Chapter 8 Local Marketing in Mature Markets McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. Outline Basic Marketing in Mature Markets Pan-European Marketing Marketing in Japan Marketing in Australia and New Zealand Marketing in North-America Takeaways. Segmentation and Positioning (MSPP) MATURE MARKETS MARKET SEGMENTATION PRODUCT POSITIONING • Segmentation is vital, customers are extremely particular with well developed preferences • Brand image, name, are very important indicators of quality & reliability • Small differences in products & services make a big difference to the consumer • • Narrow niche segments continually increase “Country of origin” effect may have positive/negative implications on customer perceptions • Foreign entrants from third world countries may try to introduce low-end products to undercut other brands; such a strategy will only work in the short term • Foreign entrant must be skilled in finding the proper niche The 4Ps in Mature Markets PRODUCT PRICING • 3rd world countries tend to sell low-cost “me too” products; success depends on price sensitivity of the local market • Target positions may be high end or low end, with temporary deals & offers to steal share & attract consumers • Introducing a new product has little or no competition: first mover advantage • Fierce competition makes discounts and other pricing scheme necessary • Brand name always matters • Perceived status of the brand will always affect buyer behavior DISTRIBUTION PROMOTION • Well developed • Hardly any problems in terms of infrastructure • Channels are crowded & hard to get into (e.g. slotting fees) • Market share is the criterion of success • All types of promotion tools are used to break habitual choices of loyal consumers Customer Satisfaction (CS) MATURE MARKETS • Intense competition has produced a management focus on customer satisfaction • Focusing on satisfaction ensures a steady loyal customer base • Quality must be instilled in each level (product quality, functional performance, delivery, warranty, after sales service) in order to prevent post-purchase cognitive dissonance • “Real” satisfaction comes from emotional factors such as personal attention, courtesy, value-added services or features, exceeding expectations CS and two kinds of quality HIGH LEVEL OF SATISFACTION EMOTIONAL QUALITY FUNCTIONAL QUALITY LOW LEVEL OF QUALITY LOW HIGH Pan-European Marketing Pan-European Marketing MARKET BACKGROUND • • • • • • • 1992 European integration stimulated many companies to analyze the potential of pan-European marketing strategies. EU means a changed strategic environment. Tariff barriers and customs duties within EU scrapped. Common external tariff. 1989 fall of the Berlin Wall slowed down the momentum toward EU unity. The expansion to 25 members in 2004 resolved the issue of what Eastern European countries would do. The EU market is a challenge for previously primarily national European companies. The 25 EU Members in 2005 The six original: Benelux (Belgium, Netherlands, Luxembourg), France, Germany, Italy Nine added 1973-1995: Austria, Denmark, Finland, Greece, Ireland, Portugal, Spain, Sweden, United Kingdom Ten added 2004: Cyprus, Czech Republic, Estonia, Hungary, Malta, Latvia, Lithuania, Poland, Slovakia, Slovenia Market size: 450 million people. Pan-European Marketing: Consolidation Large European corporations start coordinating previously independent national subsidiaries. • • Costly national differences in product designs, brand names, and promotions eliminated. • • Non-European companies with high global brand name recognition well placed to take advantage of the integration. Threat from these foreign entrants has been met by the creation of larger & stronger firms Pan-European Marketing: Consolidation • EU integration has been a boon for global advertising agencies with experience of multicultural campaigns. • European agencies have initiated mergers and acquisitions. • A pan-European strategic response is not necessarily the correct approach for all companies in all industries (smaller firms can offer service to a special niche segment). Pan-European Marketing: MSPP MARKET SEGMENTATION • European-wide target segments. • Dalgic: Six basic plus four potential European segments. • Scale advantages in clusters (Mediterranean countries, Northern Europe, etc.). • Niche segments by ethnicity and traditional preferences. PRODUCT POSITIONING • Product positioning can be the same across countries, but different product lines or models target different customer segments. • Marketing mixes have moved toward uniformity. • Few products and brands can maintain different images in different countries of Europe. Pan-European Marketing: The 4Ps PRODUCT • • • • • Pan-European products and brands (Euro-branding). Use of leading markets for the core product. More "me-too" products because of competition. Packages in four languages (e.g. English, French, German, and Spanish. Gray trade problem with panEuropean products. PRICING • • • The euro forces coordinated prices. Pricing corridors for limited local flexibility. End of protective regulations which had generated high local prices. Pan-European Marketing: The 4Ps DISTRIBUTION • • • • Rationalization of the manufacturers' sales network. Retail and wholesale middlemen shift from country-based to large integrated EU networks. Integrated networks help facilitate the introduction of pan-European strategies among manufacturers. Growth of relationship marketing. PROMOTION • • • • Pan-European TV advertising. Satellites beaming across previously closed borders. Growth of commercially based broadcast media. In-store promotion: Still differing regulations among countries. Marketing in Japan Marketing in Japan: Background • Japan is the size of California but has over 120 million people. • In the 40 years up to the 1990s per capita incomes grew from poverty level to the highest in the world. • Japan's expansion was export-led, becoming a leading example for other Asian nations. • In 1990 the Japanese economy's speculative "bubble" in finance and real estate burst, and the economy has been slow throughout the decade and into the new millennium. Japanese firms are still doing well in overseas markets, helping to offset some of the pressure from a recessionary home market. • The Japan market has still great potential for foreign firms in a wide variety of products and services. Even though tariffs are down, nontariff barriers are high, making it very hard to succeed there. Marketing in Japan: MSPP MARKET SEGMENTATION • With deregulation and the economic slowdown, the Japanese are becoming more similar to Westerners. • While Japanese customers were always demanding in terms of quality, service, and up-to-date technology and design, they are now also open to discounted prices. "Bargain" is no longer a dirty word. • For each product category, there are now (1) upscale segments, (2) middle-of- the-roaders who buy the tried and true, and (3) those buying on price, looking for cheaper imports and private labels. Marketing in Japan: MSPP PRODUCT POSITIONING • Well-known global brand names fetched high price premiums, especially in the luxury product categories. • Choices between close competitors could be based on design, brand image, and other "intangible" positioning criteria. • More value-conscious, trading off features against prices. But there is no compromise on quality. Marketing in Japan: The 4Ps PRODUCT • • • Adapting products/services to Japanese customers' requirements is often necessary. More attention to detail Japanese companies are producing high-quality stripped down versions of their upscale products. Marketing in Japan: The 4Ps PRICING • • • Consumers more price-sensitive, firms respond with lower priced models Imports pose an increasing competitive threat to domestic companies Traditional retail outlets try to sustain premium brand prices while discount outlets have begun to sell brand name products at reduced prices. Wheel of Retailing in Japan: Price is Coming Back MOST IMPORTANT FACTOR PRICE QUALITY SERVICE TIME Marketing in Japan: The 4Ps DISTRIBUTION • • • • Complex and inefficient multi-tiered distribution systems (barrier to entry) Contact between manufacturers and small middlemen involve smaller packages, fewer units, and faster restocking of supplies. Wholesalers/manufacturers have power over most retailers SII (Structural Impediments Initiative, in the late 1980s) involved Western pressure on Japanese authorities to open up channels, which has now partly occurred, helped by price pressure from discounters. Marketing in Japan: The 4Ps PROMOTION • • • • Advertising unfocused and nonsensical. Ads are seen as a kind of art form instead of a sales tool, recently shifting to an American style unique selling proposition approach Japanese buyers spends more time in stores Store clerks are knowledgeable about their products. Lack of storage limits certain promotions Marketing in Australia and New Zealand Marketing in Australia and New Zealand MARKET BACKGROUND • Mature economies with a British heritage • Australia, a vast country, with 18 million inhabitants • Agriculture and raw materials, minerals in particular • New Zealand, with four million people, basically agrarian • Economic base in four industries: Forest products, dairy products, meat products, fruits Marketing in Australia and New Zealand FOREIGN TRADE AGREEMENTS • APEC (Asia-Pacific Economic Cooperation). • ARF (ASEAN Regional Forum) grouping. • ANZCERTA pact (Australia New Zealand Closer Economic Relations Trade Agreement). Marketing in Australia and New Zealand: MSPP MARKET SEGMENTATION Segmentation criteria involve cultural roots, urban versus rural, and demographics, including age. • • Young people ready for the new global markets, older generation nostalgic for British roots. PRODUCT POSITIONING • Still pro-home country bias in several product categories. • Abroad, companies use their country-of-origin in promotions to create a unique positioning. Marketing in Australia and New Zealand: The 4Ps PRODUCT • • Global products and services only slight adaptation to appeal to customers in these markets. PRICING • Although many global products and brands are available in the region, prices in the region tend to be higher than elsewhere. DISTRIBUTION • • Distribution is efficient Prime markets are clustered around the coast line and metropolitan areas where the distribution system is modern and up-to-date. PROMOTION • Global communications make it feasible to reach these markets with globally integrated promotional messages. Marketing in North-America Marketing in North-America MARKET BACKGROUND • • • • • • Canada & USA One of the most competitive markets in the world Players are many of the strongest multinationals Low trade barriers in many industries Diversity complicates marketing communications Many competitors means large marketing budgets FOREIGN TRADE AGREEMENTS NAFTA (North America Free Trade Agreement – includes Mexico) Marketing in North-America • 4 market idiosyncrasies: Ethnic diversity Religion, and the separation of state and church Decentralization - diffused economic activity Local marketing regulations vary (central vs. regional governments) TWO DIFFERENT MODELS OF ETHNIC DIVERSITY “Melting Pot” USA “Sticky” and multicultural CANADA Marketing in North-America: MSPP MARKET SEGMENTATION • Market segmentation is a "must“ because of the maturity and the diversity of the markets. • Hispanic sub-market • African-American sub-market • Subset of states and provinces (e.g. Coors beer, Walmart drug stores, and Kroger supermarkets) Marketing in North-America: MSPP PRODUCT POSITIONING • Basics: Individual consumers are assumed to make rational purchase decisions based on the trade-offs between various attributes or benefits. • Clear positioning communication, targeting specific segments. • Don't be "everything to everyone." Marketing in North-America: The 4Ps PRICING PRODUCT • Product proliferation. • Ethnic variety. • • Price-to-quality ratios are important • No resale price maintenance • Strong intra-brand competition • Large price differentials between stores • Prices are important Convenience and speed. Marketing in North-America: The 4Ps DISTRIBUTION • Large-scale stores • Nation-wide chains • Efficient transportation • PROMOTION • Advertising-to-sales ratios are high, clutter is a real problem, wide media choices • U.S.: Communicate the positioning in concrete terms. • Canada: Cultural sensitivity, soft sell. Channels are powerful visà-vis manufacturers. Marketing in North-America: Price Wars INTRA-BRAND COMPETITION Same brand, different stores P P P Brand 1 Brand 1 Store A (regular price location) Q Brand 1 Store B (high price location) Q Store C (low price location) Q Marketing in North-America: Price Wars INTRA-BRAND COMPETITION Same brand, different stores P Brand 1’s Demand Curve Store B Store A Store C Q Marketing in North-America INTERBRAND COMPETITION Different brands, same store P Brand 1 Brand 2 Product Category Demand Curve (Store A) Brand 3 Q Takeaway In mature markets, the adage “the customer is King” is most apt. It is also in mature markets that the marketer must apply the most advanced marketing tools and techniques. Takeaway Not all mature markets are the same from a marketing perspective, regardless of how similar they seem on the surface. Different geographical regions tend to foster unique types of markets, for climate, cultural, political and other reasons. Takeaway In mature markets, managers must be more understanding of, and more forgiving of local marketers who say “our market is not the same” when global strategies are imposed. Takeaway Trading blocs become important determinants of regional market segments, encouraging the development of panregional products and programs. A good example of this is the emergence of pan-European companies and marketing strategies. Takeaway The development of new trade blocs do not only benefit domestic companies but can be a boon also for multinationals based in other countries. The key is to establish operations within the trade bloc, and operate as an insider.