Business Explain: Global Marketing and R&D

How does globalization affect product development?

The increase in technological innovation has shortened product life cycles. Technological advances are both creative and destructive. An innovation can make a product obsolete (out of date) overnight, but it can also make a host of new products possible. The product must now satisfy needs of consumers in a cost-effective manner → connection between R&D, marketing, and manufacturing.

- Location of R&D
The rate of new-product development seems to be greater in countries where more money is spent on basic and applied research and development. New technologies are discovered and then commercialized. If the underlying demand is strong and consumers are wealthy, potential markets for new products are constantly being created. Finally, with intense competition innovation is stimulated as the firms try to beat their competitors and reap potentially enormous first-mover advantages that result from successful innovation.

- Integrating R&D, marketing, and production
New-product development has a high failure rate and the reason could often be development of technology for which demand is limited, a failure to properly commercialize promising technology and the inability to manufacture a new product cost effectively.
Firms can reduce such mistakes by insisting on tight cross-functional coordination and integration among three core functions involved in the development of new products; R&D, marketing, and production. This can help a company ensure that:
1. Product development projects are driven by customer needs.
2. New products are designed for ease of manufacture.
3. Development costs are kept in check.
4. Time to market is minimized.

- Cross-functional teams
The objective is to take a product development project from the initial concept development to market introduction. The team must be lead by a project manager and should be composed of at least one member from each key function. Also, the team should physically be in one location if possible.

- Building global R&D capabilities
Establishment of a global network of R&D centers → fundamental research is undertaken at basic research centers around the globe, located in regions or cities where valuable scientific knowledge is being created and where there is a pool of skilled labor existing.

What is the importance of international market research?

It gives the firm insight to data on the prospective country and potential market segments, forecasts customer demands within a specific country or world region, and data to make marketing mix decisions. How? By...

- Defining the research objectives
- Determining the data sources
- Assessing the costs and benefits of the research
- Collecting the data
- Analyzing and interpreting the research
- Reporting the research findings

How do you configure the marketing mix globally?

A firm might vary aspects of its marketing mix from country to country. It should take into account local differences in culture, economic conditions, competitive conditions, product and technical standards, government regulations, etc. The cumulative effect of these factors makes it rare for firms to adopt same marketing mix worldwide. Frankly, it makes sense for firms to standardize aspects of the marketing mix and customize others, depending on conditions in various national marketplaces.

Why and how can a firm's pricing strategy vary among countries?

- Price discrimination
Exists when consumers in different countries are charged different prices for the same product or slightly different versions of it. In order for this to function, two conditions must be fulfilled:
→ Separate markets, to avoid arbitrage.
→ Different price elasticity of demand in different countries.

- Strategic pricing
Predatory pricing
The use of price as a competitive weapon to drive weaker competitors out of a national market. Once competition is eliminated, firm can raise prices and enjoy high profits. Firm must normally have a profitable position in another national market so it can subsidize the aggressive pricing.

Multipoint pricing strategy
Refers to the fact that a firm's pricing strategy in one market may have an impact on its rival's pricing strategy in another market. Aggressive pricing in one market may elicit a response from rivals in another market. Also, two firms in the same market can start price wars to try and gain market dominance.

Experience curve pricing
As a firm builds its accumulated production volume over time, unit costs fall due to experience effects. Aggressive pricing can build accumulated sales volume rapidly and thus move production down the experience curve. Further down the curve → cost advantages.
Firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in an attempt to build global sales volume as rapidly as possible.

- Regulatory influences on prices
Antidumping regulations
Dumping occurs when a firm sells a product for a (fair) price that is less than the cost of producing it. Both predatory pricing and experience curve pricing can run afoul of anti-dumping regulations.

Competition policy
Most developed nations have regulations designed to promote competition and to restrict monopoly practices. These regulations can be used to limit the prices a firm can charge in a given country.

Why and how might advertising and promotional strategies vary among countries?

- Barriers to international communication
Cultural barriers
A firm needs to develop cross-cultural literacy to overcome the cultural differences that may affect the intake of commercials.

Source and country of origin effects
Source effects occur when potential consumers evaluate the message on the basis of status or image of the seller, meaning the firm. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. Firms can try to counter negative source effects by deemphasizing their foreign origins. A subset of source effects is country of origin effects (how much the place of manufacturing influences product evaluations).

Noise levels
The amount of other messages competing for a potential consumer's attention, which varies across countries. Highly developed countries such as the U.S have high noise levels, whereas developing countries normally have a lower noise level.

- Push vs Pull strategies
→ Push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. Personal selling requires intensive use of sales force and is quite costly.
→ Pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers.

Product type and consumer sophistication
Firms in consumer goods trying to sell to large segment of market generally favor the pull strategy as mass communications has cost advantages for such firms.
Firms selling industrial products/complex products favor the push strategy since direct selling allows firm to educate people potential consumers about the features of the product. This may not be necessary in advanced nations where complex products are abundant and have been for a long time, but more so in developing nations where consumers have less sophistication toward the product.

Channel length
The longer the distribution channel, the more intermediates there are. This can lead to inertia (inaction) in the channel which can make entry difficult. A solution can be for the firm to try and "pull" its product through the channel by mass advertising, creating consumer demands and intermediates then feel obligated to carry the product.

Media availability
Cable TV and the internet transformed the ability of firms to do targeted advertising. The pull strategy is limited in some countries, such as India, by media availability. In such circumstances, a push strategy is more attractive. Media can also be limited by law, such as selling tobacco and alcohol, or selling products with kids in the commercial.

The Push-Pull mix
Push strategy.
→ For industrial products or complex new products.
→ When distribution channels are short.
→ When few print or electronic media are available.
Pull strategy.
→ For consumer goods.
→ When distribution channels are long.
→ When sufficient print and electronic media are available to carry the marketing message.

- Global Advertising
Standardized global advertising has many benefits such as significant economic advantages.
Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries.
There is a concern that creative talent is scarce, so one large effort to develop a campaign will produce better results.
Many brands are already global and they want to project a single brand image to avoid confusion by local campaigns.
On the other hand can cultural differences create different perceptions of the message and therefore affect customer demand and sales. Media regulation can also massively inhibit certain types of commercials.

What channel should a firm use to reach its maximum of potential consumers?

The optimal strategy is determined by the relative costs and benefits of each alternative, which varies from country to country, depending on the 4 factors mentioned earlier.

Longer channel → greater aggregate markup (percentage of total cost) → higher price which consumers will be charged for the final product.

The benefits may outweigh this drawback since the benefit for longer channels is that they cut selling costs when the retail sector is very fragmented and the ability to enter an exclusive channel is low.

Why and how does a firm's distribution strategy vary among countries?

- Differences between countries

Retail concentration

Concentrated system → few retailers supply most of the market.

This system is more common in developed countries due to the use of cars, shared households with higher income and ownerships of fridges and freezers.

Fragmented system → many retailers supply the market, none with major a market share.
In contrast, fragmented systems are often found in developing countries where most consumers go by foot and rely on the community stores.

Channel length

Short channel length → concentrated system
Cheaper since firms don't have as many retailers to make contact with.
Long channel length → fragmented system
More expensive as the amount of retailers to contact increases.

Channel exclusivity

Refers to how difficult in is for a foreign firm to access a market. The main reason for high channel exclusivity is because retailers prefer to promote and sell products of established firms with whom they often have a long history.

Channel quality

Refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Lack of a high quality channel may impede market entry.

- Choice of distribution strategy

Why does it make sense to vary the attributes of a product from country to country?

Cultural differences

Our culture is highly significant when it comes to our differences in tastes and preferences. These must be taken into consideration when making product attributes.

Economic development

High economic development → extra performance attributes.
Slow economic development → more basic attributes and focus on product reliability.

Product and technical standards

Differences in technical standards constrain the globalization of markets.