Global Marketing and R&D
1 Explain why it might make sense to vary the attributes of a product from country to country.
2 Recognize why and how a firm’s distribution strategy might vary among countries.
3 Identify why and how advertising and promotional strategies might vary among countries.
4 Explain why and how a firm’s pricing strategy might vary among countries.
5 Describe how the globalization of the world economy is affecting new-product development within the international business firm.
opening case Burberry’s Global Brand Strategy
Burberry, the icon British luxury apparel retailer famed for its trench coats and plaid patterned accessories, has been on a roll in recent years. In the late 1990s, one critic described Burberry as “an outdated business with a fashion cache of almost zero.” By 2012, Burberry was widely recognized as one of the planet’s premier luxury brands with a strong presence in many of the world’s richest cities, more than 560 retail stores, and revenues in excess of $2.2 billion.
Two successive American CEOs have been behind Burberry’s transformation. The first, Rose Marie Bravo, joined the company in 1997 from Saks Fifth Avenue. Bravo saw immense hidden value in the Burberry brand. One of her first moves was to hire world-class designers to reenergize the brand. The company also shifted its orientation toward a younger hipper demographic, perhaps best exemplified by the ads featuring supermodel Kate Moss that helped to reposition the brand. By the time Bravo retired in 2006, she had transformed Burberry into what one commentator called an “achingly hip,” high-end fashion brand whose raincoats, clothes, handbags, and other accessories were must-have items for younger, well-healed, fashion-conscious consumers worldwide.
Bravo was succeeded by Angela Ahrendts, whose career had taken her from a small town in Indiana and a degree at Ball State University, through Warnaco and Liz Claiborne, to become the CEO of Burberry at age 46. Ahrendts realized that for all of Bravo’s success, Burberry still faced significant problems. The company had long pursued a licensing strategy, allowing partners in other countries to design and sell their own offerings under the Burberry label. This lack of control over the offering was hurting its brand equity. The Spanish partner, for example, was selling casual wear that bore no relationship to what was being designed in London. So long as this state of affairs continued, Burberry would struggle to build a unified global brand.
Ahrendts’s solution was to start acquiring partners and/or buying licensing rights back in order to regain control over the brand. Hand in hand with this, she pushed for an aggressive expansion of the company’s retail store strategy. The company’s core demographics under Ahrendts remained the well-healed, younger, fashion-conscious set. To reach this demographic, Burberry has focused on 25 of the world’s wealthier cities. Key markets include New York, London, and Beijing, which according to Burberry, account for more than half of the global luxury fashion trade. As a result of this strategy, the number of retail stores increased from 211 in 2007 to 563 in 2011.
Another aspect of Burberry’s strategy has been to embrace digital marketing tools to reach its tech-savvy customer base. Indeed, there are few luxury brand companies that have utilized digital technology as aggressively as Burberry. Burberry has simulcast its runway shows in 3-D in New York, Los Angeles, Dubai, Paris, and Tokyo. Viewers at home can stream the shows over the Internet and post comments in real time. Outerwear and bags are made available through a “click and buy” technology, with delivery several months before they reach the stores. Burberry had more than 10 million Facebook fans as of early 2012. At “The Art of the Trench,” a company-run social media site, people can submit photos of themselves in the company’s icon rainwear.
The global marketing strategy seems to be working. Between 2007 and 2011, revenues at Burberry increased from £859 million to £1,501 million, and this against the background of a global economic slowdown. Over the same period, retail sales increased from 48 percent of the total to 64 percent of the total. By March 2012, 72 percent of Burberry’s sales came through retail establishments. •
Sources: Nancy Hass, “Earning Her Stripes,” The Wall Street Journal, September 9, 2010; “Burberry Shines as Aquascutum Fades,” The Wall Street Journal, April 17, 2010; Peter Evans, “Burberry Sales Ease from Blistering Pace,” The Wall Street Journal, April 17, 2010; and “Burberry Case Study,” Market Line, www.marketline.com, January 2012.
The previous chapter looked at the roles of global production and logistics in an international business. This chapter continues our focus on specific business functions by examining the roles of marketing and research and development (R&D) in an international business. We focus on how marketing and R&D can be performed so they will reduce the costs of value creation and add value by better serving customer needs.
In Chapter 12, we spoke of the tension existing in most international businesses between the need to reduce costs and, at the same time, respond to local conditions, which tends to raise costs. This tension continues to be a persistent theme in this chapter. A global marketing strategy that views the world’s consumers as similar in their tastes and preferences is consistent with the mass production of a standardized output. By mass-producing a standardized output, whether it be soap, semiconductor chips, or high-end apparel, the firm can realize substantial unit cost reductions from experience curve and other economies of scale. However, ignoring country differences in consumer tastes and preferences can lead to failure. Thus, an international business’s marketing function needs to determine when product standardization is appropriate and when it is not, and to adjust the marketing strategy accordingly. Even if product standardization is appropriate, the way in which a product is positioned in a market and the promotions and messages used to sell that product may still have to be customized so that they resonate with local consumers.
As described in the opening case, the luxury fashion retailer Burberry has been dealing with these issues. Burberry’s core demographic has been the affluent, younger, fashion-conscious set. Burberry has come to view this demographic as sharing a lot of the same tastes and preferences worldwide. Accordingly, it has devoted considerable attention to building a unified global brand with a consistent marketing message and the same product offering worldwide. As part of this strategy, Burberry has bought back licensing rights from partners around the world in order to regain control over its brand, and it has aggressively expanded its own retail presence in many of the world’s richer cities, where the company’s core target demographic lives. The global marketing strategy has worked for Burberry, but it might not work for others. It depends on the extent to which consumer tastes and preferences are homogenous, and as we will see, they are often not.
We consider marketing and R&D within the same chapter because of their close relationship. A critical aspect of the marketing function is identifying gaps in the market so that the firm can develop new products to fill those gaps. Developing new products requires R&D—thus, the linkage between marketing and R&D. A firm should develop new products with market needs in mind, and only marketing can define those needs for R&D personnel. Also, only marketing can tell R&D whether to produce globally standardized or locally customized products. Research has long maintained that a major contributor to the success of new-product introductions is a close relationship between marketing and R&D.1
In this chapter, we begin by reviewing the debate on the globalization of markets. Then, we discuss the issue of market segmentation. Next, we look at four elements that constitute a firm’s marketing mix: product attributes, distribution strategy, communication strategy, and pricing strategy. The marketing mix is the set of choices the firm offers to its targeted markets. Many firms vary their marketing mix from country to country, depending on differences in national culture, economic development, product standards, distribution channels, and so on.