Emerging Issues in International Marketing-17.02.2011

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Emerging Issues in International Marketing

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The fast changing environmental factors have significantly influenced the global marketing activities The major emerging issues in international markets may be summarized in the following manner. Accelerated Growth of Global Markets Breaking Down of Marketing Boundaries Emerging New Marketing Barriers Emergence of Global Customer Segment Product Proliferation and Shortening Product Life Cycle Growing Strength of Retailers Emergence of Knowledge Economy

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Increasing Customer Sophistication Market Beyond the Urban Middle Class Growing Awareness of Corporate Social Responsibility (CSR) Impact of Information and Communication Technology Global e-marketing/e-commerce Physical Market-place to Virtual Market- space Reverse Marketing Types of e-marketing/ e-commerce

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Accelerated Growth of Global Markets The world output increased at an average rate of 3.3% during 1986-95 while the world trade grew at 6.2% during this period Moreover, the world output was expected to grow at 3.8% during 1996-2005 compared to growth in world trade by 6.1% Thus, international trade has become the locomotive of growth of world economy and has also increased the global economic integration The advent of technology has greatly facilitated a firm’s ability to access international markets

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The income of people across the world is increasing rapidly opening up higher marketing opportunities The World Bank estimates that the per capita income is likely to increase in all regions of the world except in Sub-Saharan Africa Markets world-wide are likely to grow at a much higher rate than anticipated.

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Breaking Down of Marketing Boundaries The markets across the countries are becoming global as the marketing boundaries are fast disappearing The major reasons for breaking down of marketing boundaries are as follows: B1. Economic Liberalization B2 . Path to Free Markets B3. Death of Distance

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B1. Economic Liberalization Economic liberalization both in terms of regulations and tariff structure has greatly contributed to the breakdown of international marketing boundaries The emergence of the multi-lateral trade regime under the World Trade Organization has facilitated the reduction of tariff and non- tariff marketing barriers In the coming years, the tariffs are expected to decline sharply Besides, there has also been a proliferation in regional trade agreements that have

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facilitated the reduction of marketing barriers among the member nations For instance, the European Union (EU) has become a powerful economic union considerably affecting a firm’s marketing strategy for the European market.

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B2. Path to Free Markets The marketing systems under planned economies have collapsed world-wide giving way to capitalist market-driven systems The CIS countries and China have opened up and are moving towards market-driven economic systems at a fast pace However, the exceptions to free market systems are only a few autocratic countries, such as North Korea and Cuba.

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B3. Death of Distance Geographical proximity of markets had traditionally been a significant criterion for selecting target markets The advent of information and communication technology and fast developments in the means of transport have considerably undermined the significance of distance in market selection Besides, air travels has become both faster and cheaper There has also been a considerable reduction in the international tele - communication tariff rates due to increased competition and advent of new technology

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Emerging New Marketing Barriers The integration of national economies with the WTO has restrained countries from increasing tariffs and imposing explicit non-tariff marketing barriers However, the countries are consistently evolving innovative marketing barriers that are WTO compatible Such barriers include quality and technical specifications, environmental issues, regulations related to human exploitation, such as child labour , etc. Innovative technical jargons and justifications

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are often evolved to impose such barriers by high- income countries to restrict the import of goods from low-income countries, which find it very hard to defend such measures.

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Emergence of Global Customer Segment Customers around the world are exhibiting convergence of tastes and preferences in terms of their product likings and buying habits The automobiles , fast-food outlets, music systems, and even fashion goods are becoming amazingly similar across the countries The proliferation of transnational satellite television and tele -communication has accelerated the process of cultural convergence Traditionally, the cultural values were transmitted through generations by parents, grand-parents, or other members of family

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However, the emergence of nuclear families, with both the parents working, has made television the prominent source of acculturation not only in the Western countries but also in the oriental countries Besides, the advances in the modes of transport and increased international travel have greatly contributed to the growing similarity in customer preferences across the countries. Thus, the process of globalization has encouraged firms to tap the global markets with increased product standardization This has also given rise to a rapid increase in global brands.

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Product Proliferation and Shortening Product Life Cycles The technological advances have accelerated the process of new product development Besides, the ever-growing demands of the customers have necessitated firms to customize their products This has triggered the competitive pressure to develop new products and maintain a firm’s market share The proliferation of products has increased the complexity of firms to sustain their market share and maintain their unique marketing proposition (UMP)

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Today, the breakthroughs in computer technology have reduced the life span of computers and their components and software to only a few months rather than a year Since a firm cannot afford to lag behind its competitors who are constantly coming out with new products, it has no other option but to innovate As new product development involves considerable investment of resources, firms are under intense pressure to recover their investment as early as possible and often resort to adopting market skimming strategies.

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Growing Strength of Retailers The global retail sales were estimated at US $ 8 trillion in 2002, whereas the retail sales of top 200 retailers of the world accounted for 29% of the world-wide market This has encouraged the large retailers to put their private labels on the merchandise The retailers buy products directly from the manufacturers and put their own labels, which results in higher margins for the retailers Besides, the private labels offer tough competition to the manufacturers of branded products

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The private labels have witnessed a rapid increase over the years The share of private labels increased between March 2002 and 2003 from a meagre 0.2% to 15% according to a survey of private labels conducted by AC Neilsen in 36 countries for 80 different categories The growing power of retailers has given rise to the adoption of push strategies by the firms where the retailers wield their muscles to get more and more margins and squeeze the promotional budgets of the companies for creating pull in the markets It is anticipated that retailers’ power is likely to grow in future.

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Emergence of Knowledge Economy Knowledge or information is gaining significance in achieving competitiveness in a firm In the 19 th century, some of the world’s wealthiest people, from John Rockefeller to the Sultan of Brunei, were associated with oil Today, Bill Gates is the richest person on the earth due to his hold on the information technology segment The industries with the highest level of growth today, such as biotechnology, electronics, information and communication technology, designing, etc., are primarily knowledge-based

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Firms increasingly derive their competitive advantage based on their intellectual property The Agreement on Trade Related Intellectual Property Rights (TRIPS) under the WTO has generated considerable debate among the high- income and low-income countries about the legislations related to the protection of intellectual property.

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Increasing Customer Sophistication Although the emphasis on launching global products has gained popularity among the global trans-national corporations, the market response hardly supports this uniform approach Consequent to the liberalization of the Indian economy, most multi-nationals entered India with the belief that anything with a foreign label could be sold to the Indian consumers like hot cakes They failed to understand the extent to which the preferences between India and the West converge

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Indian customers are making a distinct market segment as they want to enjoy the latest technology/products but, at the same time, they prefer some degree of customization that suits local conditions and tastes.

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Market Beyond the Urban Middle Class Consequent to economic liberalization in India, most multi-nationals targeted the urban middle class with an estimated size of 300-400 million It is estimated that 74% of India’s total population of one billon resides in rural areas and has 58% of India’s disposable income With the growth in agricultural output from 176 million tonnes in 1990-91 to 215 million tonnes in 2004, the affluence in rural India is growing rapidly

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Rural India accounts for 70% of toilet soap users and 38% of two-wheeler purchases Therefore, it is difficult for any firm to overlook the huge buying potential of growing rural consumer class However, tapping rural Indian market means reaching out to 6,27,000 villages spread over 32,87,263 sq. km Innovative thinking and strategy is required to break into these markets Coca-Cola company spotted the potential of India’s rural market and perfected a unique supply chain to cater to India’s vast hinterland The supply chain network in rural India requires its

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distributors to travel 200 km to reach about five shops in a day with drop sizes of less than a case Besides, a typical village retail structure consists of 4-5 kirana shops (small grocery shops).

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Growing Awareness of Corporate Social Responsibility (CSR) Charity for charity’s sake is passe in today’s business environment Corporate business responsibility makes sound business sense A growing number of business organizations the world over link their growth and survival schemes with a firm’s overall corporate objectives For instance, Pfizer’s Indian subsidy has sponsored diagnostic centres and x-ray clinics for the poor

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These centres would eventually act as referral centres for Pfizer products Similarly, Hindustan Lever Limited promoted its health care programmes in the villages of Kerala as a part of its plan to expand its market for personal care products in rural India Lafarge, the global building materials manufacturer, plans to build low-cost concrete houses at a cost of less than US $ 1,000.

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Impact of Information and Communication Technology The Internet is becoming increasingly integrated with day-to-day activities both in the developed and the developing economies In markets where there are many more mobile phones in hands than PCs on desks – including most of the developing world – wireless devices are becoming delivery mechanisms for IT-enabled services It is not surprising that mobile banking services are more developed in the Philippines and China than in the US

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Earlier, the information flow between the companies and the customers was generally a one-way process The information was market-controlled, customers were ill-informed, and the exchanges were market-initiated The industrial era was known as the era of information asymmetry With the breakthroughs in information and communication technology, information has become affordable and universal The ease of access and availability of information about a firm’s products and those of its competitors to the customers have greatly increased around the world

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This has resulted in a shift of power from the manufacturers to the customers This has led to not only customer-oriented marketing but also customer-initiated marketing The use of Internet has empowered buyers significantly Today, the buyers can: Get information about the manufactures of the products and brands around the world Carry out comparison of product features, quality, prices, etc. from a variety of sources Initiate requests for advertising and information from the manufacturers Design the market offerings

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Hire buying agents and invite market offers from multiple sellers; and Buy ancillary products and services from a specialized third party.

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L. Global e-marketing/e-commerce Models Conduct of marketing transactions, such as buying, selling, distributing, or delivering of goods or services using electronic methods, is termed as e-marketing/e-commerce It includes the use of electronic data and its applications for conceptualization, planning, pricing, distribution, and promotion of goods and services to create exchanges to satisfy customer needs Global e-marketing involves the marketing transactions through electronic methods across the world.

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Physical Market-place to Virtual Market-space The concept of e-marketing has transformed the marketing process from ‘physical market-place’ to ‘virtual market-space’ that has considerably changed the process of consumer purchasing decisions The basic changes in the consumer purchasing decision process are as follows: M1. Problem Recognition M2. Information Search M3. Evaluation of Alternatives M4. Purchase Decision M5. Post-purchase Behaviour

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M1. Problem Recognition It was conventional marketing communications that stimulated market demand via conventional media, i.e., advertisements in print media, radio, or television The communication strategy on the Internet should be user-specific rather than the mass communication approach used in traditional media Thus, the communication strategy has undergone a fundamental change The focus now is on following a customized communication approach for individual consumers.

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M2. Information Search In a traditional marketing system, customers gather information through either internal or external sources, including peer group discussions, company brochures, etc. The availability of market information varies widely between the firms and the customers However, in the virtual market-space, customers can scan information on the Internet and make comparisons to suit their individual requirements The intermediary function performed by the Internet sites is mainly related to providing information and exchange

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For instance, airlines, railways, tour operators, etc. provide online booking that bypasses traditional market intermediaries, such as travel agents Internet websites also provide links with other websites that help customers gather more information.

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M3. Evaluation of Alternatives In a traditional market-place, the evaluation of alternatives is greatly influenced by the peer groups, members of the family, friends, and publicity through word of mouth, whereas in a market-space, the virtual community has taken up the role of traditional reference groups Various discussion groups and consumer forums share with each other their experiences over the net.

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M4. Purchase Decision The decision to select a seller for a purchase is traditionally based on the previous experience of the buyer with the seller, its proximity, range of products offered, and the price charged However, in the electronic market-space, sellers often attract the buyers by way of creating interesting websites, competitive prices, and superior purchasing experience to induce the purchase decisions In Internet transactions, the payment is usually through credit cards but the delivery mechanism differs depending upon the product type

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It may be in the form of either online delivery or physical delivery Software, music, design, etc. may be delivered online whereas physical goods have to be delivered physically.

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M5. Post-purchase Behaviour In traditional markets, a firm should respond to customer complaints and enquiries through the marketing channels However, in an electronic market-space, the emphasis is on information and communication technologies, such as continuous updating of websites, and on satisfying customer needs A firm should endeavour to offer value to its customers through its websites by promptly responding to their queries and providing latest information to encourage new purchases.

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Reverse Marketing Earlier, the marketers used to initiate the marketing activities, but today the information and communication technology has completely changed the marketing system, enabling customers to initiate the marketing activities The phenomenon is termed as reverse marketing where the customers initiate the exchanges and gather the required information.

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The customers can now initiate and carry out the following activities: N1. Reverse Promotion N2. Reverse Advertising N3. Reverse Pricing N4. Reverse Segmentation

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N1. Reverse Promotion A Customer may search for product information and solicit promotion from the marketers or through the intermediaries These intermediaries relay customer requests to the marketers without divulging personal information and block unwanted offers.

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N2. Reverse Advertising Traditionally, the firms used to push the advertisements to the customers generally as a mass communication tool The introduction of information and communication technology has now enabled customers to request for more information from manufacturers and click on the advertisements they are interested in Thus, advertising has become customer-initiated as it can be pulled by the customers.

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N3. Reverse Pricing Buyers can place their offers for bidding and set the prices A number of e-marketing firms, such as indiatimes.com allow the customers to set their own prices Buyers can specify the price and model options.

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N4. Reverse Segmentation Traditionally, the marketing firms used customer purchase history to create customized offers However, under e-marketing, customers self- select and co-customize offers with marketers.

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Types of e-marketing/e-commerce Models The e-marketing activities can basically be categorized under four heads, as depicted in Figure 1 The electronic exchanges between the customers and the business firms with the government, such as government to business (G2B), government to consumer (G2C), and consumer to government (C2G) are discussed as follows: O1. Business to Business (B2B) e-marketing O2. Business to Consumer (B2C) e-marketing

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O3. Consumers to Business (C2B) e-marketing O4. Consumers to Consumers (C2C) e-marketing

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Figure 1, Types of e-marketing Models Business firm Business firm Customer Customer C2C B2B B2C C2B C2B B2C

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O1. Business to Business (B2B) e-marketing It involves intra-firm transactions using an electronic network B2B transactions are estimated to account for about 90% of total electronic business transactions Although the internet-based e-marketing networks are highly cost-effective, the transactions are less secure as these are open networks The B2B e-marketing adds to the efficiency of marketing transactions It facilitates greater access to information by the buyers about the sellers world-wide

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As the prices have become more transparent through the Internet, it has increased price pressures on un-differentiated commodities At the same time, it provides greater information on highly differentiated brands Launched in 1999, auctionindia.com claims to be India’s first business to business (B2B) auction site It provides superior customer value by using dynamic price-based solutions, i.e., ‘auctions’ to create an online market-space for industrial assets Besides, the auction sites also bring together buyers and sellers through a comprehensive listing and asset-matching facility.

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O2. Business to Consumers (B2C) e-marketing It includes electronic retailers generally operating on a global basis The Internet has greatly facilitated the proliferation of B2C e-marketing during the recent years Global e-retailers, such as amazon.com, Dell Computers, etc., have been highly popular in most parts of the world However, e-marketing transactions are less popular in product categories that need to be physically touched and examined by the buyers, such as clothes, furniture, etc

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The consumers buying online tend to be relatively younger, better educated, and generally affluent The B2C e-marketing leads to exchange processes initiated and controlled by the customers Until customers invite marketers to participate in their exchange processes, marketers will have to wait Moreover, the rules of marketing engagement are also determined by the end customers.

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O3. Consumers to Business (C2B) e-marketing It involves ‘reverse auction’ where the customers rather than the sellers initiate the market transactions It includes the tendering by the buyer inviting suppliers to put forward their bids.

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O4. Consumers to Consumers (C2C) e-marketing It involves horizontal interaction between consumers, who generally share their experiences of the product by way of chat rooms Communication among customers by e-mail is the most important channel Person-to-person trading offered by eBay in the web-based community is the world’s largest and the most popular virtual market-space It pioneered online person-to-person trading by developing a web-based community where the buyers and sellers transact personal items

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The site permits sellers to list items for sale and buyers to bid on the items of their interest All eBay users browse through listed items on an easy-to-use online service Items generally transacted under eBay or its Indian subsidy baazee.com include apparel and accessories, books and magazines, computers and peripherals, fitness and sports, jewellery and watches, music and instruments, stamps, coins, consumer electronics, mobiles and accessories, movies and videos, etc.

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Customer Relationship Marketing (CRM) In case of traditional marketing, the focus was on single sales transactions between a firm and its customer, also known as transaction marketing In case of customer relationship marketing, on the other hand, greater emphasis is laid on retaining existing customers than on acquiring new ones It is well known that it is much easier for a firm to retain its existing customers than acquiring new ones

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Such relationships were also an integral part of high cultural context of oriental markets However, with the advent of the Internet, the concept of relationship marketing has become highly popular in the Western markets Customer relationship marketing (CRM) is defined as the process of creating and maintaining business relationship by a firm with its customers In the oriental countries, marketing activity was traditionally carried out through exchange processes based on mutual trust and relationship between the buyers and sellers

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The typical process of CRM is as follows: Identify key customers in terms of long-term potential profits Analyze the expectations of the customers and the sellers Find out strategies to work more closely with the customers Identify the changes required in the operating procedures Customize the marketing mix Establish an institutional mechanism for regular interactions with the customers

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The information and communication technology facilitates customer relationship marketing (CRM) in the following manner: It facilitates mass customization of marketing messages and also the product It helps in initiating two-way dialogues with the customers, allowing the firm to customize its market offerings to meet the customers’ needs It makes it possible to receive online feedbacks It provides incentives to the customers to engage in dialogues.

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