CH-21-22 Tapping into Global Markets – Marketing Management: A South Asian Perspective : Chapter Notes

This Document Contains Chapters 21 to 22 Chapter 21 Tapping into Global Markets LEARNING OBJECTIVES In this chapter, we will address the following questions: What factors should a company review before deciding to go abroad? How can companies evaluate and select specific foreign markets to enter? What are the differences between marketing in a developing and a developed market? What are the major ways of entering a foreign market? To what extent must the company adapt its products and marketing program to each foreign country? How do marketers influence country-of-origin effects? How should the company manage and organize its international activities? SUMMARY Despite shifting borders, unstable governments, foreign-exchange problems, corruption, and technological pirating, companies selling in global industries need to internationalize their operations. Upon deciding to go abroad, a company needs to define its international marketing objectives and policies. It must determine whether to market in a few or many countries and rate candidate countries on three criteria: market attractiveness, risk, and competitive advantage. Developing countries offer a unique set of opportunities and risks. The “BRIC” countries—Brazil, Russia, India, and China—plus other significant markets such as Indonesia and South Africa are a top priority for many firms. Modes of entry are: indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Each succeeding strategy entails more commitment, risk, control, and profit potential. In deciding how much to adapt their marketing programs at the product level, firms can pursue a strategy of straight extension, product adaptation, or product invention. At the communication level, they may choose communication adaptation or dual adaptation. At the price level, firms may encounter price escalation, dumping, gray markets, and discounted counterfeit products. At the distribution level, firms need to take a wholechannel view of distributing products to the final users. Firms must always consider the cultural, social, political, technological, environmental, and legal limitations they face in other countries. Country-of-origin perceptions can affect consumers and businesses alike. Managing those perceptions to the best advantage is a marketing priority. Depending on their level of international involvement, companies manage international marketing activity in three ways: through export departments, international divisions, or a global organization. OPENING THOUGHT In today’s multicultural world, students would have been exposed to products marketed across geographic or national boundaries, so the student’s ability to grasp this concept should be straightforward. What could present a challenge is the extent of marketing planning and detail needed by the firm in making their marketing decisions nationally and internationally. The instructor is encouraged to open up the class discussions to students from other nations present in the class, and to ask these students to describe the shopping experiences in their homeland. Students with international business or international marketing experiences should be especially encouraged to present to the class descriptions of what marketing is like outside of Asia. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS If the project is to be exported to another country, then student’s submissions regarding how the product is to be distributed should be included here; otherwise this begins the presentation phase of the project, and student groups should begin their presentations to the class. The instructor is encouraged to challenge the students by assigning students to find their favorite product’s corporate office. Examples may include Apple, Nike, Samsung, Sony, Ben & Jerry’s and others. Beyond just discovering examples of global or international firms, students should uncover via financial information, the origin of sales by country. Such an exercise will provoke interesting classroom discussions as the students begin to realize the global nature of business in today’s international marketplace. Marketing Plan: Global marketing offers a way for companies to grow by expanding the customer base beyond the domestic market. However, the complexities of global marketing demand careful planning and implementation. Get students to research markets outside Asia for their product or service. Review the recommendations then get students to answer these questions about global marketing: Should licensing, joint ventures, direct investment, or exporting be used to enter markets outside Asia? Which of the five international product strategies (straight extension, communication adaptation, product adaptation, dual adaptation, product/forward invention), is most appropriate and why? Identify one international market that seems most promising. Why is this international market considered most promising? Get students to summarize their answers in a written marketing plan or enter the answers in the Marketing Organization and Implementation sections of Marketing Plan Pro. ASSIGNMENTS Have the students research and list the 25 leading Asian global firms and see how many they recognize, and more importantly, how many products have they and their families recently purchased from these companies. Were there any surprises among the students that these companies were in fact, international? Or that some are even based in emerging countries. Share student comments in class. Major marketers are using the power of the Internet to engage in global e-commerce. Visit a foreign Web site for an Asian company and evaluate the similarities and differences between the Asian Web site and its foreign Web site. What differences/similarities strike you as significant? Could the differences be readily adapted to other foreign countries? Finding free information about trade and exporting has never been easier. Web sites such as www.etradeasia.com; www.atpf.org, www.iesingapore.gov.sg, and www.aseansec.org, provide valuable information for marketers. Visit each site and compile a list of information that you, as a marketer, might find valuable in deciding how to market internationally. Table 21.3 shows some famous “blunders” in international marketing. Students should research these examples (and find others) and provide insight into why they think such “blunders” were allowed to occur. This can lead to a classroom discussion into the complexity facing many firms in international and multi-cultural marketing. Have the students prepare an international campaign and marketing plan for one consumer product. Ask them to refer to Global Marketing Pros and Cons (Table 21.2) and being cognizant of these international companies, decide on how much to adapt their marketing strategy to local conditions. Students should pick an international corporation and in researching the products sold by the firm overseas, see if there are some significant differences in brand characteristics for each country. For example, Pringles, Kit Kat, and Toyota, have made some changes in product features, packaging, channels, pricing, in different global markets. The assignment is for the students to provide additional examples of products changed to suit the country’s consumers while at the same time, maintaining the international brand name. END-OF-CHAPTER SUPPORT MARKETING DEBATE—Is the World Coming Closer Together? Many social commentators maintain that youth and teens are becoming more and more alike as time goes on. Others, while not disputing that fact, point out that the differences between cultures at even younger ages far exceed the similarities. Take a position: ‘People are becoming more and more similar’ versus ‘The differences between people of different cultures far outweigh their advantages’. Pro: The world is becoming homogeneous. At least the “world” of consumers, that is. The growth of the Internet, the speed of communication, and travel has succeeded in exposing people to differing lifestyles and preferences that they are finding appealing and desirable. Consumer preferences for products tend to become similar as the economic conditions of the target markets achieve certain levels. Economic affluence and political stability foster increases in consumer affluence and product attractiveness. In marketing, we target “markets”—defined as groups of people who share similar characteristics, wants, needs, and ability to pay. These “target markets” exist in the aggregate not as belonging to one country or another. There exist numerous examples of products first produced for a national market finding it fully adaptable to foreign sales and vice-versa because consumers in those “target markets” have similar characteristics, needs, and wants that the product meets. The youth and teen markets of the world share almost instant communication of ideas and products from around the world while at the same time, share similar learning and growing experiences, feelings, and concerns. The audience does not change; we are still human beings after all; and as such, the message can connect to the audience or audiences around the world. The difference in marketing is neither the message nor the messenger that influences these similarities; it is the economic situations facing the people involved. Con: Cultural differences, in language, environment, physical, economic, and geographical areas contain key differences that will never be overcome by marketing. Marketers should be very aware of these differences and excellent marketers will capitalize on these differences in their marketing messages. These differences especially apply to the second and third world markets. Countries are communities and people in their particular country will always insist on their individual identification and nationality. Nationalism is a strong motivator for product purchase and/or how a product is used. Some products extend national boundaries—this is a fact that no marketer can ignore. However, products that extend past national boundaries are just a small part of a person’s total product consumption or usage on a daily basis. Niche marketing and nationally produced products will continue to exist at the local and national level. Some of these products are due to consumer eating, sleeping, cultural, and religious differences that will remain specific to that country or culture. MARKETING DISCUSSION Think of some of your favorite brands. Do you know where they come from? Where and how are they made or provided? Do you think this would affect your perceptions of quality or satisfaction? Answer: For favorite brands like Apple and Tesla, I know they are manufactured with advanced technology and high standards, primarily in the U.S. and specialized factories worldwide. This knowledge enhances my perception of quality and satisfaction, as I associate their origins with innovation and meticulous craftsmanship. Marketing Lesson: L’OREAL Review L’Oreal’s brand portfolio. What role have target marketing, smart acquisitions, and R&D played in growing those brands? Suggested Answer: Student answers will vary but good students will note that today, the company has evolved into the world’s largest beauty and cosmetics company, with distribution in 130 countries, 23 global brands, and over €17.5 billion in sales. Owen-Jones transformed L’Oreal from a small French business to an international cosmetics phenomenon with strategic vision and precise brand management. Owen-Jones divested weak brands, invested heavily in product innovation, acquired ethnically diverse brands, and expanded into markets no one had dreamed of. L’Oreal instantly became a player (with 20 percent market share) in the growing ethnic hair care industry when it purchased and merged the U.S. companies Soft Sheen Products in 1998 and Carson Products in 2000. L'Oréal's brand portfolio has grown significantly through targeted marketing that appeals to diverse consumer segments, smart acquisitions of complementary brands, and robust R&D that drives product innovation and quality. This strategic approach has helped them capture and expand their market share globally. Who are L’Oreal’s greatest competitors? Local, global, or both? Why? Suggested Answer: With sales in 130 countries and 23 global brands, L’Oreal’s greatest competitors are both local, global, and glocal! L'Oréal's greatest competitors are both local and global, including brands like Estée Lauder, Procter & Gamble, and Unilever. These competitors challenge L'Oréal across various markets with strong brand portfolios and extensive distribution networks. What has been the key to successful local product launches such as Maybelline’s Wonder curl in Japan? Suggested Answer: Student answers will vary but good students will note that L’Oreal invests money and time in innovating at 14 research centers around the world, spending 3 percent of annual sales on R&D, more than one percentage point above the industry average. Understanding the unique beauty routines and needs of different cultures, countries, and consumers is critical to L’Oreal’s global success. The key to successful local product launches like Maybelline’s Wondercurl in Japan has been tailoring products to meet local consumer preferences and leveraging targeted marketing strategies to resonate with the specific cultural and beauty trends of the market. What’s next for L’Oreal on a global level? If you were CEO, how would you sustain the company’s global leadership. Suggested Answer: Student answers will vary but Gilles Weil’s comment answers this question quite well: “You have to be local and as strong as the best locals, but backed by an international image and strategy.” Next for L'Oréal on a global level is further expansion into emerging markets and continued innovation in sustainable beauty products. As CEO, I would sustain global leadership by prioritizing digital transformation, enhancing e-commerce capabilities, and investing in sustainable and inclusive product development. Marketing Lesson: TIGER BALM Explore the driving forces propelling Tiger Balm to venture into new markets. Suggested Answer: Globalization and migration are two major driving forces. As Asians can now be found in most parts of the developed world, all places with Asian consumers that have a cultural affinity towards the product are possible new markets for Tiger Balm. Tiger Balm is propelled into new markets by increasing global demand for natural health remedies and a strategic push to diversify its product offerings and distribution channels. Strong brand recognition and effective marketing strategies also fuel this expansion. What factors does Tiger Balm consider when selecting new overseas markets to enter? Suggested Answer: (i) The presence of a sizeable Asian community in the market is a strong indication that there is likely to be good demand for analgesic ointments. (ii) Apart from the presence of large Asian communities in the country, the U.S. is a prime target market because Tiger Balm is able to expand nationwide through major chain stores such as Walgreens, the largest drugstore chain there. (iii) The ability of Tiger Balm products to gain regulatory approval is crucial to its selection of the markets to enter. Tiger Balm considers market demand for natural health products, regulatory environment, and potential for brand growth when selecting new overseas markets. They also evaluate local competition and distribution logistics. How would you assess the Tiger Balm’s selection criteria for entering new markets? Are they too conservative or too liberal? What changes, if any, would you recommend, and why? Suggested Answer: Student answers will vary but good students will note that Tiger Balm’s selection criteria is based on demand, cultural affinity and the ability to gain regulatory approval, which all things considered is standard for most companies. Therefore, no changes are necessary. Tiger Balm's selection criteria seem balanced but could benefit from a more aggressive approach in high-growth potential regions. I recommend leveraging data analytics to identify emerging trends and increasing partnerships with local distributors to enhance market entry. To what extent should Tiger Balm adapt the product to the markets it enters? What criteria should Tiger Balm use to consider whether or not to adapt? Suggested Answer: Student answers will vary but Tiger Balm should definitely adapt its packaging to cater to different target markets as analgesic (painkiller) remedies should have clear instructions that can be understood by users. Tiger Balm should adapt its products based on local consumer preferences and regulatory requirements. Criteria for adaptation should include cultural relevance, ingredient acceptability, and local competition analysis. DETAILED CHAPTER OUTLINE With ever faster communication, transportation, and financial flows, the world is rapidly shrinking. Countries are increasingly multicultural, and products and services developed in one country are finding enthusiastic acceptance in others. A German businessman may wear an Italian suit to meet an English friend at a Japanese restaurant, who later returns home to drink Russian vodka and watch an American movie on a Korean TV. Emerging markets that embrace capitalism and consumerism are especially attractive targets. They are also creating marketing powerhouses all their own. Companies need to be able to cross boundaries within and outside their country. Although opportunities to enter and compete in international markets are significant, the risks can also be high. Companies selling in global industries, however, have no choice but to internationalize their operations. COMPETING ON A GLOBAL BASIS Although some businesses may want to eliminate foreign competition through protective legislation, the better way to compete is to continuously improve products at home and expand into foreign markets. A global industry is an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions. A global firm is a firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors. Global firms plan, operate, and coordinate their activities on a worldwide basis. DECIDING WHETHER TO GO ABROAD Most companies would prefer to remain domestic if their domestic market were large enough. Yet several factors are drawing more and more companies into the international arena: Some international markets present higher profit opportunities than the domestic market. The company needs a larger customer base to achieve economies of scale. The company wants to reduce its dependence on any one market. The company may want to counterattack these competitors in their home markets. Customers are going abroad and require international servicing. Before making a decision to go abroad the company must weigh several risks: The company might not understand foreign customer preferences and fail to offer a competitively attractive product. The company might not understand the foreign country’s business culture or know how to deal effectively with foreign nationals. The company might underestimate foreign regulations and incur unexpected costs. The company might realize that it lacks managers with international experience. The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property. Some companies don’t act until events thrust them into the international arena. The internationalization process typically has four stages: No regular export activities Export via independent representatives (agents) Establishment of one or more sales subsidiaries Establishment of production facilities aboard The first task is to get companies to move from stage 1 to stage 2. Later it establishes an export department to manage its agent relationships. Still later, the company replaces its agents with its own sales subsidiaries in its larger export markets. To manage these subsidiaries the company replaces the export department with an international department. If certain markets continue to be larger and stable, the company takes the next step in locating production facilities in those markets. DECIDING WHICH MARKETS TO ENTER In deciding to go abroad, the company needs to define its marketing objectives and policies. What proportion of international to total sales will it seek? Most companies start small when they venture abroad. Some plan to stay small; others have bigger plans. HOW MANY MARKETS TO ENTER The company must decide how many countries to enter and how fast to expand. Companies’ entry strategy typically follows one of two possible approaches: 1) A waterfall approach—countries are gradually entered sequentially. 2) A sprinkler approach—many countries are entered simultaneously within a limited period of time. Increasingly, especially with technology-intensive firms, they are born global and market to the world right from the outset. When first mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is preferred. The main risk is the substantial resources involved and the difficulty of planning entry strategies in so many potentially diverse markets. The company must also decide on the types of countries to consider. DEVELOPED VERSUS DEVELOPING MARKETS One of the sharpest distinctions in global marketing is between developed and developing or less mature markets such as Russia, India, and China. The unmet needs of the developing world represent huge potential markets for food, clothing, shelter, consumer electronics, appliances, and many other goods. Market leaders are rushing into China and India, and increasingly into the rural parts of these emerging economies. The developed nations and the prosperous parts of developing nations account for less than 20 percent of the world’s population. Is there a way for marketers to serve the other 80 percent? Successfully entering developing markets requires a special set of skills and plans. These marketers are able to capitalize on the potential of developing markets by changing their conventional marketing practices to sell their products and services more effectively. Smaller packaging and lower sales prices are often critical in markets where incomes are limited. Competition is also growing from companies based in developing markets. Many firms are using lessons gleaned from marketing in developing markets to better compete in their developed markets. Product innovation has become a two-way street between developing and developed markets. Marketing Insight: Shows Spotlight on Key Developing Asian Markets: India, China, and Indonesia. Even entering a developed market is challenging as firms need to adapt to a different cultural environment and consumer behavior. International marketers also face stiff local competition. Besides their close grasp of local tastes, such companies may also have larger distribution networks, especially in rural areas. Regional economic integration—trading agreements between blocs of countries—has intensified in recent years. (See Table 21.1). EVALUATING POTENTIAL MARKETS However much nations and regions integrate their trading policies and standards, each still has unique features that must be understood. A nation’s readiness for different products and services and its attractiveness as a market to foreign firms depend on its economic, political–legal, and cultural environments. How does a company choose among potential markets to enter? Many companies prefer to sell to neighboring countries because they understand these countries better and can control their costs more effectively. At other times, psychic proximity determines choices. However, companies should be careful in choosing markets according to cultural distance. Besides overlooking potentially better markets, it also may result in a superficial analysis of some very real differences among the countries. It may also lead to predictable marketing actions that would be a disadvantage from a competitive standpoint. DECIDING HOW TO ENTER THE MARKET Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. These five market-entry strategies are shown in Figure 21.2. INDIRECT AND DIRECT EXPORT Companies typically start with indirect exporting—that is, they work through independent intermediaries. Domestic-based export merchants buy the manufacturer’s products and then sell them abroad. Domestic-based export agents, including trading companies, seek and negotiate foreign purchases for a commission. Cooperative organizations conduct exporting activities for several producers— often of primary products such as fruits or nuts—and are partly under their administrative control. Export-management companies agree to manage a company’s export activities for a fee. Indirect export has two advantages. 1) It involves less investment. 2) It involves less risk. Companies may eventually decide to handle their own exports, the investment and risk are greater, but so is the potential return. A company can carry on direct exporting in several ways: Domestic-based export department or division Overseas sales branch or subsidiary Traveling export sales representatives Foreign-based distributors or agents LICENSING Licensing is a simple way to engage in international marketing. A) The licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. B) The licensor gains entry at little risk. The licensee gains production expertise or a well-known product or brand name. The licensor has less control over the licensee than it does over its own production and sales facilities. If the licensee is very successful, the firm has given up profits. In the past, licensing has generally been neglected as an entry strategy in Asia for two main reasons: (1) the belief, usually true, that local manufacturers do not possess the capability of absorbing and applying advanced technologies; and (2) the poor legal protection for foreign intellectual property in the region. There are several variations on a licensing arrangement. Companies such as Hyatt and Marriott sell management contracts to owners of foreign hotels to manage these businesses for a fee. The management firm may even be given the option to purchase some share in the managed company within a stated period. In contract manufacturing, the firm hires local manufacturers to produce the product. Contract manufacturing reduces the company’s control over the process and risks loss of potential profits. However, it offers a chance to start faster, with the opportunity to partner with or buy out the local manufacturer later. Finally, a company can enter a foreign market through franchising, a more complete form of licensing. The franchisor offers a complete brand concept and operating system. In return, the franchisee invests in and pays certain fees to the franchisor. JOINT VENTURES Foreign investors may join with local investors to create a joint venture company in which they share ownership and control. A joint venture may be necessary or desirable for economic or political reasons. The foreign firm might lack the: Financial resources Physical resources Managerial resources needed to undertake the venture alone Foreign governments might require joint ownership for entry Asian companies have also formed joint ventures when they expand overseas Marketing Insight: Guanxi and Its Application to Marketing in Greater China Discusses the nature and role of connections in Asian marketing. Joint ownership has certain drawbacks: The partners might disagree over investment The partners might disagree over marketing The partners might disagree over other policies Joint ownership can also prevent a multinational company from carrying out specific manufacturing and marketing policies on a worldwide basis. Foreign companies establishing joint ventures in Asia typically team up with four types of local partners: High net-worth families Relatively small companies in the same business Large companies Government or governmental-linked companies DIRECT INVESTMENT The ultimate form of foreign involvement is direct ownership of foreign-based assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build its own facilities. If the market appears large enough, foreign production facilities offer distinct advantages: The firm secures cost economies in the form of cheaper labor or raw materials; foreign-government investment incentives and/or freight savings. The firm strengthens its image in the host country because it creates jobs. The firm develops a deeper relationship with government, customers, local suppliers, and distributors. The firm retains full control over its investment. 5) The firm assures itself access to the market. C) The main disadvantage of direct investment is: The firm exposes a large investment to risks such as blocked or devalued currencies Worsening markets Expropriation DECIDING ON THE MARKETING PROGRAM International companies must decide how much to adapt their marketing strategy to local conditions. At one extreme is a standardized marketing program worldwide. Table 21.2 summarizes some pros and cons of standardizing the marketing program. At the other extreme is an adapted marketing program, consistent with the marketing concept, believes consumer needs vary and tailors marketing to each target group. GLOBAL SIMILARITIES & DIFFERENCES The development of the Web, the spread of cable and satellite TV, and the global linking of telecommunications networks have led to a convergence of lifestyles. Increasingly common needs and wants have created global markets for more standardized products, particularly among the young middle class. At the same time, consumers still vary across markets in significant ways. Consumer behavior may reflect cultural differences that can be pronounced across countries. Hofstede identifies four cultural dimensions that can differentiate countries: Individualism versus collectivism High versus low power distance Masculine versus feminine Weak versus strong uncertainty avoidance Consumer behavior differences as well as historical market factors lead marketers to position brands differently in different markets. MARKETING ADAPTATION Although many companies have tried to launch their version of a world product, most products require at least some adaptation. Marketing Memo: How to Maximize the Marketing Value of Emails Suggestions that help a company retain many of the advantages of global branding while minimizing the potential disadvantages. GLOBAL PRODUCT STRATEGIES Developing global product strategies requires knowing what types of products or services are easily standardized and appropriate adaptation strategies. Product Standardization Some types of products travel better across borders than others. While mature products have separate histories or positions in different markets, consumer knowledge about new products is generally the same everywhere because perceptions have yet to be formed. Many leading Internet brands— Google, eBay, Amazon—made quick progress in overseas markets. High-end products also benefit from standardization, because quality and prestige often can be marketed similarly across countries. Food and beverage marketers find it more challenging to standardize given widely varying tastes and cultural habits. Culture and wealth factors influence how quickly a new product takes off in a country, although adoption and diffusion rates are becoming more alike across countries over time. Product Adaptation Warren Keegan has distinguished five adaptation strategies of product and communication to a foreign market (see Figure 21.3). The product adaptation strategies are: Straight extension means introducing the product in the foreign market without any change. Product adaptation involves altering the product to meet local conditions or preferences. A company can produce a regional version of its product. A company can produce a country version of its product. A company can produce a city version of its product. A company can produce different retailer versions of its product. Product invention consists of creating something new Backward invention is reintroducing earlier product forms that are well adapted to a foreign country’s needs. Forward invention is creating a new product to meet a need in another country. Product invention is a costly strategy, but the payoffs can be great, particularly if a company can parlay a product innovation into other countries. Brand Element Adaptation In launching products and services globally, certain brand elements may have to be changed. Brand slogans or ad taglines sometimes have to be changed too. Table 21.3 lists some other famous blunders in this arena. GLOBAL COMMUNICATION STRATEGIES Changing marketing communications for each local market is a process called communication adaptation. If it adapts both the product and the communication, the company engages in dual adaptation. The company can use one message everywhere, varying only the language, name, and colors to avoid taboos in some countries. The second possibility is to use the same theme globally but adapt the copy to each local market. The third approach consists of developing a global pool of ads from which each country selects the most appropriate. Global Adaptations Companies that adapt their communications wrestle with a number of challenges. They first must ensure their communications are legally and culturally acceptable. Adapting creative strategies and styles to suit different Asian markets is prevalent as these markets vary in cultural orientation. Companies also must be prepared to vary their messages’ appeal. Many messages need adjustment because the brand is at an earlier stage of development in its new market. Consumer education about the product itself may then need to accompany brand development efforts. Marketers must also adapt sales-promotion techniques to different markets. Several Asian countries have laws preventing or limiting sales-promotion tools such as discounts, rebates, coupons, games of chance, and premiums. In developing markets, high mobile phone penetration and high text-messaging volume make mobile marketing attractive. Personal selling tactics may need to change too. The direct, no-nonsense approach favored in the U.S. (characterized by a “let’s get down to business” and “what’s in it for me” stance) may not work as well in Asia where an indirect, subtle approach can be more effective. GLOBAL PRICING STRATEGIES Multinationals face several pricing problems when selling abroad. They must deal with: Price escalation Transfer prices Gray markets Counterfeits Price Escalation Because the cost escalation varies from country to country, the question is how to set the prices in different countries. Companies have three choices: Set a uniform price everywhere. Set a market-based price in each country Set a cost-based price in each country When companies sell their wares over the Internet, price becomes transparent and price differentiation between countries declines. In another new global pricing challenge, countries with overcapacity, cheap currencies, and the need to export aggressively have pushed prices down and devalued their currencies. Transfer Prices Another problem arises when a company sets a transfer price (the price it charges another unit in the company) for goods that it ships to its foreign subsidiaries. If the company charges too high a price to a subsidiary, it may end up paying higher tariff duties, although it may pay lower income taxes in the foreign country. If the company charges too low a price to its subsidiary, it can be charged with dumping. Dumping occurs when a company charges either less than its costs or less than it charges in its home market, to enter or win a market. Gray Markets Multinationals are plagued by the gray-market problem. The gray market consists of branded products diverted from normal or authorized distribution channels in the country of product’s origin or across international borders. Dealers in the low-price country find ways to sell some of their products in higherprice countries, thus earning more. Often a company finds some enterprising distributors buying more than they can sell in their own country and reshipping the goods to another country to take advantage of price differences. Gray markets create a free-rider problem, making legitimate distributors’ investments in supporting a manufacturer’s product less productive and selective distribution systems more intensive. They harm distributor relations, tarnish the manufacturer’s brand equity, and undermine the integrity of the distribution channel. They can even pose risks to consumers if the seemingly brand-new product they think they are buying is damaged, remarked, obsolete, without warranty or support, or just counterfeit. Multinationals try to prevent gray markets by policing the distributors, raising their prices to lower-cost distributors, or altering product characteristics or service warranties for different countries. Counterfeit Products Name a popular brand, and chances are a counterfeit version of it exist somewhere in the world. Fakes take a big bite of the profits of luxury brands. Manufacturers are fighting back online with Web-crawling software that detects fraud and automatically warns apparent violaters without the need for any human intervention. Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands and unauthorized Web sites that plaster brand trademarks and logos on their homepage. GLOBAL DISTRIBUTION CHANNELS Many manufacturers think their job is done once the product leaves the factory. They should pay attention to how the product moves within the foreign country. They should take a whole-channel view of the problem of distributing products to the final users. Channel Entry Figure 21.4 shows the three major links between seller and ultimate buyer. In the first link, seller’s international marketing headquarters, the export department, or international division makes decisions on channels and other marketing-mix elements. In the second link, channels between nations, gets the products to the borders of the foreign nations. The decisions made in this link include: 1) Types of intermediaries (agents, trading companies) Type of transportation Financing and risk arrangements A) The third link, channels within foreign nations, gets the products from their entry point to the final buyers and users. Channel Differences Distribution channels within countries vary considerably. To sell soap in Japan, Procter & Gamble has to work through one of the most complicated distribution systems in the world. It must sell to a general wholesaler, who sells to a product wholesaler, who sells to a product specialty wholesaler, who sells to a regional wholesaler, who sells to a local wholesaler, who finally sells to retailers. All these distribution levels can mean that the consumer’s price ends up double or triple the importer’s price. Another difference lies in the size and character of retail units abroad. Large-scale retail chains dominate the developed Asian economies, but much regional retailing is in the hands of small, independent retailers. Breaking bulk remains an important function of intermediaries and helps perpetuate the long channels of distribution that are a major obstacle to the expansion of large-scale retailing in developing countries. Supply chain challenges also ensue when Asian companies expand outside the region. COUNTRY-OF-ORIGIN EFFECTS Country-of-origin perceptions are the mental associations and beliefs triggered by a country. Government officials want to strengthen their country’s image to help domestic marketers who export and to attract foreign firms and investors. Marketers want to use country-of-origin perceptions in the most advantageous way possible to sell their products and services. Building Country Images Governments now recognize that the image of their cities and countries affects more than tourism and has important value in commerce. Attracting foreign business can improve the local economy, provide jobs, and improve infrastructure. Countries all over the world are being marketed like any other brand. Attitudes toward country-of-origin can change over time. Current events can also shape the image of a country. CONSUMER PERCEPTIONS OF COUNTRY-OF-ORIGIN Global marketers know that buyers hold distinct attitudes and beliefs about brands or products from different countries. These country-of-origin perceptions can affect consumer decision-making directly or indirectly. The perceptions may be included as an attribute in decision-making or influence other attributes in the process. The mere fact that a brand is perceived as being successful on a global stage may lend credibility and respect. Several studies have shown the following: People are often ethnocentric and favorably predisposed to their own country’s products, unless they come from a less developed country. The more favorable a country’s image, the more prominently the “Made in” label should be displayed. The impact of country-of-origin varies with the type of product. Certain countries enjoy a reputation for certain goods. Sometimes country-of-origin perception can encompass an entire country’s products. The favorability of country-of-origin perceptions must be considered from both a domestic and foreign perspective; different countries may view certain brands as symbolically important in their own cultural heritage and identity. DECIDING ON THE MARKETING ORGANIZATION Companies manage their international marketing activities in three ways: through export departments, international divisions, or a global organization. EXPORT DEPARTMENT A firm normally gets into international marketing by simply shipping out its goods. As sales increase, the export department is expanded to include various marketing services. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate. INTERNATIONAL DIVISION Sooner or later, companies that engage in several international markets and ventures create an international division to handle all of this activity. The international division’s staff consists of functional specialists who provide services to the various operating units. A) Operational units can be organized in several ways: Geographical organizations World product groups International subsidiaries GLOBAL ORGANIZATION Several firms have become truly global organizations. Their top corporate management and staff plans worldwide manufacturing, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or executive committee. Executives are trained in worldwide operations. Management is recruited from many countries. These companies face several organizational complexities. What forces favor “global integration?” Capital-intensive production Homogeneous demand Versus “national responsiveness” Local standards and barriers Strong local preferences They distinguish three organizational strategies: A global strategy treats the world as a single market A multinational strategy treats the world as a portfolio of national opportunities A “glocal” strategy standardizes certain core elements and localizes other elements Many firms seek a blend of centralized global control from corporate headquarters with input from local and regional marketers. Effectively transferring successful marketing ideas from one region to another is a key priority for many firms. Chapter 22 Managing a Holistic Marketing Organization for the Long Run LEARNING OBJECTIVES In this chapter, we will address the following questions: What are the important trends in marketing practices? What are the keys to effective internal marketing? How can companies be responsible social marketers? How can a company improve its marketing skills? What tools are available to help companies monitor and improve their marketing activities? SUMMARY The modern marketing department has evolved through the years from a simple sales department to an organizational structure where marketers work mainly on cross disciplinary teams. Some companies are organized by functional specialization; others focus on geography and regionalization, product and brand management, or market-segment management. Some companies establish a matrix organization consisting of both product and market managers. Effective modern marketing organizations are marked by customer focus within and strong cooperation among marketing, R&D, engineering, purchasing, manufacturing, operations, finance, accounting, and credit. Companies must practice social responsibility through their legal, ethical, and social words and actions. Cause marketing can be a means for companies to productively link social responsibility to consumer marketing programs. Social marketing is done by a nonprofit or government organization to directly address a social problem or cause. A brilliant strategic marketing plan counts for little unless implemented properly, including recognizing and diagnosing a problem, assessing where the problem exists, and evaluating results. The marketing department must monitor and control marketing activities continuously. Marketing plan control ensures the company achieves the sales, profits, and other goals in its annual plan. The main tools are sales analysis, market share analysis, marketing expense-to-sales analysis, and financial analysis of the marketing plan. Profitability control measures and controls the profitability of products, territories, customer groups, trade channels, and order sizes. Efficiency control finds ways to increase the efficiency of the sales force, advertising, sales promotion, and distribution. Strategic control periodically reassesses the company’s strategic approach to the marketplace using marketing effectiveness and marketing excellence reviews, as well as marketing audits. Achieving marketing excellence in the future will require a new set of skills and competencies. OPENING THOUGHT This chapter sums up the concept of marketing in today’s environment. Marketing must be involved in all elements of the company’s operations and work closely with its suppliers, channel partners, with the understanding that each element or function provides an opportunity to market the product to the ultimate consumer. In many ways, this chapter focuses on the “management” of marketing in terms of the ability of the marketing personnel to work with cooperation and to encourage customer focus by each discipline. Marketers today must also be concerned for the welfare of society as a whole. Finally, marketers must focus their attention to the implementation process of solving marketing opportunities. Students engaged in disciplines outside of marketing may present differing opinions of the value of their discipline to the overall health of the organization. The instructor’s challenge is to demonstrate how a holistic approach is preferable or even necessary in today’s (and more so for the future) competitive environment. Companies that do not/will not adopt such a view are likely to find that they are not competitive in the future. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS At this point in the semester-long marketing plan project, this chapter is the second of two parts of oral presentations of the student’s projects. Students should emphasize here how specifically, their marketing plans contain a holistic view of the marketing process. The concept of “internal marketing” is prevalent now in popular books and magazines. Students should read and review at least four sources from the Web and comment on what additional information, techniques, and formulas for success they have discovered. How does this information compare, contrast, or add to the information contained in the chapter. What is the future of “internal marketing” and why are companies so intent on succeeding? Marketing Plan: The last step in completing a marketing plan is to provide for organizing, implementing, evaluating, and controlling the total marketing effort. In addition to measuring progress toward financial targets and other objectives, marketers need to plan how to audit and improve their marketing activities. Have students plan the management of the marketing effort for their product or service by looking back at the objectives, strategies, and programs they have developed. Get them to answer these questions: What is the most appropriate organization for the marketing and sales departments? What control measures should be incorporated into the marketing plan? What can be done to evaluate the marketing of the product or service? How can the level of ethical and socially responsible marketing be evaluated? Get students to summarize their answers in a written marketing plan or enter the answers in the Marketing Organization and Implementation sections of Marketing Plan Pro. ASSIGNMENTS Successful holistic marketers have integrated relationship marketing, internal marketing, and social marketing into their organizations. Students should chose three companies that they believe practice holistic marketing and then defend their choices by outlining the marketing programs of the selected companies. Some companies like Panasonic, have built a business model on social responsibility and sustainability. Students should find three other examples of such firms and comment on whether or not they see “social responsibility and sustainability” as need components for marketing in the future. Specifically, knowing what we now know about consumer-buying behavior, is “social responsibility and sustainability” determinants for future success—are they “mega-trends”? Or just “trends”? Professor Steven Brown of Ulster University claims that marketers are spending too much of their time in research and not enough in marketing imagination and producing products with significant consumer impact. Split the class into two sections: pros and cons and have them defend/attack Professor Brown’s assumption. Have the students read: Michael F. Porter and Mark R. Kramer, “Strategy & Society,” Harvard Business Review, December 2006, pp. 78–82; Clayton M. Christense, Heiner Baumann, Rudy Ruggles, and Thomas M. Stadtler, “Disruption Innovation for Social Change, Harvard Business Review, December 2006, pp. 94–101; and report on their findings. In particular, ask the students to comment on the sustainability of these concepts in the 21st Century. Students should research and find two examples of a successful cause-marketing program currently available in their area and evaluate whether or not they believe that this cause marketing program is (a) building the firms brand awareness; (b) enhancing brand image; (c) establishing brand credibility; (d) evoking brand feelings; (e) creating a sense of brand community; and (f) eliciting brand engagement. Students should be able to defend their opinions citing financial, market share, stock price growth, and other definitive measures. Drawing a clear line between normal marketing practices and unethical behavior is not easy. Identify two firms, in your area, that you feel are or have demonstrated unethical behavior (although not per se illegal). Why do you believe that such practices will be not successful for the firm in the future? Do the other students in the class agree with your assertion? On the other hand, do they believe that the examples offered are just “creative” marketing? END-OF-CHAPTER SUPPORT MARKETING DEBATE—Is Marketing Management an Art or a Science? Some marketing observers maintain that good marketing is something that is more an art and does not lend itself to rigorous analysis and deliberation. Others strongly disagree and contend that marketing management is a highly disciplined enterprise that shares much in common with other business disciplines. Take a position: Marketing management is largely an artistic exercise and therefore highly subjective versus Marketing management is largely a scientific exercise with well-established guidelines and criteria. Pro: A well-crafted corporate mission statement reflects the values of the firm as they relate to the community at large, its stakeholders, its employees, and its customers. Once the firm’s positions are delineated in the mission statement, marketing can begin the process of setting its priorities, goals, and objectives derived from the stated priorities of the firm. With the advent of holistic marketing, what the firm believes about the communities at large and the strategic direction the firm wishes to take should be defined through its mission statement. Con: Mission statements are written for public consumption and rarely if ever do they reflect the actual goals, objectives, and mission of the firm. These statements are for public consumption and are written to placate the corporate stakeholders, employees, and consumers. Although most mission statements are written with good intentions, the real direction of the firm must be found in the application of their business practices. Marketing should not make the mistake of deriving its goals, objectives, and strategies from these platitudes. MARKETING DISCUSSION How does cause or corporate societal marketing affect your personal consumption behavior? Do you ever buy or not buy any products or services from a company because of its environmental policies or programs? Why or why not? Suggested Response: Student answers will vary according to their responses. Be prepared for some “heated” discussions and opinions! Corporate societal marketing affects my consumption behavior by influencing my choices based on a company’s environmental policies and ethical practices. I often choose to buy from companies with strong sustainability commitments because it aligns with my values, whereas I may avoid companies with poor environmental records to support responsible practices. Marketing Lesson: STARBUCKS Questions: Starbucks has worked hard to act ethically and responsibly. Has it done a good job communicating its efforts to consumers? Do consumers believe Starbucks is a responsible company? Why or why not? Suggested Answer: Student answers will vary and call for opinions and conjecture. Good students, however, will note that Schultz also believed Starbucks’ operations should run in a respectful, ethical manner, making decisions with a positive impact on communities and the planet. Starbucks is also involved in community, the environment, and ethical sourcing. Yes, Starbucks has effectively communicated its ethical efforts through transparent reporting and sustainability initiatives. Many consumers perceive Starbucks as responsible due to its commitment to fair trade, environmental sustainability, and community engagement. Where does a company like Starbucks draw the line on supporting socially responsible programs? For example, how much of its annual budget should go toward these programs? How much time should employees focus on them? Which programs should it support? Answer: Starbucks should allocate a significant portion of its budget to socially responsible programs, ideally around 1-2% of annual revenue, and ensure employees dedicate a manageable amount of time, such as 5-10% of work hours, to these initiatives. The focus should be on programs aligning with core values like sustainability, community development, and ethical sourcing. How do you measure the results of Starbucks’ socially responsible programs? Suggested Answer: Student answers will vary. Starbucks should ensure that its socially responsible programs are not rendered moot by controversies like its former policy of keeping a tap running non-stop at all its outlets worldwide. Socially responsible programs should be based on an assurance of consistency in standards within an organization. Results of Starbucks’ socially responsible programs can be measured through key metrics such as environmental impact reductions, community engagement outcomes, and improvements in supply chain sustainability. Regular impact assessments, customer feedback, and progress reports also provide valuable insights. Marketing Lesson: TIMBERLAND Questions: Why is becoming more green not a business cost but a business investment? Suggested Answer: It is a business investment to be more green because it just makes good business sense to reduce waste and recycle more. Companies that go green are able to pass on lower costs to their customers because they do more with fewer resources, and offer incentives to staff who can come up with fresh and innovative ideas for improving efficiency. It’s true that many companies have been able to attract new customers by improving their environmental credentials, but sustainability needs to become part of the way an organization operates. If a company can market itself as a green organization without stretching the truth, the benefits are clear. For example, companies can reduce their impact on the environment at very little cost. Especially in large organizations, by using low-power light bulbs, turning off the air conditioning and switching off computers in the evening will have a huge impact on electricity bills. Not only does this enhance a business’ environmental credibility, it also reduces overall operating costs over the long term. Becoming more green is an investment because it can lead to cost savings through energy efficiency, enhance brand reputation, attract environmentally conscious consumers, and comply with regulations that avoid potential fines. It also fosters long-term sustainability and competitive advantage. What can Timberland do to ensure that its business partners, especially those from poorer countries, are committed to saving the environment? Suggested Answer: Student answers will vary. An obvious approach would be to ensure that such business partners are equitably paid for their contributions. Another way is for Timberland to continuously work towards sustainable production so that suppliers do not feel pressured to meet supply demands at the expense of the environment. Timberland can ensure commitment from business partners by implementing strict environmental standards, providing training and resources for sustainable practices, and conducting regular audits. Additionally, offering incentives for meeting environmental goals can foster greater adherence. Should all companies have a holistic approach to their business, or do selected companies need to engage in such activities? Why? Suggested Answer: Yes. A holistic approach to business means that the entire organization is considered in its processes and policies, as opposed to focusing only on specific components. By using this approach, it can be made certain that the business is running at its full potential, as opposed to simply having strong areas and weak areas. All companies should adopt a holistic approach to their business to ensure long-term sustainability, ethical practices, and positive societal impact. While selected companies might prioritize certain activities based on their industry or goals, a comprehensive approach ultimately benefits all by fostering resilience and aligning with global trends. DETAILED CHAPTER OUTLINE Healthy long-term growth for a brand requires that the marketing organization be managed properly. Holistic marketers must engage in a host of carefully planned, interconnected marketing activities and satisfy an increasingly broader set of constituents. They must also consider a wider range of effects of their actions. Corporate social responsibility and sustainability have become a priority as organizations grapple with the short-term and long term effects of their marketing. Some firms have embraced this new vision of corporate enlightenment and made it the very core of what they do. Successful holistic marketing requires effective relationship marketing, integrated marketing, internal marketing, and performance marketing. TRENDS IN MARKETING PRACTICES In response to this rapidly changing environment, companies have restructured their business and marketing practices as summarized in Table 22.1. In a downturn, marketers have to operate in a slow-growth economic environment characterized by discriminating consumers, aggressive competition, and a turbulent marketplace. As consumers become more disciplined in their spending and adopt a “less is more” attitude, it is incumbent on marketers to create and communicate the true value of their products and services. Emerging markets such as India and China offer enormous new sources of demand—but often only for certain types of products and at certain price points. Across all markets, marketing plans and programs will grow more localized and culturally sensitive, while strong brands that are well differentiated and continually improved will remain fundamental to marketing success. Businesses will continue to use social media more and traditional media less. The Web allows unprecedented depth and breadth in communications and distribution, and its transparency requires companies to be honest and authentic. Marketers also face ethical dilemmas and perplexing trade offs. Consumers may value convenience, but how to justify disposable products or elaborate packaging in a world trying to minimize waste? Increasing material aspirations can defy the need for sustainability. Given increasing consumer sensitivity and government regulation, smart companies are creatively designing with energy efficiency, carbon footprints, toxicity, and disposability in mind. Some are choosing local suppliers over distant ones. Auto companies and airlines must be particularly conscious of releasing CO2 in the atmosphere. Now more than ever, marketers must think holistically and use creative win-win solutions to balance conflicting demands. They must develop fully integrated marketing programs and meaningful relationships with a range of constituents. INTERNAL MARKETING The role of marketing in the organization is changing. Traditionally, marketers have played the role of middlemen. In a networked enterprise every functional area can interact directly with customers. Marketing in a networked enterprise must integrate all the customer-facing processes so that the customer sees a single face and hears a single voice when they interact with the firm. Internal marketing requires that everyone in the organization buy into the concepts and goals of marketing and engage in choosing, providing, and communicating customer value. A company can have an excellent marketing department, yet fail at marketing. Much depends upon how the other company departments view customers. Only when all employees realize that their jobs are to create, serve, and satisfy customers does the company become an effective marketer. Organizing the Marketing Department Modern marketing departments may be organized in a number of different, sometimes overlapping ways: functionally, geographically, by product or brand, by market, in a matrix, and by corporate or division. Functional Organization In the most common form of marketing organization consists of functional specialists reporting to a marketing vice president, who coordinates their activities. Figure 22.1 shows five specialists. Additional specialists might include: Customer service manager Marketing planning manager Market logistic manager Direct marketing manager Internet marketing manager The main advantage of a functional marketing organization is its administrative simplicity. A functional organization often leads to inadequate planning for specific products and markets. Marketing Memo: Characteristics of Customer-Driven Company Departments Lists the characteristics that make functional departments customer-driven and responsive. Geographic Organization A company selling in a national market often organizes its sales force along geographic lines. Some companies are now adding area-marketing specialists (regional or local marketing managers) to support the sales efforts in high-volume markets. Improved information and marketing research technologies have spurred regionalization. Some companies have installed retail-store scanners that allow instant tracking of product sales, helping them pinpoint local problems and opportunities. Product or Brand Management Organization Companies producing a variety of products and brands often establish a product (or brand) management organization. The product-management organization does not replace the functional organization but serves as another layer of management. A product-management organization makes sense if the company’s products are quite different, or if the sheer number of products is beyond the ability of a functional organization to handle. Product and brand management is sometimes characterized as a hub-and-spoke system. The brand or product manager is figuratively at the center, with spokes leading to various departments (see Figure 22.2). Some of the tasks that product or brand managers may perform include: Developing a long-range and competitive strategy for the product. Preparing an annual marketing plan and sales forecast. Working with advertising and merchandising agencies to develop copy, programs, and campaigns. Increasing support of the product among the sales force and distributors. Gathering continuous intelligence on the product’s performance, customer and dealer attitudes, and new problems and opportunities. Initiating product improvements to meet changing market needs. D) The product management also has some disadvantages: Product and brand managers may lack authority to carry out their responsibilities. Product and brand managers become experts in their product area but rarely achieve functional expertise. The product management system often turns out to be costly. Brand managers normally manage a brand for only a short time. Short-term involvement leads to short-term planning and fails to build long-term strengths. The fragmentation of markets makes it harder to develop a national strategy. Brand managers must please regional and local sales groups, transferring power from marketing to sales. Product and brand managers cause the company to focus on building marketing share rather than building the customer relationship. A second alternative in a product-management organization is product teams. There are three types: vertical, triangular, and horizontal (see Figure 22.3). The triangular and horizontal product-team approaches let each major brand be run by a brand-asset management team (BAMT) consisting of key representatives from functions that affect the brand’s performance. The company consists of several BAMTs that periodically report to a BAMT directors committee, which itself reports to a Chief Branding Officer. This is quite different from the way brands have traditionally been handled. A third alternative for product management organization is to eliminate product manger positions for minor products and assign two or more products to each remaining manager. A fourth alternative is to introduce category management in which a company focuses on product categories to manage its brands. Market-Management Organization When customers fall into different user groups with distinct buying preferences and practices, a market-management organization is desirable. Market manager supervises several market managers (also called market development managers, market specialists, or industry specialists). Market managers are staff people and develop long-range and annual plans for their markets. Market managers are judged by their market’s growth and profitability. Many companies are reorganizing along market lines and becoming market-centered organizations. In a customer-management organization, companies can organize themselves to understand and deal with individual customers rather than with the mass market or even market segments. Matrix-Management Organization Companies that produce many products flowing into many markets adopt a matrix organization employing both product and market managers. The rub is that this system is costly and often creates conflicts. There is the cost of supporting all the managers, and questions about where authority and responsibility should reside—at headquarters or in the division? Some corporate marketing groups assist top management with overall opportunity evaluation, provide divisions with consulting assistance on request, help divisions that have little or no marketing, and promote the marketing concept throughout the company. RELATIONS WITH OTHER DEPARTMENTS Under the marketing concept, all departments need to “think customer” and work together to satisfy customer needs and expectations. Yet departments define company problems and goals from their viewpoint, so conflicts of interest and communications problems are unavoidable. The marketing vice president, or CMO, has two tasks: To coordinate the company’s internal marketing activities. To coordinate marketing with finance, operations, and other company functions to serve the customer. To help marketing and other functions jointly determine what is in the company’s best interests, firms can provide joint seminars, joint committees and liaison employees, employee exchange programs, and analytical methods to determine the most profitable course of action. Many companies now focus on key processes rather than departments, because departmental organizations can be a barrier to smooth performance. They appoint process leaders, who manage cross-disciplinary teams that include marketing and salespeople. Marketers thus may have a solid-line responsibility to their teams and a dotted-line responsibility to the marketing department. BUILDING A CREATIVE MARKETING ORGANIZATION Many companies realize they’re not yet really market- and customer-driven— they are product- and sales-driven. Transforming into a true market-driven company requires: Developing a company-wide passion for customers. Organizing around customer segments instead of around products. Developing a deep understanding of customers through qualitative and quantitative research. Although it’s necessary to be customer oriented, it’s not enough. The organization must also be creative. Companies today copy each others’ advantages and strategies with increasing speed, making differentiation harder to achieve and maintain. The only answer is to build a capability in strategic innovation and imagination. This capability comes from assembling tools, processes, skills, and measures that let the firm generate more and better new ideas than its competitors. G) Companies must watch trends and be ready to capitalize on them. SOCIALLY RESPONSIBLE MARKETING Effective internal marketing must be matched by a strong sense of ethics, values, and social responsibility. A number of forces are driving companies to practice a higher level of corporate social responsibility: Rising customer expectations Changing employee expectations Government legislation and pressure Investor interest in social criteria Changing business procurement practices Marketing Insight: The Marketing CEO The 10 steps that are necessary to create a customer-focused company are outlined: convince, appoint, get outside help, change rewards and measures, hire strong talent, develop training programs, install MPS, annual excellence recognition, and process-outcome, empower. Business success and continually satisfying the customer and other stakeholders are closely tied to the adoption and implementation of high standards of business and marketing conduct. The most admired companies abide by a code of serving people’s interests, not only their own. CORPORATE SOCIAL RESPONSIBILITY Raising the level of socially responsible marketing calls for a three-pronged attack that relies on proper legal, ethical, and social responsibility behavior. Legal Behavior Organizations must ensure every employee knows and observes relevant laws. For example, it is illegal for salespeople to lie to consumers or mislead them about the advantages of buying a product. Salespeople may not offer bribes to purchasing agents or others influencing a B2B sale. Ethical Behavior Business practices come under attack because business situations routinely pose ethical dilemmas: It’s not easy to draw a clear line between normal marketing practice and unethical behavior. Some business practices are clearly unethical. These include bribery, theft of trade secrets, false and deceptive advertising, exclusive dealing and tying agreements, quality or safety defects, false warranties, inaccurate labeling, pricefixing or undue discrimination, and barriers to entry and predatory competition. Companies must adopt and disseminate a written code of ethics, build a company tradition of ethical behavior, and hold its people fully responsible for observing ethical and legal guidelines. Social Responsibility Behavior Individual marketers must exercise their social conscience in specific dealings with customers and stakeholders. Increasingly, people say that they want information about a company’s record on social and environmental responsibility to help decide which companies to buy from, invest in, and work for. Communicating corporate social responsibility can be a challenge. Once a firm touts an environmental initiative, it can become a target for criticism. Many wellintentioned product or marketing initiatives can have unforeseen or unavoidable negative consequences. Corporate philanthropy can also pose dilemmas. Sustainability Sustainability, the ability to meet humanity’s needs without harming future generations, now tops many corporate agendas. Sustainability ratings exist, if not consistent agreement about what metrics are appropriate. Asian companies are showing signs of socially responsible marketing. Some feel companies that score well on sustainability typically exhibit high-quality management in that “they tend to be more strategically nimble and better equipped to compete in the complex, high-velocity, global environment.” Heightened interest in sustainability has also unfortunately resulted in greenwashing, which gives products the appearance of being environmentally friendly without living up to that promise. SOCIALLY RESPONSIBLE BUSINESS MODELS The future holds a wealth of opportunities, yet forces in the socioeconomic, cultural, and natural environments will impose new limits on marketing and business practices. Companies that innovate solutions and values in a socially responsible way are most likely to succeed. Indeed, socially responsible marketing also strikes a resonant chord in Asia as it is consistent with Confucian values. Marketing Insight: Confucius and Marketing in East Asia Two Confucian values, li (礼) and ren (仁), have become the cornerstones of social structure in East Asia. CAUSE-RELATED MARKETING Many firms blend corporate social responsibility initiatives with their marketing activities. Cause-related marketing is marketing that links the firm’s contributions to a designated cause to customers’ engaging directly or indirectly in revenue-producing transactions with the firm. Cause related marketing has also been called a part of corporate societal marketing (CSM). Cause Marketing Benefits and Costs A successful cause marketing program can produce a number of benefits: improving social welfare, creating differentiated brand positioning, building strong consumer bonds, enhancing the company’s public image with government officials and other decision makers, creating a reservoir of goodwill, boosting internal morale and galvanizing employees, and driving sales. Consumers may develop a strong, unique bond with the firm that transcends normal marketplace transactions. Specifically, from a branding point of view, cause marketing can: Build brand awareness Enhance brand image Establish brand credibility 4) Evoke brand feelings Creating a sense of brand community Elicit brand engagement Cause-related marketing programs could backfire if cynical consumers question the link between the product and the cause and see the firm as being self-serving and exploitative. Problems can also arise if consumers do not think a company is consistent and sufficiently responsible in all its behavior. The knowledge, skills, and resources of a top firm may be even more important to a nonprofit or community group than funding. Nonprofits must be clear about what their goals are, communicate clearly what they hope to accomplish, and devise an organizational structure to work with different firms. Designing a Cause Program Some experts believe that the positive impact on a brand from cause-related marketing may be lessened by sporadic involvement with numerous causes. Many companies choose to focus on one or a few main causes to simplify execution and maximize impact. Limiting support to a single cause may limit the pool of consumers or other stakeholders who could transfer positive feelings from the cause to the firm. Opportunities may be greater with “orphan causes”—diseases that afflict fewer than 200,000 people. Most firms tend to choose causes that fit their corporate or brand image and matter to their employees and shareholders. Marketing Memo: Making a Difference Lists the 8 ways Boston’s Cone, Inc. feels that cause marketing should best be practiced: define CSR for your company; build a diverse team; analyze your current CSR-related activities and revamp them if necessary; forge and strengthen NGO relationships; develop a cause-branding initiative; walk your talk; don’t be silent; beware. SOCIAL MARKETING Cause-related marketing supports a cause. Social marketing is done by a nonprofit or government organization to further a cause. Social marketing is a global phenomenon that goes back many years. Choosing the right goal or objective for a social marketing program is critical. Social marketing campaigns may have objectives related to changing people’s cognitions, values, actions, or behaviors. Cognitive campaigns Action campaigns Behavioral campaigns Value campaigns The social marketing planning process follows many of the same steps as for traditional products and services (see Table 22.2). Social marketing programs take time and may require phased programs or actions. Social marketing organizations should evaluate program success in terms of their objectives: High incidence of adoption High speed of adoption High continuance of adoption Low cost per unit of adoption No major counterproductive consequences MARKETING IMPLEMENTATION AND CONTROL Table 22.3 summarizes the characteristics of a great marketing company. A marketing company is great not by “what it is,” but by “what it does.” Marketing implementation and control are critical to making sure marketing plans have their intended results year after year. MARKETING IMPLEMENTATION Marketing implementation is the process that turns marketing plans into action assignments and ensures that such assignments are executed in a manner that accomplishes the plan’s stated objectives. A brilliant strategic marketing plan counts for little if it is not implemented properly. Strategy addresses the what and why of marketing activities. Implementation addresses the who, where, when, and how. Companies today are striving to make their marketing operations more efficient and their return on marketing investment more measurable. Marketing costs can amount to 20 to 40 percent of a company’s total operating budget. Marketing resource management (MRM) software provides a set of Web-based applications that automate and integrate project management, campaign management, budget management, asset management, brand management, customer relationship management, and knowledge management. The knowledge management component consists of process templates, how-to wizards, and best practices. Software packages can provide what some have called desktop marketing, giving marketers information and decision structures on computer dashboards. MRM software lets marketers improve spending and investment decisions, bring new products to market more quickly, and reduce decision time and costs. MARKETING CONTROL A) Marketing control is the process by which firms assess the effects of their marketing activities and programs and make necessary changes and adjustments. Table 22.4 lists four types of marketing control needed by companies: Annual-plan control Profitability control Efficiency control Strategic control Annual-Plan Control Annual-plan control aims to ensure that the company achieves the sales, profits, and other goals established in its annual plan. 1) The heart of annual-plan control is management by objectives. Four steps are involved (see Figure 22.4): Management sets monthly or quarterly goals. Management monitors its performance in the marketplace. Management determines the causes of serious performance deviations. Management takes corrective action to close the gaps between goals and performance. This control model applies to all levels of the organization. Marketers today have better marketing metrics for measuring the performance of marketing plans (see Table 22.5 for some samples). Profitability Control Companies should measure the profitability of their products, territories, customer groups, segments, trade channels, and order sizes to help determine whether to expand, reduce, or eliminate any products or marketing activities. Efficiency Control Some companies are establishing a position of marketing controller to specialize in improving marketing efficiency. Marketing controllers examine adherence to profit plans, help prepare brand managers’ budgets, measure the efficiency of promotions, analyze media production costs, evaluate customer and geographic profitability, and educate marketing personnel on the financial implications of marketing decisions. Strategic Control Each company should periodically reassess its strategic approach to the marketplace with a good marketing audit. Companies can also perform marketing excellence reviews and ethical/social responsibility reviews. The Marketing Audit The average U.S. corporation loses half of its customers in five years, half of its employees in four years, and half of its investors in less than one year. Clearly, this points to some weaknesses. Companies that discover weaknesses should undertake a thorough study known as a marketing audit. A marketing audit is a comprehensive, systematic, independent, and periodic examination of a company’s or business unit’s marketing environment, objectives, strategies, and activities with a view to determining problem areas and opportunities and recommending a plan of action to improve the company’s marketing performance. The marketing audit has four characteristics: Comprehensive Systematic Independent Periodic A marketing audit starts with a meeting between the company officer(s) and the marketing auditor(s) to work out an agreement on the audit’s objectives, coverage, depth, data sources, report format, and time frame. The marketing audit examines six major components of the company’s marketing situation. The major questions are listed in Table 22.6. The Marketing Excellence Review The three columns in Table 22.7 distinguish among poor, good, and excellent business and marketing practices. Management can place a checkmark to indicate its perception of where the business stands. The resulting profile exposes weaknesses and strengths, highlighting where the company might make changes to become a truly outstanding player in the marketplace. THE FUTURE OF MARKETING Top management recognizes that marketing requires more accountability than in the past. To succeed in the future, marketing must be more holistic and less departmental. Marketers must achieve larger influence in the company, continuously create new ideas, and strive for customer insight by treating customers differently but appropriately. They must build their brands more through performance than promotion. They must go electronic and win through building superior information and communication systems. The coming years will see: The demise of the marketing department and the rise of holistic marketing. The demise of free-spending marketing and the rise of ROI marketing. The demise of marketing intuition and the rise of marketing science. The demise of manual marketing and the rise of automated marketing. The demise of mass marketing and the rise of precision marketing. To accomplish these changes and become truly holistic, marketers need a new set of skills and competencies in: Customer Relationship Management (CRM) Partner Relationship Management (PRM) Database marketing and data mining Contact center management and telemarketing Public relations marketing (including event and sponsorship marketing) Brand-building and brand-asset management Experiential marketing Integrated marketing communications Profitability analysis by segment, customer, and channel Marketing Memo: Major Marketing Weaknesses Lists the 10 “deadly sins” that signal that a marketing program is in trouble and offers some solutions to help companies change their ways. Instructor Manual for Marketing Management: A South Asian Perspective Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha 9789810687977, 9780132102926