9.4 Marketing strategies


A major consideration when entering a foreign market is the degree to which a marketing strategy used successfully in the core market should be adapted to the business environment and market conditions in the target market (Hooley, 1993). The main elements of this strategic marketing decision are the choice of target segment, the positioning of the product vis-  -vis local consumers and the selection of the marketing programme. By varying these factors it is possible to develop marketing strategies that are tailored to particular local markets. As there are huge gaps in purchasing power and overall market development between CEE and the West, at first sight a differentiation strategy seems most appropriate. The average GDP per capita, in purchasing power standards, ranges from 23 per cent of the EU-15 average in Bulgaria, 29 per cent in Romania, 48 per cent in Hungary to 60 per cent in the Czech Republic and 68 per cent in Slovenia (Eurostat, 1998). However efficiency considerations and the tendency towards more homogeneous global brand strategies are limiting the scope for local customization.

Parallel to the political and economic liberalization of the CEE countries there has been a strengthening of the market globalization perspective and global business logic (Schuh, 2000; Kozminski and Yip, 2000). World markets and consumer behaviour are viewed as increasingly converging, which is enabling internationally operating firms to adopt a more standardized marketing strategy worldwide, including CEE. Most of the marketing strategies of Western MNCs belong to one of three types:

  • Transfer of Western strategy.

  • Multitier product and brand strategy.

  • Regional strategy.

Transferring the strategy used in Western markets is typical at the entry stage as it is not sensible to enter a market with an adapted product and a highly localized marketing programme (Arnold and Quelch, 1998). Adaptations are made only if they are not too costly. This is especially important in high-risk environments such as transition economies as firms, especially small and medium- sized ones, do not wish to invest heavily in product adaptations when the return is unclear, and the need for economies of scale prohibits costly variations in products and packaging. Core elements of the marketing mix “ the product itself, packaging and advertising “ are increasingly centrally determined and cannot be changed by the local management, although labelling, package design, package size and the name of the product sometimes have to be changed to meet local legal requirements (if not yet incorporated into the global or regional brand concept) and instructions have to be translated into the local language. Package sizes are often smaller in CEE because most households cannot afford to buy large quantities without reducing their spending on other necessary products. For instance Pampers disposable nappies can be bought singly in Bulgaria and shampoo and instant coffee are available in small sachets.

While exporting reduces the risk involved it also limits the scope for customization. However the Western origin of products is of appeal to consumers in CEE (Johnson and Loveman, 1995) who are familiar with Western brands from trips to the West or from media coverage, and are willing to pay a higher price for them, or at least as long as the price “quality ratio in relation to locally produced goods is considered fair. In combination with exporting, transfer of the Western strategy works well when product markets are small or just beginning to emerge, when local usages are not markedly different from in the West and when the product s superiority (in terms of quality, performance or image) is obvious to local target groups. Then the only obstacle to local expansion of the business is the high price.

Prices in CEE markets tend to be in line with those in the West and are not usually adjusted to the lower local purchasing power levels. The additional costs of exporting (transportation, taxes, import duties and so on) and the threat of re-export to the West by Europe-wide wholesalers or retail chains restrict the room for downward price adjustments. Even MNCs which manufacture global brands at lower cost in CEE have to follow the global pricing policy and are not allowed to offer these brands at reduced prices which are more in line with local purchasing power levels.

In their pricing decisions local managers often have to comply with ˜European price corridors that limit the maximum reduction from the highest price in Europe to 6 “8 per cent. This does not reflect the differences in purchasing power between Western and CEE countries, and thus hampers or slows the expansion of the international brand business. To compensate for this, Western MNCs often switch to a so-called multitier brand and product strategy, in which well-known local brands are marketed alongside the international brands (Batra, 1997; Schuh, 2000). Typically such brands are acquired by an MNC through the purchase of a local firm. While the international brands cater to the luxury end of the market, the revamped local brands are aimed at the low- to medium-price segments (Table 9.1). The value-for-money local (and often regionalized) brands “ are an extremely effective vehicle for opening up price-sensitive mass markets.

The ˜portfolio concept used by the German firm Henkel is a good example of a multitier brand strategy. Henkel divides the detergent market into three price tiers:

  • Premium: brands such as Persil are promoted as offering top quality performance and are priced comparably to the West European levels.

  • Medium: acquired local brands (Palmex, Tomi) are aimed at traditional, brand-loyal customers and are priced about 20 per cent lower than their counterparts in the premium range.

  • Economy: new brands such as Rex are aimed at highly price-sensitive consumers and are priced about 40 per cent lower than the premium brands.

The incorporation of Western quality and modern image into reasonably priced products that meet local demands is very appealing to local consumers. From the perspective of Western MNCs, the parallel coverage of all market segments gives them some protection against fluctuations in demand, which can be dramatic in transitional economies as economic slumps usually lead to extreme cut-backs in household spending. Under budgetary pressure households will switch to the MNC s cheaper products and therefore will not be lost as customers. A diversified brand portfolio can also help to secure economies of scope in local production and logistics, to strengthen bargaining power vis-  -vis suppliers and retailers, and to fund the introduction of international brands to the local market. However, in strongly culture-bound product categories such as beer the major demand is still for local brands and international brands are less popular in most CEE countries.

Table 9.1: Brand portfolios of selected firms following a multitier strategy in Central and Eastern Europe
 

Product category

International brands

Examples of regional or local brands in CEE

Henkel (Germany)

Detergent

Persil

Orion (Poland)

Palmex (Czech Republic, Slovakia)

Tomi (Hungary)

Rex (throughout CEE)

Procter &

Gamle (USA)

Detergent

Ariel

Tix (Czech Republic, Slovakia)

Bonux (throughout CEE)

Kraft Foods

(USA)

Chocolate

Milka

Suchard

3Bit (Czech Republic, Poland, Hungary)

Poiana (Romania)

Svoge (Bulgarian)

Nestl

Chocolate

KitKat

Orion (Czech Republic, Slovakia)

(Switzerland)

Sweets

Nestl

Polo

Boci (Hungary)

Sfinx (Czech Republic, Slovakia)

Interbrew

(Belgium)

Beer

Stella Artois,

Beck s

Klinskoye (Rumania)

Borsoni S r (Hungary)

AstikA (Bulgaria)

Ozujsko Pivo (Croatia)

Niksico Pivo (Yugoslavia)

Chernigivski Pivo (Ukraina)

BBAG (Austria)

Beer

Zipfer

Kaiser

G sser

Silva (Romania)

Soproni aszok (Hungary)

Starobrno (Czech Republic),

Van Pur (Poland)

When considering whether to keep the existing brands or to introduce new ones managers are faced with cost issues. The sales volume of a local brand is often too small to generate sufficient profits to cover the cost of upgrading and relaunching the brand, especially, when it is aimed at the lower end of the market. Regionalization is often seen as a solution to this problem. The centralized production of products for a group of country markets allows firms to realize economies of scope and scale, as well as the opportunity to cater to regional preferences and tastes in product design or formula. Kraft Foods 3Bit chocolate bars and detergents such as Procter and Gamble s Bonux and Henkel s Rex are now produced for several CEE markets after a successful start as local brands. The basic product technology is made available by the parent company and then adapted to regional needs. In order to improve efficiency the production sites are specialized by product line and are integrated into the regional or global production network of the multinational group . Regional free trade arrangements such as the Central European Free Trade Area (CEFTA) facilitate the development of such regional production networks. The planned eastward expansion of the European Union has also accelerated the use of CEE production sites as export platforms for Western European markets.

The current marketing practices of Western MNCs in the region provide a good picture of how localization is handled under the conditions of globalization. Marketing decisions in local markets are strongly guided by efficiency motives. Strategic considerations such as cost reduction by procuring and producing locally and saving costs and strengthening the impact of the brand by leveraging existing Western product and brand concepts often outweigh more market- related aspects such as adapting the products to local consumer tastes and preferences. This logic can be often found in small or strategically unimportant markets of the region.




Change Management in Transition Economies. Integrating Corporate Strategy, Structure and Culture
Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture
ISBN: 1403901635
EAN: 2147483647
Year: 2003
Pages: 121

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