INTERNATIONAL MARKETING Culture Product strategies

INTERNATIONAL MARKETING • Culture • Product strategies • Legal issues BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 1

Learning Objectives • Identify impact of culture on – – Values Perception of reality Product choices Response to marketing activity • Identify the impact of levels of income, costs of living, and fluctuating exchange rates • Identify advantages and disadvantages of product standardization, adaptation, and customization under different circumstances • Identify some legal issues that must be considered by firms doing business abroad BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 2

An Effective Billboard Advertisement? VERY DIRTY CLOTHES BUAD 307 CLOTHES GETS WASHED WITH THE ADVERTISED DETERGENT BRAND INTERNATIONAL MARKETING SQUEEKY CLEAN CLOTHES Lars Perner, Instructor 3

International Marketing: Considerations and Outcomes MKT 465 COVERS INTERNATIONAL MARKETING IN MORE DETAIL BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 4

Definitions Culture: “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man as a member of society. ” Alternative definition: “Meanings that are shared by most people in a group [at least to some extent]”. (Adapted from Peter and Olson, 1994) BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 5

Cultural Lessons • Diet Coke is named Light Coke in Japan—dieting was not well regarded • Red circle trademark was unpopular in Asia due to its resemblance of Japanese flag • Packaging of products is more important in some countries than in U. S. • Advertisement featuring man and dog failed in Africa—dogs were not seem as man’s best friend BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 6

More Cultural Lessons. . . • Cologne ad featuring a man “attacked” by women failed in Africa • Food demonstration did well in Chinese stores but not in Korean ones--older women were insulted by being “taught” by younger representatives • Pauses in negotiations • Level of formality BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 7

Very Brief Review of Economics • Exchange rates – Floating (supply and demand) – Fixed • Trade balances and their impact on exchange rates • Measuring country wealth – Gross domestic product – Nominal vs. “Purchasing power parity” • Nominal: Amount of dollars that can be bought with the amount of income. Used for imported products. • Purchasing power parity adjusted: The buying power—based on a weighted average of costs— in the respective country relative to U. S. BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 8

Historical Euro-U. S. Dollar Exchange Rates Source: U. S. Federal Reserve Bank BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 9

Fluctuating exchange rates • Help reduce trade imbalances – A country that imports more than it exports will have a less valuable currency (demand for other countries’ currency drives down the price of the country’s currency) • Imported items will become more expensive and thus less attractive • In other countries, the country’s “cheap” currency will its exports more attractive – Result in: • Variations in the demand for a firm’s exports over time • Variations in the cost of the firm’s products abroad (or a change in margins) • Common currencies across partner countries (e. g. , Euro) reduce fluctuations and help long term planning, but may perpetuate trade imbalances BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 10

Demand for Currency Depends On • Trade deficit (demand foreign currency to fund this reduces value) or trade surplus (demand for country’s currency by other countries drives up value) • Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U. S. bonds and equities), thus increasing demand for, and the cost of, the currency • Inflation: Reduces the attractiveness of holding the currency BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 11

Nominal vs. Purchase Parity Adjusted Gross Domestic Products (GDPs)—Examples (2016) Source: World Bank BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 12

Cautions on Interpreting Per Capita Figures • Averages are not very meaningful! – Regional variations—costs of living are very high in Shanghai, Seoul, and Buenos Aires – Socio-economic differences—different groups of people buy different things – Some countries have “informal” (off-the-books) economies with much lower prices than official ones • Comparison to U. S. dollar and U. S. costs is arbitrary and PPP figures will change based on fluctuations in Dollar value BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 13

Some contributors to cost of living • Labor: Services may be much less expensive when low cost labor is available • Environmental regulations (e. g. , tolerance for pollution, carbon emissions) • Safety regulations • Local availability of resources (e. g. , cost of scarce or abundant land), natural resources BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 14

Government Policy and Spending • Some countries have high taxes, with the government covering certain costs (e. g. , health care, education) – Although some costs are covered, a lesser part of income is available to be spent – Highly progressive tax rates (where higher income households pay a higher percentage of income in taxes) result in smaller markets for luxury products – Taxes can come in multiple forms: income, sales tax, excise taxes (specific taxes on specific products such as cars), and “sin” taxes on “bad” things such as alcohol, tobacco, sugared drinks, and “luxuries” – End results: • “Leveling” of income—less inequality, but also less incentive to produce • Consumer have less control over what they can buy • Long waiting lists may develop for certain government services (demand outstrips supply) BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 15

Why are online auctions and resale of used goods popular in Germany? • High tax rates mean that one has to work a long time to buy items • Spending more time searching for better deals incurs less of an opportunity cost—e. g. , – If an individual who makes $25. 00 per hour pays 60% tax, he or she only takes home (10. 6)*$25. 00=$10. 00 net. – He or she has to earn $50. 00 to spend $20. 00 – Taking time to find a deal that only costs $15. 00 means that ($20 -$15)/0. 4=$12. 50 less has to be earned BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 16

Approaches to Product Introduction ● Customization Completely new product made for each country Standardization ● Adaptation Adjustments are made in regions or countries to accommodate infrastructure, cultural, economic, or other differences Products sold across the World are identical Complete customization or standardization are rare—modest adjustments are usually made Not suitable for the Middle East! BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 17

Reasons for Standardization • Avoiding high costs of customization, if applicable • Technological intensity – Reduced confusion – International compatibility among product group components – Faster spread of rapid life cycle products BUAD 307 • Convergence of global consumer tastes/needs • Country of origin positioning INTERNATIONAL MARKETING Lars Perner, Instructor 18

Standardization—Advantages • Benefits – Economies of scale – More resources available for development effort • Better quality possible – Rapid product life cycles may make extensive adaptation infeasible BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 19

Standardization—Disadvantages • Unnecessary features • Vulnerability to trade barriers • Strong local competitors BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 20

Product Adaptations • Mandatory—required by laws of nature or laws of government – Legal requirements – Infrastructure • “Discretionary”—not required by natural or human laws but often not really “optional” in practice (needed to compete with brands that do offer adaptations) • Local tastes • Fit into cultural environment BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 21

Mandatory Adaptation Issues • Infrastructure differences—e. g. , electricity supplies vary among countries in – Voltage – Frequency (time between flips in polarity under alternating current) – Plugs • Conflicting rules between countries—it may not be possible to make a product that would be simultaneously legal in both of two countries BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 22

Some Examples of Mandatory Adaptations • Artificial sweeteners permitted (approved for use in different countries) • Product specifications (e. g. , alcohol percentage in beverages) • Warning labels • Safety features • Anti-pollution features BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 23

Country of Origin Effects • Perception of product – quality (e. g. , Japan, Germany) – elegance and style (e. g. , France, Italy) • Historical associations • Positioning strategies – Emphasis on origin (e. g. , French wine) – De-emphasis/obfuscation of country of origin (e. g. , French beer, American products with French language labels) BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 24

Flops in the Transplantation of Advertising • Man and his dog • “Follow the leader—he’s on a Honda!” • Detergent ad • “Get your teeth their whitest!” BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 25

International Brand Adaptations • Chevy Nova did not do well in Latin America (“no va. ”) A Japanese soft drink which did not sell well in English speaking countries… BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 26

U. S. Laws of Interest… • Anti-trust: It is illegal for U. S. firms to participate in collusion and other anti-competitive activities abroad. Most countries have such laws; not all enforce these. • Foreign Corrupt Influences Act: It is illegal for U. S. firms to pay bribes abroad. • Anti-boycott laws: It is illegal for U. S. firms to participate in a boycott of Israel or even certify that one’s firm does not do business with Israel. Technically, it is illegal to participate in all non-U. S. Government sanctioned boycotts, but the emphasis is on Israel. • Trading With the Enemy: – – It is illegal to trade at all (with few exceptions) with enemy certain states (e. g. , North Korea, Iran, Libya). Exports of certain technologies (mostly with potential for military use) is heavily restricted. • Extra-territoriality: U. S. courts will often take jurisdiction over cases of violations of U. S. law that occurred entirely abroad. BUAD 307 INTERNATIONAL MARKETING Lars Perner, Instructor 27