Chapter 2: ELEMENTS OF THE MARKETPLACE

CHAPTER 2

Elements of the Marketplace

IT IS NOT ENOUGH TO AIM, YOU MUST HIT. — ITALIAN PROVERB

FEW COMPANIES enter the international marketplace directly. For the most part, they move from domestic markets into exports and then into a full-fledged international presence. This applies to both goods and services. It may take decades to reach the international scene or it may be a matter of months. Today, any company that markets itself via the Internet achieves almost instant global access, even when its wares are directed at a domestic market. The process of “testing the waters” locally before jumping into international seas is the same for a small manufacturer as it is for a financial consultancy or even a high-tech “hyper company.” Many of the lessons learned at home will serve the company abroad.

Elements of Domestic Marketing: Starting at Home

Many companies are quite content to operate on a very local scale. Their active marketing may not extend beyond a radius of a few miles. Other companies may expand their horizons to a few cities, a province, or even their entire country. All of this is considered to be domestic marketing. Every company goes through the same planning process, some companies more consciously than others, when entering the domestic or international marketplace. Following is a list of the major elements of marketing.

MARKET ASSESSMENT This is the part of the process where opportunities are initially assessed. It can be as simple as observing that groggy commuters have no place to buy coffee before boarding the morning train or as complex as recognizing the potential demand for satellite TV dishes in remote farming communities.

MARKET ORIENTATION After the initial assessment, a company must set its basic objectives by deciding which products to bring to market at what price and which customers to pursue.

At this stage, the company should also consider how much of the market they wish to control and over what period of time. Researching and objectively analyzing the competition is a major part of this process.

STRATEGY DEVELOPMENT Once objectives are set, a strategy must be developed to attain them by the most cost effective means available. Strategy has three subprocesses that must be dealt with.

■ SEGMENTATION

Segmentation is the targeting of specific groups with specific products. A marketeer realizes that different people and groups of people will require different products or modifications to products. Recognizing the extent of those requirements will determine the level of success and longevity available to a company. No matter how good your coffee is, it will not satisfy someone looking for a cup of tea. (Segmentation will be covered in detail in Chapter 9.)

■ PENETRATION

Penetration is the part of planning that deals with a company’s ability to get access to consumers. Just because you see a market doesn’t mean that you’ll be permitted entry. A company may struggle and be rejected or merely be unable to overcome the regulatory or financial obstacles placed in its way. Penetration requires not only willingness but also resources.

■ POSITIONING

Positioning is the way customers perceive a company’s product in relation to that of its competition. It may be based on quality, size, price, brand recognition, packaging, and a host of other “subjective” features. A company may choose to control their positioning or only react to the fickleness of the marketplace.

Positioning will determine a company’s “share” of the market. A shop offering

“the best cup of coffee in town” could charge a premium price and maintain a small customer base, or it might offer a wide-range of beverages at lower prices hoping to get as big a share as possible. The local café and Starbucks both must consider positioning or the consumer will do it for them.

IMPLEMENTATION Once the strategizing has stopped, the hard task of plan implementation begins.

Here the tactics of packaging, pricing, promotion, sales, advertising, and distribution must all be activated. The number of perfectly good products that never made it to market is so large as to be an embarrassment to all who wear the title of marketing manager. As is true of all management tasks, planning is easier than implementing, and implementation requires considerable planning of its own.

CONTROL Many products have reached market, chalked up a few years of sales growth, and then nosedived into the dustbin of marketing failures (e.g., BetaMax videotape, Atari computers). The inability to maintain continuous control of product quality, modification, distribution, and image are the leading factors for such failure. Controls and the ability to monitor performance must be planned as thoroughly as strategy and, like implementation plans, be in place before the product is brought to market. Remember, you can’t build a levee in the middle of a flood.

STRATEGY ANALYSIS As feedback in the form of customer satisfaction, profit tallying, brand recognition, and market share statistics pour into a company’s data collection apparatus (from a filing cabinet to a computer), proper analysis must be made.

Preplanned strategies must be “tweaked” or totally revised, and tactics continually evaluated. Even the smallest domestic market has sufficient dynamism to preclude stagnation. Look behind, plan ahead!

Elements of Export Marketing: Setting Your Sights on New Horizons

There are many reasons to consider exporting to a foreign market. A domestic market may be saturated (automobiles), a product may have reached the end of its useful cycle in the domestic market (computer software), a sudden demand from a foreign market may present itself (foodstuffs), or a company may just be looking for new territories. Whatever the reason, a certain degree of domestic success has usually preceded the decision. Beyond the normal market planning procedures listed above, the following elements must be taken into account when exporting.

REGULATION All nations regulate their imports. And even when demand is high in the target country, government regulation can prevent your exports from reaching the customer. In some cases, restrictions have been put in place to protect product quality and the safety of the population. Regulation can become protectionist as governments favor domestic producers. This can be politically or culturally based (e.g., Japan’s restrictions on rice imports) and may require extensive maneuvering to circumvent legally. Also, all countries put controls on their own exports for many of the same reasons (e.g., the United States’ security restrictions on computer exports). The first area for research when considering exporting is the thorough investigation of the regulatory atmosphere.

LICENSING Part of the regulatory process may involve the actual licensing of your company for exporting (or importing). This is above and beyond the regulations regarding the products. Governments are very sensitive about not only what crosses their borders but also who will profit from the transactions. Licensing is considered a form of control and taxation beyond import/export duties.

DISTRIBUTION One of the most difficult parts of exporting is the development of distribution channels. If you turn your product over to local distributors, you’ll have to relinquish a degree of control over merchandising and quality assurance. If you maintain your own distributorship, it can be a very expensive learning process to adapt to the practices of a foreign land. Though many large companies may be able to afford to operate their own distribution channels, local governments often frown on that possibility—especially in emerging markets, where distribution charges are the only means to add value to imports. For some markets, the internal movement of products (including legal and financial services) can be as sensitive an issue as the actual importation. When they find they can’t directly control distribution, many companies will either make frequent trips to the target country to do quality checks or open a representative office for that purpose.

FINANCING International transactions often require the extension of credit. Part of the difficulty of exporting is the degree of trust that must be exhibited between buyer and seller. The buyer is reluctant to pay in advance because the seller holds the product on distant shores, and the seller is loathe to extend credit and ship to a stranger. Until a firm relationship between importer and exporter is developed, most will use letters of credit (L/C) and correspondent banks as neutral intermediaries in the credit process. In some cultures, importers are quite upset when a foreign exporter will not accept their word as a bond, but such trust is unrealistic during the initial phase of long-distance relations. Keep in mind that even with a correspondent bank as intermediary, governments may short-circuit the process for reasons that may benefit the importer.

EXCHANGE RISK Even when financing goes well, there will be a “lag time” between when a trade is contracted and when the money arrives. During that period, the value of the transaction currency can change. As the summer and fall of 1997 clearly showed, currencies can quickly devalue, particularly so in the emerging markets. Both importer and exporter take a degree of exchange risk, so each tries to ensure use of a payment method that benefits their position. Exporters like to be paid in the hardest currency available (Japanese yen, European euros, U.S. dollars), while importers like to pay with weaker currencies. Exporters must take great care to specify the currency of payment. Simply contracting at 50,000 dollars with an

Australian importer can be a very costly mistake, as they can choose among U.S.,

Canadian, Hong Kong, or Australian dollars as payment. NOTE: Some countries (e.g., China and Vietnam) have currencies that can’t be converted on the international market, so all payments by their importers must be made in foreign currency. Exchange rates can be affected by a whole host of variables and should be thoroughly investigated before contracts are signed.

LEGAL STATUS For all of the economic unions, tariff treaties, and trading blocs that have come about in the last to decades, local governments still exert a great deal of power over the import/export process. When a trade goes wrong, and some do, legal recourse for the exporter can be as variant as the number of foreign markets. In some major markets, like China, foreigners have virtually no legal status and will be unable to seek redress for the illegal activities of importers. Others, like Great

Britain, provide substantial protection for foreign companies. No matter how good the trade looks on paper, research your legal position in the importer’s country before contracting.

Decision-Making for Entering International Markets: Taking Aim

The following checklist will help in the making of initial decisions about entering the international marketplace. It can be used for import/export companies, service businesses, manufacturers, and those considering jointventures with foreign partners.

DECISION -MAKING CONCERN YES NO

1.Have I researched the target market for potential competitors? ❑ ❑ 2.Has the target market exhibited interest in my product? ❑ ❑ 3.Has the potential size of the target market been quantified? ❑ ❑ 4.Will the foreign government permit import of my product? ❑ ❑ 5.Will my government permit the export of my product? ❑ ❑ 6.Will I be able to get my price? ❑ ❑ 7.If exporting, can letters of credit be secured? ❑ ❑ 8.Can proper insurance be obtained in the target market? ❑ ❑ 9.Is the target infrastructure capable of handling my product? ❑ ❑ 10.Will the foreign government give us fair treatment? ❑ ❑ 11.Can I control distribution? ❑ ❑ 12.If I have to use local distributors, are they trustworthy? ❑ ❑ 13.Can I maintain the quality of my products overseas? ❑ ❑ 14.Can we maintain control (rather than give it up to a local partner or agent)? ❑ ❑ 15.Does the foreign government promote imports? ❑ ❑ 16.Does the foreign government have a convertible currency? ❑ ❑ 17.Will I be permitted to travel freely in the target market? ❑ ❑ 18.Has my legal status in the foreign country been researched? ❑ ❑ 19.Have the regulatory and licensing processes been investigated? ❑ ❑ 20.Does the foreign tariff code treat us fairly? ❑ ❑ 21.Does my domestic tariff code treat us fairly? ❑ ❑ 22.Does the foreign market allow us to promote and advertise our imported products? ❑ ❑ While a “no” answer to any of the above questions doesn’t automatically eliminate the potential for success, it should certainly give the reader cause for reflection before proceeding.

Commonality and Conflict: Reading the Target

Like shooting an arrow, wanting to hit the target market is much easier than actually doing it. What appears to be a simple task turns out to involve great skill and preparation. This is true of both domestic and international marketing. Although it shares a great deal in common with its domestic variant, international marketing takes the archery analogy several steps further.

THE TARGET IS ALWAYS MOVING The international marketplace is extremely dynamic, some may even say volatile. Just a brief look at the purchasing power of China or Brazil five years ago should give a good idea of how quickly a marketeer must react. New products, new competitors, and the nouveau riche flood the marketplace at various times, all frantically searching for each other.

NO TWO TARGETS ARE EXACTLY ALIKE What one culture finds fascinating another finds boring. A popular brand name in one country is a swear word in another. A fair price here is gouging over there.

The “bull’s eye” isn’t always in the center.

EACH TARGET MAY REQUIRE A SPECIFIC ARROW Cultures may share a desire for a general type of product, such as automobiles or air conditioners, but the specifics will vary greatly—size, shape, color, voltage, or numerous other modifications may be required. The change could be as small as a switch from red to blue or as large as redesigning the chassis. If you want access to the market, you may have to retool.

THE DISTANCE TO EACH TARGET IS DIFFERENT Doing business directly across your border has one set of problems. Doing business on the other side of the world has another set entirely. Communications, logistics, and quality control all require greater attention as distance increases. NOTE: Effectiveness decreases in proportion to the distance from the domestic market. Stronger bowmen—and larger companies—are better at hitting distant targets.

THE CROSSWINDS CHANGE WITHOUT NOTICE Besides the changes brought about by consumer volatility, factors such as politics, war, climate and religion can all wreak havoc on your aim. Because they’re all taking stage outside of your regular physical and cultural boundaries, you’re less likely to be able to predict their arrival. NOTE: Maintaining a constant flow of information from the foreign market will assist in predicting these “windage” problems.