International Marketing Notes (lec 6-8)

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Department
Management (MGT)
Course
MGTA36H3
Professor
All Professors
Semester
Fall

Description
Fily C 6 – Competitive Analysis & Strategies Industry - Group of firms that produce products that are close substitutes for each other - Works to drive down rate of return on invested capital(RoRIC) towards the ―perfectly competitive‖ industry rate - If greater than competitive rate will stimulate inflow of capital either from new entrants or from existing competitors making additional investment - If below this competitive rate will result in withdrawal from the industry and a decline in the levels of activity and competition Threat of New Entrants: Barriers to Entry (MP #1) 1. Economies of Scale –  Decline in per-unit product costs as absolute volume of production per period increases 2. Product Differentiation –  Extent of a product‘s perceived uniqueness  Achieved as a result of unique product attributes &/or effective marketing communications 3. Capital Requirements –  Required investment for manufacturing, R&D, advertising, field sales and service, etc. 4. Switching Costs –  Costs related to making a change in suppliers or products (eg. Retraining, equip cost) 5. Distribution Channels –  If channels are full/ unavailable, cost of entry is increased b/c new entrant must invest time and money to gain access to existing channels or to establish new channels 6. Government Policy –  Government will restrict competitive entry with regulations (Japan: development and growth phases) 7. Cost Advantages Independent of Economies of Scale –  Access to raw materials, a large pool of low-cost labour, favourable locations, and government subsidies 8. Competitor Response –  If new entrants expect existing competitors to respond strongly to entry, their expectations about the rewards of entry will certainly be affected  Competitor‘s belief that entry will be an unpleasant experience serve as strong deterrent  Bruce Henderson - ―brinkmanship‖ to describe recommended approach for deterring competitive entry  Occurs when industry leaders convince potential competitors that any market entry effort will be countered with vigorous and unpleasant responses ―The only way to gain lastingcompetitive advantage is to leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts. Being an international company– selling globally, having global brands or operations in different countries–isn‘t enough.‖ - David Witwam, CEO, Whirlpool 1 Fily C Michael Porter 1. Threat of New Entrants • ↓ pressure on prices and reduced profitability • Barriers to entry detrermines extent of threat of entrants • New entrantsto an industry bring new capacity, a desire to gain market share and position, and, quite often, new approaches to serving customer needs • ↓ prices & margins squeezed,↓ industry profitabilityin long run • Porter describes 8 major sources of barriers to entry 2. Threat of SubstituteProducts (Mp3 and PvP) • Substitues place limits on prices market leaders can charge • High prices induce buyers to switch to subtitues 3. Barganing Power of Buyers (Wal-Mart) • Manufactuersand Retailers (NOT consumers) seek the lowest possible price • Have leverage of suppliers when: • Purchase large quantities (enhace suppler dependenceon buyer) • Suppliers' products are commidities • Product representssignificant portion of buyer's cost • Buyer is willing and able to achieve backward integration 4. Bargaining Power of Suppliers (MS & Intel) • When suppliers have leverage, they can raise prices high enough to affect profitabilityof customers • Leverage accrues when: • Suppleirs are large and few in #s • Supplier's procudcts are critical inputs, are highly differentiated,or carry switching costs • Few subsititutesexist • Suppliers are willing and able to sell products themselves 5. Rivalry Among Competitors • All actions taken by firms in industry to improve their positionsand gain advantage over each other • Price compeition, Advertising battles, Product positioning,Differenitation • Drive ↓ prices & profitability,creates instability (-ve) with intense rivalry when over capacity • 1. When idustry mature focus on market share and how to gain at expense of others • 2. High FC are always under pressure to keep production at full capacity to cover • 3. Lack of differentiationor absence of switching costs, encourages buyers to treat p/s as commodities and shop for best prices • 4. Firms with high strategic stakes in achieving success are destablizingbecause they may be willing to accept below-average profit margins to establish themselves, hold position, or expand 2 Fily C Competitive Advantage - Occurs when organization acquires/develops attribute(s) that allows it to outperform competitors - Achieved when there is a match between firm‘s distinctive competencies and factors critical for success within its industry - 2 ways to achieve competitive advantage:  Both contribute to firm‘s overall value proposition - Competitive advantage is achieved by creating more value than is done by the competition, and value and quality of firm‘s strategy is defined by customer perception Generic Strategies - 4 paths/routes that firm choose to offer superior value & achieve competitive advantage - Achievement of competitive advantage/superior marketing strategy demand that firm make choices - Choices concern type of competitive advantage it seeks to attain (based on cost or differentiation) and the market scope or product mix width within which competitive advantage will be attained - Pursue a low cost strategy to offer at lower prices than competitors - Customers perceive unique benefits (w/ premium price) Broad Market Strategies Cost Leadership (Low Price) –  Basis for offering lower prices/value in the late/more competitive stages of product life cycle  Based on firm‘s position as industry‘s low-cost producer  Must construct most efficient facilities  Must obtain largest market share so that its per unit cost is the lowest in industry  Only works if barriers exist that prevent competitors from achieving the same low costs  Sustainable source of competitive advantage only if barriers exist that prevent competitors from achieving the same low costs  eg. In Japan: cameras, electronics, motorcycles, automobiles Product Differentiation (Premium Price) –  Product that has actual/perceived uniqueness in a broad market  Extremely effective for defending market position  Extremely effective for obtaining above-average financial returns (premium price)  eg. Maytag in home appliances, Caterpillar in construction equipment, Nike, branded products Narrow Market Strategies Cost Focus –  Lowest cost position enables it to offer a narrow target market and lower prices than competition  Sustainability is the central issue for this strategy  eg. Aldi offers a very limited selection of household goods at extremely low prices, IKEA a successful global company by combining focused differentiation and cost focus strategies Focused Differentiation –  Product not only has actual uniqueness but it also has a very narrow target market  Results from a better understanding of customer‘s wants and desires  eg. High end equipment 3 Fily C Strategic Intent - Focuses on competitiveness as a function of the pace at which a company implants new advantages deep within its organization - Growing out of ambition and obsession with winning for achieving competitive advantage - Founded on the principles of W.E. Deming, who stressed that a company must commit itself to continuing improvement in order to be a winner in a competitive struggle - Many firms have gained competitive advantage by disadvantaging rivals through ―competitive innovation‖  Competitive Innovation – Art of containing competitive risks within manageable proportions‖ and identify four successful approaches utilized by Japanese competitors Building Layers of Advantage  Company faces less rick if it has a wide portfolio of advantages  Successful companies build portfolios by establishing layers of advantage on top of one another o Cost, Differentiation, Marketing  Illustrates how a company can move along the value chain to strengthen competitive advantage  eg. Japanese TV: low labour costs then quality & reliability then global brand franchise Searching for Loose Bricks Changing the Rules of Engagement  Refuse to play by the rules set by industry leaders  Eg. Xerox & Canon o Xerox employed a huge direct sales force; Canon chose to use product dealers o Xerox built a wide range of copiers; Canon standardized machines and components o Xerox leased machines; Canon sold machines Collaborating  Use the know-how developed by other companies  Licensing agreements, joint ventures, or partnerships Creating Competitive Advantage via Strategic Intent ―Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow‘s competitive advantages faster than competitors mimic the ones you possess today. An organization‘s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all.‖ - Gary Hamel and C.K. Prahalad 4 Fily C Global Competition and National Competitive Advantage - Occurs when a firm takes a global view of competition and sets about Firm Strategy, maximizing profits worldwide (27) Structure and - Effect is beneficial to consumers Rivalry because prices generally fall as a result of global competition - While creating value for consumers, it can destroy the potential for jobs and profits - Presence/absence of particular Factor Demand attributes in individual countries Conditions Conditions influences industry development - Diamond shapes environment in which firms compete - Activity in any one of the four points of the diamond impacts on all the others and vice versa Related and Supporting Industries Factor Conditions - Human Resources:  Quantity of workers available, skills possessed by workers, wage levels, and work ethics  Countries with low-wage workers have advantage in labour-intensive products; disadvantage with production of products requiring highly skilled workers capable of working without extensive supervision - Physical Resources:  The availability, quantity, quality, and cost of land, water, minerals, and natural resources  A country‘s size and location are also included, because proximity to markets, sources of supply and transportation costs, are strategic considerations  Obvious advantages or disadvantages to industries dependent on natural resources - Knowledge Resources:  Availability within a nation of a significant population having scientific technical, and market- related knowledge  The presence of this factor is usually a function of the number of research facilities and universities operating in the country  Important to success in sophisticated products and services, and to doing business in sophisticated markets  Relates directly to Germany‘s leadership in chemicals; home to top university chemistry programs, advanced scientific journals, and apprenticeship programs - Factoring Conditions:  Capital Resources – 1. Availability, amount, cost, and types of capital available (includes savings rate, interest rate, tax laws and government deficits) 2. Advantage enjoyed by industries in countries with low capital costs versus those located in nations with relatively high capital costs is sometimes decisive 3. Firms paying high capital costs are unable to stay in market where competition comes from a nation with low capital costs 5 Fily C 4. Firms with the low cost of capital can keep prices low and force firms paying high costs to either accept low returns on investment or leave the industry  Infrastructure Resources – 1. Nation‘s banking, healthcare, transportation, and communication systems, as well as the availability and cost of using these systems 2. Sophisticated industries are dependent on advanced infrastructures for success Demand Conditions Composition/Nature of Home Demand – - Determines how firms perceive, interpret, and respond to buyer needs - Determines the rate and nature of improvement and innovation by the firms in the nation - Factors that either train firms for world-class competition or that fail to adequately prepare them to compete in the global marketplace - 3 characteristics are particularly important to the creation of competitive advantage:  Size and Pattern of Growth of Home Demand – 1. large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets  Rapid Home Market Growth – 1. Another incentive to invest in and adopt new technologies faster and build large, efficient facilities 2. Early home demand – if it anticipates international demand – gives local firms the advantage of getting established in an industry sooner than foreign rivals 3. Early market saturation – puts pressure on a company to expand into international markets and innovate – important if it coincides with rapid growth in foreign markets  Products Being Pushed or Pulled – 1. Do a nation‘s people and businesses go abroad and then demand the nation‘s products and services in those second countries? 2. eg. Auto part companies and auto companies, Engineering firms and construction equipment provided impetus for Caterpillar to establish foreign operations Related and Supporting Industries - Advantage that a nation gains by being home to internationally competitive industries in fields that are related to, or in direct support of, other industries - Downstream industries will have easier access, in terms of physical distance and cultural similarity, to these inputs and the technology that produced them, and to the managerial and organizational structures that have made them competitive  Contact and coordination with the suppliers give the advantage, the opportunity to structure the value chain so that linkages with suppliers are optimized, may not be available to foreign firms - Advantages are present when there are internationally competitive, related industries in a nation  Opportunities are available for coordinating and sharing value chain activities  eg. Opportunities for sharing between computer hardware manufacturers and software developers: non-U.S. sales of PCs from Compaq, Dell, IBM, Acer, and others have bolstered demand for software from Microsoft and other U.S. companies Firm Strategy, Structure, and Rivalry - Domestic rivalry in a single national market is a powerful influence on competitive advantage  Absence can lead to complacency in home firms and eventually cause them to become non- competitive in the world markets  eg. Personal computer industry in the United States (34) 6 Fily C - Differences in management styles, organizational skills, and strategic perspectives also create advantages and disadvantages for firms competing in different types of industries - Capital markets and attitudes toward investments are important components of the national environments (35)  eg. laws prohibit banks from taking an equity stake in companies to which they extend loans - Chance events are occurrences that are beyond control; they create major discontinuities  includes wars and aftermaths, major technological breakthroughs, sudden dramatic shifts in factor or input cost, like an oil crisis, dramatic swings in exchange rates - Government is also an influence (NOT create) on determinants by virtue of its roles as a consumer, policy maker, and commerce regulator  Governments devise legal systems that influence competitive advantage by means of tariffs and nontariff barriers and laws requiring local content and labour  eg. Dollar‘s decline over the past decade has been due in part to a deliberate policy to enhance U.S. export flows and stem imports - Today‘s business environment, market stability is undermined by:  Short product life cycles  New technologies  Short product design cycles  Globalization - Result is an escalation and acceleration of competitive forces Current Issues in Competitive Advantage - Richard D‘Aveni suggests that the Porter strategy frameworks fail to adequately address the dynamics of competition  Believes the goal of strategy has shifted from sustaining to disrupting advantages  Limitation of the porter models are static, few advantages are sustainable  They provide a snapshot of competition at a given point in time  D‘Aveni aims to build upon their work in order to shape ―a truly dynamic approach to the creation and destruction of traditional advantages‖ - Hypercompetition:  Used to describe a dynamic competitive world in which no action or advantage can be sustained for long - Competition unfolds in a series of dynamic strategic interactions in four areas:  Cost Quality  Know-How  Timing  Barriers To Entry  Only source of a truly sustainable competitive advantage is firm‘s ability to manage its dynamic strategic interactions with competitors by means of frequent movements and counter movements that maintain a relative position of strength in each of the four areas - In today‘s world, in order to achieve a sustainable advantage, companies must seek a series of unsustainable advantages - The role of marketing is innovation and the creation of new markets - Innovation begins with abandonment of the old and obsolete ―I don‘t think we‘re moving towards a hypercompetitive world in which there are no trade-offs. We‘re probably moving in the other direction. There are more customer segments than ever before, more technological options, more distribution channels. That ought to create lots of opportunities for unique positions.‖ – Michael Porter 7 Fily C 7 - Product Decisions and Pricing Decisions - A product is a good, service, or idea  Tangible Attributes  Intangible Attributes - Product classification  Consumer goods  Industrial goods (eg. PVC pipe) - Buyer orientation  Amount of effort expended  Buyer involvement  Level of risk - Buyer orientation framework  Convenience  Shopping  Preference  Specialty Brands - Bundle of images and experiences in the customer‘s mind - A promise made by a particular company about a particular product - A quality certification - Differentiation between competing products - Brand Image: sum of impressions about a brand is the Brand Equity Benefits - Greater loyalty  Less vulnerability to marketing actions  Less vulnerability to marketing crises - Larger margins  More inelastic consumer response to price ↑  More elastic consumer response to price ↓  Increased marketing communication effectiveness Local Products and Brands - Brands that have achieved success in a single national market - Represent the lifeblood of domestic companies - Entrenched local products/brands can be a significant competitive hurdle to global companies International Products and Brands - Offered in several markets in a particular region  ‗Euro-brands‘  Honda 5-door hatchback auto is known as Fit in Japan and Jazz in Europe Global Products and Brands - Global products meet the wants and needs of a global market and are offered in all world regions - Global brands have the same name and similar image and positioning throughout the world  eg. In any language Gillette‘s trademarked brand promise is easy to understand.  “A multinational has operations in different countries. A global company views the world as a single country. We know Argentina and France are different, but we treat them the same. We sell them the same products, we use the same production methods, we have the same corporate policies. We even use the same advertising—in a different language, of course.” - Alfred Zeien Former Gillette CEO - Global brands are not the same as global products  iPod = brand, mp3 player= product 8 Fily C Global Brand Characteristics - Quality signal — allows a company to charge premium price in a highly competitive market - Global myth — marketers can use global consumer culture positioning to link the brand identity to any part of the world - Social responsibility — shows how a company addresses social problems Brand Extension - Brand acts as an umbrella for new products  Eg. The Virgin Group (Virgin Entertainment, Trading: Virgin Cola and Virgin Vodka, Virgin Radio, Virgin Rail (UK only), Virgin Media Group, Virgin Hotels, Virgin Travel Group) Worlds‘ Most Valuable Brands (2010) 1. Coca Cola 4. Google 7. Intel 2. IBM 5. GE 8. Nokia 3. Microsoft 6. MCD 9. Disney Global Brand Development - Global Brand Leadership  Using organizational structures, processes, and cultures to allocate brand-building resources globally, to create global synergies, and to develop a global brand strategy that coordinates and leverages country brand strategies 1. Create a compelling value proposition 2. Think about all elements of brand identity and select names, marks, and symbols that have the potential for globalization 3. Research the alternatives of extending a national brand versus adopting a new brand identity globally 4. Develop a company-wide communication system 5. Develop a consistent planning process • Assign specific responsibility for managing branding issues 6. Execute brand-building strategies • Harmonize, unravel confusion, and eliminate complexity Local vs Global Products and Brands Maslow‘s Hierarchy of Needs 9 Fily C Asian Hierarchy of Needs Country of Origin as Brand Element - Perceptions about and attitudes toward particular countries often extend to products and brands known to originate in those countries  Japan  Germany  France  Italy Global Product Planning: Strategic Alternatives - Strategy 5 – Product Invention  Important for reaching mass markets in less industrialized nations and certain segments in industrialized countries  Hand-cranked radios for areas with no electricity  Total toothpaste by Colgate uses global benefit segmentation How to Choose a Strategy? - 2 Errors that management makes in choosing a strategy: 1. NIH (not invented here) syndrome –ignore advancements of subsidiaries overseas 2. Managers impose policies upon subsidiaries because they assume what is right for customers in one market is right in every market - Product-communication strategy:  The product itself, defined in terms of the function or need it serves  The market, defined in terms of the conditions under which the product is used preferences of potential customers, and ability to buy the product  Adaptation and manufacturing costs the company will incur - Only after analysis of the product-market fit and of company capabilities and costs can executives choose the most profitable strategy 10 Fily C New Products in Global Marketing - Pursue opportunities in competitive arenas of global marketplace - Focus on one or only a few businesses - Active involvement from senior management - Ability to recruit and retain best employees - Understand the importance of speed in bringing product to market Identifying New Product Ideas - What is a new product?  New to those who use/buy it  New to the organization  New to a market Basic Pricing Concepts Law of One Global markets Diamonds Crude oil Price Commercial aircraft - All customers in the Integrated circuits market get the best product for the best price National markets Costs Competition Regulation Global Pricing Objectives and Strategies - The Global Manager must develop systems and policies that address  Price Floor: minimum price  Price Ceiling: maximum price  Optimum Prices: function of demand - Must be consistent with global opportunities and constraints - Be aware of price transparency created by Euro zone, Internet - Managers must determine the objectives for the pricing objectives  Unit Sales  Market Share  Return on investment - They must then develop strategies to achieve those objectives Penetration Pricing: (Non-Financial Objectives) Market Skimming: (Financial Objectives) • Charging a low price in order to penetrate • Charging a premium price market quickly • May occur at the introduction stage of • Appropriate to saturate market prior to product life cycle imitation by competitors • Luxury goods marketers use price to • Packaged food product makers, with products differentiateproducts that do not merit patents, may use this strategy • eg. LVMH, Mercedes-Benz to get market saturation before competitors copy the product 11 Fily C Companion Products or ―Razors and Blades‖ Pricing - Products whose sale is dependent upon the sale of primary product  Video games are dependent upon the sale of the game console - ―If you make money on the blades, you can give away the razors.‖ - Cellular service providers subsidize the phone and make money on calling plans The Target-Costing Process - Determine the segment(s) to be targeted, as well as the prices that customers in the segment will be willing to pay. - Compute overall target costs with the aim of ensuring the company‘s future profitability. - Allocate the target costs to the product‘s various functions. Calculate the gap between the target cost and the estimated actual production cost. - Obey cardinal rule: If the design team can‘t meet the targets, the product should not be launched Factors for Pricing on Goods that Cross Borders - Export Price Escalation:  Increase in the final selling price of goods traded across borders 1. Does the price reflect the product‘s quality? 2. Is the price competitive given local market conditions? 3. Should the firm pursue market penetration, market skimming, or some other pricing objective? 4. What type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm offer its international customers? 5. Should prices differ with market segment? 6. What pricing options are available if the firm‘s costs increase or decrease? Is demand in the international market elastic or inelastic? 7. Are the firm‘s prices likely to be viewed by the host-country government as reasonable or exploitative? 8. Do the foreign country‘s dumping laws pose a problem? Cost-Plus Pricing - Cost-Based Pricing:  Based on an analysis of internal and external cost - Full Absorption Cost Method:  Firms using western cost accounting principles  Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs - Rigid cost-plus pricing:  Companies set prices without regard to the eight pricing considerations - Flexible cost-plus pricing  Ensures that prices are competitive in the contest of the particular market environment Cross International Borders Terms of Sale - Obtain export license if required - Complete necessary customs export papers - Obtain currency permit - Prepare customs or consular invoices - Pack goods for export - Arrange for ocean freight and preparation - Transport goods to place of departure - Obtain marine insurance and certificate of the - Prepare a land bill of lading policy 12 Fily C - Incoterms: • Seller places goods at the disposal of the buyer at the time specified in the contract • Buyer takes delivery at the premises of the seller and bears all risks and expenses from that point on • FAS (free alongside ship) named port of destination – seller places goods alongside the vessel or other mode of transport and pays all charges up to that point • FOB (free on board) – seller‘s responsibility does not end until goods have actually been placed aboard ship • CIF (cost, insurance, freight) named port of destination – risk of loss or damage of goods is transferred to buyer once goods have passed the ship‘s rail • CFR (cost and freight) – seller is not responsible at any point outside of factory - Delivery duty paid: • Seller agrees to deliver the goods to the buyer at the place he or she names in the country of import with all costs, including duties, paid Currency Fluctuations January 2000 January 2002 January 2007 January 2010 $1=¥101 $1=¥130 $1=¥113 Inflationary Environment - Defined as a persistent upward change in price levels • Can be caused by an increase in the money supply • Can be caused by currency devaluation - Essential requirement for pricing is the maintenance of operating margins Government Controls, Subsidies, and Regulations - The types of policies and regulations that affect pricing decisions are: • Dumping legislation • Price ceilings • Resale price maintenance legislation • General reviews of price levels - Foreign governments may: • require funds to be noninterest-bearing accounts for a long time • restrict profits taken out of the country and limit funds paid for imported material • Restrict price competition Competitive Beha
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