PART 4: Extending Marketing (Chapters 18–20)

18
OBJECTIVES OUTLINE
Creating Competitive
Advantage

OBJECTIVE 18-1 Discuss the need to understand competitors as well as customers through competitor analysis.

OBJECTIVE 18-2 Explain the fundamentals of competitive marketing strategies based on creating value for
customers.

OBJECTIVE 18-3 Illustrate the need for balancing customer and competitor orientations in becoming a truly
market-centered organization.

CHAPTER In previous chapters, you explored the basics of To start, let’s dig into the competitive strategy of Microsoft,
marketing. You learned that the aim of market- the technology giant that dominated the computer software
PREVIEW ing is to engage customers and to create value world throughout the 1990s and much of the 2000s. Its Windows
for them in order to capture value from them in return. Good mar- and Office products have long been must-haves in the PC mar-
keting companies win, keep, and grow customers by understand- ket. But with the decline in standalone personal computers and
ing customer needs, designing customer value–driven marketing the surge in digitally connected devices—everything from smart-
strategies, constructing value-delivering marketing programs, en- phones and tablets to internet-connected TVs—mighty Microsoft
gaging customers, and building customer and marketing partner found itself struggling to revamp its competitive marketing strat-
relationships. In the final three chapters, we’ll extend this concept to egy in a fast-changing digital environment. The tech giant has
three special areas: creating competitive advantage, global market- now reinvented itself as a relevant brand that customers can’t live
ing, and social and environmental marketing sustainability. without in the digitally connected world.

MICROSOFT: A New Competitive Marketing Strategy for the Digitally Connected World

A
round the turn of the century, talking high-tech meant love with a rush of alluring new digital devices and technolo-
talking about the almighty personal computer. Intel pro- gies. The computing industry shifted rapidly from stationary
vided the PC microprocessors, while manufacturers such standalones like the PC to connected mobile devices that linked
as Dell and HP built and marketed the machines. But users to an ever-on, ever-changing world of information, enter-
it was Microsoft that really ruled the PC industry—it made the tainment, and socializing options. But unlike PCs, those mobile
operating systems that kept most PCs humming. As the dominant devices didn’t need Microsoft Windows.
software developer, Microsoft put its Windows operating system In the new digitally connected world, Microsoft found itself
and Office productivity suite on almost every computer sold. lagging behind more-glamorous competitors such as Google,
The huge success of Windows drove Microsoft’s revenues, Apple, Samsung, and even Amazon and Facebook, which pro-
profits, and stock price to dizzying heights. By the start of the vided a complete slate of all things digital—not just the soft-
2000s, Microsoft was the most valuable company in corporate ware but also the smart devices, connecting technologies, and
history. In those heady days, no company was more relevant even digital destinations. Although still financially strong and
than Microsoft. And from a competitive standpoint, no com- still the world’s dominant PC software maker, Microsoft lost
pany was more powerful. some of its luster. In turn, the company’s growth stalled and
But times change. Moving through the first decade of the profits languished at early 2000s’ levels for a dozen years or
new millennium, PC sales growth flattened as the world fell in more. Microsoft needed to change with the times, and fast.

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 CHAPTER 18 | Creating Competitive Advantage 549
To align itself better with the new digital world order and new
competitors, Microsoft began a dramatic transformation of its com-
petitive strategy. It set out to become a full-line digital competitor,
pursuing a new “mobile first, cloud first” strategy toward deliv-
ering “delightful, seamless technology experiences” that connect
people to communication, entertainment, and one another.
Under this new competitive strategy, over the next decade,
Microsoft unleashed a flurry of new, improved, or acquired digital
products and services. It developed a mobile version of its Windows
operating system—the long-time company cash cow. Freeing itself
from the limitations of installed software, it created Office 365—a
cloud-based subscription version of its market-dominating suite
of productivity apps. It moved beyond the boundaries of operat-
ing systems and productivity software by acquiring and upgrading
Skype and by launching its OneDrive cloud storage solution.
Microsoft even broke free of software altogether with an in-
novative new digital hardware line—Microsoft Surface tablets
and laptops—that it hoped would lead the way to even more in-
In the fast-changing digital environment, Microsoft has
novative Windows devices. It also dabbled seriously with mobile transformed itself into a brand that consumers can’t live
phones, first buying and then selling phone maker Nokia and without in the post-PC, cloud-driven world.
then dipping its toe in the market with its own Android-based imageBROKER/Alamy Stock Photo

Surface phone. Microsoft hoped that the Surface line, along with
its Xbox console, would give it better access to three important shift, the new Microsoft doesn’t care what operating system
digital screens beyond the PC—tablets, TVs, and phones. you run as long as you’re using Microsoft apps and services.
But even with these new strategic initiatives, Microsoft At the center of Microsoft’s cloud offerings is good old
found itself still chasing rather than leading the pack of new Microsoft Office, with its Word, Excel, PowerPoint, and other
digital competitors, showing that even the best-laid competi- productivity apps. Although competitors Google and Apple have
tive strategies can be difficult to implement against strong com- word processing, spreadsheet, and presentation apps, Office is still
petitors. Although Microsoft’s Windows operating system still far and away the gold standard for getting things done, whether
dominates the declining PC market, it dropped its mobile ver- for large corporations, small businesses, students, or home users.
sions when it failed to capture a significant market share against In the old days, Office came bundled with Windows. But the plan
Apple iOS and Google Android. Microsoft’s Surface tablets now is to make Office accessible to anyone and everyone. Office
and laptops have done well, but they still lag far behind those 365 subscription services can be accessed from the cloud and run
of Lenovo, HP, Dell, Apple, and Samsung. And even with in- on any device or operating system—iOS, Android, or Windows.
novative phone designs like the dual-screen Surface Duo line, Microsoft’s goal is to make Office 365 the center for a whole
Microsoft has yet to make a dent in the smartphone market. new family of cloud-based online services that work seamlessly
Thus, to continue its strategic makeover, Microsoft has made together. To that end, in addition to mobile versions of Word,
yet another significant shift. It started with a new mission—“to Excel, and PowerPoint, Microsoft has been adding an ever-
empower every person and every organization on the planet expanding set of mobile productivity apps to the Office 365
to achieve more.” Unlike the past, this mission focuses not on portfolio, such as Outlook Mobile (email), To-Do (task manage-
devices and services but on out- ment), and Teams (collaborative
comes. Rather than chasing com- business communication and con-
petitors in mobile devices and Microsoft has undergone a dramatic ferencing platform). Moreover, the
operating systems, Microsoft now cloud-based Office 365 increases
strategic transformation to better align itself
intends to lead them in produc- the likelihood that subscribers
with the new digital world in the post-PC
tivity tools. And instead of cling- will sign up for other Microsoft
ing to Windows as the linchpin era. Now with its head in the cloud, more services, such as Skype, OneDrive
in its future, Microsoft is taking than just making the software that makes cloud services, or Power BI data
its productivity apps and services PCs run, Microsoft wants to empower every analytics and insights tools.
headlong into the cloud. The old person and every organization on the planet The strategy is working. The
Microsoft didn’t care what apps to achieve more, regardless of what device integration of Microsoft’s cloud-
you ran as long as you ran them on based productivity and analytics
or operating system they use.
Windows. In a dramatic strategic products earned it a top-10 spot on

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 550 PART 4 | Extending Marketing
Fast Company’s most recent list of Most Innovative Companies to more than $2 trillion, second only to Apple. It took 33 years
and the top spot in the data science subcategory, with the acco- for Microsoft to reach its first $1 trillion in value. But reaching
lade “for humanizing productivity.” Microsoft Teams, now with the second trillion only took two years.
more than 270 million active users, is a fixture in most large or- Although the Windows operating system remains a key
ganizations, indicating that these organizations are using mul- component of Microsoft’s current success, the company’s future
tiple other Microsoft cloud products as well. Such integration now lies in the cloud. In fact, Microsoft’s Intelligent Cloud busi-
into the inner workings of organizations has created new digital ness is the company’s highest growth segment, last year account-
opportunities, partnerships, and specialties for Microsoft. ing for more than 35 percent of its total revenues and more than
So this is not your grandfather’s Microsoft anymore. With 42 percent of total profits. In the commercial cloud wars, Microsoft
its sweeping strategic transformation, Microsoft now seems battles Amazon for the lead, with both well ahead of IBM, Google,
to be making the right moves to stay ahead of the times and and a host of others. Continued success will depend on Microsoft’s
competitors. While other tech giants may grab more headlines, ability to effectively adapt to—or even lead—the lightning-quick
Microsoft has quietly climbed back to the top of the tech tree. changes in the competitive environment. “The opportunity ahead
Its sales are up 75 percent over the past four years; profits are for Microsoft is vast,” says Microsoft’s CEO, “but to seize it, we
up 140 percent. And the digital giant’s stock value has soared must focus clearly, move faster, and continue to transform.”1

TODAY’S COMPANIES FACE their toughest competition ever. In previous chapters,

we argued that to succeed in today’s fiercely competitive marketplace, companies must
move from a product-and-selling philosophy to a customer-and-marketing philosophy.
Competitive advantage This chapter spells out in more detail how companies can outperform competi-
An advantage over competitors gained tors to win, keep, and grow customers. To win in today’s marketplace, companies
by offering consumers greater value. must become adept not only in managing products but also in managing customer
relationships in the face of determined competition and a difficult marketing environ-
Competitor analysis ment. Understanding customers is crucial, but it’s not enough. Building profitable
Identifying key competitors; assessing customer relationships and gaining competitive advantage require delivering more
their objectives, strategies, strengths and value and satisfaction to target customers than competitors do. Customers will see
weaknesses, and reaction patterns; and competitive advantages as customer advantages, giving the company an edge over its
selecting which competitors to attack or competitors.
avoid. In this chapter, we examine competitive marketing strategies—how companies
analyze their competitors and develop successful, customer value–based strategies for
Competitive marketing strategies engaging customers and building profitable customer relationships. The first step is
Strategies that strongly position the competitor analysis, the process of identifying, assessing, and selecting key competi-
company against competitors and give tors. The second step is developing competitive marketing strategies that strongly
it the greatest possible competitive position the company against competitors and give the company the strongest possible
advantage. strategic advantage.

Author Creating competitive

Comment advantage begins Competitor Analysis
with a thorough understanding of OBJECTIVE 18-1 Discuss the need to understand competitors as well as customers
competitors’ strategies. But before a through competitor analysis.
company can analyze its competitors,
it must first identify them—a task To plan effective marketing strategies, a company needs to find out all it can about its
that’s not as simple as it seems. competitors. It must constantly compare its marketing strategies, products, prices, chan-
nels, and promotions with those of close competitors. In this way, the company can find
areas of potential competitive advantage and disadvantage. As shown in Figure 18.1,
competitor analysis involves first identifying and assessing competitors and then selecting
which competitors to attack or avoid.

Identifying Competitors
Normally, identifying competitors would seem to be a simple task. At the narrowest level, a
company can define its competitors as other companies offering similar products and services
to the same customers at similar prices. Thus, Facebook (Meta) might see Twitter, TikTok, and
other social media as competitors but not Google, Microsoft, or Amazon. Ritz-Carlton might
see the Four Seasons hotels as a major competitor, but not Airbnb, Holiday Inn, Hampton
Inn, or any of the thousands of bed-and-breakfasts that dot the nation.

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 CHAPTER 18 | Creating Competitive Advantage 551
Identifying competitors isn’t as easy as it seems. For
example, Kodak saw other camera film makers as its
major competitors. But its real competitors turned out Assessing competitors’
Identifying the Selecting which
to be the makers of digital cameras that used no film objectives, strategies,
at all. Kodak fell behind in digital technologies and company’s competitors to attack
strengths and weaknesses,
ended up declaring bankruptcy. competitors or avoid
and reaction patterns

FIGURE 18.1
Steps in Analyzing Competitors
However, companies actually face a much wider range of competitors. The company
might define its competitors as all firms with the same product or class of products. Thus,
Ritz-Carlton would see itself as competing against all other hotels. Even more broadly,
competitors might include all companies making products that supply the same service.
Here Ritz-Carlton would see itself competing not only against other hotels but also against
businesses large and small that supply rooms for busy travelers, from Airbnb to private bed-
and-breakfasts. Finally, and still more broadly, competitors might include all companies that
compete for the same consumer dollars. Here Ritz-Carlton would see itself competing with
travel and leisure products and services, from cruises and summer homes to vacations abroad.
Companies must avoid “competitor myopia.” A company is more likely to be “bur-
ied” by its latent competitors than its current ones. For example, Kodak didn’t lose out
to competing film makers such as Fuji; it fell to the makers of digital cameras and phones
that use no film at all. And once-blazing-hot video-rental superstore Blockbuster didn’t go
bankrupt at the hands of other traditional brick-and-mortar retailers. It fell victim first to
unexpected competitors such as direct marketer Netflix and kiosk marketer Redbox and
then to a host of digital streaming services and technologies. By the time Blockbuster rec-
ognized and reacted to these unforeseen competitors, it was too late.
Companies can identify their competitors from an industry point of view. They might
see themselves as being in the oil industry, the pharmaceutical industry, or the beverage
industry. A company must understand the competitive patterns in its industry if it hopes
to be an effective player in that industry. Companies can also identify competitors from a
market point of view. Here they define competitors as companies that are trying to satisfy
the same customer need or build relationships with the same customer group.
From an industry point of view, Google once defined its competitors as other search
engine providers such as Yahoo! or Microsoft’s Bing. Now, Google takes a broader view of
serving market needs for online and mobile access to the digital world. Under this market
definition, Google squares off against once-unlikely competitors such as Apple, Samsung,
Microsoft, Amazon, and Facebook.
In general, the market concept of competition opens the company’s eyes to a
broader set of actual and potential competitors. For example, Amazon at first defined
itself in product terms—an online bookstore com-
peting against physical bookstores by offering a
huge selection of books, conveniently available
and at market-beating prices. Before long, how-
ever, Amazon adopted a broader market view.
It defined itself as “the Earth’s most customer-
centric company,” where customers could find
and discover anything they might want to buy on-
line. Under this market view, Amazon saw itself
not just as an online bookstore but as a provider of
unparalleled shopping experiences. Accordingly,
its competitors grew from brick-and-mortar book-
stores to the entire gamut of retailers, both digital
and physical. And in recent years, Amazon has
broadened its market view further to include pro-
viding a wide range of digital experiences, from
video and music streaming to cloud services, the
Market-based competitive definition: From a market view, Amazon Internet of Things, and the metaverse. In the
competes with more than just other online retailers. It competes with a broad process, it has taken on digital experience technol-
range of technology companies offering digital experiences, including the likes ogy competitors ranging from Spotify, Netflix, and
of Alphabet (Google), Meta (Facebook), Apple, and Microsoft. Disney to Alphabet (Google), Meta (Facebook),
GK Images/Alamy Stock Photo Apple, and Microsoft.

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 552 PART 4 | Extending Marketing
Competition and Cooperation in Middle East
Real Marketing 18.1 Tourism
Business competitors are usually expected to competitors, but it must also cooperate with plans. These include the Green Growth National
fight each other for the customer’s money, but other countries to develop the image and re- Action Plan and Jordan 2025, both of which
there are circumstances where competitors sources of the entire region. In addition to the cover development and promotion of tourist
can gain mutual advantage by cooperating physical provision of destinations, facilities, and destinations, requiring cooperation among ser-
with each other. This happens sufficiently often infrastructure, the program includes simplifying vice providers, who in turn will compete for their
that a special term exists for it—coopetition. tourist visas, training for service staff, and fo- share of the growing number of tourists.
In the tourism business, hotels, tour organiz- cused investment processes to attract private fi- In 2021, to attract native and expatriate
ers, travel firms, and other service providers nancial input. Furthermore, Qatar has leveraged tourists from the Gulf Cooperation Council
for a destination location or region often work the $300 million invested for the FIFA World Cup (GCC) countries, Jordan launched a marketing
together to provide a unified positive image to 2022, hoping that these will benefit general tour- campaign titled “Breathe,” which used advice
visitors even as they compete with each other ism in the years to follow. To expand the number spread during COVID awareness campaigns
for reservations and tourist spending. of tourists visiting Qatar, the government tourism in a playful way. For example, the caption of a
Furthermore, a destination country must be bureau partnered with Dubai-based Rehlat, a picture of cyclists riding across a desert land-
sold to potential visitors as an attractive choice
leading online travel agent that serves the whole scape recommends maintaining a safe dis-
that not only matches their needs and expecta- MENA region and can offer tourists a package tance between individuals, while a photo of a
tions but is a more desirable choice than com- that includes highlights across several countries. diver among colorful coral reefs advises the
peting nations as well. This is usually the function In Oman, the Ministry of Heritage and Tourism reader to wear a mask. In 2022, to compete
of national tourism authorities and ministries. wants to offer tourists “luxury, nature, and adven- with other MENA countries in attracting tourists
Consider the Middle East, which is a di- ture.” The Ministry is using the concept of “clus- from Europe, the Jordanian Ministry of Tourism
verse region full of world-class attractions, ters” to organize the development and promo- launched a poster and billboard campaign in the
many of which are under-exploited. Several tion of tourist destinations, such as sites from the United Kingdom, Spain, Italy, France, Germany,
types of tourists are attracted to the region— Bronze and Iron Ages, mountains, wadis, dunes, Switzerland, Sweden, Denmark, Austria, and
some travel for religious reasons, to visit and Bedouin locations. Within a cluster, hotels, the Netherlands titled “Kingdom of Time.”
shrines and holy sites; others do so to enjoy restaurants, tourist sites, and transport providers The United Arab Emirates and its largest
cultural experiences and historical sites; some work together for their overall benefit. In addition city, Dubai, have long been among the top
seek adventure in wild places, while others to religious and historical sites, there are plans tourist destinations in the MENA region, but the
prefer relaxing at a beach resort in reliable for adventure experiences and visits to authen- Kingdom of Saudi Arabia is now determined to
sunshine. Tourists may be local, from neigh- tic living cultures. The state will help to develop become a major competitor. The Jeddah Tower
boring countries, or from farther away. the required infrastructure where necessary but in Riyadh will, when completed, eclipse Dubai’s
Let’s first look at Qatar, a relatively smallseeks shared investment from the private sec- Burj Khalifa as the tallest building in the world.
country with a population of less than three mil-tor to develop the facilities in each cluster. Saudi Arabia has invested $800 billion to stimu-
lion. It competes for tourists with other countries To compete with alternative MENA destina- late tourism growth, and as part of their extensive
in the region such as Saudi Arabia, Jordan, tions, the Ministry is promoting the country by Vision 2030 program, alternative tourist sites are
Oman, and the United Arab Emirates. Qatar’s establishing offices in target markets such as being developed along with new resorts and ac-
Tourism Strategy 2030 program is designed the United Kingdom, Nordic countries, Italy, tivity centers. For example, the Red Sea Project
to develop its facilities and attractions while Germany, and India; it also hosted the Global includes 50 hotels, up to 1,000 residential prop-
communicating its benefits to consumers. It Travel Week Middle East event in Oman in 2022. erties, and its own international airport, while
must position itself as more attractive than its These types of PR exercises help to commu- the Amaala project, also on the Red Sea coast,
nicate the brand to tourists, will have 25 hotels and 200 high-end retailers.
which will in turn benefit the In 2022, Saudi Arabia presented its largest-ever
individual service providers pavilion at the World Travel Market London,
within their clusters. In ad- bringing together more than 40 Saudi tourism
dition, the Ministry is work- businesses and organizations and promoting
ing with Qatar Airways, the the overall brand of the country as a destination,
national airline, to create again encouraging cooperation among service
awareness of the various providers to increase the number of visitors and
destinations. compete strongly with other destinations.
Jordan has a fairly well- There is also pressure for countries to coop-
established tourism industry, erate to raise the number of tourists traveling to
offering stunning archaeo- groups of destinations that straddle borders. For
logical sites; heritage and example, Jordan has borders with Oman and
faith-based destinations; and Saudi Arabia and has cooperation agreements
unique facilities for meetings, with both. All three countries contain sites that
incentives, conferences, and are of interest to many pilgrims doing their Hajj or
exhibitions (MICE). However, Umrah pilgrimages, so it makes sense for visitors
Coopetition: Many countries in the Middle East benefit from there is plenty of scope for to coordinate travel and accommodation options,
the overall increase in tourism when they pool their resources. further development, and including reservations, and coopetition among the
Michele Burgess/Alamy Stock Photo the Kingdom has ambitious countries makes the journey that much easier.2

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 CHAPTER 18 | Creating Competitive Advantage 553
Assessing Competitors
Having identified the main competitors, marketing management now asks: What are the
competitors’ objectives? What does each seek in the marketplace? What is each competi-
tor’s strategy? What are various competitors’ strengths and weaknesses, and how will
each react to actions the company might take?

Determining Competitors’ Objectives

.

Each competitor has a mix of objectives. The company wants to know the relative impor-
tance that a competitor places on current profitability, market share growth, cash flow,
technological leadership, service leadership, and other goals. Knowing a competitor’s
mix of objectives reveals whether the competitor is satisfied with its current situation and
how it might react to different competitive actions. For example, a company that pursues
low-cost leadership will react much more strongly to a competitor’s cost-reducing manu-
facturing breakthrough than to the same competitor’s increase in advertising.
A company also must monitor its competitors’ objectives for various segments. If the
company finds that a competitor has discovered a new segment, this might be an oppor-
tunity. If it finds that competitors plan new moves into segments now served by the com-
pany, it will be forewarned and, hopefully, forearmed.

Identifying Competitors’ Strategies

Strategic group The more that one firm’s strategy resembles another firm’s strategy, the more the two firms
A group of firms in an industry following compete. In most industries, the competitors can be sorted into groups that pursue different
the same or a similar strategy. strategies. A strategic group is a group of firms in an industry following the same or a
similar strategy in a given target market. For example, in the major home appliance indus-
try, Whirlpool, Maytag, and LG belong to the same strategic
group. Each produces a full line of medium-price appliances
supported by good service. In contrast, Sub-Zero and
Viking belong to a different strategic group. They produce a
narrower line of higher-quality appliances, offer a higher level
of service, and charge a premium price. “We’re as passionate
about building Viking products as chefs are about cooking
with them,” says Viking. “We innovate. We over-engineer.
And then we use high-grade, heavy-duty materials to create
the most powerful products available. At Viking, it’s more
than just steel on the line. It’s our pride.”3
Some important insights emerge from identifying
strategic groups. For example, if a company enters a strategic
group, the members of that group become its key competi-
tors. Thus, if the company enters a group against Whirlpool,
Maytag, and LG, it can succeed only if it develops strategic
advantages over these three brands.
Strategic groups; LG competes across strategic groups. Its LG
Signature line of appliances competes in the premium-quality category Although competition is most intense within a strategic
with Viking and Sub-Zero, letting you “Experience the Art of Essence.” group, there is also rivalry among groups. First, some strate-
KUPRYNENKO ANDRII/Shutterstock; 360b/Shutterstock gic groups may appeal to overlapping customer segments.
For example, no matter what their strategy, all major appliance manufacturers will go after
the apartment and homebuilders segment. Second, customers may not see much difference
in the offers of different groups; they may see little difference in quality between LG and
Whirlpool. Finally, members of one strategic group might expand into new strategy seg-
ments. Thus, LG’s Signature line of appliances competes in the premium-quality, premium-
price category with Viking and Sub-Zero. LG Signature appliances let you “Experience
the Art of Essence: Every LG signature piece is a powerhouse of cutting-edge technology,
crafted to be functional yet elegant.”4
The company needs to look at all the dimensions that identify strategic groups within
the industry. It must understand how each competitor delivers value to its customers. It
needs to know each competitor’s product quality, features, and mix; customer services;
pricing policy; distribution coverage; sales force strategy; and advertising, digital, mobile,
and social media content programs. And it must study the details of each competitor’s re-
search and development (R&D), manufacturing, purchasing, financial, and other strategies.

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 554 PART 4 | Extending Marketing
Assessing Competitors’ Strengths and Weaknesses
Marketers need to carefully assess each competitor’s strengths and weaknesses to answer a
critical question: What can our competitors do? As a first step, companies can gather data on
each competitor’s goals, strategies, and performance over the past few years. Admittedly,
some of this information will be hard to obtain. For example, business-to-business (B-to-B)
marketers find it hard to estimate competitors’ market shares because they do not have the
same syndicated data services that are available to consumer packaged-goods companies.
Companies normally learn about their competitors’ strengths and weaknesses through
secondary data, personal experience, and word of mouth. They can also conduct primary
marketing research with customers, suppliers, and dealers. They can check competitors’
Benchmarking online and social media sites. Or they can try benchmarking themselves against other
Comparing the company’s products firms, comparing the company’s products and processes to those of competitors or leading
and processes to those of competitors firms in other industries to identify best practices and find ways to improve quality and
or leading firms in other industries to performance. Benchmarking is a powerful tool for increasing a company’s competitiveness.
identify best practices and find ways to
improve quality and performance. Estimating Competitors’ Reactions
Next, the company wants to know: What will our competitors do? A competitor’s objec-
tives, strategies, and strengths and weaknesses go a long way toward explaining its likely
actions. They also suggest its likely reactions to company moves, such as price cuts, pro-
motion increases, or new product introductions. In addition, each competitor has a certain
philosophy of doing business, a certain internal culture and guiding beliefs. Marketing
managers need a deep understanding of a competitor’s mentality if they want to anticipate
how that competitor will act or react.
Each competitor reacts differently. Some do not react quickly or strongly to a com-
petitor’s move. They may feel their customers are loyal, they may be slow in noticing the
move, or they may lack the funds to react. Some competitors react only to certain types of
moves and not to others. Other competitors react swiftly and strongly to any action. Thus,
P&G does not allow a competitor’s new product to come easily into the market. Many
firms avoid direct competition with P&G and look for easier prey, knowing that P&G will
react fiercely if it is challenged. Knowing how major competi-
tors react gives the company clues on how best to attack com-
petitors or how best to defend its current positions.
In some industries, competitors live in relative harmony; in
others, competitors are more openly combative. For exam-
ple, rivals Wendy’s and McDonald’s have for years aggressively
attacked each other with advertising, usually in good fun but
sometimes in more aggressive ways:5
Wendy’s has long touted that it uses “fresh, never frozen” beef in its
burgers. So when in mid-2017 McDonald’s tweeted out that it would
begin making all of its Quarter Pounders in most of its restaurants
with fresh beef, Wendy’s responded within only an hour or two:
“@McDonalds So you’ll still use frozen beef in MOST of your
burgers in ALL of your restaurants?” That response turned out to
be one of the brand’s top tweets ever, logging as many as 600 mil-
lion impressions in just over a day. Wendy’s fresh-not-frozen
onslaught escalated with a humorous Super Bowl LII ad supported
by social media content. In the ad, Wendy’s called out McDonald’s
boast that it uses flash-frozen beef that is “ground fresh and then
quickly frozen to seal in fresh flavor.” “The iceberg that sank the
Titanic was frozen, too,” quipped the Wendy’s ad. “We only use
fresh never frozen beef, on every hamburger every day. So skip the
hamburgers at the Frozen Arches.” The ad and those that followed
have gained attention and produced results, giving new voice to
Wendy’s heritage “fresh, never frozen” positioning.
Now the nation’s number-two fast-food chain, Wendy’s chal-
lenges McDonald’s directly at every opportunity. For example,
when McDonald’s recently celebrated National Egg McMuffin Day
by handing out free McMuffin sandwiches, it found itself looking
Competitor reactions: Now the nation’s number-two fast-food over its shoulder at an all-out Wendy’s marketing assault touting
chain, Wendy’s challenges McDonald’s directly at every turn. its entry into the breakfast wars. In Times Square, Wendy’s bill-
FellowNeko/Shutterstock boards blasted out tweets from people praising Wendy’s breakfast

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 CHAPTER 18 | Creating Competitive Advantage 555
fare and zinging competitors. One tweet read, “McDonald’s has just announced a partnership with
the NHL to provide them their hockey pucks starting 3/2 given an unexpected surge in supply.
#WendysBreakfastBattle.” And when Wendy’s recently introduced its new guaranteed “Hot &
Crispy” fries, it couldn’t resist taking a direct poke at archrival McDonald’s and the “cold and soggy
fries” some patrons say they get there. Wendy’s new fries are “even preferred almost two-to-one
over McDonald’s fries,” noted one Wendy’s ad gleefully, to the sounds of screams in the background.

In some cases, competitive exchanges can provide useful information to consum-

ers and advantages for brands. In other cases, they can reflect unfavorably on the entire
industry.

Selecting Competitors to Attack and Avoid

A company has already largely selected its major competitors through prior decisions on
customer targets, positioning, and its marketing mix strategy. Management now must de-
cide which competitors to compete against most vigorously.

Strong or Weak Competitors

A company can focus on one of several classes of competitors. Most companies prefer to
compete against weak competitors. This requires fewer resources and less time. But in the
process, the firm may gain little. You could argue that a firm also should compete with
strong competitors to sharpen its abilities. And sometimes, a company can’t avoid its
largest competitors. But even strong competitors have some weaknesses, and succeeding
against them often provides greater returns.
Customer value analysis A useful tool for assessing competitor strengths and weaknesses is customer value
An analysis conducted to determine analysis. The aim of customer value analysis is to determine the benefits that target cus-
what benefits target customers value tomers value and how customers rate the relative values of various competitors’ offers. In
and how they rate the relative values of conducting a customer value analysis, the company first identifies the major attributes that
various competitors’ offers. customers value and the importance customers place on these attributes. Next, it assesses
its performance against competitors on those valued attributes.
The key to gaining competitive advantage is to examine how a company’s offer com-
pares to that of its major competitors in each customer segment. The company wants to
find the place in the market where it meets customers’ needs in a way rivals can’t. If the
company’s offer delivers greater value than the competitor’s offer on important attributes,
it can charge a higher price and earn higher profits, or it can charge the same price and gain
more market share. But if the company is seen as performing at a lower level than its major
competitors on some important attributes, it must invest in strengthening those attributes
or find other important attributes where it can build a lead.

Good or Bad Competitors

A company really needs and benefits from competitors. The
existence of competitors results in several strategic benefits.
Competitors may share the costs of market and product devel-
opment and help legitimize new technologies. They may serve
less-attractive segments or lead to more product differentia-
tion. Finally, competitors may help increase total demand.
For example, you might think that having the world’s
major automakers move full-tilt into all-electric cars might
spell trouble for electric car pioneer Tesla. Industry leader
Volkswagen, for instance, plans to introduce 70 new electric
models and sell 28 million electric cars across its Volkswagen,
Audi, Porsche, Bentley, Skoda, and other brands by 2028.
As the major car brands jump in massively, Tesla will have
to keep innovating and improving its cars to compete well.
However, Tesla welcomes the increased competition. More
competitors will help Tesla move electric cars into the main-
Good competition: Rather than spelling trouble for electric car stream, increasing demand for its own models. “You need
pioneer Tesla, the more that major competitors like Volkswagen buy some critical mass to legitimize what you’re doing,” says one
into electric cars, the better it is for Tesla. analyst. “It can be lonely at the top,” says another. “The more
Kyodo/AP Images companies that buy into electric cars, the better it is.”6

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 556 PART 4 | Extending Marketing
However, a company may not view all its competitors as beneficial. An in-
dustry often contains good competitors and bad competitors. Good competitors play
by the rules of the industry. Bad competitors, in contrast, break the rules. They
try to buy share rather than earn it, take large risks, and play by their own rules.
For example, many airlines view ultra-low-cost carrier Spirit Airlines as a bad
competitor. Rather than competing on standard industry measures such as com-
fort, service, amenities, and on-time departures, Spirit competes strictly on rock-
bottom prices, even if that means sacrificing service and extras. Its “Bare Fare” prices
run as much as 90 percent lower than those of competing airlines. Slashing prices
makes sense for Spirit Airlines—thanks to its industry-lowest cost per seat-mile,
Spirit still reaps industry-leading profit margins. But Spirits rebellious pricing
causes headaches for competitors that can’t match its low fares and still make decent
margins.

Finding Uncontested Market Spaces

Rather than competing head-to-head with established competitors, many companies seek
out unoccupied positions in uncontested market spaces. They try to create products and
services for which there are no direct competitors. Called a “blue-ocean strategy,” the goal
is to make competition irrelevant.7
Companies have long engaged in head-to-head competition in search of profit-
able growth. They have fought for competitive advantage, battled over market share,
and struggled for differentiation. Yet in today’s overcrowded industries, competing
head-on results in nothing but a bloody “red ocean” of rivals fighting over a shrink-
ing profit pool. In their book Blue Ocean Strategy, two strategy professors contend
that although most companies compete within such red oceans, the strategy isn’t
likely to create profitable growth in the future. Tomorrow’s leading companies will
succeed not by battling competitors but by creating “blue oceans” of uncontested
market space. Such strategic moves—termed value innovation—create powerful leaps
in value for both the firm and its buyers, creating all-new demand and rendering
rivals obsolete. By creating and capturing blue oceans, companies can largely take
rivals out of the picture.
Apple has long practiced this strategy, introducing product firsts such as the iPod,
iPhone, App Store, iPad, and iTunes that created whole new categories. Similarly, rather
than competing against deeply entrenched, old-line credit card–processing compa-
nies, Square reinvented a card reader and the services behind it for the underserved
small and medium-sized business (SMB) marketspace (see Real Marketing 18.2). And
rather than operating its own fleet of taxis, Uber set up an app-based ride-sharing
service. Netflix has forged a continually evolving value innovation strategy. To start,
rather than competing with Blockbuster and the glut of other video rental retail stores,
Netflix pioneered subscription-based DVD rentals by mail. Then, to find new spaces to
grow, Netflix pioneered online content streaming, followed
by creating and streaming its own original video content.8
Another example of blue ocean competitors is the re-
cent surge of direct-to-consumer (DTC) brands. Instead
of than competing head-to-head with established com-
petitors in retail stores, DTC brands have staked out
new competitive space by selling and shipping directly
to consumers through online and mobile channels.
DTC brands have found success in categories ranging
from beauty and personal care, eyewear, apparel, and
food to home furnishings and fitness. Just a few ex-
amples include Dollar Shave Club and Harry’s (razors
and shaving products), Peloton (fitness equipment and
programs), Warby Parker (eyewear), Casper (mattresses
and bedding), Allbirds (environmentally friendly foot-
Blue-ocean strategy: Netflix has forged a continually evolving wear), and BarkBox (dog toys, treats, and goodies). By
value innovation strategy, starting with subscription-based DVD bypassing intermediaries, DTC companies can cut costs
rentals by mail, then moving to online content streaming, followed by and lower prices, offer greater convenience, build closer
developing and streaming its own original video content. direct customer relationships, and deliver hyper-focused
Daniel Avram/Shutterstock offerings.

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 CHAPTER 18 | Creating Competitive Advantage 557

Square: Smooth Sailing in a Big Blue

Real Marketing 18.2 Payment-Processing Ocean
In little more than a decade, payment-processing security. So Square unleashed a succession card to pay, and sign in one seamless trans-
innovator Square has set fire to an otherwise of hardware, software, and service innovations action. Terminal can also print receipts.
staid industry. Its Apple-esque credit card read- that soon rivaled the best of Silicon Valley. Square’s innovative hardware overcomes
ing devices are now found everywhere, and Square first introduced the Square Stand, many of the problems with the standard credit
Square now sets the standard in credit card– which holds an Apple iPad, sits on a mer- card terminals that long dominated the point
processing systems for small and medium- chant’s countertop, and serves as a cus- of sale. The old devices are characterized by
sized businesses (SMBs). How did Square tomizable “register.” Once a bill is finalized, a small and clunky keypad resembling the
come so far so fast? The innovative company Square Stand rotates to face customers, al- handheld calculators of 40 years ago. The tiny
recognized and filled a largely uncontested and lowing them to swipe or insert a card and sign screens do not let customers examine their
underserved SMB blue ocean marketspace. on the touchscreen. Today, Square Stand complete bills. And the older devices are dif-
For years, the payments-processing indus- has evolved to interface with commonly used ficult to update with new capabilities, often re-
try has been characterized by heavy regulation, peripherals such as printers, cash drawers, quiring entirely new and expensive hardware.
exorbitant fees, and unfavorable contracts. All bar code scanners, and even Square’s own Before Square, businesses and customers
that made credit card processing almost impos- Bluetooth reader for contactless forms of came to accept these devices as unpleasant
sible for small to medium-sized retailers. And payment such as Apple Pay and Google Pay. but necessary realities. Not so with Square.
the recent massive consumer shift to paying Next up was the Square Register, which Square’s devices typify its philosophy of
with credit or debit cards instead of cash put employs two tablets, one facing the em- continuous value innovation. The company
small retailers in a real bind. But the payments- ployee and the other facing the customer. began with the goal of making in-person
processing industry, designed mostly to serve Register saves money and time by not requir- payment transactions less painful and more
large retailers, had yet to catch up with the times. ing an Apple iPad. More important, Register elegant for both sellers and buyers. As it grows,
So in 2009, Square stepped up to help solves problems that larger businesses had Square retains its focus on SMBs and small-
SMBs manage their payment transactions. with Square’s other products. For exam- volume transactors, but it has now broadened
Its founding philosophy: “We believe all busi- ple, iPads must be updated frequently. For its domain to finding simple but elegant
nesses should be able to participate and thrive chains with multiple checkout lanes in mul- solutions to “all transactions, online and off.”
in the economy.” Square set itself up as a big- tiple stores, updating every iPad would be an Moving beyond in-person payment pro-
business partner to SMBs by putting up the overwhelming chore. Square Register solves cessing, Square has now invaded PayPal’s
capital and assuming the risks of processing this and other problems by using tablets that online payments territory. It’s Venmo-like
credit and debit card transactions. It formed di- are stripped down in both hardware (no bat- Cash App lets individuals send money to each
rect alliances with credit card companies such tery) and software (only Square software). other with the ease of an app. And under its
as Visa and Mastercard, bypassing the credit Most recently, Square introduced the “all transactions” goal, Square has ventured
card–processing companies altogether and Square Terminal, an all-in-one point-of-sale beyond the payments business altogether,
negotiating lower fees. With low fees, a sim- payment terminal. Terminal, a handheld, turning Square devices into gateways to an
ple structure, and minimal overhead, Square smartphone-sized device with a touchscreen, entire ecosystem of small-business essentials.
made its services available to anyone—small lets customers see their bill, swipe or tap a Today, Square provides a full portfolio of SMB
retailers or even everyday individuals—with no
contract and no approval process.
At the same time that it sorted out the
back-office part of card-payment processing,
Square reshaped and simplified the front-end
transaction interface between merchants
and their customers. It developed the now-
familiar Square dongle—a small yet elegant
white plastic magstripe reader that sellers
could plug into the headphone port of their
smartphones and tablets. Thus, with nothing
more than a smartphone, any small merchant
or other organization could accept credit and
debit card payments, whether selling from a
traditional small store, a street cart, a booth
at an event, or even the trunk of a car.
Once launched, Square realized that it of-
fered only one narrow solution to a much
broader SMB problem. It had made credit
card payment processing available to all, and
its smartphone-connected reader was a good
basic solution for many sellers. But most SMBs Payment-processing innovator Square recognized and filled a largely
needed more—they needed simple but more- uncontested and underserved SMB blue ocean marketspace, setting fire
advanced solutions and systems that gave to an otherwise staid industry.
customers a greater impression of stability and Tada images/Shutterstock; photo_gonzo/Shutterstock

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 558 PART 4 | Extending Marketing
services, including creating and hosting online products, providing a single financial home startup is growing rapidly and profitably. In
store platforms, omni-channel integration, for their entire business. just the past four years, Square’s revenues
payments, loans, appointment scheduling, Square continues to deeply disrupt the have multiplied ninefold to nearly $18 billion.
payroll processing, and much more. financial transactions establishment and keep The company has turned a profit for the past
Most recently, Square made a big leap the industry guessing. Just recently, parent three years, an unusual feat for tech startups
into banking with the launch of Square Square, Inc. became Block, Inc., a holding in their first decade. Square also handled
Banking, a suite of powerful financial tools company housing Square, Cash App, recently $154 billion in transaction payments—
designed to give SMBs access to banking acquired Afterpay (a “buy now, pay later” ser- impressive, but still a drop in the ocean given
products that were previously out of their vice), Spiral (“dedicated to advancing bitcoin”), Square’s potential market.
reach. With Square Banking, Square plans to and other businesses related to Square’s mis- “Our approach has been to not just stop
serve as the “primary provider of financing for sion of economic empowerment for everyone. at the device, but [to build a] connection to
Square sellers across the U.S.” Square’s cli- As it moves forward in serving the the broader ecosystem of tools,” says Square
ents can now seamlessly incorporate savings previously uncontested SMB transactions founder Jack Dorsey. “If we can tell a story
accounts, checking accounts, loans, and marketspace, Square is now enjoying fast that is bigger than one piece of [visible] hard-
a credit card into the ecosystem of Square and smooth sailing in its big blue ocean. The ware, then we tend to shift minds.”9

Designing a Competitive Intelligence System

We have described the main types of information that companies need about their com-
petitors. This information must be collected, interpreted, distributed, and used. Gathering
competitive intelligence can cost much money and time, so the company must design a
cost-effective competitive intelligence system.
The competitive intelligence system first identifies the vital types of competitive in-
formation needed and the best sources of this information. Then the system continuously
collects information from the field (sales force, channels, suppliers, market research firms,
internet and social media sites, online monitoring, and trade associations) and published
data (government publications, speeches, and online databases). Next the system checks
the information for validity and reliability, interprets it, and organizes it in an appropriate
way. Finally, it makes relevant information and insights available to decision makers and
responds to inquiries from managers about competitors.
With this system, company managers receive timely intelligence about competitors
in the form of reports and assessments, posted bulletins, newsletters, and email and mo-
bile alerts. Managers can also connect when they need to interpret a competitor’s sudden
move, know a competitor’s weaknesses and strengths, or assess how a competitor will
respond to a planned company move.

Author Now that we’ve identified

Comment competitors and know Competitive Strategies
all about them, it’s time to design OBJECTIVE 18-2 Explain the fundamentals of competitive marketing strategies
a strategy for gaining competitive based on creating value for customers.
advantage.
Having identified and evaluated its major competitors, a company now must design broad
marketing strategies by which it can gain competitive advantage. But what broad com-
petitive marketing strategies might the company use? Which ones are best for a particular
company or for the company’s different divisions and products?

Approaches to Marketing Strategy

No one strategy is best for all companies. Each company must determine what makes
the most sense given its position in the industry and its objectives, opportunities, and re-
sources. Even within a company, different strategies may be required for different busi-
nesses or products. Johnson & Johnson uses one marketing strategy for its leading brands
in stable consumer markets, such as BAND-AID, Tylenol, Listerine, or J&J’s baby products,
and a different marketing strategy for its high-tech health-care businesses and products,
such as Monocryl surgical sutures or NeuFlex finger joint implants.
Companies also differ in how they approach the strategy-planning process. Many large
firms develop formal competitive marketing strategies and implement them religiously.
However, other companies develop strategy in a less formal and orderly fashion. Some
companies, such as Red Bull and Spanx, have succeeded by breaking many of the rules

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 CHAPTER 18 | Creating Competitive Advantage 559
of marketing strategy. Such companies didn’t start with large
marketing departments, conduct expensive marketing research,
spell out elaborate competitive strategies, and spend huge sums
on advertising. Instead, they sketched out strategies on the fly,
stretched their limited resources, lived close to their customers,
and created more satisfying solutions to customer needs. They
formed buyers’ clubs, used buzz marketing, engaged customers
up close, and focused on winning customer loyalty. It seems that
not all marketing must follow in the footsteps of marketing gi-
ants such as P&G, McDonald’s, and Microsoft.
In fact, approaches to marketing strategy and practice often
pass through three stages—entrepreneurial marketing, formu-
lated marketing, and intrapreneurial marketing:

• Entrepreneurial marketing. Most companies are started

by individuals who live by their wits. They visualize an
Entrepreneurial marketing: Boston Beer Company founder opportunity, construct flexible strategies on the backs of
Jim Koch first marketed his Samuel Adams beer by carrying envelopes, and knock on every door to gain attention.
bottles in a suitcase from bar to bar, telling his story, educating
Jim Koch, founder of Boston Beer Company, whose
consumers, getting people to taste the beer, and persuading
bartenders to carry it. The company is now one of America’s Samuel Adams Boston Lager beer has become one of the top-
leading craft breweries. selling craft beers in America, started out in 1984 brewing a
Kelvin Ma/Bloomberg via Getty Images cherished family beer recipe in his kitchen. For marketing,
Koch carried bottles of Samuel Adams in a suitcase from bar to bar, telling his story, edu-
cating consumers about brewing quality and ingredients, getting people to taste the beer,
and persuading bartenders to carry it. For 10 years, he couldn’t afford advertising; he
sold his beer through direct selling and grassroots public relations. “It was all guerrilla
marketing,” says Koch. “The big guys were so big, we had to do innovative things like
that.” Today, however, his business pulls in more than $2 billion a year, making it a leader
among more than 1,000 competitors in the craft brewery market.10
• Formulated marketing. As small companies achieve success, they inevitably move to-
ward more-formulated marketing. They develop formal marketing strategies and ad-
here to them closely. Boston Beer Company now employs a large sales force and has a
marketing department that carries out market research and plans strategy. Although
Boston Beer Company is still much smaller and less formal in its strategy than $54 bil-
lion mega-competitor Anheuser-Busch Inbev, it has adopted many of the tools used in
professionally run marketing companies.
• Intrapreneurial marketing. Many large and mature companies get stuck in formulated
marketing. They pore over the latest Nielsen numbers, scan market research reports,
and try to fine-tune their competitive strategies and programs. These companies some-
times lose the marketing creativity and passion they had at the start. They now need
to build more marketing initiative and “intrapreneurship”—encouraging employees
to be more entrepreneurial within the larger corporation—recapturing some of the
spirit and action that made them successful in the first place. Some companies build
intrapreneurship into their core marketing operations. For example, IBM encourages
employees at all levels to interact on their own with customers through blogs, social
media, and other platforms. Google’s Area 120 in-house innovation program encour-
ages all of its engineers and developers to spend 20 percent of their time develop-
ing “cool and wacky” new product ideas—blockbusters such as Google News, Gmail,
Google Maps, and AdSense are just a few of the resulting products. And Facebook
sponsors regular “hackathons,” during which it encourages internal teams to come up
with and present intrapreneurial ideas. One of the most important innovations in the
company’s history—the “Like” button—resulted from such a hackathon.11
The bottom line is that there are many approaches to developing effective competitive
marketing strategies. There will be a constant tension between the formulated side of mar-
keting and the creative side. It is easier to learn the formulated side of marketing, which has
occupied most of our attention in this book. But we have also seen how marketing creativity
and passion in the strategies of many of the companies studied—whether small or large,
new or mature—have helped to build and maintain success in the marketplace. With this in
mind, we now look at the broad competitive marketing strategies companies can use.

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 560 PART 4 | Extending Marketing
Basic Competitive Strategies
More than three decades ago, Michael Porter suggested four basic competitive positioning
strategies that companies can follow—three winning strategies and one losing one.12 The
three winning strategies are as follows:
• Overall cost leadership. Here the company works hard to achieve the lowest production
and distribution costs. Low costs let the company price lower than its competitors and
win a large market share. Walmart, Lenovo, and Spirit Airlines are leading practitio-
ners of this strategy.
• Differentiation. Here the company concentrates on creating a highly differentiated
product line and marketing program so that it comes across as the class leader in the
industry. Most customers would prefer to own this brand if its price is not too high.
Nike and Caterpillar follow this strategy in apparel and heavy construction equip-
ment, respectively.
• Focus. Here the company focuses its effort on serving a few market segments well
rather than going after the whole market. For example, Ritz-Carlton focuses on the top
5 percent of corporate and leisure travelers. Bose concentrates on very high-quality elec-
tronics products that produce better sound. And search engine DuckDuckGo focuses on
a segment of users who are especially concerned about internet tracking and privacy.
Companies that pursue a clear strategy—one of the above—will likely perform well.
The firm that carries out that strategy best will make the most profits. But firms that do
not pursue a clear strategy—middle-of-the-roaders—do the worst. Sears, Levi-Strauss, and
Holiday Inn encountered difficult times because they did not stand out as the lowest in cost,
highest in perceived value, or best in serving some market segment. Middle-of-the-roaders
try to be good on all strategic counts but end up being not very good at anything.
Two marketing consultants, Michael Treacy and Fred Wiersema, offer a more
customer-centered classification of competitive marketing strategies.13 They suggest
that companies gain leadership positions by delivering superior value to their custom-
ers. Companies can pursue any of three strategies—called value disciplines—for delivering
superior customer value:
• Operational excellence. The company provides superior value by leading its industry in
price and convenience. It works to reduce costs and create a lean and efficient value
delivery system. It serves customers who want reliable, good-quality products or
services but want them cheaply and easily. Examples include Walmart, IKEA, Zara,
Southwest Airlines, and no-frills grocery retailer Lidl. For
example, consider Lidl’s operational excellence strategy:14
Two of Lidl’s core principles may seem contradictory: “Cus-
tomer satisfaction is our highest priority.” and “Unbelievably
low prices determine our position in the market.” Yet, with
its operational excellence strategy, Lidl pulls it off. Remark-
ably, more than 80 percent of all brands carried by Lidl are
store brands, carefully selected to match the company’s high-
quality standards. But sourcing private brands directly from
manufacturers lets Lidl control costs, and Lidl uses its econo-
mies of scale to keep its brands affordable. In its stores, Lidl
works obsessively to keep costs low. For example, it offers a
limited (“refreshingly simple”) selection of 2,000 items (versus
20,000 at a typical grocery store) sold in high volume, increas-
ing its buying power with suppliers. Staffing is minimal. Cus-
tomers bring their own bags and bag their own groceries. And
most products are displayed in custom boxes—when a box is
empty, it is simply replaced by a full one, saving hours spent
Operational excellence: Through operational excellence, stocking shelves. Lidl further offsets its limited number of em-
no-frills grocery retailer Lidl pulls off two seemingly contradictory ployees with efficient backroom technology and automation.
core principles—“Customer satisfaction is our highest priority.” and Operational excellence is working well for Lidl. The chain
“Unbelievably low prices determine our position in the market.” now operates 11,200 stores in 32 countries worldwide and is
NetPhotos/Alamy Stock Photo one of the fastest-growing grocery chains in the United States.

• Customer intimacy. The company provides superior value by precisely segmenting its
markets and tailoring its products or services to exactly match the needs of targeted
customers. It specializes in satisfying unique customer needs through a close relation-
ship with and intimate knowledge of the customer. It empowers its people to respond

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 CHAPTER 18 | Creating Competitive Advantage 561
quickly to customer needs. Customer-intimate companies serve customers who are
willing to pay a premium to get precisely what they want. They will do almost any-
thing to build long-term customer loyalty and to capture customer lifetime value.
Examples include Amazon, Salesforce, Lexus, Ritz-Carlton hotels, and Nordstrom de-
partment stores. For example, superb customer service is deeply rooted in the nearly
120-year-old Nordstrom’s DNA, as summarized in its staunchly held mantra: “Take
care of customers no matter what it takes.” Although many companies pay homage to
similar pronouncements hidden away in their mission statements, Nordstrom really
means it—and really makes it happen.
• Product leadership. The company provides superior value by offering a continuous
stream of leading-edge products or services. It aims to make its own and competing
products obsolete. Product leaders are open to new ideas, relentlessly pursue new
solutions, and work to get new products to market quickly. They serve customers who
want state-of-the-art products and services regardless of the costs in terms of price or
inconvenience.
One example of a product leader is Apple. From the very beginning, Apple has
churned out one cutting-edge product after another. It all started with the sleek, afford-
able Apple Macintosh, the first personal computer ever to feature a graphic user inter-
face and mouse. That was followed by an Apple-led revolution in which groundbreaking
Apple products such as the iPod, iTunes, the iPhone, and the iPad all created whole new
categories where none previously existed. More recently, the latest iPhone models con-
tinue to wow users, Apple’s wireless AirPods have become fixtures around the globe,
and the Apple Watch Series 3 fitness watch is a best-seller. At Apple, innovation is more
than skin deep. For example, the company designs its own sophisticated processor chips,
specifically optimized for its Apple’s operating system, display, camera, and apps.
Some companies successfully pursue more than one value discipline at the same time.
For example, FedEx excels at both operational excellence and customer intimacy. However,
such companies are rare; few firms can be the best at more than one of these disciplines. By
trying to be good at all value disciplines, a company usually ends up being best at none.
Thus, most excellent companies focus on and excel at a single value discipline while
meeting industry standards on the other two. Such companies design their entire value
delivery network to single-mindedly support the chosen discipline. For example, Walmart
knows that customer intimacy and product leadership are important. Compared with other
discounters, it offers good customer service and an excellent product assortment. Still, it
purposely offers less customer service and less product depth than does Nordstrom or
Williams-Sonoma, which pursue customer intimacy. Instead, Walmart focuses obsessively
on operational excellence—on reducing costs and streamlining its order-to-delivery process
to make it convenient for customers to buy just the right products at the lowest prices.
Classifying competitive strategies as value disciplines is appealing. It defines market-
ing strategy in terms of the single-minded pursuit of delivering superior value to custom-
ers. Each value discipline defines a specific way to build lasting customer relationships.

Competitive Positions
Firms competing in a given target market at any point differ in their objectives and re-
sources. Some firms are large; others are small. Some have many resources; others are
strapped for funds. Some are mature and established; others new and fresh. Some strive
for rapid market share growth; others for long-term profits. And these firms occupy differ-
ent competitive positions in the target market.
We now examine competitive strategies based on the roles firms play in the target
market—leader, challenger, follower, or nicher. Suppose that an industry contains the firms
FIGURE 18.2 shown in Figure 18.2. As you can see, 40 percent of the market is in the hands of the
Competitive Market Positions
and Roles
Market Market Market Market
leader challengers followers nichers
Each market position calls for a different competitive strategy.
For example, the market leader wants to expand total demand
and protect or expand its share. Market nichers seek market
40% 30% 20% 10%
segments that are big enough to be profitable but small enough
to be of little interest to major competitors.

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 562 PART 4 | Extending Marketing
Table 18.1 | Strategies for Market Leaders, Challengers, Followers, and Nichers

Market Leader Market Challenger Market Follower

Strategies Strategies Strategies Market Nicher Strategies
Expand total market Full frontal attack Follow closely By customer, market, quality, price, service
Protect market share Indirect attack Follow at a distance Multiple niching
Expand market share

Market leader market leader, the firm with the largest market share. Another 30 percent is in the hands
The firm in an industry with the largest of market challengers, runner-up firms that are fighting hard to increase their market
market share. share. Another 20 percent is in the hands of market followers, other runner-up firms that
want to hold their share without rocking the boat. The remaining 10 percent is in the hands
Market challenger of market nichers, firms that serve small segments not being pursued by other firms.
A runner-up firm that is fighting hard to Table 18.1 shows specific marketing strategies that are available to market lead-
increase its market share in an industry. ers, challengers, followers, and nichers.15 Remember, however, that these classifications
often do not apply to a whole company but only to its position in a specific industry. Large
Market follower companies such as Amazon, Microsoft, Google, P&G, or Disney might be leaders in some
A runner-up firm that wants to hold its markets and nichers in others. For example, Amazon leads the online retailing market but
share in an industry without rocking the challenges Apple and Samsung in smartphones and tablets. P&G leads in many segments,
boat. such as laundry detergents and shampoo, but it challenges Unilever in hand soaps and
Kimberly-Clark in facial tissues. Such companies often use different strategies for different
Market nicher business units, products, or brands, depending on the competitive situations of each.
A firm that serves small segments that
the other firms in an industry overlook or
ignore. Market Leader Strategies
Most industries contain an acknowledged market leader. The leader has the largest mar-
ket share and usually leads the other firms in price changes, new product introductions,
distribution coverage, and promotion spending. The leader may or may not be admired
or respected, but other firms concede its dominance. Competitors focus on the leader as
a company to challenge, imitate, or avoid. Some of the best-known market leaders are
Walmart (retailing), Amazon (online retailing), McDonald’s (fast food), Disney (entertain-
ment), AT&T (telecommunications), Coca-Cola (beverages), Boeing (aerospace), Nike (ath-
letic footwear and apparel), Marriott (hotels and resorts), and Google (internet search).
A leader’s life is not easy. It must maintain a constant watch. Other firms keep challeng-
ing its strengths or trying to take advantage of its weaknesses. The market leader can easily
miss a turn in the market and plunge into second or third place. A product innovation may
come along and hurt the leader (as when Netflix’s direct marketing and video streaming un-
seated then-market leader Blockbuster or when Apple developed the iPod and iTunes and
took the market lead from Sony’s Walkman portable audio devices). The leader might grow
arrogant or complacent and misjudge the competition (as when Sears lost its lead to Walmart).
Or the leader might look old-fashioned against new and peppier rivals (as when Abercrombie
& Fitch lost ground to stylish or lower-cost brands such as Zara, H&M, and Forever 21).
To remain number one, leading firms can take any of three actions. First, they can find
ways to expand total demand. Second, they can protect their current market share through
good defensive and offensive actions. Third, they can try to expand their market share fur-
ther, even if market size remains constant.

Expanding Total Demand

The leading firm normally gains the most when the total market expands. If Americans
eat more fast food, McDonald’s stands to gain the most because it holds a much larger
fast-food market share than competitors such as Subway, Wendy’s, Burger King, or Taco
Bell. If McDonald’s can convince more Americans that fast food is the best eating-out
choice, it will benefit more than its competitors.
Market leaders can expand the market by developing new users, new uses, and
more usage of its products. They usually can find new users or untapped market seg-
ments in many places. For example, the Food Network, a market-leading lifestyle net-
work, continues to grow its fan base by adding new content and channels:16

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 CHAPTER 18 | Creating Competitive Advantage 563
When Food Network began as a basic 24/7 cable channel in 1993, few experts thought that
any channel could survive by trying to fill 24 hours daily with only food and cooking shows.
“Nowadays, it’s hard to imagine a world without Guy Fieri noshing on greasy spoon burgers
or Chopped contestants grappling with a bunch of odd ingredients,” says one industry observer.
“But in the early days of the Food Network, industry executives worried that a network devoted
exclusively to food would be a tough sell.” However, the Food Channel pulled it off by turning
a kitchen full of chefs into star celebrities, one after another—from Emeril Lagasse, Alton Brown,
and Sara Moulton to Guy Fieri, Ted Allen, Rachael Ray, Ree Drummond, Giada De Laurentiis,
Michael Symon, and Bobby Flay.
Then, even as a lifestyle channel leader, the Food Channel continued to grow its fan base
with a constant stream of new content and media. In 2009, it began publishing The Food Network
Magazine, now the nation’s number-two best-selling magazine on newsstands with 13.5 million
readers. It developed a full website and social media portfolio, now attracting 33.3 million fol-
lowers on Facebook, 12.4 million on Instagram, 5.1 million on Twitter, and 2.4 million on TikTok.
One of the channel’s latest moves to attract new users is the Food Channel Kitchen, a site and
app where people take on-demand cooking classes with their favorite Food Network chefs, ob-
tain recipes with step-by-step tutorials, receive exclusive weekly meal plans, and stream Food
Network shows ad-free. Thus, through its quest to attract new users, the Food Network remains
a leading lifestyle network, website, and magazine that now reaches nearly 100 million U.S.
households and draws more than 46 million unique web users monthly.

Marketers can expand markets by discovering and promoting new uses for the prod-
uct. For example, BOUNCE Inc. is a trampoline park that has been a market leader since
2014 thanks to its first-mover advantage in the MENA region. Despite competition from new
entrants in the market, BOUNCE maintains a strategy of aggressive growth, with a seventh
MENA venue opened in 2019. BOUNCE has strategically evolved its product by adding en-
tertainment elements that allow the users to develop their freestyle skills from a hobby to
a skill with the help of expert guides. Their innovations include the incorporation of free
run (parkour), cage football, zip lines, and challenge courses. BOUNCE is now also creating
new revenue streams as party venues and corporate events facilities. In the latter offering,
BOUNCE hosts corporate away days with team-building
activities designed to promote leadership, teamwork, com-
munication, and healthy competition. This growth strategy
has enabled BOUNCE to capture new users that were pre-
viously being catered to by other competitors, and in the
case of corporate clients, it has been able to offer a unique
experience without significantly altering their regular mar-
ket offering.17
Finally, market leaders can encourage more usage by
convincing people to use the product more often or use more
per occasion. For example, Campbell’s urges people to
eat soup and other Campbell’s products more often by run-
ning ads containing new recipes. At the Campbell’s Kitchen
website (www.campbellskitchen.com), visitors can search
for or exchange recipes, create their own personal recipe
box, learn ways to eat healthier, and sign up for a daily or
weekly Meal Mail program. At the Campbell’s Facebook,
Pinterest, and Twitter sites, consumers can join in and share
Promoting new uses: Campbell fosters communities where people on Campbell’s Kitchen Community conversations.
can search for, create, or exchange recipes, thereby increasing the use
of its soups.
Postmodern Studio/Alamy Stock Photo
Protecting Market Share
While trying to expand total market size, the leading firm also must protect its current
business against competitors’ attacks. Walmart must constantly guard against Amazon,
Target, and Costco; McDonald’s against Wendy’s and Burger King; and Nike against
adidas.
What can the market leader do to protect its position? First, it must prevent or fix
weaknesses that provide opportunities for competitors. It must always fulfill its value
promise and work tirelessly to engage valued customers in strong relationships. Its prices
must remain consistent with the value that customers see in the brand. The leader should
“plug holes” so that competitors do not jump in.

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 564 PART 4 | Extending Marketing
But the best defense is a good offense, and the best re-
sponse is continuous innovation. The market leader refuses
to be content with the way things are and leads the indus-
try in new products, customer services, distribution effec-
tiveness, promotion, and cost cutting. It keeps increasing
its competitive effectiveness and value to customers. And
when attacked by challengers, the market leader reacts de-
cisively. For example, in the $73 billion global dispos-
able diaper market, market leader P&G—with its Pampers
and Luvs brands—has been relentless in its offense against
challengers such as Kimberly-Clark’s Huggies:18
Disposable diapers make up a double-digit percent share of
P&G’s sales. So the company invests huge resources in dispos-
able diaper and baby-care R&D, seeking to build the ultimate
diaper that yields “zero leakage, ultimate dryness, ultimate
comfort, with an underwear-like fit,” says a P&G baby-care
research manager. At five baby-care centers around the globe,
Protecting market share: P&G’s researchers push the boundaries of P&G’s researchers push the boundaries of science and style to
science and style to keep a technological edge over disposable diaper keep a technological edge over challengers. P&G’s baby-care
challengers. Thanks to relentless innovation and brand building, P&G division now has more than 5,000 diaper patents granted or
maintains a commanding market share lead. pending. For instance, it introduced Pamper Premium Care
Luke Sharrett/Bloomberg/Getty Images Pants, diapers with all-around elastic that can be pulled on
like underwear, now the most popular diaper variety in China. It introduced Pampers Pure, now
the top-selling natural diaper. Next up in diaper innovation: smart diapers with imbedded sensors
that alert parents through smartphone apps when their babies wet a diaper or even notify parents
if they detect the wearer catching a disease. Beyond its push for technological superiority, P&G
employs its hefty marketing clout to engage consumers and persuade them that its diapers are best
for their babies. In all, thanks to its relentless innovation and brand building, in the United States
P&G holds a 43-percent-and-growing market share versus challenger Kimberly-Clark’s 35 percent.

Expanding Market Share

Market leaders also can grow by increasing their market shares further. In many markets,
small market share increases mean very large sales increases. For example, in the U.S. hair
care market, a 1 percent increase in market share is worth $123 million in annual sales; in
soft drinks, almost $1.2 billion!19
Studies have shown that, on average, profitability rises with increasing market share.
Because of these findings, many companies have sought expanded market shares to im-
prove profitability. In recent years, for example, P&G has shed dozens of smaller, low-share
brands in order to focus its resources on fewer but larger-share billion-dollar-plus brands.
More than one-third of the company’s brands now fall into this mega-brand category.
However, some studies have found that many industries contain one or a few highly
profitable large firms, several profitable and more focused firms, and a large number
of medium-sized firms with poorer profit performance. It appears that profitability in-
creases as a business gains share relative to competitors in its served market. For ex-
ample, Lexus holds only a small share of the total car market, but it earns a high profit
because it is a leading brand in the luxury-performance car segment. And it has achieved
this high share in its served market because it does other things right, such as produc-
ing high-quality products, creating outstanding service experiences, and building close
customer relationships.
Companies must not think, however, that gaining increased market share will au-
tomatically improve profitability. Much depends on their strategy for gaining increased
share. There are many high-share companies with low profitability and many low-share
companies with high profitability. The cost of buying higher market share may far ex-
ceed the returns. Higher shares tend to produce higher profits only when unit costs fall
with increased market share or when the company offers a superior-quality product
and charges a premium price that more than covers the cost of offering higher quality.

Market Challenger Strategies

Firms that are second, third, or lower in an industry are sometimes quite large, such as
PepsiCo, Ford, Lowe’s, Hertz, and Target. These runner-up firms can adopt one of two

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 CHAPTER 18 | Creating Competitive Advantage 565
competitive strategies: They can challenge the market leader and other competitors in an
aggressive bid for more market share (market challengers), or they can play along with
competitors and not rock the boat (market followers).
A market challenger must first define which competitors to challenge and its strategic
objective. The challenger can attack the market leader, a high-risk but potentially high-gain
strategy. Its goal might be to take over market leadership. Or the challenger’s objective
may simply be to wrest more market share.
Although it might seem that the market leader has the most going for it, challeng-
ers often have what some strategists call a “second-mover advantage.” The challenger
observes what has made the market leader successful and improves on it. For example,
Home Depot invented the home-improvement superstore. However, after observing
Home Depot’s success, number-two Lowe’s, with its brighter stores, wider aisles, and
arguably more helpful salespeople, positioned itself as the friendly alternative to Big Bad
Orange. That let follower Lowe’s substantially close the gap in sales and market share
with Home Depot.
In fact, challengers often become market leaders by imitating and improving on the
ideas of pioneering processors. For example, McDonald’s first imitated and then mastered
the fast-food system first pioneered by White Castle. And founder Sam Walton admitted
that Walmart borrowed most of its practices from discount pioneer Sol Price’s FedMart and
Price Club chains and then perfected them to become today’s dominant retailer.
Alternatively, the challenger can avoid the leader and instead challenge firms its own
size or smaller local and regional firms. These smaller firms may be underfinanced and
not serving their customers well. If the challenger goes after a small local company, its
objective may be to put that company out of business. The important point remains: The
challenger must choose its opponents carefully and have a clearly defined and attainable
objective.
How can the market challenger best attack the chosen competitor and
achieve its strategic objectives? It may launch a full frontal attack, matching the
competitor’s product, advertising, price, and distribution efforts. It attacks the
competitor’s strengths rather than its weaknesses. The outcome depends on
who has the greater strength and endurance. PepsiCo challenges Coca-Cola in
this way, Ford challenges Toyota frontally, and Sprint goes directly at AT&T.
If the market challenger has fewer resources than the competitor, however,
a frontal attack makes little sense. Thus, many new market entrants avoid fron-
tal attacks, knowing that market leaders can head them off with ad blitzes, price
wars, and other retaliations. Rather than challenging head-on, the challenger
can make an indirect attack on the competitor’s weaknesses or on gaps in the
competitor’s market coverage. It can carve out toeholds using tactics that estab-
lished leaders have trouble responding to or choose to ignore.
For example, consider how challenger Red Bull first entered the U.S. soft
drink market against market leaders Coca-Cola and PepsiCo. Red Bull tackled
the leaders indirectly by selling a high-priced niche product in nontraditional
distribution points. It began by selling Red Bull via unconventional outlets that
were under the radar of the market leaders, such as nightclubs and bars where
young revelers gulped down their caffeine fix so they could go all night. Once it
had built a core customer base, the brand expanded into more traditional outlets,
where it now sits within arm’s length of Coke and Pepsi. Finally, Red Bull used
Market challenger strategies: When it
entered the U.S. market, rather than attacking
a collection of guerrilla marketing tactics rather than the high-cost traditional
market leaders Coca-Cola and Pepsi directly, media used by the market leaders. The indirect approach worked for Red Bull.
Red Bull used indirect, unconventional Despite ever-intensifying competition, Red Bull is now a $8.7 billion brand that
marketing approaches. captures a 43 percent share of the worldwide energy drink market, with Coca-
zef art/Shutterstock Cola and PepsiCo holding only minor market shares.20

Market Follower Strategies

Not all runner-up companies want to challenge the market leader. The leader never takes
challenges lightly. If the challenger’s lure is lower prices, improved service, or additional
product features, the market leader can quickly match these to defuse the attack. The
leader probably has more staying power in an all-out battle for customers. For example,

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 566 PART 4 | Extending Marketing
a few years ago, when Sears-owned Kmart renewed its once-successful low-price “blue-
light special” campaign, directly challenging Walmart’s everyday low prices, it started a
price war that it couldn’t win. Walmart had little trouble fending off Kmart’s challenge,
leaving Kmart worse off for the attempt. With no competitive strategy to effectively chal-
lenge retailing leaders like Walmart and Amazon, Kmart is now all but extinct. At its
peak in the 1990s, Kmart had 2,400 U.S. stores and 350,000 employees but now operates
only four stores. Thus, many firms prefer to follow rather than challenge the market
leader.21
A follower can gain many advantages. The market leader often bears the huge ex-
penses of developing new products and markets, expanding distribution, and educating
the market. By contrast, as with challengers, the market follower can learn from the mar-
ket leader’s experience. It can copy or improve on the leader’s products and programs,
usually with much less investment. Although the follower will probably not overtake the
leader, it often can be as profitable.
Following is not the same as being passive or a carbon copy of the market leader.
A follower must know how to hold current customers and win a fair share of new ones. It
must find the right balance between following closely enough to win customers from the
market leader and following at enough of a distance to avoid retaliation. Each follower
tries to bring distinctive advantages to its target market—location, services, financing.
A follower is often a major target of attack by challengers. Therefore, the market follower
must maintain customer value, through either lower costs and prices or higher quality
and better services that justify higher prices. It must also enter new markets as they open.

Market Nicher Strategies

Almost every industry includes firms that specialize in serving market niches. Instead
of pursuing the whole market or even large segments, these firms target subsegments.
Nichers are often smaller firms with limited resources. But smaller divisions of larger firms
also may pursue niching strategies. Firms with low shares of the total market can be highly
successful and profitable through smart niching.
Why is niching profitable? The main reason is that the market nicher ends up knowing
the target customer group so well that it meets their needs better than other firms that ca-
sually sell to that niche. As a result, the nicher can charge a substantial markup over costs
because of the added value. Whereas the mass marketer achieves high volume, the nicher
achieves high margins.
Nichers try to find one or more market niches that are safe and profitable. An ideal
market niche is big enough to be profitable and has growth potential. It is one that the firm
can serve effectively. Perhaps most important, the niche is of little interest to major com-
petitors. And the firm can build the skills and customer goodwill to defend itself against a
major competitor as the niche grows and becomes more attractive.
The key idea in niching is specialization. Nichers thrive by meet-
ing in depth the special needs of well-targeted customer groups.
For example, Google dominates U.S. online search with its massive
63 percent market share. Two other giants—Microsoft’s Bing and
Yahoo!—combine for another 34 percent. That leaves a precious
3 percent sliver for dozens of other search engines trying to get a foot-
hold. So how does a small search engine wannabe compete against
global powerhouses? It doesn’t, at least not directly. Instead, it finds
a unique market niche and runs where the big dogs don’t. That’s
the strategy of DuckDuckGo, a plucky search engine nicher that has
carved out its own special market space:22
Instead of battling Google and other giants head-on, DuckDuckGo posi-
tions itself strongly on a key differentiating feature that the Googles of the
world simply can’t mimic—real privacy. Then it energizes its unique niche
with brand personality and user community, personified by DuckDuckGo’s
icon—a quirky bow-tied duck. Google’s entire model is built around
Niche marketing: DuckDuckGo thrives in the shadows personalization for customers and behaviorally targeted marketing for
of giant search engine competitors by providing something advertisers. That requires collecting and sharing data about users and their
the Googles of the world can’t mimic—real privacy. searches. When you search on Google, the company knows and retains in
Ascannio/Shutterstock detail who you are, what you’ve searched for, and when you’ve searched.

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 CHAPTER 18 | Creating Competitive Advantage 567
By contrast, DuckDuckGo is less invasive and less creepy. It doesn’t know who you are.
It doesn’t log user IP addresses, use cookies to track users, or even save user search histories.
Perhaps most important, when users click on DuckDuckGo’s search results links, the linked
websites don’t receive any information generated by the search engine. “No tracking, no ad
targeting, just searching,” promises DuckDuckGo. Thus, DuckDuckGo has become a preferred
search engine for people who prize online privacy, and that’s a sizable group.
DuckDuckGo isn’t just surviving in its niche, it’s thriving. The company is still comparatively
tiny—it averages about 98 million searches a day versus Google’s 5.6 billion. But DuckDuckGo’s
daily search volume has grown more than ninefold in just the past five years, whereas Google’s
volume growth has lagged a bit. In many ways, DuckDuckGo is David to Google’s Goliath. But
unlike David, DuckDuckGo isn’t out to slay the giant. It knows that it can’t compete head-on with
Google. Then again, given the depth of consumer engagement and loyalty that DuckDuckGo
engenders in its own small corner of the online search market, Google and the other giants may
find it difficult to compete with DuckDuckGo for privacy-minded users.

A market nicher can specialize along any of several market, customer, product, or
marketing mix lines. For example, it can specialize in serving one type of end user, as when
a law firm specializes in the criminal, civil, or business law markets. The nicher can special-
ize in serving a given customer-size group. Many nichers specialize in serving small and
midsize customers who are neglected by the majors.
Some nichers focus on one or a few specific customers, selling their entire output to a
single company, such as Walmart or General Motors. Still other nichers specialize by geo-
graphic market, selling only in a certain locality, region, or area of the world. For example,
Vegemite is primarily sold and consumed in Australia. Quality-price nichers operate at the
low or high end of the market. For example, Manolo Blahnik specializes in the high-quality,
high-priced women’s shoes. Finally, service nichers offer services not available from other
firms. For example, LendingTree provides online lending and realty services, connecting
homebuyers and sellers with national networks of mortgage lenders and realtors who
compete for the customers’ business. “When lenders compete,” it proclaims, “you win.”
Niching carries some major risks. For example, the market niche may dry up, or it might
grow to the point that it attracts larger competitors. That is why many companies practice
multiple niching. By developing two or more niches, a company increases its chances for sur-
vival. Even some larger firms prefer a multiple niche strategy to serving the total market. For
example, footwear maker Wolverine World Wide markets a dozen lifestyle brands ranging
from kids, casual, and athletic footwear to work shoes. For example, its age-old Stride Rite
brand features durable footwear for kids. The Saucony brand offers athletic footwear for run-
ners. The Keds brand targets women with a casual sneakers and leather shoes, whereas the
Hush Puppies brand offers timeless comfort in casual shoes, boots, and sandals. In contrast,
Wolverine’s Bates and CAT brands target the construction, police, and military markets with
durable footwear for work. Altogether, its separate niche brands combine to make Wolverine a
$2.4 billion footwear company that “has the world at its feet, both literally and figuratively.”23

Balancing Customer and Competitor Orientations

OBJECTIVE 18-3 Illustrate the need for balancing customer and competitor
orientations in becoming a truly market-centered organization.
Whether a company is the market leader, challenger, follower, or nicher, it must watch
its competitors closely and find the competitive marketing strategy that positions it most
effectively. And it must continually adapt its strategies to the fast-changing competitive
environment. This question now arises: Can the company spend too much time and energy
tracking competitors, damaging its customer orientation? The answer is yes. A company
can become so competitor centered that it loses its even more important focus on maintain-
ing profitable customer relationships.
Competitor-centered company A competitor-centered company is one that spends most of its time tracking com-
A company whose moves are mainly petitors’ moves and market shares and trying to find strategies to counter them. This ap-
based on competitors’ actions and proach has some pluses and minuses. On the positive side, the company develops a fighter
reactions. orientation, watches for weaknesses in its own position, and searches out competitors’
weaknesses. On the negative side, the company becomes too reactive. Rather than carrying
out its own customer relationship strategy, it bases its own moves on competitors’ moves.
As a result, it may end up simply matching or extending industry practices rather than
seeking innovative new ways to create more value for customers.

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 568 PART 4 | Extending Marketing
Customer-centered company A customer-centered company, by contrast, focuses more on customer develop-
A company that focuses on customer ments in designing its strategies. Clearly, the customer-centered company is in a better
developments in designing its marketing position to identify new opportunities and set long-run strategies that make sense. By
strategies and delivering superior value watching customer needs evolve, it can decide what customer groups and what emerging
to its target customers. needs are the most important to serve. Then it can concentrate its resources on delivering
superior value to target customers.
Market-centered company In practice, today’s companies must be market-centered companies, watching
A company that pays balanced attention both their customers and their competitors. But they must not let competitor watching
to both customers and competitors in blind them to customer focusing.
designing its marketing strategies. Figure 18.3 shows that companies might have any of four orientations. First, they
might be product oriented, paying little attention to either customers or competitors. Next,
they might be customer oriented, paying attention to customers. In the third orientation,
when a company starts to pay attention to competitors, it becomes competitor oriented.
FIGURE 18.3 Today, however, companies need to
Evolving Company Orientations Customer-centered
be market oriented, paying balanced
No Yes attention to both customers and com-
petitors. Rather than simply watching
Market-centered companies No Product orientation Customer orientation competitors and trying to beat them on
Competitor-
centered

understand both customers current ways of doing business, they

and competitors. They
build profitable customer need to watch customers and find in-
relationships by delivering
Yes Competitor orientation Market orientation novative ways to build profitable cus-
more customer value than
competitors do.
tomer relationships by delivering more
customer value than competitors do.

Reviewing and Extending the Concepts

Objectives Review
Today’s companies face their toughest competition ever. OBJECTIVE 18-2 Explain the fundamentals of
Understanding customers is an important first step in de- competitive marketing strategies based on creating
veloping strong customer relationships, but it’s not enough.
To gain competitive advantage, companies must use this
value for customers.
understanding to design market offerings that deliver more Which competitive marketing strategy makes the most sense de-
value than the offers of competitors seeking to win over the pends on the company’s industry and on whether it is the market
same customers. This chapter examines how firms analyze leader, challenger, follower, or nicher. The market leader has to
their competitors and design effective competitive marketing mount strategies to expand the total market, protect market share,
strategies. and expand market share. A market challenger is a firm that tries ag-
gressively to expand its market share by attacking the leader, other
OBJECTIVE 18-1 Discuss the need to understand runner-up companies, or smaller firms in the industry. The challenger
can select from a variety of direct or indirect attack strategies.
competitors as well as customers through competitor
A market follower is a runner-up firm that chooses not to rock
analysis. the boat, usually from fear that it stands to lose more than it
To prepare an effective marketing strategy, a company must might gain. But the follower is not without a strategy and seeks
consider its competitors as well as its customers. Building to use its particular skills to gain market growth. Some followers
profitable customer relationships requires satisfying target enjoy a higher rate of return than the leaders in their industry.
consumer needs better than competitors do. A company A market nicher is a smaller firm that is unlikely to attract the
must continuously analyze competitors and develop com- attention of larger firms. Market nichers often become special-
petitive marketing strategies that position it effectively against ists in some end use, customer size category, specific customer
competitors and give it the strongest possible competitive group, geographic area, or service.
advantage.
Competitor analysis first involves identifying the company’s OBJECTIVE 18-3 Illustrate the need for balancing
major competitors, using both an industry-based and a market- customer and competitor orientations in becoming
based analysis. The company then gathers information on
a truly market-centered organization.
competitors’ objectives, strategies, strengths and weak-
nesses, and reaction patterns. With this information in hand, it A competitive orientation is important in today’s markets, but
can select competitors to attack or avoid. Competitive intelli- companies should not overdo their focus on competitors.
gence must be collected, interpreted, and distributed continu- Companies are more likely to be hurt by emerging consumer
ously. Company marketing managers should be able to obtain needs and new competitors than by existing competitors.
full and reliable information about any competitor affecting Market-centered companies that balance customer and com-
their decisions. petitor considerations are practicing a true market orientation.

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 CHAPTER 18 | Creating Competitive Advantage 569
Key Terms
Competitive advantage OBJECTIVE 18-2 OBJECTIVE 18-3
Competitor analysis Market leader Competitor-centered company
Competitive marketing strategies Market challenger Customer-centered company
Market follower Market-centered company
OBJECTIVE 18-1
Market nicher
Strategic group
Benchmarking
Customer value analysis

Discussion Questions
18-1 Define competitive advantage. How do companies go 18-4 What is a market nicher? (AACSB: Oral and Written
about finding their competitive advantage? (AASCB: Communication; Reflective Thinking)
Oral and Written Communication; Reflective Thinking) 18-5 How does a market-centered company compare to a
18-2 After identifying the firm’s main competitors, what ques- customer-centered company, a competitor-centered
tions should marketing managers ask? Why is asking company, and a product-oriented company? (AACSB:
these questions important? (AACSB: Oral and Written Reflective Thinking; Application of Knowledge)
Communication; Reflective Thinking) 18-6 Describe the market follower strategies that can be ad-
18-3 Describe the strategies market challengers can adopt, and opted if runner-up companies opt not to challenge mar-
explain why challengers might sometimes have an advan- ket leaders. (AACSB: Oral and Written Communication;
tage over market leaders. (AACSB: Reflective Thinking) Reflective Thinking)

Critical Thinking Exercises

18-7 Provide one example of a company that uses entrepre- includes an attitude report card system that encourages
neurial marketing, one that uses formulated marketing all employees to “Be bold, be an owner, be open, and
(that is, marketing set to a template), and one that uses be kind.” Walmart is also adding robots to clean floors,
intrapreneurial marketing. Contrast the approaches. sort deliveries, and complete other repetitive tasks
(AACSB: Application of Knowledge; Reflective Thinking) that were previously done by humans. How does the
18-8 Walmart, a market leader and the nation’s biggest Great Workplace model relate to Walmart’s competitive
private employer, recently implemented a “Great positioning strategy? How does it relate to Walmart’s
Workplace” model that increases wages and responsi- value discipline? (AACSB: Application of Knowledge;
bilities for some employees and emphasizes teamwork, Reflective Thinking)
accountability, and skill improvement for all frontline 18-9 Find one market nicher in each of three different indus-
employees. The model aims to improve Walmart’s repu- tries. Identify the competitive strategy each one uses.
tation as an employer and its customer services, as it (AACSB: Application of Knowledge; Reflective Thinking)

APPLICATIONS AND CASES

Digital Marketing Are the Bells Tolling for the Conventional Automobile?
Henry Ford’s iconic Model T, introduced in 1908, in many areas from safety and networking to electric powertrains and
ways heralded the beginning of the mass-manufactured au- self-driving abilities.
tomobile powered by an internal combustion engine. People
shrugged when Ford promised to see the horse and car- 18-10 How should an established automobile company like
riage off the highways. But the Model-T was a resound- GM rethink its competencies in this digital age? Provide
ing success that made the automobile a common sight on as many specific examples as possible. (AACSB:
the roads and a common possession in many households. Application of Knowledge; Reflective Thinking)
And now the wheels are turning again. Of course, cars con- 18-11 Can GM build these competencies using its existing
tinue to transport people and things. But in this digital age, workforce and managers? How should it proceed?
they are also becoming marvels of technologies, covering (AACSB: Application of Knowledge)

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 570 PART 4 | Extending Marketing
Marketing Ethics Is Ugly Produce a True Food Waste Solution?
To address the fact that nearly one-third of food is wasted at Thus, it is not clear that selling it to consumers would limit food
the retail and consumer levels, “ugly produce” innovators have waste. However, others argue that ugly produce companies can
received millions of dollars in private funding to address food help address food loss, which, like waste, impacts the environ-
waste. “Ugly produce” is produce that has minor blemishes or ment and the economy. Further, marketing ugly produce may
deformities—it’s perfectly edible but often rejected for placement start a conversation that raises awareness about food waste.
in stores. But do for-profit, U.S.-based ugly produce companies 18-12 Skim through the websites of Phat Beets and Imperfect
such as Hungry Harvest and Imperfect Produce actually help Produce. The companies are positioned differently but
solve the food waste challenge? In fact, nonprofit Phat Beets, serve similar target markets with similar products. How
which experienced a 30 percent drop in subscriptions, accused should Phat Beets differentiate itself from Imperfect
venture capital–backed Imperfect Produce of commodifying Produce, if at all? (AACSB: Ethical Thinking and
need, undercutting prices, and undermining community- Reasoning)
supported agriculture efforts. An agricultural scientist noted that
most waste comes from consumers, restaurants, and grocery 18-13 Is it ethical for ugly produce companies to position
stores, which are not impacted by taking ugly produce from farm- themselves as social enterprises or as solutions to
ers. A related argument is that farmers would otherwise use the the food waste challenge? Why or why not? (AACSB:
ugly produce to feed the hungry, feed animals, or fertilize the soil. Ethical Thinking and Reasoning)

Marketing by the Numbers Changing Numbers in the Smartphone Market

Greek philosopher Heraclitus certainly understood modern Units Shipped (in millions)
day markets when he said, “The only thing that is constant is
change.” The smartphone market has changed considerably Company 2020 2021
since its inception just under 30 years ago. According to the Samsung 266.7 295.8
Pew Research Center, 77 percent of Americans now own a Apple 206.1 191.0
smartphone. But today’s smartphone market is not like it was
when IBM introduced the first smart mobile device, called the Huawei 189.0 240.6
Simon Personal Communicator, in 1994. Although before its Xiaomi 147.8 125.6
time, it could perform many of today’s smartphone functions. vivo 111.7 110.1
However, it was much bulkier, had a battery life of only one hour,
Others 371.0 409.5
had a small monochrome LCD screen, and could be plugged
into a regular phone jack to make lower-cost calls over a land-
line. The next market leader was RIM’s BlackBerry mobile de- 18-14 Refer to the Marketing Performance Measures section
vice, which enjoyed market leadership for many years. Then of Appendix 2: Marketing by the Numbers and calcu-
along came Apple, which revolutionized the smartphone market late market shares for each company for both years.
in 2007 by introducing the iPhone. Sales of the iPhone jumped Calculate the percentage change in year-over-year unit
from 1.4 million units that year to almost 12 million in 2008 to sales for each company. What can you conclude from
more than 200 million in 2018. Apple enjoyed market leader- the market shares and year-over-year changes that you
ship for many years, but new competitors entered the market, calculated? (AACSB: Analytical Reasoning)
eating away at Apple's market share. Following are worldwide 18-15 Find market data for previous years and analyze
unit shipment data for the top smartphone companies in 2020 how the smartphone market has changed over time.
and 2021: (AACSB: Analytical Reasoning)

Company Case Nokia: Finding Strength by Abandoning Its Core Business

Today, when they think smartphones, most people think of Not only did Nokia lead the market in sales, but Nokia and
Apple’s iPhone or Samsung’s Galaxy. Most would find it hard Motorola are credited with inventing the technologies that
to believe that little more than a decade ago, Finnish electronics continue to power the most state-of-the-art smartphones.
company Nokia was the hands-down market leader in mobile But today, hardly anyone even recognizes Nokia as a phone
phones. At its peak, one in three of the world’s active mobile maker. Given its current absence from the hot mobile phone
phones bore the Nokia name and logo, and Nokia was selling category, you might think that Nokia has gone the way of
a half-billion new phones each year throughout the world. In other once-mighty brands such as Kodak or Sears. But, in
fact, Nokia sold more phones than its then-three-closest rivals— fact, Nokia is thriving—not as a phone manufacturer but as a
Samsung, Motorola, and Sony-Ericsson—combined. With more market-leading supplier of network infrastructure for industrial
than 50 percent of the mobile phone market, Nokia was the telecommunications service providers. How did Nokia escape
world’s fifth-most-valuable brand, valued at $34 billion—double extinction and rise to market leadership in a different indus-
the value of number 21 Samsung and triple that of number 33 try? The answer lies in a long and difficult transformation and
Apple. reinvention.

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 CHAPTER 18 | Creating Competitive Advantage 571
A History of Transformation business into a joint venture with Siemens. When its phone sales
Given its current high-tech positioning, most people are sur- began to founder, it attempted to get out of the network equipment
prised to learn of Nokia’s beginnings. Established in 1865, Nokia business altogether. But with its handset business gone and after
began life as a wood-pulp paper mill. A few mergers and a hun- careful reevaluation, Nokia decided that the network equipment
dred years or so later, the Nokia Corporation was making not business presented the best opportunity to restore growth.
only paper products but also bicycle and car tires, footwear, Placing all its bets for the future on the industrial telecom-
computers, televisions, and communications cables and equip- munications infrastructure equipment market, Nokia began by
ment. Starting in the 1960s, one Nokia division made commer- buying out Siemens’s share of the Nokia Siemens Networks
cial and military mobile radios, a business unit that ultimately joint venture. With the world going mobile, providers were in-
morphed into a mobile phone giant. creasingly packaging mobile services with broadband internet
Nokia rose to mobile phone dominance not by continually in- access and TV services. To bolster its infrastructure services
troducing new cutting-edge gadgets but by focusing on a simple, capabilities, Nokia acquired Alcatel-Lucent, a French company
age-old strategy: selling basic products at low prices. With com- with strengths in broadband service equipment. The acquisition
petitive advantages in logistics and scale, Nokia was well suited not only provided much needed technologies and capabilities,
to this basic strategy. And the strategy was a perfect fit with the it also put Nokia on better revenue footings with market leaders
huge global need for cheap phones in second- and third-world Ericsson and Chinese tech giant Huawei.
markets. Thus, Nokia became best known for its trademarked To achieve success in the network equipment market, Nokia
easy-to-use block handset. By mass-producing basic reliable set specific strategic priorities. For starters, it set out to lead the
phones cheaply and shipping them in huge volumes to all parts industry in high-performance end-to-end solutions, serving as
of the world, Nokia made as much profit on its $72 phones as a single-source quality provider for corporate customers. Nokia
competitors made on phones selling for much more. also set out to expand network sales to new markets, includ-
Although Nokia’s phone strategy worked well, it was a strategy ing energy, transportation, and web players such as Google and
best suited for twentieth-century markets that were characterized Amazon. With these new strategic initiatives, Nokia’s bet is pay-
by long product life cycles. Even as Apple stunned the world with ing off. Last year, Nokia’s sales soared to $26.6 billion, doubling
the iPhone, Nokia’s plan was simply to hold its market share con- from the previous year. Unlike its earlier phone business, Nokia
stant in the fast-growing global mobile phone market. Given pro- is building its network equipment business more on reliably pro-
jections that mobile phone adoption would double from 2.5 billion viding cutting-edge technology rather than on being the lowest-
users worldwide to 5 billion in just a few years, that plan would priced option. This strategy gives Nokia an edge over rivals
have raised Nokia’s revenues and sales volume by 67 percent. In Huawei and Ericsson. It doesn’t hurt that there has been recent
normal markets, that plan might have seemed reasonable. growing concern surrounding Huawei amid alleged attempts of
But the mobile phone market was anything but normal, and data theft. Thus, despite Huawei’s low-price advantage, more
what happened next to Nokia can only be described as a slaugh- customers are choosing Nokia.
ter. After years of stellar performance, the mobile phone industry As the world transitions from 4G to 5G technology, Nokia’s
experienced a “perfect storm” of threats, including market satura- timing is good. Nokia has leapfrogged into the lead in the race
tion in developed countries combined with the effects of the Great to provide equipment to commercial network service provid-
Recession on the supply and cost of raw materials. Making mat- ers. Despite numerous challenges that are stunting industries
ters worse for Nokia, in the midst of these shifting market condi- worldwide, including supply chain constraints, rising costs of
tions, Apple introduced the dramatically new iPhone smartphone. raw materials, and geopolitical conflicts that have forced Nokia
Nokia’s sales and profits plunged as it ignored smartphones and other companies to exit the Russian market, Nokia contin-
and continued to focus on developing better solutions for an old ues to be a leader in network equipment industry and recently
mobile phone market that would soon no longer exist. Only eight posted earnings that exceeded the expectations of financial
years after Apple’s innovative smartphone changed the world, markets.24
Apple rose to become the world’s most valuable brand. During
that same period, Nokia’s revenues met with a jaw-dropping de- Questions for Discussion
cline, plummeting from a high of $75 billion to a low of $6 billion.
And its brand value sunk from $34 billion to less than $4 billion. 18-16 How would you classify Nokia’s competitive position
By the time Nokia awoke to the grim realities, it was too late. just prior to the introduction of the iPhone? Why was
The company doubled down by putting more efforts into the same Nokia in that strong position?
old tactics, but to no avail. Finally, with a global market share of 18-17 What led to the rapid erosion of Nokia’s position in the
less than 5 percent of new phone handsets, nearly two-thirds of its smartphone market?
workforce laid off, and losses piling up, Nokia sold its mobile phone
18-18 How did Nokia reinvent itself? What are the key chal-
business to Microsoft for a fraction of what the Nokia business
lenges to such a drastic reinvention?
had been worth at its peak. Although this move saved Nokia from
near-certain bankruptcy, it created an entirely new problem. If Nokia 18-19 Small group exercise: Even as Nokia has found a
wasn’t in the phone business anymore, what business was it in? new footing, its history of rapid decline in the smart-
phone industry hangs heavy on its top management.
Finding Its Footing through Reinvention As part of Nokia’s strategic planning process, its CEO
At the same time that Nokia was selling its phone business to has asked your team to advise the company on what
Microsoft, it was already answering that question. To reinvent the it should do to reduce the likelihood of being side-
company, it turned to one of its smaller business units that offered a swiped again by new technologies and industry devel-
glimmer of hope. Back when Nokia was still shipping 500,000 mo- opments. Present a set of tangible ideas for the CEO’s
bile phones a year, it had spun its telecommunications equipment consideration.

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 19 The Global Marketplace

OBJECTIVES OUTLINE
OBJECTIVE 19-1 Define global marketing and the questions companies must ask in deciding whether
and how to go global.

OBJECTIVE 19-2 Understand how global political, economic, sociocultural, technological, legal, and
environmental factors affect a company’s global marketing decisions.

OBJECTIVE 19-3 Discuss how companies decide whether to go global and, if so, which markets to enter.

OBJECTIVE 19-4 Describe three key approaches to entering global markets.

OBJECTIVE 19-5 Explain how companies adapt their marketing strategies and marketing mixes for
global markets.

OBJECTIVE 19-6 Identify the three major forms of global marketing organization.

CHAPTER You’ve now learned the fundamentals of transportation, and digital technologies have made the world
how companies develop competitive mar- a much smaller place. Today, almost every company, large or
PREVIEW keting strategies to engage customers, cre- small, faces global marketing issues. In this chapter, we will ex-
ate customer value, and build lasting customer relationships. In amine six major decisions marketers make in going global.
this chapter, we extend the marketing fundamentals to global To start our exploration of global marketing, let’s look at 7-Eleven,
marketing. Although we have discussed global topics in each the seemingly “all-American” convenience store chain. But look
previous chapter—it is difficult to find an area of marketing that deeper and you’ll discover that 7-Eleven is not only the nation’s largest
does not contain at least some global elements—here we will convenience store chain but also the world’s largest. Its global suc-
focus on special considerations that companies face when cess results from skillfully adapting its operations in each global mar-
they market their brands globally. Advances in communication, ket to match widely differing definitions of what “convenience” means.

7-ELEVEN: Making Life a Little Easier for People around the Globe

A
mericans love convenience stores. There’s one just ask 7-Eleven, a chain that’s sweeping the planet. 7-Eleven is
around the corner, and they’re open long hours, seven America’s largest convenience store chain, with more than
days a week. Whether it’s big chains like 7-Eleven and 12,000 stores across North America. But it’s also the world’s big-
Circle K or more-local favorites like Illinois-based Moto- gest convenience chain, with more than 78,000 stores in 19 coun-
Mart, Nebraska’s Bucky’s, or Minnesota’s own Pump ‘N Munch, tries generating nearly $92 billion in annual worldwide sales.
convenience stores have become an American mainstay for buy- 7-Eleven’s global success results from carefully adapting its
ing snacks, gas, or a few fill-in items between major grocery store overall convenience format to unique market-by-market needs.
trips. It’s hard to imagine a convenience store being anything else. 7-Eleven began in 1927 when “Uncle Johnny” Jefferson
But as it turns out, the convenience store concept doesn’t Green started selling milk, bread, and eggs from the dock of the
translate in a standard way across international borders. Just Southland Ice Company where he worked, often on Sundays

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 CHAPTER 19 | The Global Marketplace 573
and evenings when regular grocery stores were closed. Within
10 years, Southland Ice Company had opened 60 such outlets
selling basic staples—everything from canned goods to cold
watermelon. As the chain grew, the convenience store concept
took root—small stores in convenient locations, a limited line
of high-demand products, speedy transactions, and friendly
service.
In 1946, the fast-growing chain boldly established lon-
ger store hours—you guessed it, 7 a.m. to 11 p.m.—a practice
unheard of at the time. And to cement its convenience position-
ing, it changed its name to 7-Eleven. To support its breakneck
expansion, 7-Eleven also adopted a franchise model by which
franchisees shared some of the financial and operational bur-
dens of growth. In return, 7-Eleven granted franchisees lots of
flexibility in catering to local tastes in their stores. The company
At first glance, a 7-Eleven in Tokyo looks pretty much like one in Teaneck,
calls this “retailer initiative” and considers it a key competitive New Jersey. However, 7-Eleven skillfully adapts its global operations and
advantage. Catering to local tastes would later become the cor- offerings market by market to match local needs and wants.
nerstone of 7-Eleven’s international expansion. Sakarin Sawasdinaka/Shutterstock

In 1969, 7-Eleven became the first convenience chain to go

global, first in Canada, then Mexico, and soon Japan and other 7-Elevens carry a treasure trove of snack foods, including
Asian markets. In each global market, the chain has retained deep-fried rice crackers and an entire aisle filled with varieties
its key strategy elements—the small-store format, convenience of soy-flavored potato chips. They also offer a wide selection of
positioning, and global brand identity. You’ll see the familiar beverages, including soft drinks, beer, sake, Champagne, single-
7-Eleven logo and orange, red, white, and green stripes on every malt scotch, wine, and more than 20 varieties of iced coffee.
7-Eleven store anywhere in the world. At first glance, a 7-Eleven These are not your typical American 7-Elevens. Stores
in Tokyo looks pretty much like one in Teaneck, New Jersey. receive several food deliveries each day, keeping shelves well
But true to its “retailer initiative” philosophy, 7-Eleven skillfully stocked with fresh goods and ensuring that everything is
adapts its operations in each global market to match widely dif- locally made. Food is served in open display cases in a man-
fering local definitions of just what “convenience” means. ner that’s more Trader Joe’s than convenience store. Japanese
Consider Japan, one of 7-Eleven’s first international ven- customers can even order food and groceries online and have
tures. 7-Elevens are everywhere in Japan, more than 20,000 of them delivered at work or home. The chain also meets other
them—2,800 in Tokyo alone. Japan is now by far the company’s customer service needs. At 7-Eleven, customers can pay their
largest market. Once you get past the familiar signage on the utility bills, pick up their mail and parcel deliveries, and even
outside of a Japanese 7-Eleven, you’ll find some pretty stark buy event tickets from the copy machine. And in select cities in
contrasts on the inside. More than just a place to grab a loaf of Japan, customers can even get their favorite 7-Eleven fare deliv-
bread or a Slurpee, Big Gulp, or Big Bite, 7-Eleven in Japan has ered to their homes by drone.
become the country’s most popular eatery. For 7-Eleven, Japan now represents far more than just a
Around mealtime, the aisles at every Japanese 7-Eleven are booming international market. Since the early 1990s, Japan has
packed with long lines of patrons who are treated to some of become 7-Eleven’s home market. When Dallas-based 7-Eleven
the finest prepared foods in the world. The larger-than-average encountered financial difficulties in 1991, its own highly success-
refrigerated section is brimming with such freshly prepared ful Japanese subsidiary bailed it out, buying a majority stake. In
delicacies as udon with shredded beef, steamed chicken and 2005, 7-Eleven Japan created Tokyo-based Seven & I Holdings,
broccoli in onion dressing, and boiled eggs sprinkled with which acquired the remaining shares of 7-Eleven. Then, in a case
tuna and bonito flakes. Fresh sushi of the student becoming the teacher,
abounds, and the onigiri (rice balls the new parent corporation applied
with seaweed) is wrapped in a way 7-Eleven, the seemingly quintessential its well-honed “retailer initiative”
that keeps the seaweed crispy and “all-American” convenience store skills to strengthen the U.S. division.
the rice moist. Just how fresh are chain, has become the world’s largest Some things are standard in
these carefully prepared meals? convenience store chain through a skillful 7-Eleven stores from country to
Some of the glistening clear plastic country. Most notably, the 7-Eleven
blend of global standardization and local
containers don’t have expiration logo and the classic orange, green,
dates—they have expiration hours.
adaptation across international markets. red, and white striped signage
Beyond gourmet meals, Japanese are instantly recognizable. But

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 574 PART 4 | Extending Marketing
wherever it operates, 7-Eleven adapts various elements to year, Seven and I Holdings announced plans to open stores in
become a part of the local culture. In Taiwan, 7-Eleven patrons Cambodia, India, and Israel. And in these countries, as in oth-
can get a health screening and purchase high-end electronics. ers, 7-Eleven’s overall brand identity and convenience posi-
On a Saturday night in Hong Kong, 7-Eleven stores resemble tioning will remain constant: “At 7-Eleven, our purpose and
open-air bars—the parking lots overflowing with young locals mission is to make life a little easier for our guests,” says the
and “gweilo” (foreigners), drinks in hand. And in Denmark, company, by “giving customers what they want, when and
7-Eleven stores cater to the health-conscious Scandinavians where they want it.” But 7-Eleven knows that those whats,
with healthy snacks and paleo salads. whens, and wheres can shift dramatically from market to mar-
Thus, 7-Eleven’s fine-tuned global marketing strategy has ket. The real secret is to weave the global 7-Eleven strategy into
made it the world’s largest convenience store chain. In the past the fabric of each local culture.1

IN THE PAST, U.S. COMPANIES paid little attention to global markets. If they
could pick up some extra sales via exports, that was fine. But the big, safer market was
at home, and it teemed with opportunities. Managers did not need to learn other lan-
guages, deal with fluctuating currencies, face political and legal uncertainties, or adapt
their products to different markets. Today, the situation is different. Organizations of all
kinds, from Coca-Cola, Apple, and Nike to Google, Airbnb, and even the NBA, have suc-
cessfully gone global. Going global has not been easy for these companies; it has required
a focused strategy and disciplined execution on the global marketing front.

Author The rapidly changing

Comment global environment
Global Marketing Today
provides both opportunities and OBJECTIVE 19-1 Define global marketing and the questions companies must ask in
threats. It’s difficult to find a marketer deciding whether and how to go global.
today that isn’t affected in some way
by global developments. The world is shrinking rapidly with the advent of faster and more efficient communica-
tion, transportation, and financial flows across national borders. Products and services de-
veloped in one country—BMWs from Germany, McDonald’s hamburgers from the United
States, Samsung electronics from South Korea, and Huawei smartphones from China—
have all found enthusiastic acceptance in other countries.
One reason for the rapid expansion of global marketing is the explosion of global trade,
the sales of products and resources produced in one country and sold in another. The total
volume of global trade, including merchandise and service exports, has grown sharply over
the past three decades, from about $3.5 trillion in 1990 to about $28 trillion in 2021. In fact, if
companies were counted as economies, about half of the world’s largest 150 economies would
be multinational corporations. Retail chain Walmart alone has annual revenues greater than
the gross domestic product (GDP) of all but the world’s 21 largest economies. The global trade
of products and services last year was valued at almost 30 percent of GDP worldwide.2
Global marketing is broader than global trade. In a narrow sense, global marketing might
involve simply making or sourcing products in one country and selling them in other coun-
Global marketing tries (global trade). But more broadly, global marketing is the process of marketing products
The full process of marketing products and services within and across multiple countries. It involves obtaining a deep understanding
and services within and across multiple of global markets, consumers, and competitors; developing integrated segmentation, target-
countries. ing, and positioning strategies across countries; and implementing a global marketing mix that
strikes an effective balance of global standardization and individual market customization.
Many U.S. companies are successful global marketers: Coca-Cola, McDonald’s,
Starbucks, Nike, Netflix, Amazon, Google, Caterpillar, Boeing, and dozens of other
American companies have made the world their market. J&J, the maker of American-origin
products such as BAND-AIDs and Johnson’s Baby Shampoo, does 40 percent of its business
abroad. Caterpillar, based in Peoria, Illinois, makes 58 percent of its sales outside North
America. McDonald’s captures nearly two-thirds of its revenues in non-U.S. markets.
KFC’s Colonel Sanders is almost as familiar in Shanghai, China, or Tokyo, Japan, as he
is in Boise, Idaho. And with more than 200 brands worldwide, American favorite Coca-Cola
now lets consumers “taste the feeling” more than 1.9 billion times a day in over 200 countries.3
Likewise, numerous companies based in other countries have succeeded in the United
States, where brands such as Toyota, Samsung, Nestlé, IKEA, adidas, and TikTok have

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 CHAPTER 19 | The Global Marketplace 575
become household words. Other products and services that
appear to be American are, in fact, produced or owned by
non-U.S. companies, including Ben & Jerry’s ice cream,
Budweiser beer, Purina pet foods, 7-Eleven, and Motel 6.
Michelin, the French tire manufacturer, now does 37 percent
of its business in North America.
As barriers to trade and market entry fall, global com-
petition is intensifying. Companies are expanding into new
global markets and saturated home markets are no longer
as rich in opportunity. Few industries are safe from non-
domestic competition. Companies that stay at home to
play it safe might not only lose their chances to enter grow-
ing markets in Western and Eastern Europe, China and
Southeast Asia, Russia, India, Brazil, and elsewhere but also
risk losing their home markets.
Ironically, even as the need for companies to go abroad
has increased, so have the risks. Companies that go global
often face highly unstable governments and currencies,
restrictive government policies and regulations, and high
trade barriers. In addition, corruption is a significant prob-
Many American companies have now made the world their lem; officials in many countries often award business not to
market. KFC’s Colonel Sanders is almost as familiar in Shanghai, the highest bidder but to the highest briber.
China (above), or Tokyo, Japan, as he is in Boise, Idaho. Despite these challenges, the call of the world is strong.
Gary Armstrong In response, many companies are evolving to embrace a truly
global mindset, unhampered by their origins and seeing the world as a potential market.
This has led to the rise of the global company. A global company is one that, by operat-
Global company ing in more than one country, often in numerous countries, gains marketing, production,
A company that, by operating in more research and development (R&D), financial, and other advantages that are not available to
than one country, gains marketing, purely domestic competitors.
production, research and development The global company sees the world as a potential market. It raises capital, sources mate-
(R&D), and financial advantages that rials and components, and manufactures and markets its goods wherever it can do those
are not available to purely domestic jobs best. For example, U.S.-based Otis Elevator—the global leader in the manufacture,
competitors. installation, and servicing of elevators and escalators—is headquartered in Farmington,
Connecticut. Otis sells and maintains elevators and escalators in more than 200 countries
and derives 73 percent of its sales from outside the United States. It gets elevator door sys-
tems from France, small-geared parts from Spain, electronics from Germany, and special
motor drives from Japan. It operates manufacturing facilities in the Americas, Europe, and
Asia and engineering and test centers in the United States, Austria, Brazil, China, Czech
Republic, France, Germany, India, Italy, Japan, Korea, and Spain.4 Many of today’s global
corporations—both large and small—have become truly borderless.
Companies need not operate in dozens of countries to succeed. Instead, companies can
practice global niching, whereby they operate in a small set of carefully chosen countries.
However, in a rapidly shrinking world, every company must carefully consider whether
and how to go global. Companies must answer some basic questions: What market posi-
tion should we try to establish in our country, in our economic region, and globally? Who
will our global competitors be and what are their strategies and resources? Where should
we produce or source our products? What strategic alliances should we form with other
companies around the world?
As shown in Figure 19.1, the global marketing process involves five steps. We
discuss each decision in detail in this chapter.

FIGURE 19.1 It’s a big and beautiful but threatening world out there for marketers! Most large American
The Five-Step Global Marketing companies have made the world their market. For example, McDonald’s now captures
two-thirds of its sales from outside the United States.
Process

Understanding Deciding Deciding on Deciding on

whether to Deciding how
the global the global the global
go global and to enter global
marketing which markets marketing marketing
markets
context to enter program organization

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 576 PART 4 | Extending Marketing
Author Compared to focusing just
Comment domestically, going global
Understanding the Global Marketing Context
adds many layers of complexities. OBJECTIVE 19-2 Understand how global political, economic, sociocultural,
For example, to market its products technological, legal, and environmental factors affect a company’s global
in 200 countries around the globe, marketing decisions.
Coca-Cola must understand the
varying political, economic, sociocultural, As the first step in the global marketing process, a company must understand the macroen-
technological, legal, and environmental vironmental contexts of the countries or regions in which it might operate. The PESTLE
contexts of each global market. framework provides a useful tool for analyzing the forces that might impact marketing
decisions in various global environments. PESTLE stands for the Political, Economic,
Sociocultural, Technological, Legal/Institutional, and Environmental/Ecological factors
that set the marketing context in any country or region.

Political Context
The political systems in some nations are receptive to companies from other nations; others
are less so. For example, Russia’s recent geopolitical conflicts with Europe, the United States,
and other countries have made doing business in Russia difficult and risky. China tightly
restricts foreign entry and operations in the financial services and technology sectors, and
it imposes strict requirements related to partnerships with local companies in other sectors.
India has historically tended to disadvantage non-Indian companies with import quotas,
currency restrictions, foreign investment limits, onerous labor laws, and local manufactur-
ing requirements. Although some restrictions have been relaxed, China and India continue
to be difficult markets for many outside companies. In contrast, Asian countries such as
Singapore, Vietnam, and Thailand court foreign investors and
create favorable operating conditions for them.
Companies can choose to work through or around politi-
cal obstacles if they know about them. However, because of the
complexities of global political environments, obstacles may
move in unpredictable ways over time. Consider British
telecom company Vodafone, which entered India in 2005.5
In 2007, Netherlands-based Vodafone International Holdings
paid $11 billion to acquire a 67 percent interest in Hutchison Essar
Limited, a competing telecom company in India. The Indian gov-
ernment claimed that the transaction yielded capital gains tax-
able in India and demanded $2.2 billion in capital gains taxes.
Vodafone appealed, and the Supreme Court of India ruled in 2012
that Vodafone was not liable to pay the tax under the Income
Tax Act 1962. Soon thereafter, however, the Indian government
amended that act and retroactively applied the amendment to
all prior transactions, effectively overruling the Supreme Court’s
order. Vodafone then pursued international arbitration in the tax
Understanding the global political context: British telecom dispute. In September 2020, the Permanent Court of Arbitration at
company Vodafone’s fortunes in India seem to rise and fall with The Hague ruled in favor of Vodafone, directing India to refund
the sometimes-unpredictable policies of the Indian government. fees already collected as well as legal costs. In December 2020,
Peter Horree/Alamy Stock Photo however, the Indian government again challenged the arbitra-
tion award in a court in Singapore. Then, in 2021, in measures that
appeared to support Vodafone in the country, the Indian government announced reforms that
cleared the dues owed by Vodafone and other telecoms to the government. Thus, it’s been a tur-
bulent decade for Vodafone in India. The company’s fortunes there appear to rise and fall with
changing government policies.

Such uncertainties are not uncommon in international marketing efforts. Surprisingly,

democratic political systems can sometimes pose more uncertainty than autocratic ones
do for outside companies. Democratically elected governments are often compelled to
change laws and policies to fulfill their promised but shifting electoral agendas. By con-
trast, an autocratic government may face little such pressure and can hold policy steady
over time.
A company must evaluate both the nature and the certainty of the political climate
before committing to enter a country. If the market is attractive but there are serious
political concerns, the company may decide to enter in a way that its commitment can be
reversed quickly and efficiently if need be.

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 CHAPTER 19 | The Global Marketplace 577
Economic Context
In evaluating countries to enter, companies should focus on two key economic dimensions:
the level of industrial development and the pattern of income distribution.
The country’s level of industrial development shapes its income and employment lev-
els and its product and service needs. For example, in subsistence economies, a large por-
tion of the population engages in agriculture, consumes a large fraction of their agricultural
output, and sells or barters the rest for access to simple goods and services. These econo-
mies offer few market opportunities. By contrast, developed economies such as the United
States, Japan, and South Korea and the countries of Western Europe are major importers
and exporters of goods and services. Their varied manufacturing activities and large middle
classes make them attractive markets for both business and consumer goods and services.
Although developed economies offer large markets, they may be characterized by low
growth rates and intensely competitive markets, so companies seeking global expansion
must seriously consider entering developing economies, which are experiencing rapid eco-
nomic growth and industrialization. Examples include the BRICS countries (Brazil, Russia,
India, China, and South Africa) and MENA countries (the Middle East and North Africa
region). Industrialization increases consumer income, which enhances the demand for
new types of goods and services.
The second economic factor is the country’s income distribution. In general, frac-
tions of low-, medium-, and high-income households will vary across developed, devel-
oping, and subsistence economies. In recent years, as developed markets have become
more stagnant and competitive, many companies have shifted their sights to the more
than 3 billion people worldwide who live on less than $2.50 a day. These potential con-
sumers, who comprise a significant portion of the worldwide population of more than
7 billion people, have been characterized by strategist C. K. Prahalad as the “Bottom of
the Pyramid.”6

Sociocultural Context
Each country has its own practices, norms, and taboos. Companies must understand how
culture affects consumer reactions in each of their global markets. In turn, they must also
understand how their strategies affect local cultures.

The Impact of Culture on Marketing Strategy

Marketing managers should never assume that consumers in other countries will perceive,
accept, and use their offerings in the same way that consumers in their base country do.
Interesting and sometimes surprising differences abound across cultures. For example, the
per-capita consumption of packaged, branded spaghetti is
higher in Germany and France than in Italy. A clock makes
a nice gift in Western countries but is associated with death
and funerals in China. Women in America usually let down
their hair and remove makeup at bedtime; some women in
China style their hair and apply makeup at bedtime. And
whereas between 65 percent and 85 percent of consumers
in well-off economies such as the United States, Canada, the
United Kingdom, and Japan have credit cards, that percent-
age falls to a low 16 percent in very wealthy Saudi Arabia,
where Islam forbids the receipt or payment of interest.7
Companies that violate sociocultural norms can make
expensive and embarrassing mistakes. For example, to
promote an upcoming Shanghai runway fashion extrava-
ganza, Italian luxury fashion brand Dolce & Gabbana
ran three short videos on the Chinese social media net-
work Weibo (China’s version of Twitter) titled “Eating
Culture and marketing strategy: Italian luxury fashion brand with Chopsticks.” The videos featured an Asian woman
Dolce & Gabbana’s insensitive “Eating with Chopsticks” videos in in a lavish Dolce & Gabbana dress struggling to eat spa-
China proved to be a costly and expensive mistake. ghetti, pizza, and cannoli with chopsticks. In one video,
Sorbis/Shutterstock with Chinese folk music playing in the background, a

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 578 PART 4 | Extending Marketing

Tata Steel: Entering High-Potential

Real Marketing 19.1 International Markets
Tata Steel, part of the Tata Group, is one of in the long run and how such products could additionally, the two companies had failed to
the largest steel manufacturers in the world. help in reverse innovation. As part of the propose sufficient remedies to address the
The company was founded in 1907 in India, UKIBC agreement, Tata Steel has developed EU’s concerns. Political and economic con-
and today its key operations have spread to products with a low price and adapted its ditions like this have put a dent in the com-
the Netherlands and the United Kingdom. As marketing approach to BoP consumers, pany’s ambitions to become the biggest steel
one of the top steel companies in the world, which includes finding ingenious ways to business in the world.
the Tata Steel Group has an annual crude use local commodities and local produc- Despite such difficulties in responding
steel capacity of 34 million tons per annum. tion techniques to compete with the more adequately to complex new environments,
With an employee base of over 65,000, it is technologically advanced producers in the Tata Steel offers several good examples of
one of the world’s most geographically diver- West. Tata Steel invested over $3.4 billion how acquiring another multinational opens
sified steel producers, with operations and in a greenfield steel project in Kalinganagar, new markets. For example, the acquisi-
commercial presence across the world, in- Odisha, with plans for further expansion. tion of the Anglo-Dutch steel firm Corus in
cluding Europe, Australia, South Africa, Asia, However, the project was met with some 2007 made Tata Steel the fifth largest global
and the Middle East. The group recorded a hostility from local villagers, and the com- steel producer, with an annual production
consolidated turnover of $19.7 billion in the pany was forced to acknowledge the impor- capacity of 25 million tons of steel a year.
financial year ending March 31, 2020. Like tance of building relationships with locals, In addition, the company gained access to
most industries, the steel industry worldwide even those in its home country. European markets and was able to profit
has suffered production losses due to the Tata Steel currently operates in four mar- from newly acquired technologies. In fact,
coronavirus pandemic in 2020, but there has kets: packaging, automobiles, construc- the favorable strategic and financial out-
been a gradual recovery and steel demand is tion, and engineering. Ownership of mineral comes were so impressive that Tata raised
rebounding. However, even before the pan- reserves and raw materials puts Tata Steel the price it had offered when it had originally
demic, there was a general slowdown in the in a very strong position within the markets bid for Corus.
steel industry due to the weakened global it operates in; it can produce steel at lower Another positive outcome from the
economy. Responding to the slowdown costs than nearly any other steelmaker in merger is that the combination of low-cost
in domestic and emerging markets, Tata the world. The possibilities of entering a upstream production in India and Corus’s
Steel approaches the “bottom of the pyra- whole new international market are huge. high-end downstream processing facilities in
mid” (BoP) markets: India, Nigeria, China, However, a much-sought-after merger with Europe offered synergies in manufacturing,
Indonesia, and South Africa. These countries Thyssenkrupp was blocked by the EU’s an- procurement, R&D, logistics, and back-office
offer diverse spending patterns and market titrust enforcer in 2019 on the grounds that it operations that would improve the competi-
potential and are lucrative destinations for a would disrupt perfect competition within the tiveness of European operations. Thanks to
steel-making business. EU and reduce competition in the supply of the acquisition, Tata Steel has gained access
When approaching new targets and en- special steel for carmakers and packaging; to raw materials at low cost and exposure to
tering new markets, Tata Steel must navi-
gate various legal, political, and economic
challenges. For instance, the international
trading system comprises thousands of
unilateral, bilateral, regional, and multilateral
rules and agreements among more than
200 nations. By operating in more than 175
countries with more than 50 production sites
on three different continents, the company
must consider import and export restric-
tions, tariffs, quotas, and non-tariff barriers.
Furthermore, some BoP countries are far
less receptive to advertisements and per-
sonal selling than Europe. As a multinational
company, Tata Steel needs to consider all
of this when making decisions about BoP
markets.
In 2013, as part of an agreement with
the UK India Business Council (UKIBC), Tata
Steel committed to an initiative to educate
500 million skilled people by the year 2022
and to support growth, investment, jobs cre-
ation, and an improved demand supply. This
was an attractive investment for the com- Tata Steel has encountered various legal, political, and economic challenges while
pany as it could now determine what fea- entering international markets.
tures help in the sustainability of its products Volodymyr Plysiuk/Shutterstock

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 CHAPTER 19 | The Global Marketplace 579
high-growth emerging markets while confirm- may bring huge opportunities, but there are from the United Kingdom to the lower-cost
ing price stability in developed markets. Tata often cultural challenges to contend with India markets, Tata Steel’s management
Steel decided to retain Corus’s top manage- as well—in fact, by some estimates, they had to respond to the uncertainty of their
ment and to consider a restructuring at a later have contributed to the failure of nearly 70 European employees with regard to the
date, after any integration issues had been percent of all mergers and acquisitions. For newly created entity. Left unchecked, such
resolved. example, in 2007, the credit rating agency situations have the potential of creating low
Tata Steel’s continued acquisitions, Standard & Poor declared a “negative im- morale, resulting in decreased productivity.
such as Bhushan Steel in May 2018 and plications” watch in India due the fact that To help mitigate such difficulties in a
Usha Martin in April 2019, show that it has Indian companies often lack experience in broader sense, Tata Steel has declared that
found a proven way to strengthen its mar- international acquisitions, especially with re- in global operating locations, it is an equal-
ket position and global presence. These gard to corporate culture and employment opportunity employer and does not tolerate
are not the only reasons that Tata Steel ac- rules (the rating meant that the agency was discrimination based on race, caste, reli-
quires companies; for one thing, it is easier looking to lower the company’s credit score gion, color, ancestry, gender, marital status,
to buy a company that has debt but is a big based on its performance or international sexual orientation, age, nationality, ethnic
name in the market that Tata Steel wants market trends). Indeed, in 2000, the acqui- origin, or disability. Moreover, Tata Steel
to enter. Purchasing a company in a new sition of Tetley, a UK beverage company, ensures that employee policies and prac-
market lowers the risk and cost of failure ran into cultural obstacles between the tices are administered in a manner which
and bypasses barriers to entry. However, British employees and the Indian manag- ensures that all decisions relating to promo-
the company must already be fully func- ers. This issue also arose during the 2007 tion, compensation, and any other form of
tioning for Tata Steel to truly benefit from it. merger with Corus. In addition, while ana- reward and recognition are based entirely
Mergers and acquisitions in other countries lyzing the possibility of moving production on merit.8

Mandarin-speaking male voiceover explained how to “properly” eat the dishes. “Let’s
use these small stick-like things to eat our great pizza margherita,” he says. Dolce &
Gabbana thought the ads were in good fun, but Chinese consumers vigorously dis-
agreed. The ads went viral as millions of Chinese consumers declaimed them as highly
offensive and an insult to Chinese culture. D&G removed the viral videos within 24
hours and apologized, but the damage was done. The brand was forced to cancel the
fashion show in Shanghai, and its products were dropped by several Chinese stores
and online retailers. D&G sales in China declined more than 10 percent over the fol-
lowing two years.9
In another example, Marriott International stumbled in China when its website listed
Tibet, Hong Kong, Macau, and Taiwan as “countries.” Officially, the first three locations
are “autonomous regions” of China; Hong Kong and Macau are “special administrative
regions.” And China considers Taiwan to be a “breakaway province” controlled by an
illegitimate government. What seemed like an innocent mistake led to harsh penalties.
Although Marriott apologized and corrected the error, the Chinese government shut down
Marriott’s Chinese website and app for more than a week, preventing online sales and
bookings in China.10
Business norms and behaviors also vary across countries. For example, Japanese
executives can find the tendency of their American executives to get right down to busi-
ness and engage in fast and tough face-to-face bargaining offensive. And whereas firm
handshakes are a standard greeting in Western countries, handshakes might be refused
in some Middle Eastern countries. Microsoft founder Bill Gates once set off a flurry of
controversy when he shook the hand of South Korea’s president with his right hand
while keeping his left hand in his pocket, something that Koreans consider highly disre-
spectful. In some countries, not finishing all the food at a hosted meal implies that it was
somehow substandard. In other countries, eating down to the last morsel might be taken
as a mild insult, suggesting that the host did not supply enough quantity. In most places,
smiling during a business meeting sets a congenial tone; in Russia, it suggests insecurity.
Business executives need to understand these cultural nuances before conducting busi-
ness in another country.11
By the same token, companies that understand and work in alignment with these
cultural nuances can use them to their advantage. For example, when British clothing
retailer Marks & Spencer opened its first standalone lingerie and beauty store, it surpris-
ingly bypassed Paris, London, and New York and instead chose Saudi Arabia. Operating

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 580 PART 4 | Extending Marketing
in the conservative Saudi Arabia society requires some significant cultural adjustments.
Saudi women wear full-length cloaks called abayas and must typically be chaperoned by a
male relative in public. Lingerie stores must employ only female staff. Music is forbidden
within stores. Mannequins are typically headless or faceless. Despite these restrictions, the
demand for Western-style clothes is strong because the Saudi economy is rapidly growing,
Saudi society is slowly liberalizing, and Western attire is often worn at home and during
travel outside the country. Marks & Spencer has done well and now has six lingerie and
beauty stores and 16 full department stores in Saudi Arabia.12
Thus, understanding cultural traditions, preferences, and behaviors can help com-
panies not only avoid embarrassing mistakes but also take advantage of cross-cultural
opportunities.

Dimensions of National Cultures

Understanding cultural differences across countries can help global marketers determine
which countries offer the best prospects for their brands. It also helps marketers differen-
tially position and market their brands across countries for maximum success. One useful
tool for systematically assessing cultural differences across countries is Geert Hofstede’s
Six Dimensions of National Culture framework.13 The framework recognizes that a given
country’s national culture is not uniform at the individual level. Instead, it reflects the sum
of individuals with a range of values, personality traits, and habits. Yet, at an aggregate
level, countries can be distinguished in terms of how they lie along each of the following
six dimensions:

Power Distance Index—High versus Low. This dimension deals with the extent to which less power-
ful members of society are comfortable with an unequal distribution of power across its mem-
bers. Societies showing a high degree of comfort with power being concentrated in the hands of
a select few are high on this dimension. Societies that see themselves as more democratic or equal
across members score low.
Individualism versus Collectivism. In highly individualistic societies, people are more focused
on the needs and well-being of themselves and their immediate family members. By contrast,
in highly collectivistic societies, people are embedded in strong social networks and expect
that the large social group will take care of their needs in exchange for their own loyalty and
contributions.
Toughness versus Tenderness. Tougher societies tend to prefer achievement, heroism, assertiveness,
and material rewards. More tender societies seek cooperation, exhibit modesty, feel a sense of
caring for less fortunate or weak society members, and emphasize quality of life.14
Uncertainty Avoidance Index—High versus Low. Societies that are high on this dimension dislike
uncertainty, work in line with a well-established belief and value system, and try to control the
future to reduce uncertainty. By contrast, societies that are low on this dimension are comfortable
with uncertainty, adopt a flexible attitude to the future, and accept things as they come.
Long-Term Orientation versus Short-Term Orientation. Societies value their pasts differently. Societies
that are long-term oriented tend to be ready for future change, even when it requires them to break
sharply from the past. They are ready to embrace new ways of doing things if they believe that will
help them succeed in the future. By contrast, societies that are short-term oriented tend to maintain
time-honored social norms, traditions, and behaviors and must be pushed to adapt to the new future.
Indulgence versus Restraint. Societies scoring high on indulgence are open to individuals seeking
goods, services, and experiences that go well beyond their basic needs and to individuals enjoy-
ing these offerings publicly and in groups. By contrast, societies high on restraint operate in line
with rigid norms that govern behavior, emphasize the fulfillment of basic needs, and frown on
showy consumption.

Using Hofstede’s framework, marketers can score and compare different coun-
tries on the six cultural dimensions.15 Figure 19.2 provides a comparison for China
and the United States. The comparison shows that China scores significantly higher
on power distance and long-term orientation but significantly lower on individualism,
uncertainty avoidance, and indulgence. The countries are about the same on toughness
versus tenderness. Marketers must adjust their global strategies to take such differences
into account.
These cultural differences can affect many marketing decisions, including the types
of products and services a company introduces in a country and how a company posi-
tions and presents them. For example, New Zealand scores low on Hofstede’s power
distance dimension, suggesting that New Zealanders value equality, democracy, and

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 CHAPTER 19 | The Global Marketplace 581
FIGURE 19.2
A Comparison of the United States and China on Hofstede’s Six Cultural Dimensions
SOURCE: Country scores obtained from Hofstede Insights, Country Comparison tool, www.hofstede-insights.com/country-
compasion, accessed February 2022.

100 United States China

91
87
90
80
80
66 68
70
62
60

50 46
40
40
30
30 26 24
20
20

10

0
Power distance Individualism Toughness Uncertainty Long-term Indulgence
(high vs. low) (vs. collectivism) (vs. tenderness) avoidance orientation (vs. restraint)
(high vs. low) (vs. short-term
orientation)

inclusion. Those values are reflected in a striking Tourism New Zealand ad campaign titled
“100% Pure Welcome—100% Pure New Zealand,” which features 300 New Zealanders of
all ages, genders, and ethnicities welcoming visitors to their beautiful country. As another
example, the United States scores high on individualism, whereas Guatemala scores high on
collectivism. Thus, in the United States, McDonald’s might promote a buy-one-get-one-free
offer as a reward for downloading its app, appealing to consumers’ needs for individual
benefits and rewards. In Guatemala, however, McDonald’s promotes meal plans for four
people, appealing to Guatemalans’ collectivist notions of family and community.16
As yet another example, Saudi National Bank (SNB), Saudi Arabia’s largest bank, mar-
kets differently in Saudi Arabia than it does in Western markets such as the United Kingdom:17
Saudi Arabia rates high on collectivism—it is highly influenced
by Islamic teachings that demand that members of society act as a
unit. Thus, in Saudi Arabia, SNB markets uniformly across all con-
sumer segments. Conversely, the United Kingdom rates higher on
individualism. So SNB practices segmented marketing there, with
differentiated marketing approaches aimed at the varied needs of
different consumer segments. Saudi Arabia is also high in power
distance—the Saudi government has almost total control over a
business’s activities and can quickly punish bank activities that
deviate from the expected norms. Thus, SNB has established a high-
level committee designated to help the bank in upholding Islamic
principles. SNB has no such committees in its overseas markets,
such as the United Kingdom, which rates low on power distance.

Thus, before entering an international market, managers

must evaluate how it compares to their base market along the
Adapting to cultural differences across countries: Saudi
six Hofstede dimensions. The resulting insights can help man-
National Bank (SNB) markets very differently in Saudi Arabia than agers tailor their strategies to the market, avoiding mistakes and
it does in Western markets such as the United Kingdom. enhancing the likelihood of success.
Wirestock Creators/Shutterstock
The Impact of Marketing Strategy on Cultures
We have discussed how national cultures affect marketing strategy. The flip side is also
important: How does marketing strategy affect local cultures in other countries? For
example, social critics contend that, well beyond globalizing their brands, large American
multinationals such as McDonald’s, Coca-Cola, Starbucks, Nike, Google, Disney, and
Facebook are Americanizing the world’s cultures.

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 582 PART 4 | Extending Marketing
Other elements of American culture have become pervasive worldwide. For instance,
more people now study English in China than speak it in the United States. If you assem-
ble businesspeople from Brazil, Germany, and China, they will likely transact in English.
And the thing that binds the world’s teens together in a kind of global community, notes
one observer, “is American culture—the music, the Hollywood fare, the electronic games,
Google, Facebook, American consumer brands. The . . . rest of the world is becoming [ever-
more] like us—in ways good and bad.”18
Critics worry that, under such “McDomination,” countries are losing their individual
cultural identities. Grandmothers in small European villages no longer spend each morn-
ing visiting local meat, bread, and produce markets to gather the ingredients for dinner.
Instead, they now shop at Walmart. In China, most people never drank coffee before
Starbucks entered the market. Now Chinese consumers rush to Starbucks stores because
they symbolize a new kind of lifestyle. Similarly, in China, where McDonald’s has nearly
3,800 locations, nearly half of all children identify the chain as a domestic brand.19
Such concerns sometimes lead to a backlash against American globalization. As sym-
bols of American capitalism, companies such as Coca-Cola, McDonald’s, Nike, and KFC
have been singled out by protestors and governments when anti-American sentiment
emerges. For example, following Russia’s annexation of Crimea and the resulting sanctions
by the West, Russian authorities initiated a crackdown on McDonald’s franchises (even
though most were Russian-owned). McDonald’s flagship store in Moscow was shut down
for several weeks by the Russian Food Safety Authority. The three McDonald’s in Crimea
were permanently shuttered, with at least one becoming a nationalist chain outlet called
Rusburger, serving “Czar Cheeseburgers” where McDonald’s Quarter Pounders once
thrived. Such difficulties worsened when Russia mounted a full-scale invasion of Ukraine
eight years later. Three months after the invasion began, McDonald’s announced that it
would pull out of Russia altogether, selling its 850 Russian restaurants to a local buyer and
“de-arching” them—meaning they would no longer use the McDonald’s name, logo, or
branding. Said the CEO of McDonald’s: “It is impossible to ignore the humanitarian crisis
caused by the war in Ukraine. And it is impossible to imagine the Golden Arches represent-
ing the same hope and promise that led us to enter the Russian market 32 years ago.”20
Despite such problems, defenders of globalization argue that concerns of
Americanization are overblown. U.S. brands are doing well globally. For example, most
global markets covet American fast food. Consider KFC in Japan. On the day that KFC
introduced its outrageous Double Down sandwich—bacon, melted cheese, and a “secret
sauce” between two deep-fried chicken patties—in one of its restaurants in Japan, fans
formed long lines and slept on the sidewalks outside to
get a taste. “It was like the iPhone,” said the CMO of KFC
International. The U.S. limited-time item has since become
a runaway success worldwide, from Canada to Australia,
the Philippines, and Malaysia. More broadly, KFC has
become a cultural institution in Japan. For example, the
brand has long been one of Japan’s leading Christmas
dining traditions, with the iconic Colonel Sanders stand-
ing in as a kind of Japanese Father Christmas:21
Japan’s KFC Christmas tradition began more than
45 years ago when the company unleashed a “Kentucky
for Christmas” advertising campaign in Japan to help the
brand get off the ground. Now, eating Kentucky Fried
Chicken has become one of the country’s most popular hol-
iday traditions. Each KFC store displays a life-size Colonel
Sanders statue, adorned in a traditional fur-trimmed red
suit and Santa hat. A month in advance, Japanese custom-
ers order their special Christmas meal—a special bucket
of fried chicken with wine and cake for about $40. Some
3.6 million Japanese households have a KFC Christmas
feast each year. Those who do not preorder risk standing
American brands in other cultures: KFC has become one of Japan’s in lines that snake around the block or having to go with-
leading Christmas dining traditions, with the iconic Colonel Sanders out KFC’s coveted blend of 11 herbs and spices altogether.
standing in as a kind of Japanese Father Christmas, wishing Japanese Christmas Eve is KFC’s most successful sales day of the
customers a merry “Kentucky Christmas.” year in Japan, and December monthly sales run as much as
image_vulture/Shutterstock 10 times greater than sales in other months.

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 CHAPTER 19 | The Global Marketplace 583
Overall, American brands are soaring globally. In the most recent Millward
Brown BrandZ brand value report on global consumer brands, 26 of the top 30 global
brands in terms of value were American owned, led by Amazon, Apple, Google, and
Microsoft.22
The United States is also influenced by other global cultures. While Hollywood domi-
nates the global movie market, British TV originated the programming that was translated
into hits as American Idol, Dancing with the Stars, and Hell’s Kitchen. Although Chinese and
Russian youth are donning NBA superstar jerseys, the increasing popularity of soccer in
America has deep global roots. Children in the United States are increasingly influenced
by European and Asian cultural imports such as Hello Kitty, Pokémon, or any of a host of
Nintendo or Sega game characters. K-pop music groups often top American charts, and
India’s Bollywood film industry has become one of the world’s largest film production
centers. And while the internet and mobile technologies have spread the reach of English
worldwide, those same platforms allow immigrants in the United States to remain in close
touch with their native cultures and to access programming in their native languages.
Today, globalization is truly a two-way street.

Technological Context
Global marketing has been energized by three technological advances. The first is the rapid
rise of electronic networks that carry huge amounts of information that can be accessed in
every part of the globe. The information generation and transmission infrastructure has
advanced at every stage, from super-high-speed fiber-optic data cables and satellite-based
data transfer to “last-mile” data conduits that connect homes and offices to the internet.
The second advance is the global adoption of smart devices—including computers,
smartphones, and tablets—that interface with the internet and other data networks. The
mobile phone is no longer considered a luxury good; it’s an essential good, even in Bottom of
the Pyramid markets. Consumers in BoP markets increasingly use mobile phones to access
chats, social forums, data, and the internet. In 2015, only 18.5 percent of all mobile phone
users regularly accessed the internet on their devices; by 2020, this figure rose to 34 percent.
Sub-Saharan Africa is expected to have 475 million mobile internet users by 2025.23
The third technological advance energizing global marketing is the rise of digital com-
merce platforms that bring together buyers and sellers. Amazon.com, the world’s largest
online retailer, has a fast-growing global presence. China-based platforms Alibaba, JD.com,
and Pinduoduo dominate the huge online market in China. These e-commerce platforms,
along with advances in information infrastructure and smart devices, have provided
opportunities for companies large and small to directly
sell to customers worldwide. On the consumer side, these
technological advances provide many benefits. They
offer access to globally produced offerings, lower prices
through increased competition, and greater convenience
with products delivered to the doorstep or even digitally.
At the same time, technological advances create
challenges for marketers. Low-income consumers may
have only limited access to electronic devices and net-
works. Therefore, the rise of technology-driven market-
ing and commerce can increase the so-called “digital
divide” between high- and low-income groups glob-
ally. Next, concerns are rising about the power wielded
by large e-commerce platforms. For example, Amazon
has been accused of copying the most successful con-
cepts and products from other sellers on its online
platform in creating its own Amazon Basics brand and
then using the wealth of consumer data it collects to
Technological context: Global marketing has been energized by
the rapid rise in electronic networks, smart devices, and global digital
unfairly support its own brand. Finally, communities
commerce networks, such as Amazon, China’s Alibaba, and others. and local governments around the world worry about
When entering new global markets, companies must evaluate the the “Amazon effect”—small, local sellers shutting shop
technological context in those markets. because they can’t compete against powerful Amazon’s
BigTunaOnline/Shutterstock global scale and reach.24

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 584 PART 4 | Extending Marketing
When looking to enter international markets, a company must carefully evaluate the
level of technological evolution of those markets. The technology context will influence,
among other things, the company’s entry strategy, product and service design, and sales
and distribution approaches.

The Legal and Institutional Context

Each country has its own unique legal and institutional context. A large multinational
company that sells in 100 countries may need to navigate 100 distinct legal and institu-
tional environments. This can be an operational nightmare. It is useful to evaluate the legal
and institutional environment from two perspectives: the global trade perspective and the
country-specific, internal legal perspective.

The Global Trade Perspective

Global trade occurs when an offering produced in one country is sold in another coun-
try. Companies engaging in global trade often face restrictions on trade between nations.
Countries may impose tariffs, duties, or quotas on imported products in order to raise rev-
enue, protect domestic companies, manage currency reserves and fluctuations, or manage
the trade deficits between countries.
For example, to negotiate more favorable trade terms that would rein in its large and
growing annual trade deficit with China, the United States recently began charging tar-
iffs on a range of Chinese imports including pork, soybeans, wine, metals and alloys, and
multiple industrial, technology, transport, medical, textile, and fashion products. China
retaliated with its own tariffs, setting off several rounds of heated trade negotiations. Such
ongoing trade disputes are often part of wider global dynamics. However, they can cause
major difficulties for companies trying to market their goods across global borders.25
At the same time, countries can work together to facilitate trade by clarifying and
leveling the playing field of global trade through global trade agreements, organizations,
and communities.

Global Trade Agreements and Organizations. One important global trade agreements
Economic community is the General Agreement on Tariffs and Trade (GATT), established in 1947 to promote
A group of nations organized to work world trade by reducing tariffs and other trade barriers. The GATT evolved into the World
toward shared global trade and other Trade Organization (WTO) in 1995. WTO and GATT member nations—currently 164 member
goals. countries and 25 observer governments, representing 98 percent of world trade—have met
in eight rounds of negotiations to assess trade barriers and establish rules for global trade.
The eighth round (or Doha Round) began in 2001 and is ongoing. The WTO also imposes
international trade sanctions and mediates global trade
disputes. The WTO has been productive, reducing the
average worldwide tariffs on manufactured goods
from 45 percent to just 5 percent over the first seven
rounds of negotiations and settling a large proportion
of the more than 500 disputes filed by members within
the WTO framework.26

Regional Free Trade Zones. Certain countries have

formed free trade zones or economic communities,
organized to work toward shared global trade and
other goals. One such community is the European
Union (EU), formed in 1957. The EU was formed to
create a single European market by reducing barriers
to the free flow of products, services, finances, and
labor among member countries and develop poli-
cies on trade with nonmember nations. Today, the EU
represents one of the world’s largest single markets.
Economic communities: The European Union represents one of the Currently, the EU has 27 member countries con-
world’s largest single markets. Its 27 member countries are home to more taining more than 440 million consumers, making it
than 440 million consumers. the world’s largest trading bloc and the top trading
KarczmarskiDesign/Shutterstock partner to 80 countries.27

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 CHAPTER 19 | The Global Marketplace 585
A key feature of the EU is a shared currency—the euro—used by 19 EU member
nations. The widespread adoption of the euro decreased much of the currency risk asso-
ciated with doing business in Europe, making member countries with previously weak
currencies more attractive markets. However, the adoption of a common currency has
also caused problems, with European economic powers such as Germany and France
stepping in to prop up weaker economies such as those of Greece, Portugal, and Cyprus.
This recurrent “euro crisis” has from time to time led some analysts to predict the pos-
sible breakup of the eurozone as it is now set up. However, the euro has been resilient
so far.28
The EU suffered a major blow in 2016 when the people of the United Kingdom
voted in a national referendum to exit the community—the so-called “Brexit.” After a
lengthy and contentious transition period, the UK left the EU in January 2021. Still, with
a post-Brexit combined annual GDP of more than $17 trillion, the EU remains a potent
economic force.29
Another important free trade zone is the United States-Mexico-Canada Agreement
(USMCA). Taking effect in July 2020, the USMCA replaced the North American Free
Trade Agreement (NAFTA), which first established a free trade zone among the United
States, Mexico, and Canada in 1994. NAFTA created a single market of 450 million peo-
ple who produce and consume $24 trillion worth of goods and services annually. Over
its first 25 years, NAFTA eliminated trade barriers and investment restrictions among the
three countries. Total trade among the NAFTA countries nearly tripled from $288 billion
in 1993 to more than $1.3 trillion a year.30 Driven by the United States, the USMCA modi-
fied NAFTA in many areas. For example, it removed limits on the ability of member
countries to impose import restrictions, changed the product content levels related to
defining rules of origin, and expanded the protection period for branded pharmaceutical
products from generics.31
Still another key world trade agreement is the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP) among 11 Pacific Rim countries: Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The
11 CPTPP members have a collective population of 500 million people and account for
14 percent of the world’s GDP.32
When evaluating other countries for trade or market entry, a company must con-
sider its membership in global or regional trade zones and organizations. If relevant,
such membership can regulate the country’s behavior toward the company and its
brands, making the business outcomes more predictable and reducing the business
risk.

The Internal Legal Perspective

Global trade agreements and organizations affect a company’s global marketing across
country borders. However, global marketers may also face rules and restraints within an-
other country’s borders. For example, some countries impose currency restrictions. Sellers
ideally want to take their profits in a currency of value to them. However, to maintain its
own inventory of a popular world currency, a country may insist that sellers take payment
in its own or a less widely accepted world currency.
Also, most global trade involves cash transactions. Yet some countries have too
little hard currency to pay for purchases from other countries. Or trader restrictions
may restrict the flow of currency between nations. Instead, countries may barter with
suppliers, providing goods in exchange for the imported goods. For example, Indonesia
recently bartered coffee, tea, rubber, and palm oil for military aircraft from Russia. India
exchanged rice and medicines for Venezuelan oil. And South Korea bartered apples
for coffee from Vietnam to help balance an apple surplus against a burgeoning coffee
demand.33
Countries may also impose labor restrictions. The balance of power between employ-
ers and labor can vary sharply across countries.34 In countries like the United States,
companies generally have significant flexibility in expanding or downsizing their labor
forces. However, labor laws in many other countries can make it difficult to lay off existing
employees, even if the market shrinks. Such restrictions can help a country’s labor force in
the short run but may discourage global companies from making and selling products in
that country.

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Finally, companies may face nontariff trade barriers,
such as biases against certain kinds of bids for business
contracts, restrictive product standards, and excessive or
selective host-country regulations or enforcement. For
example, India is known for throwing up nontariff obsta-
cles to protect the nation’s small, informal retailers, who
control 88 percent of India’s $1.1 trillion in retail sales.35
The country recently laid down new e-commerce restric-
tions that prohibit non-Indian-owned online companies
such as Amazon or Walmart’s Flipkart unit from selling
their own products directly to consumers on their sites.
For Amazon, that includes products such as Amazon’s
Echo, Kindle, and Fire TV devices and a growing list of
private-branded products ranging from batteries and
fashions to home goods. Under the new rules, Amazon
and Flipkart can serve only as marketplaces that connect
Nontariff trade barriers: New restrictions on non-Indian-owned independent buyers with sellers. The new rules also ban
online sellers has caused major obstacles for Amazon in India’s huge forming exclusive deals with major sellers, offering deep
e-commerce market. discounts, and holding flash sales. Designed to protect
Rebecca Conway/The New York Times/Redux local Indian stores and online retailers from the inven-
tory and pricing power of large non-Indian-owned businesses, such regulations have
caused major obstacles for Amazon and Walmart, which have both invested heavily
in recent years to develop a presence in India’s e-retail market, which will reach an
estimated $200 billion by 2026.36

The Environmental and Ecological Context

Countries and societies are increasingly concerned about the social and environmental
conditions their citizens face daily. Companies feel increasing pressure from customers,
employees, policy makers, and citizens at large to do the right thing by society and the
environment. As a result, governments and companies across the globe have rapidly in-
creased regulations and voluntary initiatives that promote socially and environmentally
sustainable business practices.
Global marketers must understand the impact of widely varying sustainability regu-
lations on their products and operations in individual global markets. For example, the
governor of California, a state whose standalone GDP would make it the fifth-largest
economy in the world, recently signed an executive order that will ban all in-state sales of
gasoline-fueled vehicles as of 2035. Carmakers worldwide will have to plan ahead if they
wish to sell cars in California. As another example, India was the first country to make
corporate social responsibility (CSR) mandatory. As of 2015, companies with $70 million
or more of net worth, $140 million or more in sales, or $699,125 or more in net profits
must annually spend 2 percent of their average net profits of the previous three years on
government-approved CSR initiatives. Responsible global marketers must understand and
support this requirement.37
Many companies adopt their own sustainable initiatives and practices. For exam-
ple, most global carmakers have set their own ambitious goals for making and mar-
keting less-polluting, all-electric vehicles. And global logistics and delivery companies
such as UPS, FedEx, and DHL have already upgraded their delivery vehicle fleets well
beyond the requirements of most of the countries in which they operate. That said, when
evaluating a country for entry, companies should also carefully examine the regulations
related to sustainable business practices. They must assess the economic, operational,
and marketing impact of such regulations on the prospects for success in each country
or region.
In summary, as the first step in the global marketing process, marketers must under-
stand the macroenvironmental contexts of the countries or regions in which it might
operate. The PESTLE framework addresses the six factors that set the marketing con-
text in any country or region—political, economic, sociocultural, technological, legal/
institutional, and environmental/ecological. By assessing these factors, marketers will
gain a deep understanding of the global context within another country or across groups
of countries.

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 CHAPTER 19 | The Global Marketplace 587
Author In deciding whether to
Comment go global and where,
Deciding Whether to Go Global and Which
companies must ask many important Markets to Enter
questions. For example, which global
markets offer the best opportunities OBJECTIVE 19-3 Discuss how companies decide whether to go global and, if so,
for Netflix? which markets to enter.
The second step in the global marketing process involves deciding whether to go global
and where. Not all companies need to venture into global markets. But if they do go
global, they must assess which markets offer the best opportunities for their products and
services.

Deciding Whether to Go Global

Going global offers both benefits and risks. Operating domestically is easier and safer.
Domestic companies can avoid the complexities related to unstable currencies, political
and legal uncertainties, communication and cultural barriers, and varying customer needs
that come with global marketing. Focusing on just one market also creates a sense of focus
and discipline; the company can concentrate its resources and capabilities on serving its
familiar local market excellently.
However, a company may choose to go global for multiple reasons. First, global
competitors might attack the company’s home market by offering better products or
lower prices. The company might want to tie up these competitors’ resources by coun-
terattacking them in their home markets. Second, the company’s customers might be
expanding abroad and require global servicing. Third, global markets might provide
better opportunities for growth. For example, Coca-Cola’s global growth in recent years
has offset stagnant U.S. soft drink sales. Today, non–North American markets account
for 80 percent of Coca-Cola’s unit case volume, and the company is making major
pushes into dozens of emerging markets, including China, India, and the entire African
continent.38
Fourth, while there are some risks associated with entering each country, for large com-
panies a diversified presence across numerous countries can dilute the risks that come with
being overly concentrated in one country. Finally, some industries are inherently global. The
strategic positions of companies in those industries will be strongly affected by their overall
global footprint in terms of lower unit costs of production, lower marketing costs, global
brand leverage, more efficient sourcing of raw material, and other effects. These potential
outcomes force the companies to compete on a regional or worldwide basis.
In summary, when evaluating the global expansion, managers much weigh the advan-
tages and disadvantages. Going global is neither an obvious nor a trivial decision. Even
if the balance tilts strongly toward going global, the company must evaluate its available
assets and capabilities for strong global performance. Does it have an open and global
managerial mindset? Does it have the resources available to fund global expansion? Can it
quickly gain global customer and market insights and find a pathway to build the global
brand? Can it find good global sourcing and distribution partners? In short, planning for
global market entry should go hand in hand with planning for global strategy execution.

Deciding Which Markets to Enter

Before going abroad, a company should try to define its global marketing objectives and
policies. It should decide what volume of international sales it wants. Most companies start
small when they go abroad. Some plan to stay small, seeing global sales as a small part of
their business. Others may project global business as being even more important than their
domestic business.
The company also needs to choose in how many countries it wants to market.
Companies must be careful not to expand beyond their capabilities by operating in too
many countries too soon. Next, the company needs to decide on the types of countries to
enter. As discussed previously, a country’s attractiveness depends on the product, geo-
graphical factors, income and population, political climate, and many other consider-
ations. In recent years, many major new markets have emerged, offering both substantial
opportunities and daunting challenges.

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 588 PART 4 | Extending Marketing
After listing possible global markets, the company
must carefully evaluate each one. To learn how this
might work, consider Netflix’s evaluation of India as a
potential market. Netflix’s initial decision to expand
into India seemed like an obvious one. The video stream-
ing giant was already doing well in Europe, South
America, and other global markets, which accounted
for more than half of its total streaming revenues. And
as the U.S. market became saturated, Netflix was look-
ing to global markets for growth. India offered huge
potential, with a population of 1.4 billion people, more
than four times the U.S. population and almost 2 times
Europe’s. Representing the world’s second-largest inter-
net market, India’s online video market was expected to
triple in just the next four years.39
However, as Netflix considered expanding into
India, it faced some important questions. Could it com-
Entering new global markets: Netflix’s decision to enter India seems pete effectively with local competitors? Could it man-
like an obvious one. But it is also a large and complex undertaking.
age the varied cultural differences across Indian states,
CeltStudio/Shutterstock; akedesign/Shutterstock
including more than 20 major languages? Would it be
able to overcome the significant regulatory, political, and infrastructure challenges in the
country? Netflix was optimistic. CEO Reed Hastings boldly predicted that a big fraction of
the company’s next 100 million customers would come from India. Five years later, how-
ever, things haven’t worked out that way. Netflix is still struggling to gain traction in India.
When entering India, Netflix faced many challenges. For example, India was crowded
with formidable competitors, including Amazon Prime Video and Indian digital and
mobile entertainment giant Hotstar (owned by Disney India and now called Disney+
Hotstar). And some 35 local online streaming services had sprung up in India during the
past few years. At the time, Hotstar claimed about 70 percent of India’s on-demand local
streaming services market.
Content was another major consideration. Netflix has a huge inventory of global con-
tent. But a large majority of titles on Netflix’s service in India were in English, whereas
the market prefers films in Hindi, Tamil, or other major regional languages. So Netflix has
poured money into developing original content by local producers for the Indian market.
This year alone, Netflix India originals will include 13 new movies, 12 new series, and
potentially a dozen or more returning series.
Netflix has also faced pricing challenges. As a premium provider, its cheapest
monthly plan was originally priced at about $8, roughly twice as much as Disney+
Hotstar. And by contrast, on average, a 100-channel linear cable TV or pay TV sub-
scription plan in India costs only $1.73 per month. Netflix recently slashed its prices in
India: Its basic plan now costs $2.65 a month, and its mobile-only viewing plan runs
$2 a month.
Despite its large investment in original content and creative pricing adjustments,
Netflix still lags badly in India. Its total paid subscriber base in India stands at only
6 million, compared with Disney+ Hotstar’s 51 million subscribers and Amazon Prime
Video’s 22.3 million. Still, Netflix’s decision to enter India was and still is an obvious one.
With its huge population, high economic growth rates, increasing internet access, and
booming Bollywood TV and movie entertainment industry, India is arguably the world’s
biggest untapped digital streaming market. If Netflix can get things right there, India
offers incredible opportunity. And getting things wrong in India would be a substantial
blow to the company’s future. For example, Disney+ Hotstar is predicting that it will have
230 to 250 million users in India by 2025. That’s more than Netflix’s total current world-
wide subscriber base of 222 million. “I think we’re quite bullish that India isn’t fundamen-
tally different in some way that we can’t figure out how to tailor our service offering to
be attractive to Indian consumers who love entertainment,” says Netflix’s chief operating
officer.
Drawing from our previous discussion of understanding the global marketing context
using the PESTLE framework, managers must evaluate each potential global market in
terms of its potential and risks, as summarized in Table 19.1. Then the marketer must
decide which markets offer the most attractive long-run returns versus risks.

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 CHAPTER 19 | The Global Marketplace 589

Table 19.1 Indicators of Market Potential (PESTLE Factors)

Political Context Technological Context

National priorities Presence of robust electronic networks
Political stability and compatibility Adoption of smart devices
Government attitudes toward global trade Presence of digital commerce platforms
Monetary and trade regulations

Economic Context Legal Context

Country size Membership in global trade organizations
GDP and growth rate Currency controls
Income distribution Labor restrictions
Market accessibility Non-trade tariff barriers
Natural, financial, and human resources

Sociocultural Context Environmental Context

Cultural and social norms Corporate social responsibility regulations
Consumer lifestyles, beliefs, and values Environmental regulations
Business norms and approaches Expected voluntary sustainability initiatives
Languages

Author A company has many

Comment options for entering
Deciding How to Enter Global Markets
global markets, from simply exporting OBJECTIVE 19-4 Describe three key approaches to entering global markets.
its products to working jointly with
global partners to setting up its own
As a third step in the global marketing process, companies must decide how they will
international operations. enter chosen global markets. A company can choose to enter another country through ex-
porting, joint venturing, and direct investment. Figure 19.3 shows the three market entry
strategies along with the options each one offers. Each succeeding strategy involves more
commitment and risk but also more control and potential profits.

Exporting
Exporting The simplest way to enter a new international market is through exporting. The com-
Entering international markets by selling pany may passively export its surpluses from time to time or may actively commit to
goods produced in the company’s expanding exports to a particular market. In either case, the company produces all its
home country, often with little or no goods in its home country. It may or may not modify them for export. Exporting in-
modification. volves the least change in the company’s product lines, organization, investments, or
mission.
Companies typically start with indirect exporting, working through independent global
marketing intermediaries. Indirect exporting involves low investment and risk because the
company does not require an overseas marketing organization or network. Global market-
ing intermediaries bring know-how and services to the relationship, so the seller normally
makes fewer mistakes. Sellers may eventually move into direct exporting, whereby they
handle their own exports. This involves higher investment and risk but also potentially
higher returns.

FIGURE 19.3
Market Entry Strategies Exporting Joint venturing Direct investment
Licensing
Assembly facilities
Indirect Contract manufacturing
Exporting is the simplest Manufacturing Direct investment—owning
Direct Management contracting
way to enter a new international facilities your own international-based
market, but it usually offers less Joint ownership operation—affords greater
control and profit potential. control and profit potential,
but it’s often riskier.

Amount of commitment, risk, control, and profit potential

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 590 PART 4 | Extending Marketing
Joint Venturing
Joint venturing Unlike simple exporting, joint venturing involves joining with a company within a global
Entering international markets by joining market to produce or market products or services abroad. It also differs from direct invest-
with companies within a global market to ment in that the company forms an association with an entity in the other country. There
produce or market a product or service. are four types of joint ventures: licensing, contract manufacturing, management contracting,
and joint ownership.
Licensing
Entering a global market by developing
Licensing
an agreement with an entity within
that market to use the company’s Licensing is a simple way to enter a global market. The company enters into an agreement
brand, trademark, patent, trade secret, with a licensee in the that market. For a fee or royalty payments, the licensee buys the right to
manufacturing process, or some other use the company’s manufacturing process, trademark, patent, trade secret, and/or other item of
item of value in return for some payment. value. The company thus gains entry into the market at little risk; at the same time, the licensee
gains production expertise or a well-known product or name
without having to start from scratch.
In Japan, Budweiser beer flows from Kirin breweries,
and Mizkan produces Sunkist lemon juice, drinks, and des-
sert items. Coca-Cola markets licenses to bottlers around the
world and supplies them with the syrup needed to produce
the product. Its global bottling partners include the Coca-
Cola Bottling Company of Saudi Arabia and Europe-based
Coca-Cola Hellenic, which bottles and markets 197 Coca-Cola
brands to 715 million people in 29 countries, from Italy and
Greece to Nigeria and Russia.40 And Tokyo Disney Resort
is owned and operated by Oriental Land Company under
license from The Walt Disney Company. The 45-year license
gives Disney licensing fees plus a percentage of admissions
and food and merchandise sales.
Licensing has potential disadvantages: The company
has less control over the licensee than it would over its own
Global licensing: The Tokyo Disney Resort is owned and operations. Furthermore, if the licensee is highly successful,
operated by Oriental Land Company (a Japanese development the company has given up these profits. Finally, if and when
company) under license from The Walt Disney Company. the contract ends, the company may find that it has created
Kyodo via AP Images a competitor.

Contract Manufacturing
Contract manufacturing Under contract manufacturing, the company makes agreements with manufactur-
A joint venture in which a company ers in the global market to produce its product or provide its service. For example, P&G
contracts with manufacturers in a global serves 650 million consumers across India with the help of nine contract manufacturing
market to produce its product or provide sites there. Volkswagen contracts with Russia’s largest auto manufacturer, GAZ Group,
its service. to make Volkswagen Jettas for the Russian market as well as its Škoda (VW’s Czech
Republic subsidiary) Octavia and Yeti models sold there. And Apple’s three main contract
manufacturers—which make a majority of the brand’s iPhones, iPads, Apple Watches,
and other products—have facilities in India that supply “Made in India” products for that
market.41 Contract manufacturing may decrease the company’s control over manufactur-
ing and potentially decrease its profit margins. However, it also lets the company begin
operations faster, reduces market-entry risks, and offers the later opportunity to form a
partnership with or buy out the contract manufacturer. Contract manufacturing can also
reduce plant investment, transportation, and tariff costs. And it can help the company meet
the host country’s local manufacturing requirements. For example, Apple’s initiative to
locally assemble iPhones in India helps it avoid paying a 20 percent import duty.42

Management Contracting
Management contracting Under management contracting, the domestic company provides the management
A joint venture in which the domestic know-how to a company in another country that supplies the capital. In other words, the
company supplies the management domestic company exports management services rather than products. Hilton uses this
know-how to a company in another arrangement in managing hotels around the world. For example, the Hilton hotel chain
country that supplies the capital; the operates DoubleTree by Hilton hotels in countries across the world, including the United
domestic company exports management Kingdom, France, Italy, Peru, Costa Rica, China, Russia, and Tanzania. The properties
services rather than products. are locally owned, but Hilton manages the hotels with its world-renowned hospitality
expertise. More broadly, Hilton Management Services offers management contracting

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 CHAPTER 19 | The Global Marketplace 591
services to independently, locally owned hotels under any of its 18 brands worldwide.
“We operate your hotel as if we owned it,” says the company. “Your hotel. Our brand and
management team.”43
Management contracting is a low-risk method of getting into a global market, and it
yields income from the beginning. This approach is particularly applicable if the company
has a strong brand and operations blueprint, as Hilton does, that can be leveraged by
other companies in the other country. The arrangement is even more attractive if the con-
tracting company has an option to buy some share in the managed operations later. The
arrangement is not sensible, however, if the company can make greater profits by under-
taking the whole venture. Management contracting also prevents the company from set-
ting up its own operations for some time. Finally, the parent company must ensure that its
brand positioning and reputation are not put at risk by the operating company.

Joint Ownership
Joint ownership Joint ownership ventures consist of one company joining forces with foreign inves-
A cooperative venture in which a tors to create a local business in which they share possession and control. A company
company creates a local business with may buy an interest in a local company, or the two parties may form a new business
investors in a global market who share venture. Joint ownership may be needed for economic or political reasons. For example,
ownership and control. the company may lack the financial, physical, or managerial resources to undertake the
venture alone. Alternatively, a foreign government may require joint ownership as a con-
dition for entry. Disney’s Hong Kong Disneyland is run by a joint venture, Hong Kong
International Theme Parks Ltd, of which the local government owns 53 percent and
Disney owns 47 percent. Similarly, Shanghai Disneyland is a joint ownership venture
with the Chinese government-owned Shanghai Shendi Group. Disney owns 43 percent
of the Shanghai resort; the Shanghai Shendi Group owns 57 percent.44
Often, companies form joint ownership ventures to merge their
complementary strengths to develop a global marketing oppor-
tunity. For example, Walmart’s 81 percent ownership stake
in Flipkart, India’s leading online marketplace, has helped the
U.S.-based retailer navigate India’s strict foreign investment restric-
tions. And it gave Walmart a head start over Amazon in market share
and online retailing expertise in India. In turn, Flipkart benefits from
Walmart’s deep pockets and distribution experience. Similarly, joint
ownership ventures have helped Kellogg move quickly and strongly
into emerging markets in West Africa. Kellogg purchased 50-percent
stakes in Tolaram Africa Foods, a leading manufacturer of pack-
aged foods in Nigeria and Ghana, and Multipro, the largest foods
distributor in those countries. The joint ownership investments have
helped Kellogg better understand West African consumers and mas-
Joint ownership: Walmart’s joint ownership stake in
ter the region’s complex distribution environment.45
Flipkart, India’s leading online marketplace, helps the retailer
to navigate India’s strict foreign investment restrictions.
Joint ownership has certain drawbacks, however. The partners
may disagree over investment, marketing, or other policies. Many
grzegorz knec/Alamy Stock Photo (Walmart); Farbentek/123RF (Flipkart)
U.S. companies like to reinvest earnings for growth, but local com-
panies often prefer to take out these earnings. Similarly, U.S. companies emphasize the role
of marketing, but local investors may rely on selling.

Direct Investment
Direct investment The most intense involvement in a global market comes through direct investment—
Entering a global market by developing the development of assembly or manufacturing facilities within other country markets.
assembly or manufacturing facilities For example, U.S. chipmaker Intel made substantial investments, totaling more than
within that market. $20 billion, in corporate acquisitions and building its own manufacturing and research
facilities in Israel. A significant share of Intel Israel’s chip exports goes to China. Thus,
in the face of sometimes strained trade relations between the United States and China in
recent years, increased direct investment in Israel lets Intel indirectly serve the large and
growing Chinese chip market.46
Production facilities within global markets can help the company access lower-cost
labor, cheaper raw materials, local government incentives, and freight savings. The com-
pany can also adapt its products to the local market, improve its image in the host country
by creating jobs, and develop deeper relationships with the government, customers, local
suppliers, and distributors. Finally, the company keeps full control over the investment

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 592 PART 4 | Extending Marketing
and therefore can develop manufacturing and marketing policies that serve its long-term
global objectives.
Direct investment exposes the company to many risks, however, including restricted
or devalued currencies, falling markets, or government changes. In some cases, a company
has no choice but to accept these risks if it wants to operate in the another country.

Author The major global

Comment marketing decision usually
boils down to this: How much, if Deciding on the Global Marketing Program
at all, should a company adapt its
marketing strategy and programs to
OBJECTIVE 19-5 Explain how companies adapt their marketing strategies and
local markets? How might the answer marketing mixes for global markets.
differ for Boeing versus McDonald’s?
The fourth step in the global marketing process involves developing global marketing
strategies and tactics. Companies that operate globally must decide whether and how
to adapt their marketing strategies and programs to local conditions. At one extreme
Standardized global marketing are global companies that use standardized global marketing, essentially applying
A global marketing strategy that basically the same marketing strategy approaches and marketing mix worldwide. At the other
uses the same marketing strategy extreme is adapted global marketing. In this case, the company adjusts the marketing
and mix in all of the company’s global strategy and mix elements to each target market, resulting in higher costs in the quest for
markets. higher market shares and profits.
The question of whether to adapt or standardize marketing across countries has long
Adapted global marketing been debated. On the one hand, some global marketers believe that technology is making
A global marketing approach that
the world a smaller place, and consumer needs around the world are converging. This
adjusts the marketing strategy and mix
paves the way for global brands and standardized global marketing. In turn, the company
elements to each global target market,
achieves greater brand power and reduced costs from economies of scale.
which increases costs but hopefully
On the other hand, the marketing concept holds that marketing initiatives will be more
yields larger market shares and financial
returns.
engaging if tailored to the unique needs of each targeted customer group. If this concept
applies within a country, it should apply even more across countries. Despite global con-
vergence, cultures vary greatly across countries. Global consumers still differ
significantly in their needs and wants, spending power, product preferences,
and shopping patterns. Because these differences are persistent, most market-
ers today adapt their products, prices, channels, and promotions across global
markets.
However, global adaptation is not an all-or-nothing proposition. It’s a mat-
ter of degree. Most global marketers suggest that companies should “think glob-
ally but act locally.” They should seek a balance between standardization and
adaptation, standardizing some aspects of their marketing, brands, products,
and operations globally but adapting other aspects to specific market.
Starbucks operates this way. The company’s overall brand strategy provides
global strategic direction. Then regional or local units focus on adapting the strat-
egy and brand to specific local markets. For example, when Starbucks entered
China 25 years ago, given the strong Chinese tea-drinking culture, few observers
expected success. But Starbucks quickly proved the doubters wrong:47
Starbucks’s success in China results from building on its global “Starbucks
Experience” brand identity while at the same time adapting its marketing strategy
to the unique characteristics of Chinese consumers. At first glance, a Starbucks
in Beijing looks and feels a lot like one in Chicago. But dig deeper and you’ll
find significant differences. Rather than forcing U.S. products on Chinese locals,
Starbucks developed new flavors, including an extensive menu of tea-based drinks
that appeal to local tastes—think Black Tea Latte or Red Bean Tea Frappuccino.
Rather than just charging U.S.-style premium prices, Starbucks boosted prices
20 percent higher in China compared to other markets, positioning the brand as a
status symbol for the rapidly growing Chinese middle and upper classes.
Research showed that, unlike Americans, Chinese consumers don’t like to “grab
and go” with their coffee—they’d rather sit back and chat with friends, family, and
business associates. So rather than pushing take-out orders, which account for most
Think globally, act locally: Starbucks’s of its U.S. revenues, Starbucks made its Chinese stores bigger and promoted dine-in
success in China results from building on its global services, making Starbucks the perfect meet-up place. And whereas U.S. locations do
“Starbucks Experience” brand identity while at the about 70 percent of their business before 10 a.m., China stores do more than 70 percent
same time adapting its marketing strategy to the of their business in the afternoon and evening. And Starbucks recently launched an
unique characteristics of Chinese consumers. initiative called “1971 salons” by which customers can book parts of Starbucks stores
Chris Willson/Alamy Stock Photo for private events, ranging from birthday parties to business meetings.

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 CHAPTER 19 | The Global Marketplace 593
Under this adapted strategy, Starbucks China is thriving. China quickly became Starbucks’s
second-largest market outside of the United States, now with more than 5,300 stores in
210 Chinese cities. Starbucks claims a more than 36 percent market share, nearly twice that of the
second-place competitor. “We’re trying to build a different kind of company in China . . . while
maintaining the heart and soul of what Starbucks stands for,” says the president of Starbucks
China.

Collectively, local brands still account for the overwhelming majority of consumer
purchases. Most consumers, wherever they live, lead very local lives. So a global brand
must engage consumers at a local level, respecting the culture and aligning with it.
Perhaps no company does this better than French cosmetics and beauty care giant
L’Oréal. L’Oréal’s and its brands are truly global in scope and appeal. But the com-
pany’s outstanding global success comes from achieving a global–local balance, one
that adapts and differentiates L’Oréal’s well-known brands to meet local needs while
also integrating them across world markets to optimize their global impact. This global–
local balance lies at the roots of the organization whose mission is to offer “beauty for
all” by providing “beauty for each individual” (see Real Marketing 19.2).

Product
Five strategies are used for adapting product and marketing communication strategies to a
global market (see Figure 19.4).48 We first discuss the three product strategies and then
turn to the two communication strategies.
Straight product extension Straight product extension means marketing a product in a global market without
Marketing a product in a global market significantly changing either the product or its positioning and communication. The first
without making any changes to the product step, however, should be to find out whether consumers in other country markets use that
or its positioning and communication. product and what form they prefer.
Straight extension has been successful in some cases and disastrous in others. Apple
iPads, Gillette razors, and Black & Decker tools are all sold globally and successfully in
about the same form and with similar messaging. But when General Foods introduced its
standard powdered JELL-O in Britain, it discovered that British consumers prefer a solid
wafer or cake form. Likewise, Panasonic’s refrigerator sales in China surged tenfold in a
single year after it slimmed down its appliances by 15 percent to fit smaller Chinese kitch-
ens. Straight extension saves significant costs but can be costly in the long run if products
fail to satisfy consumers in specific global markets.
Product adaptation Product adaptation involves changing the product to meet local preferences and
Adapting a product to meet local conditions but leaving the positioning and communication largely unchanged. For exam-
conditions or wants in global markets ple, in the United States, Amazon’s Echo-based virtual voice assistant Alexa speaks a soft
but without significantly changing but precise version of American English. Alexa knows that Independence Day falls on July 4
the positioning and communication and that Americans love turkey with all the fixings for Thanksgiving. But what happens
associated with it. when Alexa goes global? Alexa must be carefully adapted to each new global culture.
Consider Alexa in India:49
Before introducing Alexa in India, teams of linguists, speech scientists, and developers gave
her a decidedly local makeover. In India, Alexa speaks Hinglish—a blend of Hindi and
English—with an unmistakable Indian accent. “She knows Independence Day is August
15, not July 4, and wishes listeners ‘Happy Diwali and a prosperous New Year!’” says one
business reporter. “She also refers to the living room as ‘drawing room’ and can add jeera
(cumin), haldi (turmeric) and atta (flour) to your shopping list.” Alexa’s many “skills” cover

FIGURE 19.4
Five Global Product and Communications Strategies
Product
Don’t change Adapt Develop new
product product product
The real question buried in this figure
Communications

is this: How much should a company Don’t change Straight Product

standardize or adapt its products and communications extension adaptation
marketing across global markets? Product
invention
Adapt Communication Dual
communications adaptation adaptation

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 594 PART 4 | Extending Marketing

L’Oréal: “Beauty for All. Beauty for Each

Real Marketing 19.2 Individual.”
How does a French company successfully cultures, histories, individuals.” Thus, to and hair care rituals like those faced by
market an American version of a Korean achieve “beauty for all,” L’Oréal seeks to pro- Brazilian women. Subsequently, L’Oréal
skin beautifier under a French brand name in vide “beauty for each individual.” launched the brand as Elséve Total Repair
Australia? Ask L’Oréal, which sells more than To that end, L’Oréal digs deep to under- in numerous European, Indian, and other
$37 billion worth of cosmetics, hair care prod- stand what beauty means to consumers in Southeast Asian markets, where consum-
ucts, skin care concoctions, and fragrances different parts of the world. It outspends all ers greeted it with similar enthusiasm.
each year in 150 countries, making it the major competitors on R&D, painstakingly re- In addition to product formulations, L’Oréal
world’s biggest cosmetics marketer. L’Oréal searching beauty and personal care behav- also adapts brand positioning and marketing
sells its brands globally by understanding iors unique to specific locales. L’Oréal has set to global needs and expectations. For exam-
how they appeal to varied cultural nuances up R&D centers all over the world, perfecting ple, more than 25 years ago, the company
of beauty in specific local markets. Then it a local observation approach it calls “geocos- bought stodgy American makeup producer
finds the best balance between adapting its metics.” By employing research techniques Maybelline. To reinvigorate and globalize
brands to meet local needs and desires and ranging from in-home visits to observations the brand, it moved the unit’s headquarters
standardizing them for global impact. made in “bathroom laboratories” equipped from Tennessee to New York City and added
L’Oréal is as global as a company gets, with high-tech gadgetry, L’Oréal generates “New York” to the label. The resulting urban,
with offices across the world and more than deep insights about regional beauty and hy- street-smart, Big Apple image played well
half of its sales sourced outside Europe and giene rituals and about local conditions that with the mid-price positioning of the work-
North America. L’Oréal’s 36 well-known affect the use of its products, such as humid- day makeup brand globally. The makeover
brands originated in different cultures, includ- ity and temperature. quickly earned Maybelline a 20 percent mar-
ing French (L’Oréal Paris, Garnier, Lancôme), L’Oréal employs these detailed insights to ket share in its category in Western Europe.
American (Maybelline, Kiehl’s, SoftSheen- create and position its brands in local mar- The young urban positioning also hit the
Carson, Ralph Lauren, Urban Decay, kets. “Beauty is less and less one size fits mark in Asia, where few women realized that
Clarisonic, Redken), Italian (Giorgio Armani), all,” says a L’Oréal executive in China. “You the trendy “New York” Maybelline brand be-
and Japanese (Shu Uemura). The master have to have an answer for very different longed to French cosmetics giant L’Oréal.
global marketer is the uncontested world needs.” More than 260 scientists now work in To further its quest to bring beauty to each
leader in makeup, skin care, and hair coloring L’Oréal’s Shanghai research center, tailoring individual, L’Oréal launched Color&Co, a
and second only to P&G in hair care. products such as lipsticks, herbal cleaners, direct-to-consumer brand that aims to give dye-
L’Oréal’s global prowess starts with a and cucumber toners for Chinese tastes. at-home users their own personal hair color. The
corps of highly multicultural managers. The Even as it responds to local market experience begins at the brand’s website, where
company is known for building global brand needs, L’Oréal seeks to achieve global a customer takes a quiz and has a real-time video
teams around managers with deep multicul- scale by integrating brands across world consultation with a professional hair colorist. The
tural backgrounds who bring diverse cultural cultures. Consider Elséve Total Reparação, colorist applies an algorithm that comes up with
perspectives to their brands. As explained by a hair care line developed at L’Oréal’s labs a personalized formula to achieve the perfect
one Indian-American-French manager of a in Rio de Janeiro to address specific hair hair shade based on each customer’s hair type,
team that launched a men’s skin care line in problems described by Brazilian women. ethnicity, natural undertones, preferences, and
Southeast Asia: “I cannot think about things In Brazil, more than
one way. I have a stock of references in dif- half of all women
ferent languages: English, Hindi, and French. have long, dry, and
I read books in three languages, meet people curly hair, resulting
from different countries, eat food from differ- from the humid
ent [cultures], and so on.” Brazilian climate,
For example, a French-Irish-Cambodian exposure to the
skin care manager noticed that, in Europe, sun, frequent wash-
face creams tended to be either “tinted” (and ing, and smoothing
considered makeup) or “lifting” (considered and straightening
skin care). In East Asia, however, many face treatments. Elséve
creams combine both traits. Recognizing Total Reparação
the growing popularity of East Asian beauty was an immedi-
trends in Europe, the manager and his team ate hit in Brazil,
developed a tinted lifting cream for the French and L’Oréal quickly
market, a product that proved successful. rolled it out to other
L’Oréal’s vision is to universalize beauty— South American
to offer “beauty for all” around the world. But and Latin American
universalization does not mean uniformity. markets. The com- Global–local balance: Cosmetics and beauty care giant
To the contrary, says the company: “At pany then tracked L’Oréal balances local brand responsiveness and global brand
L’Oréal, we are convinced that no single and down other global impact, offering “beauty for all” by providing “beauty for each
unique model of beauty exists, but an infinite locales with cli- individual.”
diversity, changing with the times, through mate characteristics TY Lim/Shutterstock

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 CHAPTER 19 | The Global Marketplace 595
other factors. Within days, the customer receives delivering consistent hair color results for con- balance that adapts and differentiates
a Color&Co Colorbox with a custom-blended sumers at home. Going forward, services and brands in local markets while optimizing their
formula, personalized instructions, and a how- technologies such as Color&Co and Colorsonic impact across global markets. “We respect
to video. And to make applications better and give L’Oréal a global technology platform for the differences among our consumers
easier, L’Oréal recently introduced its latest hair delivering individualized beauty solutions across around the world,” says L’Oréal’s CEO.
coloration tech innovation. Called Colorsonic, it’s its wide range of brands. “We have global brands, but we need to
a lightweight, handheld device that uses a mess- L’Oréal’s huge global success comes adapt them to local [and even individual]
free process to mix hair color and apply it evenly, from achieving a well-designed global–local needs.”50

a wide range of Indian interests, notes another reporter—“chants for cricket enthusiasts, reci-
tations of the Gayatri Mantra, . . . daily horoscopes, Bollywood quizzes, Indian flute music,
and even cooking instructions based on late celebrity chef Tarla Dalal’s recipes.”
Conversing in Hinglish is critical. Although many Indians under-
stand both English and Hindi, they feel more comfortable with an Alexa
who sounds like them. Having Alexa understand the nuances of Hinglish
and local subcultures is especially important as Amazon expands beyond
India’s big cities. A greater proportion of rural Indians speaks only Hindi or
another local language, and lower literacy rates mean more people prefer
voice controls to typing. “Alexa is not going to be a visiting American who
is going to come to India for a few days and go back,” says Amazon’s India
country manager for Alexa Skills. “She is as Indian as it gets.” Such adapta-
tions have paid off for Amazon in India. Its Echo is India’s leading smart
speaker brand with a 80 percent market share, with Google a distant second
at 11 percent.

Product invention consists of creating something new to meet the

needs of consumers in other countries. In particular, companies based
Product adaptation: Amazon carefully adapts its in developed economies have designed new offerings ranging from
Echo-based virtual voice assistant Alexa to each new appliances to candy to meet the special purchasing needs of low-income
global culture. In India, Alexa speaks Hinglish—a blend consumers in developing economies.
of Hindi and English—with an unmistakable Indian
For example, Chinese appliance producer Haier developed sturdier
accent.
washing machines for rural users in Africa, India, and other emerging
Chesh/Alamy Stock Photo
markets, where it found that lighter-duty machines were often clogged with mud when
farmers used them to clean vegetables as well as clothes. P&G developed a waterless
line of shampoos and other hair care products that required no water for South African
consumers facing severe water shortages. And solar lighting manufacturer d.light Solar
has developed affordable solar-powered home lighting systems for the hundreds of
Product invention millions of people in developing economies who don’t have access to reliable power.
Creating new products or services for
d.light’s hanging lamps and portable lanterns require no energy source other than the
global markets.
sun and can last up to 15 hours on one charge. The company has already sold close to
25 million solar light and power products in 70 countries, impacting more than
125 million people.51

Promotion
Companies can adopt the same communication strategy they use in the home market
or change it for each global market. Consider advertising messages. Some companies
use a standardized advertising theme around the world. For example, Coca-Cola uni-
fies its global advertising around a “Taste the Feeling” theme. Of course, even in highly
standardized communications campaigns, some local adjustments might be required.
Ads for Coca-Cola’s “Taste the Feeling” campaign have a similar look worldwide but
are adapted to feature local consumers, cultural nuances, languages, celebrities, and
events.
Global companies often have difficulty crossing the language barrier. Seemingly innoc-
uous brand names and advertising phrases can take on unintended or hidden meanings
when translated into other languages. For example, Interbrand of London, the company
that created household names such as Prozac and Acura, recently developed a brand
name “hall of shame” list, which contained these and other foreign brand names you are
never likely to see in the United States: Krapp toilet paper (Denmark), Plopp chocolate

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 596 PART 4 | Extending Marketing
(Scandinavia), Crapsy Fruit cereal (France), Poo curry powder (Argentina), and Pschitt
lemonade (France). Similarly, advertising themes often lose—or gain—something in the
translation. In Chinese, the KFC slogan “finger-lickin’ good” came out as “eat your fingers
off.” And Motorola’s Hello Moto ringtone sounds like “Hello, Fatty” in India.
Marketers must be watchful to avoid such mistakes, taking great care when local-
izing their brand names and messages to specific global markets. In important but cul-
turally different markets such as China, finding just the right name can make or break a
brand:52
After a long day’s work, an average upscale Beijinger is eager to dash home, lace on a
comfortable pair of Enduring and Persevering, pop the top on a refreshing can of Tasty
Fun, and then hop into his Dashing Speed to head to the local tavern for a frosty glass of
Happiness Power with friends. Translation? In China, those are the brand name meanings
for Nike, Coca-Cola, Mercedes, and Heineken, respectively. To Westerners, such names may
sound silly, but to brands doing business in China, they are no laughing matter. Brand
names in China take on deep significance, and the name can make or break a brand.
Ideally, to maintain global consistency, the Chinese name
should sound like the original while also conveying the brand’s
benefits in meaningful symbolic terms. Nike’s Chinese brand name,
Nai ke, sounds the same when pronounced in Chinese, and its
“Enduring and Persevering” meaning powerfully encapsulates the
Nike’s global “Just Do It” brand essence. Coca-Cola’s Chinese
name—Ke kou ke le—sounds much like the English name, and the
Chinese symbols convey happiness in the mouth, a close reflection
of Coca-Cola’s long-running global “Taste the Feeling” positioning.
With diligence and hard work, companies can come up with
names that will engage and inspire Chinese buyers. In China, it’s
not Subway, it’s Sai bai wei—“better than 100 tastes.” It’s not Revlon
but Lu hua nong, a phrase borrowed from a famous Tang Dynasty
romantic poem meaning “blossoming flowers nourished by the
morning dew.” Still, many global brand names require careful re-
crafting for China. For example, Microsoft had to rethink the intro-
duction of its Bing search engine in China, where the most common
Brand names in China take on deep significance. Coca- translations of the character pronounced “bing” are words like de-
Cola’s Chinese name sounds much like the English name, and the fect or virus, not good associations for a digital product. Microsoft
Chinese symbols convey “happiness in the mouth,” a close fit to changed the name in China to Bi ying, which means “very certain to
Coca-Cola’s long-running “Taste the Feeling” positioning. respond.” Even so, the brand is having difficulty shaking the resem-
Imaginechina Limited/Alamy Stock Photo blance to the original name.

Rather than standardizing their advertising globally, other companies follow a strat-
Communication adaptation egy of communication adaptation, adapting their advertising messages to local mar-
A global communication strategy of fully kets. For example, in the United States and most Western countries, parents view play as
adapting advertising messages to local beneficial to child development and creativity. However, given the fiercely competitive
markets. academic environment, many Chinese parents view play as a distraction from schoolwork
that does not contribute to learning and development. As a result, although China has
almost five times the population of the United States, Chinese parents spend less than half
of what U.S. parents spend on toys.
To meet this challenge, U.S. toymakers adapt their Chinese communications cam-
paigns to emphasize how play helps children to succeed by boosting their knowledge,
skills, and creativity. For example, an Asian video for Mattel’s Barbie, based on the
brand’s “You can be anything” theme, countered Chinese stereotypes about play being a
waste of time by showing how playing with Barbie made girls more self-confident, cre-
ative, and emotionally intelligent. The video drew 7.5 million views. Similarly, a Crayola
campaign featured a virtual children’s art gallery showing how children will grow up
“creating not just art, but also ideas, products, and scientific progress.” And LEGO
shared a WeChat post showing a father who is a Silicon Valley engineer using LEGO
bricks to teach his son math skills. LEGO even offers robotics classes for kids. Says one
Chinese mother who pays monthly to enroll her daughter, “She’s learning to think more
logically and improving her motor skills. The classes are so worth the cost.” The family
has dozens of LEGO model kits.53
Media also need to be adapted internationally because media availability and regu-
lations vary from country to country. While TV advertising has few regulations in the
United States, TV advertising time is limited in Europe. For instance, France has banned
retailers from advertising on TV and Sweden forbids TV advertising directed to children

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 CHAPTER 19 | The Global Marketplace 597
under 12 years of age. However, mobile phone ads are much more widely accepted
in Europe and Asia than in the United States. Newspapers are national in the United
Kingdom, only local in Spain, and a leading advertising medium in Germany. India
has nearly 300 newspapers; therefore, choosing the language and geographical focus of
advertising is important.54

Price
Companies also face many considerations in setting their global prices. For example, how
might Makita price its power tools globally? It could set a uniform price globally, but this
amount would be too high a price in developing economies and not high enough in devel-
oped ones. It could charge what consumers in each country would bear, but this could lead
to wide variances in prices across countries. Finally, the company could use a standard
markup of its costs everywhere, but this approach might sacrifice profitability in some
markets while pricing Makita out of the market in others.
Regardless of how companies go about pricing their products, prices in other coun-
tries are often higher than domestic prices for comparable products. This is often driven by
tariffs and other levies on imported products. For example, a 256GB Apple iPhone 13 was
recently priced at $929 in the United States, $1,052 in China (where the product is primarily
manufactured and assembled), $1,212 in the United Kingdom, $1,221 in India, and $1,522
in Turkey.55 The very high price in Turkey is largely because of the country’s volatile cur-
rency and high import tariffs and other taxes.
In other cases, a company that produces its product
domestically but sells it in another country can face a price esca-
lation problem. Apart from potential tariffs, the company must
add the costs of transportation, importer margins, wholesaler
margins, and retailer margins to its factory price. Depending
on these added costs and the nature of the product, the com-
pany may need to price its product two to five times higher to
generate the same profit as in its home country.
To overcome this problem and sell to less-affluent con-
sumers in emerging markets, companies may market smaller
or simpler versions of their products at lower prices. For
example, to compete with low-end competitors in Indonesia,
India, Pakistan, and other emerging economies, Samsung
developed its Galaxy A line. The A models, routinely priced
at under $200, carry the Galaxy name and style but have
few high-end features. Or companies can reduce prices by
manufacturing their products locally. For example, Motorola
and Xiaomi avoid high import tariffs by producing phones
Global pricing: To compete with low-end competitors in in India; the lower costs are passed along to consumers in
emerging economies, Samsung developed its low-priced Galaxy A the form of lower prices, helping the companies build market
line, which carries the Galaxy name and style but with few high-end share. At the premium end, Apple has tried to build market
features. share by locating some manufacturing in India and by push-
rawpixel/123RF ing the next-to-latest version of products.
Recent economic and technological forces have affected global pricing. Thanks to
widespread internet access, consumers can compare product prices across countries. In
many cases, they can order a product directly from a retailer in another country offering a
low delivered price. This is forcing companies toward more standardized global pricing.

Distribution Channels
Whole-channel view A global company must take a whole-channel view of the problem of distributing prod-
Designing global channels that consider ucts to final consumers. Figure 19.5 shows the two major links between the seller and
the entire global supply chain and the final buyer. The first link, channels between nations, moves company products from
marketing channel, forging an effective points of production to the borders of countries within which they are sold. The second
global value delivery network. link, channels within nations, moves products from their market entry points to the final
consumers. The whole-channel view recognizes that to compete well globally, the com-
pany must effectively design and manage an entire global value delivery network.

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 598 PART 4 | Extending Marketing
FIGURE 19.5
Whole-Channel Concept for
Channels Channels
Global Marketing International
between within
Final user
seller or buyer
nations nations
Distribution channels can vary dramatically
around the world. For example, in the U.S.,
Global value delivery network
Coca-Cola distributes products through
sophisticated retail channels. In less-developed
countries, it delivers Coca-Cola products using
everything from push carts to delivery donkeys.
In some markets, the distribution system is complex, competitive, and hard to pen-
etrate. For example, many Western companies find India’s distribution system difficult to
navigate. Large discount, department store, and supermarket retailers still account for a
small fraction of the huge Indian market. Shopping is primarily done in small neighbor-
hood stores called kirana shops, run by their owners and popular because they typically
offer rapid at-home delivery service and credit. In addition, large Western retailers have
difficulty dealing with India’s complex government regulations and patchy infrastructure.
Distribution systems in developing countries may be scattered, inefficient, or alto-
gether lacking. For example, China’s rural markets are highly decentralized and comprise
many distinct submarkets, each with its own subculture. Given the inadequate distribu-
tion systems, most companies can profitably access only the fraction of China’s massive
population located in affluent cities. Although improving in recent years, China’s distri-
bution system is so fragmented that logistics-related costs to
wrap, bundle, load, unload, sort, reload, and transport goods
amount to nearly 15 percent of the nation’s GDP, far higher
than in most other countries. (By comparison, U.S. logistics
costs account for about 7.4 percent of the nation’s GDP.)56
Sometimes local conditions can greatly influence how a
company distributes products in global markets. For exam-
ple, in low-income neighborhoods in Brazil where consum-
ers have limited access to supermarkets, Nestlé supplements
its distribution with an army of self-employed salespeople
who sell Nestlé products from refrigerated carts door to
door. In big cities in Asia and Africa, where crowded
streets and high real estate costs make drive-thru arrange-
ments impractical, fast-food restaurants such as McDonald’s
and KFC offer delivery. Legions of motorbike delivery driv-
ers in colorful uniforms dispense Big Macs and buckets of
chicken to customers who call in or order through their apps.
McDelivery: In big cities in Asia and Africa, where crowded
streets and high real estate costs make drive-thru arrangements Such sales expanded rapidly worldwide during the recent
impractical, legions of McDonald’s motorbike delivery drivers COVID-19 pandemic, as consumers were forced to eat in
dispense Big Macs and fries to customers who call in or order rather than eating out. Over the past five years, McDonald’s
through its app. has expanded its delivery capacity tenfold from 3,000 of its
Sorbis/Shutterstock restaurants to more than 32,000 worldwide.57
Thus, global marketers face a wide range of channel alternatives. Designing efficient
and effective channel systems between and within various country markets poses a dif-
ficult challenge.

Author Many large companies,

Comment regardless of their “home Deciding on the Global Marketing Organization
country,” now think of themselves as
OBJECTIVE 19-6 Identify the three major forms of global marketing organization.
truly global organizations. They view
the entire world as a single borderless As a fifth and final step in the global marketing process, a company must set up a global
market. For example, although marketing organization. Often companies ramp up their global marketing organizations
headquartered in Chicago, Boeing is as
through three stages: They first organize an export department, then create a global divi-
comfortable selling planes to Lufthansa
or Air China as to American Airlines. sion, and finally become global organizations.
A company normally gets into global marketing by simply shipping out its goods. If
global sales expand, the company will establish an export department with a sales manager
and a few assistants. As sales increase, the export department can expand to include vari-
ous marketing services so that it can actively go after business. If the company moves into
joint ventures or direct investment, the export department will no longer be adequate.

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 CHAPTER 19 | The Global Marketplace 599
Many companies get involved in several global markets and ventures. A company
may export to one country, license to another, have a joint ownership venture in a third,
and own a subsidiary in a fourth. At some point, it may create global divisions or subsidiar-
ies to handle all its global activity.
Global divisions are organized in a variety of ways. A global division’s corporate staff
consists of marketing, manufacturing, research, finance, planning, and personnel special-
ists. It plans for and provides services to various operating units, which can be organized
in one of three ways: They can be geographical organizations with country managers who are
responsible for salespeople, sales branches, distributors, and licensees in their respective
countries; world product groups, each responsible for worldwide sales of different product
groups; or global subsidiaries, where each operating unit is responsible for its own global
sales and profits.
Many companies have passed beyond the global division stage and are truly global
organizations. For example, as discussed previously, despite its French origins, L’Oréal no
longer has a clearly defined home market. Nor does it have a home-office staff. Instead,
the company is famous for building global brand teams around managers who have deep
backgrounds in several cultures. L’Oréal managers around the world bring diverse cul-
tural perspectives to their brands.
Global organizations go beyond thinking of themselves as national marketers that
sell abroad; they consider themselves as global marketers. The top corporate management
and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and
logistical systems. The global operating units report directly to the chief executive or the
executive committee, not to the head of an global division. Executives are trained in world-
wide operations, not just domestic or global operations. Global companies recruit manage-
ment from many countries, buy components and supplies where they cost the least, and
invest where the expected returns are greatest.
Today, many major companies must become global if they hope to compete effectively.
As non-domestic competitors invade their home markets, companies must move more
aggressively into global markets. They must shift from treating their global operations as
afterthoughts to viewing the entire world as a single borderless market.

Reviewing and Extending the Concepts

Objectives Review
Companies today can no longer afford to pay attention only to whether to go global and which markets to enter, deciding how
their domestic market, regardless of its size. Many industries are to enter global markets, deciding on the global marketing pro-
global industries, and companies that operate globally achieve gram, and deciding on the global marketing organization.
lower costs and higher brand awareness. At the same time, global
marketing is risky because of variable exchange rates, unstable OBJECTIVE 19-2 Understand how global political,
governments, tariffs and trade barriers, and several other factors. economic, sociocultural, technological, legal, and
Given the potential gains and risks of global marketing, companies
environmental factors affect a company’s global
need a systematic way to make their global marketing decisions.
marketing decisions.
OBJECTIVE 19-1 Define global marketing and the A company must first understand the macroenvironmental
questions companies must ask in deciding whether contexts of the countries or regions in which it might operate.
and how to go global. The PESTLE framework provides a useful tool for analyzing the
forces that might impact its marketing in various global mar-
Global marketing is the process of marketing products and kets. PESTLE stands for the Political, Economic, Sociocultural,
services within and across multiple countries. In our more con- Technological, Legal/Institutional, and Environmental/Ecological
nected and rapidly shrinking world, companies must carefully factors that set the marketing context in any country or region. In
consider whether and how to go global. They must answer deciding whether and how to go global, companies must care-
some basic questions: What market position should we try to fully assess each of these contexts.
establish in our country, in our economic region, and globally?
Who will our global competitors be, and what are their strategies OBJECTIVE 19-3 Discuss how companies decide
and resources? Where should we produce or source our prod-
whether to go global and, if so, which markets to enter.
ucts? What strategic alliances should we form with other com-
panies around the world? The global marketing process involves The second step in the global marketing process involves decid-
five steps: understanding the global marketing context, deciding ing whether to go global and where. Not all companies need to

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 600 PART 4 | Extending Marketing
venture into global markets. But if they do go global, they must global market by contracting with a licensee within that market
assess which markets offer the best opportunities for their prod- and offering the right to use a manufacturing process, trade-
ucts and services. Going global offers both benefits and risks. mark, patent, trade secret, or other item of value for a fee or
Operating domestically is easier and safer, more certain, and royalty.
more focused. However, a company can choose to go global
for multiple reasons: to find growth in global markets, to fend
OBJECTIVE 19-5 Explain how companies adapt their
off competitive attacks by global competitors in their home mar-
kets, to better service customers who are expanding abroad, or marketing strategies and marketing mixes for global
to reduce the risks of being overly concentrated in one country. markets.
If the company decides to go global, it must carefully Companies must also decide how much their marketing strat-
evaluate each country it might enter. In recent years, many egies and their products, promotion, price, and channels
major new markets have emerged, offering both substantial should be adapted for each global market. At one extreme,
opportunities and daunting challenges. The marketer must some global companies use standardized global marketing
decide which markets offer the most attractive long-run risk worldwide. Others use adapted global marketing, in which
versus return profiles. As discussed previously, a country’s they adjust the marketing strategy and mix to each target
attractiveness depends on the product, geographical fac- market, bearing more costs but hoping for a larger market
tors, income and population, political climate, and many other share and return. However, global standardization is not an
considerations. all-or-nothing proposition. It’s a matter of degree. Most in-
ternational marketers suggest that companies should “think
globally but act locally”—that they should seek a balance be-
OBJECTIVE 19-4 Describe three key approaches to
tween globally standardized strategies and locally adapted
entering global markets. marketing mix tactics.
The company must decide how to enter each chosen market—
whether through exporting, joint venturing, or direct investment. OBJECTIVE 19-6 Identify the three major forms of
Many companies start as exporters, move to joint ventures,
global marketing organization.
and finally make a direct investment in other country markets.
In exporting, the company enters a global market by sending The company must develop an effective organization for global
and selling products through global marketing intermediaries marketing. Most companies start with an export department
(indirect exporting) or the company’s own department, branch, and graduate to a global division. Large companies eventu-
or sales representatives or agents (direct exporting). When es- ally become global organizations, with worldwide marketing
tablishing a joint venture, a company enters global markets planned and managed by the top officers of the company.
by joining with companies within those markets to produce or Global organizations view the entire world as a single, border-
market a product or service. In licensing, the company enters a less market.

Key Terms
OBJECTIVE 19-1 Licensing OBJECTIVE 19-5
Global marketing Contract Standardized global marketing
Global company manufacturing Adapted global marketing
Economic community Management Straight product extension
contracting Product adaptation
OBJECTIVE 19-4 Joint ownership Product invention
Exporting Direct investment Communication adaptation
Joint venturing Whole-channel view

Discussion Questions
19-1 What is global marketing, and why is it growing? (AACSB: 19-5 When should a business use a standardized or an
Application of Knowledge; Diverse and Multicultural adapted marketing strategy in an overseas market?
Work Environments) (AASCB: Communication)
19-2 Explain what is meant by licensing as a means of entering 19-6 Danone is the world’s largest bottled water company,
a market. (AACSB: Communication) marketing a range of brands including Evian, Aqua,
19-3 How might the global marketing environment affect a Volvic, and Font Vella. Given that the product is water,
company’s decision to sell products in a different market? should Danone advertise the brands similarly across
(AACSB: Diverse and Multicultural Work Environments) the countries where the brands are sold? (AACSB:
Diverse and Multicultural Work Environments; Reflective
19-4 How can managers understand the culture of a coun- Thinking)
try that they are evaluating for market entry? (AACSB:
Diverse and Multicultural Work Environments)

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 CHAPTER 19 | The Global Marketplace 601
Critical Thinking Exercises
19-7 In 2020, the U.S. government demanded that China’s of the marketing environment is having the greatest
ByteDance divest ownership of popular social media negative impact on TikTok: economic, political-legal, or
platform TikTok to another company. TikTok had grown cultural? How can companies proactively guard against
by leaps and bounds over the years, with more than such problems? (AACSB: Application of Knowledge;
50 million U.S. users by then. The platform mainly Integration of Real-Life Business Experiences)
appealed to younger users who were drawn to its 19-8 Lush is a quintessentially British brand. Formed in 1994,
short-form media postings, including videos, photos, it has a revolutionary approach to the creation and
and music clips on topics ranging from comedies ethical sourcing of fresh beauty products, all made by
and cooking to dancing and sports. The government hand. Lush could not be more different than the mass-
labeled TikTok a national security threat. In response, produced cosmetics most consumers buy today. Lush
ByteDance filed a lawsuit alleging that the government’s is enjoying rapid global expansion. Research how this
demand was motivated by protectionist policies to is being achieved and how they go about adapting their
support reelection efforts and essentially constituted an key messages to each new market while retaining their
“unconstitutional taking” of the company and its assets. core message. (AACSB: Communication; Use of IT;
The case has continued to simmer, with allegations that Reflective Thinking)
sensitive TikTok data could be accessed by officials in
China. Following a renewed outcry, many countries are 19-9 Should Unilever utilize standardized international pricing
now demanding that data about their citizens must be for its Sunsilk hair care products? Why or why not?
stored only within their national borders. Which part (AACSB: Application of Knowledge; Reflective Thinking)

APPLICATIONS AND CASES

Digital Marketing Customized Shoes from Nike by You
One of global sports apparel giant Nike’s challenges is to accommo- 19-10 Identify some of the strengths and weaknesses of Nike’s
date preferred colors, materials, and styles that vary sharply across digital customization approach in the global marketing
individual customers and across global regions and cultures. People context. (AACSB: Written and Oral Communication;
in the Caribbean may prefer bright tropical colors, whereas people in Reflective Thinking)
Nordic countries may prefer more muted, neutral shades. But even 19-11 Compare the United States and China along Hofstede’s
within these broad groupings, individual customer preferences may six national cultural dimensions (see www.hofstede-
vary substantially. One strategy that Nike has embraced to address insights.com/fi/product/compare-countries/). Based on
these variations in preferences is Nike by You (see www.nike.com/ the comparison, where would expect Nike by You to
how-to-nike-by-you). Customers can use the website to digitally perform better? (AACSB: Diverse and Multicultural Work
customize their chosen shoe type by choosing from a range of ma- Environments; Reflective Thinking)
terials, textures, and colors. The delivered shoe is a unique expres-
sion of the owner’s preferences and personality.

Marketing Ethics Unlicensed and Counterfeit Products

Fake products make up 5 to 7 percent of world trade and include goods. Moreover, many worldwide consumers are not getting
everything from counterfeit electronics, medications, pirated what they pay for—consumers may get the brand name or label
DVDs, and computer software to toys, cosmetics, and house- they want, but the product itself is inferior.
hold products. Counterfeit name-brand apparel and sportswear,
19-12 Discuss worldwide organizations that assist compa-
shoes, and accessories are exceptionally common. According to
nies in developing and abiding by global standards for
the Global Brand Counterfeiting Report, 2018, the total amount
marketing, consumer protection, and regulatory com-
of global counterfeiting has reached $1.2 trillion U.S. dollars an-
pliance. (AACSB: Written and Oral Communication;
nually. Luxury brands such as Louis Vuitton, Chanel, Manolo
Reflective Thinking)
Blahnik, and Christian Louboutin have seen an upsurge in trade-
mark violations and fraudulent products hitting the market. 19-13 Is there any justification for companies to profit by creat-
Counterfeit products are big business globally. So big, in fact, ing counterfeit products that create local jobs and provide
that Chinese industry regulators are hesitant to shut the practice consumers with access to products they typically would
down; the counterfeit goods market accounts for millions of des- not be able to buy? Support your answer. (AACSB: Written
perately needed jobs within China’s economy. But companies and Oral Communication, Ethical Understanding and
lose an estimated $20 billion in revenue annually because of fake Reasoning)

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 602 PART 4 | Extending Marketing
Marketing by the Numbers Peloton Pedals to Australia
The word peloton means “the main group of cyclists in a race.” where users can create accounts for the entire household, will
But Peloton means something different to the million or so fanatics be $59 AUD per month.
in the United States who have paid up to $2,500 for an internet-
connected indoor exercise bike and who pay $39 a month to
19-14 How many bikes must Peloton sell to break even on the
Australian expansion if total fixed costs are $45 AUD
stream live and on-demand classes from Peloton’s New York
million per year, variable costs are $2,895 AUD per bike
City studio to the tablet connected to the bike. Riders can select
(again, Peloton sells them at cost), and monthly service
their favorite instructor, class length, class type, and even music
variable costs are $10 AUD? Assume that a consumer
genre, and they can follow and compete with others. They can
purchasing a bike at the price of $2,895 AUD will also
also access tons of recorded content. Peloton’s success comes
subscribe to 12 months of the streaming service at
from being more than an exercise bike, studio, or cycling class—
$59 AUD per month. Refer to Break-Even and Margin
it is an experience that has created a cultlike following among its
Analysis in Appendix 3: Marketing by the Numbers to
subscribers. Peloton’s closed Facebook group boasts more than
learn how to perform this analysis. (AACSB: Analytical
429,000 members. Peloton offers its bikes and associated ser-
Thinking)
vices in Canada, the United Kingdom, and Germany. Peloton is
continuing its global expansion in Australia, with plans to expand 19-15 What U.S. dollar sales does your answer in the previous
into one or two markets a year. Its plans for Australia include question represent? Use a currency exchange calculator,
physical showrooms in cities such as Sydney and Melbourne. such as the one at www.xe.com/currencyconverter/, to
Peloton bikes will be priced at its cost, $2,895 Australian dollars convert from Australian dollars to U.S. dollars. (AACSB:
(AUD), including tax, and the all-access membership to content, Analytical Thinking)

Company Case Huawei: Running the Global Telecommunications Race

Huawei has to be the poster child for Chinese tech firms Huawei has three core distinct business groups:
that have become internationally successful. In a remark-
ably short time, Huawei has expanded phenomenally from 1. The Carrier Network Business Group, which provides wire-
a small electronics manufacturer to a global tech leader that less networks, fixed networks, global services, and carrier
is instantly associated with innovative high-tech products. software
Although Huawei as a brand is more popular because of its 2. The Enterprise Business Group, which provides services
mobile phones, it has a major presence in cloud services related to data centers and storage products (a perfect
and AI. Today, Huawei’s products and solutions are installed complement of the first group)
in more than 170 countries around the world, and it serves 3. The Consumer Business Group, which looks after the com-
more than a third of the world’s population. Employing more pany’s mobile phone and smartphone segments
than 180,000 people around the world, Huawei is the third-
biggest global manufacturer of routers, switches, and other Building a Brand with a Global Mindset
telecommunications equipment based on market share. In the Huawei’s personal handset business has steadily built its exper-
super-competitive smartphone race where it is more popularly tise and brand image to become one of the top global mobile
known, it has become a dominant player, taking on the big phone manufacturers. In 2008, it was already reported to be
global giants like Apple and Samsung. the third highest manufacturer of phone sets, yet its brand was
still not well known. However, since then, Huawei has started
From a Rural Component Provider to a Tech Giant to move up the value chain. By 2012, Huawei was manufactur-
Huawei Technologies was established in 1987 in Shenzhen, ing and shipping more than 90 percent of its consumer mobile
China, as a suburban/rural marketing agent for a Hong Kong– phone devices under its own brand. This created conflicts with
based phone company. Between 1996 and 1998, Huawei ex- some business partners—telephone and internet operators—
panded into the metropolitan areas of China as the urban city and they stopped doing business with Huawei, but this did not
population grew. The country’s increasing global dominance and deter the company from branding its own phones. The decision
its emergence as the world’s second-largest economy provided to promote its own brand proved good for Huawei, for consumer
Huawei with a solid platform to launch into international mar- popularity of other brands like Sony, Nokia, BlackBerry, and
kets. As Huawei started off primarily as a business-to-business HTC was declining, which opened up new opportunities in the
(B2B) company, many of its achievements were not visible to the consumer retail market. Huawei’s more affordable smartphones
public; many of its business customers were telephone and in- quickly became popular in markets like India, Indonesia, Taiwan,
ternet operators that used Huawei’s technology under their own and many countries in Africa. Huawei is looking to strengthen its
brands. Some estimates say that by 2030 China’s urban popula- position in the European markets by introducing a smartphone
tion alone will be around one billion and its cities will have over with new camera features and a lower price than those from
one million inhabitants each by 2025. Large cities require hi-tech Samsung and Apple.
communication networks, and Huawei has grown tremendously Huawei’s Consumer Business Group became the third-
by serving this need in China. This allowed the company to har- largest smartphone manufacturer by market share in 2017,
ness the lessons it has learned and scale economies in prepara- commanding 10 percent of the total global market. Soon after,
tion for a successful global entry. Huawei displaced Apple to become the world’s second-largest

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