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Global Marketing Management Global Product Decisions

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1. Global Marketing Management Global Product Decisions MKGT 3215-001 Fall 2010 Mrs. Tamara L. Cohen

2. Homework Assignments # 9 DUE Nov. 4 Visit Kuehne & Nagel web site # 10 DUE Nov. 9 Unconventional Communications DUE Nov.4 Visit Kuehne & Nagel web site: www.kn-portal.com Send me an e-mail telling me one thing you learned from the site. No attachments please. DUE Nov.9 Unconventional Communications Global media planners must think ?outside the box?. Find out about an unusual media usage in the global marketplace. Write one paragraph. DUE Nov.4 Visit Kuehne & Nagel web site: www.kn-portal.com Send me an e-mail telling me one thing you learned from the site. No attachments please. DUE Nov.9 Unconventional Communications Global media planners must think ?outside the box?. Find out about an unusual media usage in the global marketplace. Write one paragraph.

3. Global Product Decisions Preparation for this class: Read Cateora & Graham ch. 12 pp 339-340; 349-351; 356-359 ch. 13 pp 381-387 For those students who have different editions of the text book, these details regarding content should be useful: Ch.12: pp 339-340 Physical or Mandatory Requirements and Adaptation; Green Marketing and Product Development pp 349-351 Packaging Component pp 356-359 Barriers to Entering Global Markets for Consumer Services; Brands in International Markets; Top Twenty Brands (Exhibit 12.2) Ch.13: pp 381-387 Business Services; After-Sale Services; Other Business Services; Trade ShowsFor those students who have different editions of the text book, these details regarding content should be useful: Ch.12: pp 339-340 Physical or Mandatory Requirements and Adaptation; Green Marketing and Product Development pp 349-351 Packaging Component pp 356-359 Barriers to Entering Global Markets for Consumer Services; Brands in International Markets; Top Twenty Brands (Exhibit 12.2) Ch.13: pp 381-387 Business Services; After-Sale Services; Other Business Services; Trade Shows

4. Product suitable for market ? Quality - importance & definition ? Country-of-origin effects on product image ? Physical, mandatory, and cultural requirements for product adaptation ? Overcome resistance to acceptance ? B 2 C : Business Consumers

5. Is the product SUITABLE for the market? Product = sum of physical + psychological satisfactions provided to user primary function psychological attributes Cultural adaptation often necessary; affected by how product conforms norms values behavior patterns To appreciate the complexity of standardized versus adapted products, one needs to understand how cultural influences are interwoven with the perceived value and importance a market places on a product. A product is more than a physical item: It is a bundle of satisfactions (or utilities) that the buyer receives. These include its form, taste, color, odor, and texture; how it functions in use; the package; the label; the warranty; the manufacturer?s and retailer?s servicing; the confidence or prestige enjoyed by the brand; the manufacturer?s reputation; the country of origin; and any other symbolic utility received from the possession or use of the goods. The meaning and value imputed to the psychological attributes of a product can vary among cultures and are perceived as negative or positive. Adaptation may require changes of any one or all of the psychological aspects of a product. A close study of the meaning of a product shows the extent to which the culture determines an individual?s perception of what a product is and what satisfaction that product provides. The adoption of some products by consumers can be affected as much by how the product concept conforms with norms, values, and behavior patterns as by its physical or mechanical attributes. To appreciate the complexity of standardized versus adapted products, one needs to understand how cultural influences are interwoven with the perceived value and importance a market places on a product. A product is more than a physical item: It is a bundle of satisfactions (or utilities) that the buyer receives. These include its form, taste, color, odor, and texture; how it functions in use; the package; the label; the warranty; the manufacturer?s and retailer?s servicing; the confidence or prestige enjoyed by the brand; the manufacturer?s reputation; the country of origin; and any other symbolic utility received from the possession or use of the goods. The meaning and value imputed to the psychological attributes of a product can vary among cultures and are perceived as negative or positive. Adaptation may require changes of any one or all of the psychological aspects of a product. A close study of the meaning of a product shows the extent to which the culture determines an individual?s perception of what a product is and what satisfaction that product provides. The adoption of some products by consumers can be affected as much by how the product concept conforms with norms, values, and behavior patterns as by its physical or mechanical attributes.

6. Primary function moving passengers from A to B + how it functions in use = product satisfaction A product?s physical attributes generally are required to create its primary function. The primary function of a car, for example, is to move passengers from point A to point B. This ability requires a motor, transmission, and other physical features to achieve its primary purpose.A product?s physical attributes generally are required to create its primary function. The primary function of a car, for example, is to move passengers from point A to point B. This ability requires a motor, transmission, and other physical features to achieve its primary purpose.

7. Quality shift to a customer?s market increased customer knowledge customer defines quality cost + quality of product among most important criteria to make purchases QUALITY defined on 2 dimensions: Market-perceived quality Performance quality most consumers expect performance quality In many industries quality measured by 3rd parties e.g. JD Power and Associates but in restaurant, don?t ask server for her/his favorite dish! Quality stds vary with country?s industrialization The power in the marketplace is shifting from a sellers? to a customers? market, and the latter have more choices because more companies are competing for their attention. More competition, more choices, puts more power in the hands of the customer, and that, of course, drives the need for quality. Gone are the days when the customer?s knowledge was limited to one or at best just a few different products. Today the customer knows what is best, cheapest, and highest quality. Quality can be defined on two dimensions: market-perceived quality and performance quality. Both are important concepts, but consumer perception of a quality product often has more to do with market-perceived quality than performance quality. But because the consumer expects performance quality to be a given, quality to the consumer is more than compliance (a safe flight and landing). Rather, cost, timely service, frequency of flights, comfortable seating, and performance of airline personnel from check-in to baggage claim are all part of the customer?s experience that is perceived as being of good or poor quality. Quality is also measured in many industries by objective third parties. In the United States, JD Power and Associates has expanded its auto quality ratings based on consumer surveys to other areas, such as computers. Fundamental notion that customers are the best judges of quality is certainly applicable to international business-to-business marketing settings as well.The power in the marketplace is shifting from a sellers? to a customers? market, and the latter have more choices because more companies are competing for their attention. More competition, more choices, puts more power in the hands of the customer, and that, of course, drives the need for quality. Gone are the days when the customer?s knowledge was limited to one or at best just a few different products. Today the customer knows what is best, cheapest, and highest quality. Quality can be defined on two dimensions: market-perceived quality and performance quality. Both are important concepts, but consumer perception of a quality product often has more to do with market-perceived quality than performance quality. But because the consumer expects performance quality to be a given, quality to the consumer is more than compliance (a safe flight and landing). Rather, cost, timely service, frequency of flights, comfortable seating, and performance of airline personnel from check-in to baggage claim are all part of the customer?s experience that is perceived as being of good or poor quality. Quality is also measured in many industries by objective third parties. In the United States, JD Power and Associates has expanded its auto quality ratings based on consumer surveys to other areas, such as computers. Fundamental notion that customers are the best judges of quality is certainly applicable to international business-to-business marketing settings as well.

8. Maintaining QUALITY damage in distribution chain e.g. Russian chocolate QUALITY essential for success in today?s competitive global market decision to standardize or adapt product is crucial in delivering quality manage expectations Maintaining performance quality is critical, but frequently a product that leaves the factory at performance quality is damaged as it passes through the distribution chain. This is a special problem for many global brands for which production is distant from the market and/or control of the product is lost because of the distribution system within the market. When the Russian market opened to outside trade, foreign companies eager to get into the chocolate market dumped surplus out-of-date and poor-quality products. In other cases, chocolates were smuggled in and sold on street corners and were often mishandled in the process. By the time they made it to consumers, the chocolates were likely to be misshapen or discolored?poor quality compared with Russia?s Red October chocolate. Market-perceived quality was also an issue. Russian chocolate has a different taste because of its formulation?more cocoa and chocolate liqueur are used than in Western brands, which makes it grittier. Thus the Red October brand appeals more to Russian taste even though it is generally priced above Western brands. As evidenced by this example, quality is not just desirable, it is essential for success in today?s competitive global market, and the decision to standardize or adapt a product is crucial in delivering quality. Maintaining performance quality is critical, but frequently a product that leaves the factory at performance quality is damaged as it passes through the distribution chain. This is a special problem for many global brands for which production is distant from the market and/or control of the product is lost because of the distribution system within the market. When the Russian market opened to outside trade, foreign companies eager to get into the chocolate market dumped surplus out-of-date and poor-quality products. In other cases, chocolates were smuggled in and sold on street corners and were often mishandled in the process. By the time they made it to consumers, the chocolates were likely to be misshapen or discolored?poor quality compared with Russia?s Red October chocolate. Market-perceived quality was also an issue. Russian chocolate has a different taste because of its formulation?more cocoa and chocolate liqueur are used than in Western brands, which makes it grittier. Thus the Red October brand appeals more to Russian taste even though it is generally priced above Western brands. As evidenced by this example, quality is not just desirable, it is essential for success in today?s competitive global market, and the decision to standardize or adapt a product is crucial in delivering quality.

9. Quality is Defined by the Buyer lack of universal standards country-specific standards metric system ISO 9000 Certification = International Standard of Quality ISO 9001 certification of a fish wholesaler in Tsukiji More and more often industrial customers, including foreign customers, are directly involved in all aspects of the product development process, from generating new ideas to prototype testing. Lack of universal standards is another problem in international sales of industrial products. The United States has 2 major areas of concern in this regard for the industrial goods exporter: a lack of common standards for manufacturing highly specialized equipment such as machine tools and computers; and the use of the inch-pound, or English (imperial) system of measurement. In the United States, conversion to the metric system and acceptance of international standards have been slow. Congress and industry have dragged their feet for fear conversion would be too costly. But the cost will come from not adopting the metric system; the General Electric Company had a shipment of electrical goods turned back from a Saudi port because its connecting cords were six feet long instead of the required standard of two meters. A strong level of interest in ISO 9000 is being driven more by marketplace requirements than by government regulations, and ISO 9000 is now an important competitive marketing tool in Europe and around the world. ISO 9000 is a family of standards for quality management systems. ISO 9000 is maintained by ISO, the International Standardization Organization. It is administered by accreditation and certification bodies. The rules are updated, as the requirements motivate changes over time. Requirements include: a set of procedures that cover all key processes in the business; monitoring processes to ensure they are effective; keeping adequate records; checking output for defects, with appropriate and corrective action where necessary; regularly reviewing individual processes and the quality system itself for effectiveness; and facilitating continual improvement. A company or organization that has been independently audited and certified to be in conformance with ISO 9000 may publicly state that it is "ISO 9001 certified" or "ISO 9001 registered". Certification to an ISO 9001 standard does not guarantee any quality of end products and services; rather, it certifies that formalized business processes are being applied. Quality is a "culture" - ISO 9000 "Quality" is an important and valuable accreditation to achieve. ISO 9000 is a family of standards that describe a Quality Management System. ISO 9001 is the document that contains the requirements. More and more often industrial customers, including foreign customers, are directly involved in all aspects of the product development process, from generating new ideas to prototype testing. Lack of universal standards is another problem in international sales of industrial products. The United States has 2 major areas of concern in this regard for the industrial goods exporter: a lack of common standards for manufacturing highly specialized equipment such as machine tools and computers; and the use of the inch-pound, or English (imperial) system of measurement. In the United States, conversion to the metric system and acceptance of international standards have been slow. Congress and industry have dragged their feet for fear conversion would be too costly. But the cost will come from not adopting the metric system; the General Electric Company had a shipment of electrical goods turned back from a Saudi port because its connecting cords were six feet long instead of the required standard of two meters. A strong level of interest in ISO 9000 is being driven more by marketplace requirements than by government regulations, and ISO 9000 is now an important competitive marketing tool in Europe and around the world. ISO 9000 is a family of standards for quality management systems. ISO 9000 is maintained by ISO, the International Standardization Organization. It is administered by accreditation and certification bodies. The rules are updated, as the requirements motivate changes over time. Requirements include: a set of procedures that cover all key processes in the business; monitoring processes to ensure they are effective; keeping adequate records; checking output for defects, with appropriate and corrective action where necessary; regularly reviewing individual processes and the quality system itself for effectiveness; and facilitating continual improvement. A company or organization that has been independently audited and certified to be in conformance with ISO 9000 may publicly state that it is "ISO 9001 certified" or "ISO 9001 registered". Certification to an ISO 9001 standard does not guarantee any quality of end products and services; rather, it certifies that formalized business processes are being applied. Quality is a "culture" - ISO 9000 "Quality" is an important and valuable accreditation to achieve. ISO 9000 is a family of standards that describe a Quality Management System. ISO 9001 is the document that contains the requirements.

10. Country-of-Origin effect influences country of manufacture, assembly, or design has on consumer?s perception of product broad but vague stereotypes about specific countries and specific product categories they judge ?best? ethnocentrism Country-of-Origin Effects Brands are used as external cues to taste, design, performance, quality, value, prestige, and so forth. In other words, the consumer associates the value of the product with the brand. The brand can convey either a positive or a negative message about the product to the consumer and is affected by past advertising and promotion, product reputation, and product evaluation and experience. Country-of-origin effect (COE) can be defined as any influence that the country of manufacture, assembly, or design has on a consumer?s positive or negative perception of a product. A company competing in global markets today manufactures products worldwide; when the customer becomes aware of the country of origin, there is the possibility that the place of manufacture will affect product or brand image. Consumers have broad but somewhat vague stereotypes about specific countries and specific product categories that they judge ?best?: English tea, French perfume, Chinese silk, Italian leather, Japanese electronics, Jamaican rum, and so on. Stereotyping of this nature is typically product specific and may not extend to other categories of products from these countries. Ethnocentrism can also have country-of-origin effects; feelings of national pride?the ?buy local? effect, for example?can influence attitudes toward foreign products. Brands are used as external cues to taste, design, performance, quality, value, prestige, and so forth. In other words, the consumer associates the value of the product with the brand. The brand can convey either a positive or a negative message about the product to the consumer and is affected by past advertising and promotion, product reputation, and product evaluation and experience. Country-of-origin effect (COE) can be defined as any influence that the country of manufacture, assembly, or design has on a consumer?s positive or negative perception of a product. A company competing in global markets today manufactures products worldwide; when the customer becomes aware of the country of origin, there is the possibility that the place of manufacture will affect product or brand image. Consumers have broad but somewhat vague stereotypes about specific countries and specific product categories that they judge ?best?: English tea, French perfume, Chinese silk, Italian leather, Japanese electronics, Jamaican rum, and so on. Stereotyping of this nature is typically product specific and may not extend to other categories of products from these countries. Ethnocentrism can also have country-of-origin effects; feelings of national pride?the ?buy local? effect, for example?can influence attitudes toward foreign products.

11. Countries stereotyped - on basis of whether industrialized / in process of industrializing / in process of developing Technical products perception of manufacturing in LDCs or NICs less positive Fads often surround products from particular countries or regions more Country-of-Origin Effects Countries are also stereotyped on the basis of whether they are industrialized, in the process of industrializing, or developing. These stereotypes are less product specific; they are more a perception of the quality of goods and services in general produced within the country. Industrialized countries have the highest quality image, and products from developing countries generally encounter bias. One might generalize that the more technical the product, the less positive is the perception of one manufactured in a less-developed or newly industrializing country. There is also the tendency to favor foreign-made products over domestic-made in less-developed countries. One final generalization about COE involves fads that often surround products from particular countries or regions in the world. These fads are most often product specific and generally involve goods that are themselves faddish in nature. European consumers? affection for American products is quite fickle. There are exceptions to the generalizations presented here, but it is important to recognize that country of origin can affect a product or brand?s image significantly. Further, not every consumer is sensitive to a product?s country of origin. Countries are also stereotyped on the basis of whether they are industrialized, in the process of industrializing, or developing. These stereotypes are less product specific; they are more a perception of the quality of goods and services in general produced within the country. Industrialized countries have the highest quality image, and products from developing countries generally encounter bias. One might generalize that the more technical the product, the less positive is the perception of one manufactured in a less-developed or newly industrializing country. There is also the tendency to favor foreign-made products over domestic-made in less-developed countries. One final generalization about COE involves fads that often surround products from particular countries or regions in the world. These fads are most often product specific and generally involve goods that are themselves faddish in nature. European consumers? affection for American products is quite fickle. There are exceptions to the generalizations presented here, but it is important to recognize that country of origin can affect a product or brand?s image significantly. Further, not every consumer is sensitive to a product?s country of origin.

12. Physical or Mandatory Requirements and Adaptation Product homologation (changes mandated by local standards) Product adaptation requirements legal e.g. package size/weight economic e.g. units per package political e.g. censorship issues technological e.g. data products; different electrical current climate e.g. perishables A product may have to change in a number of ways to meet the physical or mandatory requirements of a new market, ranging from simple package changes to total redesign of the physical core product. In many countries the term product homologation is used to describe the changes mandated by local product and service standards. A recent study reaffirmed the often-reported finding that mandatory adaptations were more frequently the reason for product adaptation than adapting for cultural reasons. Legal, economic, political, technological, and climatic requirements of the local marketplace often dictate product adaptation. Laws that vary among countries usually set specific package sizes and safety and quality standards. To make a purchase more affordable in low-income countries, the number of units per package may have to be reduced from the typical quantities offered in high-income countries. Razor blades, cigarettes, chewing gum, and other multiple-pack items are often sold singly or two to a pack instead of the more customary 10 or 20. Changes may also have to be made to accommodate climatic differences. A product may have to change in a number of ways to meet the physical or mandatory requirements of a new market, ranging from simple package changes to total redesign of the physical core product. In many countries the term product homologation is used to describe the changes mandated by local product and service standards. A recent study reaffirmed the often-reported finding that mandatory adaptations were more frequently the reason for product adaptation than adapting for cultural reasons. Legal, economic, political, technological, and climatic requirements of the local marketplace often dictate product adaptation. Laws that vary among countries usually set specific package sizes and safety and quality standards. To make a purchase more affordable in low-income countries, the number of units per package may have to be reduced from the typical quantities offered in high-income countries. Razor blades, cigarettes, chewing gum, and other multiple-pack items are often sold singly or two to a pack instead of the more customary 10 or 20. Changes may also have to be made to accommodate climatic differences.

13. Product Component Model To identify all the possible ways a product may be adapted to a new market, it helps to separate its many dimensions into 3 distinct components as illustrated above in Exhibit 12.1 (Cateora, Gilly & Graham). e.g. Miehle machines Household cleaners with popular American smells (hints of amonia and chlorine) ? not successful in Japan and Europe Low literacy context Trademark & Brand name - take care that translation doesn?t butcher meaning; also consider symbols vis-?-vis local interpretation e.g. Ford Pinto car model in Brazil (Pinto means small male genitals) Labels & packaging - different/multiple languages may be required; country of origin labeling e.g. P& G diapers in China ? pink code for girls ? in country where 1 child allowed and girls preferred, don?t want to advertise you have a girl Metric system Use of specific words e.g. NEW, GIANT, JUMBO Soft drinks in smaller cans in Japan because Japanese hands smaller than USA To identify all the possible ways a product may be adapted to a new market, it helps to separate its many dimensions into 3 distinct components as illustrated above in Exhibit 12.1 (Cateora, Gilly & Graham). e.g. Miehle machines Household cleaners with popular American smells (hints of amonia and chlorine) ? not successful in Japan and Europe Low literacy context Trademark & Brand name - take care that translation doesn?t butcher meaning; also consider symbols vis-?-vis local interpretation e.g. Ford Pinto car model in Brazil (Pinto means small male genitals) Labels & packaging - different/multiple languages may be required; country of origin labeling e.g. P& G diapers in China ? pink code for girls ? in country where 1 child allowed and girls preferred, don?t want to advertise you have a girl Metric system Use of specific words e.g. NEW, GIANT, JUMBO Soft drinks in smaller cans in Japan because Japanese hands smaller than USA

14. cans cans cans smaller cans in Japan clear cans in France ?standard? can in USA thick can in South Africa

15. Innovative Products and Adaptation Determining degree of newness as perceived by intended market (= innovation or not) Diffusion (= process by which innovation spreads) Established patterns of consumption and behavior Foreign marketing goal gaining largest number of consumers in market in shortest span of time probable rate of acceptance 1. An important first step in adapting a product to a foreign market is to determine the degree of newness as perceived by the intended market. How people react to newness and how new a product is to a market must be understood. From a sociological viewpoint, any idea perceived as new by a group of people is an innovation. Whether or not a group accepts an innovation, and the time it takes to do so, depends on the product?s characteristics. e.g. cell phone ? N. Korea soccer team 2. Products new to a social system are innovations, and knowledge about the diffusion (i.e., the process by which innovation spreads) of innovation is helpful in developing a successful product strategy. 3. Critical factor in the newness of a product is its effect on established patterns of consumption and behavior. 4. Goal of a foreign marketer is to gain product acceptance by the largest number of consumers in the market in the shortest span of time. The question comes to mind of whether the probable rate of acceptance can be predicted before committing resources and, more critically, if the probable rate of acceptance is too slow, whether it can be accelerated, and how to accelerate. 1. An important first step in adapting a product to a foreign market is to determine the degree of newness as perceived by the intended market. How people react to newness and how new a product is to a market must be understood. From a sociological viewpoint, any idea perceived as new by a group of people is an innovation. Whether or not a group accepts an innovation, and the time it takes to do so, depends on the product?s characteristics. e.g. cell phone ? N. Korea soccer team 2. Products new to a social system are innovations, and knowledge about the diffusion (i.e., the process by which innovation spreads) of innovation is helpful in developing a successful product strategy. 3. Critical factor in the newness of a product is its effect on established patterns of consumption and behavior. 4. Goal of a foreign marketer is to gain product acceptance by the largest number of consumers in the market in the shortest span of time. The question comes to mind of whether the probable rate of acceptance can be predicted before committing resources and, more critically, if the probable rate of acceptance is too slow, whether it can be accelerated, and how to accelerate.

16. Famous urinals at Amsterdam?s Schiphol Airport: ?Spillage? on floor fell by 80% Here is one of the most famous urinals in the world, those at Amsterdam's Schiphol Airport. "When Humans Need a Nudge Toward Rationality" by Jeff Sommer, in the 7 Feb 2009 issue, "THE flies in the men's-room urinals of the Amsterdam airport have been enshrined in the academic literature on economics and psychology. The flies ? images of flies, actually ? were etched in the porcelain near the urinal drains in an experiment in human behavior. After the flies were added, 'spillage' on the men's-room floor fell by 80 percent. 'Men evidently like to aim at targets,' said Richard Thaler of the University of Chicago, an irreverent pioneer in the increasingly influential field of behavioral economics. Mr. Thaler says the flies are his favorite example of a 'nudge' ? a harmless bit of engineering that manages to 'attract people's attention and alter their behavior in a positive way, without actually requiring anyone to do anything at all.'" Also: Swiss toilets (no paper) Japanese toilets: Matsushita model reads body weight, temperature, blood pressure; coming soon - glucose & protein levelHere is one of the most famous urinals in the world, those at Amsterdam's Schiphol Airport. "When Humans Need a Nudge Toward Rationality" by Jeff Sommer, in the 7 Feb 2009 issue, "THE flies in the men's-room urinals of the Amsterdam airport have been enshrined in the academic literature on economics and psychology. The flies ? images of flies, actually ? were etched in the porcelain near the urinal drains in an experiment in human behavior. After the flies were added, 'spillage' on the men's-room floor fell by 80 percent. 'Men evidently like to aim at targets,' said Richard Thaler of the University of Chicago, an irreverent pioneer in the increasingly influential field of behavioral economics. Mr. Thaler says the flies are his favorite example of a 'nudge' ? a harmless bit of engineering that manages to 'attract people's attention and alter their behavior in a positive way, without actually requiring anyone to do anything at all.'" Also: Swiss toilets (no paper) Japanese toilets: Matsushita model reads body weight, temperature, blood pressure; coming soon - glucose & protein level

17. 5 Characteristics of an Innovation Relative advantage ? perceived marginal value of new product relative to old Compatibility ? with acceptable behavior, norms, values Complexity ? re product use ? negative relationship Trialability ? economic & social risk associated with product use Observability ? ease of communicating product benefits h ?open your mind to the car that challenges the status quo? h 33 mpg h easy to park h safe image of Mercedes In general, the rate of diffusion is related to relative advantage, compatibility, trialability, and observability, but negatively related to complexity. By analyzing a product within these five dimensions, a marketer can often uncover perceptions held by the market that, if left unchanged, would slow product acceptance. Conversely, if these perceptions are identified and changed, the marketer may be able to accelerate product acceptance. SMART CARIn general, the rate of diffusion is related to relative advantage, compatibility, trialability, and observability, but negatively related to complexity. By analyzing a product within these five dimensions, a marketer can often uncover perceptions held by the market that, if left unchanged, would slow product acceptance. Conversely, if these perceptions are identified and changed, the marketer may be able to accelerate product acceptance. SMART CAR

18. Green Marketing & Product Development Green marketing = environmental conse- quences of various marketing activities Critical issues affecting product development control of packaging component of solid waste consumer demand for environmentally friendly products European Commission guidelines for ecolabeling Laws to control solid waste A quality issue of growing importance the world over, especially in Europe and the United States, is green marketing. Europe has been at the forefront of the ?green movement,? with strong public opinion and specific legislation favoring environmentally friendly marketing and products. Green marketing is a term used to identify concern with the environmental consequences of a variety of marketing activities. Two critical issues that affect product development are the control of the packaging component of solid waste and consumer demand for environmentally friendly products. The European Commission issued guidelines for ecolabeling that became operational in 1992. Under the directive, a product is evaluated on all significant environmental effects throughout its life cycle, from manufacturing to disposal?a cradle-to-grave approach. Laws that mandate systems to control solid waste, while voluntary in one sense, do carry penalties. The EU law requires that packaging material through all levels of distribution, from the manufacturer to the consumer, be recycled or reused. Currently, between 50 - 65 % of the weight of the packaging must be recovered, and between 25 - 45 % of the weight of the totality of packaging materials contained in packaging waste will be recycled. A quality issue of growing importance the world over, especially in Europe and the United States, is green marketing. Europe has been at the forefront of the ?green movement,? with strong public opinion and specific legislation favoring environmentally friendly marketing and products. Green marketing is a term used to identify concern with the environmental consequences of a variety of marketing activities. Two critical issues that affect product development are the control of the packaging component of solid waste and consumer demand for environmentally friendly products. The European Commission issued guidelines for ecolabeling that became operational in 1992. Under the directive, a product is evaluated on all significant environmental effects throughout its life cycle, from manufacturing to disposal?a cradle-to-grave approach. Laws that mandate systems to control solid waste, while voluntary in one sense, do carry penalties. The EU law requires that packaging material through all levels of distribution, from the manufacturer to the consumer, be recycled or reused. Currently, between 50 - 65 % of the weight of the packaging must be recovered, and between 25 - 45 % of the weight of the totality of packaging materials contained in packaging waste will be recycled.

19. GLOBAL B R A N D S = worldwide use of a name, term, sign, symbol, design, or combination identify goods / services of seller differentiate from competitors worldwide image importance is unquestionable most valuable company resource internet facilitates Hand in hand with global products and services are global brands. A global brand is defined as the worldwide use of a name, term, sign, symbol (visual and/or auditory), design, or combination thereof intended to identify goods or services of one seller and to differentiate them from those of competitors. Much like the experience with global products, the question of whether or not to establish global brands has no single answer. However, the importance of a brand name, even in the nonprofit sector, is unquestionable. A successful brand is the most valuable resource a company has. The brand name encompasses the years of advertising, good will, quality evaluation, product experience, and other beneficial attributes the market associates with the product. Brand image is at the very core of business identity and strategy. Research shows that the importance and impact of brands also vary with cultural values around the world. Hand in hand with global products and services are global brands. A global brand is defined as the worldwide use of a name, term, sign, symbol (visual and/or auditory), design, or combination thereof intended to identify goods or services of one seller and to differentiate them from those of competitors. Much like the experience with global products, the question of whether or not to establish global brands has no single answer. However, the importance of a brand name, even in the nonprofit sector, is unquestionable. A successful brand is the most valuable resource a company has. The brand name encompasses the years of advertising, good will, quality evaluation, product experience, and other beneficial attributes the market associates with the product. Brand image is at the very core of business identity and strategy. Research shows that the importance and impact of brands also vary with cultural values around the world.

20. Top 10 Global Brands in terms of worldwide $ value Exhibit 12.2 (Cateora, Gilly & Graham) lists the estimated worth (equity) of the 20 top global brands. Protecting brand names is also a big business. Global brands play an important role in that process. The value of Sony, Coca-Cola, McDonald?s, Toyota, and Marlboro is indisputable. One estimate of the value of Coca-Cola, the world?s most valuable brand, places it at over $65 billion. In fact, one authority speculates that brands are so valuable that companies will soon include a ?statement of value? addendum to their balance sheets to include intangibles such as the value of their brands. Exhibit 12.2 (Cateora, Gilly & Graham) lists the estimated worth (equity) of the 20 top global brands. Protecting brand names is also a big business. Global brands play an important role in that process. The value of Sony, Coca-Cola, McDonald?s, Toyota, and Marlboro is indisputable. One estimate of the value of Coca-Cola, the world?s most valuable brand, places it at over $65 billion. In fact, one authority speculates that brands are so valuable that companies will soon include a ?statement of value? addendum to their balance sheets to include intangibles such as the value of their brands.

21. Global Brands # 11 - 20 in terms of worldwide $ value Cateora, Gilly & GrahamCateora, Gilly & Graham

22. National Brands acquiring national brand names using global brand names nationalistic pride impact on brands use global brands where possible and national brands where necessary A different strategy is followed by the Nestl? Company, which has a stable of global and country-specific national brands in its product line. The Nestl? name itself is promoted globally, but its global brand expansion strategy is two-pronged. In some markets it acquires well established national brands when it can and builds on their strengths?there are 7,000 local brands in its family of brands. In other markets where there are no strong brands it can acquire, it uses global brand names. The company is described as preferring brands to be local, people to be regional, and technology to be global. It does, however, own some of the world?s largest global brands; Nescaf? is one. Multinationals must also consider rises in nationalistic pride that occur in some countries and their impact on brands. Finally, there is growing evidence that national brands? acceptance varies substantially across regions in countries, suggesting that even finer market segmentation of branding strategies may be efficient A different strategy is followed by the Nestl? Company, which has a stable of global and country-specific national brands in its product line. The Nestl? name itself is promoted globally, but its global brand expansion strategy is two-pronged. In some markets it acquires well established national brands when it can and builds on their strengths?there are 7,000 local brands in its family of brands. In other markets where there are no strong brands it can acquire, it uses global brand names. The company is described as preferring brands to be local, people to be regional, and technology to be global. It does, however, own some of the world?s largest global brands; Nescaf? is one. Multinationals must also consider rises in nationalistic pride that occur in some countries and their impact on brands. Finally, there is growing evidence that national brands? acceptance varies substantially across regions in countries, suggesting that even finer market segmentation of branding strategies may be efficient

23. Private Brands Growing as challengers to manufacturers? brands Private labels provide retailer with high margins receive preferential shelf space & in-store promotion quality products at low prices Manufacturers? brands must be competitively priced & provide real consumer value Private brands owned by retailers are growing as challengers to manufacturers? brands, whether global or country specific. Store brands are particularly important in Europe compared to the US. Private labels are formidable competitors. This is particularly so during economic difficulties in the target markets. Buyers prefer to buy less expensive, ?more local? private brands during recessions. Private brands provide the retailer with high margins; they receive preferential shelf space and strong in-store promotion; and, perhaps most important for consumer appeal, they are quality products at low prices. Contrast this with manufacturers? brands, which traditionally are premium priced and offer the retailer lower margins than they get from private labels To maintain market share, global brands will have to be priced competitively and provide real consumer value. Global marketers must examine the adequacy of their brand strategies in light of such competition. This may make the cost and efficiency benefits of global brands even more appealing.Private brands owned by retailers are growing as challengers to manufacturers? brands, whether global or country specific. Store brands are particularly important in Europe compared to the US. Private labels are formidable competitors. This is particularly so during economic difficulties in the target markets. Buyers prefer to buy less expensive, ?more local? private brands during recessions. Private brands provide the retailer with high margins; they receive preferential shelf space and strong in-store promotion; and, perhaps most important for consumer appeal, they are quality products at low prices. Contrast this with manufacturers? brands, which traditionally are premium priced and offer the retailer lower margins than they get from private labels To maintain market share, global brands will have to be priced competitively and provide real consumer value. Global marketers must examine the adequacy of their brand strategies in light of such competition. This may make the cost and efficiency benefits of global brands even more appealing.

24. Importance of derived demand in industrial markets ? How is demand affected by technology ? Characteristics of industrial product ? Importance of ISO 9000 certification ? Importance of trade shows & relationship marketing ? B 2 B : Business Business

25. DEMAND in Global B B Markets Demand in industrial markets by nature more volatile. Stages of industrial & economic development affect demand for industrial products. Level of technology of products & services make sales more appropriate for some countries than others. 3 factors affect demand in international industrial markets differently than in consumer markets: 1. demand in industrial markets is by nature more volatile. Industrial firms can take several measures to manage this inherent volatility, such as maintaining broad product lines and broad market coverage, raising prices faster and reducing advertising expenditures during booms, ignoring market share as a strategic goal, eschewing layoffs, and focusing on stability. 2. stages of industrial and economic development affect demand for industrial products. 3. level of technology of products and services makes their sale more appropriate for some countries than others. 3 factors affect demand in international industrial markets differently than in consumer markets: 1. demand in industrial markets is by nature more volatile. Industrial firms can take several measures to manage this inherent volatility, such as maintaining broad product lines and broad market coverage, raising prices faster and reducing advertising expenditures during booms, ignoring market share as a strategic goal, eschewing layoffs, and focusing on stability. 2. stages of industrial and economic development affect demand for industrial products. 3. level of technology of products and services makes their sale more appropriate for some countries than others.

26. VOLATILITY of Industrial DEMAND Cyclical swings in demand professional buyers tend to act in concert derived demand accelerates changes in markets Derived demand = demand dependent on another source Minor changes in consumer demand mean major changes in related industrial demand e.g.Boeing worldwide demand for travel services related to demand for new airplanes commercial aircraft industry one of most volatile Consumer products firms have numerous reasons to market internationally?exposure to more-demanding customers, keeping up with the competition, extending product life cycles, and growing sales and profits, to name a few. Firms producing products and services for industrial markets have an additional crucial reason for venturing abroad: dampening the natural volatility of industrial markets. Indeed, perhaps the single most important difference between consumer and industrial marketing is the huge, cyclical swings in demand inherent in the latter It is true that demand for consumer durables such as cars, furniture, or home computers can be quite volatile. In industrial markets, however, two other factors come into play that exacerbate both the ups and downs in demand: Professional buyers tend to act in concert, and derived demand accelerates changes in markets. For managers selling capital equipment and big-ticket industrial services, understanding the concept of derived demand is absolutely fundamental to their success. Derived demand can be defined as demand dependent on another source. Thus the demand for Boeing 747s is derived from the worldwide consumer demand for air travel services. The commercial aircraft industry has always been and will continue to be one of the most volatile of all. Consumer products firms have numerous reasons to market internationally?exposure to more-demanding customers, keeping up with the competition, extending product life cycles, and growing sales and profits, to name a few. Firms producing products and services for industrial markets have an additional crucial reason for venturing abroad: dampening the natural volatility of industrial markets. Indeed, perhaps the single most important difference between consumer and industrial marketing is the huge, cyclical swings in demand inherent in the latter It is true that demand for consumer durables such as cars, furniture, or home computers can be quite volatile. In industrial markets, however, two other factors come into play that exacerbate both the ups and downs in demand: Professional buyers tend to act in concert, and derived demand accelerates changes in markets. For managers selling capital equipment and big-ticket industrial services, understanding the concept of derived demand is absolutely fundamental to their success. Derived demand can be defined as demand dependent on another source. Thus the demand for Boeing 747s is derived from the worldwide consumer demand for air travel services. The commercial aircraft industry has always been and will continue to be one of the most volatile of all.

27. Technology & Market DEMAND Trends spurring demand for technologically advanced products expanding economic & industrial growth in Asia disintegration of Soviet empire privatization of government-owned industries worldwide Companies with competitive edge will be those whose products are: technologically advanced highest quality accompanied by world-class service Not only is technology the key to economic growth, but for many products it is also the competitive edge in today?s global markets. Three interrelated trends spur demand for technologically advanced products: expanding economic and industrial growth in Asia, particularly China and India; the disintegration of the Soviet empire; and the privatization of government-owned industries worldwide. The competition to meet this global demand will be stiff; the companies with the competitive edge will be those whose products are technologically advanced, of the highest quality, and accompanied by world-class service.Not only is technology the key to economic growth, but for many products it is also the competitive edge in today?s global markets. Three interrelated trends spur demand for technologically advanced products: expanding economic and industrial growth in Asia, particularly China and India; the disintegration of the Soviet empire; and the privatization of government-owned industries worldwide. The competition to meet this global demand will be stiff; the companies with the competitive edge will be those whose products are technologically advanced, of the highest quality, and accompanied by world-class service.

28. Industrial Product Adaptation Standardization versus adaptation less relevant to marketing industrial goods than consumer goods Factors accounting for greater market similarities in customers of industrial goods versus consumer goods: inherent nature of the product user?s motive or intent differs (profit vs satisfaction) The issues of standardization versus adaptation - less relevance to marketing industrial goods than consumer goods because more similarities in marketing products and services to businesses across country markets than there are differences. 2 basic factors account for greater market similarities among industrial goods customers than among consumer goods customers: 1. inherent nature of the product: Industrial products and services are used in the process of creating other goods and services; consumer goods are in their final form and are consumed by individuals. 2. motive or intent of the users differ: Industrial consumers are seeking profit, whereas the ultimate consumer is seeking satisfaction. These factors are manifest in specific buying patterns and demand characteristics, and in a special emphasis on relationship marketing as a competitive tool. Whether a company is marketing at home or abroad, the differences between B-to-B and B-to-C merit special consideration.The issues of standardization versus adaptation - less relevance to marketing industrial goods than consumer goods because more similarities in marketing products and services to businesses across country markets than there are differences. 2 basic factors account for greater market similarities among industrial goods customers than among consumer goods customers: 1. inherent nature of the product: Industrial products and services are used in the process of creating other goods and services; consumer goods are in their final form and are consumed by individuals. 2. motive or intent of the users differ: Industrial consumers are seeking profit, whereas the ultimate consumer is seeking satisfaction. These factors are manifest in specific buying patterns and demand characteristics, and in a special emphasis on relationship marketing as a competitive tool. Whether a company is marketing at home or abroad, the differences between B-to-B and B-to-C merit special consideration.

29. Trade Shows: Crucial Part of B B Marketing Trade shows manufacturer can exhibit & demonstrate products to potential users manufacturers can view competitors? products opportunity to create sales & establish relationships with agents, distributors, franchisees & suppliers Online trade shows useful in difficult economic / political circumstances poor substitute for live trade shows Secondary marketing methods - print advertising, catalogs, web sites, direct mail Total annual media budget on trade events: Europeans 22% Americans 5% Trade shows provide the facilities for a manufacturer to exhibit and demonstrate products to potential users and to view competitors? products. They are an opportunity to create sales and establish relationships with agents, distributors, franchisees, and suppliers that can lead to more nearly permanent distribution channels in foreign markets. In fact, a trade show may be the only way to reach some prospects. Trade show experts estimate that 80 - 85 % of the people seen on a trade show floor never have a salesperson call on them. Several websites now specialize in virtual trade shows. They often include multimedia and elaborate product display booths that can be virtually toured. Some of these virtual trade shows last only a few days during an associated actual trade shows. In difficult economic and/or political circumstances online trade shows become a useful, but obviously less than adequate substitute. Not even the best online trade show imaginable can make up for this apparent step backward in international trade and cooperation. The promotional problems encountered by foreign industrial marketers are little different from the problems faced by domestic marketers. Until recently, there has been a paucity of specialized advertising media in many countries in the last decade, however, specialized industrial media have been developed to provide the industrial marketer with a means of communicating with potential customers, especially in western Europe and to some extent in eastern Europe, the Commonwealth of Independent States (CIS), and Asia. In addition to advertising in print media and reaching industrial customers through catalogs, websites, and direct mail, the trade show or trade fair has become the primary vehicle for doing business in many foreign countries. As part of its international promotion activities, the U.S. Department of Commerce sponsors trade fairs in many cities around the world. Additionally, local governments in most countries sponsor annual trade shows. African countries, for example, host more than 70 industry-specific trade shows. Trade shows serve as the most important vehicles for selling products, reaching prospective customers, contacting and evaluating potential agents and distributors, and marketing in most countries. Trade shows provide the facilities for a manufacturer to exhibit and demonstrate products to potential users and to view competitors? products. They are an opportunity to create sales and establish relationships with agents, distributors, franchisees, and suppliers that can lead to more nearly permanent distribution channels in foreign markets. In fact, a trade show may be the only way to reach some prospects. Trade show experts estimate that 80 - 85 % of the people seen on a trade show floor never have a salesperson call on them. Several websites now specialize in virtual trade shows. They often include multimedia and elaborate product display booths that can be virtually toured. Some of these virtual trade shows last only a few days during an associated actual trade shows. In difficult economic and/or political circumstances online trade shows become a useful, but obviously less than adequate substitute. Not even the best online trade show imaginable can make up for this apparent step backward in international trade and cooperation. The promotional problems encountered by foreign industrial marketers are little different from the problems faced by domestic marketers. Until recently, there has been a paucity of specialized advertising media in many countries in the last decade, however, specialized industrial media have been developed to provide the industrial marketer with a means of communicating with potential customers, especially in western Europe and to some extent in eastern Europe, the Commonwealth of Independent States (CIS), and Asia. In addition to advertising in print media and reaching industrial customers through catalogs, websites, and direct mail, the trade show or trade fair has become the primary vehicle for doing business in many foreign countries. As part of its international promotion activities, the U.S. Department of Commerce sponsors trade fairs in many cities around the world. Additionally, local governments in most countries sponsor annual trade shows. African countries, for example, host more than 70 industry-specific trade shows. Trade shows serve as the most important vehicles for selling products, reaching prospective customers, contacting and evaluating potential agents and distributors, and marketing in most countries.

30. Relationship Marketing in B B Contexts Not a matter of selling right product 1st time instead selling continuously changed product to keep it right over time Objective of relationship marketing make relationship an important attribute of transaction - differentiate from competitors Use Internet to facilitate relationship building and maintenance The industrial customer?s needs in global markets are continuously changing, and suppliers? offerings must also continue to change. The need for the latest technology means that it is not a matter of selling the right product the first time but rather of continuously changing the product to keep it right over time. The objective of relationship marketing is to make the relationship an important attribute of the transaction, thus differentiating oneself from competitors. It shifts the focus away from price to service and long-term benefits. The reward is loyal customers that translate into substantial long-term profits. As in all areas of international business, the Internet is facilitating relationship building and maintenance in new ways. One study has shown key aspects of managing this aspect of international industrial marketing to be website design, multi-lingual access, cultural considerations, and effective marketing of the website itself. Cisco Systems is a leader in this area; it not only supplies the hardware that allows B2B commerce to work, but its relationship management practices and process also serve as models for the industry. Another such company is Solar? industrial gas turbines are used by customers in 86 countries worldwide, in the oil and gas industries, electrical power generation, and marine propulsion. Solar promotes its products on the Internet.The industrial customer?s needs in global markets are continuously changing, and suppliers? offerings must also continue to change. The need for the latest technology means that it is not a matter of selling the right product the first time but rather of continuously changing the product to keep it right over time. The objective of relationship marketing is to make the relationship an important attribute of the transaction, thus differentiating oneself from competitors. It shifts the focus away from price to service and long-term benefits. The reward is loyal customers that translate into substantial long-term profits. As in all areas of international business, the Internet is facilitating relationship building and maintenance in new ways. One study has shown key aspects of managing this aspect of international industrial marketing to be website design, multi-lingual access, cultural considerations, and effective marketing of the website itself. Cisco Systems is a leader in this area; it not only supplies the hardware that allows B2B commerce to work, but its relationship management practices and process also serve as models for the industry. Another such company is Solar? industrial gas turbines are used by customers in 86 countries worldwide, in the oil and gas industries, electrical power generation, and marine propulsion. Solar promotes its products on the Internet.

31. The Global Project Team Customer ? initiate inquiry Sales engineer ? initial customer contact Application engineer ? find best product match Engineering & control systems ? design Project manager ? manage project & liaise Manufacturing technicians ? produce, assemble, test Customer services ? installation & start-up Suppliers ? provide materials & components Service engineer ? after-sales service & maintenance Using the example of Solar Turbines, the project teams comprises: The customer is involved as a vital member of the project team from the initial inquiry to final acceptance. The sales engineer, who maintains initial customer contact, prompts analysis of customer needs, submits a comprehensive proposal to the customer, monitors execution of the order, and submits the order to the assigned. The application engineer is responsible for determining the best product match for customer requirements and recommending alternative approaches as appropriate. Engineering and Control Systems is where gas turbines, gas compressors, and controls are designed and gas turbine packages are customized for the customers based on proven designs. Personal selling is the most important aspect of the promotions mix for industrial companies like Solar. The project manager handles all aspects of the order, maintains liaison with the customer, controls documentation, arranges quality audits, and is responsible for on-time shipment and scheduling equipment commissioning at the customer site. Manufacturing technicians produce, assemble, and test industrial gas turbines and turbomachinery packages designed to meet specific customer needs. Customer services handles installation and start-up of the turbomachinery, trains personnel, and provides a wide range of vital services to support customer and operating requirements. And finally, suppliers are a critical element of all project teams; they provide materials and components that must meet Solar?s demanding quality standards.Using the example of Solar Turbines, the project teams comprises: The customer is involved as a vital member of the project team from the initial inquiry to final acceptance. The sales engineer, who maintains initial customer contact, prompts analysis of customer needs, submits a comprehensive proposal to the customer, monitors execution of the order, and submits the order to the assigned. The application engineer is responsible for determining the best product match for customer requirements and recommending alternative approaches as appropriate. Engineering and Control Systems is where gas turbines, gas compressors, and controls are designed and gas turbine packages are customized for the customers based on proven designs. Personal selling is the most important aspect of the promotions mix for industrial companies like Solar. The project manager handles all aspects of the order, maintains liaison with the customer, controls documentation, arranges quality audits, and is responsible for on-time shipment and scheduling equipment commissioning at the customer site. Manufacturing technicians produce, assemble, and test industrial gas turbines and turbomachinery packages designed to meet specific customer needs. Customer services handles installation and start-up of the turbomachinery, trains personnel, and provides a wide range of vital services to support customer and operating requirements. And finally, suppliers are a critical element of all project teams; they provide materials and components that must meet Solar?s demanding quality standards.

32. SERVICES

33. Support Services Deliveries Warranty Spare parts Repair and maintenance Installation Instructions Other related services The support services component includes repair and maintenance, instructions, installation, warranties, deliveries, and the availability of spare parts. Many otherwise successful marketing programs have ultimately failed because little attention was given to this product component. Repair and maintenance are especially difficult problems in developing countries. Consumers in a developing country and in many developed countries may not have even one of the possibilities for repair and maintenance available in the United States, and independent service providers can be used to enhance brand and product quality. In some countries, the concept of routine maintenance or preventive maintenance is not a part of the culture. As a result, products may have to be adjusted to require less-frequent maintenance, and special attention must be given to features that may be taken for granted in the United States. Literacy rates and educational levels of a country may require a firm to change a product?s instructions. A simple term in one country may be incomprehensible in another. The support services component includes repair and maintenance, instructions, installation, warranties, deliveries, and the availability of spare parts. Many otherwise successful marketing programs have ultimately failed because little attention was given to this product component. Repair and maintenance are especially difficult problems in developing countries. Consumers in a developing country and in many developed countries may not have even one of the possibilities for repair and maintenance available in the United States, and independent service providers can be used to enhance brand and product quality. In some countries, the concept of routine maintenance or preventive maintenance is not a part of the culture. As a result, products may have to be adjusted to require less-frequent maintenance, and special attention must be given to features that may be taken for granted in the United States. Literacy rates and educational levels of a country may require a firm to change a product?s instructions. A simple term in one country may be incomprehensible in another.

34. Marketing Consumer Services Globally Consumer services characteristics intangibility inseparability heterogeneity perishability Service can be marketed as industrial (B B) as consumer service (B C) Much of the advice regarding adapting products for international consumer markets also applies to adapting services. Moreover, some services are closely associated with products. However, many consumer services are distinguished by four unique characteristics?intangibility, inseparability, heterogeneity, and perishability?and thus require special consideration Products are often classified as tangible, whereas services are intangible. Cars, computers, and furniture are examples of products that have a physical presence; they are things or objects that can be stored and possessed, and their intrinsic value is embedded within their physical presence. The intangibility of services results in characteristics unique to a service: It is inseparable in that its creation cannot be separated from its consumption; it is heterogeneous in that it is individually produced and is thus unique; it is perishable in that once created it cannot be stored but must be consumed simultaneously with its creation. As is true for many tangible products, a service can be marketed both as an industrial (B2B) or a consumer (B2C) service, depending on the motive of, and use by, the purchaser. Much of the advice regarding adapting products for international consumer markets also applies to adapting services. Moreover, some services are closely associated with products. However, many consumer services are distinguished by four unique characteristics?intangibility, inseparability, heterogeneity, and perishability?and thus require special consideration Products are often classified as tangible, whereas services are intangible. Cars, computers, and furniture are examples of products that have a physical presence; they are things or objects that can be stored and possessed, and their intrinsic value is embedded within their physical presence. The intangibility of services results in characteristics unique to a service: It is inseparable in that its creation cannot be separated from its consumption; it is heterogeneous in that it is individually produced and is thus unique; it is perishable in that once created it cannot be stored but must be consumed simultaneously with its creation. As is true for many tangible products, a service can be marketed both as an industrial (B2B) or a consumer (B2C) service, depending on the motive of, and use by, the purchaser.

35. Business Services For many industrial products, revenues from associates services > revenues from products cell phones printers Leasing capital equipment Services not associated with products Boeing at-sea-satellite-launch services Ukrainian cargo company rents space on giant jets professional services (advertising, banking, healthcare, etc.) For many industrial products, the revenues from associated services exceed the revenues from the products. Perhaps the most obvious case is cellular phones, in which the physical product is practically given away to gain the phone services contract. Or consider how inexpensive printers may seem until the costs of operation (i.e., ink cartridges) are considered. Indeed, for many capital equipment manufacturers the margins on after-sale services (i.e., maintenance contracts, overhauls, repairs, and replacement parts) are much higher than the margins on the machinery itself. Further, when companies lease capital equipment to customers, the distinction between products and services almost disappears completely. When a business customer leases a truck, is it purchasing a vehicle or transportation services? Businesses also buy a variety of services that are not associated with products. e.g. at-sea-satellite-launch services now provided by Boeing and the Russian navy, the latter by submarine Ukrainian cargo company that charges $24,000 an hour to rent space on its giant jets Other professional services are purchased from advertising and legal agencies, transportation and insurance companies, oil field services, banks and investment brokers, and healthcare providers, to name only a few. For many industrial products, the revenues from associated services exceed the revenues from the products. Perhaps the most obvious case is cellular phones, in which the physical product is practically given away to gain the phone services contract. Or consider how inexpensive printers may seem until the costs of operation (i.e., ink cartridges) are considered. Indeed, for many capital equipment manufacturers the margins on after-sale services (i.e., maintenance contracts, overhauls, repairs, and replacement parts) are much higher than the margins on the machinery itself. Further, when companies lease capital equipment to customers, the distinction between products and services almost disappears completely. When a business customer leases a truck, is it purchasing a vehicle or transportation services? Businesses also buy a variety of services that are not associated with products. e.g. at-sea-satellite-launch services now provided by Boeing and the Russian navy, the latter by submarine Ukrainian cargo company that charges $24,000 an hour to rent space on its giant jets Other professional services are purchased from advertising and legal agencies, transportation and insurance companies, oil field services, banks and investment brokers, and healthcare providers, to name only a few.

36. After-Sale Services Installation Training Spare and replacement parts delivery time cost of parts Service personnel Almost always more profitable than actual sale of machinery / product Crucial in building strong customer loyalty Effective competition abroad requires not only proper product design but effective service, prompt deliveries, and the ability to furnish spare and replacement parts without delay. For example, GE Medical Systems provides a wide range of after-sale services for hospitals that buy MRIs and other equipment?training, information technologies, associated healthcare services, and parts and accessories For many technical products, the willingness of the seller to provide installation and training may be the deciding factor for the buyers in accepting one company?s product over another?s. Customer training is rapidly becoming a major after-sales service when selling technical products in countries that demand the latest technology but do not always have trained personnel. A recent study of international users of heavy construction equipment revealed that, next to the manufacturer?s reputation, quick delivery of replacement parts was of major importance in purchasing construction equipment. Some international marketers also may be forgoing the opportunity of participating in a lucrative aftermarket. Certain kinds of machine tools use up to five times their original value in replacement parts during an average life span and thus represent an even greater market. After-sales services are not only crucial in building strong customer loyalty and the all-important reputation that leads to sales at other companies, but they are also almost always more profitable than the actual sale of the machinery or product.Effective competition abroad requires not only proper product design but effective service, prompt deliveries, and the ability to furnish spare and replacement parts without delay. For example, GE Medical Systems provides a wide range of after-sale services for hospitals that buy MRIs and other equipment?training, information technologies, associated healthcare services, and parts and accessories For many technical products, the willingness of the seller to provide installation and training may be the deciding factor for the buyers in accepting one company?s product over another?s. Customer training is rapidly becoming a major after-sales service when selling technical products in countries that demand the latest technology but do not always have trained personnel. A recent study of international users of heavy construction equipment revealed that, next to the manufacturer?s reputation, quick delivery of replacement parts was of major importance in purchasing construction equipment. Some international marketers also may be forgoing the opportunity of participating in a lucrative aftermarket. Certain kinds of machine tools use up to five times their original value in replacement parts during an average life span and thus represent an even greater market. After-sales services are not only crucial in building strong customer loyalty and the all-important reputation that leads to sales at other companies, but they are also almost always more profitable than the actual sale of the machinery or product.

37. Services Opportunities in Global Markets Tourism ? int?l tourism largest US services export Transportation Financial services Education ? 2007: >600,000 foreign students, tuition $11 billion Communications ? phone services Entertainment ? sporting events sold all over the world Information ? Internet, etc. Health care ? foreigners come here; US facilities abroad too International tourism is by far the largest services export of the United States, ranking behind only capital goods and industrial supplies when all exports are counted. Spending by foreign tourists visiting American destinations such as Orlando or Anaheim is roughly double that spent by foreign airlines on Boeing?s commercial jets. The dramatic growth in tourism has prompted American firms and institutions to respond by developing new travel services. Other top consumer services exports include transportation, financial services, education, telecommunications, entertainment, information, and health care, in that order. Insurance sales are also burgeoning in Latin America, with joint ventures between local and global firms making the most progress. Financial services in China are undergoing a revolution, with new services being offered at an incredible pace?new sources of investor information and National Cash Register ATMs popping up everywhere. Sporting events are being sold all over the world?Mexican football in Los Angeles, American football in Scotland and Turkey, American baseball in Mexico, World Cup soccer in South Africa. Finally, not only are foreigners coming to the United States for healthcare services in fast-growing numbers, but North American firms are building hospitals abroad as well. International tourism is by far the largest services export of the United States, ranking behind only capital goods and industrial supplies when all exports are counted. Spending by foreign tourists visiting American destinations such as Orlando or Anaheim is roughly double that spent by foreign airlines on Boeing?s commercial jets. The dramatic growth in tourism has prompted American firms and institutions to respond by developing new travel services. Other top consumer services exports include transportation, financial services, education, telecommunications, entertainment, information, and health care, in that order. Insurance sales are also burgeoning in Latin America, with joint ventures between local and global firms making the most progress. Financial services in China are undergoing a revolution, with new services being offered at an incredible pace?new sources of investor information and National Cash Register ATMs popping up everywhere. Sporting events are being sold all over the world?Mexican football in Los Angeles, American football in Scotland and Turkey, American baseball in Mexico, World Cup soccer in South Africa. Finally, not only are foreigners coming to the United States for healthcare services in fast-growing numbers, but North American firms are building hospitals abroad as well.

38. Barriers to Entering Global Markets for Consumer Services Protectionism Restrictions on transborder data flows Protection of intellectual property Cultural barriers & adaptation Four kinds of barriers face consumer services marketers in this growing sector of the global marketplace: protectionism, controls on transborder data flows, protection of intellectual property, and cultural requirements for adaptation. Protectionism ? European Union is making modest progress toward establishing a single market for services. However, exactly how foreign service providers will be treated as unification proceeds is not clear. Reciprocity and harmonization, key concepts in the Single European Act, possibly will be used to curtail the entrance of some service industries into Europe. There is intense concern about how to deal with the relatively new ?problem? of transborder data transfers. The European Commission is concerned that data on individuals (such as income, spending preferences, debt repayment histories, medical conditions, and employment data) are being collected, manipulated, and transferred between companies with little regard to the privacy of the affected individuals. ? Protection of intellectual property ? important form of competition difficult to combat arises from pirated trademarks, processes, copyrights, and patents. Cultural barriers and adaptation ? Because trade in services frequently involves people-to-people contact, culture plays a much bigger role in services than in merchandise trade. Four kinds of barriers face consumer services marketers in this growing sector of the global marketplace: protectionism, controls on transborder data flows, protection of intellectual property, and cultural requirements for adaptation. Protectionism ? European Union is making modest progress toward establishing a single market for services. However, exactly how foreign service providers will be treated as unification proceeds is not clear. Reciprocity and harmonization, key concepts in the Single European Act, possibly will be used to curtail the entrance of some service industries into Europe. There is intense concern about how to deal with the relatively new ?problem? of transborder data transfers. The European Commission is concerned that data on individuals (such as income, spending preferences, debt repayment histories, medical conditions, and employment data) are being collected, manipulated, and transferred between companies with little regard to the privacy of the affected individuals. ? Protection of intellectual property ? important form of competition difficult to combat arises from pirated trademarks, processes, copyrights, and patents. Cultural barriers and adaptation ? Because trade in services frequently involves people-to-people contact, culture plays a much bigger role in services than in merchandise trade.

39. Keys to success in Global Product Decisions In spite of homogenization, consumers also see world of global symbols, company images, & product choice through lens of their own local culture & its stage of development & market sophistication Each product must be viewed in light of how it is perceived by each culture with which it comes in contact Analyzing a product as an innovation & using Product Component Model may provide marketer with important leads for adaptation After-sales service is important aspect of industrial sales Trade shows important in B B marketing

40. Next class: Global Distribution Decisions Optional preparation: Read article about shipping challenges (web site)


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