Tail. The book’s title refers to the use of the efficient economics of online retail to aggregate a large number of relatively slow selling products. The Long Tail helps explain the success of eBay, Amazon.com, and iTunes, all of which offer far more variety and choice than traditional retailers can. As Anderson explains, “The story of the Long Tail is really about the economics of abundance—what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone.” Anderson notes that “below-the–radar” products—for example, obscure books, movies, and music—are driving revenues at e-commerce merchants such as Amazon.com, Netflix, and iTunes. He says, “These millions of fringe sales are an efficient, cost-effective business…For the first time in history, hits and niches are on equal economic footing.” Assuming you “buy into” this theory, the implications for market segmentation are quite profound – marketers can create products to suit niches of any size and not have to worry about quantities to support their marketing channel providers. It also means that a producer will have a rough time discontinuing a product in the future. 15-8. Review the key products and services that have emerged during the digital revolution. What are some products and services that are not mentioned in the chapter? Answer: As a result of the digital revolution, a new generation of products, services, and technologies is being developed by a variety of companies in all parts of the world. These include broadband networks, mobile commerce, wireless connectivity, and “smart” cell phones. A product not mentioned in the chapter is biometrics – the identification of an individual based on personal characteristics like fingerprints, facial features, or iris patterns. While the technology is not new, having seen use for years to restrict access in corporate and military settings, it is only now creeping into everyday life. Over the next few years, people currently unfamiliar with the technology will be asked to use it in everything from travel settings to financial transactions. For example, Piggly Wiggly Co. grocery stores in the South launched a pay-by-fingerprint system. At the Statue of Liberty, to rent, close, and reopen lockers, visitors touch an electronic reader that scans fingerprints. Source: Odessa American, August 12, 2004, p. 8B. 15-9. You have the option of purchasing an electronic editions of many of your college textbooks. Is this something that you are interested in doing? Answer: Yes, purchasing electronic editions of textbooks can be appealing due to their lower cost, portability, and convenience. E-books allow for easy access on various devices and often include interactive features. However, it’s important to consider factors like digital rights management, screen time comfort, and the availability of physical copies if needed. 15-10. Which pricing model do you think is the best for music downloads, iTunes Store’s “pay-per-track” or Rhapsody’s subscription service? Do you think cloud-based music services will be successful? Answer: Student answers will vary, but the most “popular” answer might be the “no charge” or free download subscription service! Regarding "cloud-based" services, students will probably say that this is the future of technology. The best pricing model depends on user preferences: iTunes Store’s “pay-per-track” is ideal for those who prefer owning individual songs, while Rhapsody’s subscription service suits users who want unlimited access to a vast library. Cloud-based music services are likely to succeed due to their convenience, accessibility, and ability to integrate with various devices, appealing to a broad audience. OVERVIEW Africa’s widespread adoption of the cell phone and the explosive growth of the telecom sector have also changed a common misperception among global marketers: that the market opportunity in Africa is limited because the people are too poor and it is too risky to do business there. The digital revolution is driving the creation of new companies, industries, and markets in Africa and the rest of the world. It is also contributing to the transformation and, in some cases, destruction of companies, industries, and markets. In short, the revolution is dramatically transforming the world in which we live. The digital revolution is driving the creation of new companies, industries, and markets in all parts of the world; the same process is also contributing to the destruction of companies, industries, and markets. As the revolution gains traction and picks up speed, global marketers will be forced to adapt to an evolutionary world in which cell phone tablets, and other mobile devices play an important role. This chapter appears after the five-chapter sequence devoted to the marketing mix. Why? Because all the elements of the marketing mix—the four Ps—converge in the world of Internet connectivity and commerce. For example, the product “P” includes Facebook, Google, Pinterest, Twitter, Wikipedia, and the myriad other Web sites that can be accessed worldwide. The Web also functions as a distribution channel, and a very efficient one at that. Case in point: Apple’s iTunes, the digital-only entertainment retailer that has rewritten the rules of music and video distribution. The Internet has also become a key communication platform. Today, virtually every company and organization has a presence in the online space. The Internet can be used as an advertising channel, as a PR tool, as a means for running a contest or sales promotion, and as support for the personal selling effort. Finally, there is price. Comparison-shopping Web sites make it easy to check and compare prices for products and services. Moreover, the marginal cost of warehousing and distributing digitized products—music files, for example—is practically nothing. This has led to some interesting pricing strategy experiments. For example, Radiohead, the innovative rock band from Oxford, England, harnessed the efficiency of the Web to offer downloads of In Rainbows for free. ANNOTATED LECTURE/OUTLINE THE DIGITAL REVOLUTION: A BRIEF HISTORY • (Learning Objective #1) The digital revolution is a paradigm shift resulting from technological advances that allow for the digitization of analog sources of information, sounds, and images. The origins of the digital revolution can be traced back to the mid-twentieth century. Over a 5-year period between 1937 and 1942, John Vincent Atanasoff and Clifford Berry developed the world's first electromechanical digital computer at Iowa State University. In 1947, William Shockley and two colleagues at AT&T's Bell Laboratories invented a "solid state amplifier," or transistor, as it became known. This was a critical innovation because the vacuum tubes that were used in computers and electronics products at that time were large, consumed a large amount of power, and generated a great deal of heat. During the 1950s, Robert Noyce and Jack Kilby independently invented the silicon chip (also known as the integrated circuit or IC). The IC and the concept of binary code permitted the development of the personal computer. IBM brought its first PC to market in 1981. Bill Gates initially declined an offer to create an operating system—the software code that provides basic instructions—for IBM’s new machine. Gates later changed his mind and developed the Microsoft Disk Operating System (MS-DOS). In 1984, Apple introduced the revolutionary Macintosh. The Internet's origins can be traced back to an initiative by the Defense Advanced Research Projects Agency (DARPA) that created a computer network that could maintain lines of communication in the event of a war. In 1990, the uniform resource locator (URL), an Internet site’s address on the World Wide Web; hypertext markup language (HTML), a format language that controls the appearance of Web pages; and hypertext transfer protocol (http), which enables hypertext files to be transferred across the Internet, were all invented by Tim Berners-Lee. In short, Berners-Lee is the father of the World Wide Web. (Exhibit 15-2) In the mid-1990s, a computer scientist at the University of Illinois named Marc Andersen developed a Web browser; called Mosaic, later changed to Netscape. Within 5 years of the Web's debut, the number of users increased from 600,000 to 40 million. The Internet’s powerful capabilities and increasing importance have resulted in a backlash that manifests itself in various ways. Recently, China, India, Brazil, and the EU have taken the position that, because the Internet is global, no single country should be in control. THE CULTURAL CONTEXT South Korea Embraces the Digital Revolution According to a recent “digital opportunity index” published by the United Nations, South Korea leads the world in providing its citizens with access to information and communications technologies (ICT). The country’s high-tech infrastructure takes a variety of forms. The availability of broadband Internet connections is one example. In South Korea, 94 percent of households are broadband subscribers. Ninety percent of Koreans in their teens and early twenties regularly log on to Cyworld (“Cyber World”), South Korea’s leading social network site. To bring the speed, South Korea’s government is committing significant financial resources. It budgeted $50 billion in an effort to link 80 major cities and towns via broadband; moreover, South Korea’s network is extremely fast, offering standard speeds of up to 100 megabits per second (Mbps). Korea’s Communication Commission plans to boost the network’s speed to 1 gigabit per second (Gbps) by 2012. However, South Korea’s digital future includes much more than simply broadband connections. For example, policymakers are aggressively pursuing applications for radio frequency identification tags (RFID); the South Korean government is spending nearly $300 million to build an RFID research center. The RFID center will be part of an even more ambitious effort: the construction of a ubiquitous city on a 1,500-acre man-made island near the Incheon Free Economic Zone. What makes New Songdo City a “ubiquitous city” (or, more simply, U-city)? For one thing, all major information systems—commercial, residential, and government—share data, and computers are designed into all buildings. These elements include a central park (inspired by New York) and a canal system similar to that in Venice. John Kim is in charge of planning for the U-city, which he says will exemplify “U-life.” Kim explains, “U-life will become its own brand, its own lifestyle.” CONVERGENCE The digital revolution is causing dramatic, disruptive changes in industry structure. Convergence is a term that refers to the coming together of previously separate industries and product categories (see Figure 15-1). Convergence presents challenges (e.g., Kodak, the leader in photography-related products for more than a century faces competitors such as Dell and Hewlett-Packard because of convergence). VALUE NETWORKS AND DISRUPTIVE TECHNOLOGIES • (Learning Objective #2) As noted in the chapter introduction, the digital revolution has created both opportunities and threats. In an era when environmental scanning, strategic planning, and other conceptual tools are widely known, some managers have failed to respond to change in a timely manner. According to Harvard Professor Clayton Christensen, executives are so committed to a current, profitable technology that they fail to provide adequate levels of investment in new, riskier technologies. Companies listen to and respond to the needs of established customers; Christensen calls this situation the innovator’s dilemma. Companies have a value network, which has a cost structure that dictates the margins needed for profitability; the boundaries are defined by order of importance of product performance attributes. Parallel value networks, each built around a different definition of what makes a product valuable, may exist within the same broadly-defined industry. For example, during the 1980's buyers of portable computers paid a premium for smaller size; mainframe buyers do not value this attribute; value networks for mainframes and portable computers are different. As firms gain experience, they develop capabilities, organizational structures, and cultures tailored to the requirements of their respective value networks. Dominant firms lead in developing and/or adopting sustaining technologies, incremental or radical innovations that improve product performance. Most new technologies developed by established companies are sustaining in nature; new entrants lead in developing disruptive technologies that redefine performance. Disruptive technologies go beyond enhancing product performance; they enable something to be done that was deemed impossible and enable new markets to emerge. To help managers recognize the innovator's dilemma and develop appropriate responses to environmental change, Christensen developed five principles of disruptive innovations: 1. Companies depend on customers and investors for resources. The best innovations are user-driven; however, listening to established customers may lead to missing opportunities for disruptive innovation. 2. Small markets don't solve the growth needs of large companies. Small organizations can respond to the opportunities for growth in a small market. This fact may require large organizations to create independent units for new technologies. 3. Markets that don't exist can't be analyzed. Companies should embrace agnostic marketing, the assumption that no one knows if a disruptive product can be used before using it. 4. An organization's capabilities define its disabilities. 5. Technology supply may not equal market demand. Some products offer more sophistication than required. Complex accounting software created an opportunity for Quicken and QuickBooks. GLOBAL E-COMMERCE • (Learning Objective #3) The term e-commerce refers to the general exchange of goods and services using the Internet as a marketing channel. According to Forrester Research, online retail sales revenues in 2011 totaled $192 billion, a figure that represents about 7 percent of the total U.S. retail sales. Internet penetration in the United States is currently at 75 percent of the population. Consider the following: • Every 48 hours, Yahoo records more than 24 terabytes of data about its users’ online activities. That is the equivalent of all the information contained in all the books in the Library of Congress. • Between 2003 and 2010, the number of Internet users in China increased from 68 million to 450 million. This makes China the world’s largest e-commerce market. Local companies such as Dangdang.com are proving to be formidable competitors against global rivals such as Yahoo, Google, and eBay. • According to Forrester Research, online retail and travel sales in Western Europe will grow at a compound annual rate of 8 percent between 2008 and 2014. In 2008, 37 percent of European adults – 136 million people – shopped online. E-commerce activities can be divided into three broad categories: 1. Business-to-consumer (B2C or b-to-c) 2. Business-to-business (B2B or b-to-b) 3. Consumer-to-consumer (or peer-to-peer or P2P). Overall B2B commerce constitutes the biggest share of the Internet economy and will likely continue to do for the foreseeable future. Web sites can be classified by purpose: • Promotion sites provide marketing communications about a company’s goods or services • Content sites provide news and entertainment and support a company's public relations efforts • Transaction sites are cyberspace retail operations that allow customers to purchase goods and services. Companies such as FedEx and Gucci are already global in scope, and the Internet constitutes a powerful, cost-effective communications tool. In some instances, global marketers make the strategic decision to establish a presence on the Web without offering transaction opportunities even though the product could be sold that way. In some instances, global marketers make the strategic decision to establish a presence on the Web without offering transaction opportunities even though the product could be sold that way. Rather, such companies limit their Web activities to promotion and information in support of offline retail distribution channels. There are several reasons for this. First, many companies lack the infrastructure necessary to process orders from individual customers. Second, it can cost anywhere from $20 million to $30 million to establish a fully functioning e-commerce site. Until recently, visitors to Web sites for most luxury good purveyors were not give the opportunity to buy. The reason is simple: Top design hours strive to create an overall retail shopping experience that enhances the brand. This belief is changing, however. Some luxury goods marketers have developed Smartphone and iPad apps to help consumers shop. As the Internet has developed into a crucial global communication tool, decision makers in virtually all organizations are realizing that they must include this new medium in their communications planning. Many companies purchase banner ads on popular Web sites; the ads are linked to the company’s home page or product- or brand-related sites. Advertisers pay when users click on the link. Although creative possibilities are limited with banner ads and clickthrough rates—the percentage of users who click on an advertisement that has been presented—are typically low, the number of companies that use the Web as a medium for global advertising is expected to increase dramatically over the next few years. An important trend is paid search advertising, whereby companies pay to have their ads appear when users type certain search terms. Yahoo! recently paid $1.6 billion to acquire Overture, a company specializing in paid search advertising. One of the most interesting aspects of the digital revolution has been noted by Chris Anderson, the editor of Wired magazine and author of The Long Tail. The book’s title refers to the use of the efficient economics of online retail to aggregate a large number of relatively slow selling products. The Long Tail helps explain the success of eBay, Amazon.com, Netflix and iTunes, all of which offer far more variety and choice than traditional retailers can. Web Site Design and Implementation To fully exploit the Internet's potential, company executives must be willing to integrate interactive media into their marketing mixes. A critical first step is registering a country-specific domain name. Cybersquatting—the practice of registering a particular domain name for the express purpose of reselling it to the company that should rightfully use it—is a problem. Payment can be another problem. In some countries, including China, credit card use is low. Another issue is credit card fraud. Ideally, each country-specific site should reflect local culture, language usage, customs, and aesthetic preferences. Logos and other elements of brand identity should be included on the site, with adjustments for color preferences and meaning differences when necessary. A note of caution is in order: It is not enough to simply translate a Web site from the home country language into other languages. Another critical global e-commerce issue is privacy. The European Union’s regulations are among the world’s strictest, regarding privacy. A number of issues are related to physical distribution decisions. As online sales increase in a particular country or region, it may be necessary to establish local warehouse facilities to speed delivery and reduce shipping costs. NEW PRODUCTS AND SERVICES • (Learning Objective #4) The digital revolution has spurred innovation in many different industries. Companies in all parts of the world are developing a new generation of products, services, and technologies. These include broadband networks, mobile commerce, wireless connectivity, and smartphones (Exhibit 15-6). Broadband A broadband communication system is one that has sufficient capacity to carry multiple voice, data, or video channels simultaneously. Bandwidth determines the range of frequencies that can pass over a given transmission channel. Broadband offers a variety of marketing opportunities to companies in a variety of industries. Broadband allows Internet users to access streaming media such as streaming audio and streaming video. Streaming media represents huge market opportunity for the video game industry, which includes electronics companies (e.g., Microsoft and Sony), game publishers (e.g., Electronic Arts), and Internet portals (e.g., Google). Gamers in different locations, even different countries, compete against each other using PCs, Xbox, or Play-Station consoles. Cloud Computing In the preceding section, cloud computing was referenced as one driver of higher broadband speeds. The term refers to next-generation computing that is performed “in the cloud.” Rather than installing software such as iTunes or Microsoft Office on a computer hard drive, such applications will be delivered through a Web browser. Cloud computing means that archives—including music and movies files, photos, and documents—are stored on massive remote servers and data centers rather than on individual users’ computers. THE GLOBAL STARTUP: INNOVATION AND ENTREPRENEURSHIP Reed Hastings/Netflix Reed Hastings is an entrepreneur. He developed an innovative service, created a brand, and started a company to market it.As is true with many entrepreneurs, Hastings’ idea was based on his recognition of a problem that needed to be solved and his own experience as a consumer. In 1997 Hastings started Netflix, a mail-order DVD rental service. Within a few years, red-and-white Netflix envelopes were appearing in mailboxes throughout the United States. Netflix’s success came at the expense of competitors in the brick-and-mortar video rental business; in 2010, for example, Blockbuster filed for bankruptcy. Hastings was at the forefront in a video industry that was undergoing rapid transformation. However, more change was to come: As the user base of household broadband and lightning-fast 4G mobile networks reached critical mass, streaming video was supplanting physical DVDs as the viewing medium of choice. Hastings responded by offering streaming-content subscriptions for $7.99 per month in addition to DVD rentals. However, Netflix faced competition from Redbox, an upstart DVD rental company with very low prices, as well as from streaming services such as Hulu. Today, Netflix has 36 million subscribers in 40 countries. Irrespective of location, streaming subscribers pay roughly the equivalent of the U.S. subscription rate—about $8.00 per month. Netflix content can also be accessed on more than 1,000 different devices, including smartphones, tablets, and, of course, televisions. Computer files can be accessed remotely, via the Internet, from any location and from any computer. Google’s Chrome operating system, which has been described as “a new computing paradigm,” is designed to exploit the opportunities of cloud computing. Another industry trendsetter, Amazon.com, has set up Amazon Web Services (AWS) to offer cloud-computing resources to businesses. AWS is a variation on the outsourcing trend that was discussed in Chapter 8; Netflix, foursquare, and thousands of other companies use the service instead of running their own data centers. However, cloud computing is still in its infancy; a recent service interruption of AWS caused widespread disruptions among its clients. Despite such setbacks, cloud computing is expected to grow at an annual torrid pace of 25 percent over the next several years. Smartphones Cell phones have been one of the biggest new product success stories of the digital revolution. Worldwide, 1.75 billion cellular handsets were sold on 2012. Soaring demand has boosted the fortunes of manufacturers such as Apple, HTC, Motorola, Research in Motion (RIM), and Samsung, as well as AT&T, Deutsche Telekom, U.S. Cellular, Verizon, and other service providers. New features and functionality give consumers a reason to upgrade their handsets on a regular basis. Conventional cell phones allow text messaging via short message service (SMS), a globally accepted wireless standard for sending alphanumeric messages of up to 160 characters. SMS is the technology platform that is the basis for Twitter’s microblogging service. Industry experts expect marketers to integrate SMS with communication via other digital channels, such as interactive digital TV, the Internet, and e-mail. Mobile Advertising and Mobile Commerce Mobile advertising and mobile commerce (m-commerce) are terms for conducting commercial transactions using cell phones as channels for delivering advertising messages and conducting product and service transactions. Most smartphone users can access the Internet via Wi-Fi; in addition, cell phone service providers typically offer data plans that allow Internet connections via 3G or 4G networks. This allows Apple, Crisp Wireless, Google, Medialets, Mobext, and other companies to offer clients mobile ad services. For example, Unilever, Nissan, and other companies use Apple’s iAd service to place interactive ads inside iPhone and iPod apps. Total worldwide spending for mobile ads was only about $1 billion in 2007, but industry experts expect that the figure could reach $10 billion to $20 billion by 2013. Mobile ad spending in the United States totaled $2.3 billion in 2012. Messaging campaigns allow advertisers to engage customers in conversations and connect them with brands. However, mobile search and mobile display advertising are growing in importance; industry forecasters expect them to pass SMS-based advertising in the near future. This is especially true given the popularity of, and degree of engagement with, mobile Internet today. Another driving force is the torrid growth of the tablet format, which includes Apple’s iPad, Samsung’s Galaxy Tab, RIM’s PlayBook, and several other devices. Smartphones that are equipped with global positioning systems (GPS) can determine the user’s exact geographic position. This capability has created new opportunities for location based mobile platforms, such as foursquare. The popularity of GPS-equipped mobile devices is driving interest in location-based advertising. Cell phone usage is exploding in India. As Manoj Dawane, CEO of Mumbai software company People Infocom, explains, “In India, mobile phone penetration is high compared to other forms of media like television or the Internet. You can’t have a better place than India for mobile advertising. “One factor driving mobile ads in India is the low rates that subscribers pay—as little as 2 cents per minute. Demographics play an important role, too. About two-thirds of the Indian population lives in rural areas where television ownership and newspaper readership are low. Another mobile communication technology, Bluetooth, has the advantage of consuming less power than Wi-Fi. This makes Bluetooth well-suited to use with cell phones. Wireless technology is being used in other ways. In the automotive world, there is a trend toward telematics, which is a car’s ability to exchange information about the vehicle’s location or mechanical performance. Cars are also being equipped with online access; BMW Assist, BMW Online, and BMW Tele-Services illustrate some of telematics’ potential. The system provides access to a wide range of information and services, including the availability of parking spaces. The service also assists users who wish to book hotel rooms or make restaurant reservations. Mobile Music Because of rampant illegal sharing of music files, record companies are searching for new sources of revenue. Thanks to technology convergence, a new generation of cell phones is leading to changes in the mobile music industry. Mobile music is music that is purchased and played on a cell phone or other mobile device. EMERGING MARKETS BRIEFING BOOK New Media in China China is home to the world’s largest population of Internet users—nearly 600 million in all, with new users coming online every day. So it is no surprise that Google, Yahoo!, and other Internet companies are flocking there. However, strict government control over information presents major challenges. Regulations regarding the Internet require search engine companies to filter out content that Beijing finds objectionable. Also, the government blocks access to popular sites such as Facebook, Twitter, and YouTube (which is owned by Google). The vast amount of user data compiled by Google is supposed to be private. However, authorities in countries where Google has operations occasionally request access to data that will be used in government investigations. In other instances, government officials determine that some information is erroneous and ask that it be removed. The Chinese government does not allow Google to publish figures regarding its requests on the grounds that such information is a state secret. Excluding China, Google’s figures show that Brazil’s government has made the most requests for user information; 3,663 at last count. In addition, Brazilian authorities filed nearly 300 requests for data removal; Google complied with 81 percent of those requests. One can assume that the Chinese government has made more requests than Brazil’s. Google was granted a local Internet license in 2005 and began operating in mainland China in 2006. The company censored search results in accordance with Chinese law; searches on forbidden topics yielded a message that read, “According to local laws, regulations, and policies, some search results could not be displayed.” In 2009, the Chinese government alleged that pornographic images were available on Google and insisted that the content be removed. Then, early in 2010, hackers based in China attacked Google. In the wake of the attack, Google announced it would no longer censor searches. In March, Google shut down www.google.cn; visitors to the site were automatically redirected to www.google.com.hk in Hong Kong. In June 2010, Google’s Chinese operating license expired. Despite the restrictions, new media startups are thriving in China. For example, Sina Weibo, Tencent, and Baidu are microblogging sites; Renren is a popular social networking site that has been called “the Chinese Facebook.” Sina Weibo, a unit of SINA, is a microblogging site that is similar to Twitter. Despite government censorship of content that could be interpreted as anti-government, Sina Weibo and similar sites have attracted more than 200 million registered users. What’s the attraction? For one thing, these sites offer the opportunity for self-expression, which young people value in an environment of state-run media. Also, users hang on every word from Sina Weibo’ celebrity bloggers, which include movie stars and athletes. The market for paid, legal, full-track music downloads is dominated by Apple’s iTunes Store. Music purchased from iTunes can be played back on computers and mobile devices such as the Apple iPod, iPhone, and iPad. These online music services use a variety of pricing strategies. Rhapsody is primarily a subscription service, with rates starting at $9.99 per month. By contrast, iTunes uses “al a carte” pricing, charging for each song track or album download. Cloud computing, which was discussed earlier in the chapter, is expected to have a major impact on the mobile music business. Cloud-based music services represent a hybrid of the subscription and online store business models; the new approach addresses some of the shortcomings of the existing methods. Mobile Gaming Mobile gaming is gaining in popularity. According to industry estimates, revenues will reach $17.6 billion in 2015, up from $3.77 billion in 2010. Worldwide, Apple’s iPhone, iPod, and iPad are the dominant mobile-gaming platforms. Zynga, founded by entrepreneur Mark Pincus in 2007, is one of the best-known developers of mobile games. Each month, some 240 million users play Zynga Poker, Words with Friends, and other games. Some games are available on a free-to-play basis; others sell for the equivalent of a few dollars. How can a marketer monetize a free game? For a small fee, many free games can be upgraded to premium versions; in addition, many games offer users the opportunity to make in-game purchases of virtual goods. Indeed, the word “free” can be misleading, as network operators typically charge fees for downloading the games. Early generations of smartphones had small screens and limited storage space and computing power, so mobile gaming originally appealed more to occasional users such as commuters rather than hardcore gamers. Mobile games are quickly becoming more sophisticated as phone makers improve compatibility, add more features and functionality, and build high-speed 4G networks. GPS capabilities will also lead to location-based games in which players compete by trying to physically approach their opponents. Internet Phone Service For the telecommunications industry, Internet telephone service is the “next big thing.” Voice over Internet protocol (VoIP), the human voice can be digitized and broken into data packets that can be transmitted over the Internet and converted back into normal speech. Currently, VoIP accounts for only a small percentage of global calling. However, the promise of a global growth market has resulted in soaring stock values for start-ups. Skype has become a global phenomenon. In 2005, eBay acquired Skype for $2.6 billion. Digital Books and Electronic Reading Devices The digital revolution has had a dramatic impact on traditional print media properties such as newspapers and magazines. Publishers are experiencing dramatic downturns in readership as people spend more time online. Amazon sold the first Kindle for $359; the new, larger Kindle DX costs $489, holds 3,500 books, and has a 9.7-inch display screen. (Exhibit 15-9) Apple launched the iPad in March 2010; by the end of the year, 15 million units had been sold. By the end of 2012, Apple had sold more than 100 million of these devices. Industry observers think that colleges and universities will be instrumental in building awareness and encouraging adoption of e-readers and e-books. The reason is simple: electronic versions of textbooks represent a huge market opportunity. For example, the textbook you are reading is available direct from the publisher in the form of an electronic “subscription” at www.coursesmart.com. The online version requires users to be connected to the Internet; the text can be accessed from an unlimited number of computers. Buyers can use the e-book for 180 days before the subscription expires. The price is approximately half of what bookstores charge for a new copy of the physical textbook. Usually, students can print as many as 10 pages at a time; it is also possible to cut and paste, highlight, and take notes directly on the computer. As is the case with music and movies, digital piracy is a growing problem with e-books. A number of Web sites and file-sharing services distribute unauthorized copies of popular copyrighted material. What do the authors themselves think of the problem? Some view digital piracy as a way to gain new readers. Others say that they simply want fair compensation for their work. A third camp includes authors who don’t think pursuing the pirates is worth the effort. CASES Case 15-1: Africa 3.0 Overview: Investment in telecommunications and other sectors in Africa is being driven by a variety of factors. Several demographic trends are clear. For example, nearly half the population is under the age of 15. The World Bank reports that half the population lives on $1.25 per day. However, according to a study by the African Development Bank, Africa’s middle class now comprises 34 percent of the population, some 313 million people in all. The report defines “middle class” as those who spend between $2 and $20 per day. A narrower definition would include the 120 million Demand from this emerging middle class has been a boon to telecommunications' companies. One of the biggest African success stories involves Celtel International, a telecom created by Sudanese businessman Mo Ibrahim. In 2005, Mr. Ibraham sold the company to Zain, based in Kuwait, for $3.4 billion. In 2010, India’s Bharti Airtel paid $10.7 billion for Zain’s African assets. Zain had operations in 15 African countries, including Malawi, Chad, and Zambia. The acquisition makes Bharti the world’s largest mobile provider—165 million subscribers in all—with operations only in emerging markets. Not surprisingly, the market opportunity is also attracting investment from other global telecom operators. Arguably the biggest mobile innovation in Africa is M-Pesa (M for“ mobile”; pesa is Swahili for money”). M-Pesa is a mobile phone– based money transfer service developed by Safaricom Kenya and Vodaphone, with backing from Britain’s Department for International Development. Today, however, banks can work with shopkeepers and bar owners who dispense or collect cash and then credit or debit a customer’s mobile phone account. The target market is the “unbanked”; that is, people who do not have bank accounts. Discussion Questions 15-11. Will Zain be a good fit for Bharti Airtel? Is the Indian market similar to the African market? Answer: Student answers will vary but good students will note the comparison of the emerging African middle-class consumer with that of the Indian middle-class consumer in terms of buying power and population. As the "fortunes" of the African consumer grows (disposable income) their growing dependence on their "cell phones" for all types of transactions and connections will increase. Zain could be a good fit for Bharti Airtel due to its complementary presence in emerging markets, which aligns with Airtel’s strategy for expansion. However, the Indian and African markets differ in terms of consumer behavior, regulatory environments, and competitive landscapes. Adapting to these differences is crucial for successful integration and market penetration. 15-12. Further economic liberalization in Africa depends, in part, on government leaders overcoming suspicions that foreign companies want to exploit Africa. How quickly is this likely to happen? Answer: Not as quickly as one would expect it to develop - unless current leaders decided to change their focus from their individual comforts to their country's needs. The governments of the countries of Africa must open up their countrymen to the new realities and demands of a population growing up in an increasing "global" world - understanding and demanding the same consumer comforts afforded others in the emerging countries of the world. 15-13. If marketers “think local and act local,” what are some of the new products and services that are likely to emerge from Africa in the next few years? Answer: Student's can and should mention a wide variety of products and services from their own experiences and lifestyles. Everything from running water, electricity, automobiles, Internet use, clothing, entertainment, and fresh fruits and vegetables are some of the industries and products awaiting the 1 billion people of Africa! "Thinking local and acting local" could lead to the emergence of products and services tailored to Africa’s unique needs, such as affordable mobile banking solutions, low-cost healthcare technologies, and localized agricultural innovations. Additionally, there may be growth in renewable energy solutions and consumer goods designed for diverse regional climates and lifestyles. Case 15-2: Global Marketers Discover Social Media Overview: In the chapter opening, you were introduced to several prominent individuals who use the Twitter social media Web site. For example, Sir Richard Branson is the charismatic founder and chairman of the Virgin Group. Two of his companies, Virgin Atlantic and Virgin America, have their own presence on Twitter (@virginatlantic and @virginamerica, respectively). As Sir Richard told Business Week, “With more than 200 Virgin companies worldwide, my days and nights are filled with exciting service launches, product announcements, parties, events, and consumer opportunities. I’m regularly asked what a day in the life of Richard Branson looks like, and Twitter helps me answer that. It also enables communication no matter where I am.” Twitter’s success has been accompanied by some major challenges. So far, the company has raised $55 million in venture capital and is attracting millions of new users. Even so, it is unclear whether Twitter will achieve the levels of global popularity enjoyed by YouTube and Facebook. One issue is the number of users who quit using the service after trying it. Then there is the issue of making money. 15-14. Twitter seems to have a polarizing effect on people; some are excited by it, others seem angry or even scared. What is the explanation for this? Answer: Twitter is complicated and not intuitive to use. As stated in the case “users must master some new terms and symbols. Members of Twitter’s online community are known as “tweets.” “Tweet” can be both a noun and a verb; when users update their pages, they are “tweeting,” so each individual entry is a “tweet.” It is possible to “retweet” (“RT”); that is, forward someone else’s tweet. Each Twitter user can choose other users to follow. Twitter is searchable; entries marked with a “#” symbol (“hashtag”) are a group of tweets about a particular subject. The “@” symbol is used to link a tweet to another user. 15-15. You have just been hired as director of social media at a global company. This is a newly created position. What will you do during your first week on the job? Answer: Marketing research and more marketing research – who is using the various “social media” services, why are they using these services, what “benefits” to these users do these services provide, how can I generate interest in my company’s products using these social media outlets and hundreds of other questions! My basic objective would be to understand how I can use these forms of communications to get our company’s message out. 15-16. In the long run, how will Twitter generate revenues? Will it be through advertising, promoted tweets, or some other source? Answer: One’s guess is as good as another’s but if one was to “guess” Twitter would / will be generating revenue by streaming “commercial tweets” to their followers in some fashion for some trendy company / product in the near future. In the long run, Twitter is likely to generate revenues primarily through advertising and promoted tweets, leveraging its vast user base and targeted advertising capabilities. Additionally, Twitter may explore subscription models, data analytics services, and partnerships to diversify its revenue streams. Continuous innovation in monetizing user engagement will be crucial for long-term profitability. TEACHING TOOLS AND EXERCISES Cases: "HTC Corporation: A Smartphone Pioneer From Taiwan", by Lien-Ti Bei and Shih-Fen Chen, Richard Ivey School of Business Foundation, 2012. W11227-PEF-ENG, 22 p. “Air France Internet Marketing: Optimizing Google, Yahoo!, MSN, and Kayak Sponsored Search”. Mark Jeffery; Lisa Egli; Andy Gieraltowski; Jessica Lambert; Jason Miller; Liz Neely; Rakesh Sharma. HBS KET319. “What is the Best Global Strategy for the Intenet?”. Mauro F. Guillen. HBS BH077. Videos: "Product Red (A) and (B), Video DVD" by Youngme Moon, Michael I. Norton, 2009, video supplement. Product # 509724-VID-ENG. Four Seasons Embraces Digital Marketing, Virtual Experiences – How they are coping with advertising changes worldwide, and the new moves they are making. http://adage.com/article/cmo-interviews/seasons-embraces-digital-marketing-virtual-experiences/232055/ Activity: Students should be preparing or presenting their Cultural-Economic Analysis and Marketing Plan for their country and product as outlined in Chapter 1. Movie: 1950s Global Economy, Commerce & World Trade Center Films DVD: Vintage Business Economic Globalization, Foreign Commerce & WTC Footage. Available from Quality Information Publishers. This is a DVD compilation of three vintage world commerce and foreign trade films. This is an absolutely wonderful short (25 minutes or so) piece that shows just how much things have changed. Out-of-Class Reading: Singh, Tanuja, and Mark E. Hill. “Consumer Privacy and the Internet in Europe: A View from Germany.” Journal of Consumer Marketing 20, no. 7 (2003), pp. 634-652. Internet Exercise: Take a look at some of the foreign websites of Amazon.com and eBay. How do they differ from our “American” version? Guest speaker: Invite someone from a company that designs websites and hear what is involved in creating a website for domestic and/or global use. SUGGESTED READINGS Books Kraemer, Kenneth L., Jason Dedrick, and Nigel P. Melville. Global e-commerce: Impacts of National Environment and Policy. London: Cambridge University Press, 2006. Dholakia, Nikhilesh, Wolfgang Fritz, Ruby Roy Dholakia, Norbert Mundorf. Global E-Commerce and Online Marketing: Watching the Evolution. Westport, CT: Quorum Books, 2002. Articles Anderson, Philip, and Erin Anderson. “The New E-Commerce Intermediaries.” MIT Sloan Management Review 43, no. 4 (Summer 2002), pp. 53-63. Chiu, VCH, "National competitive advantage and cultural proximity: Comparison study of digital content industries in China and Taiwan" Journal of Media and Communication Studies, 2012 Evans, Dave & McKee, Jake. "Social Media Marketing: The Next Generation of Business Engagement". Google E-Book, John Wiley and Sons. October 12, 2010 Dickie, Mure. “Amazon Buys into Growing Chinese Online Retail Market.” Financial Times (London) (August 20, 2004), p. 20. Lynch, Patrick, Robert J. Kent, and Srini S. Srinivasan. "The Global Internet Shopper: Evidence from Shopping Tasks in Twelve Countries." Journal of Advertising Research (May-June 2001), pp. 15-23. Samiee, Saeed. "The Internet and International Marketing: Is There a Fit?" Journal of Interactive Marketing 12, no. 4 (Autumn 1998), pp. 5-21. Singh, Tanuja, and Mark E. Hill. “Consumer Privacy and the Internet in Europe: A View from Germany.” Journal of Consumer Marketing 20, no. 7 (2003), pp. 634-652. Mazaheri, Ebrahim, Richard, Marie-Odile & Laroche, Michel. "Online Consumer Behavior: Comparing Canadian and Chinese Website Visitors". Journal of Business Research (Volume 64, p.958-965) 2011 Y Yu, and A. Benlian, "An Empirical Study of Volunteer Members' Perceived Turnover in Open Source Software Projects". 2012 45th Hawaii International Conference on System" Zhang, Cheng, Song, Peijan & Qu, Zhe. "Competitive Action in the Diffusion of Internet Technology Products in Emerging Markets: Implications for Global Marketing Managers". Journal of International Marketing (Volume 19, Number 4, p.40-60) 2011 Link: http://www.journals.marketingpower.com/doi/abs/10.1509/jim.11.0009?journalCode=jimk Solution Manual for Global Marketing Warren J. Keegan, Mark C. Green 9780133545005, 9781292017389