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Extending marketing
Unit 5
BBM 104/05
Principles of Marketing
Extending Marketing
ii WAWASAN OPEN UNIVERSITY
BBM 104/05 Principles of Marketing
COURSE TEAM
Course Team Coordinator: Ms. Lilian Yap Li Lian
Content Writers: Mr. Arivalan a/l Ramaiyah and WOU Course Team
Instructional Designer: Professor Dr. Ng Wai Kong
Academic Member: Professor Dr. Madhulika Kaushik
COURSE COORDINATOR
Ms. Lum Li Sean
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Contents
Unit 5 Extending Marketing
Unit overview 1
Unit objectives 2
Objectives 3
Introduction 3
Competitor analysis 4
Identifying competitors 5
Assessing competitors 6
Selecting competitors to attack and avoid 8
Designing a competitive intelligence system 9
Competitive strategies 10
Approaches to a marketing strategy 10
Basic competitive strategies 11
Competitive positions 13
Objectives 21
Introduction 21
Objectives 37
Introduction 37
Summary of Unit 5 65
Course summary 69
Terminology 85
References 87
UNIT 5 1
Extending marketing
Unit Overview
C ongratulations, you have reached the last unit of this course. In the previous
units, you learnt the marketing fundamentals starting from understanding
marketing, environmental factors, marketing planning, marketing information
system (MIS) and finally the 4P strategies. In this unit, you will learn how to
develop competitive strategies. Understanding your consumers is a vital initial step
towards planning and developing your marketing efforts. This has to be followed
by an understanding of your competitors and the other elements of your marketing
environment. In this unit, you will be exposed to the real concept of competition
and how to manage the impact of competition in your organisation. With these
inputs, you will be able to realise the importance of providing quality products
and services to gain a competitive advantage. Besides that, one of the effective
ways to expand your business is to look for opportunities in the foreign market.
We will also discuss the scope and processes required to launch an international
marketing effort in this unit.
This unit comprises three major topics, namely, creating a competitive advantage,
global marketing and marketing ethics. In the first section of this unit, you will
cover topics on competitors’ analysis and competitive strategies. The second
section of the unit will cover topics on global marketing, which encompasses the
global marketing environment and various global marketing decisions that need
to be taken by marketers. Finally, this unit will cover topics on social criticisms
of marketing, efforts of citizen and public action to regulate marketing, business
actions towards socially responsible marketing and marketing ethics.
Competitions are moving into a new era in this millennium. Innovations and
creativity have become the essential determinants of success in modern day business
practices due to rapid competition. There are many companies being wiped out
of business due to their incapability to compete successfully. Companies which
become stagnant and are not willing to change become obsolete in the market.
Due to these reasons, competitor analysis and tracking have become essential tools
for an organisation’s sustenance in the market. In the first section of this unit, you
will understand the ways and means to analyse your competitors. You will also be
exposed to different competitive strategies practised by various business entities in
the world.
In the third section of this unit, which is also the final section of this module,
you will be presented with some ethical issues in marketing which marketers face
today. You will also be exposed to the broad scope of marketing ethics which are
normally never thought of by many business practitioners. Finally, you will be
given inputs on the methods used to conduct business without jeopardising the
publics’ interests.
Unit Objectives
By the end of Unit 5, you should be able to:
7. Identify the major social criticisms of marketing and defend your marketing
practices.
10. Explain the role of ethics in marketing and help develop ethical marketing
practices.
UNIT 5 3
Extending marketing
Introduction
No business is an island. For the success of your business, you will need to deal
with customers, suppliers, employees and others. In almost all cases, there will
also be other organisations offering similar products to the same customers. These
other organisations are your competitors and their objectives are also similar to
yours — to grow, make money and succeed. Effectively, the businesses are at war —
fighting to gain the share of the same markets, resources and territory: the customer.
Just like in a war, it is necessary to understand the adversary (competitors). For a
further illustration of how competition affects market practices, read the following
extract from The Star online:
Firing the shot is Maxis Communications Bhd; it cuts the price of its prepaid starter
packs by a third to lure new subscribers in a landscape that has long turned brutally
competitive. As it stands now, Malaysia has some 21.5 million mobile phone users
as of first half this year, a penetration rate of 81% out of its 27 million population.
Analysts believe that the new plans by Maxis would appeal to low volume users
and those who want a mobile phone to mainly receive calls. Nonetheless analysts
do not foresee prices falling any much lower, as telcos are making a loss with the
generous preloaded airtime.
Source: Tee L S, ‘Telco price war breaks out’, The Star 7 October, 2006
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Around the year 500 BC, the great Chinese military strategist, Sun Tzu wrote a
treatise on the Art of War. From a 21st century perspective, many of Sun Tzu’s
views on strategy are still relevant today — for both military commanders and
business leaders looking at how to win against competitors. For instance:
Competitor analysis
When a marketer plans a company’s marketing strategies, he/she needs to find out
all it can about its competitors. Comparison of the marketing strategies, price,
product, place and promotion with close competitors must be constantly made to
ensure the company maintains or improves its competitiveness in the market.
Besides allowing you to have a direct comparison of your strategies with those
of your closest competitors, competitor analysis also helps you to find ways to
create competitive advantage and to minimise your competitive disadvantages.
For example, assume that you own a shoe retailing business and recently your
sales have dropped. You notice that your main competitor who is located next
to your shop, offers more varieties of shoes and has just had the shop renovated
to project a classier image and comfortable physical environment to customers.
The competitor has captured more business and also grabbed some of your old
customers with the change. Here, we could say that the competitor has created a
competitive advantage over you by offering more varieties of shoes and presenting a
more impressive shopping environment to its customers. Under such circumstances,
you need to conduct a competitor analysis to find out your competitor’s strengths
and weaknesses are and use the results of the analysis to create a comparable
competitive advantage. For instance, let us say the competitor does not provide
good customer service though the shop’s physical environment is impressive and
shoes are highly priced. You may use the marketing strategies of brand building
(branding) by emphasising high quality products, value-for-money prices as
well as good customer service to build strong customer relationships with your
customers.
Now, let us look at the steps in analysing competitors. As shown in Figure 5.1,
competitor analysis involves, first, identifying and assessing competitors and then,
selecting which competitors to attack or avoid.
UNIT 5 5
Extending marketing
Identifying competitors
If you define the term narrowly, competitors are suppliers who sell similar type of
product or services at similar prices to the same customers as yours. Thus, Proton
might view Perodua as a major competitor, but not DaimlerChrysler and Jaguar.
McDonald’s might see KFC as a major competitor but not roadside Ramly Burger
and Saudi Burger.
At a broader level, all companies which compete for the same share of expenditure
by consumers can be considered as competitors. Based on the discussion above,
competitors can be viewed both in a narrow or broad context. You have to make
a decision on the scope of competition for your product. This is the first step to
create value-added services in order to gain a competitive advantage.
Activity 5.1
Activity 5.2
Assessing competitors
It has been a routine activity for many companies to assess their competitors’
strategies and operations. There are many instances to show that a company
learns from its competitors’ strategies. Some even use their competitors’ strategies
as the benchmark to improve their services thus raising their own profitability.
Developing and maintaining competitor intelligence systems have become a
routine for many companies.
a. As a first step, you need to gather relevant data of your competitors’ goals
and strategies. You must understand that the collection of the mentioned
data is not that easy.
b. You can also learn about the competitors’ strengths and weaknesses through
secondary data, personal experience and word of mouth.
Step 2: What will our competitors do or how will they respond to our strategies?
You must be able to understand the basis of your competitors’ objectives and
strategies, and foresee your competitors’ likely actions in the market. You must
also be able to reasonably forecast their likely reactions against your marketing
strategies. For example, Tesco, Giant, Carrefour and other hypermarkets often
compete with each other by slashing prices of some necessity goods. They
distribute leaflets, advertise in local newspapers on the price cut items regularly
to attract mass customers and have a fairly clear idea as to how their competitors
would react to these price cuts.
Under this scenario, you must know how your competitor would react against
your strategies. The nature of rivalry is intense if there is immediate response from
your competitors. For example, petrol stations in the country are in the category
of oligopoly market. The price reductions of competitors will trigger immediate
retaliation from other competitors. If this continues, the suppliers of petrol will
incur a great loss even though the customers will gain. Due to this reason, the
government has to intervene by fixing the price of petrol to avoid price wars
among the petrol suppliers. In some countries, a group of companies will form a
price cartel to avoid price competition which can eventually threaten the survival
of the company. This example may not apply to products under a monopolistic
competition.
Based on the discussion in the previous page, you must carefully select whom you
want to compete with and with whom you want to avoid competition. Sometimes,
this decision will determine the survival of a company in the market.
You can use customer value analysis to determine the strength of your competitors.
Customer value analysis means that you need to clearly understand, through an
analysis of your consumers, what the benefits in the product offerings that consumers
value the most are. Also, how do they rate the various competitors on their ability
to provide these benefits.
For example, why do some customers buy Mercedes Benz while others buy BMW?
What are the values created by Mercedes Benz and BMW for their respective
customers? An analysis of the values sought by the consumers will help the companies
to design their competitive strategies against each other in the automobile market.
Some admit that customers who purchase BMW are young, single, and wealthy;
they lead an active lifestyle whereas those who prefer Mercedes Benz are very much
family-oriented, wealthy and image-conscious. The analysis must, however, go
further to understand the benefits and values that each set of customers seek from
these products.
Many companies prefer to compete with close competitors. For example, Coca-Cola
competes with Pepsi Cola rather than 7Up.
It is interesting to note that the existence of competitors can also give you some
benefits.
2. You can update your product technology or improve your services after
setting competitors as your benchmark.
3. Their existence will help you to get more customers to visit your outlet,
particularly in the case of specialty or shopping products. You must have
noticed that customers prefer to buy jewels, watches or even sunglasses at
the place where there are many independent outlets. The reason is very
simple, customers have more choices. So the existence of competitors
would sometime help you to attract more customers.
In the previous section, you have identified the importance of understanding your
competitors and their strategies. To identify them, you need to collect information
about their strategies. More established companies may be required to set up a
more formal competitive intelligence system (CIS). The CIS is a systematic and
comprehensive tool that enables you to collect, analyse and use information
pertaining to your competitors. However, maintaining and implementing a CIS is
not cheap or easy. To set up a good CIS, you must first identify what information
you need. Secondly, you must know how to collect it. Thirdly, you design the
CIS so that you can use it to continuously identify and collect the information
and make it available to the decision makers for informed decision making.
A good CIS is also capable of evaluating the validity and reliability of information.
It interprets and reports the information in a simple format. Smaller companies that
cannot afford a CIS can appoint marketing staff to focus on gathering and reporting
information in respect of identified competitors.
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This information should be regularly filed and analysed so that it can be a useful
input in your decision making. When you set up your CIS, make sure you are
aware of the cost incurred to perform such activities. The collection of information
would sometimes require you to spend on additional resources especially on
manpower and IT. Due to this reason, you should focus your resources only on
information that you really require.
Activity 5.3
Competitive strategies
After identifying your competitors, you must develop competitive strategies to
provide added values to your customers which enable you to gain a competitive
advantage. There are many approaches to designing competitive marketing strategies
and not all the approaches are suitable for all companies and their products. Let us
discuss these approaches to a marketing strategy and the basic competitive strategies
a company can adopt to create a competitive advantage and consolidate its market
position.
Each company is unique and the environment where it operates may differ from
that of other companies. The strategy development process should therefore follow
a deep and thorough analysis of both internal and external factors that are unique
to the company. This would include an analysis of the company’s own objectives,
its strengths and weaknesses as well as the opportunities and threats present in the
company’s environment; in the form of competitors and other components.
Pepsi and Coca-Cola are always at war with each other in their bid to capture a
larger market share or retaliate against competitive moves. Retaliation strategies
can also be seen in the cell phone market between Maxis, Celcom and Digi.
Initially, when AirAsia was riding on lower airfares, MAS surprisingly increased its
airfares. The pricing strategy imposed by MAS allowed AirAsia to stay in a comfort
zone. Eventually after six months, MAS also started slashing its prices.
UNIT 5 11
Extending marketing
3. Focus: This strategy requires you to focus your effort on serving a specific
and defined group of customers rather than serving the entire market.
Luxury car distributor in Malaysia, NAZA Motors, markets Ferrari,
Lamborghini, BMW (7 Series) and Mercedes Benz (S-Series) to wealthy
customers in Malaysia. The manufacturers of luxury cars rarely involve
themselves directly in manufacturing and distributing cheaper models
despite having the resources and technology to do so simply because their
market focus is on the luxury segment rather than the entire market for
automobiles.
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Many marketers believe that pursuance of clearly defined strategies would enable
the company to perform well. “Middle-of-the-roaders” often do not have a clear
direction and distinction in offering their products or services. Their positioning
is not very clear and customers do not have a clear idea of their distinctions. If
the question “what is your company or its product good for?” was raised, the
suppliers would not be able to really answer it. This type of companies may not
last long in a competitive market. Michael Porter suggests that companies position
themselves properly and clearly to avoid business failure. Maggie is known for
instant noodles and Gardenia is known for its tasty breads. Though there are many
companies operating in the market, so far they have not created identities for
themselves. For example, Fresh & White and Sparkle brands of toothpaste have
been established quite some time ago but have yet to create their product identities
and position their brand names in the market.
Activity 5.4
3. How far do you think its latest service strategy would affect its
competitors?
Competitive positions
Companies that position themselves as leaders usually have the largest market
share in a given market. They lead the industry in terms of price changes,
innovations, R&D and development of new products. There are also many
companies that claim they are leaders in a particular area such as quality, customer
preference, sales, track record, years of establishment and so forth. For example,
Volvo always claims that it is the leader in car security. However, most industries
contain an acknowledged market leader. For example in Malaysia, the following
companies can be considered to be the market leaders in their own ways: Maxis,
7 Eleven, AirAsia, Great Eastern Life, Seng Heng, SEC, Secret Recipe, Rotiboy,
Nationwide, Redtone, F&N’s Coca-Cola and Maybank.
Market challengers are usually runner-up companies in the market and sometimes
they can grow fairly large. A challenger can take a stance of challenging the leader
in a bid for leadership or at least an enlarged market share. Alternatively, it can also
choose a policy to “live and let live”.
As we have discussed earlier, the challenger can choose to take on the leader or to
concentrate its energies on smaller and weaker competitors and thereby consolidate
its own position.
From your own exposure to the market, you would know that there are several
competitors in a given market. While one competitor may develop the position
of being a challenger, the remaining competitors are content to act as followers,
thereby adopting the market position of a follower. These companies clearly
recognise that the leader has significantly more resources and staying power to
combat any competitive challenges they may be able to offer. They, therefore,
choose to protect their own market through creating enough differentiation, but
closely follow the leader in terms of price and quality ranges.
The fourth positioning alternative is that of being a market nicher. Almost every
industry includes companies that specialise in serving market niches. Instead of
pursuing the whole market, these companies target sub-segments. Nichers are
often smaller companies with limited resources but can gain a strategic marketing
advantage by focusing on very small segments and customising their products and
services to produce high levels of satisfaction in that segment. Over a period of
time, specialisation in that particular segment allows them to have a consolidated
position and a distinct competitive edge within that segment. Smaller divisions of
larger companies may also pursue niching strategies.
UNIT 5 15
Extending marketing
Type of market
Characteristics Examples
leader strategies
Market leader • Expand total market Maxis is the largest mobile operator
strategies • Protect market share (market leader) in Malaysia. Maxis
• Expand market share continuously expands its market
(for companies by offering more packages to all
which hold the groups of customers, giving free
highest stake in the value added services to protect
market) market share, as well as aggressively
advertising and charging lower
price to expand the market share.
Market challenger • Full frontal attack Celcom is ranked as the second
strategies • Indirect attack largest mobile operator company
in Malaysia. Full frontal attack and
(for companies indirect attack strategies have been
which hold the used to increase its market share.
second highest Celcom is aggressively collaborating
stake in the market) with other companies to gain
competitive advantage. For instance,
Celcom made a strategic partnership
with HP, Vodafone and Google to
deliver quality products with global
usage. This will provide Celcom
a competitive advantage over its
competitors.
Market follower • Follow closely DIGI, the third largest mobile
strategies • Follow at a distance operator in Malaysia, adopts the
to avoid retaliation market follower strategies by
(for companies observing the market leader and
which hold the market challenger’s strategies. For
third or lower instance, when Maxis offered the
highest stake in prepaid starter packs at RM8.80,
the market) Celcom attacked the strategies
by collaborating with AirAsia and
offered its prepaid starter pack at
RM4.99. DIGI later closely followed
the two competitors by offering
RM8.50 prepaid SIM packs.
Market nicher • Create segments by Redtone, Malaysia’s number one
strategies customer, market, discounted call provider adopted
quality-price, service a market nicher strategy by mainly
(for companies • Multiple niching targeting international call makers,
which serve small providing attractive calling rates
segments not to customers, as well as having
pursued by other multiple niching of the general
companies) public, foreign workers and tourists
who travel abroad.
Table 5.1 Strategies for market leaders, challengers, followers and nichers
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Activity 5.5
Summary
Self-test 5.1
Feedback
Activity 5.1
Activity 5.2
The answer may vary according to the location or the city you live
in. Anyway, the bigger the town or the city, the more intense the
competition among the accommodation providers.
Activity 5.3
Activity 5.4
Activity 5.5
a. Plug holes in line — fill any hole in the standard line that
might allow a competitor an opportunity, particularly in
the high price, high-margin area.
2. Comment upon the considerations that must be assessed before the company
decides to go international.
Introduction
In the last section, you learnt about the importance of understanding competitors,
the scope of competition and competitive strategic options.
In this section, we will extend these fundamental concepts to the arena of global
marketing. We will begin by understanding the considerations that affect the
company’s decision to go for international markets. On account of globalisation,
the economies of different countries in the world, as well as the different markets
are linked as never before. Companies are finding it easier to reach distant markets
and source their supplies from anywhere in the world. Today, companies of all sizes
can enjoy the opportunities created by the rapid internationalisation of markets but
will also be affected by the developments in supply and demand, competition and
economic forces in other parts of the world.
Amidst all these forces, customers continue to spend, keeping the world economy
afloat. Companies are expanding their markets aggressively into new international
markets to capture larger market opportunities. Companies that stay at home to
play it safe might not only lose their chances to enter other markets but also risk
losing their domestic markets (Kotler and Armstrong 2012).
In the process of going global, companies have to make several major decisions
in international marketing. As shown in Figure 5.2, a company faces six major
decisions in international marketing (Kotler and Armstrong 2012). Let us discuss
each of these decisions in detail.
2. Deciding whether to go
international
Figure 5.2 Major decisions in international marketing, Kotler and Armstrong (2012)
Type of trade
Descriptions
restrictions
Tariff A tariff is a tax on imported goods, to give domestic competitors
an advantage in the marketplace by making foreign competitors’
goods more expensive than domestic goods. For example the
tariff for imported passenger cars is between 140% to 300% based
on engine displacement.
Import Restrictions on the quantity of goods entering a country. For
quotas example, Malaysia imposes import quotas on rice, Poland imposes
import quotas on gasoline, diesel fuel, wine and alcohol, China
has import quotas on edible oils.
Embargos Total ban on imports from another country. For example,
Malaysian companies are not allowed to import any goods from
Israel.
Non-tariff These include health and safety regulations, standards for products,
barriers certifications and preferences for domestic providers. For example,
health products imported to Malaysia should get clearance from
the Ministry of Health. A company must achieve ISO standards to
export products to European countries.
Government The government provides subsidies to local providers to increase
subsidies the competitiveness of local providers. For example, the Malaysian
government provides subsidies to local farmers in terms of
short-term loans, land, technology, seeds, fertilisers and machinery.
However, despite the above trade restrictions, there are some forces which facilitate
a company to venture into foreign trade smoothly. For example, the General
Agreement on Tariffs and Trade (GATT), the Asian Pacific Economic Cooperation
(APEC), the Association of South-East Asian Nations (ASEAN), the Organisation
for Economic Cooperation and Development (OECD) and free trade agreements
(FTAs) between countries.
These leading forces of economic integration are finding ways and means to reduce
trade barriers among member countries. Forums are held to discuss and debate the
possibilities of lifting trade barriers. Progress, however has been slow. The World
Trade Organization (WTO) and International Monetary Fund (IMF) usually act
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as facilitators in the process of removing trade barriers. Some third world countries
are still sceptical about the developed nations’ proposals of removing trade barriers
completely. They fear that their products will not be able to meet the standards of
products bought from overseas thus they lose their business to foreign MNCs. In
Malaysia, the automobile industry is a good example to explain this. Just imagine
what will happen to our national car manufacturer, Proton if our government lifts
the trade restrictions completely on the imported cars.
Besides the role of reducing trade barriers, WTO also enforces General Agreement
on Tariffs and Trade (GATT) policies worldwide. Sometimes, WTO also acts as a
mediator to solve trade disputes between countries or big companies from different
countries.
Activity 5.6
Economic environment
Before venturing into international business, you must first understand the economic
structure of the other country in terms of employment rates, per capita income,
inflation, interest rate, economic stability, exchange rate policies, etc.
A high unemployment level in a country could lower the per capita income earned
and this will further lead to lower purchasing power. If this happens, luxury
product businesses would suffer immediately. During the 1997 financial crisis in
Malaysia, many companies retrenched their workers. During this period, many
hire-purchase cars were seized by banks due to unsettled monthly installments
to finance companies. Second-hand car dealers were also badly affected during
the period. This, in turn had an adverse effect on the performance of other
companies. With this example, you should be able to realise why it is important to
understand a country’s economic conditions before venturing into the international
market. However, if you are planning to set up a manufacturing plant overseas,
a country with a high unemployment rate would provide you with a fast and
cheap workforce.
Patterns of income distribution are another variable that you must study carefully
because this has important implications on purchasing power. When there are
wide income disparities, you have a situation characterised by a very small number
of people with very high incomes, and a large population with low or subsistence
level of incomes. This pattern would significantly affect the size of your market
if you are in the household appliances, consumer durables or even hospitality
business.
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Political-legal environment
Each country has its own political environment. Marketers should seriously study
four political-legal factors before venturing into overseas markets. As explained
by Kotler and Armstrong (2006), these factors include the host country attitude
towards international business, government bureaucracy, political stability and
monetary policies.
When you are looking into the political factor, you should also consider the
country’s exchange rate policies. Malaysia adhered to the fixed exchange rate policy
after the 1997 economic crisis and recently changed it to a moveable peg policy
which allows the currency to fluctuate controllably. The exchange rate policy of a
country will influence the value of money you take back to your country after the
business. If the exchange rate value of the other country drops, your profit also
will drop and vice versa.
Cultural environment
It is understood that each country has its own culture, norm, values and beliefs.
Sometimes, culture also determines the success of your marketing practices in the
foreign market. For example, KFC introduced rice in its menu to cater for local
customers who prefer to eat fried chicken with rice. So when you design global
marketing strategies, it is advantageous for you to adjust your products or services
according to the local customs, norms, beliefs and behaviour. The culture of the
host country always brings in surprises to marketers. You must be aware of the
cultural taboos in foreign cultures. For example, in Malaysia it is inappropriate to
present a clock to a Chinese counterpart. Besides that, never offer pork to Muslims
and never offer beef to Hindus. A Halal certificate is compulsory for restaurants
planning to cater for Muslims. These are some of the norms that foreigners need
to follow if they are planning to open a restaurant in Malaysia.
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When you are planning to venture abroad, you must understand how your
customer think and react. As mentioned earlier, such knowledge could save you
from surprises that you may be unprepared for.
Business norms vary from country to country. In Japan, the power distance is high
compared to America. Uncertainty avoidance is also higher in Japan compared
to China. In Asia, companies emphasise relationship-based marketing whereas in
western countries, the common norm is to practice transaction-based marketing.
This means the Japanese prefer to engage in business only after they know and
understand you. In America, the companies prefer to do transactions rather than
getting to know you better. In Malaysia, it is a common custom for the companies
to invite their foreign business partners for a dinner after the working hours. On
the other hand, this practice is not usual in western countries.
Local languages, dialects, symbols, religions, festivals and ethnic groups are some
of the important elements to take into consideration before starting a business
venture. For example, if you are interested in marketing food products in Dubai,
your must make sure that the product is endorsed by local authorities as Halal.
Refer to Unit 2 for more examples on the effects of the cultural environment.
Reading
Activity 5.7
• To utilise resources.
However, operating domestically is much easier and less risky. In the domestic
market, you do not have to worry much about cultural differences, language
barriers, customs and norms. But you would also understand that in terms of
growth, venturing into international business certainly has its advantages. You
must, however collect sufficient data and study them first before making any
serious decisions. Many companies conduct marketing research and feasibility
studies before investing in foreign ventures.
The following are some questions which you need to answer before going abroad.
• Are you able to offer attractive products and gain a competitive advantage?
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• Are you able to adapt yourself to the new business culture in the foreign
markets?
• Have you considered the trade regulations and restrictions in the country
which you are planning to venture into?
At the initial stages of your international marketing effort, it is always less risky
for you to look at one country at a time. Having too many countries in your
agenda in a short period of time may cause you to lose your concentration and
focus. Eventually, you may not be able to cope effectively with the different set of
challenges presented by each country.
Another matter that you need to consider is the choice of the country you are
planning to enter. For this purpose, you need to start gathering relevant data on
the country which you feel would provide you with opportunity. The choice you
make regarding the country to enter depends on the micro and macroenvironmental
factors in general. To be specific, a country’s political stability, economic situation,
socio-cultural factors and technological factors will influence your decisions.
Before making the selection, you must develop a list of countries you prefer to
venture into. After that, you have to screen the various options on the basis of an
environmental analysis and create a priority list; giving preferences based on an
analysis of the strengths and weaknesses for each country on the list. The goal of
screening is to filter out the least attractive country from the list and to determine
the potential markets by using suitable indicators. Some of the indicators are
targeted sales volumes, returns on investments, risk factors and profitability ratios.
UNIT 5 29
Extending marketing
Joint venturing
Direct investments
Exporting • Licensing
• Assembly facilities
• Direct • Contract manufacturing
• Manufacturing
• Indirect • Management contracting
facilities
• Joint ownership
Exporting
Exporting is the simplest way to enter the foreign market. Exporting can be
defined as entering a foreign market by selling goods produced in the company’s
home country (Kotler and Armstrong 2012). Exports are done only after you have
secured orders from abroad. In many instances, your buyers or the forwarding
companies will assist you to market your goods. Trade finance divisions from the
banks will provide some short-term financial support for you to complete the
business without complications. If you are expecting to receive the order frequently
from abroad, it would be cheaper to form your own export department. Exporting
activities would require you to modify your organisation structure to incorporate
international tasks. Also, you may be required to modify your product line to suit
the foreign market. Exports may be both indirect and direct.
1. Indirect exporting
Indirect exports happen when you sell your products through international
intermediaries such as export management companies. Usually, it is cheaper
for you to sell products through intermediaries. The only concern you may
have is how your product will be marketed in the overseas market. You will
not have control over the pricing or positioning of your product in indirect
exports. This mode of business does not require you to understand your
customers. Your intermediary will absorb all the risks if the product fails.
2. Direct exporting
After going through indirect exporting for some time, you may eventually
move into direct exporting. The risk and resource requirements are greater
in direct exporting since you have to develop your own marketing strategy
and implement it abroad. It will be easier to penetrate the markets if your
product is already known in the market through indirect exporting efforts
earlier.
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a. You can set up an export department locally that carries out export
activities.
b. You can set up an overseas sales branch that handles sales, distribution
and perhaps promotion. You can also send home-based salespeople
abroad at certain times in order to find business.
Joint venturing
You can also enter foreign markets through joint ventures. It means joining forces
with foreign companies to produce or market products or services.
According Kotler and Armstrong (2012), there are four types of joint ventures.
1. Licensing
2. Contract manufacturing
The key advantage is that you allow the product to start faster in the
foreign market with less risk and effort. If the deal is successful, you can
buy out the company later.
For example, branded sports shoes such as Nike, Adidas and Reebok
found in local sports outlets are mostly made in Taiwan. You also can find
similar shoes made in US. The price for both types would be significantly
different even though the design and features are the same. Most Japanese
car spare parts also have two versions: one made in Japan and another in
Taiwan.
3. Management contracting
ASTRO ALL ASIA RKS NETWORK plc (“ASTRO”) and Yes Television
(Hong Kong) Limited entered into a joint venture to develop and strengthen
the aggregation and distribution of content through two 24-hour channels
dedicated to football fans in the region.
Direct investment
In Malaysia, the biggest form of foreign investment comes from direct investments.
This mode of entry is commonly found in the manufacturing sector. The company
invests abroad bringing in capital, technology and other relevant resources.
Under this mode, the ownership of the company is controlled by the foreign
investor who has far greater control over how the company should be managed.
In Malaysia, you can find Sony, Intel, Acer, Motorola and many other companies
who have come in through the direct investment route. These companies capitalise
on cheap workforce, infrastructure, raw materials and natural resources from
foreign countries. For example, on account of lower labour costs in Malaysia, it
would cost more for Sony to produce a television set in Japan compared to doing
the same in Malaysia.
Companies that are involved in direct investments provide vast job opportunities
for local people. This is one of the key benefits why many governments, including
Malaysia, encourage foreign investments. Direct investment provides a win-win
situation both for the foreign investors and the local people of the host country.
Under this mode of entry, the company has full control over its operations and
investments. They develop good relationships with the government, customers,
suppliers and the general public.
UNIT 5 33
Extending marketing
Contract
Manufacturing Direct
Licensing Joint ownership
Exporting venture
Lower risk
Higher risk
Figure 5.4 The various methods of entering the international market place by the
degree of risk
Source: Adapted from Lamb, C W, Hair, J F, McDaniel, C, Summers, J and Gardiner, M
(2009) MKTG, Asia-Pacific Edition, Cengage Learning, Australia.
Activity 5.8
Summary
However, venturing in the global market has never been an easy task.
A company may have to overcome many challenges and obstacles
to be successful. The risk factor is always there when entering
international markets and so are the opportunities.
Self-test 5.2
2. Assume your boss has asked you for your opinion on how
your company should enter the Japanese, South Korean and
Vietnamese markets with a new line of electronic home
appliances. Recommend the strategies your company can
choose to enter the global market.
Feedback
Activity 5.6
Almost all foreign cars need to pay import duties (tariff ) to the
Malaysian government. Malaysia also restricts the number of
foreign cars entering the country through Approved Permits
(AP). The tariff restrictions enable local car manufacturers to stay
competitive in the domestic market by charging lower prices to the
customers in comparison with the foreign car prices. For example,
the price of Honda Civic would be lower than Proton Perdana
without the import duty. This may result in Perdana losing more
of its customers to Honda.
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Activity 5.7
Activity 5.8
2. Define consumerism and environmentalism and describe the roles they play
in the formulation of marketing strategies.
Introduction
In this final section, let us look at marketing not only as an important business
function but also as a social institution. Firstly, you will cover the criticism on
marketing practices. You will also understand the impact marketing creates for
stakeholders; namely shareholders, customers, suppliers, competitors and the
public.
In this section, you will also study the impact of marketing on the environment,
consumerism and citizens. Finally, you will also become familiar with the
methods of conducting marketing efforts through adhering to the codes of social
responsibility.
Before moving on, let us examine DIGI’s concept of the social responsibility.
Reading
Extract 5.1
“We, like so many people around the world, are concerned for the
people of Yogyakarta. But we aren’t just satisfied with donating
money or goods, we wanted to do something different and really
meaningful. This is why we decided to visit these villages.
However, sometimes marketing activities are also praised for contributing to the
well-being of customers and the society in general. The problem arises only when
the non-target group is against the approach of the marketing and tends to be very
negative or aggressive in nature. For example, the following advertisements may
cause unpleasantness to some viewers in our society.
UNIT 5 39
Extending marketing
Kotler and Armstrong (2012) have cited the following as some of the source of
negative impact created by marketing activities on consumers.
Many marketers are blamed for charging high prices for their products or
services. These charges are levelled on account of high intermediary costs
or the successive layers of costs that are added by each level of distribution,
from wholesalers to distribution agents and retailers. For example, the prices
of agricultural goods such as tomatoes, vegetables and fruits fluctuate from
time to time. The farmers and consumers always blame the intermediaries
and retailers for such problems; the latter on the other hand, cite their own
costs of storage, transportation and risk.
Marketers are also blamed for incorporating the heavy cost of advertisements
and promotions into the price of the products or services. While advertising
plays the crucial role of informing the consumers about products and
services, it does add to the cost of goods sold. It is therefore important for
the marketers to detect and understand the customers’ concern over the
issue before carrying out major advertising campaigns.
Customers also complain about the marketers for marking up the price
of goods excessively. Critics claim that some companies mark up goods
excessively and that the prices have no relationship to the costs incurred in
producing and marketing the products. For example, in the case of the price
of branded perfumes, no one really knows the cost of the ingredients used
to produce these perfumes, but a hefty price is paid for the brand rather
than the value of the actual content of the products.
2. Deceptive practices
Marketers advertise low prices when in fact, they mark up the price on a
regular basis and slash it lower on special occasions to show a discounted
price which is actually nearer to the real price of the product. This is
called deceptive pricing. Customers can report such practices to the local
authorities. Legal action can be taken if the prices are found to be deceptive.
3. High-pressure selling
4. Issues on quality
Other than quality, some products may provide little extra benefits to the
customers in comparison to the competing products in the market. In these
situations, customers may not want to come back to the supplier again. In
the long run, the supplier will lose his customers. Product safety has also
become an issue for customers.
Customers also accuse that some products become obsolete very fast and
it is difficult to obtain spare parts for such products. For example, there
are many types of cameras in the market, a product which has a very short
life span. Customers may have to buy a brand new camera just because
they are unable to find a replacement for minor parts of the camera.
Normally, these problems occur after the warranty period. There are also
other products such as computers, laptops and electrical appliances which
have similar problems. While the products are still functional, some small
part may become defective which hampers the product performance and
therefore must be replaced. Consumers feel cheated and irritated if the
replacement parts are not easily available. You must, however, appreciate
that companies do not deliberately design their products to break down
earlier because they do not want to lose customers to other brands. Instead,
they seek constant improvement to ensure that products will consistently
meet or exceed customer expectations.
Critics also argue that marketers plan for the obsolescence of their existing
products by introducing new and improved versions which make your
older versions obsolete.
Activity 5.9
Activity 5.10
There are many instances that despite stringent rules and regulations, some
entrepreneurs act irresponsibly to gain short-term profits by jeopardising the
interest of the society as a whole. Some of the cases have been highlighted in
NTV7 — Edisi Siasat showing illegal timber logging, improper disposal of
chemical wastes, river pollution due to unauthorised development and unplanned
projects, open burning, dumping of factory wastes, damages in school buildings
and defective housing projects.
Formulation of codes/charters/guidelines
Working with the respective consumer, industry and government bodies, the
Federation of Malaysian Consumer Association (FOMCA) has been instrumental
in formulating codes, charters and guidelines with regard to relevant products
and services in Malaysia. The association works closely with other consumer,
industry and government agencies. These include:
d. Guidelines for Credit Card Usage (in collaboration with Bank Negara
and financial institutions).
One of the ways in which marketers could take responsibility for their actions is
by ensuring that they bear the total social costs of their operations. Some examples
could be car manufacturers investing in the development of safer and non-
polluting vehicles, textile companies investing in effluent treatment plants, large
agriculturists investing in research on non-chemical fertilisers, etc.
The government could also terminate the logging license of those who destroy the
forests without following to the rules stipulated by the government even though
sometimes, it is hard to prove such practices.
Another option is to charge the customers for social costs. Common examples today
are toll taxes or expressway taxes that consumers pay for using the relatively faster
expressways to avoid traffic congestion.
Critics also charge the marketers for causing cultural pollution. Some advertisements
pollute students’ and children’s minds with too much violence and sex oriented
messages. In some instances, they even glorify the bad and rough guys as heroes.
Although in Malaysia, such advertisements are under serious scrutiny, the exposure
to the Internet make things difficult for the parents to control.
3. Marketers also claim that today’s consumers have the alternative not to
watch the advertisements if they want.
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Extending marketing
Activity 5.11
Do you agree that marketing creates false wants and too much
materialism, too few social goods, cultural pollution and too
much political power?
The activities of one company can harm other companies directly or indirectly.
These activities are generally directed at restricting competition in one way or
another. Some huge hypermarket operators open up their businesses in small
towns; sometimes located not far from each other. This strategy will eventually
wipe out other small mini markets and sundry shop operators in that vicinity.
Later these hypermarkets will compete with each other and eventually the weaker
ones will close down. Once this happens, they monopolise the area and eventually
will start to mark up their prices to gain high profits. Finally, the customers
become the losers.
According to Kotler and Armstrong (2012), a company can harm other companies
in three ways: acquisitions of competitors, marketing practices that create barriers
to entry and unfair competitive marketing practices.
In 2002, Maxis purchased Timecel, a rival mobile service provider from TimedotCom
Berhad. After the purchase, Maxis claimed that it has the best line coverage on
the North-South highway. Marketers may argue that the acquisition has actually
provided enhanced customer services which may actually be true. Through the
acquisition, Maxis has also reduced its competition and obtained competitive
advantage over other telecommunication service providers.
It is a good idea for you to take a balanced view of the acquisition because while
it may reduce competitive activity, it may also bring benefits to the consumers.
The acquiring company may gain economies of scale that lead to lower costs and
lower prices. A well-managed company may take over a poorly managed company
and improve its efficiency. In Malaysia, banks are encouraged to merge in order to
withstand intense global competitions.
Reducing the threat of new entries into the market is another criticism levelled at
marketers. Some large companies can tie up with major suppliers to set barriers for
entry in the market. By doing this, they keep potential competition at check but
they also deprive customers of more choices.
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Some companies practise unfair marketing with the intention to eliminate their
competitors from the market. These companies set very low price to destroy the
smaller competitors or literally “price them out” of the market. Even though there
are laws to protect weaker firms, it is usually very difficult to prove such intentions
and practices.
Consumerism
5. To use any sales promotion tools to attract the customers as long as they
are not misleading. Our local authorities try to ensure that the price
cuts advertised as discounts are genuine. The authorities often inspect
discounted items sold in hypermarkets. Legal action will be taken against
those who mislead the consumers.
1. Customers have the right not to buy a product offered for sale. A sales
agent may take you for a dinner, might spend money on gifts, might offer
you a free vacation trip and you can still reject the purchase if you want.
For example, some locally registered companies selling hotel membership
for a fee will invite you to attend a 2 hours preview. In return, they will
offer a free trip to some local resorts during non-peak seasons. There is no
obligation on the part of customers to buy the membership.
2. Customers have the right to ensure the product is safe to use or consume.
For example, some medical products will carry instructions on the
symptoms of consuming the medicine. Some will indicate that it is not
safe to drive after consuming it. In this respect, the buyers must be alert
and should follow the given instruction. The company will not be liable
for any legal damages due to accidents after consuming the product.
3. Customers have the right to expect that the product which they purchase
has all the features and benefits as claimed by the sellers or advertisement
messages. The suppliers often provide warranty for the purchased electronic
goods. Any defects due to production faults are normally replaceable.
Comparing the rights of the sellers and buyers, Kotler and Armstrong feel that
the balance of power is more favourable to the sellers than to buyers. Buyers are
weaker since they often do not have enough information to make the correct
judgment and are sometimes not organised enough to take follow-up action on
their complaints.
To enable the consumers to have a more balanced power equation in the market,
advocates of consumerism feel that the following additional rights should also be
given to the consumers.
In Malaysia, consumers who believe they have had a bad deal have several remedies
available, including contacting the company or the media; contacting federal, state
or local agencies; and going to the small-claims court. For example, a non-profit
organisation like the National Consumer Complaints Centre (NCCC) provides
Malaysian consumers with an alternative and independent avenue to lodge
complaints and seek assistance.
Reading
Extract 5.2
“The Health Ministry has strict guidelines which we must adhere to.
The Ministry will check our products before giving their go-ahead
for us to sell them to consumers,” he said.
Activity 5.12
Read the above article regarding the action taken by the Malaysian
Dietary Supplement Association against some direct selling
agents’ outlandish claims about their products. Do you think
the direct selling agents have the right to sell and promote their
supplementary products in such an aggressive way?
Activity 5.13
Environmentalism
Environmentalists are concerned with marketing effects on the environment and the
cost to the environment for serving consumer needs and wants. Environmentalism is
an organised movement of concerned citizens, businesses and government agencies
to protect and improve the people’s living environment (Kotler and Armstrong
2006). In Malaysia, there are many environmental groups that are actively involved
in educating the general public on activities which threaten the environment. The
following are some examples:
In the late 90s, Shell carried out an advertising campaign by spreading the
message that it was involved in a research and development activity to find better
alternatives to petrol. Its advertisement carried an environment friendly message
to the general public which triggered a positive perception on the noble efforts of
the company.
Reading
Extract: 5.3
The consequences
Reading
Extract 5.4
Source: http://www.microsoft.com/presspass/features/2005/dec05/
12-07Packaging.mspx Accesssed 20 October 2006
Enlightened marketing
Activity 5.14
Marketing ethics
Marketers today face many ethical dilemmas. It is difficult to get every employee
to follow the ethical code of conduct set by the company. The enforcement of an
ethical code of conduct requires commitment from all levels in the organisation
as well as from all the partners who are involved in delivering the ultimate value
to the consumers. The Direct Selling Association of Malaysia (DSAM), for
instance, has set the code of conduct for members to adhere to.
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However, sometimes even the finest guidelines are unable to resolve some of
the ethical dilemmas faced by the marketers when they carry out their job. The
following are some examples of morally difficult situations in marketing.
One key question to ask is: Does the company need to lower its ethical standards
to suit the standards of other countries that it has chosen to work with? Many
established companies will answer in a firm “no” because they adhere to their code
of ethics in securing new contracts or businesses. They also do not give any room
for their staff to bend the ethical code of conduct in any circumstances. Those
companies that breach the ethical codes set by itself and the society will have
image problems that will in the long run, undermine the business interests of the
company.
UNIT 5 59
Extending marketing
Ethics and social responsibility require a total corporate commitment. The effort
must be considered as a part of the corporate culture of the organisation. Malaysia
is ranked 39 under the Transparency International Corruption Perceptions,
2005. This ranking should provide a significant impact on the perceptions of
individuals, public and businesses as well as on the Malaysian business environment
as a whole. It would be good if we could improve our ranking from year to year
to portray a positive image of our country.
Activity 5.15
Summary
1. High prices.
2. Deceptive practices.
3. High-pressure selling.
5. Planned obsolescence.
3. Cultural pollution.
In addition, critics have also pointed out that the marketing impact
on other businesses may not always be good either. Marketing is
accused of harming competitors and reducing competition by
acquiring competitors, creating barriers to entry and using unfair
marketing practices.
Self-test 5.3
Feedback
Activity 5.9
Yes. Marketers are often less sensitive towards customers and yes,
poor service, unsafe or shoddy products are often delivered to
consumers. The latter circumstance can often be tracked back to
a function of cost or the sense of urgency in getting a product to
market quicker, rather than intentionally deliver a sub-performing
product to customers. Companies cannot build lasting customer
value in a competitive world like today if they consistently deliver
poor products and services to their target markets. At present, it is
hard to survive and prosper with quality products and services let
alone expecting to succeed and profit with the worst.
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Activity 5.10
Activity 5.11
Activity 5.12
Activity 5.13
Activity 5.14
Activity 5.15
Summary of Unit 5
Summary
There are three sections covered in this unit. Section 5.1 highlighted
the topic of creating competitive advantage. Competitive advantage
is a company’s ability to perform in one or more ways that
competitors cannot or will not match. In this section, we learnt
the three steps in analysing competitors:
2. Differentiation.
3. Focus.
There are a few market entry strategies that can be used to enter a
global market. These include exporting, joint-venturing and direct
investment.
The last section in this unit covers the topics of market ethics
and social responsibility. You have learnt that the marketing
impact on individual consumers has been criticised for its
high prices, deceptive practices, high-pressure selling and poor
service to disadvantaged consumers. The marketing impact
on society has been criticised for creating false wants and too
much materialism, too few social goods and cultural pollution.
Consumerism is an organised social movement intended to
strengthen the rights and power of consumers relative to sellers. Alert
marketers view it as an opportunity to serve consumers better by
providing more consumer information, education and protection.
Environmentalism is an organised social movement which seeks
to minimise the harm done to the environment and quality of
life by unethical marketing practices. You were also exposed to
the topic on the principles of socially responsible marketing and
should understand that some companies have followed a policy of
enlightened marketing, which holds that a company’s marketing
UNIT 5 67
Extending marketing
Course Summary
Summary
Maxis in Indonesia
Maxis in India
A further 1,200 BTS will be rolled out this year, with a similar
number planned for 2007. Aircel’s network provides 2G and GPRS
services, and is EDGE capable. EDGE services are expected to be
launched at the end of the year. In addition, Aircel is the first in
India to launch wireless Internet services using WiMAX technology.
It aims to extend its coverage to over 20 cities to serve enterprise
broadband customers.
Himachal Pradesh
Punjab
Haryana
Assam
Delhi
Gujarat Kolkata
Source: http://www.maxis.com.my/personal/about_us/intl_ventures/
intl_ventures.asp Accessed 8 October 2006
UNIT 5 73
Extending marketing
Questions
Feedback
Self-test 5.1
Self-test 5.2
License:
Contract manufacturing:
Management contracting:
Joint ownership:
Self-test 5.3
• Do not lie.
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UNIT 5 81
Extending marketing
Feedback
1. Advantages
Terminology
Competitive advantage Kelebihan bersaing ゲѝӬ
References
Brassington, F and Pettitt, S (2002) Principles of Marketing, 3rd edn, Pearson
Education Asia.
‘Direct sellers say they comply with rules’, Malay Mail, 2 October, 2006 http://
nccc.org.my/index.php?option=com_content&task=view&id=159&Itemid=51
(Accessed 20 October 2006)
Kotler, P and Armstrong, G (2012) Principles of Marketing, 14th edn, New Jersey:
Pearson Prentice Hall.
Lasserre P, Shcutte H, (1999) Strategies for Asia Pacific: Beyond Crisis. New York
University Press.
Tee, L S ‘Telco price war breaks out’, The Star, 7 October, 2006, http://biz.thestar.
com.my/bizweek/story.asp?file=/2006/10/7/bizweek/15634704&sec=bizweek.
(Accessed 15 October 2006)
Zikmund, W and D’Amico, M (1989) Marketing, 3rd edn, John Wiley & Sons.