The textbook defines distribution channel as “a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user” (p. 392). Figure 11.2 on page 399 of the textbook displays a few examples of distribution channels. Except in direct marketing channels through which the producer sells the product directly to the consumer or business customer, the producer has to collaborate with at least one other organization to make the product available to consumers.
The word interdependent is critical in the above definition because an action taken by an organization within a distribution channel impacts the other organizations involved in the same channel. For example, an increase in the price charged by the producer may lead to an increase in the price charged by the other intermediaries, and this will reduce the demand for the product. Even if the producer does not increase the price charged to intermediaries, a price increase by one of the intermediaries will have an impact on the demand and may contribute to the reduction of the producer’s profits.
Another example of the interdependence among channel members is the way in which the service provided by the retailer influences how customers perceive the producer’s product or service. Because of the producer’s reliance on intermediaries to perform specific functions, channel decisions have to be taken seriously to avoid costly mistakes.
A conventional distribution channel can be defined as one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, even at the expense of profits for the system as a whole. Typically, in such a system, each channel partner sells directly to the partner below and does not care about what happens afterwards.
In a typical traditional or conventional distribution channel, the producer sells to the wholesaler and the latter sells to the retailer, and each of them wants to maximize its own profits. It is now well established that in such a distribution channel, the retail prices to consumers are generally high and the level of service provided to consumers is rather poor.
Therefore, it is suggested that producers with specific goals for their products put in place mechanisms that give incentives to intermediaries to behave in such a way that pursuing their own profits becomes compatible with the improvement of profits for the whole system. In other words, producers take the leadership role and try to coordinate channel members’ decisions. Examples of coordination mechanisms are price discounts offered to intermediaries and cooperative advertising programs with intermediaries.
Choose a retailer you are familiar with, and explain what type of retailer it is and how you would classify it in terms of its product lines, amount of service, and relative prices
Different types of customers and products require different amounts of service. To meet these varying service needs, retailers may offer one of three service levels: self-service, limited service, and full service.
Self-service retailers serve customers who are willing to perform their own locate-compare-select process to save time or money. Self-service is the basis of all discount operations and is typically used by retailers selling convenience goods (such as supermarkets) and nationally branded, fast-moving shopping goods (such as Target or Kohl’s).
Limited-service retailers, such as Sears or JCPenney, provide more sales assistance because they carry more shopping goods about which customers need information. Their increased operating costs result in higher prices.
Full-service retailers, such as high-end specialty stores (for example, Tiffany or Williams-Sonoma) and first-class department stores (such as Nordstrom or Neiman Marcus) assist customers in every phase of the shopping process. Full-service stores usually carry more specialty goods for which customers need or want assistance or advice. They provide more services, which results in much higher operating costs. These higher costs are passed along to customers as higher prices.
##Define corporate chain, voluntary chain, retailer cooperative, and franchise, and give an example of each Corporate chains are two or more outlets that are commonly owned and controlled. They have many advantages over independents. Their size allows them to buy in large quantities at lower prices and gain promotional economies. They can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting. The great success of corporate chains caused many independents to band together in one of two forms of contractual associations.
One is the voluntary chain—a wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising. Examples include the Independent Grocers Alliance (IGA), Western Auto, and Do-It Best. The other type of contractual association is the retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conduct joint merchandising and promotion efforts. Examples are Associated Grocers and Ace Hardware. These organizations give independents the buying and promotion economies they need to meet the prices of corporate chains. Another form of contractual retail organization is a franchise. The main difference between franchise organizations and other contractual systems (voluntary chains and retail cooperatives) is that franchise systems are normally based on some unique product or service; a method of doing business; or the trade name, goodwill, or patent that the franchisor has developed. Franchising has been prominent in fast-food restaurants, motels, health and fitness centres, auto sales and service dealerships, and real estate agencies.
The major decisions retailers make are focused on their target market and positioning, their product assortment and services, their price, their promotion strategies, and their location.
What are the major trends in retailing today? How do you think retailing will evolve and change in the next five years?
There are several retailing trends discussed in the chapter, including the following:
- tighter consumer spending
- new retail forms, shortening retail life cycles, and retail convergence
- the rise of megaretailers
- growth of direct, online, and social media retailing
- growing importance of retail technology
- green retailing
- global expansion of major retailers
Wholesalers add value by performing one or more of the following channel functions:
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Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer.
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Buying and assortment building: Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work.
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Bulk breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).
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Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.
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Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than the producers.
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Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.
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Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.
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Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments.
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Management services and advice: Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.
Wholesalers fall into three major groups: merchant wholesalers, brokers and agents, and manufacturers’ and retailers’ branches and offices. Merchant wholesalers are the largest single group of wholesalers and include two broad types: full-service wholesalers and limited-service wholesalers. Full-service wholesalers provide a full set of services, whereas the various limited-service wholesalers offer fewer services to their suppliers and customers. The different types of limited-service wholesalers perform varied specialized functions in the distribution channel.
Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods, and they perform only a few functions. Like merchant wholesalers, they generally specialize by product line or customer type. A broker brings buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler.
The third major type of wholesaling is that done in manufacturers’ and retailers’ branches and offices by sellers or buyers themselves rather than through independent wholesalers.
This is an important question to start with, especially if one takes into account that communication is increasingly expensive. After all, organizations may well avoid any marketing communications involvement and keep capturing value from customers to create profits. This is the main idea behind the production concept studied in Lesson 1, which states that consumers favour products that are available and highly affordable. According to this concept, to create or improve value to consumers, organizations need mostly to improve their production and distribution efficiency. However, the production concept is limited to situations in which the demand for the product exceeds the supply; it is less effective in competitive markets.
The most effective philosophy in a competitive market is the marketing concept, which holds that to be successful, organizations must know the needs of their target markets and deliver desired satisfaction better than their competitors do. According to this philosophy, organizations should use marketing communications to convey their value propositions.
It is important to clearly state what the product offers to consumers and how it compares to alternative products available in the marketplace. The marketing concept philosophy states that each product should have a single, clear value proposition. This idea is re-emphasized in Figure 13.1 on page 473 of the textbook, where it is shown that regardless of the promotional mix used, marketers should have consistent, clear, and compelling messages that are in line with their value propositions.
Setting advertising objectives is critical for any advertising campaign as explained on page 478 of the textbook. The main idea is that to design an effective communications program, marketers have to first identify the communications problem they want to solve. The following are examples of communications problems:
Consumers are unaware of the product. Consumers have heard about the product but do not know its distinctive features. Consumers do not have favourable feelings about the product. Consumers prefer other products to the product being marketed. Consumers believe that the product is perfect but do not purchase the product. It is only when marketers know what the communications problem is that they should specify what needs to be communicated. For example, if the problem is at the purchase level, promotional programs that give incentives (e.g., discounts, rebates, or coupons) to purchase in a specified period can be initiated.
The affordable method, the percentage-of-sales method, and the competitive-parity method of setting promotional budgets are the most common choices for marketers. However, these three methods are reactive and assume that marketing is an afterthought.
The objective-and-task method is preferred, because it calls for a proactive approach to determining the goals of the integrated marketing communications strategy and choosing the most appropriate promotional tools. There is a common misperception that this method will cost a company more. This is not the case. The objective-and-task method can be used by companies with modest budgets. In fact, this method will help them achieve maximum benefit for the money they spend.
First, consumers are changing. In this digital, wireless world consumers are better informed and more communications empowered. Rather than relying on marketer-supplied information, they can use the Internet, social media, and other technologies to find information on their own. They can connect easily with other consumers to exchange brand-related information or even create their own brand messages. Second, marketing strategies are changing. As mass markets have fragmented, marketers are shifting away from mass marketing. More and more, they are developing focused marketing programs designed to build closer relationships with customers in more narrowly defined micromarkets. Finally, sweeping advances in digital technology are causing remarkable changes in the ways companies and customers communicate with each other. The digital age has spawned a host of new information and communication tools—from smartphones and tablets to satellite and cable television systems to the many faces of the Internet (brand websites, email, blogs, social media and online communities, the mobile Web, and so much more).
Integrated marketing communications (IMC) is a concept under which the company carefully integrates its many communications channels to deliver a clear, consistent, and compelling message about the organization and its brands. Integrated marketing communications calls for recognizing all touchpoints where the customer may encounter the company and its brands. Each contact with the brand will deliver a message—whether good, bad, or indifferent. The company’s goal should be to deliver a consistent and positive message at each contact. Integrated marketing communications ties together all of the company’s messages and images. Its television and print ads have the same message, look, and feel as its email and personal selling communications. And its PR materials project the same image as its website, online social media, or mobile marketing efforts. Often, different media play unique roles in attracting, informing, and persuading consumers; these roles must be carefully coordinated under the overall marketing communications plan.
Measuring advertising effectiveness and return on advertising investment has become a hot issue for most companies, especially in the tight economic environment. Advertisers should regularly evaluate two types of advertising results: the communication effects and the sales and profit effects. Measuring the communication effects of an ad or ad campaign tells whether the ads and media are communicating the ad message well. Individual ads can be tested before or after they are run. However, sales and profit effects of advertising are often much harder to measure. One way to measure the sales and profit effects of advertising is to compare past sales and profits with past advertising expenditures. Another way is through experiments.
However, because so many factors affect advertising effectiveness, some controllable and others not, measuring the results of advertising spending remains an inexact science.
Public relations builds good relations with the company’s various publics by obtaining favourable publicity, building up a good corporate image, and handling or heading off unfavourable rumors, stories, and events. Public relations departments may perform any or all of the following functions:
- Press relations or press agency: creating and placing newsworthy information in the news media to attract attention to a person, product, or service.
- Product publicity: publicizing specific products.
- Public affairs: building and maintaining national or local community relations.
- Lobbying: building and maintaining relations with legislators and government officials to influence legislation and regulation.
- Investor relations: maintaining relationships with shareholders and others in the financial community.
- Development: public relations with donors or members of nonprofit organizations to gain financial or volunteer support.
Public relations uses several tools.
One of the major tools is news. PR professionals find or create favourable news about the company and its products or people. Sometimes news stories occur naturally; sometimes the PR person can suggest events or activities that would create news.
Another common PR tool is special events, ranging from news conferences and speeches, brand tours, and grand openings to laser light shows, multimedia presentations, or educational programs designed to reach and interest target publics.
Public relations people also prepare written materials to reach and influence their target markets. These materials include annual reports, brochures, articles, and company newsletters and magazines.
Audiovisual materials, such as DVDs and online videos, are being used increasingly as communication tools.
Corporate identity materials can also help create a corporate identity that the public immediately recognizes. Logos, stationery, brochures, signs, business forms, business cards, buildings, uniforms, and company cars and trucks all become marketing tools when they are attractive, distinctive, and memorable.
Finally, companies can improve public goodwill by contributing money and time to public service activities.
The Web and social media are also important PR channels. Websites, blogs, and social media such as YouTube, Facebook, Pinterest, Storify, and Twitter are providing new ways to reach and engage people.
The term salesperson covers a wide range of positions. At one extreme, a salesperson might be largely an order taker, such as the department store salesperson standing behind the counter. At the other extreme are order getters, whose positions demand creative selling, social selling, and relationship building for products and services ranging from appliances, industrial equipment, and airplanes to insurance and information technology services. Personal selling is the interpersonal arm of the promotion mix. Advertising consists largely of impersonal communication with large groups of consumers. By contrast, personal selling involves interpersonal interactions between salespeople and individual customers—whether face-to-face, by phone, via email or Twitter, through video or online conferences, or by other means. Personal selling can be more effective than advertising in more complex selling situations. Salespeople can probe customers to learn more about their problems and then adjust the marketing offer and presentation to fit each customer’s special needs.
The role of personal selling varies from company to company. Some firms have no salespeople at all—for example, companies that sell only online, or companies that sell through manufacturer’s reps, sales agents, or brokers. In most firms, however, the sales force plays a major role. In companies that sell business products and services, such as IBM, DuPont, or Boeing, salespeople work directly with customers. In consumer product companies such as Nestlé or Nike, the sales force plays an important behind-the-scenes role. It works with wholesalers and retailers to gain their support and help them be more effective in selling the company’s products to final buyers.
Compare and contrast the three sales force structures outlined in the chapter. Which structure is most effective?
In the territorial sales force structure, each salesperson is assigned to an exclusive geographic area and sells the company’s full line of products or services to all customers in that territory. With a product sales force structure, the sales force sells along product lines. More and more companies are now using a customer sales force structure, in which they organize the sales force along customer or industry lines. Separate sales forces may be set up for different industries, for serving current customers versus finding new ones, and for major accounts versus regular accounts.
One structure is not necessarily better than another. A company must develop a structure that is appropriate for its needs. A good sales structure can mean the difference between success and failure. Over time, sales force structures can grow complex, inefficient, and unresponsive to customers’ needs. Companies should periodically review their sales force organizations to be certain that they serve the needs of the company and its customers.
A company may have an outside sales force (or field sales force), an inside sales force, or both. Outside salespeople travel to call on customers in the field. In contrast, inside salespeople conduct business from their offices via telephone, online and social media interactions, or visits from buyers. The use of inside sales has grown in recent years as a result of increased outside selling costs and the surge in online, mobile, and social media technologies. Some inside salespeople provide support for the outside sales force, freeing them to spend more time selling to major accounts and finding new prospects. For example, technical sales support people provide technical information and answers to customers’ questions. Sales assistants provide research and administrative backup for outside salespeople. They track down sales leads, call ahead and confirm appointments, follow up on deliveries, and answer customers’ questions when outside salespeople cannot be reached. Using such combinations of inside and outside salespeople can help serve important customers better. The inside rep provides daily access and support, whereas the outside rep provides face-to-face collaboration and relationship building. Other inside salespeople do more than just provide support. Telemarketers and online sellers use the phone, Internet, and social media to find new leads, learn about customers and their business, or sell and service accounts directly. Telemarketing and online selling can be very effective, less costly ways to sell to smaller, harder-to-reach customers.
The fastest-growing sales trend is the exploding use of online, mobile, and social media tools in selling. New digital sales force technologies are creating exciting new avenues for connecting with and engaging customers in the digital and social-media age. Some analysts even predict that the Internet will mean the death of person-to-person selling, as salespeople are ultimately replaced by websites, online social media, mobile apps, video and conferencing technologies, and other tools that allow direct customer contact. Used properly, online and social media technologies won’t make salespeople obsolete but will make salespeople more productive and effective.
The new digital technologies are providing salespeople with powerful tools for identifying and learning about prospects, engaging customers, creating customer value, closing sales, and nurturing customer relationships. Internet-based technologies can produce big organizational benefits for sales forces. They help conserve salespeople’s valuable time, save travel dollars, and give salespeople new vehicles for selling and servicing accounts. Using the Internet hasn’t really changed the fundamentals of selling. However, the Internet and social media are dramatically changing the customer buying process. As a result, they are also changing the selling process. In today’s digital world, many customers no longer rely as much as they once did on information and assistance provided by salespeople. Instead, they carry out more of the buying process on their own—especially the early stages. Increasingly, they use online and social media resources to analyze their own problems, research solutions, get advice from colleagues, and rank buying options before ever speaking to a salesperson.
In response to this new digital buying environment, sellers are reorienting their selling processes around the new customer buying process. They are “going where customers are”— social media, Web forums, online communities, and blogs—in order to engage customers earlier. They are engaging customers not just where and when they are buying, but also where and when they are learning about and evaluating what they will buy. Salespeople now routinely use digital tools to monitor customer social media exchanges to spot trends, identify prospects, and learn what customers would like to buy, how they feel about a vendor, and what it would take to make a sale. They generate lists of prospective customers from online databases and social networking sites, such as InsideView, Hoovers, and LinkedIn. They create dialogs when prospective customers visit their Web and social media sites through live chats with the sales team. They use Internet conferencing tools such as WebEx, GoToMeeting, or TelePresence to talk live with customers about products and services. They provide videos and other information on their YouTube channels and Facebook pages.
Ultimately, online and social media technologies are helping to make sales forces more efficient, cost-effective, and productive. The technologies help salespeople do what good salespeople have always done—build customer relationships by solving customer problems—but do it better, faster, and cheaper.
Sales promotion consists of short-term incentives to encourage the purchase or sale of a product or service and includes tools such as coupons, sweepstakes, premiums, and trade allowances. Sales promotion objectives vary widely. Sellers may use consumer promotions to urge short-term customer buying or to enhance customer brand involvement. Objectives for trade promotions include getting retailers to carry new items and more inventory, buy ahead, or promote the company’s products and give them more shelf space. For the sales force, objectives include getting more sales force support for current or new products or getting salespeople to sign up new accounts.
Discuss the different types of trade sales promotions and distinguish these types of promotions from business promotions.
Trade promotions can persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers. Shelf space is so scarce these days that manufacturers often have to offer price-offs, allowances, buy-back guarantees, or free goods to retailers and wholesalers to get products on the shelf and, once there, to keep them on it. Manufacturers use several trade promotion tools. Many of the tools used for consumer promotions—contests, premiums, displays—can also be used as trade promotions. Or the manufacturer may offer a straight discount off the list price on each case purchased during a stated period of time (also called a price-off, off-invoice, or off-list). Manufacturers also may offer an allowance (usually so much off per case) in return for the retailer’s agreement to feature the manufacturer’s products in some way. An advertising allowance compensates retailers for advertising the product. A display allowance compensates them for using special displays. Manufacturers may offer free goods, which are extra cases of merchandise, to resellers who buy a certain quantity or who feature a certain flavour or size. They may offer push money—cash or gifts to dealers or their sales forces to “push” the manufacturer’s goods. Manufacturers may give retailers free specialty advertising items that carry the company’s name, such as pens, pencils, calendars, paperweights, matchbooks, memo pads, and yardsticks.
Business promotions are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. Business promotions include many of the same tools used for consumer or trade promotions, but there are two additional major business promotion tools—conventions and trade shows, and sales contests.
Direct digital and social media marketing takes many forms including online marketing, social media marketing, and mobile marketing. Online marketing refers to marketing via the Internet using company websites, online advertising and promotions, e-mail marketing, online video, and blogs. Social media and mobile marketing also take place online and must be closely coordinated with other forms of digital marketing.
Marketing websites are designed to interact with customers to move them closer to a direct purchase or other marketing outcome. In contrast, branded community websites don’t try to sell anything at all. Instead, their primary purpose is to present brand content that engages consumers and creates customer-brand community. Such sites typically offer a rich variety of brand information, videos, blogs, activities, and other features that build closer customer relationships and generate engagement with and between the brand and its customers.
The main forms of online advertising are display ads and search-related ads. Online display ads might appear anywhere on an Internet user’s screen and are often related to the information being viewed. The largest form of online advertising is search-related ads (or contextual advertising). In search advertising, text-based ads and links appear alongside search engine results on sites such as Google, Yahoo!, and Bing. A search advertiser buys search terms from the search site and pays only if consumers click through to its site.
The major traditional forms of direct marketing are face-to-face or personal selling, direct-mail marketing, catalog marketing, telemarketing, direct-response television (DRTV) marketing, and kiosk marketing.
Personal selling was covered in depth in Chapter 13.
Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a person at a particular address.
Advances in technology, along with the move toward personalized, one-to-one marketing, have resulted in exciting changes in catalog marketing. Catalog Age magazine used to define a catalog as “a printed, bound piece of at least eight pages, selling multiple products, and offering a direct ordering mechanism.” Today, this definition is sadly out of date. With the stampede to the Internet and digital marketing, more and more catalogs are going digital. However, despite the advantages of digital catalogs, as your overstuffed mailbox may suggest, printed catalogs are still thriving.
Telemarketing involves using the telephone to sell directly to consumers and business customers.
Direct-response television (DRTV) marketing takes one of two major forms: direct-response television advertising and interactive TV (iTV) advertising. As consumers become more and more comfortable with digital and touch-screen technologies, many companies are placing information and ordering machines—called kiosks (good old-fashioned vending machines but so much more)—in stores, airports, hotels, college campuses, and other locations. Kiosks are everywhere these days, from self-service hotel and airline check-in devices, to unmanned product and information kiosks in malls, to in-store ordering devices that let you order merchandise not carried in the store.
Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges. The aggressive and sometimes shady tactics of a few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses range from simple excesses that irritate consumers to instances of unfair practices or even outright deception and fraud. The direct marketing industry has also faced growing privacy concerns, and online marketers must deal with Internet security issues.
Explain what is meant by the term global firm and list the major decisions involved in international marketing.
A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors. The global company sees the world as one market. It minimizes the importance of national boundaries and develops “transnational” brands. It raises capital, obtains materials and components, and manufactures and markets its goods wherever it can do the best job.
Figure 16.1 in the textbook illustrates the six major decisions in international marketing:
- understanding the global marketing environment
- deciding whether to go global
- deciding which markets to enter
- deciding how to enter the market
- deciding on the global marketing program
- deciding on the global marketing organization
Discuss the four types of country industrial structures and the opportunities each offers to international marketers.
The four types of industrial structures are as follows:
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Subsistence economies: In a subsistence economy, the vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities.
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Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources. These countries are good markets for large equipment, tools and supplies, and trucks. If there are many foreign residents and a wealthy upper class, they are also a market for luxury goods.
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Emerging economies (industrializing economies): In an emerging economy, fast growth in manufacturing results in rapid overall economic growth. As manufacturing increases, the country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. Industrialization typically creates a new rich class and a small but growing middle class, both demanding new types of imported goods.
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Industrial economies: Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semi-finished goods. The varied manufacturing activities of these industrial nations and their large middle class make them rich markets for all sorts of goods.
Once a business decides to go global, there are three modes of entry: exporting, joint venturing, and direct investment. Each succeeding strategy involves more commitment and risk, but also more control and potential profits.
The simplest way to enter a foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company’s product lines, organization, investments, or mission.
A second method of entering a foreign market is joint venturing—joining with foreign companies to produce or market products or services. Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad. It differs from direct investment in that an association is formed with someone in the foreign country. There are four types of joint ventures: licensing, contract manufacturing, management contracting, and joint ownership.
The biggest involvement in a foreign market comes through direct investment—the development of foreign-based assembly or manufacturing facilities. If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. The firm may have lower costs in the form of cheaper labour or raw materials, foreign government investment incentives, and freight savings. The firm may improve its image in the host country because it creates jobs. Generally, a firm develops a deeper relationship with government, customers, local suppliers, and distributors, allowing it to adapt its products to the local market better. Finally, the firm keeps full control over the investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes.
No single way to enter a foreign market is the best. It depends on the situation and the business going global.
Straight product extension means marketing a product in a foreign market without any change. It has been successful in some cases and disastrous in others. Straight extension is tempting because it involves no additional product development costs, manufacturing changes, or new promotion. But it can be costly in the long run if products fail to satisfy consumers in specific global markets.
Product adaptation involves changing the product to meet local conditions or wants.
Product invention consists of creating something new for a specific country market. This strategy can take two forms. It might mean maintaining or reintroducing earlier product forms that happen to be well adapted to the needs of a given country. Or a company might create a new product to meet a need in a given country. No one strategy is best in all cases. Companies must choose the strategy that best fits their products and situations.
Companies manage their international marketing activities in at least three different ways: export department, international division, and global organization.
A firm normally gets into international marketing simply by shipping out its goods. If its international sales expand, the company will establish an export department with a sales manager and a few assistants. As sales increase and the company moves into joint ventures or direct investment, the export department will no longer be adequate.
A company may export to one country, license to another, have a joint ownership venture in a third, and own a subsidiary in a fourth, so sooner or later it will create international divisions or subsidiaries to handle all its international activity.
Many firms have passed beyond the international division stage and are truly global organizations that don’t think of themselves as national marketers who sell abroad but as global marketers.