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As you learned in Chapters 1 and 2, managers create a marketing mix by uniquely combining product, distribution, promotion, and price strategies. The marketing mix is, of course, under the firm’s control and is designed to appeal to a specific group of potential buyers.

A target market is a defined group that managers feel is most likely to buy a firm’s product.

Over time, managers must alter the marketing mix because of changes in the environment in which consumers live, work, and make purchasing decisions. Also, as markets mature, some new customers become part of the target market; others drop out. Those who remain may have different tastes, needs, incomes, lifestyles, and buying habits than the original target customers.

Although managers can control the marketing mix, they cannot control elements in the external environment that continually mold and reshape the target market. Exhibit 3.1, page 62, shows the controllable and the uncontrollable variables that affect the target market, whether it consists of consumers or business purchasers. The uncontrollable elements in the center of the diagram continually evolve and create changes in the target market. In contrast, managers can shape and reshape the marketing mix, depicted on the left side of the exhibit, to influence the target market.

Unless marking managers understand the external environment, the firm cannot intelligently plan for the future. Thus, many organizations assemble a team of specialists to continually collect and evaluate environmental information, a process called environmental scanning. The goal in gathering the environmental data is to identify future market opportunities and threats. [In my case by finding secondary data. ]

For example, as technology continues to blur the line between personal computers, television, and compact disc players, a company like Sony may find itself competing against a company like Dell. Research shows that children would like to find more games bundled with computer software, while adults are more likely to mention desiring various word-processing and business-related software. Is this information an opportunity or a threat to Dell marketing managers?

No one business is large or powerful enough to create major change in the external environment. Thus, marketing managers are basically adaptors rather than agents of change. For example, despite the huge size of General Motors and Ford, these companies have only recently been able to meet the competitive push by the Japanese for an ever-growing share of the U.S. automobile market. Competition is basically an uncontrollable element in the external environment.

However, a firm is not always completely at the mercy of the external environment. Sometimes a firm can influence external events. For example, extensive lobbying by FedEx enabled it to recently acquire virtually all of the Japanese routes that it has sought. Japan had originally opposed new cargo routes for FedEx. The favorable decision was based on months of lobbying by FedEx at the White House, at several agencies, and in Congress for help in overpowering Japanese resistance.

When a company implements strategies that attempt to shape the external environment within which it operates, it is engaging in environmental management. [Environmental management may need to be incorporated on smaller bureaucratic levels in a multi faceted approach for acceptance and in the endorsement of the product.]

The factors within the external environment that are important to marketing managers can be classified as social [as in social responsibility?], demographic, economic, technological, political, and legal, and competitive.

Social change is perhaps the most difficult external variable for marketing managers to forecast, influence, or integrate into marketing plans. Social factors include our attitudes, values, and lifestyles. Social factors influence the products people buy, the prices paid for products, the effectiveness of specific promotions, and how, where, and when people expect to purchase products.

A major change has been taking place in American culture. Labeled cultural creativity, it is a comprehensive shift in values, worldviews, and ways of life. It appeals to nearly one-fourth of American adults, or forty-four million people. People who follow this path are on the leading edge of several kinds of cultural change. They are interested in new kinds of products and services, and they often respond to advertising and marketing in unexpected ways. Cultural creativities are good at synthesizing this information into a “big picture.” Their style is to scan an information source efficiently, seize on something they are interested in, and explore that topic in depth.

A second worldview is that of traditionalism, the belief system for about 29 percent of Americans (fifty-six million adults), who might also be called heartlanders. In America, traditionalism often takes the form of country folks rebelling against big-city slickers. Heartlanders believe in a nostalgic image of small towns and strong churches that defines the Good Old American Ways. [Then approach the heartland churches]

The third worldview is modernism, the value set of 47 percent of Americans, or eighty-eight million adults. Modernists include politicians, military leaders, scientists, and intellectuals. Modernists place high value on personal success, consumerism, materialism, and technological rationality. It’s valid to say that modernists see the world through the same filters as Time magazine.

Today’s shoppers are also environmentalists. Eight in ten U.S. consumers regard themselves as environmentalists, and half of those say they are strong ones. Four out of five shoppers are willing to pay 5 percent more for products packaged with recyclable or biodegradable materials. Many marketers predict that soon it will be very hard to sell a product that isn’t environmentally friendly.

Today fewer consumers say that expensive cars, designer clothes, pleasure trips, and “gold” credit cards are necessary components of a happy life. Instead, they put value on nonmaterial accomplishments, such as having control of their lives and being able to take a day off when they want. Duel career families have a poverty of time, with fewer hours to do anything but work and commute to work, handle family situations, do housework, shop, sleep, and eat. Of the people who say they don’t have enough time, only 33 percent said that they were very happy with their lives.

A poverty of time means that people will decrease the amount of time spent doing things they dislike. That means doing less housework and home maintenance, and doing more dining out. It also means paying more attention to brand names—not in search of status, but to make buying decisions quicker and easier. Consumers on a constrained time budget will likely favor small shops over larger ones, spend less time comparing prices, use technology to reduce transaction time, and patronize businesses that make life easier.

No company has learned this better than Kinko’s, the copy-shop empire. A few years ago, Kinko’s noticed that busy customers in their stores didn’t just want to do their photocopying and head home. They wanted to pop in a store, create a computer document, print it out, staple it, glue it, hole-punch it, and put it in a three-ring binder. In response, Kinko’s has added computer workstations to many of its stores, along with sophisticated technical support, and basic supplies that turn each of their copy centers into home offices away from home.

Today, 39 percent of Americans often spend leisure time getting ready for work. It seems that casual Fridays and home offices are further blurring the boundaries between work and leisure. A recent survey noted that the leisure activity done most often was to spend time with the family. There is little doubt that the value employees place on time verses money will continue to shift in favor of time. More employers will offer time off as an incentive. Aladdin Equipment, a Sarasota, Florida, maker of pool and spa replacement parts, achieved a 50 percent reduction in absenteeism and a 10 percent increase in production after it launched a 4 ½ day-a-week production schedule. Perhaps, however, the 7 percent annual growth in home-based self-employment is a backlash against the lack of quality of family time.

People in the United States today are piecing together component lifestyles. A lifestyle is a mode of living; it is the way people decide to live their lives. In other words, they are choosing products and services that meet diverse needs and interests rather than conforming to traditional stereotypes.

In the past, a person’s profession—for instance, banker—defined his or her lifestyle. Today a person can be a banker and also a gourmet, fitness enthusiast, dedicated single parent, and Internet guru. Each of these lifestyles is associated with different goods and services and represents a target audience. For example, for the gourmet, marketers offer cooking utensils, wines, and exotic foods through magazines like Bon Appetite and Gourmet. The fitness enthusiast buys Adidas equipment and special jogging outfits and reads Runner magazine. Component lifestyles increase the complexity of consumers’ buying habits. The banker may own a BMW but change the oil himself or herself. He or she may buy fast food for lunch but French wine for dinner, own sophisticated photographic equipment and a low-priced stereo system, and shop for socks at Kmart or Wal-Mart and suits and dresses at Brooks Brothers.

The unique lifestyles of every consumer can require a different marketing mix. Sometimes blending products for a single target market can result in failure. To the bright young founders of Web TV, it looked like a home run: hook televisions up to the Net and tap into the vast market of couch potatoes curious about the World Wide Web. After burning through an estimated $50 million to advertise the new service, however, Web TV and partners Sony and Phillips Electronics counted a disappointing 50,000 subscribers.

The problem, Web TV now acknowledges, was the wrong marketing message. Couch potatoes want to be better entertained, whereas computer users are content to explore the Internet using small PC screens. A revamped campaign emphasizes entertainment over education.

Component lifestyles have evolved because consumers can choose from a growing number of goods and services, and most have the money to exercise more options. Rising purchasing power has resulted from the growth of dual income families. Approximately 58 percent of all females between sixteen and sixty-five years old are now in the workforce, and female participation in the labor force is expected to grow to 63 percent by 2005. Today more than 9 million women-owned businesses in the United States generated $3.6 trillion in revenues. The phenomenon of working women has probably had a greater effect on marketing than has any other social change.

As women’s earnings grow, so do their levels of expertise, experience, and authority. Working-age women are not the same group of businesses targeted thirty years ago. They expect different things in life—from their jobs, from their spouses, and from the products and services they buy.

The automotive industry has finally begun to realize the power of women in vehicle purchase decisions. Women are the principle buyers for 45 percent of all cars and trucks sold in the United States. Saturn’s advertising not only aims to attract women as customers, but also to woo them into the business. In an industry with a woefully small representation of women in sales, 16 percent of Saturn’s sales staff are women, compared with 7 percent industry wide. This has had a visible impact on sales to women. Even though about half of all automotive purchases are made by women, Saturn claims that women buy 64 percent of its cars.

The growth in the number of workingwomen has meant an increase in dual-career families. Although dual-career families typically have greater household incomes, they have less time for family activities (poverty of time). Their purchasing roles (which define the items traditionally bought by the man or the woman) are changing, as are their purchasing patterns. Consequently, new opportunities are being created. For example, small businesses are opening daily that cater to dual-career households by offering specialized goods and services. Ice cream and yogurt parlors, cafes, and sports footwear shops have proliferated. With more women than ever working full-time, there is a special demand for new household services. Numerous e-commerce companies cater to the busy dual-career family. Among those are Peapod (an Internet supermarket), furniture.com (furniture retailer), Amazon.com (books and a variety of other products), and countless others.

Another uncontrollable variable in the external environment—also extremely important to marketing managers—is demography, the study of people’s vital statistics, such as their age, race, ethnicity, and location. Demographics are significant because the basis for any market is people. Demographic characteristics are strongly related to consumer buyer behavior in the marketplace and are good predictors of how the target market will respond to a specific marketing mix. This section describes some marketing trends related to age and location. We will begin by taking a closer look at key age groups.

Those designated by demographics as Generation Y were born between 1979 and 1994. They are about sixty million strong, more than three times as large as “Generation X.” If this group of consumers does not like the mature brands of the Baby Boomers, or Generation X, then marketers will be in trouble. Why? Simply because of the size of the Gen Y market. For example, baby boomers are into Lexus, Este Lauder, L. L. Bean, and Coke. Gen Y-ers, having grown up like Jeep Wrangler, Hard Candy, The North Face, and Mountain Dew.

Gen Y-ers, having grown up in an even more media-saturated, brand conscious world than their parents, respond to ads differently and prefer to encounter those ads in different places. The marketers that capture Gen Y’s attention do so by bringing their messages to the places these kids congregate, whether it’s the Internet, a snowboarding tournament, or cable TV. The ads may be funny or disarmingly direct. What they don’t do is suggest that the advertiser knows Gen Y better than these savvy consumers know themselves.

Soon a lot of other companies are going to have to learn the nuances of Gen Y marketing. In just a few years, today’s teens will be out of college and shopping for their first cars, their first homes, and their first mutual funds. The distinctive buying habits they display today will likely follow them as they enter the high-spending years of adulthood. Companies unable to reach Gen Y will lose out on a vast new market—and could find the doors thrown open to new competitors. “Think of them as the quiet little group about to change everything,” says Edward Winter of the U30 Group, a Knoxville, Tennessee consulting firm.

Generation Y is driving the educational software and snowboard industries and, soon, many others. Hawaiian Tropic, the nation’s number three suntan lotion company, has dramatically increased its spring break promotions to Gen Y-ers at Panama City Beach, South Padre Island, and Daytona Beach.

Generation X—people born between 1965 and 1978—consists of seventeen million consumers. It is the first generation of latchkey children—products of dual-career households or, in roughly half of the cases, of divorced or separated parents. Generation X began entering the workforce in the era of downsizing and downturn, so its members are likelier than the previous generation to be unemployed, and living at home with mom and dad. On the other hand, ten million are full-time college students, and fifteen million are married and not living at home. Yet, as a generation that’s been bombarded by multiple media since their cradle days, they’re savvy and cynical consumers.

The members of Generation X don’t mind indulging themselves. Among the young women of Generation X, 38 percent go tot the movies in a given month, compared with 19 percent of the women who are now 35 and older. The members of Generation X devote a larger-than-average share of their spending dollars to restaurant meals, alcoholic beverages, clothing, and electronic items such as televisions and stereos. One survey found that the members of Generation X aspire to having a home of their own (87 percent), a lot of money (42 percent), a swimming pool (42 percent), and a vacation home (41 percent). The are more materialistic than past generations but have less hope of achieving their goals.

Travel companies, such as hotels, airlines, and car rental companies who have spent the last thirty years marketing to baby boomers have discovered that Gen X-ers have vastly different preferences and interests from the older generation. To woo them, travel companies are creating unusual perks and unconventional gags in TV commercials. They are taping airfare promos to pizza boxes, teaching kickboxing classes in hotel fitness centers, and replacing buttoned-down restaurants with sweatshirt-casual bistros.

Almost 78 million baby boomers were born in the United States between 1946 and 1964, which created a huge market. The oldest are now over fifty but they cling to their youth. One study found that baby boomers see themselves as continuing to be very active after they turn fifty. They won’t even think of themselves as being senior citizens until after they turn sixty (39 percent) or seventy (42 percent).

This group cherishes convenience, which has resulted in a growing demand for home delivery of items like large appliances, furniture, and groceries. In addition, they spreading culture of convenience explains the tremendous appeal of prepared take-out foods and the necessity of VCRs and portable telephones.

Baby boomers’ parents raised their children to think for and of themselves. Studies of child-rearing practices show that parents of the 1950s and 1960s consistently ranked “to think for themselves” as the number-one trait they wanted to instill in their children. Postwar affluence also allowed parents to indulge their children as never before. They invested in their children’s skills by sending them to college. They encouraged their children to succeed in a job market that rewarded competitive drive more than cooperative spirit and individual skills more than teamwork.

In turn, the sheer size of the generation encouraged businesses to promote the emerging individuality of baby boomers. Even before the oldest baby boomers started earning their own living almost three decades ago, astute business people saw the profits that come from giving millions of young people what they want. Businesses offered individualistic baby boomers a growing array of customized products and services—houses, cars, furniture, appliances, clothes, vacations, jobs, leisure time, and even beliefs.

The importance of individualism among baby boomers led to a personalized economy—a system that delivers customized goods and services at a good value on demand. Successful businesses in a personalized economy give customers what they want when they want it. To do this, they must know their customers extremely well. In fact, the intimacy between producer and customer is exactly what makes an economy personalized.

· Customization: Products are custom designed and marketed to ever-smaller target markets. Today, for example, there are hundreds of cable TV channels from which to choose and million of Web sites. In 1950, the average grocery store carried about four thousand items; today, that number is closer to sixteen thousand, as manufacturers target increasingly specific needs.

· Immediacy: Successful businesses deliver products and services at the convenience of the consumer rather than the producer. Banc One, with locations in the eastern and southern states, for example, opens some of its branches on Saturdays and Sundays. Its twenty-four hour hot line, staffed by real people, solves problems at the customer’s convenience. The immediacy of the personalized economy explains the booming business in one-hour film processing, walk-in medical clinics, and thirty-minute pizza.

· Value: Businesses must price competitively or create innovative products that can command premium prices. Even the most innovative products quickly become commodities in the fast-paced personalized economy, however. Many people now view the PC as a commodity.

As the age of today’s average consumer moves toward forty, average consumption patterns are also changing. People in their early forties tend to focus on their families and finances. As this group grows in number, its members will buy more furniture from manufacturers like Lazy Boy, American Martindale, Baker, and Drexel-Heritage to replace the furniture they bought early in their marriages. The demand for family counselors and wellness programs should also increase. Additionally, discount investment brokers like Charles Schwab and E-trade and mutual funds like Fidelity and Dreyfus should profit. Because middle-aged consumers buy more reading materials than any other age group, the market for books and magazines should remain strong throughout the early 2000s. Women ages forty to sixty-four will be the largest demographic group by the year 2010. Both Lear and More magazines have been created to target this market. More promises features about fashion, beauty, and health, as well as pieces on married life after three decades. And all the models in More’s editorial pages are forty-plus.

Right now, baby boomers are concerned with their children and their jobs. These worries will fade as the kids move out of the house and boomers retire. But some things will never change. Baby Boomers may always be a little selfish about their leisure time. They may always be a little careless about the way they spend their money. They will probably remain suspicious of the status quo. And they will always love rock and roll.

As mentioned above, the oldest baby boomers have already crossed the fifty-plus threshold that many demographers use to define the “mature market.” Yet, today’s mature customers are wealthier, healthier, and better educated than those of earlier generations. Although they make up only 26 percent of the population, fifty-plus consumers buy half of all domestic cars, half of all silverware, and nearly half of all home remodeling. Smart marketers are already targeting this growing segment. By 2020, over a third of the population will be fifty years old or older.

Many marketers have yet to tap the full potential of the huge and lucrative senior market because of enduring misconceptions about mature adults, all based on stereotypes. Here are a few:

of mature citizens report themselves to be in good or excellent health. Over two-thirds of the elderly have no chronic health problems. People like Mic Jagger are over fifty-five. These people are fit and healthy.

spent in the United States, 80 percent are spent by people over fifty years old.

citizens are readers and much less influenced by TV than are younger consumers. Not only do they retain what they read, but they are willing to read far more copy than younger people are.

intolerant of change. Fact: Although senior citizens are as interested in price as anyone else, they are more interested in value. And a generation that has survived the better part of a century characterized by more technological change than any other in history can hardly be considered resistant to change.

Acceptance of change, however, doesn’t mean a lack of brand loyalty. For example, the most critical factor in determining car owner loyalty is age. The oldest consumers (ages sixty-five and up) are twice as loyal to the make of car as the youngest customers are. The cars most popular with older Americans are Lincoln, Cadillac, and Buick.

Marketers who want to actively pursue the mature market must understand it. Aging consumers create some obvious opportunities. JC Penny’s Easy Dressing clothes feature Velcro-fastened clothing for women with arthritis or other ailments who may have difficulty with zippers or buttons. Sales from the first Easy Dressing catalog were three times higher than expected. Chicago-based Cadaco offers a line of games with easy-to-read big print and larger game pieces. The series focuses on nostalgia by including Michigan rummy, hearts, poker, and bingo. Trivia buffs more familiar with Mitch Miller than Gun’s and Roses can play Parker Brothers’ “The Vintage Years” edition of Trivial Pursuit. The game, aimed at the sixty-plus crowd, poses questions covering the era from Charles Lindberg to Dwight D. Eisenhower. Even Hollywood is getting into the act. The summer 2000 blockbuster Space Cowboys starred a well-seasoned slate of action heroes: Clint Eastwood (70), James Garner (72), Donald Sutherland (65), and Tommy Lee Jones (54). Consider these other examples of savvy marketers targeting the mature market:

· To counter diminishing grip strength associated with advancing age, Proctor & Gamble offers its Tide laundry detergent with snap-on lids rather than the usual perforated flap.

· Wheaton Medical Technologies markets a pill bottle that has a tiny battery operated clock that registers the time the container was last opened to take out a pill.

· Knowing that grandparents purchase 25 percent of all toys (about $819 per year spent on their grandkids), F.A.O. Schwarz has added a Grandma’s Shop to its two largest stores, complete with older-adult salespeople.

· Mattel, Inc., invited readers of Modern Maturity to join its Grandparents Club. For a $10 fee, readers could receive a book of discount coupons; meanwhile, Mattel acquired an invaluable mailing list of potential customers.

The average U.S. citizen moves every six years. This trend has implications for marketers. A large influx of new people into an area creates many new marketing opportunities for all types of businesses. Remember, the primary basis of all consumer marketing is people. Conversely, significant out-migration from a city or town may force many of its businesses to move or close down. The cities with the greatest projected population growth from 1995 to 2005 are Houston, Washington, D.C., Atlanta, San Diego, Phoenix, Orlando, and Dallas.

The most populous metro area is Los Angles-Long Beech with 9,605,904 by 2001. New York follows with 8,723, 921 for the same year. New York also has the greatest population density at 7,464 persons per square mile. The lowest population density of the top twenty-four metro areas is Riverside-San Bernardino, California, at 123 people per square mile.

The United States experiences both immigration from other countries and migration within U.S. boarders. In the past decade, the six states with the highest levels of immigration from abroad were California, New York, New Jersey, Illinois, Texas, and Massachusetts. The six states with the greatest population increase due to interstate migration were Florida, Georgia, North Carolina, Virginia, Washington, and Arizona.

Immigration raises the cost of public services in areas with large numbers of immigrants, but the influx also benefits the U.S. economy overall. Immigrants add approximately $10 billion to the economy each year with little negative impact on job opportunities for most other residents.

Migration is not just an American phenomenon but also a global one. The movement of people creates new markets and destroys old ones.

The United States is undergoing a new demographic transition: It is becoming a multicultural society. During this decade, the United States will shift from a society dominated by whites and rooted in western culture to a society characterized by three large racial and ethnic minorities: African-Americans, U.S. Hispanics, and Asian-Americans. All three minorities will grow in size and in share of the population, while the white majority declines as a percentage of the total. Native Americans and people with roots in Australia, the Middle East, the former Soviet Union, and other parts of the world will further enrich the fabric of U.S. society.

White men who are now retiring dominated the labor force of the past. Today’s senior workers are equal parts women and men, and still overwhelmingly white. But in the entry-level jobs of 2000, a multicultural labor force emerged. The proportion of workers who are non-Hispanic whites should decrease from 77 percent in 1998 to 74 percent in 2005.

Because so many white men are retiring, the non-Hispanic white labor force will grow only 8 percent between 1994 and 2005. The number of Hispanic workers should grow 36 percent, due to the continued immigration of young adults, higher birth rates, and relatively few retirees. These forces will also boost the number of Asian workers by 39 percent. The number of black workers will increase by 15 percent, a rate slightly slower than the rate of growth of black adults in general (16.5 percent).

Multiculturalism occurs when all major ethnic groups in an area—such as a city, county, or census tract—are roughly equally represented. Because of its current demographic transition, the trend in the United States is toward greater multiculturalism.

San Francisco County is the most diverse county in the nation. The proportions of major ethnic groups are closer to being equal there than anywhere else. People of many ancestries have long been attracted to the area. The least multicultural region is a broad swath stretching from northern New England through the Midwest and into Montana. These areas have few people other than whites. The regions with the lowest level of diversity are found in the agricultural heartland: Nebraska and Iowa.

The demographic shift and growing multiculturalism create new challenges and opportunities for marketers. The U.S. population grew from 226 million in 1980 to 274 million in 2000, much of that growth taking place in minority markets. Asians are the nation’s fastest growing minority group with a population of eleven million in 2000. African-Americans remain the largest minority group, totaling thirty-five million persons. Today, more than 25 percent of the U.S. population are members of minority groups. There are over 110 different ethnic groups in America.

Demographic shifts will be even more pronounced in the future. Exhibit 3.2, page 73, compares the 1999 population mix with and the forecasted population mix for 2023. Note that Hispanics will be the fastest growing segment of the population. The diversity of the U.S. population is projected to stabilize around 2023, as the birthrate among minorities levels off.

The marketer’s task in a diverse society is more challenging because of differences in educational level and demand for goods and services. What’s more, ethnic markets are not homogeneous. There is not an African-American market or a Hispanic market, any more than there is a white market. Instead, there are many niches within ethnic markets that require micromarketing strategies. For example, African Eye, which offers women’s designer fashions from Africa, attracted a thousand women to a fashion show at Prince Georges Plaza near Washington, D.C. The show featured the latest creations by Alfadi, a high-fashion Nigerian designer, who also hosted the show.

…. An alternative to the niche strategy is to maintain a brand’s core identity while straddling different languages, cultures, ages, and incomes. Executives with BellSouth Corporation had a message for both Spanish-speaking Hispanic and English-speaking customers throughout the Southeast. Instead of going with two distinct campaigns, they chose Daisy Fuentes, a former MTV personality well known among both audiences. More importantly, she spoke to a third audience: acculturated, bilingual Hispanics. The potential audience included more than 1,422 million Hispanics in 491,000 Hispanic households in Miami-Dade, Broward, and Monroe Counties plus and additional 1million-plus general market households in the area, according to Strategy Research Corp. [I wonder if this model can be duplicated with a different product.]

A third strategy for multicultural marketing is to seek common interests, motivations, or needs across ethnic groups. This strategy is sometimes called stitching niches, which means combining ethnic, age, income, and lifestyle markets, on some common basis, to for a large market. The result may be a cross-cultural product, such as a frozen pizza-flavored egg roll. Or it may be a product that serves several ethnic markets simultaneously. Ringling Brothers and Barnum Bailey Circus showcases acts that appeal to many ethnic groups. It broadened appeal to Asian-Americans by adding the “Mysterious Oriental Art of Hair Hanging.” Marguerite Michelle, known as the “ravishing Rapunzel,” is suspended in the air on a wire attached to her waist-length hair. When the circus comes to town, the Mexican-born Michelle also gives Spanish-language radio shows to build recognition for Ringling in the Hispanic market. The circus is promoted as “El Espectaculo Mas Grande del Mundo.”

Since 1995, non-English speaking Internet users have gone from less than 10 percent to as high as 50 percent, according to researcher Wired Digital. African-Americans outpace all other segments—including the general market—for online adoption, according to Forester Research.

Today, approximately 40 percent of all African-American households, 43 percent of all Hispanic-Americans, and 71 percent Asian-Americans are online. At the same time, consumers of all ethnic backgrounds are showing a desire to acculturate—or retain distinctly ethnic identities—within the U.S. market. As a result, targeted multicultural Web sites are beginning to proliferate—among them BlackPlanet.com, EverythingBlack.com, and BlackFamilies.com, three popular African-American sites.

Asian-American form the most lucrative multicultural market on-line in the United States, based upon Web penetration and household incomes. About 56 percent of Asian-Americans said they were more likely to buy a product advertised in their native language, according to Market Segment Research. In addition to social and demographic factors, marketing managers must understand and react to the economic environment. The three economic areas of greatest concern to most marketers are the distribution of consumer income, inflation, and recession.

As disposable (or after-tax) incomes rise, more families and individuals can afford the “good life.” Fortunately, U.S. incomes have continued to rise. After adjustment for inflation, median incomes in the United States rose more than 4 percent between 1980 and 2000.

Today about two-thirds of all U.S. households earn a “middle-class” income. The rough boundaries for a middle-class income are $18,000, above poverty, to about $75,000, just short of wealth. In 1999, almost half the households were in the upper end of the $18,000 to $75,000 range, as opposed to only a quarter in 1980. The percentage of households earning above $75,000 is now over 10 percent. As a result, Americans are buying more goods and services than ever before. For example, in raising a child to age seventeen, a middle-class family will spend over $124,000 in 2000 dollars. This new level of affluence is not limited to professionals or even individuals within specific age or education brackets. Rather, it cuts across all household types, well beyond what businesses traditionally consider to be markets for high-priced goods and services. This rising affluence stems primarily from the increasing number of dual-income families.

During the 2000s, many marketing managers are focusing on families with incomes over $35,000, because this group will have the most discretionary income. The average American household has over $12,000 in discretionary income each year. Some marketers will concentrate their efforts on higher quality, higher priced goods and services. The Lexus automobile and American Airlines’ ‘international class’ service for business-class seats on transcontinental flights are examples of this trend.

Inflation is a general rise in prices without a corresponding increase in wages, which results in decreased purchasing power. Fortunately, the United States has had a low rate of inflation for over a decade. The late 1990s and early 2000s have been marked by an inflation rate under 4 percent. The low rate of inflation is due to the tremendous productivity of the high-tech sector of the economy and the stability of the price of services. Both education and healthcare costs are rising much more slowly than in the past. The other good news is that the American economy has grown at an annual rate of over 4 percent from 1997 to 2000. These economic conditions benefit marketers, because real wages, and hence purchasing power, go up when inflation stays down. A significant increase in inflation almost always depresses real wages and the ability to buy more goods and services.

In times of low inflation, businesses seeking to increase their profit margins can do so only by increasing their efficiency. If they significantly increase prices, no one will purchase their goods or services.

In more inflationary times, marketers use a number of pricing strategies to cope. (see Chapter 18 for more on these strategies.) But in general, marketers must be aware that inflation causes consumers to either build up or diminish their brand loyalty. In one research session, a consumer panelist noted, “I used to use just Betty Crocker mixes, but now I think of either Betty Crocker or Duncan Hines, depending on which one is on sale.” Another participant said, “Pennies count now, and so I look at the whole shelf, and I read the ingredients. I don’t really understand, but I can tell if it’s exactly the same. So now I use the cheaper brand, and honestly, it works just as well.” Inflation pressures consumers to make more economical purchases. However, most consumers try hard to maintain their standard of living.

In creating marketing strategies to cope with inflation, managers must realize that, despite what happens to the seller’s cost, the buyer is not going to pay more for a product than the subjective value he or she places on it. No matter how compelling the justification might be for a 10 percent price increase, marketers must always examine its impact on demand. Many marketers try to hold prices level as long as practical.

A recession is a period of economic activity when income, production, and employment tend to fall—all of which reduce demand for goods and services. The problems of inflation and recession go hand in hand, yet recession requires different marketing strategies:

· Improve existing products and introduce new ones: The goal is to reduce production hours, waste, and the cost of materials. Recessions increase the demand for goods and services that are economical and efficient, offer value, help organizations streamline practices and procedures, and improve customer service.

· Maintain and expand customer services: In a recession, many organizations postpone the purchase of new equipment and materials. Sales of replacement parts and other services may become an important source of income.

· Emphasize top-of-the-line products and promote product value: Customers with less to spend will seek demonstrated quality, durability, satisfaction, and capacity to save time and money. High-priced, high-value items consistently fare well during recessions.

Sometimes new technology is an effective weapon against inflation and recession. New machines that reduce production costs can be one of a firm’s most valuable assets. The power of a personal-computer microchip doubles about every eighteen months. The Pentium Pro, for example, introduced in 1995, contains 5.3 million transistors and performs three hundred million instructions per second (MIPS). The 886 chip, introduced in 2000, will have fifteen million transistors and perform one thousand MIPS. Our ability, as a nation, to maintain and build wealth depends in large part on the speed and effectiveness with which we invent and adopt machines that lift productivity. For example, coal mining is typically thought of as unskilled, backbreaking labor. But visit Cyprus Amax Mineral Company’s Twenty-mile Mine near Oak Creek Colorado, and you will find workers with push-button controls who walk along massive machines that shear thirty inch slices from an 850 foot coal wall. Laptop computers help miners track equipment breakdowns and water quality.

U.S. companies often have difficulty translating the results of R&D into goods and services. The Japanese are masters at making this transformation. For example, VCRs, flat-panel displays, and compact disc players are based on U.S. research that wasn’t exploited at home.

The United States excels at basic research (or pure research), which attempts to expand the frontiers of knowledge but is not aimed at a specific, pragmatic problem. Basic research aims to confirm an existing theory or to learn more about a concept or phenomenon. For example, basic research might focus on high-energy physics.

Applied research, in contrast, attempts to develop new or improved products. It is where the United States falls short, although many U.S. companies do conduct applied research. For example, the United States leads the world in applying basic research to aircraft design and propulsion systems.

The huge investment in information technology has helped America hold down inflation, maintain economic growth, and effectively compete in world markets. Business purchases of information technology have been rising by 25 percent a year since the 1970s. MIT economics professor Erik Brynjolfsonn says that hard-to-quantify innovations in the way companies do business are actually far more valuable than the hardware and software they’ve purchased. “More than $1 trillion in those intangibles has been built up over the past ten years.”

The continued growth e-commerce allows companies to reduce the amount of money they spend on processing an order from $75 to $10 on average, says David Pecaut, co-head of global electronic commerce at Boston Consulting Group. Competition and price transparency will increase as e-commerce spreads, putting some downward pressure on profit margins and forcing companies to become more efficient. “This is a safety valve on inflation,” Pecaut says. For more examples on how the Internet boosts productivity, see Exhibit 3.3, page 76.

Business needs government regulation to protect innovators of new technology, the interests of society in general, one business from another, and consumers. In turn, government needs business, because the marketplace generates taxes that support public efforts to educate our youth, protect our shores, and so on. The private sector also serves as a counter-weight to government. The decentralization of power inherent in a private enterprise system supplies the limitation on government essential for the survival of a democracy.

Ever aspect of the marketing mix is subject to laws and restrictions. It is the duty of marketing managers or their legal assistants to understand these laws and conform to them, because failure to comply with regulations can have major consequences for a firm. Sometimes just sensing trends and taking corrective action before a government agency acts can help avoid regulation. This didn’t happen in the case of the tobacco industry. As a result, Joe Camel and the Marlboro Man are fading into the sunset along with other strategies used to promote tobacco products.

However, the challenge is not simply to keep the marketing department out of trouble, but to help it implement creative new programs to accomplish marketing objectives. It is all too easy for a marketing manager or sometimes a lawyer to say no to a marketing innovation that actually entails little risk. For example, an overly cautious lawyer could hold up sales of a desirable new product by warning that the package design could prompt a copyright infringement suit. Thus, it is important to understand thoroughly the laws established by the federal government, state governments, and regulatory agencies to control marketing-related issues.

Federal laws that affect marking fall into several categories. First the Sherman Act, the Clayton Act, the Federal Trade Commission Act, the Celler-Kefauver Antimerger Act, and the Hart-Scott-Rodino Act were passed to regulate the competitive environment. Second, the Robinson-Patman Act was designed to regulate pricing practices. Third, the Wheeler-Lea Act was created to control false advertising. These key pieces of legislation are summarized in Exhibit 3.4.

Legislation Impact on Marketing

Sherman Act of 1890 Makes trusts and conspiracies in restraint of

trade illegal; makes monopolies and

attempts to monopolize a misdemeanor.

Clayton Act of 1914 Outlaws discrimination in prices to different

buyers; prohibits tying contracts (which

require the buyer of one product to also buy

another item in the same line); makes illegal

the combining of two or more competing

corporations by pooling ownership of stock.

Federal Trade

Commission Act of 1914 Creates the Federal Trade Commission to

deal with antitrust matters; outlaws unfair

methods of competition.

Robinson-Patman Act

of 1936 Prohibits changing different prices to

different buyers of merchandise of like

grade and quality; requires seller to make

any supplementary services or allowances

available to all purchasers on a

proportionately equal basis.

Wheeler-Lea Amendments

to the FTC Act of 1938 Broadens the Federal Trade Commission’s

power to prohibit practices that might injure

the public without affecting competition;

outlaws false and deceptive advertising.

Lanham Act of 1946 Establishes protection for trademarks.

Celler-Kefauver Antimerger

Act of 1950 Strengthens the Clayton Act to prevent

corporate acquisitions that reduce

competition.

Hart-Scott-Rodino Act

of 1976 Requires large companies to notify the

government of their intent to merge.

State legislation that affects marketing varies. Oregon, for example, limits utility advertising to 0.5 percent of the company’s net income. California has forced industry to improve consumer products and has also enacted legislation to lower the energy consumption of refrigerators, freezers, and air conditioners. Several states, including New Mexico and Kansas, are considering levying a tax on all in-state commercial advertising.

Although some state regulatory bodies more actively pursue violations of their marketing statutes, federal regulators generally have the greatest clout. The Consumer Product Safety Commission, the Federal Trade Commission, and the Food and Drug Administration are the three federal agencies most directly and actively involved in marketing affairs. These agencies, plus, others, are discussed throughout the book, but a brief introduction is in order at this point.

The sole purpose of the Consumer Product Safety Commission (CPSC) is to protect the health and safety of consumers in and around their homes. The CPSC has the power to set mandatory safety standards for almost all products that consumers use (about fifteen thousand items). The CPSC consists of a five-member committee and about eleven hundred staff members, including technicians, lawyers, and administrative help. The commission can fine offending firms up to $500,000 and sentence their officers to up to a year in prison. It can also ban dangerous products from the marketplace.

The Federal Trade Commission (FTC) also consists of five members, each holding office for seven years. The FTC is empowered to prevent persons or corporations from using unfair methods of competition in commerce. It is authorized to investigate the practices of business combinations and to conduct hearings on antitrust matters and deceptive advertising. The FTC has a vast array of regulatory powers (see Exhibit 3.5).

Remedy Procedure

Cease-and-Desist

Order A final order is issued to cease an illegal practice—and is

often challenged in the courts.

Consent Decree A business consents to stop the questionable practice

without admitting its illegality.

Affirmative

Disclosure An advertiser is required to provide additional

information about products in advertisements.

Corrective

Advertising An advertiser is required to correct the past effects of

misleading advertising. (for example, 25% of a firm’s

media budget must be spent on FTC-approved

advertisements or FTC-specified advertising.)

Restitution refunds are required to be given to consumers mislead

by deceptive advertising. According to a 1975 court-of-

appeals decision, this remedy cannot be used except for

practices carried out after the issuance of a cease-and-

desist order (still on appeal).

Counter-

advertising The FTC proposed that the Federal Communications

Commission permit advertisements in broadcast media

to counteract advertising claims (also that free time be

provided under certain conditions).

Nevertheless, it is not invincible. For example, the FTC had proposed to ban all advertising to children under eight, to ban all advertising of the sugared products that are most likely to cause tooth decay to children under age twelve, and to require dental health and nutritional advertisements to be paid for by industry. Businesses reacted by lobbying to reduce the FTC’s power. The two-year lobbying effort resulted in passage of the FTC Improvement Act of 1980. The major provisions of the act are as follows:

against advertising. All the proposals concerning children’s advertising were therefore suspended, because they were based almost entirely on the unfairness standard. It requires oversight hearings on the FTC every six months. This congressional review is designed to keep the commission accountable. Moreover, it keeps congress aware of one of the many regulatory agencies it has created and is responsible for monitoring.

Businesses rarely band together to create change in the legal environment as they did to pass the FTC Improvement Act. Generally, marketing managers only react to legislation, regulation, and edicts. It is usually less costly to stay attuned to the regulatory environment than to fight the government. If marketers had toned down their hard-hitting advertisements to children, they might have avoided FTC inquiry altogether. The FTC also regulates advertising on the Internet as well as Internet abuses of consumer privacy (discussed in Chapter 8).

The Food and Drug Administration (FDA) another powerful agency, is charged with enforcing regulations against selling and distributing adulterated, misbranded, or hazardous food and drug products. It has recently taken a very aggressive stance against tobacco products.

The competitive environment encompasses the number of competitors a firm must face, the relative size of the competitors, and the degree of interdependence within the industry. Management has little control over the competitive environment confronting a firm.

As U.S. population growth slows, costs rise, and available resources tighten, firms find that they must work harder to maintain their profits and market share regardless of the form of the competitive market. Take, for example, the competition among airlines. To stop start-up Legend Airlines from starting operations at Dallas’s Love Field, American Airlines sued the city of Dallas, the federal government, and the new airline itself. It also lobbied Congress, beseeched its frequent fliers, posted billboards around the city, and secretly paid for radio advertising from a “concerned citizens” group protesting expanded uses of Dallas’s close-in airport, Love Field. When none of that worked, American’s parent, AMR Corporation, leased an asbestos-laden, abandoned terminal at Love Field—an airport it didn’t even serve—just as the start-up, Legend Airlines, was negotiating for the same space. AMR said that it needed more “office space”—15 miles from its headquarters.

Legend nevertheless prevailed and in March 2000 began flying fifty-six seat jets to Los Angeles and Washington, offering exclusively first-class seating, gourmet meals, and satellite TV, all for regular coach fare. Not to be outdone, American scrambled for permission to provide similar all-first class service to major business centers from Love Field, the very kind of long-haul flights it argued so passionately were illegal. AS the world’s second-largest airline with 700 jets and 70 percent of the traffic at Dallas Fort Worth International Airport, American is also one of the most aggressive when it comes to battling upstart competitors.

American Airlines is a strong competitor attempting to meet its market share and profit goals. Many old-line market leaders have had difficulty maintaining their competitiveness. For example, in the consumer packaged goods industry (soaps, cleaning products, food items, etc.), market leader Proctor & Gamble has gone head to head with Unilever for years. Yet these two largest players in the packaged goods industry have lost 10 percent of their market share since 1996. Gains have been made by Bristol-Myers Squib, Clorox, Colgate Palmolive, S.C. Johnson, L’Oreal, and Revlon. What happened? According to Gary Stibel, a principle with New England Consulting Group, “These are still two of the finest marketing organizations in the world, but that’s their problem. They do what they do so well that they tend to keep doing the same thing over and over again, and it’s starting to wear fairly ragged. Their greatest strength, their past success, is turning into their greatest weakness.” In other words, they lost their ability to be leaders in innovation.

American Airlines, Unilever, and Proctor & Gamble are savvy international competitors conducting business throughout the world. Many foreign competitors also consider the United States to be a ripe target market. Thus, a U.S. marketing manager can no longer worry about only domestic competitors. In automobiles, textiles, watches, televisions, steel, and many other areas, foreign competition has been strong. In the past, foreign firms penetrated U.S. markets by concentrating on price, but today the emphasis has switched to product quality. Nestle, Sony, Rolls Royce, and Sandoz Pharmaceuticals are noted for quality, not cheap prices.

Regardless of the intensity of the competition, firms must compete in an ethical manner. Ethics refers to the moral principles or values that generally govern the conduct of an individual or a group. Ethics can also be viewed as the standard of behavior by which conduct is judged. Standards that are legal may not always be ethical, and vice versa. Laws are the values and standards enforceable by the courts. Ethics consists of personal moral principles and values rather than societal prescriptions.

Defining the boundaries of ethically and legally can be difficult. Often, judgment is needed to determine whether an action that may be legal is indeed ethical. For example, advertising liquor, tobacco, and X-rated movies in college newspapers is not illegal in many states, but is it ethical?

Morals are the rules people develop as a result of cultural values and norms. Culture is a socializing force that dictates what is right and wrong. Moral standards may also reflect the laws and regulations that affect social and economic behavior. Thus, morals can be considered a foundation of ethical behavior.

Morals are usually characterized as good or bad. “Good” and “bad” have different connotations, including “effective” and “ineffective.” A good salesperson makes or exceeds the assigned quota. If the salesperson sells a new stereo or television set to a disadvantaged consumer—knowing full well that the person can’t keep up the monthly payments—is the salesperson still a good one? What if the sale enables the salesperson to exceed his or her quota?

Another set of connotations for “good” and “bad” are “conforming” and deviant” behaviors. A doctor who runs large ads for discounts on open-heart surgery would be considered bad, or unprofessional, in the sense of not conforming to the norms of the medical profession. “Bad” and “good” are also used to express the distinction between criminal and law-abiding behavior. And, finally, the terms “good” and “bad” as defined by different religions differ markedly. A Moslem who eats pork would be considered bad, as would a fundamentalist Christian who drinks whiskey.

Today’s business ethics actually consists of a subset of major life values learned since birth. The values businesspeople use to make decisions have been acquired through family, educational, and religious institutions. Ethical values are situation-specific and time-oriented. Nevertheless, everyone must have an ethical base that applies to conduct in the business world and in personal life. One approach to developing a personal set of ethics is to examine the consequences of a particular act. Who is helped or hurt? How lasting are the consequences? What actions produce the greatest good for the greatest number of people? A second approach stresses the importance of rules. Rules come in the form of customs, laws, professional standards, and common sense. Consider these examples of rules:

The last approach emphasizes the development of moral character within individuals. Ethical development can be thought of as having three levels.

· Preconventional morality, the most basic level, is childlike. It is calculating, self-centered, and even selfish, based on what will immediately punished or rewarded. Fortunately, most businesspeople have progressed beyond the self-centered and manipulative actions of preconventional morality.

· Conventional morality moves from an egocentric viewpoint toward the expectations of society. Loyalty and obedience to the organization (or society) become paramount. At the level of conventional morality, an ethical marketing decision would be concerned only with whether or not it is legal and how it will be viewed by others. This type of morality could be likened to the adage “When in Rome, do as the Romans do.”

· Postconventional morality represents the morality of the mature adult. At this level, people are less concerned about how others might see them and more concerned about how they judge themselves over the long run. A marketing decision maker who has attained a postconventional level of morality might ask, “Even though it is legal and will increase company profits, is it right in the long run? Might it do more harm than good in the end?

How do businesspeople make ethical decisions? There is no cut-and-dried answer. Some of the ethical issues managers face are shown in Exhibit 3.6, page 83. Studies show that the following factors tend to influence ethical decision-making and judgments.

· Extent of ethical problems within the organization: Marketing professionals who perceive fewer ethical problems in their organizations tend to disapprove more strongly of “unethical” or questionable practices than those who perceive more ethical problems. Apparently, the healthier the ethical environment, greater is the likelihood that marketers will take a strong stand against questionable practices.

· Top-management actions on ethics: Top managers can influence the behavior of marketing professionals by encouraging ethical behavior and discouraging unethical behavior.

· Potential magnitude of the consequences: The greater the harm done to victims, the more likely it is that marketing professionals will recognize a problem as unethical.

· Social consensus: The greater the degree of agreement among managerial peers than an action is harmful, the more likely it is that marketers will recognize a problem is ethical.

· Probability of a harmful outcome: The greater the likelihood that an action will result in a harmful outcome, the more likely it is that marketers will recognize a problem as unethical.

· Length of time between the decision and the onset of the consequences: The shorter the length of time between the action and the onset of negative consequences, the more likely it is that marketers will perceive a problem is unethical.

· Number of people to be affected: The greater the number of persons affected by a negative outcome, the more likely it is that marketers will recognize a problem as unethical.

Many organizations have become more interested in ethical issues. One sign of this interest is the increase in the number of large companies that appoint ethics officers—from virtually none five years ago to almost 25 percent of large corporations now.

In addition, many companies of various sizes have developed a code of ethics as a guideline to help marketing managers and other employees make better decisions. In fact, in a recent national study, it was found that 60 percent of the companies maintained a code of ethics, 33 percent offered ethics training, and 33 percent employed an ethics officer. Some of the most highly praised codes of ethics are those of Boeing, GTE, Hewlett-Packard, Johnson & Johnson, and Norton Company.

· It helps employees identify what their firm recognizes as acceptable business practices.

· A code of ethics can be an effective internal control on behavior; which is more desirable than external controls like government regulation.

· A written code helps employees avoid confusion when determining whether their decisions are ethical.

· The process of formulating the code of ethics facilitates discussion among employees about what is right and wrong and ultimately creates better decisions.

Businesses, however, must be careful not to make their code of ethics too vague or too detailed. Codes that are too vague give little or no guidance to employees in their day-to-day activities. Codes that are too detailed encourage employees to substitute rules for judgment. For instance, if employees are involved in questionable behavior, they may use the absence of a written rule as a reason to continue behaving that way, even though their conscience may be saying no. The checklist in Exhibit 3.7, page 85, is example of a simple but helpful set of ethical guidelines. Following the checklist will not guarantee the “rightness” of a decision, but it will improve the chances that the decision will be ethical.

Although many companies have issued policies on ethical behavior, marketing managers must still put the policies in effect. They must address the classic “matter of degree” issue. For example, marketing researchers must often resort to deception to obtain unbiased answers to their research questions. Asking for a few minutes of a respondent’s time is dishonest if the researcher knows the interview will last forty-five minutes. Should researchers conducting focus groups inform the respondents that there are observers behind a one-way mirror? When respondents know they’re being watched, they sometimes are less likely to talk and interact freely. Does a client have an ethical right to obtain questionnaires with the names and addresses of respondents from a market research firm? The Professional Standards Committee of the American Marketing Association has addressed many of these concerns. The American Marketing Association’s code of ethics is included in the Web site at http://www.ama.org.

Ethics and social responsibility are closely intertwined. Besides questioning tobacco companies’ ethics, one might ask whether they are acting in a socially responsible manner when they promote tobacco. Are companies that produce low-cost handguns socially responsible in light of the fact that these guns are used in the majority of inner-city crimes?

Corporate social responsibility is a business’s concern for society’s welfare. This concern is demonstrated by managers who consider both the long-range best interests of the company and the company’s relationship to the society with which it operates.

One theorist suggests that total corporate social responsibility has four components: economic, legal, ethical, and philanthropic.

The pyramid of corporate social responsibility, shown above in Exhibit 3.8, portrays economic performance as the foundation for the other three responsibilities. At the same time that it pursues profits (economic responsibility), however, business is expected to obey the law (legal responsibility); to do what is right, just, and fair (ethical responsibilities); and to be a good corporate citizen (philanthropic responsibility). These four components are distinct but together constitute the whole. Still, if the company doesn’t make a profit, then the other three responsibilities are moot.

affects a firm. The external marketing environment consists of social, demographic, economic, technological, political and legal, and competitive variables. Marketers generally cannot control the elements of the external environment. Instead, they must understand how the external environment is changing and the impact of change on the target market. Then marketing managers can create a marketing mix to effectively meet the needs of target customers.

external environment, social factors are perhaps the most difficult for marketers to anticipate. Several major social trends are currently shaping marketing strategies. First, people of all ages have a broader range of interests, defying traditional consumer profiles. Second, changing gender roles are bringing more women into the workforce and increasing the number of men who shop. Third, a greater number of dual-career families has led to a poverty of time, creating a demand for timesaving goods and services.

demographic trends. Today, several basic demographics patterns are influencing marketing mixes. Because the U.S. population is growing at a slower rate, marketers can no longer rely on profits from generally expanding markets. Marketers are also faced with increasingly experienced consumers among the younger generations, many of whom are “turned off” by traditional marketing mixes. And because the population is also growing older, marketers are offering more products that appeal to middle-aged and elderly markets.

multiculturalism and growing ethnic markets. Multiculturalism occurs when all major ethnic groups in an area are roughly equally represented. Growing multiculturalism makes the marketer’s task more challenging. Niches within ethnic markets may require micromarketing strategies. An alternative to a niche strategy is maintaining a core brand identity while straddling different languages, cultures, ages, and incomes with different promotional campaigns. A third strategy is to seek common interests, motivations, or needs across ethnic groups. E-commerce companies are increasingly targeting America’s minority groups.

economy. Marketers are currently targeting the increasing number of consumers with higher discretionary income by offering higher-quality, higher-priced goods and services. During a time of inflation, marketers generally attempt to maintain level pricing in order to avoid losing customer brand loyalty. During times of recession, many marketers maintain or reduce prices to counter the effects of decreased demand; they also concentrate on increasing production efficiency and improving customer service.

technology is essential to keeping up with competitors in today’s marketing environment. For example, in the technologically advanced United States, many companies are losing business to Japanese competitors, who are prospering by concentrating their efforts on developing marketable applications for the latest technological innovations. In the United States, many R&D companies must learn to foster and encourage innovation. Without innovation, U.S. companies can’t compete in global markets.

marketing activities are subject to state and federal laws and the rulings of regulatory agencies. Marketers are responsible for remaining aware of and abiding by such regulations. Some key federal laws that affect marketing are the Sherman Antitrust Act, Clayton Act, Federal Trade Commission Act, Robinson-Patman Act, Wheeler-Lea Act, and the Hart-Scott-Rodino Act. The Consumer Product Safety Commission, the Federal Trade Commission, and the Food and Drug Administration are the three federal agencies most involved in regulating marketing activities.

competitive environment encompasses the number of competitors a firm must face, the relative size of the competitors, and the degree of interdependence within the industry. Declining population growth, rising costs, and shortages of resources have heightened domestic competition. Yet with an effective marketing mix, small firms continue to be able to compete with the giants. Meanwhile, dwindling international barriers are bringing in more foreign competitors and offering expanding opportunities for U.S. companies abroad.

Business ethics may be viewed as a subset of the values of society as a whole. The ethical conduct of business people is shaped by societal elements, including family, education, religion, and social movements. As members of society, business people are morally obliged to consider the ethical implications of their decisions.

Ethical decision-making is approached in three basic ways. The first approach examines the consequences of decisions. The second approach relies on rules and laws to guide decision-making. The third approach is based on a theory of moral development that places individuals or groups in one of three developmental stages: preconventional morality, conventional morality, or postconventional morality.

Many companies develop a code of ethics to help their employees make ethical decisions. A code of ethics can help employees identify acceptable business practices, can be an effective internal control on behavior, can help employees avoid confusion when determining the ethicality of decisions, and can facilitate discussion about what is right and wrong.

refers to a firm’s concern for the way its decisions affect society. There are several arguments in support of social responsibility. First, many consumers feel business should take responsibility for the social costs of economic growth. A second argument contends that firms act in their own best interest when they help improve the environment with which they operate. Third, firms can avoid restrictive government regulation by responding willingly to societal concerns. Finally, some people argue that because firms have the resources to solve social problems, they are morally obligated to do so.

In contrast, there are critics who argue against corporate social responsibility. According to one argument, the free-enterprise system has no way to decide which social programs should have priority. A second argument contends that firms involved in social progress do not generate the profits needed to support the business’s activities and earn a fair return for stockholders.

In spite of the arguments against corporate social responsibility, most businesspeople believe they should do more than pursue only profits. Although a company must consider its economic needs first, it must also operate within the law, do what is ethical and fair, and be a good corporate citizen.

Today, global revolutions are under way in many areas of our lives: management, politics, communications, and technology. The word global has assumed a new meaning, referring to a boundless mobility and competition in social, business, and intellectual arenas.

No longer just an option, global marketing—marketing that targets markets throughout the world—has become an imperative for business.

U.S. managers must develop a global vision not only to recognize and react to international marketing opportunities but also to remain competitive at home. Often a U.S. firm’s toughest domestic competition comes from foreign companies. Moreover, a global vision enables a manager to understand that customer and distribution networks operate worldwide, blurring geographic and political barriers and making them increasingly irrelevant to business decisions.

In summary, having a global vision means recognizing and reacting to international marketing opportunities, being aware of threats from foreign competitors in all markets, and effectively using international distribution networks.

Over the past two decades, world trade has climbed from $200 billion a year to over $7 trillion. Countries and companies that were never considered major players in global marketing are now important, some of them showing great skill.

Today marketers face many challenges to their customary practices. Product development costs are rising, the life of products is getting shorter, and new technology is spreading around the world faster than ever. But marketing winners relish the pace of change instead of fearing it.

A young company with a global vision that has capitalized on new technology is Ashtech in Sunnyvale, California. Ashtech makes equipment to capture and convert satellite signals from the U.S. government’s Global Positioning System. Ashtech’s chief engineer and his team of ten torture and test everything built by Ashtech—expensive black boxes of chips and circuits that use satellite signals to tell surveyors, farmers, mining machine operators, and others where they are with great accuracy. Over half of Ashtech’s output is exported. Its biggest customer is Japan.

Adopting a global vision can be very lucrative for a company. Gillette, for example, gets about two-thirds of its revenue from its international division. About 70 percent of General Motors’ profits come from operations outside the United States. While Cheetos and Ruffles haven’t done very well in Japan, the potato chip brings in more than $3.25 billion annually.

A company with a global vision is Pillsbury. The Pillsbury Doughboy is used in India to sell a product that the company had just about abandoned in America: flour. Pillsbury had many higher-margin products such as microwave pizzas in other parts of the world, but it discovered that in this tradition-bound market, it needed to push the basics.

Even so, selling packaged flour in India has been almost revolutionary, because most Indian housewives still buy raw wheat in bulk, clean it by hand, store it in huge metal hampers, and, every week, carry some to a neighborhood mill, or chakki, where it is ground between two stones.

To help reach those housewives, the Doughboy himself has gotten a makeover. In TV advertising, he presses his palms together and bows in the traditional Indian greeting. He speaks six regional languages.

Pillsbury is exploiting a potentially huge business. India consumes about sixty-nine million tons of wheat a year, second only to China. (The United States consumes about twenty-six million tons.) Much of India’s wheat ends up as roti, a flat bread prepared on a griddle that accompanies almost every meal. In a nation where people traditionally eat with their hands, roti is the spoon. The blue Pillsbury flour package, which features the Doughboy hoisting a roti, has become the market leader in Bombay.

Global marketing is not a one-way street, whereby only U.S. companies sell their wares and services throughout the world. Foreign competition in the domestic in the domestic market used to be relatively rare but now is found in almost every industry. In fact, in many industries the United States has lost significant market share to imported products. In electronics, cameras, automobiles, fine china, tractors, leather goods, and a host of other consumer and industrial products, U.S. companies have struggled at home to maintain their market shares against foreign competitors.

For the past two decades, U.S. companies often appeared not to be competitive with foreign rivals. Today, however, America has embarked on a new productivity boom. The United States has the highest productivity among all industrialized nations, with unit labor cost rising more slowly than in either Japan or Germany. American manufacturers are 10 to 20 percent more productive than German or Japanese manufacturers, and the U.S. service sector is 30 to 50 percent more productive. American business is fully prepared to compete in the global marketplace.

Many countries depend more on international commerce than the United States does. For example, France, Britain, and Germany all derive more than 19 percent of their gross domestic product from world trade, compared to about 12 percent for the United States. Nevertheless, the impact of international business on the U.S. economy is still impressive:

The United States exports about a fifth of its industrial production and a third of its farm products.

One of every sixteen jobs in the United States is directly or indirectly supported by exports.

U.S. businesses export over $500 billion in goods to foreign countries every year, and almost a third of U.S. corporate profits is derived from our international trade and foreign investment.

In 2000, exports accounted for 20 percent of America’s growth in economic activity.

The United States is the world’s leading exporter of grain, selling more than $12 billion of this product a year to foreign countries, or about one-third of all agricultural exports.

Chemicals, office machinery and computers, automobiles, aircraft, and electrical and industrial machinery make up almost half of all nonagricultural exports.

These statistics might seem to imply that practically every business in the United States is selling its wares throughout the world, but nothing could be further from the truth. About 85 percent of all U.S. exports of manufactured goods are shipped by 250 companies: less than 10 percent of manufacturing businesses, or around twenty-five thousand companies, export their goods on a regular basis. Most small- and medium-sized firms are essentially nonparticipants in global trade and marketing. Only the very large multinational companies have seriously attempted to compete worldwide. Fortunately, more of the smaller companies are now aggressively pursuing international markets.

The 1999 protests in Seattle during the meeting of the World Trade Organization and the 2000 protests in New York during the convocation of the World Bank and the International Monetary Fund (the three organizations are discussed later in the chapter) and subsequent protests in Quebec and Genoa prove that many people fear world trade and globalization. What is feared? The negatives of global trade are as follows:

· Millions of Americans have lost jobs due to imports or production shifts abroad. Most find new jobs—that pay less.

· Millions of others fear losing their jobs, especially at those companies operating under competitive pressure.

· Workers face pay-cut demands from employers, which often threaten to export jobs.

· Service and white-collar jobs are increasingly vulnerable to operations moving offshore.

· In China and the rest of the East Asia, more people rose out of poverty between 1990 and 2000 than the entire population of the United States. The main reason was global trade.

· In Africa, with its many developing economies, per capita income rose 3.6 percent per year, during the 1990s, double the 1.8 percent of developed countries, and trade was the single biggest reason.

· Productivity grows more quickly when countries produce goods and services in which they have a comparative advantage. Living standards can go up faster.

· Global competition and cheap imports keep down prices, so inflation is less likely to arrest economic growth.

A resent survey found that 68 percent of Americans thought global trade was “good,” and 23 percent thought it “bad.”; the remainder “weren’t sure.” Only 10 percent believed in “free trade without restrictions,” 51 percent claimed to be “fair traders with standards for labor and the environment,” and 37 percent said they were “protectionist advocating rules to protect U.S. markets and workers from imports.”

The United States has a number of large companies that are global marketers. Many of them have been very successful.

A company that is heavily engaged in international trade, beyond the exporting and importing, is called a multinational corporation. Multinational corporations move resources, goods, services, and skills across national boundaries without regard to the county in which the headquarters is located. The leading multination firms in the world are listed in Exhibit 4.1.

A multinational corporation is more than a business entity, as the following paragraph explains:

The multination corporation is, among other things, a private “government,” often richer in assets and more populous in stockholders and employees than are some of the nation-states in which it carries its business. It is simultaneously a “citizen” of several nation-states, owing obedience to their laws and paying them taxes, yet having its own objections and being responsive to a management located in a foreign nation. Small wonder that some critics see in it an irresponsible instrument of private economic power or of economic “imperialism” by its home country. Others view it as an international carrier of advanced management science and technology, an agent for the global transmission of cultures bringing them closer the day when a common set of ideals will unite mankind.

Many multinational corporations are enormous. For example, the sales of both Exxon and General Motors are larger than the gross domestic product of all but twenty-two nations in the world. A multinational company may have several worldwide headquarters, depending on where certain markets or technologies are. Britain’s APV, a maker of food-processing equipment, has a different headquarters for each of its worldwide business. Hewlet-Packard moved the headquarters of its personal computer business from the United States to Grenoble, France. ABB ASEA Brown Boveri, the European electrical engineering giant based in Zurich, Switzerland, groups thousands of products and services into fifty or so business areas. Each is run by a leadership team that crafts global business strategy, sets product development priorities, and decides where to make its products. None of the teams work out of Zurich headquarters; they are scattered around the world. Leadership for power transformers is based in Germany, electric drives in Finland, and process automation in the United States.

Large companies have several advantages over other companies. For instance, multinationals can often overcome trade problems. Taiwan and South Korea have long had an embargo against Japanese cars for political reasons and to help domestic carmakers. Yet, Honda USA, a Japanese-owned company based in the United States, sends Accords to Taiwan and South Korea. Another example is Germany’s BASF, a major chemical and drug manufacturer. Its biotechnology research at home is challenged by the environmentally conscious Green movement. So BASF moved its cancer and immune-system research to Cambridge, Massachusetts.

Another advantage for multinationals is there ability to side-step regulatory problems. U.S. drugmaker SmithKline and Britain’s Beecham decided to merge in part so they could avoid licensing and regulatory hassles in their largest markets. The merged company can say it’s an insider in both Europe and the United States. “When we go to Brussels, we’re a member state of the European Union,” one executive explains. “And when we go to Washington, we’re an American company.”

Multinationals can also shift production from one plant to another as market conditions change. When European demand for a certain solvent declined, Dow Chemical instructed its German plant to switch manufacturing a chemical that had been imported from Louisiana and Texas. Computer models help Dow make decisions like these so it can run its plants more efficiently and keep costs down.

Multinationals can also trap new technology from around the world. Xerox has introduced some eighty different office copiers in the United States that were designed and built by Fuji Xerox, its joint venture with a Japanese company. Versions of the super concentrated detergent that Proctor & Gamble first formulated in Japan in response to a rival’s product are now being sold under the Ariel brand name in Europe. Also, consider Otis Elevator’s development of the Elevonic 411, and elevator that is programmed to send more cars to floors where demand is high. It was developed by six research centers in five countries. Otis’s group in Farmington Connecticut, handled the systems integration, a Japanese group designed the special motor drives that make the elevators run smoothly; a French group perfected the door systems, a German group handled the electronics, and a Spanish group took care of the small-geared components. Otis says the international effort saved more than $10 million in design costs and cut the process from four years to two.

Finally, multinationals can often save a lot in labor costs, even in highly unionized countries. For example, Xerox started moving copier-rebuilding work to Mexico, where wages are much lower. Its union in Rochester, New York, objected because it saw that members’ jobs were at risk. Eventually the union agreed to change work styles and to improve productivity to keep the jobs at home.

Traditionally, marketing-oriented multinational corporations have operated somewhat differently in each country. They use a strategy of providing different product features, packaging, advertising, and so on. However, Ted Levitt, a Harvard professor, described a trend toward what he referred to as “global marketing,” with a slightly different meaning. He contended that communication and technology have made the world smaller so that almost everyone everywhere wants all the things they have heard about, seen, or experienced. Thus, he saw the emergence of global markets for standardized consumer products on a huge scale, as opposed to segmented foreign markets with different products. In this book, global marketing is defined as individuals and organizations using a global vision to effectively market goods and services across national boundaries. To make the distinction, we can refer to Levitt’s notion as global marketing standardization.

Global marketing standardization presumes that the markets throughout the world are becoming more alike. Firms practicing global marketing standardization produce “Globally standardized products” to be sold the same way all over the world. Uniform production should enable companies to lower production and marketing costs and increase profits. However, research indicates that superior sales and profits do not necessarily follow from global standardization.

Levitt cited Coca-Cola, and Colgate Palmolive, and McDonald’s as successful global marketers. However Levitt’s critics point out that the success of these three companies is really based on variation, not on offering the same products globally. Only three Coca-Cola brands are standardized, and one of them, Sprite, has a different formulation in Japan. Some Colgate-Palmolive products are marketed in just a few countries. Axion paste dishwashing detergent, for example, was formulated for developing countries, and La Croix Plus detergent was custom made for the French market. Colgate toothpaste is marketed the same way globally, although its advanced Gum Protection Formula is used in only twenty-seven nations.

Nevertheless, some multinational corporations are moving toward a degree of global marketing standardization. Eastman Kodak has launched a world brand of blank tapes for videocassette recorders. Proctor & Gamble (P&G) calls its new philosophy “global planning.” The idea is to determine which product modifications are necessary from country to country while trying to minimize those modifications. P&G has at least four products that are marked similarly in most parts of the world: Camay soap, Crest toothpaste, Head and Shoulders shampoo, and Pampers diapers. However, the smell of Camay, the flavor of Crest, and the formula of Head and Shoulders, as well as the advertising, vary from country to country.

A global marker of a firm considering global marketing faces problems, often due to the external environment, as many of the same environmental factors that operate in the domestic market also exist internationally. These factors include culture, economic and technological development, political structure and actions, demographic makeup, and natural resources.

Central to any society is the common set of values shared by its citizens that determine what is socially acceptable. Culture underlies the family, the educational system, religion, and the social class system. The network of social organizations generates overlapping roles and status positions. These values and roles have a tremendous effect on people’s preferences and thus on marketers’ options. Inca Kola, a fruity, greenish-yellow carbonated drink, is the largest-selling soft drink in Peru. Despite being compared to “liquid bubble gum,” the drink has become a symbol of national pride and heritage. The drink was invented in Peru and contains only fruit indigenous to the country. A local consumer of about a six-pack per day says, “I drink Inca Kola because it makes me feel like a Peruvian.” He tells his young daughter; “This is our drink, not something invented overseas. It is named for your ancestors, the great Inca warriors.”

Culture may influence product preferences as in Inca Kola or influenced the marketing mix in other ways. A U.S. luggage manufacturer found that culture also affects thinking and perception. The company designed a new Middle East advertising campaign around the image of its luggage being carried on a magic flying carpet. A substantial part of a grouping a marketing research study thought they were advertising for Sampsonite Carpets. Green Giant learned it could not use its Jolly Green Giant in parts of Asia where a green hat is worn by a man signifies that he has an unfaithful wife.

Packaging plays a major role in gift giving in Japan. For example, a few pieces of charcoal, purchased at a Japanese department store, to be put in the bath to improve your skin had an elaborate package. The charcoal, with a sticker affixed, was placed in a cup, which was placed in a cloth bag that was tied and then enveloped in shredded paper. The shredded paper was nestled in a small wicker basket. The basket was encased in plastic and then tied with a string. A sign explained that the whole ensemble would be wrapped in gift paper, secured with another sticker and a bow, and, of course, placed in a shopping bag. Altogether, about ten layers of wrapping.

Language is another important aspect of culture. Marketers must take care in translating product names, slogans, and promotional messages so as not to convey the wrong meaning. For example, Mitsubishi Motors had to rename its Pajero model in Spanish speaking countries because the term describes a sexual activity. Toyota Motor’s MR2 model dropped the number 2 in France because the combination sounds like a French swearword. The literal translation of Coca-Cola in Chinese characters means, “bite the wax tadpole.” Marketers must be careful in translating promotions, product instructions, and other materials from one language to another.

When language is combined with a superstition, there can be amplified effect. In China and Japan, the number four has the same pronounciation as the word that means death. Consequently, a four in your company name or contact information might have a negative connotation. The number 8, however, is considered lucky, and many products are named “88” or “888.” Phone numbers with eights denote good fortune, and real estate with eights in the address is likely to sell more quickly—especially if the price ends in 888.

Each country has its own customs and traditions that determine business practices and influence negotiations with foreign customers. In many countries, personal relationships are more important than financial considerations. For instance, skipping social engagements in Mexico may lead to lost sales. Negotiations in Japan often include long evenings of dinning, drinking, and entertaining, and only after a close personal relationship has been formed do business negotiations begin. The Japanese go through a very elaborate ritual when exchanging business cards. An American businesswoman had no idea about this important cultural tradition. She came into a meeting and tossed some of her business cards across the table at a group of stunned Japanese executives. One of them turned his back on her and walked out. The deal never went through.

An area in which businesspeople often find it difficult to know what is right in different cultures is the notion of time. There are no overriding rights or wrongs to a particular pace of life. They are simply different. Not understanding a culture’s notion of time can sometimes lead to situations that are awkward and embarrassing or, in extreme cases, to a loss of business. Exhibit 4.2 offers six lessons for global marketers about cultural differences on the concept of time.

· Lesson 1: Know appropriate arrival time. Learn to translate appointment times. What is the appropriate time to arrive for an appointment with a professor? With a government official? For a party? When should you expect others to show up, if at all? Should wee expect our hosts to be upset if we arrive late—or promptly? Are people expected to assume responsibility for their lateness?

· Lesson 2: Understand the line between work time and social time. What is the relationship between work time and down time? Some questions have easy answers: How many hours are there in a workday? Other questions are more difficult to answer. For example, how much of the workday is spent on-task and how much time is spent socializing, chatting, and being pleasant? For Americans in a big city, the typical ratio is the neighborhood of about 80:20; about 80 percent of work time is spent on-task and about 20 percent is used for fraternizing, chitchatting, and the like. But many countries deviate sharply from this formula. In countries like India and Nepal, for example, be prepared for a balance closer to 50:50. When you are in Japan, the distinction between work and social time can often be meaningless.

· Lesson 3: Study the rules of the waiting game. When you arrive in a foreign culture, be sure to inquire about the specifics of their version of the waiting game. Are their rules based on the principle that time is money? Who is expected to wait for whom, under what circumstances, and for how long? Are some players exempt from waiting?

· Lesson 4: Learn to reinterpret “doing nothing.” How do your hosts treat pauses, silences, or doing nothing at all? Is appearing chronically busy a quality to be admired or pitied. Is doing nothing a waste of time? What must it be like to live in a country like Brunei, where people begin their day by asking, “What isn’t going to happen today?”

· Lesson 5: Ask about accepted sequences. Be prepared for what time frames to expect. Each culture sets rules about the sequence of events. Is it work before play or visa versa? Do people take all of their sleep at night or is there as siesta in the mid afternoon?

· Lesson 6: Are people on clock time or event time? This may be the most slippery lesson of all. A move from clock time to event time requires a complete shift of consciousness. It entails the suspension of industrialized society’s temporal golden rule: “Time is money.”

Fortunately, some habits and customs seem to be the same throughout much of the world. A study of 37,743 consumers from forty different countries found that 95 percent brushed their teeth daily. Other activities that majorities worldwide engage in include reading a newspaper, listening to the radio, taking a shower, and washing their hair.

A second major factor in the external environment facing the global marketer is the level of economic development in the countries where it operates. In general, complex and sophisticated industries are found in developed countries, and more basic industries are found in the less developed nations. Higher average family incomes are common in the more developed countries compared to the less developed markets. Larger incomes mean greater purchasing power and demand not only for consumer goods and services but also for the machinery workers required to produce consumer goods.

To approximate marketing opportunities (or lack of them), it is helpful to examine the five stages of economic growth and technological development; traditional society, preindustrial society, takeoff economy, industrializing society, and fully industrialized society.

Countries in the traditional stage are in the earliest phase of development. A traditional society is largely agricultural, with a social structure and value system that provide little opportunity for upward mobility. The culture may be highly stable, and economic growth may not get started without a powerful disruptive force. Therefore, to introduce single units of technology into such a country is probably wasted effort. In Ghana, for instance, a toll way sixteen miles long and six lanes wide, intended to modernize distribution, does not connect to any city or village or other road.

The second stage of economic development, the preindustrial society, involves economic and social change and the emergence of a middle class with an entrepreneurial spirit. Nationalism may begin to rise, along with restrictions on multinational organizations. Countries like Madagascar and Uganda are in this stage. Effective marketing in these countries is very difficult because they lack the modern distribution and communication systems that U.S. marketers often take for granted. Peru, for example, did not establish a television network until 1975.

The takeoff economy is the period of transition from a developing to a developed nation. New industries arise and a generally healthy social and political climate emerges. Kenya and Vietnam have entered the takeoff stage. Although politics in Kenya are not considered particularly healthy, there are significant areas for growth. Oil exploration is increasing and Kenya is set to become the world’s largest exporter of tea. In an effort to develop its economy, Vietnam now offers large tax breaks to foreign investors who promise jobs. Gold Metal Footwear, headquartered in Taiwan, now employs five hundred young workers in Danang and hopes to increase the number to twenty-five hundred.

The fourth phase of economic development is the industrializing society. During this era, technology spreads from sectors of the economy that powered the takeoff to the rest of the nation. Mexico, China, India, and Brazil are among the nations in this phase of development.

Countries in the industrializing stage begin to produce capital goods and consumer durable products. These industries also foster economic growth. As a result, a large middle class begins to emerge, and the demand for luxuries and services grows.

One of the fastest growing economies in the world today (about 10 percent per year) is China. This has resulted in per capita incomes quadrupling in only the last decade and a half. A population of 1.2 billion is producing a gross domestic product of over 1.2 trillion a year. This new industrial giant will be the world’s largest manufacturing zone, the largest market for such key industries as telecommunications and aerospace, and one of the largest users of capital.

Rapidly growing markets like China create enormous opportunities for American global marketers. One tempting market, for example, is the twenty-one million babies born in China each year. One-child families are the rule, so parents spare few expenses bringing up baby. The Walt Disney Babies line of T-shirts, rattles, and crib linens—all emblazoned with likenesses of baby Mickey Mouses and other characters.

Recently, Michel Dell opened the fourth Dell PC factory in the world in Xiamen, a windswept city halfway between Hong Kong and Shanghai on China’s southwestern coast. The point of Dell’s push into China seems so obvious as to be a cliché: China is becoming too big a PC market for Dell, or anyone to ignore. “If we’re not in what will soon be the second-biggest PC market for Dell, or anyone, to ignore. “If we’re not in what will soon be the second-biggest PC market in the world,” asks John Legere, president of Dell Asia-Pacific, “then how can Dell possibly be a global player?”

The fully industrialized society, the fifth stage of economic development, is an exporter of manufactured products, many of which are based on advanced technology. Examples include automobiles, computers, airplanes, oil exploration equipment, and telecommunications gear. Britain, Japan, Germany, France, Canada, and the United States fall into this category.

The wealth of the industrialized nations creates tremendous market potential. Therefore, industrialized countries trade extensively. Also, industrialized nations usually ship manufactured goods to developing countries in exchange for raw materials like petroleum, precious metals, and bauxite.

Political structure is a third important variable facing global marketers. Government policies run the gamut from no private ownership and minimal individual freedom to little central government and maximum personal freedom. As rights of private property increase, government-owned industries and centralized planning tend to decrease. But rarely will a political environment be at one extreme or the other. India, for example, is a republic with elements of socialism, monopoly capitalism, and competitive capitalism in its political ideology.

Many countries have changed from a centrally planned economy to a market-oriented one. Eastern European nations like Hungary and Poland have also been moving quickly with market reforms. Many of the reforms have increased foreign trade and investment. For example, in Poland, foreigners are now allowed to invest in all areas of industry, including agriculture, manufacturing, and trade. Poland even gives companies that invest in certain sectors some tax advantages.

Challenges leading to market-oriented economies are not restricted to Eastern Europe and Russia. Many countries within Latin America are also attempting market reforms. Countries like Brazil, Argentina, and Mexico are reducing government control over many sectors of the economy. They are also selling state-owned companies to foreign and domestic investors and removing trade barriers that have protected their markets against foreign competition. Brazil has now overtaken Italy and Mexico to become the tenth largest automobile manufacturer in the world. India has recently opened up its market of nine hundred million consumers. While India’s per capita average income is still quite low ($330), an estimated 250 million plus Indians have enough income to be considered middle class.

Actions by governments can either help or hinder foreign competitors. Unfortunately, it is often the latter. In the late 1990s, China decided that price cuts were reducing profits and causing an economic slowdown. It announced price floors (minimums) on autos, steel, sugar, tractors, glass, cashmere, and ostriches. The government’s decree virtually eliminated price competition in these industries.

In 1997, a newly elected government of India’s wealthiest state cancelled a $2.5 billion power plant project being built by Enron Corporation of Houston. The government claimed that it was too expensive, that bribes had been paid to some politicians, and that it would destroy fish and some famed mango groves. After several years of hard bargaining and concessions by Enron, the project is back on track.

Coca-Cola decided to improve its market share of the soft drink market in France by purchasing Orangina. Ad the name implies, Orangina is a sweet, orange-flavored French made concoction. The French government rejected the purchase on antitrust grounds.

Another potential cloud on the horizon for some types of companies doing business abroad is the threat of nationalization, whereby a government takes ownership of certain industries or companies, such as airlines in Italy and Bull Computer in France, to infuse more capital into their development. Industries are also nationalized to allow domestic corporations to sell vital goods below cost. For example, for many years France has been supplying coal to users at a loss.

Legal Considerations

Closely related to and often intertwined with the political environment are legal considerations. Nationalistic sentiments of the French led to a 1996 law that requires pop music stations to play at least 40 percent of their songs in French (in spite of the fact that teenagers love American and English rock and roll).

Many legal structures are designed to either encourage or limit trade. Here are some examples:

· Tariff: a tax levied on the goods entering a country. For example, in February 2000 the United States imposed a stiff tariff on steel imports in an effort to protect about five thousand U.S. jobs.

· Quota: a limit on the amount of a specific product that can enter a country. The United States has strict quotas for imported textiles, sugar, and many dairy products. Several U.S. companies have sought quotas as a means of protection from foreign competition. For example, Harley-Davidson convinced the U.S. government to place quotas on large motorcycles imported to the United States. These quotas gave the company the opportunity to improve its quality and compete with Japanese motorcycles.

· Boycott: the exclusion of all products from certain countries or companies. Governments use boycotts to exclude companies from countries with whom they have a political dispute. Several Arab nations boycotted Coca-Cola because it maintained distributors in Israel.

· Exchange control: a law compelling a company earning foreign exchange from its exports to sell it to a control agency, usually a central bank. A company wishing to buy goods abroad must first obtain foreign exchange from the control agency. Generally, exchange controls limit the importation of luxuries. For instance, Avon Products drastically cut back new production lines and production lines and products in the Philippines because exchange controls prevented the conversion of pesos to dollars to ship back to the home office. The pesos had to be used in the Philippines. China restricts the amount of foreign currency each Chinese company is allowed to keep from its exports. Therefore, Chinese companies must usually get the government’s approval to release funds before they can buy products from foreign companies.

· Market grouping: also known as a common trade alliance; occurs when several countries agree to work together to form a common trade area that enhances trade opportunities. The best-known market grouping is the European Community (EC), whose members are Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Demark, Ireland, Spain, the United Kingdom, Portugal, and Greece. The EC has been evolving for nearly four decades, yet until recently, many trade barriers existed among member nations.

· Trade agreement: an agreement to stimulate international trade. Not all government efforts are meant to stifle imports or investment by foreign corporations. The Uruguay Round of trade negotiations is an example of this. Likewise, China’s most favored nation (MFN) status is considered a trade agreement. The largest new trade agreement is the Mercosur, which includes Brazil, Argentina, Chile, Bolivia, Uruguay, and Paraguay. The elimination of most tariffs among the trading partners has resulted in trade revenues currently over $16 billion annually. The economic boom created by Mercosur will undoubtedly cause other nations to seek trade agreements on their own or enter Mercosur. The European Union, discussed on page 108, hopes to have a free-trade pact with Mercosur by 2005.

The Uruguay Round is an agreement to dramatically lower trade barriers worldwide. Adopted in 1994, the agreement has been signed by 136 nations. It is the most ambitious global trade agreement ever negotiated. The agreement reduces tariffs by one-third worldwide. This, in turn, should rise global income by $235 billion annually by 2005. Perhaps most notable is the recognition of the new global realities. For the first time there is an agreement covering services, intellectual property rights, and trade-related investment measures such as exchange controls.

· Entertainment, pharmaceuticals, integrated circuits, and software: New rules will protect patents, copyrights, and trademarks for twenty years. Computer programs receive fifty years’ protection and semiconductor chips receive ten years’. But many developing nations will have a decade to phase in patent protection for drugs. France, which limits the number of U.S. movies and TV shows that can be shown, refused to liberalize market access for the U.S. entertainment industry.

· Financial, legal, and accounting services: Services come under international trading rules for the first time, potentially creating a vast opportunity for these competitive U.S. industries. Now it will be easier to admit managers and key personnel into a country. Licensing standards for professionals, such as doctors, cannot discriminate against foreign applicants. That is, foreign applicants cannot be held to higher standards than domestic practitioners.

· Agriculture: Europe will gradually reduce farm subsidies, opening new opportunities for such U.S. farm exports as wheat and corn, Japan and Korea will begin to import rice. But growers of U.S. sugar, citrus fruit, and peanuts will have their subsidies trimmed.

· Textiles and apparel: Strict quotas limiting imports from developing countries will be phased out over ten years, causing further job loss in the U.S. clothing trade. But retailers and consumers will be the big winners, because quotas now add $15 billion a year to clothing prices.

· A new trade organization: The new World Trade Organization (WTO) replaces the old General Agreement on Tariffs and Trade (GATT), which was created in 1948. The old GATT agreements provided extensive loopholes that enabled countries to avoid the trade-barrier reduction agreements—a situation similar to obeying the law only if you want to! Today, all WTO members must fully comply with all agreements under the Uruguay Round. The WTO also has an effective dispute settlement procedure with strict time limits to resolve disputes.

The new service agreement under the Uruguay Round requires member countries to create adequate penalties against counterfeiting and piracy. China, which is joining the WTO, has done little to control its rampant piracy problems. U.S. producers of records, books, motion pictures, and software lose about $2.5 billion a year to Chinese piracy. This will decline with China’s admission to the WTO.

The trend toward globalization has brought to the fore several specific examples of the influence of political structures and legal considerations: the North American Free Trade Agreement and the European Union.

The North American Free Trade Agreement (NAFTA) created the world’s largest free-trade zone. Ratified by the U.S. Congress in 1993, the agreement includes Canada, the United States, and Mexico, with a combined population of 360 million and economy of $6 trillion.

Canada, the largest U.S. trading partner, entered a free-trade agreement with the United States in 1988. Most of the new long-run opportunities for U.S. businesses under NAFTA are thus in Mexico, America’s third largest trading partner. Tariffs on Mexican exports to the United States averaged just 4 percent before the treaty was signed, and most goods entered the United States duty free. Therefore, NAFTA opened the Mexican market primarily to U.S. companies. When the treaty went into effect, tariffs on about half the items traded across the Rio Grande disappeared. The pact removed a web of Mexican licensing requirements, quotas, and tariffs that limited transactions in U.S. goods and services. For instance, the pact allows U.S. and Canadian financial-services companies to own subsidiaries in Mexico for the first time in fifty years.

The real test of NAFTA will be whether it delivers rising prosperity on both sides of the Rio Grande. For Mexicans, NAFTA must provide rising wages, better benefits, and an expanding middle class with enough purchasing power to keep buying goods from the United States and Canada. That scenario is plausible in the long run, but not guaranteed. By 200, employment had risen 10 percent in Canada, 22 percent in Mexico and 7 percent in the United States since the signing of the treaty. During the same period, American companies invested $11 billion in Mexico and $39 billion in Canada. Also, cross-boarder trade between the United States and its two neighbors increased 141 percent since 1994.

NAFTA, to date, has been very successful, displacing some workers but creating far more jobs than have been lost. The intent of U.S. politicians is to ultimately expand NAFTA to South America, Latin America, and Britain. Chile was to be the first new entrant into the organization. Wrangling within the U.S. Congress has blocked NAFTA expansion so far. As a result, countries south of the U.S. boarder have been forming their own trade agreements. Latin and South America nations are creating a maze of trading arrangements.

In 1993, all twelve-member countries of the European Community ratified the Maastricht Treaty. The treat, named after the Dutch town where it was developed, proposes to take the EC further toward economic, monetary, and political union. Officially called the Treaty on European Union, the document outlines plans for tightening bonds among the member states and creating a single market. The European Commission, which drafted the treaty, predicts that the Maastricht will create over 2 million new jobs in 2002. Also retail prices in the European Union are expected to fall by a minimum of 6 percent.

Although the heart of the treaty deals with developing a unified European market, Maastricht is also intended to increase integration among the European Union members in areas much closer to the core of national sovereignty. The treaty created a common currency and an independent central bank in 1999, with Germany, France, Spain, Portugal, Ausria, the Netherlands, Luxembourg, Ireland, and Finland. Britain, Sweden, and Demark chose not to join at the start. A new European Central Bank was also created along with EMU currency called the euro. The EMU creates a $6.4 trillion economy, the second largest in the world.

Common foreign, security, and defense policies are also goals, as well as European citizenship—whereby, any European Union citizen can live, work, vote, and run for office anywhere in the member countries. The treaty standardizes trade rules and coordinates health and safety standards. Duties, customs procedures, and taxes are also standardized. A driver hauling cargo from Amsterdam to Lisbon can now clear four barrier crossings by showing a single piece of paper. Before the Maastricht treaty, the same driver would have carried two pounds of paper to cross the same boarders. The overall goal is to end the need for a special product for each country—for example, a different Braun electric razor for Italy, Germany, France, and so fourth. Goods marked GEC (goods for EC) can be traded freely without being restricted at each boarder.

Some economists have called the European Union the “United States of Europe.” It is an attractive market, with 320 million consumers and purchasing power almost equal to that of the United States. But the European Union will probably never be a United States of Europe. For one thing, even in a united Europe, marketers will not be able to produce a single Europroduct for a generic Euroconsumer. With eleven different languages and individual national customs, Europe will continue. It will be a long time, for instance, before the French begin drinking the instant coffee that Britain’s enjoy. Preferences in washing machines also differ: British homemakers want front-load washers, and the French want top-loaders; Germans like lots of settings and high spin-speeds; Italians like lower speeds. Even European companies that think they understand Euroconsumers often have difficulties producing “the right product”:

….An entirely different type of problem facing global marketers is the possibility of a protectionist movement by the European Union against outsiders. For example, European automakers have proposed holding Japanese imports at roughly their current 10 percent market share. The Irish, the Danes, and the Dutch don’t make cars and have unrestricted home markets; they would be unhappy about limited imports of Toyotas and Datsuns. But France has a strict quota on Japanese cars to protect Renault and Peugeot. These local carmakers could be hurt if the quota is raised at all.

Interestingly, a number of big U.S. companies are already considered more “European” than many European companies. Coca-Cola and Kelloggs’s are considered classic European brand names. Ford and General Motors compete for the largest share of auto sales on the continent. IBM and Dell Computer dominate their markets, General Electric, AT&T, and Westinghouse are already strong all over Europe and have invested heavily in new manufacturing facilities throughout the continent….

The three most densely populated nations in the world are China, India, and Indonesia. But that fact alone is not particularly useful to marketers. They also need to know whether a population is mostly urban or rural, because the marketers may not have easy access to rural consumers. In Belgium about 90 percent of the population lives in an urban setting, whereas in Kenya almost 80 percent of the population lives in a rural setting. Belgium is thus the more attractive market.

Just ass important to population is personal income within a country. The wealthiest countries in the world include Japan, the United States, Switzerland, Sweden, Canada, Germany, and several of the Arab oil-producing nations. At the other extreme are countries like Mali and Bangladesh, with a fraction of the per capita purchasing power of the United States. However, low per capita incomes, wealth, is not evenly distributed. There are pockets of upper- and middle-class consumers in just about every country of the world. In some countries, such as India, the number of consumers is surprisingly large.

The most significant global economic news of the past decade is the rise of a global middle class. From Shekou, China, to Mexico City and countless cities in between, there are traffic jams, bustling bulldozers, and people hawking tickets to various events. These are all symptoms of a growing middle class. In China, per capita incomes are rising rapidly. Developing countries, excluding Eastern Europe and the former Soviet Union, should grow at about 5 percent annually over the next decade….

A final factor in the external environment that has become more evident in the past decade is the shortage of natural resources. For example, petroleum shortages have created huge amounts of wealth for oil-producing countries such as Norway, Saudi Arabia, and the United Arab Emirates. Both consumer and industrial markets have blossomed in these countries. Other countries—such as Indonesia, Mexico, and Venezuela—were able to borrow heavily against oil reserves in order to develop more rapidly. On the other hand, industrial countries like Japan, the United States, and much of Western Europe experienced rampant inflation in the 1970s and an enormous transfer or wealth to the petroleum-rich nations. But during much of the 1980s and 1990s, when the price of oil fell, the petroleum-rich nations suffered. Many were not able to service their foreign debts when their oil revenues were sharply reduced. However, Iraq’s invasion of Kuwait in 1990 led to a rapid increase in the price of oil and focused attention on the dependence of industrialized countries to oil imports. The price of oil once again declined following the defeat of Iraq, but the U.S. dependence on foreign oil will likely remain high. In 2000 industrialized nations, once again, felt pinch of high oil prices. It led to work stoppages and protests in both Britain and France.

Petroleum is not the only natural resource that affects international marketing. Warm climate and lack of water mean that many of Africa’s countries will remain importers of foodstuffs. The United States, on the other hand, must rely on Africa for many precious metals. Japan depends heavily on the United States for timber and logs. A Minnesota company manufactures and sells a million pair of disposable chopsticks to Japan each year. The list could go on, but the point is clear. Vast differences in natural resources create international dependencies, huge shifts of wealth, inflation and recession, export opportunities for countries with abundant resources, and even a stimulus for military intervention.

A company should consider entering the global marketplace only after its management has a solid grasp of the global environment. Some relevant questions are “what are the potential risks and returns?” Concrete answers to these questions would probably encourage the many U.S. firms not selling overseas to venture into the international arena. Foreign sales could be an important source for profits.

Companies decide to “go global” for a number of reasons. Perhaps the most stimulating reason is to earn additional profits. Managers may feel that international sales will result in higher profit margins or more added-on profits. A second stimulus is that a firm may have a unique product or technological advantage not available to other international competitors. Such advantages should result in major business successes abroad. In other situations, management may have exclusive market information about foreign customers, marketplaces, or market situations not known to others. While exclusivity can provide an initial motivation for international marketing, managers must realize that competitors can be expected to catch up with the information advantage of the firm. Finally saturated domestic markets, excess capacity, and potential for economies of scale can also be motivators to “go global.” Economies of scale mean that average per-unit production costs fall as output increases.

Many firms form multinational partnerships—called strategic alliances—to assist them in penetrating global markets; strategic alliances are examined in Chapter 6. Five other methods of entering the global marketplace are in order of risk, export, licensing, contract manufacturing, the joint-venture, and direct development. (See Exhibit 4.3, page 112.)

When a company decides to enter the global market, exporting is usually the least complicated and least risky alternative. Exporting is selling domestically produced products to buyers in another country. A company, for example, can sell directly to foreign importers or buyers. Exporting is not limited to huge corporations such as General Motors or Westinghouse. Indeed, small companies account for 96 percent of all U.S. exporters, but only 30 percent of the export volume. The United States is the world’s largest exporter. Many small businesses claim they lack the money, time, or knowledge of foreign markets that exporting requires. The U.S. Department of Commerce is trying to make it increasingly easy for small businesses to enter exporting. The department has created a pilot program in which it has hired a private company to represent up to fifty small businesses at specific international trade fairs. For example, FTS Incorporated, was hired to represent small firms at a trade show in Italy. The company handed out company brochures and other sales information to interested prospective Italian clients. Also, after the show was over, FTS gave each participating American company a list of potential Italian distributors for their products. Each American firm paid only $2,500 to be represented at the trade fair. For companies interested in exporting, the U.S. government stands ready to help in a variety of ways. Some Federal resources available to companies wanting to enter exporting are shown in Exhibit 4.4 on pages 114-115.

Instead of selling directly to foreign buyers, a company may decide to sell to intermediaries located in its domestic market. The most common intermediary is the export merchant, also known as a buyer for export, who is usually treated like a domestic customer by the domestic manufacturer. The buyer for export assumes all risks and sells internationally for its own account. The domestic firm is involved only to the extent that its products are bought in foreign markets.

A second type of intermediary is the export broker, who plays the traditional broker’s role by bringing buyer and seller together. The manufacturer still retains title and assumes all the risks. Export brokers operate primarily in agriculture and raw materials.

A third type of intermediary, are foreign sales agents-distributors who live in the foreign country and perform the same functions as domestic manufacturers’ agents, helping with international financing, shipping, and so on. The U.S. Department of Commerce has an agent-distributor service that helps about five thousand U.S. companies a year find an agent or distributor in virtually any country in the world. A second category of agents resides in the manufacturer’s country but represents foreign buyers. This type of agent acts as a hired purchasing agent for the foreign customers operating in the exporter’s home market.

Another effective way for a firm to move into the global arena with relatively little risk is to sell a license to manufacture its product to someone in a foreign country. Licensing is the legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge. The licensee, in turn, pays the licensor a royalty or fee agreed upon by both parties.

Because licensing has many advantages, U.S. companies have eagerly embraced the concept. For example, Marvel Enterprises granted 4Kids Entertainment international licensing rights for X-Men-the-Movie, X-Men classic, Spider Man classic, The Fantastic Four, Silver Surfer, the Incredible Hulk, Avengers, Captain America, Iron Man, and Daredevil.

Firms that do not want to become involved in licensing or to become heavily involved in global marketing may engage in contract manufacturing, which is private-label manufacturing by a foreign company. The foreign company produces a certain volume of products to specification, with the domestic firm’s brand name on the goods. The domestic company usually handles the marketing. Thus, the domestic firm can broaden its global marketing base without investing in overseas plant and equipment. After establishing a solid base, the domestic firm may switch to a joint venture or direct investment.

Joint ventures are similar to licensing agreements. In a joint venture, the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. A joint venture is a quick and relatively inexpensive way to go global and to gain needed expertise. For example, Robert Mondavi Wineries entered into a joint venture with Baron Philippe de Rothschild, owner of Bordeaux’s First Growth chateau, Mouton-Rothschild. The created a wine in California called Opus One. It was immediately established as the American vanguard of quality and price. “We’re doing these wines from around the world because they’re going to come here anyway,” he said. “The industry is going global, so we’re going global too.”

Frito-Lay recently formed a joint venture with Savoy Brands International of South America. The joint venture covers nine countries, including Venezuela, Chile, Peru, Ecuador, and parts of Central America. Unlike the soft drink or restaurant companies, Frito-Lay must deal with the agricultural sector to ensure an adequate supply of potatoes and corn. And the company needs critical mass so that its manufacturing plants and distribution vehicles can achieve economies of scale. Teaming up with Savoy gives the U.S. snack giant lower costs, better distribution, and increased clout with retailers. Frito-Lay can also push its global brands, such as Doritos, Cheetos, and Lays, along with Savoy’s brands.

Active ownership of a foreign company or of overseas manufacturing or marketing facilities is direct investment. Direct foreign investment by U.S. manufacturers is currently about $50 billion annually. Direct investors have either a controlling interest or a large minority interest in the firm. Thus, they have the greatest potential reward and the greatest risk. FedEx lost $1.2 billion in its attempt to build a hub in Europe. It created a huge infrastucture but couldn’t generate the package volume to support it. To control loses, the company fired sixty-six hundred international employees and closed offices in over one hundred European cities. FedEx, however, hasn’t given up on expansion. It recently invested $400 million to create an Asian hub. Direct investment can often lead to rapid success. MTV has been in the European market only since 1988, yet since 1994 it has had more viewers in Europe than in the United States….

A firm may make a direct foreign investment by acquiring an interest in an existing company or by building new facilities. It might do so because it has trouble transferring some resource to a foreign operation or getting that resource locally. One important resource is personnel, especially managers. If the local labor market is tight, the firm may buy an entire foreign firm and retain all its employees instead of paying higher salaries than competitors.

The United States is a popular place for direct investment by foreign companies. In 2000, the value of foreign-owned businesses in the United States was more than $450 billion.

Eastern Europe Business Information Center:

(202) 482-5749

Offices of the Americas (Mexico, Canada, Latin America, and the

Caribbean):

(800) 872-8723

Asia Business Center (Southeast Asia, Korea, Vietnam, China,

Taiwan, Hong Kong, Australia, and New Zealand):

(202) 482-3875

Business Information Service for the Newly Independent (former

USSR) States:

(202) 482-3145

Uruguay Round of the General Agreement on Tariffs and Trade

(GATT):

(800) USA-TRADE

Business Information Center for Northern Ireland:

(202) 501-7488

· Overseas Private Investment Corporation (OPIC) provides investment services, financing, and political risk insurance in more than 130 developing countries. Call (202) 336-8799.

· Export Credit Guarantee program of the Foreign Agriculture Service of the Department of Agriculture offers risk protection for U.S. exporters against nonpayment by foreign banks. Call (202) 720-3224.

· U.S. Small Business Administration offers a 24-hour electronic bulletin bard with professional marketing services and information on trade shows and other promotions overseas. Call (800) 827-5722.

· World Trade Centers Association, with a total membership of 400,000 companies worldwide, provides international trade information, including freight forwarders, customs brokers, and international companies.

· Export Yellow Pages is a free directory of U.S. manufacturers, banks, service organizations, and export trading companies seeking to do business abroad. Contact your local DOC district office.

· Eastern Europe Looks for Partners, published bimonthly by the Central and Eastern Europe Business information center, highlights new markets and business opportunities for U.S. firms. Call (202) 482-2645.

· Destination Japan: A Business Guide for the 90s, published by the Japan Export Information Center, is a basic guide to doing business with Japan. Call (703) 487-4650 and ask for stock no. PB94164787.

· Commercial News USA, published by the ITA, is a 10-time-yearly catalog-magazine to promote U.S. products and services to overseas markets. It is disseminated to 125,000 business readers via U.S. embassies and consulates in 155 countries. For paid listings and advertising rates, call (202) 482-4918.

· Business America, published by the ITA, is a monthly compendium of U.S. trade policies and features a calendar of trade shows, exhibitions, fairs, and seminars. Call (202) 512-1800.

Universal Currency Converter

http://www.ex.com/ucc/

World Index of Chambers of Commerce & Industry

http://www1.usa1.com

U.S. Small Business Administration

http://www.sbaonline.sba.gove/OIT

Open Market

http://www.openmarket.com

U.S. International Trade Administration

http://www.ita.doc.gov

Global Trade Point Network

http://www.gtpnet-e.com

Multilingual International Business Directory

http://www.uscib.org

PRAXIS Resource for Social and Economic Development

http://caster.ssw.upenn.edu/~restes/praxis.html

Berkley Roundtable on International Economy

http://brie.berkeley.edu/briewww/

Pacific Region Forum on Business and Management Communication

Gopher://hoshi.cic.sfu.ca/11/dlam/business/forum

To succeed, firms seeking to enter into foreign trade must still adhere to the principles of the marketing mix. Information gathered on foreign markets through research is the basis for the four Ps of global marketing strategy: product, place (distribution), promotion, and price. Marketing managers who understand the advantages and disadvantages of different ways to enter the global market and the effect of the external environment on the firm’s marketing mix have a better chance of reaching their goals.

The first step in creating a marketing mix is developing a thorough understanding of the global target market. Often this knowledge can be obtained through the same types of marketing research used in the domestic market (see Chapter 8). However, global marketing research is conducted in vastly different environments. Conducting a survey can be difficult in developing countries, where telephone ownership is rare and mail delivery slow or sporatic. Drawing samples based on known population parameters is often difficult because of the lack of data. In some cities in South America, Mexico, and Asia, street maps are unavailable, streets are unidentified, and houses are unnumbered. Moreover, the questions a marketer can ask may differ in other cultures. In some cultures, people tend to be more private than in the United States and do not like to respond to personal questions on surveys. For instance, in France, questions about one’s age and income are considered especially rude.

With the proper information, a good marketing mix can be developed. One important decision is whether to alter the product or the promotion for the global marketplace. Other options are to radically change the product or to adjust either the promotional message or the product to suit local conditions.

The strategy of global marketing standardization, which was discussed earlier, means developing a single product for all markets and promoting it the same way all over the world. For instance, Proctor & Gamble uses the same product and promotional themes for Head and Shoulders in China as it does in the United States. The advertising draws attention to a person’s dandruff problem, which stands out in a nation of black-haired people. Head and Shoulders is now the best-selling shampoo in China despite costing over 300 percent more than local brands. Buoyed by its success with Head and Shoulders, Proctor & Gamble is using the same product and the same promotion strategy with Tide detergent in China. It also used another common promotion tactic that it has found to be successful in the United States. The company spent half a million dollars to reach agreements with local washing machine manufacturers, which now include a free box of Tide with every new washer….

Even a one-product, one-message strategy may call fro some changes to suit local needs, such as variations in the product’s measurement units, package sizes, and labeling. Pillsbury, for example, changed the measurement unit for its cake mixes because adding “cups of” has no meaning in many developing countries, packages are often smaller so that consumers with limited incomes can buy them. For instance, cigarettes, chewing gum, and razor blades may be sold individually instead of in packages.

Unchanged products may fail simply because of cultural factors. The game Trivial Pursuit failed in Japan. It seems that getting the answers wrong can be seen as a loss of face. Any type of war game tends to do very poorly in Germany, despite the fact that Germany is by far the world’s biggest game-playing nation. A successful game in Germany has plenty of details and thick rulebooks. Monopoly remains the world’s favorite board game; it seems to overcome all cultural barriers. The game is available in twenty-five languages, including Russian, Croatian, and Hebrew.

In the context of global marketing, product invention can be taken to mean either creating a new product for a market or drastically changing an existing product. For the Japanese market, Nabisco had to remove the cream filling from its Oreo cookies because Japanese children though they were too sweet. Ford thinks it can save billions on its product development costs by developing a single small-car chassis and then altering its styling to suit different countries. Campbell Soup invented a watercress and duck gizzard soup that is now selling well in China. It is also considering a cream of snake soup. Frito-Lay’s most popular potato chip in Thailand is shrimp flavored. Dormont Manufacturing Company makes a simple gas hose that hooks up to deep-fat fryers and similar appliances. Sounds like something that could be sold globally, right? Wrong—in Europe differing national standards means that a different hose is required for each country. Minutiae such as the color of the plastic coating or how the end pieces should be attached to the rest of the hose and the couplings themselves crate a myriad of design problems for Dormont Manufacturing….

Another alternative for global marketers is to slightly alter a basic product to meet local conditions. Additional pizza toppings offered by Domino’s in Japan include corn, curry, squid, and spinach. Japanese housewives couldn’t fit American-size bottles of Joy dish soap on their shelves. Proctor & Gamble changed the bottle to a compact cylinder that took less space. In areas of France, McDonalds serves duck breasts and foie gras instead of beef in the Big Mac. In the Agen region of France the burgers are topped with Roquefort cheese. When Lewis Woolf Griptight, a British manufacturer of infant accessories such as pacifiers, came to the United States, found subtle differences between United Kingdom and American parents. Elizabeth Lee, marketing manager noted, “There are subtle differences, but many problems are the same. Whether a cup spills in America or Madagascar or in the U.K., moms aren’t going to like it,” she said. “We didn’t need to redo all the research to find out that people didn’t want cups that spill, but we still had to do research on things like color and packaging.” The brand name “Kiddiewinks” is a British word for pacifiers. In the United States, the name was changed to “Binky” because of positive parental reactions in marketing tests.

Another global marketing strategy is to maintain the same basic product but alter the promotional strategy. Bicycles are mainly pleasure vehicles in the United States. In many parts of the world, however, they are a family’s main mode of transportation. Thus, promotion in these countries should stress durability and efficiency. In contrast, U.S. advertising may emphasis escaping and having fun.

Harley-Davidson decided that its American promotion theme, “One steady constant in an increasingly screwed-up world.” wouldn't appeal to the Japanese market. The Japanese ads combine American images with traditional Japanese ones: American riders passing a geisha in a rickshaw, Japanese ponies nibbling at a Harley motorcycle. Waiting lists for Harleys in Japan are now six months long.

In a new effort to increase its international presence, Anheuser-Busch Companies is targeting the fast growing markets of Argentina, Brazil, and Chile. But breaking with its promotion strategy at home, the brewer is positioning Bud as a trendy drink for affluent youth, peppering the hottest nightclubs and bars with giant banners, neon signs, and other promotions. The result: Some rivals jokingly refer to Bud as a North-of-the-boarder Corona. The company is handing out red neon signs to upscale discos and restaurants. They’re also dispatching young women in tight Bud mini dresses to offer free beer at the beach. And they’re plastering cities with signs trumpeting Bud as “the most popular beer in the world.”

….Language barriers, translation problems, and cultural differences have generated numerous headaches for international marketing managers. Consider these examples:

· A toothpaste claiming to give users white teeth was especially inappropriate in many areas of Southeast Asia, where the well-to-do chew betel nuts and black teeth are a sign of higher social status.

· Proctor & Gamble’s Japanese advertising for Camay soap nearly devastated the product. In one commercial, a man meeting a woman for the first time immediately compared her skin to that of a fine porcelain doll. Although the ad had worked in other Asian countries, the man came across as rude and disrespectful in Japan.

Once marketing managers have determined a global product and promotion strategy, they can select the remainder of the marketing mix. Pricing presents some unique problems in the global sphere. Exporters must not only cover their production costs but also consider transportation costs, insurance, taxes, and tariffs. When deciding on a final price, marketers must also determine what customers are willing to spend on a particular product. Marketers also need to ensure that their foreign buyers will pay them. Because developing nations lack mass purchasing power, selling to them poses special pricing problems. Sometimes a product can be simplified in order to lower the price. However, the firm must not assume that low income countries are willing to accept lower quality. Although the nomads of the Sahara are very poor, they still buy expensive fabric to make their clothing. Their survival in harsh conditions and extreme temperatures requires this expense. Additionally, certain expensive luxury items can be sold almost anywhere.

Companies must also be careful not to be so enthusiastic about entering a market that they use poor pricing strategies. Sales of Compaq computers have been growing very rapidly in China, but partially because the company has been giving away computers against its will. Recently, a Chinese distributor failed to repay $32 million for computers that Compaq had extended on credit. Analysts say Compaq is now owed over $100 million by delinquent dealers and distributors in China. Wal-Mart is determined to make significant inroads into Germany, but to date, is losing about $150 million per year. This is primarily due to Wal-Mart’s pledge to drop prices 10 percent on 100,000 items in the Asda retail chain, which it purchased.

Dumping is generally considered to be the sale of an exported product at a price lower than that charged for the same or a like product in the “home” market of the exporter. This practice is thought of as a form of price discrimination that can potentially harm the importing nation’s competing industries. Dumping may occur as a result of exporter business strategies that include (1) trying to increase an overseas market share. (2) temporarily distributing products in overseas markets to offset slack demand in the home market. (3) lowering unit costs by exploiting large-scale production, and (4) attempting to maintain stable prices during periods of exchange rate fluctuations.

Historically, the dumping of goods has presented serious problems in international trade. As a result, dumping has led to significant disagreements among countries and diverse views about its harmfulness. Some trade economists view dumping as harmful only when it involves the use of “predatory” practices that intentionally try to eliminate competition and gain monopoly power in a market.

They believe that the predatory dumping rarely occurs and that antidumping enforcement is a protectionist tool whose cost to consumers and import-using industries exceeds the benefits to the industries receiving protection.

The Uruguay Round rewrites the international law on dumping. The agreement states:

its government filing a dumping complaint with the World Trade Organization. In other words, a government can’t file a complaint if only one or two firms complain (unless they make up 25 percent of the industry).

Global trade does not always involve cash. Countertrade is a fast growing way to conduct global business. In Countertrade, all or part of the payment for goods or services is in the form of other goods or services. Countertrade is thus a form of barter (swapping goods for goods), an age-old practice whose origins have been traced back to cave dwellers. The U.S Department of Commerce says that roughly 30 percent of all global trade is Countertrade. In fact, both India and China have made billion-dollar government purchasing lists, with most of the goods to be paid by Countertrade.

One common type of Countertrade is straight barter. For example, PepsiCo sends Pepsi syrup to Russian bottling plants an in payment gets Stolichnaya vodka, which is then marketed in the West….

Solving promotional, price, and product problems does not guarantee global marketing success. The product still has to get adequate distribution. For example, Europeans don’t play sports as much as Americans do, so they don’t visit sporting goods stores as often. Realizing this, Reebok started selling its shoes in about eight hundred traditional shoe stores in France. In one year, the company doubled its French sales. Harley Davidson had to open two company-owned stores in Japan to get distribution for its Harley clothing accessories.

The Japanese distribution system is considered the most complicated in the world. Imported goods wind their way through layers of agents, wholesalers, and retailers. For example, a bottle of ninety-six aspirins costs about $20 because the bottle passes through at least six wholesalers, each of whom increases the selling price. The result is that the Japanese consumer pays the world’s most exorbitant prices. These distribution channels seem to be based on historical and traditional patterns of socially arranged trade-offs, which Japanese officials claim are very hard for the government to change. Today, however, the system seems to be changing because of pressure from the Japanese consumer. Japanese shoppers are now placing low prices ahead of quality in their purchasing decisions. The retailer who can cut distribution costs and therefore the retail price gets the sale. For example, Kojima, a Japanese electronics superstore chain had to bypass GE’s Japanese distribution partner Toshiba to import its merchandise at a good price. Toshiba’s distribution system required refrigerators to pass through too many hands before they reached the retailer. Kojima went directly to GE headquarters in the U.S. and persuaded the company to sell it refrigerators for about $800, which is half the price of a typical Japanese model….

Europe’s freight-rail system is a throwback to another era. No two countries use the same signaling system to or electronic current for their trains. Trains in France and Britain run on the left side of dual-track lines, while those in the rest of Europe run on the right. Because France and Spain used two different gauges of track, trains crossing their shared boarder must stop to let each car be lifted so that its wheels can be changed.

A freight train going from Denmark to France takes twenty-one hours. When it crosses the boarder into Germany it must change locomotives and drivers. That’s because Demark and Germany use different voltages for electric locomotives and different signaling systems. During the journey it changes drivers and engines several more times. It is also sidetracked to let high-speed passenger trains pass.

Channels of distribution and the physical infrastructure are also inadequate in many developing nations. In China, for example, most goods are carried on poles or human backs, in wheelbarrows and handcarts, or, increasingly, on bicycles. Proctor & Gamble has resorted to taking traffic maps of the 228 Chinese cities with at least 200,000 citizens and marking them up with locations of small mom and pop shops and the big department stores. Divisions of its “ground troops,” often wearing white sports shirts with “Winning Team” written on the back, “blitz” each local and sell and distribute P&K products. Even small street-stall owners get a personal pitch.

In many respects ‘going global” is easier than it has ever been before. Opening an e-commerce site on the internet immediately puts a company in the international marketplace. Sophisticated language translation software can make any site accessible to persons around the world. Global shippers such as UPS, FedEx, and DHL help solve international e-commerce distribution complexities.

The promise of “boarderless commerce” and the new “Internet economy” are still being restrained by the old brick-and-morter rules, regulations, and habits. For example, Americans spend an average of $6,500 a year by credit card whereas Japanese spend less than $2,000. Many Japanese don’t even have a credit card. So how does one pay for e-commerce purchases? Seven-Eleven Japan, with over 8,000 convenience stores, has come to the rescue. eS-books, the Japanese Web site partner of Yahoo! Japan, lets shoppers buy books and videos on the Internet, then specify to which Seven-Eleven the merchandise is to be shipped. They buyer goes to that specific store and pays cash for the e-purchase….

Many businesses in the United States are fighting for a tax-free Internet, while states wrestle with the fact that millions in taxes would be forfeited. If quotas are to be followed, how will steel that is bought and sold many times over the Internet between several countries be tracked to the original country? Steel slabs can be made in Asia, produced somewhere in Europe, and then sold to Latin America or the United States.

Both MetaSite and e-Steel leave the critical trade-related details to individual buyers and sellers. For instance, once a seller and buyer meet on one of the sites, they have to go off-line and conduct their transaction via phone or fax or in person. At this point, some steel Internet portals do allow companies from every country to see what is available worldwide, and at what price, with just a few clicks of a mouse. And that’s at least a giant step toward creating a global steel market.

adopt a global vision are better able to identify global marketing opportunities, understand the nature of global networks, and engage foreign competition in domestic markets.

Multinational corporations are international traders that regularly operate across national boarders. Because of their vast size and financial, technological, and material resources, multinational corporations have a great influence on the world economy. They have the ability to overcome trade problems, save on labor costs, and tap new technology.

marketers face the same environmental factors as they do domestically: culture, economic and technological development, political structure and actions, demography, and natural resources. Cultural considerations include societal values, attitudes and beliefs, language, and customary business practices. A country’s economic and technological status depends on its stage of industrial development: traditional society, preindustrial society, takeoff economy, industrializing society, or fully industrialized society. The political structure is shaped by political ideology and such policies as tariffs, quotas, boycotts, exchange controls, trade agreements, and market groupings. Demographic variables include population, income distribution, and growth rate.

Firms use the following strategies to enter global markets, in descending order of risk and profit: direct investment, joint venture, contract manufacturing, licensing, and export.

mix. A firm’s major consideration is how much it will adjust the four Ps—product, promotion, place (distribution), and price—within each country. One strategy is to use one product and one promotion message worldwide. A second strategy is to create new products for global markets. A third strategy is to keep the product basically the same but alter the promotional message. A fourth strategy is to slightly alter the product to meet local conditions.

opening a Web site can open the door for international sales. International carriers, like UPS, can help solve logistics problems. Language translation software can help an e-commerce business become multilingual. Yet cultural differences and old-line rules, regulations, and taxes hinder rapid development of e-commerce in many countries.

1	General Motors	U.S.	176,558.0	388,00
2	Wal-Mart Stores	U.S.	166,809.0	1,140,00
3	Exxon Mobil	U.S.	163,881.0	106,000
4	Ford Motor	U.S.	162,558.0	364,550
5	Daimler Chrysler	Germany	159,985.7	466,938
6	Mitsui	Japan	118,555.2	38,454
7	Mitsubishi	Japan	117,765.6	42,050
8	Toyota Motor	Japan	115,670.9	214,631
9	General Electric	U.S.	111,630.0	340,000
10	Itochu	Japan	109,068.9	5,306
11	Royal Dutch/Shell Grp.	Brit./Neth.	105,366.0	96,000
12	Sumitomo	Japan	95,701.6	33,057
13	Nippon Telegraph & Telepho	Japan	93,591.7	223,954
14	Marubeni	Japan	91,807.4	32,000
15	Axa	France	87,645.7	92,008
16	International Business Mach	U.S.	87,548.0	307,401
17	BP Amoco	Britain	83,556.0	80,400
18	Citigroup	U.S.	82,005.0	176,900
19	Volkswagen	Germany	80,072.7	306,275
20	Nippon Life Insurance	Japan	78,515.1	71,434
21	Siemens	Germany	75,337.0	443,000
22	Alliance	Germany	74,178.2	113,584
23	Hitachi	Japan	71,858.5	398,348
24	Matsushita Electric Industrial	Japan	65,555.6	290,448
25	Nissho Iwal	Japan	65,393.2	18,446