CHAPTER 14: COMPETING EFFECTIVELY

THROUGH GLOBAL MARKETING, DISTRIBUTION,

AND SUPPLY-CHAIN MANAGEMENT
￮ Learning objectives:
• What are the fundamentals of global marketing?
• What are the trades-offs between standardized and customized
products and promotions?
• What are the fundamentals of distribution?
• How does international distribution differ from purely domestic
distribution?
• What are the international aspects of supply-chain management?

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14.1 Fundamentals of
Global Marketing
The Four P’s

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Product

￮ Refers to any physical good or intangible

service that’s offered for sale. Given the
differences between countries (e.g., language,
culture, laws, and technology standards), a
company’s products may need to be
adapted to different countries.

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Price
￮ Is the amount of money that the consumer
pays for the product. Pricing can take different
forms. For example, pricing can be by item
(e.g., a can of corn), by volume (e.g.,
gasoline), by subscription (e.g., monthly cable
service), by usage (e.g., cell-phone minutes),
or by performance (e.g., paying more for
overnight delivery versus two-day delivery).
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Promotion
￮ Refers to all the activities that inform and
encourage consumers to buy a given
product. Promotions include advertising
(whether print, broadcast radio, television,
online, billboard, poster, or mobile), coupons,
rebates, and personal sales. Like products,
promotions are often customized to a country
to appeal to local sensibilities.
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Place
￮ Refers to the location at which a company
offers its products for sale. The place could
be a small kiosk in a village, a store in town, or
an online website.

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Place
￮ Products reach consumers through a channel of
distribution, which is a series of firms or individuals who
facilitate the movement of the product from the producer
to the final consumer. The shortest channel, called
the direct channel, consists of just the producer and the
consumer. In this case, the consumer buys directly from
the producer, such as when you buy an apple from a
local farmer. An indirect channel, in contrast, contains
one or more intermediaries between the consumer and
the producer. These intermediaries include distributors,
wholesalers, agents, brokers, and retailers.
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The Marketing Mix
￮ The four Ps together form the marketing mix.
Because the four Ps affect each other,
marketers look at the mix of product, price,
promotion, and place. They fine-tune and
adjust each element to meet the needs of the
market and to create the best outcome for the
company.

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The Marketing Mix
￮ A company’s marketing mix will often be
different for different countries based on
￮ a country’s culture and local preferences,
￮ a country’s economic level,
￮ what a country’s consumers can afford, and
￮ a country’s distribution channels and media.

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Market Segmentation
￮ Market segmentation is the process of dividing
a larger market into smaller markets that share
a common characteristic.

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Understanding Your Target
Customers
￮ Products must meet local needs in terms of cost, quality,
performance, and features and, in order to be successful,
a company must be aware of the interplay between
these factors. Let’s look at consumers in emerging
countries to get a feel for these differences.
￮ Rising Middle Class
￮ Millionaires Are Everywhere
￮ Emerging Markets for Business Customers

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Global Market Research
￮ Global market research includes understanding
the market’s culture and social trends, because
these factors impact which products
consumers will like and which advertising
appeals will resonate with them.

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Dealing with Gray and
Counterfeit Markets
￮ The gray market exists because of price discrepancies between
different markets. For example, consumer packaged-goods
companies may price their products higher in Austria than in the
neighboring Czech Republic due to the Austrian citizens’ higher
income levels. As a result, Austrians might order their goods
from Czech retailers and simply drive over the border to pick up
the products. The goods in the Czech stores are legitimate and
authentic, but the existence of this gray-market activity hurts
the producer and their channel partners (e.g., distributors and
retailers) in the higher-priced country.

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Dealing with Gray and
Counterfeit Markets
￮ In contrast to gray markets, which are
legitimate but—legally—in a gray
area, counterfeit markets purposely deceive
the buyer. For example, counterfeiters slightly
alter the Sony logo to Bony in a way that makes
it hard to distinguish without careful inspection.

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 14.2 Critical
Decision Points in
Global Marketing
Global Branding
￮ A global brand is the brand name of a product
that has worldwide recognition. Some of the
most-recognized brands in the world include
Coca-Cola, IBM, Microsoft, GE, Nokia,
McDonald’s, Google, Toyota, Intel, and Disney.
￮ Companies invest a lot in building their brand
recognition and reputation because a brand
name signals trust.
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Global Branding
￮ The advantages of creating a global brand are
economies of scale in production and
packaging, which lower marketing costs while
leveraging power and scope.
￮ The disadvantages, however, are that consumer
needs differ across countries, as do legal and
competitive environments.

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Global Branding
￮ The decision companies’ face is whether they
should market one single brand around the
world or multiple brands. Coca-Cola uses the
Coke name on its cola products around the
world but markets its water under the Dasani
brand. Nestlé uses a local branding strategy for
its 7,000 brands but also promotes the Nestlé
corporate brand globally.
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Centralized versus
Decentralized Marketing
Decisions
￮ Who has the authority to make marketing decisions? In
a centralized-marketing organizational structure, the home-
country headquarters retains decision-making power. In
a decentralized-marketing organizational structure, the regions
are able to make decisions without headquarters’ approval. The
advantage of the centralized structure is speed, consistency,
and economies of scale that can save costs (such as through
global-marketing campaigns). The disadvantages are that the
marketing isn’t tied to local knowledge and doesn’t reflect local
tastes, so sales aren’t optimized to appeal to regional
differences.
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14.3 Standardized or
Customized Products
Companies deciding to market their products in
different countries typically have a choice of three
common strategies to pursue.
Straight Product Extension

￮ This means taking the company’s current

products and selling them in other countries
without making changes to the product. The
advantages of this strategy are that the
company doesn’t need to invest in new
research and development or manufacturing.
The disadvantages, however, are that its
products may not be well suited to local needs
and that the products may be more costly due
to higher US manufacturing and labor costs. 23
Product Adaptation

￮ Product adaptation refers to modifying the

company’s existing product in a way that
makes it fit better with local needs.

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Product Invention
￮ The third strategy, product invention, is creating
an entirely new product for the target market. In
this strategy, companies go back to the
drawing board and rethink how best to design a
product for that country

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Country-of-Origin Effect

￮ The country-of-origin effect refers to consumers using

the country where the product was made as a barometer
for evaluating the product. Their perceptions of the
country influence whether they will perceive the product
favorably or unfavorably. That perception influences
consumers’ purchasing decisions. For example, France is
known for its wines and luxury goods. Wines from Chile
may be just as good and more affordably priced, but
consumers may perceive French wines to be better due
to the country-of-origin effect.

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Reverse Innovation: How Designing for Emerging
Economies Brings Benefits Back Home

￮ Increasingly, marketing and innovation are

directly linked. Reverse innovation means
designing a product for a developing country
and bringing that innovation back to the home
country. Creating new products and services for
developing countries requires radical
innovation and opens new opportunities in
developed-world markets as well.

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14.4 Global Sourcing
and Distribution
￮ Global sourcing refers to buying the raw
materials or components that go into a
company’s products from around the world,
not just from the headquarters’ country. For
example, Starbucks buys its coffee from
locations like Colombia and Guatemala. The
advantages of global sourcing are quality and
lower cost

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￮ When making global-sourcing decisions, firms
face a choice of whether to sole-source (i.e.,
use one supplier exclusively) or to multisource
(i.e., use multiple suppliers). The advantage of
sole-sourcing is that the company will often
get a lower price by giving all of its volume to
one supplier. For example, during a time of
shortage or strained capacity, the supplier
may give higher quantities to that company
rather than to a competitor as a way of
rewarding the company’s loyalty. 30
￮ On the other hand, using multiple suppliers
gives a company more flexibility.
￮ For instance, if there’s a natural disaster or
other disruption at one of their suppliers, the
company can turn to its other suppliers to
meet its needs.

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￮ Sole-Sourcing Advantages
￮ Price discounts based on higher volume
￮ Rewards for loyalty during tough times
￮ Exclusivity brings differentiation
￮ Greater influence with a supplier
￮ Sole-Sourcing Disadvantages
￮ Higher risk of disruption
￮ Supplier has more negotiating power on price

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￮ Multisourcing Advantages
￮ More flexibility in times of disruption
￮ Negotiating lower rates by pitting one supplier
against another
￮ Multisourcing Disadvantages
￮ Quality across suppliers may be less uniform
￮ Less influence with each supplier
￮ Higher coordination and management costs

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Distribution Management
￮ Selling internationally means considering how your
company will distribute its goods in the market.
Developed countries have good infrastructure—passable
roads that can accommodate trucks, retailers who
display and sell products, and reliable communications
infrastructure and media choices. Emerging markets, on
the other hand, often have very fragmented distribution
networks, limited logistics, and much smaller retailer
outlets. Hole-in-the-wall shops, door-to-door peddlers,
and street vendors play a much larger role in emerging-
market countries.
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Distribution-Management Choices: Partner,
Acquire, or Build from Scratch
￮ There are typically three distribution strategies for
entering a new market.
￮ First, companies can do a joint-venture or partnership
with a local company.
￮ A second strategy is to acquire a local company to have
immediate access to large-scale distribution.
￮ Third, a company can to build its own distribution from
scratch.

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 14.5 Global
Production and
Supply-Chain
Management
Strategic Choices: Export, Local
Assembly, and Local Production

￮ When deciding where and how to produce

products for international markets,
companies typically have a choice of three
strategies.

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Manufacture in the United States
and Then Export

￮ The lowest-investment production strategy is

to make the product at the company’s
existing manufacturing locations and then
export them to the new market. Companies
use this solution in situations where the total
opportunity in the new market doesn’t justify
opening a plant.
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Global Components with
Local Assembly
￮ The next level of strategy uses of out-of-
country suppliers but local assembly. Dell
Latin America uses this approach. It buys
high-tech computer components globally but
performs customized assembly in Brazil. Being
closer to the market improves Dell’s sales,
service, and customer knowledge.
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Local Production

￮ Finally, a company can go completely local,

sourcing materials in the foreign country and
manufacturing the product there.

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Government Incentives
￮ Countries sometimes offer special incentives to
attract companies to their area. Even though the
economic or political picture of a country may
appear appealing, companies also need to
understand public policy and the regulatory
environment of the specific state or municipality
in which they plan to set up operations, because
laws on a local level may be different and may
create roadblocks for new company operations.
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Infrastructure Issues
￮ Emerging-market countries are investing in
new infrastructure to varying degrees. China
is working hard to grow rail, road, and port
infrastructure. In other countries, investment
may be lagging. And in some cases,
companies have been caught in the middle
of governmental problems arising from
dealing with officials who turn out to be
corrupt. 42
Outsourcing and Offshoring
￮ Offshoring means setting up operations in a low-cost
country for the purpose of hiring local workers at lower
labor rates. Offshoring differs from outsourcing in that
the firm retains control of the operations and directly
hires the employees. In outsourcing, by contrast, the
company delegates an entire process (such as
accounts payable) to the outsource vendor. The
vendor takes control of the operations and runs the
operations as they see fit. The company pays the
outsource vendor for the end result; how the vendor
achieves those end results is up to the vendor
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Supply-Chain Management
￮ Supply-chain management encompasses the
planning and management of all activities involved in
sourcing and procurement, conversion, and logistics.
Importantly, it also includes coordination and
collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers,
and customers. In essence, supply-chain management
integrates supply-and-demand management within
and across companies.

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Thanks!
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