Chapter TenChapter Ten

LocalMarketing in Emerging MarketsLocalMarketing in Emerging Markets

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BUYER DECISION PROBLEMS IN

EMERGING MARKETS1. AVAILABILITY OF HARD CURRENCY

2. FEW ALTERNATIVES

3. LACK OF KNOWLEDGE

4. STEREOTYPICAL EVALUATION

5. MAINLY NEGATIVE PREFERENCES

6. SUSPICION OF THE TRADE

7. DOUBTS ABOUT ADVERTISING CLAIMS

8. COGNITIVE DISSONANCE

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LOCAL MARKETING IN NEWLY DEMOCRATIZED

COUNTRIES (NDC)THERE ARE THREE MAJOR FEATURES WHICH

DIFFERENTIATE NEWLY DEMOCRATIZED COUNTRIES FROM THE TYPICAL DEVELOPING COUNTRY:

BASIC NEEDS ARE SATISFIED: ESSENTIALLY, NO ONE IS GOING WITHOUT FOOD, SHELTER, CLOTHING AND OTHER BASIC ITEMS.

EDUCATION AND SOCIAL CONTROL: A GOOD, SOLID BASIC EDUCATION HAS BEEN PROVIDED, ALONG WITH SOCIAL CONTROL AND A SECURE LIFE.

NO FREE MARKET: THERE IS A LACK OF UNDERSTANDING OF THE CONCEPT OF A FREE MARKET ECONOMY.

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“PROFESSOR” MARKETER

IN THE NDC, THE LOCAL MARKETER NEEDS TO BE A TEACHER AS WELL AS A BUSINESS PERSON. A LOCAL MARKETER NEEDS TO:

1. DEVELOP TRAINING PROGRAMS FOR STORE PERSONNEL, FOCUSING ON CUSTOMER SERVICE.

2. PREPARE MANUALS AND PAMPHLETS DESCRIBING PRODUCTS AND SERVICES AND HELP MIDDLEMEN DEVELOP FACILITIES, INVENTORY, SHIPMENT, SHELVING PROCEDURES FOR THE PRODUCT.

3. HELP MIDDLEMEN DEVELOP A TRACKING AND COST ACCOUNTING SYSTEM.

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4. MAKE SURE THAT PRODUCT LOCALIZATION IN TERMS OF DESIGN AND PACKAGING ALSO TAKES INTO ACCOUNT THE NEEDS OF THE MIDDLEMEN.

5. DISTRIBUTE INSTRUCTIONAL VIDEOS AND OTHER EDUCATIONAL MATERIAL TO MEMBERS OF THE DISTRIBUTION CHANNEL, EXPLAINING THE IMPORTANCE OF CUSTOMERS IN THE FREE MARKET SYSTEM AND IMPORTANCE OF MARKETING.

“PROFESSOR” MARKETER

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ESSENTIALLY, THE NDC DOES NOT HAVE AN EFFECTIVE MARKETING INFRASTRUCTURE.

IN THE OLD SYSTEM, THERE WAS MUCH VALUE PLACED ON PRODUCTION AND ON INDUSTRIAL PRODUCTS TO THE NEGLECT OF CONSUMER PRODUCTS AND EFFECTIVE DISTRIBUTION SYSTEMS.

THESE DIFFICIENCIES MAKE IT DIFFICULT TO BE A LOCAL MARKETER IN AN NDC.

THE LOCAL MARKETER HAS TO ADAPT HIS PRODUCT TO LOCAL STANDARDS, EX. BATTERY OPERATED APPLIANCES.

MARKETING INFRASTRUCTURE

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THE LOCAL MARKETER MUST DETERMINE WHAT FUNCTIONS CAN BE PERFORMED BY EXISTING CHANNELS OF DISTRIBUTION AND IF NEED BE, CREATE NEW ONES.

SOMETIMES, THE FIRM’S VALUE CHAIN HAS TO BE RECONFIGURED. FOR EXAMPLE, IF THE REQUIRED KNOW-HOW IS NOT AVAILABLE IN THE NDC, THE MARKETER MUST CREATE A SERVICE NETWORK AND TRAIN THE SERVICE STAFF.

MARKETING INFRASTRUCTURE

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CLOSE-UP: Local Marketing in Russia and Eastern Europe

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BACKGROUND

Newly democratized countries' (NDC) markets have a different heritage from those of developing countries:

Basic needs were satisfied.

Education and social control was strong.

There were no free markets.

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NDCs also share characteristics with other

developing markets:

The marketing infrastructure is typically weak.

Channels of distribution are inefficient. Service is inferior.

Communications media are centrally controlled.

Consumers do not have much purchasing power.

Hard foreign currency is difficult to get.

Political risk is generally high (as in Russia in 1999).

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THE RUSSIAN PROBLEM

Excepting Russia, Eastern European countries withstood the global financial crisis at the end of the 1990s quite well. While Russian economic growth was negative in 1998 at about -4%, Poland continued upwards with a robust 5%, Hungary at 4% and the Czech republic down but still at 1%.

The reason? Since the fall of the Berlin Wall, the Eastern European countries have been diversifying their economies away from their giant Russian neighbor (Russia has approximately 150 million people) to the east. And with the help of Western capital, the move is succeeding.

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MARKET SEGMENTATION

Ethnic market segmentation.

National borders can be less important than ethnicity.

Western-oriented younger segments.

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A Psychographic Segmentation of the Russian Market

Exhibit 10.1

Source: The Russian Consumer, 1992; Elliot, 1982

Kuptsi(merchants) Cossacks Students

Businessexecutives

“Russian souls”

Percent ofmen

30% 10% 10% 25% 25%

Percent ofwomen

45% 10% 5% 10% 30%

Dominanttraits

Reliant,nationalistic,practical,seeks value

Ambitious,independent,nationalistic,seeks status

Passive,scraping by,idealistic,practical

Ambitious,Westernoriented,busy,concernedwith status

Passive, followsothers, fearschoices, hopeful

Likelypreferences

Car:Volkswagen

Cigarettes:Chesterfield

Liquor:Stolichnaya

BMW

Dunhill

RemyMartin

2CV

Marlboro

Local vodkain Smirnoffbottles

Mercedes

Winston

JohnnieWalker

Lada

Marlboro

Smirnoff

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PRODUCT POSITIONING

More basic products at the low end of the price scale.

A more advanced product can yield first-mover advantages.

The few upscale customers prefer the most advanced Western products.

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PRODUCT POLICIES

Ambivalence about the domestic products.

Domestic producers that have been privatized are still in a favored position with government.

"Follow the leader" strategy and introducing products only after other foreign competitors have done so.

Several foreign entrants will legitimize an entry.

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PRICING

Global brands able to command a price premium.

Penetration price to develop the market.

Long term prospects matter more than short term payoffs.

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DISTRIBUTION

Helping to improve the infrastructure.

Middlemen functions are not well understood.

Channel members need training and upgrading of skills.

Weak logistics may require product redesign.

Value chain may need re-configuring.

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The local marketer needs to:

1. Develop training programs for store personnel, focusing on how to treat customers.

2. Prepare manuals and pamphlets describing products and services and helping middlemen devise appropriate facilities and procedures for the transportation, storage, and shelving of the product.

3. Help the middlemen develop a tracking and cost accounting system to make it possible to trace shipments and locate where in the chain there may be a problem such as overstocking.

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The local marketer needs to: (Cont’d)

4. Make sure that product localization in terms of design and packaging also takes into account the needs of the middlemen. This often involves educating the home office about special requirements, such as different sizes and packaging of existing products.

5. Distribute instructional videotapes and other educational material to various members of the distribution channel, explaining why customers are so important in the free market system and why marketing is as important as manufacturing.

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PROMOTION

Common advertising media may not be available.

Media may have only limited reach.

Strong education means that the average Russian is quite efficient in processing information.

A shift toward Russian-language commercials.

Lack of credibility for public announcements and mass communication.

Avoid excessively hard sell advertising.

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CLOSE-UP: Marketing in China

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BACKGROUND

China has 1.2 billion people, largest in the world.

Purchasing power is still low, but the per capita income, in 1992 equivalent to US$224, has been growing at 10% annually.

With still high tariff barriers and regulated markets, China is not (yet) a member of the World Trade Organization.

So far China has been relatively untouched by the Asian financial crisis.

The policy towards Hong Kong since the 1997 takeover has been relatively "hands-off."

In April 1998, door-to-door selling was banned in China.

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GOVERNMENT CONTROLS

Import license controls.

Protective tariffs. Average 1998 rate 20%, compared to 5 percent for developed countries and 13 percent for developing countries.

Foreign exchange controls.

Foreign trading companies. Typical mode of entry for foreign companies is a joint venture with Chinese partners.

Special Economic Zones (SEZs).

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MARKET SEGMENTATION

Geographic region. E.g. four regions: Eastern China (with Shanghai as the center), Northern China (Beijing the center), Southern China (with Guangzhou as the center) and Western China (with Chengdu as the center).

Languages and dialects, food and drink preferences, and even ethnic roots vary across the regions.

Urban/rural split in the typical emerging market pattern. Especially weak infrastructure in rural areas.

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MARKET SEGMENTATION

(Cont’d.)Emerging middle class, with rise in per capita income most

rapid in Shanghai, Beijing, and Guangzhou.

Chinese talk about "Four big things" (shi da zen), the four products everyone aspires to. In the 1970s, they were a bicycle, a black & white television set, a refrigerator, and a washing machine. In the 1990s they have become a video camera, a CD hi-fi system, a personal computer, and an air conditioner.

The teenagers and the college age people represent the Chinese version of the global youth segment.

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PRODUCT POSITIONING

Global brands confer status. Domestic products suffer from negative image.

Need to accommodate translation of brand names. Coca Cola had to change its original transliteration from one meaning "dry mouth full of wax" to one signifying "happiness in the mouth" when read and spoken.

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PRODUCT POSITIONING

(Cont’d.)Foreign competition in sales promotion, after-sale

service, product delivery, and price.

Quality differences between foreign companies are perceived as small.

Consumers are brand loyal, making for a definite first-mover advantages.

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RUDE SERVICE IN CHINA

If you don’t like it, go somewhere else. Ask someone else.Take a taxi if you don’t like the bus.I don’t care whom you complain to.If you’re not buying, what are you looking at?Buy it if you can afford it, otherwise get out of here.Are you buying or not? Have you made up your mind?Don’t you see I’m busy? What’s the hurry?I just told you. Why are you asking again?

Why didn’t you choose well when you bought it? Go ask the person who sold it to you.

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PRODUCT POLICIES

Because of high tariffs, a foreign product can seldom compete with a Chinese product on a price basis.

Authorized distributors find themselves competing with local counterfeits and pirated copies.

With strong pent-up demand, local adaptation is not yet an issue.

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PRICING

The Chinese price-sensitive customers out of habit. In the past they assumed the same low quality level for all products.

Because of the high tariff rates, prices are still high for products with imported content. For pure imports, the difference is even greater.

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CLOSE-UP: Marketing in India

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BACKGROUND

Close to 900 million citizens. British colony until 1947. The world's largest democracy.

Religious and ethnic violence. High political risk.

Excellent educational system introduced by the British.

During the 1990s socialist policies and government controls are gradually giving way to privatization and free markets.

In 1998, the annual growth rate was a strong 6.5%.

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COMPETITION

With liberalization, foreign firms enter via FDI, usually as a joint venture with local partners who better understand the marketplace.

Domestic firms are forced to become more efficient, and can draw upon a large and well educated pool of workers.

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MARKET SEGMENTATION

Two large segments: an impoverished rural population and an increasingly well-off urban middle class.

Huge metropolitan markets, increased purchasing power, family planning and women working.

Traditional habits are changing as the middle class becomes more Westernized.

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PRODUCT POSITIONING

Products and brands are becoming symbols of status and success. Earlier luxuries have become necessities. Brand name awareness and recognition matter.

Country-of-origin effects are favorable vis-a-vis foreign brands. But where well known local brands are upgraded in quality, foreign competitors still face a battle for customers.

Consumers are becoming more demanding in terms of features and quality. Customer satisfaction is becoming increasingly important.

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PRODUCT POLICIES

With increasing maturity, the market can support a full line of products also from foreign firms.

First-mover effects are significant, favoring multinationals which are "old India hands."

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PRICING

Global brands can no longer count on an automatic price premium.

Middle-income group of consumers are price sensitive.

Price level is especially important when brand name is less known. Some MNCs acquire and use well established local brands.

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DISTRIBUTION

The infrastructure is still weak in a vast country. Entering companies are assisting with structural improvements.

Urban distribution channels are becoming more efficient. Capacity is expanded.

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PROMOTION

Advertising agencies are booming.

Global advertising campaigns are adapted to meet local Indian tastes and localized to India's many dialects.

TV advertising very popular, but print and outdoor are more cost effective.