Global Marketing
Global Marketing
Prepared by: Sir Muhammad Syukran bin Jamil
Learning Outcomes
After studying this chapter, you should be able to:
- 1. Describe the potential of small firms as global enterprises.
- 2. Identify the basic forces prompting small firms to engage in global expansion.
- 3. Understand and compare strategy options for global businesses.
- 4. Explain the challenges that global enterprises face.
- 5. Recognize the sources of assistance available to support international business efforts.
Introduction
The expansion of international business, encouraged by converging market preferences, falling trade barriers, and the integration of national economies.
Small Businesses as Global Enterprises
Research has shown that recent startups and even the smallest of businesses continue to expand overseas, despite global economic slowdowns.
Small companies launched with cross-border business activities in mind.
Forces Driving Global Enterprises
Understanding the motivation behind born-global firms and international expansion.
Expanding Markets
- Extend product life cycle
- Find buyers for specialized goods
Cutting Costs
- Reduce labor & transport cost
- Obtain tariff reductions
Gaining Resources
- Find new raw materials
- Access global human resources
Questions to Consider Before Going Global
Management Objectives
- What are the company's reasons for going global?
- How committed is top management?
- How quickly does management expect international operations to pay off?
Management Experience & Resources
- What in-house international expertise exists (sales experience, language skills)?
- Who will be responsible for operations?
- How much senior management time should be allocated?
- What organizational structure is required?
Production Capacity
- How is present capacity being used?
- Will international sales hurt domestic sales?
- What is the cost of additional production?
- What product designs/packaging options are required?
Financial Capacity
- How much capital can be committed?
- How are the initial expenses to be covered?
- What other financial demands might compete?
- By what date must the global effort pay for itself?
Challenges to Global Businesses
Political Risk
The potential for political forces in a country to negatively affect the performance of businesses operating within its borders.
Economic Risk
The probability that a country’s government will mismanage its economy in ways that hinder performance. Includes Exchange rate risks (the value of one country’s currency relative to another).
"Ease of doing business" Index
Reflects the large impact that regulatory conditions have on economic growth. Think in colors:
- Green: "Go" countries
- Yellow: "Proceed with caution"
- Red: "Stop and think carefully"
Assistance for Global Enterprises
Analyzing Markets & Planning
Finding international markets that fit the company’s unique potentials and putting together a game plan for entry.
Connecting with Customers
- Trade leads: Essential in identifying potential customers.
- Trade missions: Organized trips to meet potential foreign buyers and establish strategic alliances.
- Trade intermediaries: Agencies that distribute products on a contract basis internationally.
Financing
Private commercial banks have loan officers handling foreign transactions, utilizing tools like:
- Letter of credit: An agreement issued by a bank to honor a draft/payment when specified conditions are met.
- Bill of lading: Document indicating a product has been shipped and the title transferred.
*Also supported by the Small Business Administration (SBA).
Trade Intermediaries Most Suited for Small Business
Confirming House (Buying Agent)
- Works for foreign firms that are interested in buying foreign products.
- "Shops" for lowest possible price for requested items.
- Is paid a commission for its services.
- Is sometimes a foreign government agency or quasi-governmental firm.
Revenue & Break-even Explorer
Gross Revenue
$5,000
Est. Profit
$2,000
Pricing Strategies
Skimming Strategy
Setting a high initial price to target collectors/early adopters (e.g., Warren Keating Art Case Study).
Penetration Strategy
Setting a lower initial price to capture market share quickly.
Credit Management
Credit is an agreement providing delayed payment. It stimulates sales but carries risk.
- Increases purchase probability.
- Requires careful factor analysis before extension.
Product and Supply Chain Management
Learning Outcomes
- Understand the challenges associated with the growth of a small business
- Explain the role of innovation in a company’s growth
- Identify stages in the product life cycle and the new product development process
- Describe the building of a firm’s total product
- Discuss product strategy and the alternatives available to small businesses
- Recognize how the legal environment affects products decisions
- Explain the importance of supply chain management
- Specify the major considerations in structuring a distribution channel
Introduction to Market Forces
Refers to the willingness of businesses to put a certain product or service up for sale.
Represents the interest and ability of buyers to purchase it.
"If a product is short in supply, its price will always rise as demand takes over and motivates buyers to purchase the limited goods available at that time."
To Grow or Not to Grow
Entrepreneurs differ in their desire for growth. Growth sometimes happens unexpectedly, forcing the entrepreneur to concentrate all efforts on meeting demand. For many small companies, growth is an expected and achievable goal.
The Growth Trap
While sales volume increases and income statements reflect growing profits, a "growth trap" can occur because rapid growth tends to demand additional cash faster than it can be generated.
One common path to growth is paved by innovation.
Innovation: A Path to Growth
Competitive Advantage & Innovation
The probability that you’ll get it right the first time is very low.
Competitive Advantage Life Cycle
Rules of Thumb for Innovation
- Base innovative efforts on your experience.
- Focus on products or services that have been largely overlooked.
- Be sure there is a market for the product or service.
- Pursue innovation that adds value to consumers’ lives.
- Focus on ideas that lead to more than one product/service.
- Raise sufficient capital.
The Product Life Cycle
A detailed picture of what happens to a product’s sales and profits over time.
1. Introduction
2. Growth
3. Maturity
4. Decline
* Profit curves and sales curves shift significantly across these stages over time.
Building the Total Product
Brand Definitions
- Brand: Verbal/symbolic means of identifying a product.
- Brand image: Overall perception of a brand (Intangible).
- Brand name: Spoken brand (Tangible).
- Brand mark: Non-spoken brand logo/symbol (Tangible).
- Trademark: Legal right to use a brand.
- Service mark: Brand for services.
5 Rules in Naming a Product
- Easy to pronounce and remember.
- Descriptive.
- Eligible for legal protection.
- Has promotional potential.
- Can be used across product lines.
Packaging & Labeling
Packaging protects the product and increases the value of the total product.
Labeling Functions:
- Displays brand when branding isn't suitable directly.
- Provides product care and usage info.
- May include disposal instructions.
Warranties
A promise that the product meets standards.
Important for:
Innovative, expensive, infrequent purchase, complex repair, or high-quality positioning products.
Factors to Consider:
Cost, Service capability, Competitive practices, Customer perceptions, Legal implications.
Logo Design Tips
How to design a logo without breaking the bank:
- Be simple
- Design for visibility
- Open to interpretation
- Be consistent
- Recognize importance of logo
- Get good advice
- Do not expect miracles
Product vs. Service Marketing
Product = goods + services. A product is the total bundle of satisfaction.
Pure Service
- Intangible
- Production & consumption occur at the same time
- Less standardization
- High perishability
Pure Goods
- Tangible
- Production & consumption are separate
- More standardization
- Less perishability
The Legal Environment
Consumer Protection
- Product safety
- Labeling regulations
Protection Tools (Intellectual Property)
- Trademarks
- Patents: Utility patent, Design patent, Plant patent
- Copyrights
- Trade dress
Product Strategy Options
Product Strategy is the use of the product in the marketing mix. Key terms include Product Item (individual), Product Line (related items), Product Mix (all lines), and Product Mix Consistency.
Target Market Variations
- One product / one market
- One product / multiple markets
- Modified product / one market
- Modified product / multiple markets
- Multiple products / one market
- Multiple products / multiple markets
Ways to Increase Sales
- Convert non-users
- Increase usage among existing users
- Promote new uses for the product
Supply Chain Management (SCM)
SCM integrates product creation, delivery, and payment. Major considerations in structuring a distribution channel include Costs, Coverage, and Control. The scope of logistics includes Transportation, Storage, Materials handling, and Delivery terms.
Key Channel Terms
- Distribution & Channel of distribution
- Physical distribution (logistics)
- Merchant middlemen vs. Agents/brokers
Types of Channels
- Direct channel
- Indirect channel
- Dual distribution
Channel Members
- Producer
- Agents/Brokers
- Wholesalers & Retailers
- Consumers / Industrial Users
Visualizing Distribution Channels
Case Study: Tomboy Tools
Company Overview
- Provides tools specifically designed for women.
- Founders: Sue Wilson, Mary Tatum, Janet Rickstrew.
- Based in Denver, Colorado.
Distribution Strategy
- Sold exclusively via in-home workshops.
- Utilizes a demonstration-based selling model.
- Inspired directly by the successful Tupperware model (Direct/Party Plan Model).
Class Discussion Questions
- Structuring Channels: What are the major considerations in structuring a distribution channel for a physical product?
- Innovation Risk: How can a company reduce the risk of innovation when launching a new product line?
- Naming Rules: Evaluate the product name "Tomboy Tools" using the 5 rules of naming a product. Does it succeed?
- In-Home Selling: What are the pros and cons of using an in-home demonstration selling model compared to traditional retail?
- Alternatives: What alternative distribution channels could Tomboy Tools explore to scale their business?
Promotional Planning
Prepared by: Sir Muhammad Syukran bin Jamil
Learning Outcomes
After studying this chapter, you should be able to:
- Describe the communication process and the factors determining a promotional mix.
- Explain methods of determining the appropriate level of promotional expenditures.
- Describe personal selling activities.
- Identify advertising options for a small business.
- Discuss the use of sales promotional tools.
Introduction to Promotion
How does a customer know you have something to sell? The way you get that message across is called promotion. A key decision is determining what you want to get out of it, driving what you choose to communicate.
Promotion: Marketing communications that inform and persuade consumers.
Promotional mix: A blend of non-personal, personal, and special forms of communication aimed at a target market.
Factors determining promotional methods:
- Geographical nature of the market to be reached.
- The size of the promotional budget.
- Product’s characteristics.
The Communication Process
Similarity of Personal and Small Business Communication:
| Element | Personal Channel | Business Channel |
|---|---|---|
| Receiver | Parents | Customers |
| Source | Daughter | XYZ Company |
| Message | "I love you, send money" | "Buy my product" |
| Channel Options | E-mail, Personal visit, Greeting card | Newspaper ad, Sales call, Blog posting |
Determining the Promotional Budget
Estimating promotional expenditures is a difficult task. Here is a 4-step method commonly used:
1. Allocating a percentage of sales
The simplest method. Based entirely on a percentage of current or projected sales.
2. Deciding how much can be spared
A piecemeal approach widely used by small firms. Spending whatever is left over after funding other activities.
3. Spending as much as the competition
Based on an analysis of competitors' budgets.
4. Determining how much is needed
The most difficult task. Requires analyzing the market, firm goals, and specific desired results.
Interactive: Promotional Mix Allocator
Adjust your theoretical budget mix based on your chosen determination method above.
Personal Selling in the Small Firm
Personal selling is a sales presentation delivered in a one-on-one manner, including inside salespeople and outside sales reps. Successful selling involves psychological elements: personal enthusiasm, friendliness, and persistence (20% of salespeople have these and bring 80% of sales).
1. Product Knowledge
Effective selling is built on product knowledge. Salespeople must be well-acquainted with advantages, uses, and limitations to successfully educate customers and counter objections.
2. Prospecting Techniques
- Personal Referrals: Friends, customers, other businesses.
- Impersonal Referrals: Media, public records, trade magazines, property transactions.
- High-tech Variations: Facebook, Twitter, reviews.
- Marketer/Customer Initiated: Cold calls, surveys, website inquiries.
3. Practicing the Presentation
"Practice makes perfect." Avoid "canned" pitches. Anticipate the 6 main objections: Price, Product, Timing, Source, Service, Need.
Methods: Direct denial, indirect denial, feel-felt-found, compensation, pass-up, find the true objection, follow-up.
4. Cost Control
Crucial for resource-limited startups. The entrepreneur is the firm's primary salesperson. Consider using sales reps, providing necessary aids, and keeping communication channels open.
Advertising Practices for Small Firms
Advertising: The impersonal presentation of a business idea through mass media. Objectives include informing, persuading, and reminding customers.
Types of Advertising
- Product advertising: Designed to make potential customers aware of a specific product/service and create desire.
- Institutional advertising: Designed to enhance the firm's image.
Advertising Agencies Help With:
- Furnishing design, artwork, copy.
- Recommending media with high "pulling power".
- Evaluating advertising appeals.
- Conducting market-sampling studies.
- Furnishing mailing lists.
Advantages and Disadvantages of Major Advertising Media
| Medium | Advantages | Disadvantages |
|---|---|---|
| Newspapers | Geographic selectivity; news value; year-round readership; high market coverage; short lead time. | Little demographic selectivity; limited color; low pass-along rate; can be expensive. |
| Magazines | Good color reproduction; demographic/regional selectivity; long ad life; high pass-along rate. | Long-term commitments; slow audience buildup; lack of urgency; long lead time. |
| Radio | Low cost; immediacy; short notice scheduling; portable; entertainment carryover. | No visual treatment; short ad life; high frequency required; distractions; commercial clutter. |
| Television | Wide diverse audience; low cost per thousand; demonstration capabilities; entertainment carryover. | Short message life; consumer skepticism; high campaign cost; long lead times; clutter. |
| Outdoor Media | Repetition; moderate cost; flexibility; geographic selectivity. | Short message; lack of demographic selectivity; high "noise" level distracting audience. |
| Internet | Fastest growing medium (incl. mobile); ability to target specific demographics. | Difficulty measuring ROI; varying access; rapid technological obsolescence; service issues. |
Website Essentials (Top 10)
- Clear description: State who you are right on the homepage.
- Simple Web address: Do not make things complicated.
- Easily navigated site map: Clear links guide visitors.
- Contact information: Make it easy to find.
- Customer testimonials: Make products tangible/desirable.
- Call to action: Tell visitors what you want them to do.
- SEO basics: Ensure search engines can find you.
- Fresh, quality content: Give them a reason to come back.
- Secure hosting: Prevent hijacking and lost customers.
- Reader-friendly design: Short paragraphs, bullet points, highlight important phrases.
Web & Digital Advertising
Banner & Pop-up Ads
Banners appear across a page as strips. Pop-ups burst open on screens.
Direct E-mail Promotion
Advertising delivered directly via electronic mail.
Hyperlinks & Reciprocal Ads
Clickable images/text that take users to new documents or sites.
Social Media & Web 2.0
Web 2.0 enables collaboration. Social networking allows informal communication (e.g., Blogs, Mobile Apps).
Sales Promotional Tools
An inclusive term for any promotional technique (other than personal selling and advertising) that stimulates the purchase of a particular product or service. Use them to stimulate channel members (retailers/wholesalers) to market the product.
Specialties
Items such as pens, key chains, coffee mugs, and shirts given away.
Trade Show Exhibits
Offer potential cost savings over extensive personal selling efforts.
Publicity
Information about a firm/product that appears as a news item, usually free.
Class Discussion
- Describe the parallel relationship that exists between a small business communication and a personal communication.
- Discuss some recommendations for designing an effective website.
Case Study: Panchero's Mexican Grill
The founder of Panchero's Mexican Grill, Rodney Anderson, felt the company ought to be involved in social networking, but he and his management team weren't sure how to do it. Along came 22-year-old Joel Johnson, who was looking for a job and very comfortable with social media.
Now an employee of Panchero's, Johnson spends most of his day on Twitter, Facebook, and other networking sites. He visits chat rooms regularly, looking for people who are talking about burritos or where they might go to eat. He then recommends Panchero's. Johnson also works with Panchero's franchisees, teaching them how to get visitors to their websites to become in-restaurant guests who then post comments about their experiences.
From watching Johnson at work, Anderson has learned that social networking is not something you can push. He says, "You have to let it have a life of its own."
Questions:
- There is more than a 10-year age difference between members of Panchero's top management team and Joel Johnson. Do you think that difference has contributed to Johnson's effectiveness in social networking? Why or why not?
- Is it ethical for Johnson to be recommending the restaurant chain where he works? Why or why not?
- Have you ever posted any comments on a website about a business that you have visited? Do you check for customer comments before you shop at a particular business?
Pricing and Credit
Prepared by: Sir Muhammad Syukran bin Jamil
Learning Outcomes
After studying this chapter, you should be able to:
- Discuss the role of cost and demand factors in setting price.
- Apply break-even analysis and markup pricing.
- Identify specific pricing strategies.
- Explain the benefits of credits, factors that affect credit extension, and types of dealt.
- Describe the activities involved in managing credit.
Introduction
Very few business owners have any formal training in how to set the prices for the products and services they sell. Most of the times, their prices are based on what competitors are charging, some percentage above their costs, or just some instinctive feel.
Pricing and credit decisions are vital to the success of a company because they influence the relationship between the business and its customers.
Key Definitions
A specification of what a seller requires in exchange for transferring ownership or use of a product or service.
An agreement between a buyer and a seller that provides for delayed payment for a product or service.
Setting a Price
Setting a price – the entrepreneur decides on the most appropriate value for the product or service being offered for sale. Total sales revenue depends on 2 components, sales volume and price, and even a small change in price can influence revenue.
Assuming no change in demand:
Quantity sold × Price per unit = Gross Revenue
- Pricing is important because it indirectly affects sales quantity.
- Setting a price too high may result in lower quantities sold, therefore reducing total revenue.
- Services are more difficult to price than products because of their intangible nature.
- The impact of price on revenue and profits is the same.
Cost Determination for Pricing
For a business to be successful, its pricing must cover total cost plus appropriate profit margin.
Total cost
The sum of cost of goods sold, selling expenses, and overhead costs.
Variable cost
Costs that vary with the quantity produced or sold.
Fixed costs
Costs that remain constant as the quantity produced or sold varies.
Averaging pricing
An approach in which total cost for a given period is divided by quantity sold in that period to set a price. Average pricing overlooks the reality of higher average costs at lower sales levels.
The Three Components of Total Cost in Determining Price
1. Cost of Goods Offered
Example Costs:
- Cost of item
- Freight Charges
2. Selling Cost
Example Costs:
- Salesperson’s time
- Advertising
3. Overhead Cost
Example Costs:
- Storage
- Salaries
- Taxes
Applying a Pricing System
Entrepreneur is unprepared to evaluate a pricing system until he or she understands potential costs, revenue, and product demand for the venture. Entrepreneur can use break-even analysis to understand these factors and to determine the acceptability of various prices. Understanding of markup pricing is valuable, as it provides the entrepreneur with an awareness of the pricing practices of intermediaries-wholesalers and retailers.
Break-Even Analysis
1. Examining cost revenue relationships
The objective of the first phase of break-even analysis is to determine the sales volume level at which the product at an assumed price, will generate enough revenue to start earning a profit.
- Break-even point – sales volume at which total sales revenue equals total costs and expenses.
- Contribution margin – the difference between the unit selling price and the unit variable costs and expenses.
2. Incorporating sales forecasts into the analysis
The indirect impact of price on the quantity that can be sold complicates pricing decisions. Demand for a product decreases as price increases. An adjusted break-even chart incorporates estimated demand can be developed using initial break-even data and adding a demand curve, as shown. The potential for profit at this price is indicated by the shaded area in the graph.
Break-Even Graphs for Pricing
Visualizes: Profit, Loss, Total Fixed Costs, Total Variable Costs, Sales lines at different price points (e.g., Price $12, Price $20, Price $8) against Units and Cost/Revenue axes.
Adjusted for Estimated Demand
Visualizes: Sales Curve from demand schedule intersecting Total cost, highlighting potential profitability across various price points.
Markup Pricing
An approach based on applying a percentage to a product’s cost to obtain its selling price. In retailing industry, businesses often carry many different products, markup pricing has emerged as a manageable pricing system. With cost-plus approach to pricing, retailers are able to price hundreds of products quickly than they could by using individual break-even analyses.
Manufacturers often recommend a retail price for a particular item, a retailer adds a markup percentage to cover the following: operating expenses, subsequent price reductions, and desired profit.
Selecting a Pricing Strategy
Price determination must consider market characteristics and the firm’s current marketing strategy. Pricing strategies reflect these additional considerations include:
Penetration Pricing
Setting a lower initial price to capture market share quickly.
Skimming Pricing
Setting a high initial price to target early adopters/collectors.
Follow-the-leader Pricing
Aligning prices with the dominant competitor in the market.
Variable Pricing
Adjusting prices based on varying conditions or customer segments.
Price Lining
Setting distinct price points for different quality levels.
Pricing at what the market will bear
Pricing based entirely on maximum willingness to pay.
Offering Credit
Types of Credit
Consumer Credit
Financing granted by retailers to individuals for personal use:
- Open charge: Due when billed.
- Installment: Down payment + balance paid over time.
- Revolving: Charge anytime up to a limit.
Credit & Debit Cards
Alternative to cash assuring payment. Includes Bank, Entertainment, and Retailer credit cards.
Trade Credit
Financing provided by a supplier to a client company (B2B).
Managing the Credit Process
1. Evaluation of Applicants
5 C's of Credit: Character, Capacity, Capital, Conditions, Collateral.
2. Aging of Accounts Receivable
Categorizing receivables based on length of time outstanding.
3. Billing and Collection
Requires timely notifications/invoices to prevent overdue accounts that tie up working capital.
4. Credit Regulation
Compliance with Fair Credit Billing, Fair Credit Reporting, Equal Credit Opportunity, etc.
Local Context: Malaysian Business Environment
1. Penetration Pricing (F&B Sector)
New local coffee chains (e.g., ZUS Coffee or Gigi Coffee) entering the Malaysian market often use penetration pricing via mobile app vouchers and lower initial per-cup prices to rapidly capture market share.
2. Price Lining (Retail/Fashion)
Malaysian retail conglomerate Padini Holdings effectively uses price lining by offering different brands at distinct price points for different target markets—from value-oriented essentials (Brands Outlet) to footwear (Vincci).
3. Trade Credit (SME Manufacturing)
A local SME furniture manufacturer based in Muar might offer domestic retailers "2/10, net 30" trade credit terms. This encourages rapid payment to improve the SME's cash flow, while accommodating 30-day billing cycles.
Discussion Questions
- Explain the importance of fixed and variable costs to the pricing decision.
- Elaborate the difference between a penetration pricing strategy and skimming price strategy? Under what circumstances would each be used?
Case Study: Warren Keating
Warren Keating is an artist in Los Angeles who was an early seller on eBay, following the pattern of many artists who believe that auctioning their work is the way art should be sold.
He has concluded that his market is made up of collectors, who would not want to see the value of what they are buying decline due to price cutting. Keating leans toward full retail pricing, and when he sells on eBay it’s through the “Buy It Now” listing or the more negotiable “Buy It Now or Make Offer.”
He thinks the biggest mistake an artist can make is inconsistent pricing that causes the buyer to lose confidence in the product’s value. According to Keating, you should act with "courage and conviction."
Questions:
- What do you think makes selling works of art different from selling other kinds of products? What makes it the same?
- Have you bought anything on eBay? If so, do you feel you received good value for the price you paid?
- If not, ask someone who has shopped successfully on eBay for advice on how to shop on that site, and report what you were told.
- How would you price a work of art?
- What do you think the advantages and disadvantages of using an auction would be?