International Marketing Theories - Essay Example

International Marketing Theories Discuss with theories the way in which FMCG firms might decide on the extent to which it can sell a standardized product across nations    As the world comes closer and markets for products expand, the need for international market becomes strong. International marketing is the process of identifying the needs of the vast number of customers who vary in their culture, tastes, origin, ethnic background, societal values etc. Companies like Unilever, Procter & Gamble, Gillete, Reckitt Benckieser etc. are multinationals and have brands that target enormous number of customers all over the world. While these companies use similar products to target the mass market but still they need to take care of the differences in the audience and cater the marketing mix that is product, price, promotion and planning to their individual or segmented needs. Since marketers see vast potential in the untapped global market hence they can exploit the opportunity to benefit from it. But to target the markets, the marketers need to consider the potential size of the market, their values, customs, and traditions, type of competition, price differential, distribution channel infrastructure and availability. Most important is to find out whether the market for the product really exists, and how far can they go in the international market. Once the firm decided to sell its product overseas it can approach the international market in the following four ways: 1. sell the product as it is in the international market 2. modifying the product for different countries or regions 3. designing of entirely new products for overseas market 4. incorporating all differences in one product design and introduction of a single global product Thus simply speaking, companies have two options to cater to the need of the overseas market, namely standardization of a product or differentiation. Standardization involves catering to all the markets with the same marketing mix i.e. all four Ps of marketing are same for all the markets in each country. Standardization is beneficial because it results in lower costs since economies to scale and scope are achieved if using the same product and its supplements in all markets. But, there are obvious hindrances in adopting such a strategy because if marketers make a single product then they are not taking into consideration the difference in taste and habits between different markets. Price levels generally vary among countries and therefore it is not necessary that consumers in one part of the world will be able to afford the same product. And marketers also divide the world markets in terms of agricultural based economies, subsistence economies, developed, industrialized and also under developed, poor economies. And since these countries differ widely in terms of how developed and under developed these are, hence the distribution channels are also effected by the exposure and development in the economies. Moreover, marketers cannot target all customers with a single ad campaign as language and values effect how customers or viewers want the product to be perceived as. But, when organizations use a differentiation strategy then huge global market is segmented into groups based on similarities and dissimilarities among them. And then offer a separate marketing mix to tailor to the different needs and requirements of the divided segments. Thus, many products achieve success because they specifically focus on the individual needs of the local market and their demands. But, differentiation results in increased costs as individual needs are catered and hence it affects the profitability. Factors such as domestic regulations, different usage conditions, being true to the real marketing concept etc. are the factors fueling differentiation strategy. But, how organization decides whether to cater to the markets on a standardized or a differentiated basis depends on three approaches and how the marketers view the potential market. The three approaches are as follows: Polycentrism: With organizations taking the polycentric view of international markets establish subsidiaries overseas and let the management decide for itself their own marketing objectives and policies, which are not at all influenced by parent companies. The subsidiaries are normally decentralized from the parent company. Marketing mix in each market is adopted to meet the local needs and tastes of the individual markets. Ethnocentrism: When marketers have this type of view then the operations of overseas company are largely ignored and are not given much consideration. Plans for international markets are developed at the home country’s office. The product, pricing, distribution strategy and the promotion activities are largely standardized; little effort is put into identify the difference in tastes of the consumers and hence research is given little importance. Geocentricism: Using this approach multinationals integrate diverse regions of the world through a global approach; much tailored to target those markets together that can be targeted through standardization and others where differentiation is necessary should adopt to adapting to that particular market’s requirement. This approach has a much practical orientation towards the markets. Another theory that is important in determining whether the company should produce standardized or differentiated product for international market is the international product life cycle theory. The international product life cycle theory seems to explain when the company should produce standardized product i.e. in which stage of its life cycle. This theory first tends to explain the diffusion process of the brands into the global markets i.e. across the national boundaries. The onset of product is when the multinational in a developed country crosses the national borders to exploit its technological or differentiating advances in a new product. Then relatively less advanced nations gain exposure and the product makes its debut in these markets, as the time passes other least developed nations’ markets are penetrated by such products. This occurs because of the shifting of comparative advantage from one efficient production state to the other. The international product life cycle theory has five stages, namely: 1. local innovation 2. overseas innovation 3. maturity 4. worldwide imitation 5. reversal In the first stage as the name suggests, there is no trade by the domestic good’s producer that is no import or export takes place and the customer market is purely locals buying the product, competitors are also the local firms and production costs are also high for these products. This stage normally occurs in highly developed countries since they have the resources for research and development expenditures and these countries have higher GDP, people are quite affluent and afford luxuries not afforded by many in the global world. Since only a single or domestic market is catered hence production in this stage is highly centralized with no focus on differentiation and hence a single production strategy, similar pricing, standard distribution channel and use of similar values and culture to promote the product. With time, the life cycle moves forward with product moving on to the next stage the product makes its debut in the international market; hence marketers also term this stage as the pioneering in the international market. Other advance nations discover the gap that they see in the products that are available in the locally innovative markets and what they are deprived of, since these nations are quite advanced and have almost similar needs and are quite wealthy. The exporting firm still produces the same product with not many adaptations since the countries that start demanding these products are not much different in values and culture from those that have been using the product since it was first made or developed. Production costs start to decrease as firms face economies to scale with increasing production, and thus per unit costs also tend to decline. As the product demand grows in advance economies and efficient and effective use of resources increase, but suddenly starts to attain maturity in the existing markets and hence, marketers see potential increasing in the least developed countries that are still untapped. But, here the firm has to make a decision as to standardize or adapt its product to local market factors. But as the markets mature in the country, need to export increases. And hence worldwide imitation of product becomes seriously important. But, ultimately as the time passes more new products diffuse in the international market, the differentiating factor of the current products achieves a halt. And for the new innovative products the process begins again. The importance of this is to analyze the newly emerging markets and benefit. Another theory of international marketing as given by Quelch and Hoff in 1986 emphasizes on the four business functions to decide whether the huge multinational companies should go for standardization or adaptation and what should be the extent of standardization, if any. The four functions that Quelch and Hoff talked about were: business functions which included all from marketing and finance to production product variables such as achievement of economies of scale by producing more, and also factors that are more culture dependent Marketing mix elements usage that requires deciding which should be standardized and others that should be adapted to different countries. Lastly, size of the countries themselves; this is more dependent on the size of the markets in a particular country; if a market is small then a standard marketing program is ok to use and in large markets, differentiated marketing strategies can be utilized. Another approach of international marketing which decides on the degree of standardization and that of adaptation depends on the approach that the company follows. The approaches might vary from being global, or composite, or multi domestic or simply domestic. When the orientation is global, advantages of global reach and standardization are high; company adopts a highly standardized strategy to target all the overseas nations and the management is totally worldwide based. For organizations whose strategy is composite in nature, products are exported to overseas markets but a decentralized approach to marketing is followed; both advantages of global reach and standardization plus advantages of local adaptation are quite highly achieved. When organizations adopt multi domestic orientation they invest overseas with the same strong central control to low harmonious strategy here advantages of both standardized and adapted strategy diminish as costs normally outweigh the benefits derived. And for a purely domestic approach all strategies are tailored to meet custom requirements and subsidiaries have total autonomy to handle the markets whichever way they seem suitable. HIGH LOW HIGH Advantage of Local Adaptation Adavantage of global Reach & standardization LOW LOW HIGH Advantage of local adaptation Another conceptualization of international marketing strategy has been suggested by Zou & Cavusgil (2002). Their theory is based on three main perspectives in the literature: standardization, configuration-coordination and integration. The global oriented firms take into consideration these three stated perspectives, i.e. standardization, configuration-coordination and integration but they are of quite less relevance for small and medium size firms that foresee to expand themselves in international markets, since there is a major lack of the resources, the capabilities and the experience that is required to compete on a global basis. This study concluded by developing a framework for analyzing and characterizing export oriented marketing strategies. These strategies will ultimately result in enabling the firm to achieve and sustain a competitive advantage in the international markets. The strategic dimensions that are required for the firm to compete on the global basis are the innovation level of the firm; the innovation level determines the degree or the frequency of bringing in new products by the firm in the export market; its involvement in the marketing planning for different overseas market and the firms’ adaptation level to cater to the individualized needs of the market. Adaptation according to Zou and Cavasgil is the level of changes that a firm applies to its product (i.e. ingredients, prices, color, distribution, packaging, labels, and brand name) to target its overseas market. Sometimes it is argued that markets are becoming so homogeneous that the firm can market identical products and services around the world, using a single standardized marketing mix and thus save on planning, achieving the economies of scale etc. but there are critics of standardized and global reach, critics argues that standardized marketing processes and plans claim that the political, economic and cultural differences will diminish, but that is quite unlikely in the projected future, and therefore, Zou and Cavasgil still argue that tailor made strategies should be adopted. Another group of theorists Douglas and Wind suggest that a policy of developing unified global brands with uniform advertising is very limited. And if the profitability is the main goal then no matter the high cost but pricing, distribution, and also promotional messages and other form of communication should be suited for locals and domestic markets more and more. Product adaptation as opposed to standardization and global reach can be viewed as part of a flexible policy in the international framework of the company. According to Fiegenbaum and Karnani (1991) it can result in an important competitive advantage for firms and also compensate them for some of the disadvantages they face. Big firms according to them promote their products by targeting markets across countries to consume a standardized product through the use of mass advertising and sales promotion relying on their premium and global brands. On the other hand, small and medium sized firms always have an option to tailor their offerings easily to the specific tastes and demands of the foreign customers. Since these small companies tend to use more of indirect distribution strategies rather than having their own money invested in the huge infrastructure, the middlemen or whoever the intermediaries normally ask for changes in the product specifications and the packaging to compete better at the local market level or as a part of their private label product for their own marketing purposes. Adaptation can be viewed as a continuum moving from high (tailor made) to low level (minor or non changes in the product and its packaging). Exporters decision where to be on this continuum may not only affect their competitive position but also requires for different investments and financial support, hence it should be considered a key decision dimension. The theory that is most applicable for companies that produce fast moving consumer goods is Quelch and Hoff who suggest that it is better for companies to achieve economies of scale by concentrating on the total demand of a number of countries; this can help them achieve a higher learning curve through an accumulated experience. Companies like Procter & Gamble have concentrated their detergent production for example in fewer plants thus taking advantage of lower costs because of economies of scale. But, like products many companies can also use a global communication approach by standardizing the product and also the promotion technique at both ends. Same ads can be used to target similar markets, thus economies can be achieved if expensive commercials are used. And we see popular examples like Lux which is truly an international brand name and the same premium position that its focus is. Similarly as products grow in their life cycle national brands also go global. These global brands capture the global customers as its market in the sense that it really sees the customers similarity and wipe out any differences that it may see to target then with a single stick. But, the global brands really need the countries targeted to have minimal differences. But, still organizations adopting the standardized strategy should be flexible enough to adapt to the local changing tastes. Slight changes in the formulations should be easy to do. For example Knorr noodles which are generally same in all forms, but tastes to appeal to Asian and Western markets by changing tastemakers is a good way to target all the segments with a relatively lesser effort. To conclude the whole debate companies before going global should ask three questions first: The first question that the companies need to ask is whether the business as a whole is suited to globalization; whether it has any mass markets to target that are potentially strong, how are customer needs different from one another, whether there are any benefits or synergies to be achieved from targeting the international or overseas markets. The second important question to answer is the strategy that the organization is going to pursue. Product extension, brand extension, product development, market development etc. Next at the business level they need to select from differentiaion, cost leadership and focus. Lastly, the question is whether the company can implement the strategy or not. Since the environment needs to be conducive and facilitative for the company, this includes legal, economic, social and technological factors etc. References Paliwoda, S, & Thomas, M International Marketing. Hollinsen, S Global Marketing: A market responsive approach. Kreutzer, R (1988).Standardization: an integrated approach in global marketing. European Journal of Marketing. 22, 19-30. Cateora, P, & Graham, J International Marketing.McGraw Hill Lewis, K, & Housden, M The Art of Marketing Volume 2 International Marketing. Mercer D. Marketing. International Marketing. Retrieved August 24, 2007, from The TImes 100 Web site: http://www.thetimes100.co.uk/theory/theory--international-marketing--241.php Marketing strategies for exports (article) International product strategies (lesson 20) Quelch, J., R. Dolan and T. Kosnik, (1993) Marketing Management, Homewood, IL: Richard D. Irwin Inc. Quelch, J., (August 2003), “The Return of the Global Brand,” Harvard Business Review, 81:8 pp. 22-23. Holt, D., J. Quelch and E. Taylor, (September 2004) “How Global Brands Compete,” Harvard Business Review, 82:9, pp. 68-75. Read More