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In Memoriam: Warren J. Keegan 1936–2014

—MCG

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Mark C. Green Simpson College

Warren J. Keegan Late, Pace University

GLOBAL MARKETING

TENTH EDITION

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ISBN 10: 0-13-489975-X ISBN 13: 978-0-13-489975-6

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Library of Congress Cataloging-in-Publication Data Names: Keegan, Warren J., author. | Green, Mark C., author. Title: Global marketing / Warren J. Keegan, Lubin Graduate School of Business, Pace University, New York City and Westchester, New York, Mark C. Green, Department of Business Administration and Economics, Simpson College, Indianola, Iowa. Description: Tenth edition. | Hoboken : Pearson Education, [2020] Identifiers: LCCN 2018045759| ISBN 9780134899756 | ISBN 013489975X Subjects: LCSH: Export marketing. Classification: LCC HF1416 .K443 2020 | DDC 658.8/4--dc23 LC record available at https://lccn.loc.gov/2018045759

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v

Brief Contents

Preface xvi Acknowledgments xx

PART ONE INTRODUCTION 2

Chapter 1 Introduction to Global Marketing 2

PART TWO THE GLOBAL MARKETING ENVIRONMENT 40

Chapter 2 The Global Economic Environment 40 Chapter 3 The Global Trade Environment 72 Chapter 4 Social and Cultural Environments 106 Chapter 5 The Political, Legal, and Regulatory Environments 138

PART THREE APPROACHING GLOBAL MARKETS 174

Chapter 6 Global Information Systems and Market Research 174 Chapter 7 Segmentation, Targeting, and Positioning 212 Chapter 8 Importing, Exporting, and Sourcing 246 Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and

Strategic Alliances 276

PART FOUR THE GLOBAL MARKETING MIX 306

Chapter 10 Brand and Product Decisions in Global Marketing 306 Chapter 11 Pricing Decisions 340 Chapter 12 Global Marketing Channels and Physical Distribution 376 Chapter 13 Global Marketing Communications Decisions I 412 Chapter 14 Global Marketing Communications Decisions II 444 Chapter 15 Global Marketing and the Digital Revolution 478

PART FIVE STRATEGY AND LEADERSHIP IN THE TWENTY-FIRST CENTURY 510

Chapter 16 Strategic Elements of Competitive Advantage 510 Chapter 17 Leadership, Organization, and Corporate Social

Responsibility 542

Glossary 573 Author/Name Index 587 Subject/Organization Index 597

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vii

Preface xvi Acknowledgments xx

PART ONE INTRODUCTION 2

Chapter 1 Introduction to Global Marketing 2 Case 1-1 The Global Marketplace Is Also Local 2

1-1 Introduction and Overview 3 1-2 Principles of Marketing: A Review 5

Competitive Advantage, Globalization, and Global Industries 6

1-3 Global Marketing: What it is and What it isn’t 9 1-4 The Importance of Global Marketing 16 1-5 Management Orientations 17

Ethnocentric Orientation 17 Polycentric Orientation 18 Regiocentric Orientation 18 Geocentric Orientation 18

1-6 Forces Affecting Global Integration and Global Marketing 21 Driving Forces 21

MULTILATERAL TRADE AGREEMENTS 21 CONVERGING MARKET NEEDS AND WANTS AND THE INFORMATION REVOLUTION 21 TRANSPORTATION AND COMMUNICATION IMPROVEMENTS 22 PRODUCT DEVELOPMENT COSTS 22 QUALITY 23 WORLD ECONOMIC TRENDS 23 LEVERAGE 24

Experience Transfers 24 Scale Economies 24

RESOURCE UTILIZATION 25 GLOBAL STRATEGY 25 INNOVATION AND ENTREPRENEURSHIP 25

Restraining Forces 26 MANAGEMENT MYOPIA AND ORGANIZATIONAL CULTURE 26 NATIONAL CONTROLS 26 OPPOSITION TO GLOBALIZATION 26

1-7 Outline of This Book 27 Summary 28 Discussion Questions 29

Case 1-1 The Global Marketplace (continued) 30 Case 1-2 McDonald’s Expands Globally While Adjusting Its Local Recipe 31 Case 1-3 Apple versus Samsung: The Battle for Smartphone

Supremacy Heats Up 35

PART TWO THE GLOBAL MARKETING ENVIRONMENT 40

Chapter 2 The Global Economic Environment 40 Case 2-1 India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver

Acche Din? 40 2-1 The World Economy—Overview of Major Changes 41 2-2 Economic Systems 43

Contents

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Market Capitalism 44 Centrally Planned Socialism 44 Centrally Planned Capitalism and Market Socialism 45

2-3 Stages of Market Development 48 Low-Income Countries 49 Lower-Middle-Income Countries 50 Upper-Middle-Income Countries 51 Marketing Opportunities in LDCs and Developing Countries 54 High-Income Countries 57 Marketing Implications of the Stages of Development 58

2-4 Balance of Payments 59 2-5 Trade in Merchandise and Services 61

Overview of International Finance 62 Economic Exposure 64 Managing Exchange Rate Exposure 64

Summary 65 Discussion Questions 66

Case 2-1 India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver Acche Din? (continued) 67

Case 2-2 A Day in the Life of a Contracts Analyst at Cargill 69

Chapter 3 The Global Trade Environment 72 Case 3-1 Breaking Up Is Hard to Do: Britons Contemplate “Brexit” 72

3-1 The World Trade Organization and Gatt 73 3-2 Preferential Trade Agreements 74

Free Trade Area 75 Customs Union 76 Common Market 76 Economic Union 76

3-3 North America 77 3-4 Latin America: Sica, Andean Community, Mercosur, and Caricom 80

Central American Integration System 80 Andean Community 82 Common Market of the South (Mercosur) 84 Caribbean Community and Common Market (CARICOM) 85

3-5 Asia-Pacific: The Association of Southeast Asian Nations 87 Marketing Issues in the Asia-Pacific Region 88

3-6 Western, Central, and Eastern Europe 89 The European Union 89 Marketing Issues in the EU 93 Central and Eastern Europe 94

3-7 The Middle East 94 Cooperation Council for the Arab States of the Gulf 95 Marketing Issues in the Middle East 96

3-8 Africa 97 Economic Community of West African States 97 East African Community 97 Southern African Development Community 98 Marketing Issues in Africa 98

Summary 99 Discussion Questions 99

Case 3-1 Breaking Up Is Hard to Do: Britons Contemplate “Brexit” (continued) 101 Case 3-2 Can Global Trade Talks Survive in an Era of Populism and Protectionism? 103

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Chapter 4 Social and Cultural Environments 106 Case 4-1 Strange Brew: Coffee Culture Around the World 106

4-1 Society, Culture, and Global Consumer Culture 107 Attitudes, Beliefs, and Values 108 Religion 109 Aesthetics 110 Dietary Preferences 111 Language and Communication 112 Marketing’s Impact on Culture 117

4-2 High- and Low-Context Cultures 118 4-3 Hofstede’s Cultural Typology 119 4-4 The Self-Reference Criterion and Perception 121 4-5 Diffusion Theory 124

The Adoption Process 124 Characteristics of Innovations 124 Adopter Categories 125 Diffusion of Innovations in Pacific Rim Countries 126

4-6 Marketing Implications of Social and Cultural Environments 126 Summary 128 Discussion Questions 129

Case 4-1 Coffee Culture Around the World (continued) 129 Case 4-2 Is Tourism the Savior or the Scourge of Venice? 133

Chapter 5 The Political, Legal, and Regulatory Environments 138 Case 5-1 Travis Kalanick and Uber 138

5-1 The Political Environment 139 Nation-States and Sovereignty 140 Political Risk 142 Taxes 143 Seizure of Assets 145

5-2 International Law 145 Common Law versus Civil Law 147 Islamic Law 148

5-3 Sidestepping Legal Problems: Important Business Issues 148 Jurisdiction 149 Intellectual Property: Patents, Trademarks, and Copyrights 149 Antitrust 155 Licensing and Trade Secrets 159 Bribery and Corruption: Legal and Ethical Issues 160

5-4 Conflict Resolution, Dispute Settlement, and Litigation 162 Alternatives to Litigation for Dispute Settlement 163

5-5 The Regulatory Environment 164 Regional Economic Organizations: The EU Example 165

Summary 167 Discussion Questions 167

Case 5-1 Travis Kalanick and Uber (continued) 168 Case 5-2 Putin’s Russia versus the West: Cold War 2.0? 170

PART THREE APPROACHING GLOBAL MARKETS 174

Chapter 6 Global Information Systems and Market Research 174 Case 6-1 Big Data: “Number One with a Bullet” in the Music Industry 174

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6-1 Information Technology, Management Information Systems, and Big Data for Global Marketing 176 6-2 Sources of Market Information 181 6-3 Formal Market Research 183

Step 1: Information Requirements 183 Step 2: Problem Definition 184 Step 3: Choosing the Unit of Analysis 185 Step 4: Examining Data Availability 185 Step 5: Assessing the Value of Research 187 Step 6: Research Design 187

ISSUES IN DATA COLLECTION 188 RESEARCH METHODOLOGIES 189 SCALE DEVELOPMENT 194 SAMPLING 194

Step 7: Data Analysis 194 COMPARATIVE ANALYSIS AND MARKET ESTIMATION BY ANALOGY 198

Step 8: Interpretation and Presentation 199

6-4 Headquarters’ Control of Market Research 200 6-5 The Marketing Information System as a Strategic Asset 201 Summary 202 Discussion Questions 202

Case 6-1 Big Data Transforms the Music Business and Artist Careers (continued) 203 Case 6-2 A Day in the Life of a Business Systems and Analytics Manager 207

Chapter 7 Segmentation, Targeting, and Positioning 212 Case 7-1 Segmenting the Chinese Luxury Goods Market 212

7-1 Global Market Segmentation 213 Contrasting Views of Global Segmentation 214 Demographic Segmentation 215

SEGMENTING GLOBAL MARKETS BY INCOME AND POPULATION 216 AGE SEGMENTATION 220 GENDER SEGMENTATION 221

Psychographic Segmentation 221 Behavior Segmentation 224 Benefit Segmentation 224 Ethnic Segmentation 225

7-2 Assessing Market Potential and Choosing Target Markets or Segments 226

Current Segment Size and Growth Potential 226 Potential Competition 228 Feasibility and Compatibility 229 A Framework for Selecting Target Markets 230

7-3 Product–Market Decisions 231 7-4 Targeting and Target Market Strategy Options 233

Standardized Global Marketing 233 Concentrated Global Marketing 234 Differentiated Global Marketing 235

7-5 Positioning 236 Attribute or Benefit 236 Quality and Price 236 Use or User 237 Competition 237 Global, Foreign, and Local Consumer Culture Positioning 237

Summary 240 Discussion Questions 240

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Case 7-1 Segmenting the Chinese Luxury Goods Market (continued) 241 Case 7-2 Cosmetics Giants Segment the Global Health and Beauty Market 243

Chapter 8 Importing, Exporting, and Sourcing 246 Case 8-1 The Game’s Afoot: Exports Revive Britain’s Shoe Industry 246

8-1 Export Selling and Export Marketing: A Comparison 247 8-2 Organizational Export Activities 249 8-3 National Policies Governing Exports and Imports 250

Government Programs That Support Exports 250 Governmental Actions to Discourage Imports and Block Market Access 252

8-4 Tariff Systems 257 Customs Duties 259 Other Duties and Import Charges 259

8-5 Key Export Participants 260 8-6 Organizing for Exporting in the Manufacturer’s Country 261 8-7 Organizing for Exporting in the Market Country 262 8-8 Trade Financing and Methods of Payment 262

Letters of Credit 263 Documentary Collections (Sight or Time Drafts) 264 Navigating the Real World: A Brief Case Study 264 Navigating the Real World: Another Brief Case Study 265 Additional Export and Import Issues 265

8-9 Sourcing 266 Management Vision 267 Factor Costs and Conditions 268 Customer Needs 269 Logistics 269 Country Infrastructure 269 Political Factors 270 Foreign Exchange Rates 270

Summary 270 Discussion Questions 271

Case 8-1 Great Britain’s Shoe Export Boom (continued) 271 Case 8-2 A Day in the Life of an Export Coordinator 273

Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and Strategic Alliances 276

Case 9-1 AB InBev and SABMiller: A Match Made in (Beer) Heaven? 276 9-1 Licensing 278

Special Licensing Arrangements 280

9-2 Investment 281 Joint Ventures 283 Investment via Equity Stake or Full Ownership 284

9-3 Global Strategic Partnerships 288 The Nature of Global Strategic Partnerships 288 Success Factors 291 Alliances with Asian Competitors 291 CFM International, GE, and Snecma: A Success Story 292 Boeing and Japan: A Controversy 292

9-4 International Partnerships in Developing Countries 293 9-5 Cooperative Strategies in Asia 294

Cooperative Strategies in Japan: Keiretsu 294 HOW KEIRETSU AFFECT AMERICAN BUSINESS: TWO EXAMPLES 295

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Cooperative Strategies in South Korea: Chaebol 296

9-6 Twenty-First-Century Cooperative Strategies 297 9-7 Market Expansion Strategies 298 Summary 298 Discussion Questions 299

Case 9-1 AB InBev and SABMiller: A Match Made in (Beer) Heaven? (continued) 300 Case 9-2 Jaguar’s Passage to India 302

PART FOUR THE GLOBAL MARKETING MIX 306

Chapter 10 Brand and Product Decisions in Global Marketing 306 Case 10-1 Alphabet 306

10-1 Basic Product Concepts 307 Product Types 308 Product Warranties 308 Packaging 308 Labeling 309 Aesthetics 310

10-2 Basic Branding Concepts 310 Local Products and Brands 311 International Products and Brands 312 Global Products and Brands 312 Global Brand Development 315

10-3 A Needs-Based Approach To Product Planning 319 10-4 “Country of Origin” as a Brand Element 322 10-5 Extend, Adapt, Create: Strategic Alternatives in Global Marketing 324

Strategy 1: Product-Communication Extension (Dual Extension) 325 Strategy 2: Product Extension–Communication Adaptation 326 Strategy 3: Product Adaptation–Communication Extension 327 Strategy 4: Product-Communication Adaptation (Dual Adaptation) 328 Strategy 5: Innovation 329 How to Choose a Strategy 329

10-6 New Products in Global Marketing 330 Identifying New-Product Ideas 330 New-Product Development 331 The International New-Product Department 333 Testing New Products 333

Summary 334 Discussion Questions 335

Case 10-1 Google (continued) 335

Chapter 11 Pricing Decisions 340 Case 11-1 Global Automakers Target Low-Income Consumers 340

11-1 Basic Pricing Concepts 341 11-2 Global Pricing Objectives and Strategies 342

Market Skimming and Financial Objectives 342 Penetration Pricing and Nonfinancial Objectives 344 Companion Products: Captive (“Razors and Blades”) Pricing 344 Target Costing 345 Calculating Prices: Cost-Plus Pricing and Export Price Escalation 346

11-3 Incoterms 347 11-4 Environmental Influences on Pricing Decisions 351

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Currency Fluctuations 351 Inflationary Environment 354 Government Controls, Subsidies, and Regulations 355 Competitive Behavior 356 Using Sourcing as a Strategic Pricing Tool 357

11-5 Global Pricing: Three Policy Alternatives 357 Extension or Ethnocentric Pricing 357 Adaptation or Polycentric Pricing 358 Geocentric Pricing 358

11-6 Gray Market Goods 359 11-7 Dumping 360 11-8 Price Fixing 361 11-9 Transfer Pricing 362

Tax Regulations and Transfer Prices 362 Sales of Tangible and Intangible Property 363

11-10 Countertrade 364 Barter 364 Counterpurchase 365 Offset 365 Compensation Trading 365 Switch Trading 366

Summary 366 Discussion Questions 367

Case 11-1 Global Automakers Target Low-Income Consumers (continued) 367 Case 11-2 Global Consumer-Products Companies Target Low-Income Consumers 369 Case 11-3 LVMH and Luxury Goods Marketing 371

Chapter 12 Global Marketing Channels and Physical Distribution 376 Case 12-1 Welcome to the World of Fast Fashion 376

12-1 Distribution Channels: Objectives, Terminology, and Structure 377

Consumer Products and Services 378 Industrial Products 382

12-2 Establishing Channels and Working With Channel Intermediaries 383

12-3 Global Retailing 386 Types of Retail Operations 387 Trends in Global Retailing 391 Global Retailing Market Expansion Strategies 394

12-4 Physical Distribution, Supply Chains, and Logistics Management 397

Order Processing 399 Warehousing 400 Inventory Management 400 Transportation 400 Logistics Management: A Brief Case Study 403

Summary 403 Discussion Questions 404

Case 12-1 Welcome to the World of Fast Fashion (continued) 405 Case 12-2 Can Walmart Crack the Retail Code in India? 408

Chapter 13 Global Marketing Communications Decisions I 412 Case 13-1 Volkswagen’s “Dieselgate” Nightmare 412

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13-1 Global Advertising 413 Global Advertising Content: Standardization versus Adaptation 415

13-2 Advertising Agencies: Organizations and Brands 419 Selecting an Advertising Agency in the Era of Digital Disruption 420

13-3 Creating Global Advertising 424 Art Direction and Art Directors 425 Copy and Copywriters 426 Additional Cultural Considerations 426

13-4 Global Media Decisions 429 Global Advertising Expenditures and Media Vehicles 430 Media Decisions 430

13-5 Public Relations and Publicity 431 The Growing Role of PR in Global Marketing Communications 435 How PR Practices Differ Around the World 436

Summary 437 Discussion Questions 437

Case 13-1 Volkswagen’s “Dieselgate” Nightmare (continued) 438 Case 13-2 Coca-Cola: Using Advertising and Public Relations to Respond to a Changing

World 440

Chapter 14 Global Marketing Communications Decisions II 444 Case 14-1 Milan Expo 2015 444

14-1 Sales Promotion 446 Sampling 448 Couponing 449 Sales Promotion: Issues and Problems 450

14-2 Personal Selling 451 The Strategic/Consultative Selling Model 453

14-3 Sales Force Nationality 457 14-4 Special Forms of Marketing Communications: Direct Marketing 460

Direct Mail 461 Catalogs 461 Infomercials, Teleshopping, and Interactive Television 463

14-5 Special Forms of Marketing Communications: Support Media, Sponsorship, and Product Placement 464

Support Media 464 Sponsorship 466 Product Placement: Motion Pictures, Television Shows, and Public Figures 468

Summary 470 Discussion Questions 471

Case 14-1 Milan Expo 2015 (continued) 472 Case 14-2 Red Bull 474

Chapter 15 Global Marketing and the Digital Revolution 478 Case 15-1 How Do You Like Your Reality? Virtual? Augmented? Mixed? 478

15-1 The Digital Revolution: A Brief History 479 15-2 Convergence 483 15-3 Value Networks and Disruptive Technologies 484 15-4 Global E-Commerce 487 15-5 Web Site Design and Implementation 490 15-6 New Products and Services 492

Broadband 492 Cloud Computing 494

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Smartphones 494 Mobile Advertising and Mobile Commerce 494 Autonomous Mobility 497 Mobile Music 498 Mobile Gaming 498 Online Gaming and e-Sports 499 Mobile Payments 499 Streaming Video 500 Internet Phone Service 500 Digital Books and Electronic Reading Devices 500 Wearables 501

Summary 502 Discussion Questions 503

Case 15-1 How Do You Like Your Reality: Virtual? Augmented? Mixed? (continued) 504 Case 15-2 Africa 3.0 506

PART FIVE STRATEGY AND LEADERSHIP IN THE TWENTY-FIRST CENTURY 510

Chapter 16 Strategic Elements of Competitive Advantage 510 Case 16-1 IKEA 510

16-1 Industry Analysis: Forces Influencing Competition 511 Threat of New Entrants 512 Threat of Substitute Products 513 Bargaining Power of Buyers 513 Bargaining Power of Suppliers 514 Rivalry among Competitors 514

16-2 Competitive Advantage 515 Generic Strategies for Creating Competitive Advantage 515

BROAD MARKET STRATEGIES: COST LEADERSHIP AND DIFFERENTIATION 515 NARROW TARGET STRATEGIES: COST FOCUS AND FOCUSED DIFFERENTIATION 517

Creating Competitive Advantage via Strategic Intent 519 LAYERS OF ADVANTAGE 519 LOOSE BRICKS 520 CHANGING THE RULES 520 COLLABORATING 521

16-3 Global Competition and National Competitive Advantage 521 Factor Conditions 522

HUMAN RESOURCES 522 PHYSICAL RESOURCES 522 KNOWLEDGE RESOURCES 522 CAPITAL RESOURCES 523 INFRASTRUCTURE RESOURCES 523

Demand Conditions 523 COMPOSITION OF HOME DEMAND 525 SIZE AND PATTERN OF GROWTH OF HOME DEMAND 525 RAPID HOME-MARKET GROWTH 525 MEANS BY WHICH A NATION’S PRODUCTS AND SERVICES ARE PUSHED OR PULLED INTO FOREIGN COUNTRIES 525

Related and Supporting Industries 525 Firm Strategy, Structure, and Rivalry 526 Chance 526 Government 527

16-4 Current Issues in Competitive Advantage 527 Hypercompetitive Industries 527

COST AND QUALITY 529

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TIMING AND KNOW-HOW 529 ENTRY BARRIERS 531

The Flagship Firm: The Business Network with Five Partners 532 Blue Ocean Strategy 533 Additional Research on Competitive Advantage 534

Summary 535 Discussion Questions 535

Case 16-1 IKEA (continued) 536 Case 16-2 “Everything Is Awesome, Everything Is Cool” at LEGO 538

Chapter 17 Leadership, Organization, and Corporate Social Responsibility 542

Case 17-1 A Changing of the Guard at Unilever 542 17-1 Leadership 543

Top Management Nationality 544 Leadership and Core Competence 546

17-2 Organizing For Global Marketing 547 Patterns of International Organizational Development 550

INTERNATIONAL DIVISION STRUCTURE 550 REGIONAL MANAGEMENT CENTERS 552 GEOGRAPHIC AND PRODUCT DIVISION STRUCTURES 554 THE MATRIX DESIGN 555

17-3 Lean Production: Organizing The Japanese Way 558 Assembler Value Chains 558 Downstream Value Chains 559

17-4 Ethics, Corporate Social Responsibility, and Social Responsiveness in the Globalization Era 560

Summary 566 Discussion Questions 567

Case 17-1 Unilever (continued) 567

Glossary 573 Author/Name Index 587 Subject/Organization Index 597

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We are proud that this Tenth Edition of Global Marketing marks more than two decades of pub- lication success. In this new edition, as in prior editions, we take an environmental and strategic approach to global marketing by outlining the major dimensions of the global business environ- ment. We also provide a set of conceptual and analytical tools that prepare students to success- fully apply the 4Ps when pursuing careers in global marketing or related areas.

Guided by our experience using the text in undergraduate and graduate classrooms and in corporate training seminars, we have revised, updated, and expanded Global Marketing. One of our challenges in developing a new edition of Global Marketing is the rate of change in the global business environment. Yesterday’s impossibility becomes today’s reality; new companies explode onto the scene; company leadership changes abruptly. In short, any book can be quickly outdated by events. Even so, we set out to create a compelling narrative that captures the unfold- ing drama that is in inherent in marketing in the globalization era.

When Principles of Global Marketing first appeared in 1996, we invited readers to “look ahead” to such developments as the ending of America’s trade embargo with Vietnam, Europe’s new single market, Daimler AG’s Smart car, Volkswagen’s global ambitions, and Whirlpool’s expansion into emerging markets. This newly revised edition also surveys important current developments in the international arena, including Britain’s tortuous path towards Brexit, China’s ascendance on the world stage, evolving trade relations in the Trump era, achievements by entrepreneurs such as Elon Musk, plus much more.

We are passionate about the subject of global marketing; if our readers detect a note of enthusiasm in our writing, then we have been successful. Our goal for all ten editions has been the same: to write a book that is authoritative in content yet relaxed and assured in style and tone. One instructor using the Ninth Edition wrote us to say, “I love the text, and really like the way it engages students. That is invaluable.” We believe that you will find latest edition of Global Marketing to be the most engaging, up-to-date, relevant, useful text of its kind.

We recommend pairing the Tenth Edition with Pearson’s MyLab Marketing. MyLab Mar- keting is a teaching and learning platform that empowers you to reach every student. By combin- ing content from Global Marketing with digital tools and a flexible platform, MyLab Marketing personalizes the learning experience and will help your students learn and retain key course concepts while developing skills that future employers are seeking in their candidates.

Preface

ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 35

Exhibit 1-14 Apple cofounder Steve Jobs wore many hats during his illustri- ous career, including inventor, entrepreneur, CEO, and visionary technolo- gist. He was also a master showman, a storyteller, and marketing genius. His appearances at product launches are the stuff of legend, and under his guidance Apple’s must-have products—including the iPod, the iPhone, and the iPad—were, simply put, the epitome of “cool.” Source: Paul Sakuma/AP Images.

CASE 1-3

Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up

When Steve Jobs died in October 2011, the world lost one of the towering figures of the modern business era (see Exhibit 1-14). Apple, the company Jobs cofounded, was a pioneer in the consumer electronics world; its key product introductions included the Apple II (1977), the Macintosh (1984), the iPod and iTunes (2001), the Apple Store (2001), the iPhone (2007), and the iPad (2009). At the time of Jobs’s death, Apple was the most valuable tech company in the world. By September 2012, Apple stock had soared to record levels, with its price briefly rising above $700 per share. In addition, Apple had amassed more than $100 billion in cash, most of it held abroad as foreign earnings. Meanwhile, once-dominant tech industry giants such as Nokia, Sony, Dell, and BlackBerry were struggling.

Despite strong 2012 sales for the iPhone 5, industry observers began to wonder whether Apple’s hot streak of hit product introduc- tions was starting to cool. Apple’s reputation was based on its proven ability to disrupt existing markets (e.g., the music and telecommunica- tions industries) and to create new markets through the introduction of technical and design innovations. However, some viewed the 2012 launch of the iPhone 5 as an evolutionary step rather than a revolution- ary breakthrough. In fact, many consumers opted to buy the slower, cheaper iPhone 4 or 4S rather than upgrade to the iPhone 5. Without Jobs, who was considered by many to be the heart and soul of the company, were Apple’s best days behind it?

The Competitive Threat As growth in the key smartphone sector began to slow, Apple’s most formidable competitor was Samsung Electronics, a division of Korean industrial giant Samsung Group, whose products range from semicon- ductors to household appliances to smartphones. Samsung’s popular Galaxy series of phones are powered by Android, an operating system developed by Google. Some Galaxy models, including the Galaxy Note (also known as a “phablet”), have larger screens than the iPhone—a point of difference that has helped drive sales of those devices. The

rivalry between Apple and Samsung has been heated, with the two sides squaring off in court over alleged patent infringement.

China and Europe are two of Samsung’s key markets; in 2012, the company launched the Galaxy S III in Europe. In 2013, however, Samsung staged a lavish event at Radio City Music Hall in New York to launch the Galaxy S4. Why the change? As J. K. Shin, the executive in charge of Samsung’s mobile business, noted, “We’re a global player in the smartphone market and a global company, and the U.S. is an impor- tant market for us. . . . I’m not satisfied with our U.S. market share.”

In many developing countries, there is strong demand for inexpen- sive mobile phones. Some Android-based models from Samsung and other companies sell for much less than Apple’s cheapest models. For many years, Apple did not offer a lower-cost version of the iPhone. In the United States, wireless carriers such as Verizon and AT&T subsidized the price of the iPhone for consumers who signed multiyear service contracts—a factor that explained why an American iPhone 5 sold for $199. By contrast, in other countries consumers paid the full, unsubsi- dized price of the iPhone but were not tied to a contract. Moreover, the iPhone 5 was the same in every world market. By contrast, Samsung made several versions of the Galaxy S4—using different processors, for example—to suit the needs of different regions.

Not surprisingly, smartphone makers are setting their sights on China, India, and other emerging markets. For example, Greater China, which includes China, Hong Kong, and Taiwan, is now Apple’s second- largest market. In 2013, Cook announced that China Mobile, the larg- est carrier in the region and the world’s largest carrier overall, would begin selling the iPhone. Apple faces strong competition from local competitors such as Oppo and Xiaomi; Oppo’s R9 bested the iPhone 6 as the top-selling smartphone in 2016. Distribution is critical, and Cook is aggressively expanding the number of outlets in China that sell iPhones.

As growth in China and Europe slows, India, the number 2 smart- phone market, is becoming increasingly important. Here, however, Apple’s 3 percent market share means that it lags far behind Samsung and Chinese producers in terms of smartphone shipments. Two-thirds of the phones sold in India cost less than $180. By contrast, Indian con- sumers pay about $300 for an iPhone 5S, the older model that Apple launched in 2013. These devices are sold through small, independent retailers; for entry-level buyers, Apple’s Web site offers only the iPhone SE and iPhone 6. In May 2017, Apple began manufacturing the SE in India, bringing the price down to approximately $325. Local manufac- turing will also allow Apple to open its own flagship stores in India.

Famously, Steve Jobs downplayed the importance of formal mar- ket research, saying that consumers don’t know what they want. By contrast, Samsung Electronics relies heavily on market research; it has 60,000 staff members working in dozens of research centers in China, Great Britain, India, Japan, the United States, and elsewhere. Samsung designers have backgrounds in such diverse disciplines as psychology, sociology, and engineering. Researchers track trends in fashion and interior design. Also, Samsung spends more on advertising and promo- tion than does Apple.

The Post-Jobs Era Begins In the months following Jobs’s death, Cook made a number of key stra- tegic decisions. For example, he authorized the introduction of the iPad mini, a product that Jobs had opposed. It quickly became a bestseller.

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New to This Edition As with previous editions, the Tenth Edition offers up-to-date, original insights into the complexities and subtleties of shifts in the external environment and their implications for global marketers. Specific updates and revisions include:

● More than fifty percent of the chapter-opening vignettes and related end- of-chapter cases are new to the Tenth Edition. Cases retained from the prior edition have also been revised and updated for this new edition.

● Revised and updated end-of-chapter cases include Case 1-2, “McDonald’s Expands Globally While Adjusting Its Local Recipe”; Case 1-3, “Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up”; Case 4-2, “Will Tourism Ruin Venice?”; Case 10-1, “Google”; Case 11-1, “Global Automakers Target Low-Income Consumers”; Case 16-1, “IKEA.”

● New cases in the Tenth Edition include Case 2-1, “India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver Acche Din?”; Case 3-1, “Breaking Up Is Hard to Do: Britons Contemplate ‘Brexit’”; Case 4-1, “Strange Brew: Coffee Culture Around the World”; Case 5-1, “Travis Kalanick and Uber"; Case 12-1, “Welcome to the World of Fast Fashion”; Case 15-1, “How Do You Like Your Reality? Virtual? Augmented? Mixed?”

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xviii PREFACE

● New discussion of social media is integrated throughout the Tenth Edition. Chapter 15, “Global Marketing and the Digital Revolution,” has been thoroughly revised and updated to include discussion of location-based mobile platforms, cloud computing, tablets, wearable devices, autonomous mobility, and other cutting-edge topics.

● In MyLab Marketing, in this edition, new Mini Sims put students in professional roles and give them the opportunity to apply course concepts and develop decision-making skills through real-world business challenges.20 PART 1 • INTRODUCTION

Kevin Systrom and Mike Krieger are entrepreneurs. They developed an innovative product, created a brand, and cofounded a company to market it. By applying the basic tools and principles of modern market- ing, the two Stanford University graduates have achieved remarkable success.

As is true with many entrepreneurs, Systrom’s idea was based on his recognition of a problem that needed to be solved and his own needs and wants. Systrom had a passion for photography, and also appreciated the potential of social media. He hit upon an idea for a location-based photo-sharing app that he dubbed Burbn (after his favorite distilled spirit). He then recruited Krieger, who was working on his own app called Meebo. Krieger liked Systrom’s idea, but the two agreed that Burbn was overloaded with functionality. Realizing that “There has to be a better way,” the duo stripped out everything but the photo-sharing function, which they conceptualized as an “instant telegram” (see Exhibit 1-9).

In October 2010, Systrom and Krieger launched Instagram on Apple’s App Store. Within two years, the photo-filtering and photo- sharing app had 30 million users. Soon thereafter, the platform was also launched on the Android and Windows Phone platforms.

Systrom’s insight was that, even in prehistoric times, people com- municated visually. Today, Instagram makes visual information acces- sible, just as Gutenberg’s printing press made the printed word more accessible. Instagram’s popularity is due in part to the dozens of filters that users can apply to their photos (the idea for filters came from Systrom’s girlfriend Nicole).

In 2012, Facebook acquired Instagram for $1 billion. Today, Ins- tagram has more than 600 million users who upload approximately 100 million photographs and videos each day; only 20 percent of users are in the United States. In 2016, Instagram generated more than $1.5 billion in revenues from mobile ads.

Social-media savvy companies in the luxury goods industry have been quick to embrace Instagram. To justify their products’ high prices,

managers of luxury brands need to help consumers understand the craftsmanship and heritage that are integral to the brand stories. Using photo images and videos, companies can take consumers “behind the scenes” and show the process by which luxury products are made by skilled artisans.

Nearly two-thirds of Instagram users use the app to learn about products and brands. Companies can leverage parent Facebook’s pow- erful data and online advertising tools to reach different segments— say, current versus potential luxury consumers—by inserting targeted, photography-based ads in their respective Instagram feeds. One such segment is known as “Henrys,” referring to younger Millennials who are described as “high earning, not rich yet.”

Food is another category that is driving Instagram’s popularity; to date, users have “IG-ed” (i.e., Instagrammed) more than 200 mil- lion posts with the hashtag #food. In response to this trend, social- media–conscious hospitality managers in London, New York, and other food-centric cities are taking steps to ensure that a restaurant’s inte- rior design, menus, and dishes lend themselves to Instagram posts. These range from Michelin-approved restaurants with posh addresses to Mexican-themed chains that feature burritos wrapped in branded foil. The most popular color? “Millennial Pink.” Recent trending food items include “freakshakes” and “unicorn lattes.”

Two new Instagram features, Stories and Live, launched in August 2016; they allow users to upload short video clips, live feeds, and photos that disappear within 24 hours. The features proved to be so addictive that parent company Facebook added similar functionality to WhatsApp, Messenger, and Facebook. Some critics have observed that, with Stories, Instagram was simply copying Snapchat. Systrom disagrees. To him, execution trumps originality. Stories “clearly pro- vides unique value to people that they’re not getting elsewhere,” he says.

The music industry’s embrace of Instagram and Stories illus- trates Systrom’s point. Musicians and bands of all types—from global superstars like Adele and Beyoncé to indie artists seeking to break through—are using the platform to connect with fans in an organic way. According to Nielsen, Instagram users spend more time listening to music and are likely to pay for streaming music services than nonus- ers. Artists use Stories and Live to announce new releases and tours, and to provide behind-the-scenes looks at the creative process. Popular posts can quickly go viral, allowing record companies and the artists themselves to see the impact on music sales.

Sources: John Paul Titlow, “How Instagram Became the Music Industry’s Secret Weapon,” Fast Company (September 29, 2017); Deepa Seetharaman, “A Copy- cat? No, Call It Competition,” The Wall Street Journal (May 31, 2017), p. B5; Deepa Seetharaman, “‘Efficiency Guru’ Sharpens Instagram,” The Wall Street Journal (April 14, 2017), p. B4; Deepa Seetharaman Natalie Whittle, “A Square Meal: How Restau- rants Are Courting the Instagram Crowd,” FT Magazine (April 7, 2017); Alexandra Wolfe, “Weekend Confidential: Kevin Systrom,” The Wall Street Journal (July 2–3, 2016), p. C11; Hannah Kuchler, “Snap Happy: Instagram Rolls out Carpet for Fashion Brands,” Financial Times—FT Special Report: The Business of Luxury (May 23, 2016), p. 2; Murad Ahmed, “The Camera-Shy Half of Instagram’s Founding Duo,” Financial Times (November 24, 2015), p. 10.

ENTREPRENEURIAL LEADERSHIP, CREATIVE THINKING, AND THE GLOBAL STARTUP

Kevin Systrom and Mike Krieger, Instagram

Exhibit 1-9 Stanford University graduates Kevin Systrom and Mike Krieger are Instagram's co-founders.

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90 PART 2 • THE GLOBAL MARKETING ENVIRONMENT

Exhibit 3-8 GNH (gross national happiness), rather than GNP (gross national product), guides policy in Bhutan. Some critics argue that promoting happiness in the Himalayan state has resulted in some negative consequences. For example, the emphasis on the Buddhist culture shared by the majority of the population has caused resentment among the Nepalese minority living in the south.

When Britain’s Prince William visited Bhutan in 2016 with his wife Catherine, the Duchess of Cambridge, the world got a rare glimpse into a country that has been called the “forbidden kingdom.” Why “for- bidden?” For one thing, the country’s leaders limit tourism; only about 57,000 foreign visitors traveled to Bhutan in 2015. One hopes that the royal couple were able to glean some insights into their host country’s secret regarding happiness.

Bhutan is a kingdom of 754,000 people in the Himalaya Mountains (see Exhibit 3-8). Per capita GNI is approximately $2,330; using this fig- ure as a metric, Bhutan is included in the ranks of lower-middle-income nations. However, for the past several decades, Bhutan has relied on another measure besides economic growth to assess its success—namely, gross national happiness (GNH).

It has been argued that indicators such as GDP and GNI per capita are inadequate when explaining a nation’s well-being. For example, China’s GDP has doubled twice since 1990, yet ordinary Chinese citi- zens do not appear any happier today than they were when the coun- try’s leaders began transitioning to a free market economy. If increased income and consumption don’t correlate with happiness, then what does? According to some economists and policymakers, supplemental indicators that measure factors such as social progress, quality of life, and sustainability are needed.