Scanning the Marketing Environment s1

REACHING GLOBAL MARKETS

CHAPTER CONTENTS PAGE MATERIALS AVAILABLE FOR LECTURE AND DISCUSSION...... 7-2

STUDENT LEARNING OBJECTIVES...... 7-3

KEY TERMS AND CONCEPTS...... 7-3

LECTURE NOTES

 Now the World can Breathe Easier…One Nose at a Time...... 7-4

 Dynamics of World Trade...... 7-4

 A Global Environmental Scan...... 7-7

 Global Market-Entry Strategies...... 7-10

 Crafting a Worldwide Marketing Effort...... 7-13

ANSWERS TO “APPLYING MARKETING CONCEPTS AND PERSPECTIVES”.....7-15

ANSWERS TO “INTERNET EXERCISE”...... 7-17

SUPPLEMENTAL LECTURE NOTE (SLN)

 SLN 7-1: Additional Examples of Values, Customs, Cultural Symbols, and Language...... 7-18 IN-CLASS ACTIVITY (ICA)

 ICA 7-1: Marketing Across Borders: Reintroducing the MINI® Brand to the U.S...... 7-19

VIDEO CASE 7 TEACHING NOTE (TN)

 CNS Breathe Right® Strips: Reaching the World’s Noses...... 7-26

POWERPOINT THUMBNAILS...... 7-29

7-1 Chapter 7 MATERIALS AVAILABLE FOR LECTURE AND DISCUSSION

PowerPoint Trans- Hand- Slides1 parencies2 outs3

Textbook Figures Figure 7-1 How protectionism affects world trade......  Figure 7-2 The 25 countries of the European Union in 2004.... Figure 7-3 Alternative global market-entry strategies......   Figure 7-4 Five product and promotion strategies for global marketing......   Figure 7-5 Channels of distribution in global marketing...... 

Supplemental Figures and Advertisements Figure 7-A Global companies and marketing strategies......   Figure 7-B Cultural appreciation......  Figure 7-C Russian-language version of Cosmopolitan Magazine......   Figure 7-D Global marketing practices that affect pricing...... 

In-Class Activity (ICA) Figure ICA 7-1, Figure 1 Marketing Actions to Improve the MINI® Brand’s Chances of Successfully Entering the U.S. Market...... 

1 “PowerPoint Slides” are available on a CD-ROM and appear as “PowerPoint Thumbnails” within this chapter of the Instructor’s Manual. 2 100 “Transparencies” are available to textbook adopters by request of their local McGraw-Hill/Irwin sales representative. 3 Instructors may choose to reproduce some figures and hand them out to each student in the class to enhance discussion. These “Handouts” are shown with a check in the right column. Chapter 7 7-2 STUDENT LEARNING OBJECTIVES

After reading this chapter students should be able to:

 Explain the effects of economic protectionism and the implications of economic integration for global marketing practices.  Understand the importance of environmental factors (cultural, economic, and political) in shaping global marketing efforts.  Describe different approaches firms use to enter and compete in global markets.  Identify specific challenges marketers face when crafting worldwide marketing programs.

KEY TERMS AND CONCEPTS

back translation global consumers cross-cultural analysis global marketing strategy cultural symbols gray market currency exchange rate joint venture customs multidomestic marketing strategy direct investment protectionism dumping quota exporting tariffs Foreign Corrupt Practices Act values global competition World Trade Organization

7-3 Chapter 7 LECTURE NOTES

Chapter Opening Photo CHAPTER OPENING EXAMPLE

Now the World Can Breathe Easier…One Nose at a Time

In response to his own need to cure snoring and breathing problems, Slide 7-7 Bruce Johnson invented a rudimentary spring-loaded adhesive device to open up his nasal passages. Dr. Dan Cohen’s company, CNS, Inc., invested several million dollars in research and development, resulting in Breathe Right® nasal strips—a big hit in the U.S. marketplace. Dr. Cohen counted noses and then sought to enter the global marketplace. Today CNS, Inc. distributes its Breathe Right® nasal strips on four continents to satisfy a universal need.

Global markets have vast potential, offering challenges and rewards to companies who are willing and able to take the risks.

I. DYNAMICS OF WORLD TRADE

The value of world trade has more than doubled in the last decade and will exceed $11.5 trillion in 2006. Four trends have significantly affected world trade: (1) the decline of economic protectionism, (2) an increase in formal economic integration and free trade among nations, (3) global competition among global companies for global consumers, and (4) the emergence of a networked global marketspace.

A. Decline of Economic Protectionism

Figure 7-1 1. Protectionism is the practice of shielding one or more industries Protectionism within a country’s economy from foreign competition, usually affects world trade through the use of tariffs or quotas.

2. A tariff is a tax on goods or services entering a country. Because tariffs raise the price of imported goods, they give a Slide 7-9 price advantage to domestic goods competing in the same market.

3. A quota is a restriction placed on the amount of a product allowed to enter or leave a country. Import quotas seek to guarantee domestic industries access to a certain percentage of their domestic market.

4. The World Trade Organization (WTO) was formed in 1995 to address a broad array of world trade issues. The 165 member countries, accounting for 90% of world trade. The WTO is a permanent institution that sets rules governing trade between its members through panels of trade experts who (1) decide on trade disputes between members and (2) issue binding decisions.

Chapter 7 7-4 B. Rise of Economic Integration

Economic integration has increased as countries promote free trade and enhance their individual economies. Three of the best-known examples are the European Union (EU), the North American Free Trade Agreement (NAFTA), and Asian free trade areas.

1. European Union. Figure 7-2 EU members as of 2004  In 1993, 12 European countries effectively eliminated most of the barriers to the free flow of goods, services, capital, and labor across their borders. This event formed a single market of more than 375 million consumers with a combined gross Slide 7-11 domestic product larger than that of the U.S.

 As of 2003, EU membership included 15 countries. – Great Britain – Luxemburg – Portugal – Ireland – Germany – Spain – Denmark – France – Austria – Belgium – Italy – Finland – the Netherlands – Greece – Sweden

 In 2004, 10 more countries are scheduled to join. – Cyprus – Latvia – Poland – Czech Republic – Lithuania – Slovakia – Estonia – Malta – Slovenia – Hungary

 In 2002, a common currency called the euro replaced the national currencies in 12 EU countries. Great Britain, Denmark, and Sweden retained their own currencies.

Euro TV ad Euro money Buying a product Euro Print ads Effect of a Effect of a with Euros European-wide common currency? common currency? Effect of a marketing strategy? common currency?

12 Slide 7-13 Slide 7-14 Slide 7-15

2. North American Free Trade Agreement. NAFTA, a North American trade arrangement similar to the EU, became effective in 1994 and lifted many trade barriers between the United States, Canada, and Mexico. This created a marketplace with over 400 million consumers. Negotiations are under way to create a 34-country Free Trade Area of the Americas.

7-5 Chapter 7 3. Asian Free Trade Agreements. Efforts to liberalize trade in East Asia are growing, but these trade agreements are less formal than the EU and NAFTA.

C. A New Reality: Global Competition Among Global Companies for Global Consumers

The emergence of a borderless economic world has created a new reality for marketers.

Diet Pepsi ad 1. Global competition exists when firms originate, produce, and Broader competitive market their products and services worldwide. landscape?  The automobile, pharmaceutical, apparel, electronics, aerospace, and telecommunications fields represent well- Slide 7-17 known industries with sellers and buyers on every continent.

 Other industries that are increasing global in scope include soft drinks, cosmetics, cereal, snack chips, and retailing.

Figure 7-A 2. Global Companies. Consists of three types of companies: Global firms & marketing strategies  An international firm markets its existing products and services in other countries the same way it does at home.

 A multinational firm views the world as consisting of unique Slide 7-18, T parts and markets to each part differently. Multinationals use a multidomestic marketing strategy, which means they have as many different product variations, brand names, and ICA 7-1 advertising programs as countries in which they do business. Marketing Across  A transnational firm views the world as one market and Borders: Reintro- emphasizes universal consumer needs and wants more than ducing differences among cultures. Transnational firms employ a the MINI® global marketing strategy—the practice of standardizing Brand marketing activities when there are cultural similarities and to the U.S. adapting them when cultures differ.

3. Global Consumers. Global competition often focuses on the identification and pursuit of global consumers.

 Global consumers consist of customer groups living in many different countries that have similar needs or seek similar features and benefits from products and services.

 Evidence suggests the emergence of a global middle-income class, a youth market, and a global elite segment, each consuming or using a common assortment of products and services regardless of geographic location.

Chapter 7 7-6 MNN Global teenage MARKETING NEWSNET market The Global Teenager: A Market of 500 Million Consumers with $100 Billion to Spend

19 The global “teenager market” consists of 500 million 13- to 19-year- olds who live in Europe, North and South America, and industrialized nations of Asia and the Pacific Rim. The similarities among teens in these countries are greater than their differences in terms of clothes, cosmetics, video games, and music. They spend $100 billion annually for these kinds of products. Global teenagers have been influenced by the fashion and culture exhibited by American teens.

D. Emergence of a Networked Global Marketspace

Nestlé website for 1. The use of Internet/Web-based technology as a tool for Columbia exchanging goods, services, and information on a global scale is Language-specific websites needed? another trend affecting world trade. Sales from electronic commerce are projected to represent 9% of world trade in 2005.

2. A networked global marketspace enables the exchange of goods, Slide 7-21 services, and information from companies anywhere to customers anywhere at any time and at a lower cost. Business- to-business marketing has spurred the growth of global electronic commerce, accounting for 90% of its revenue.

CONCEPT CHECK

1. What is protectionism?

Answer: It is the practice of shielding one or more sectors of a country’s economy from foreign competition through the use of tariffs or quotas.

2. What is the difference between a multidomestic marketing strategy and a global marketing strategy?

Answer: A multidomestic marketing strategy means that firms have as many different product variations, brand names, and advertising programs as countries in which they do business. A global marketing strategy standardizes marketing activities when there are cultural similarities and adapts them when cultures differ.

II. A GLOBAL ENVIRONMENTAL SCAN

Global companies conduct continuous environmental scans of the five environmental factors (social, economic, technological, competitive, and regulatory forces) described earlier in Figure 3-1. Three of these— cultural, economic, and regulatory forces—affect global marketing practices in strikingly different ways than in domestic markets.

7-7 Chapter 7 A. Cultural Diversity

Figure 7-B Marketers must be sensitive to the cultural underpinnings of Culture appreciation different societies if they are to develop successful exchange relationships with global consumers. As a result, they must conduct a cross-cultural analysis, which involves the study of similarities and differences among consumers in two or more nations or Slide 7-25 societies. A thorough cross-cultural analysis involves an understanding of and an appreciation for the values, customs, symbols, and language of other societies.

1. Values. A society’s values represent socially preferable modes SLN 7-1 Additional of conduct or states of existence that tend to persist over time. Examples of Values, 2. Customs are what is considered normal and expected about the Customs, way people do things in a specific country. Cultural Symbols, and  The custom of giving token business gifts is popular in many Language countries where they are expected and accepted.

 However, bribes, kickbacks, and payoffs to entice someone to commit an illegal or improper act on behalf of the giver for economic gain are considered corrupt in most cultures.

 The widespread use of bribery in global marketing has led to an agreement among the world’s major exporting nations to make bribery of foreign government officials a crime. This agreement is patterned after the Foreign Corrupt Practices Act, which makes it a crime for U.S. corporations to bribe an official of a foreign government or political party to obtain or retain business in a foreign country.

3. Cultural symbols are things that represent ideas and concepts. Symbols play an important role in cross-cultural analysis because different cultures attach different meanings to things.

 Positive symbols can enhance the attractiveness of products and services to consumers.

 Improper use of symbols can spell disaster and can stir up deep feelings of resentment.

Eiffel Tower Parthenon Cultural symbol Cultural symbol lesson learned? lesson learned?

26 Slide 7-27

Chapter 7 7-8 Figure 7-C 4. Language. Global marketers should know not only the native Russian version of Cosmopolitan tongues of countries in which they market, but also the idioms and nuances of a language.

 Unintended meanings of brand names and messages range from the absurd to the obscene. Slide 7-28, T  Experienced global marketers use back translation, where a translated word or phrase is retranslated into the original language by a different interpreter to catch errors.

Coca-Cola invests B. Economic Considerations in Russia Importance of infrastructure? Global marketing also is affected by economic considerations. Therefore, a scan of the global marketplace should include (1) an assessment of the economic infrastructure in these countries, (2) measurement of consumer income in different countries, and Slide 7-30 (3) recognition of a country’s currency exchange rates.

1. Economic Infrastructure. Consists of a country’s economic communications, transportation, financial, and distribution systems and is a critical consideration in determining whether to try to market to a country’s consumers and organizations.

2. Consumer Income and Purchasing Power.

 A global marketer selling consumer goods must consider what the average per capita or household income is among a country’s consumers and how that income is distributed to determine a nation’s purchasing power.

 Generally speaking, the greater the number of middle-class households, the greater a nation’s purchasing power.

 Since people in developing countries often have government subsidies for food, housing, and health care supplement people’s income in developing countries. Accordingly, people with seemingly low incomes are actually promising customers for a variety of products.

3. Currency Exchanges Rates. Fluctuations in exchange rates among the world’s currencies are of critical importance in global marketing.

 A currency exchange rate is the price of one country’s currency expressed in terms of another country’s currency.

 Exchange rates have a direct impact on the sales and profits made by global companies.

7-9 Chapter 7 C. Political-Regulatory Climate

Marketers need to not only identify a country’s current political and regulatory climate but also how long a favorable or unfavorable climate may last. This assessment includes an analysis of a country’s political stability and trade regulations.

1. Political Stability. Trade among nations or regions depends on political stability, which is affected by a government’s ideas about foreign companies and trade with other countries.

2. Trade Regulations. Countries have a variety of rules that govern business practices within their borders, which often serve as trade barriers. For example, Japan has 11,000 trade regulations.

CONCEPT CHECK

1. Cross-cultural analysis involves the study of ______.

Answer: similarities and differences among consumers in two or more nations or societies, including understanding of and appreciation for the values, customs, symbols, and language of other societies.

2. When foreign currencies can buy more U.S. dollars, are U.S. products more or less expensive for a foreign consumer?

Answer: less expensive

Figure 7-3 III. GLOBAL MARKET-ENTRY STRATEGIES Global market-entry strategies Once a company has decided to enter the global marketplace, it must select a means of market entry. Four general options exist: (1) exporting, (2) licensing, (3) joint venture, and (4) direct investment. The amount of financial commitment, risk, marketing control, and Slide 7-34, T potential profit increases as the firm moves from exporting to direct investment.

A. Exporting is producing goods in one country and selling them in another country. Two forms of exporting exist:

1. Indirect exporting is when a firm sells its domestically produced goods in a foreign country through an intermediary.

2. Direct exporting is when a firm sells its domestically produced goods in a foreign country without intermediaries.

Chapter 7 7-10 MNN What market-entry MARKETING NEWSNET strategy is used? Creative Cosmetics and Creative Export Marketing in Japan

A medium-sized U.S. cosmetics firm has had marketing success in Slide 7-35 Japan because of its top-quality product, effective advertising, and export marketing program relying on savvy Japanese distributors. Creative Cosmetics does not sell to department stores, which are supplied by two leading Japanese cosmetics firms. Rather, the company sells its Moodmatcher lipstick through Japanese distributors that reach Japan’s 40,000 beauty salons. This strategy accounts for the company’s selling 20 percent of the $4.3 million of lipsticks exported annually to Japan by U.S. firms.

B. Licensing

Under licensing, a company offers the right to a trademark, patent, trade secret, or other similarly valued items of intellectual property in return for a royalty or a fee.

1. Advantages of licensing:

 Low risk, allowing the licensee to gain information that allows it to start with a competitive advantage.

 Chance to enter a foreign market at virtually no cost.

 Selective retention means that consumers do not remember all the information they see, read, or hear, even minutes after exposure to it.

2. Disadvantages of licensing:

 Licensor gives up control of its product.

 Some licensees are able to modify the product and enter the market with product and marketing knowledge gained at the expense of the company that got them started.

 If the licensee is a poor choice, the name and reputation of the company may be harmed.

McDonald’s in McDonald’s in McDonald’s in Russians eating Hong Kong Saudi Arabia Russia at McDonald’s What market-entry What market-entry What market-entry Could other market- strategy is used? strategy is used? strategy is used? entries work?

36 Slide 7-37 Slide 7-38 Slide 7-39

7-11 Chapter 7 3. Franchising, a variation of licensing, is when a company contracts with an individual to set up an operation to provide products or services under the company’s established brand name. Franchising is one of the fastest-growing market-entry strategies.

C. Joint Venture

A joint venture occurs when a foreign company and a local firm invest together to create a local business. The two companies share ownership, control, and profits of the new company.

1. Advantages of a joint venture:

 One company may not have the necessary financial, physical, or managerial resources to enter a foreign market alone.

 A government may require or strongly encourage a joint venture before it allows a foreign company to enter its market.

2. Disadvantages of a joint venture:

 The two companies may disagree about policies or courses of action.

 Government bureaucracy may bog down the effort.

D. Direct Investment

The biggest commitment a company can make when entering the global market is direct investment, which entails a domestic firm actually investing in and owning a foreign subsidiary or division.

1. Advantages of direct investment:

 Cost savings.

 Better understanding of local market conditions.

 Fewer local restrictions.

2. Disadvantages of direct investment are the financial commitments and risks (political, currency, etc.) involved.

Chapter 7 7-12 CONCEPT CHECK

1. What mode of entry could a company follow if it has no previous experience in global marketing?

Answer: indirect exporting through intermediaries.

2. How does licensing differ from a joint venture?

Answer: In licensing, the firm offers the right to a trademark, patent, or trade secret in return for a fee or royalty. In a joint venture, a foreign and a local firm invest together to produce some product or service. The two companies share ownership, control, and profits of the new entity.

IV. CRAFTING A WORLDWIDE MARKETING EFFORT

The choice of a market-entry strategy is a necessary first step for a global marketer. The next step involves the task of designing, implementing, and controlling marketing programs worldwide.

Figure 7-4 A. Product and Promotion Strategies Product & promotion strategies Global companies have five strategies for matching products and their promotion efforts to global markets. These strategies focus on whether a company extends or adapts its product and promotion

43 message for consumers in different countries.

1. A product may be sold globally in one of three ways:

 Product extension. Selling virtually the same product in other countries.

 Product adaptation. Changing a product to make it more appropriate for a country’s climate or consumer preferences.

 Product invention. Companies can invent totally new products designed to satisfy common needs across countries.

Venus ads 2. Companies can use the same promotion or adapt the message: Can Gillette use a global message?  An identical promotion can be used for the product extension and product adaptation strategy.

 Can also adapt promotion messages, selling the same product Slide 7-44 but advertising it differently in different countries.

 Other companies may use a dual adaptation strategy, modifying both their products and promotional message.

7-13 Chapter 7 Figure 7-5 B. Distribution Strategy Global distribution channels The availability and quality of retailers and wholesalers as well as transportation, communication, and warehousing facilities are determined by a country’s economic infrastructure.

46 1. Headquarters is responsible for the successful distribution to the ultimate consumer.

2. Intermediaries, which bring buyers and sellers together, can distribute the product from one country to another.

3. Once the product is in the foreign nation, its distribution channels take over. The length can be long or short, depending on the product line.

C. Pricing Strategy

Global companies face many challenges in determining a pricing strategy. Pricing too low or too high can have dire consequences.

Figure 7-D 1. When prices appear too low in one country, companies can be Global practices charged with dumping, which is when a firm sells a product in a that affect pricing foreign country below its domestic price or below its actual cost.

2. When companies price their products very high in some countries but competitively in others, they face a gray market or Slide 7-47 parallel importing problem. A gray market is a situation where products are sold through unauthorized channels of distribution.

 Gray marketing occurs when individuals buy products in a lower-priced country from a manufacturer’s authorized retailer, ship them to higher-priced countries, and then sell them below the manufacturer’s suggested retail price through unauthorized retailers.

 Parallel importing is legal in the U.S.; it is illegal in the E.U.

CONCEPT CHECK

1. Products may be sold globally in three ways. What are they?

Answer: (1) in the same form as in its home market, (2) with some adaptations, (3) as a totally new product.

2. What is dumping?

Answer: Dumping is when a firm sells a product in a country below its domestic price or below its actual cost.

Chapter 7 7-14 ANSWERS TO “APPLYING MARKETING CONCEPTS AND PERSPECTIVES”

1. What is meant by this statement: “Quotas are a hidden tax on consumers, whereas tariffs are a more obvious one”?

Answer: Quotas represent a hidden tax on consumers because they limit supply of products, which in turn increases prices. Tariffs are literally a government tax imposed on imported goods.

2. How successful would a television commercial in Japan be if it featured a husband surprising his wife on Valentine’s Day with a small box of chocolates containing four candies? Why?

Answer: This commercial would be a failure. It violates a number of cultural norms in Japan. Japanese women give men chocolates on Valentine’s Day and four is an unlucky number in Japan.

3. As a novice in global marketing, which alternative for global market-entry strategy would you be likely to start with? Why? What other alternatives do you have for a global market entry?

Answer: The best alternative for a novice firm is indirect exporting—that is, selling its domestically produced goods in a foreign country through an intermediary, such as a distributor, that has the marketing know-how and the resources necessary for the effort to succeed. This will allow consumers in the target country to try the firm’s products and to begin to recognize its name. It also entails the lowest risk and investment from the firm.

Other alternatives in order of increasing level of risk and investment are: direct exporting, or selling the firm’s domestically produced goods in a foreign country without intermediaries; licensing, or offering the right to a trademark, patent, trade secret, or other intellectual property in return for a royalty or fee; a joint venture, when a firm and local firm invest together in a foreign country to create a local business; and direct investment, which entails a domestic firm actually investing in and owning a foreign subsidiary or division.

7-15 Chapter 7 4. Coca-Cola is sold worldwide. In some countries, Coca-Cola owns the bottling facilities; in others, it has signed contracts with licensees or relies on joint ventures. When selecting a licensee in each country, what factors should Coca-Cola consider?

Answer:

Among the risks of licensing are the licensor’s losing control of its products and the licensor’s creating its own competition by the licensee’s somehow modifying the product. Before selecting a licensee, Coca-Cola should perform a cross-cultural analysis of the target country, reviewing regulations and business customs in the country to be sure its patents will be respected.

Selecting a licensee requires careful background checks into its values, past business practices, and finances. The licensing agreement should set up a monitoring process over the licensee’s production and over its marketing and distribution. All of these steps must be taken with sensitivity in order to protect Coca-Cola’s brand without offending the licensee and consumers in the country. The people at Coca-Cola that are monitoring production, marketing, and distribution should be fluent in the language and customs of the country and should be committed to developing a relationship over time with the licensee.

Chapter 7 7-16 ANSWERS TO “INTERNET EXERCISE”

The World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its intended function is to ensure that trade flows as smoothly, predictably, and freely as possible. Understanding how the WTO operates is a necessary prerequisite for global marketing.

Visit the WTO website at www.wto.org to learn more about how this organization functions and the issues it faces. A useful starting point for familiarizing yourself with the WTO is t find answers to the following questions:

1. Countries are constantly seeking WTO membership. How many countries are now members of this organization? Which country is the newest member?

Answer: As of April 2003, there were 146 member countries. Armenia became the newest member in February 2003.

2. What are the 10 most common misunderstandings about the WTO identified by this organization?

Answer: The 10 most common misunderstandings about the WTO are:

1. The WTO dictates policy. 2. The WTO is for free trade at any cost. 3. Commercial interests take priority over development. 4. Commercial interests take priority over the environment. 5. Commercial interests take priority over health and safety. 6. The WTO destroys jobs, worsens poverty. 7. Small countries are powerless in the WTO. 8. The WTO is the tool of powerful lobbies. 9. Weaker countries are forced to join the WTO. 10. The WTO is undemocratic.

7-17 Chapter 7 SLN 7-1: SUPPLEMENTAL LECTURE NOTE

Additional Examples of Values, Customs, Cultural Symbols, and Language

Values

Swiss women consider washing dishes or cleaning floors as central to their role as a homemaker. They reject commercial appeals that emphasize saving time and effort in performing these tasks.

Travel advertising in culturally divided Canada will portray a wife alone for the English audience, but portray a husband and wife together for the French audience. Why? The French are traditionally more closely bound by family ties.

Customs

In China, gifts should be presented privately with the exception of collective ceremonial gifts at banquets.

The formality of dress for working business meetings differs across European Union countries. The British and Dutch will often remove their jackets and roll up their sleeves. A Spaniard will only loosen a necktie. Germans refrain from such informality entirely.

Cultural Symbols

An eagle bearing a snake in its claws and alighting on a cactus is the official seal of Mexico and appears on its flag. When McDonald’s featured this seal on paper mats for trays to commemorate Mexico’s Flag Day, Mexican authorities confiscated the paper mats because they were disrespectful.

Language

The “Jolly Green Giant” was translated into Arabic as “intimidating green ogre.” In French- speaking countries, the toothpaste brand name “Cue” is often a crude slang expression for derriere.

Source: Philip R. Catora and John L. Graham, International Marketing, 11th ed. (Burr Ridge, Ill.: McGraw- Hill/Irwin, 2002); Paul A. Herbig, Handbook of Cross-Cultural Marketing (New York: Haworth Press, 1998).

Chapter 7 7-18 ICA 7-1: IN-CLASS ACTIVITY

Marketing Across Borders: Reintroducing the MINI® Brand to the U.S.

Learning Objectives. To have students (1) determine whether the MINI brand, which is owned by the BMW Group and sells two models: the MINI Cooper® and MINI Cooper S® in the U. S., is an international firm (extends its domestic marketing strategy), a multinational firm (uses a multi-domestic marketing strategy), or a transnational firm (employs a global marketing strategy), (2) identify the problems global marketers face when selling a product—in this case a well-known British car—to American consumers, and (3) discuss any marketing mix modifications that MINI might need to make to appeal to American consumers.

Definitions. The following marketing terms are referred to in this in-class activity (ICA):  Global Marketing Strategy: The practice of standardizing marketing activities when there are cultural similarities and adapting them when cultures differ.  Multidomestic Marketing Strategy: A multinational firm’s offering as many different product variations, brand names, and advertising programs as countries in which it does business.

Nature of the Activity. To have students assess selected elements of the MINI brand’s marketing mix contained in (1) a PowerPoint presentation and (2) background information provided by the instructor to discuss the typical problems that global marketers face when targeting American consumers.

Estimated Class Time. 20 minutes.

Materials Needed.  The Core07.ppt file from the Core PowerPoint CD in the Core Instructor’s Box.  A transparency of ICA 7-1, Figure 1 (or use Slide 7-61): Marketing Actions to Improve the MINI® Brand’s Chances of Successfully Entering the U.S. Market.

Preparation Before Class. Follow the steps below:

1. Make a transparency of ICA 7-1, Figure 1 (or use Slide 7-61).

2. Review the PowerPoint slides.

7-19 Chapter 7 Instructions. Follow the steps below to conduct this ICA:

1. Give students this background mini-lecture on global marketing strategy alternatives:

“While many U. S. companies engage in global marketing and trade with consumers in foreign countries, the reverse is also true. The U.S. can be a fertile place to expand sales and profits for foreign companies. Companies engaged in global commerce may be either: a. an international firm, which engages in trade and marketing in different countries as an extension of the marketing strategy it uses in its home country; b. a multinational firm, which uses a multidomestic marketing strategy that creates as many different product variations, brand names, and advertising programs as countries in which they do business; and c. a transnational firm, which uses a global marketing strategy that standardizes its marketing practices across all countries to the extent possible, modifying it only when there are cultural differences. When a firm looks for new markets for its products in foreign countries, it often encounters unexpected problems—often because of a lack of understanding of the language, culture, and habits of consumers in the new country. Let’s assume you are marketing consultants to MINI’s International Marketing Team (a division of the BMW Group) that wants to export its MINI Cooper and MINI Cooper S automobiles to U.S. consumers.”

History of the 2. Show Slide 7-55 to provide students with the history of the MINI Mini Classic brand, which is narrated by John Cooper, the creator of the Mini Cooper. [TRT = 2:52]

3. Optional: Summarize with the following background mini-lecture on the history of the Mini Classic in the British market. Slide 7-55 “In the late 1950’s, there was a fuel crisis caused by tensions in the Middle East. Therefore, to compete with the growing number of small fuel-efficient cars, Sir Leonard Lord challenged Alec Issigonis to design and engineer a fuel efficient car capable of carrying four adults within the economic reach of just about anyone. The first Classic Mini was first sold in 1959 for approximately $800 (USD) and became Britain’s most popular car, selling over 5.3 million units during its 40+ years. In 1999, an international panel of judges ranked the Classic Mini the #2 global car of the 20th century. Ford’s Model T was ranked #1.

Chapter 7 7-20 Mini Cooper got its name in 1961 when racecar driver John Cooper modified the Classic Mini and developed a high performance model. In 1964, 1965, and 1967, the Mini Cooper won the prestigious Monte Carlo race over other European sports cars.”

MINI Brand launch 4. Show Slide 7-56; TRT = 1:49. Summarize with the following to the U.S. in 2002 background mini-lecture on the history of the Mini Classic in the U.S. market.

“From 1960 - 1967, about 10,000 Classic Mini Coopers were sold in the U.S. In 1968, the U.S. government issued more restrictive safety Slide 7-56 and emissions regulations, and the Mini was withdrawn from the market. In September 2000, the all new MINI premiered at the Mondial De L’Automobile Show in Paris. Days later, the last Classic Mini rolled off the line in Longbridge, UK. Mini became MINI. The new MINI made its European debut in September 2001 and was reintroduced to the U.S. in March 2002. The new MINI Cooper and MINI Cooper S are manufactured in Oxford, England. The BMW Group, the owner of the MINI brand, expects to sell a total of 20,000 units in the U.S. during the 2002 calendar year.”

MINI Cooper S 5. Show Slide 7-57 and Slide 7-58 that depicts the MINI Cooper and MINI Cooper S.

6. Discuss the following “product” attributes of the MINI Cooper and MINI Cooper S:

57 a. Is 142.8” long (bumper-to-bumper) by 66.5” wide (wheel-to- MINI Cooper wheel), or 1/3 larger than the Classic Mini. Has go-kart like handling with the wheels at each corner.

b. Has either a 1.6 liter, transverse 4-cylinder, 115 horsepower engine (MINI Cooper) or a 163 horsepower supercharged engine

58 (MINI Cooper S. c. “Sips” gas: fuel economy is 28 mpg city and 37 mpg highway (MINI Cooper with manual transmission).

d. Has 6 standard airbags with Smart Technology that is able to sense which airbags need to inflate, when they need to inflate, and how much they need to inflate.

e. Can “Build-to-Order” via the MINIUSA.com website with 40+ paint combinations, MINI Motoring-Gear, Genuine MINI Motoring Accessories, and other options are available online.

f. Incorporates the latest generation 4-channel, Anti-Lock Braking System (ABS).

g. Has front wheel drive.

7-21 Chapter 7 7. Discuss the following “price” attributes of the MINI Cooper and MINI Cooper S.

8. Discuss the following “promotion” attributes of the MINI Brand:

a. Demographics are insignificant since people from 16 to 60 find themselves attracted to the MINI. Instead, it’s about the mindset.

MINI brochure b. Show Slide 7-59. Placed an abridged version of the “Book of Motoring” as an insert in selected magazines. This publication relies on a combination of “cheeky” humor, the motoring philosophy, and product substance highlights to communicate the marketing message.

59 c. Show Slide 7-60. Instead of allocating money for TV ads, MINI MINI print ad uses other traditional media in non-traditional ways: billboards with the message “The SUV Backlash Officially Starts Now” or “Let’s Sip Not Guzzle”; magazine ads, such as buying the margin around a news story in Rolling Stone and Motor Trend for its ‘Cornering ads’ that say, “Nothing Corners Like a MINI”; Slide 7-60 guerilla sightings (mounting MINIs atop SUVs and drive around major metropolitan cities); and video ads on the MINI website.

d. “Starred” in the 2002 Austin Powers III and other movies.

9. Discuss the following “place” (or distribution) attributes of the MINI Cooper and MINI Cooper S:

a. Sold through a network of approximately 70 MINI dealers located primarily in major metropolitan areas in the U.S.

b. MINI dealership showrooms are distinctly separate from BMW dealership showrooms. One dealer located its MINI dealership in a shopping center (Minneapolis, MN: Southdale Mall).

10. Randomly assign students into teams.

ICA 7-1, Fig. 1 11. Show Slide 7-61 or a transparency of ICA 7-1, Figure 1 and ask the Marketing actions students to spend 5 minutes (1) identifying the issues or problems in global marketing and (2) recommending an action or solution for each of four marketing mix elements:

a. Product modifications. Slide 7-61 b. Price modifications.

c. Promotion modifications.

d. Place (distribution or dealer network) modifications.

Chapter 7 7-22 12. Write down students’ ideas on transparency of ICA 7-1, Figure 1 or the blackboard and discuss. See below for some points that may emerge in the discussion.

13. Ask students to classify MINI, the firm that sells the MINI Cooper and MINI Cooper S automobiles in the U.S., either as an international firm, a multinational firm, or a transnational firm. The MINI Brand should be classified as a transnational firm because it uses a global marketing strategy. The BMW Group and the MINI International marketing Team have standardized the marketing practices for its MINI Cooper automobiles in the U.S. to the extent possible, modifying them only when there are cultural or legal differences to those employed in England (its home country) and the other European countries it targets.

For example, the MINI Cooper and MINI Cooper S have the same overall body style and technologies regardless of where the cars are sold. However, one significant product modification is the position of the driver and location of the steering wheel (in England, it’s on the right and in America, it’s on the left). Also, the humor is culturally determined; therefore, what may be humorous in England may not be in America due to the cultural context within which it is presented.

Marketing Lessons. It is difficult to take a product from one country to another without making changes in the marketing mix. Because of the potential pitfalls inherent in executing any kind of marketing program across borders, marketing, brand, and product managers should conduct marketing research when seeking to enter new global markets.

Website. To obtain a price quote for a new MINI Cooper or MINI Cooper S or build one online, visit www.MINIUSA.com.

7-23 Chapter 7 Marketing Mix Element Issue/Problem Action/Solution

Product Improvements  In England, car is small  Make car larger  In England, steering wheel on the  Design MINI with steering wheel right (wrong!) side on left side  U.S. fuel economy standards  Design a fuel-efficient engine  U.S. safety standards  Conform to U.S. safety standards  Comfort  Focus on technology that allows for  Ability to customize greater comfort and movement in upper body and legs  Offer “Build-to-Order” via website that offers features & accessories that American prefer (CD players)

Pricing Improvements  Currency exchange risks since cars  Price guarantees for a fixed period are produced in England (£) and of time exported to the U.S. ($)  Show comparison prices of similar  Price of options higher to keep base options for selected competitor cars price under $20,000

Promotion Improvements  No TV ads; Americans like TV  Must use very creative alternative  Austin Powers III movie may not media to inform potential target be seen by target market customers, such as magazine ads,  Non traditional use of traditional billboards, public relations, etc. media may not appeal to target  Use multiple product placement customers situations that are consistent with  British humor, if used, may not be brand image fully appreciated by Americans  Use humor that is culturally accepted

Place (Distribution)  Dealers in only 70 major U.S. cities  Ability to order a car via the Improvements  MINI dealer showrooms separate Internet from BMW dealer showrooms  MINI is a unique brand personality that needs to be separate from BMW

Chapter 7 7-24 ICA 7-1, FIGURE 1

MARKETING ACTIONS TO IMPROVE THE MINI® BRAND’S CHANCES OF SUCCESSFULLY ENTERING THE U.S. MARKET

MARKETING STRATEGY ISSUE/PROBLEM ACTION/SOLUTION AREA

Product Improvements

Pricing Improvements

Promotion Improvements

Place (Dealer) Improvements

7-25 Chapter 7 TN VIDEO CASE 7

CNS Breathe Right® Strips: Reaching the World’s Noses

Breathe Right Synopsis: product line

Breathe Right® nasal strips are a unique adhesive pad with a spring inside that when put on the nose opens up the nasal passages an additional 31 percent, and provides relief to snorers and allergy sufferers and increased

63 performance to athletes. CNS, Inc., the manufacturer of the product, entered into a distribution and marketing agreement with 3M to sell the strips in international markets. This case challenges students to think about differences in worldwide distribution systems, and how to create repeat users in other cultures. Issues relating to strategic co-marketing between small and large companies are also addressed.

Teaching Suggestions:

Begin by asking the class how many are familiar with Breathe Right strips, and if so, how they became familiar with them. Most of those familiar will say from sporting events on television, which can lead to a discussion of the value of garnering free PR at the launch of a new-to-the-world product, which is precisely how Breathe Right achieved its early domestic success. Not only do people learn what the product is and how it works, but it comes from a seemingly credible source, someone not being paid to use and promote the product. Sports stars are also high profile and opinion leaders, so their endorsement of a product helps to further stimulate sales.

Ask if anyone can think of cultural differences around the world that might negatively affect the sales of Breathe Right in other countries, such as the young average age in other countries (typically older people need snoring relief the most).

Answers to Questions:

1. What are the advantages and disadvantages of CNS taking its Breathe Right® strip into international markets?

Answers:

Advantages. Congestion problems are universal, as are sports, so there is a need for the product the world over. A new-to-the-world product creates a lot of excitement when first introduced, so the potential for free public relations around the globe is great. The net effect is that CNS has the opportunity to significantly increase its sales revenue from the international markets with limited financial risk.

Chapter 7 7-26 Disadvantages. CNS is a small company with no global experience. How the product will be positioned in other countries is unclear, as there is typically no cough/cold/congestion category of products in most pharmacies or drugstores in other countries. Also, developing new packaging and advertising, educating potential consumers, and finding efficient distributors and channels can be very costly.

2. What advantages does CNS gain by having 3M as its international licensing partner? What are the advantages for 3M?

Answers:

Advantages for CNS. 3M has extensive distribution inroads in pharmacies, hypermarkets, and mass markets abroad, giving Breathe Right an immediate channel of entry in the majority of countries around the world. 3M is a large multinational company, enabling it to financially support the marketing effort of the strips around the world. So CNS has the potential benefits of gaining 3M’s global expertise without incurring huge expenses itself (see the Epilogue below).

Advantages for 3M. Breathe Right strips fit in well with existing first aid products that 3M markets internationally. 3M gets to have its name associated (through co- branding) with a truly innovative and useful product, thereby broadening its product line of health-related products and gaining sales and profits. Also, with the kind of TV publicity Breathe Right Strips get in some countries (Japan is an example in the video), 3M might hope that publicity carries over to other products in this line.

3. What criteria might CNS and 3M use in selecting countries to enter? Using these criteria, which 5 or 6 would you enter?

Answers:

Criteria. Level of disposable income, population, availability of potential sports- related public relations, and percentage of the population over age 40 are key criteria.

Countries. Students might suggest such countries as the emerging Eastern European countries, the “dragon” countries of Asia, or more “Westernized” countries such as Japan, Germany, Great Britain, and the Scandinavian countries.

4. Which market segment would you target in entering the international markets— snorers, athletes, people with chronic congestion and allergies, or a new segment? Why?

Answer: Athletes gain the most publicity, and hence might be a good segment to target at product introduction. As mentioned in the video, snorers are the largest segment and also the heaviest repeat users, so they would be key after initial awareness of the product is gained. New segments could emerge in other countries. In countries where it is very humid and hard to breathe (countries along the equator), the strip might help in daily breathing.

7-27 Chapter 7 5. Which marketing mix variables do you think CNS should concentrate on the most to succeed in a global arena? Why?

Answer: Distribution is very important, as mentioned in the case, because of the differences in channels and the implications it has for positioning. Promotion, more specifically publicity, is also very important because few consumers will know what the product is when it is first introduced.

Epilogue:

The video was shot and the original case written in 1999 at the time of the CNS-3M marketing agreement was in effect. At that time, 3M was featured prominently in Breathe Right ads and packaging in international markets. But by 2001, CNS became concerned that its single product became lost and lacked strong marketing support in 3M’s broad line of international health care products. While 3M would be a strong international partner on bandage kinds of products that would compliment its line of health-care adhesive products, CNS believed it really needed a “cough-cold-breathing” partner. This resulted in dropping the marketing agreement, so that CNS itself now handles all global marketing activities for Breathe Right strips. The 3M logo is no longer part of the CNS advertising.

CNS continues to develop creative promotions and innovative line and brand extensions. For example, for the 2002 Super Bowl CNS had a promotion featuring strips with logos from the two competing teams, the Saint Louis Rams and New England Patriots. Product line extensions for the Breathe Right strips include (1) different styles and colors (including strips for kids); (2) a mentholated Vicks strip, sold under a licensing agreement with Vicks; and (3) FLAIR nasal strips for horses—yes, horses! The FLAIR strips are intended to reduce exercise-included pulmonary hemorrhages in horses and lessen recovery time after strenuous runs. In early 2002 CNS introduced a brand extension, Breathe Right Snore Relief—a drug-free throat spray containing a pleasant-tasting blend of natural oils to soothe dry throats and reduce snoring. With a suggested retail price of $10.99, the two-ounce bottles started distribution in July 2002.