Reading: Approaches to Global Competition
Global Marketing Strategies
Firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program—depending on how much centralized control a firm wishes to maintain over its marketing. If an organization wants to maintain strong centralized control and uniformity in its products and marketing activities, it is choosing a strategy called standardization. If an organization wants to adjust products, messaging, and marketing activities to fit the needs and preferences of local markets around the world, it is choosing a localization strategy. You’ll recall our earlier discussion of the unique flavours of Oreo cookies developed for the Chinese market: that’s an example of a localization strategy.
Global Standardization: The Argument for Standardized Marketing
To the extent that global consumers desire standardized products, companies can pursue a global standardization strategy. Using this approach, a product and the way in which it is marketed are largely uniform across the world, with little variation in the marketing mix from country to country. Advocates of standardization strategy argue that companies can achieve competitive advantage by offering the optimal combination of price, quality, and reliability with products that are identical in design and function throughout the world; they also claim that consumers will prefer this standardized product to a highly localized product that is also more expensive.
Standardization can translate into lower operating costs because there aren’t extra costs associated with developing and marketing unique products tailored to local market needs. It also expands the customer base receptive to a common global product. There is no need to adjust product features, naming, or other attributes for each new market, and marketing materials themselves can be repurposed across different world regions. Below are the primary benefits of a global standardization strategy:
- Marketers can use the same approach for developing, promoting, and delivering products and services worldwide, creating lower operating costs and economies of scale in product development and marketing
- The ability to develop and invest in a unified brand and/or company identity throughout the world, along with the opportunity to develop brand awareness and brand equity that gives a competitive advantage
- Product lines that consist of a small number of global brands rather than a plethora of localized product brands and extensions, along with cost savings and improved efficiencies associated with managing a smaller total number of brands
Companies that pursue this approach assume that consumer needs are relatively homogenous around the world and that the same basic marketing mix will work across global markets. These organizations typically have a centralized approach to the marketing function and try to minimize the need for developing localized marketing strategies.
The case for a standardization strategy was made by Harvard marketing professor Theodore Levitt in his 1983 article “The Globalization of Markets” but the concept can be found to discussed as early as 1968. He argued that technology and worldwide communications have helped trigger the emergence of global consumer markets that are receptive to single, standardized global products. According to Levitt, adopting a standardized global strategy provides a competitive advantage in cost and effectiveness. More recently, there are many business cases that offer illustrations of the failures of this strategy such as Best Buy and the successes such as Marvel.
Localization: The Argument for Localized Marketing
On the other end of the spectrum is localization strategy, in which firms adjust their products and marketing mix for each target market. Advocates of localization argue that, in reality, global standardization doesn’t work, and in fact, nearly all exported products require one or more adaptations to be successful. In work by Kotler, one study found that 80 percent of U.S. exports require one or more adaptations, and the average product requires at least four to five adaptations out of eleven different elements: labeling, packaging, materials, colours, name, product features, advertising themes, media, execution, price, and sales promotion.
Localization strategy recognizes that diversity exists in global markets and that marketers need to understand and respond to this diversity in the goods they offer and the way they market to consumers in these markets. Language, culture, customs, the physical environment, the degree of economic development, societal institutions, and other factors all contribute to how well a product fits a local market’s needs. Localization may involve: 1) altering existing products to fit the needs of the local target market, or 2) creating completely new products to fit the needs of the local target market.
Although localization does increase the cost and complexity associated with developing and marketing tailored products, its supporters argue that it results in products and marketing strategies that are a better fit for local market needs and ultimately a greater sales success.
Standardization is often responsible for marketing misfires like offensive marketing images, catastrophic naming, and product-design glitches. Its critics argue that standardization strategy overestimates how well any single, uniform product and marketing approach will succeed in markets all over the world.
The Middle Ground: Blending Standardization and Localization
In reality, global marketing is not an either/or proposition requiring either full standardization or completely localized control of product and marketing. In fact, a successful global approach can fall anywhere on a spectrum–from tight worldwide coordination on marketing program details to loose agreements on product ideas. Most organizations find that flexibility is essential in order to allow organizations to capitalize on global opportunities available to them. The right answer for each business depends on organizational structure, leadership, and operations; the product category; the markets in question; and other factors. Both strategies offer attractive benefits as well as costs and risks. Most organizations find ways to balance the options available to them with a focus on how to maximize success in their target markets.
Global Segmentation Strategies
Closely related to the issue of standardization vs. localization is the question of global segmentation strategy. How marketers segment and market to consumers in global markets is inextricably tied to whether products and marketing are uniform across multiple world regions or whether they are localized to individual countries, regions, or markets.
Global marketers use the same principles and processes outlined in the Segmentation and Targeting module to evaluate where there is greater potential and market opportunity for their products and services. They work to answer the same set of fundamental questions that domestic marketers do, using the broader world as their frame of reference:
- To whom should I be marketing?
- Why them?
- How can I reach them most effectively?
To develop a segmentation and targeting strategy, global marketers may use the common segmentation approaches employed by domestic marketers but with an eye on how these characteristics shape consumers within and beyond national boundaries and world regions. These characteristics include the following:
- Demographics: Gender, age distribution, ethnicity, income, socioeconomic status, family size
- Geography: Geographic location, world region, climate, urban/suburban/rural orientation
- Psychographics: Lifestyle, attitudes, social class
- Behavioural: Purchasing occasions, user status, brand loyalty, readiness to buy, and other behavioural patterns that drive consumer decisions
- Decision maker: Who makes buying decisions for which types of goods and services? Who influences these decisions?
Additionally, global marketers also consider the following factors in segmentation and targeting:
- Culture: The interplay between language, religion, education, values, identity, history, and traditions
- Economic status: Stage of economic development, wealthy vs. poor nations, employment, GDP
- Social environment: Conditions and operational stability for business, government, politics, the legal system, health care, education, and other societal support structures
A naive view of global marketing assumes that all consumers within a country or world region are homogenous and can be reached effectively through a uniform approach targeting the entire geographic area. While they have some things in common, they also have different characteristics, needs, and preferences that drive their purchasing decisions. It is important to recognize these differences and evaluate what they represent in terms of potential market segments and growth opportunities. With the global dissemination of information, is segmentation even possible? Tom Friedman, Nobel economist, argues the internet has flattened the world for marketers as information is shared instantaneously.
When considering global marketing opportunities, it’s also important for marketers to look for characteristics, interests, needs, and buying behaviours they can use to define segments that transcend national boundaries. For example, some marketing targets a “global youth” segment comprised of young people from around the world who are educated, technologically connected, follow global trends in music and culture, and seek opportunities for travel and cultural exchange.
Because global marketing and expansion carry inherent risk, global segmentation and targeting decisions should also reflect the following factors:
- Market size and growth potential: What is the customer base and revenue potential today? How might this change in the future?
- Competition: What competitors and alternatives exist in the market? How crowded is the competitive field? Who are the current players, what is their market position, and what would it take to displace them?
- Compatibility: Are the new market and target segments well aligned with the organization’s goals, plans, and strategies? How much of a stretch is it to capture this new market? Does the potential gain justify the added risk, cost, and complexity?