Chapter

10
Local Marketing
in Emerging Markets

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved

 Outline
Basic Marketing in Emerging Markets
NDCs vs Developing Countries
Marketing in Developing Countries
Marketing in Russia
Marketing in China
Marketing in India
Takeaway.
 Marketing in Emerging Markets
ESSENTIALLY, EMERGING MARKETS DO NOT
USUALLY HAVE AN EFFECTIVE MARKETING
INFRASTRUCTURE.
IN THE OLD SYSTEM, ESPECIALLY IN NEWLY
DEMOCRATIZED COUNTRIES, THERE WAS MUCH MORE
VALUE PLACED ON PRODUCTION AND ON INDUSTRIAL
PRODUCTS TO THE NEGLECT OF CONSUMER PRODUCTS
AND EFFECTIVE DISTRIBUTION SYSTEMS.
THESE DIFFICIENCIES MAKE IT DIFFICULT TO BE A
LOCAL MARKETER IN AN NDC.
 Marketing Infrastructure
THE LOCAL MARKETER MUST DETERMINE
WHAT FUNCTIONS CAN BE PERFORMED BY EXISTING
CHANNELS OF DISTRIBUTION AND, IF NEED BE,
CREATE NEW ONES.
THE LOCAL MARKETER HAS TO ADAPT HIS
PRODUCT TO LOCAL STANDARDS, EX. BATTERY
OPERATED APPLIANCES.
SOMETIMES, THE FIRM’S VALUE CHAIN HAS TO
BE RECONFIGURED. FOR EXAMPLE, IF THE REQUIRED
KNOW-HOW IS NOT AVAILABLE, THE MARKETER MUST
CREATE A SERVICE NETWORK AND TRAIN THE
SERVICE STAFF.
 “Professor” Marketer

 IN EMERGING MARKETS, THE ENTERING LOCAL MARKETER

NEEDS TO BE A TEACHER AS WELL AS A BUSINESS PERSON.
A LOCAL MARKETER NEEDS TO:
 1. DEVELOP TRAINING PROGRAMS FOR STORE
PERSONNEL, FOCUSING ON CUSTOMER SERVICE.
 2. PREPARE MANUALS AND PAMPHLETS DESCRIBING
PRODUCTS AND SERVICES AND HELP MIDDLEMEN DEVELOP
FACILITIES, INVENTORY, SHIPMENT, SHELVING
PROCEDURES FOR THE PRODUCT.
 “Professor” Marketer

 3. HELP MIDDLEMEN DEVELOP A TRACKING AND COST

ACCOUNTING SYSTEM.
 4. MAKE SURE THAT PRODUCT LOCALIZATION IN TERMS OF
DESIGN AND PACKAGING ALSO TAKES INTO ACCOUNT THE
NEEDS OF THE MIDDLEMEN.
 5. DISTRIBUTE INSTRUCTIONAL VIDEOS AND OTHER
EDUCATIONAL MATERIAL TO MEMBERS OF THE DISTRIBUTION
CHANNEL, EXPLAINING THE IMPORTANCE OF CUSTOMERS IN
THE FREE MARKET SYSTEM AND IMPORTANCE OF MARKETING.
Consumers in Emerging Markets
Buyer Decision Problems in Emerging Markets

 1. LACK OF CASH AND HARD CURRENCY

 2. USED TO FEW ALTERNATIVES
 3. LACK OF KNOWLEDGE
 4. STEREOTYPICAL EVALUATION
 5. KNOW MAINLY WHAT THEY DON’T WANT
 6. SUSPICION OF THE TRADE
 7. DOUBTS ABOUT ADVERTISING CLAIMS
 8. UNACCUSTOMED TO FREE CHOICE AND HANDLING
COGNITIVE DISSONANCE
Two Kinds of Emerging Markets
NEWLY DEMOCRATIZED COUNTRIES VS.
DEVELOPING MARKETS (B2-4B)

NDC MARKETS DEVELOPING COUNTRIES

Russia & the newly
democratized post-
communist nations,
China
Poor nations of Africa
(Nigeria, Zambia, Tanzania),
Asia (Pakistan, India,
Vietnam), & Central
America (Nicaragua,
Guatemala).

Both are defined primarily by low per capita income levels &
severe lack of marketing infrastructure
 Why NDC Markets Are Different
3 SPECIAL FEATURES OF NEWLY DEMOCRATIZED COUNTRIES

• BASIC NEEDS WERE SATISFIED: ESSENTIALLY, NO ONE WAS

GOING WITHOUT FOOD, SHELTER, CLOTHING AND OTHER
BASIC ITEMS.
• EDUCATION AND SOCIAL CONTROL: A GOOD, SOLID BASIC
EDUCATION WAS PROVIDED, ALONG WITH SOCIAL CONTROL
AND A SECURE LIFE.
• NO FREE MARKET: THERE IS A LACK OF UNDERSTANDING
OF THE CONCEPT OF A FREE MARKET ECONOMY.
Marketing in Developing Countries:
MSPP
MARKET SEGMENTATION

• Income level represents the basic segmentation criterion

• Market for upper-end status products often lucrative due to
uneven income distribution
• Effective income measure is defined in terms of access to
foreign or convertible currency
• Most promising market is the urban population of big cities
PRODUCT POSITIONING

• Customer needs are basic

• Domestic alternatives are weak
• Upscale positioning can play an important role
Marketing in Developing Countries:
The 4Ps
PRODUCT
• Initial
offerings are usually
standardized simpler selections
from existing lines
• Limited features make it
possible to sell through low-
service outlets
• Smaller sizes/smaller
packaging
PRICING
• Policies
are dominated by the
balance between affordability
& upper end positioning
• Pricing fluctuates between a
skimming price and a lower
penetration price
• Innovative financing:
communal buyers, smaller
packaging that’s less
expensive, store credit
Marketing in Developing Countries:
The 4Ps (cont’d)
DISTRIBUTION
• Most critical issue
• Cheap domestic labor offers
alternative routes for
distribution
• Personal service is a
“convenience good”
• Weak logistics systems make
it difficult for marketing
organization & control.
PROMOTION
• Initially
limited due to lack of
broadcast media
• Although limited, this means
there will be less clutter
• Literacy levels differ from
more developed nations,
promotions must be more
visual versus verbal
Marketing in Russia
 Marketing in Russia
MARKET BACKGROUND

•Russia is a large
geographical country,
surrounded by previous
Soviet member states, now
independent but still
economically linked,
including Belarus, Ukraine
and Kazakhstan.
 Marketing in Russia
MARKET BACKGROUND (CONT’D)

•The economy of Russia and its role in the global economy

is very dependent on its hard currency oil export revenues.
•Russia’spopulation was 145 million in 2003 – but is
estimated to be decreasing by about half a percent each
year, unusual among countries.
•Russia as a market has great potential – but political
uncertainty makes it a difficult market to operate in.
 Marketing in Russia

POLITICAL & LEGAL FACTORS

• Assistance from international agencies plays an important role

in economic progress, but the government policies have made
such assistance difficult to render
• It is necessary to treat centralizing and authoritarian political
and legal forces as integral parts of the economic landscape
and obstacles to exploiting the large market potential
• Export controls at home can also a problem area for the
Western marketer
• Politics influences peoples’ attitude toward the free market
system
Marketing in Russia: MSPP
MARKET SEGMENTATION

• Based on ethnicity
• National borders can be less important than
ethnicity.
• Western-oriented younger segments.
PRODUCT POSITIONING

• High-end positioning may yield first mover

advantage
• Low-end positioning places firm in direct
competition with strong domestic brands
 Lifestyle Segmentation in Russia
Kuptsi Business “Russian
(merchants) Cossacks Students executives souls”

Percent of 30% 10% 10% 25% 25%

men
Percent of 45% 10% 5% 10% 30%
women
Dominant Reliant, Ambitious, Passive, Ambitious, Passive, follows
traits nationalistic, independent, scraping by, Western others, fears
practical, nationalistic, idealistic, oriented, choices, hopeful
seeks value seeks status practical busy,
concerned
with status
Likely Car:
preferences Volkswagen BMW 2CV Mercedes Lada
Cigarettes:
Chesterfield Dunhill Marlboro Winston Marlboro
Liquor:
Stolichnaya Remy Martin Local vodka Johnnie Smirnoff
in Smirnoff Walker
bottles
 Marketing in Russia: The 4Ps
PRODUCT
•Customers initially feel
ambivalent about their domestic
products
•But as domestic producers
improve quality, gradually a pro-
domestic sentiment sets in
PRICING
•Entering global brands will be
able to command a price
premium over existing local
brands
•Long-term prospects of these
markets matter much more than
short-term payoffs
Marketing in Russia: The 4Ps (cont’d)
DISTRIBUTION PROMOTION
• Weak infrastructure •Marketing communications
• Marketing education often have to be revised

• Service training
•Common advertising media
may not be available or may
have only limited reach
•Lack of credibility of
advertising claims is a problem
•Old values can crumble along
with the political system
 Marketing in Russia
2005: RUSSIA AT THE CROSSROADS

• Despite an abundance of natural resources & a highly educated

labor force, progress is slow due to corruption, mismanagement &
centralization
• Development is skewed, prioritizing heavy industry over
consumer goods & agriculture
• Large income disparities make people doubt democracy
• Prospect of WTO membership in 2006 questionable
• Ruble devalued - Barter-style economy prevalent in some parts of
the country
• Internal political problems, including terrorism.
Marketing in China
 Marketing in China
MARKET BACKGROUND

• China has 1.2 billion

people, largest country in
the world.
• It has become the new
economic superpower in
Asia, challenging the pre-
eminence of Japan.
 Marketing in China
MARKET BACKGROUND (CONT’D)

• In 2001, China overtook Italy to become 6th largest

world economy
• The growth rate of the economy has been around
10% annually for the last several years.
• China became a WTO member in December 2001
• The policy towards Hong Kong, its new territory
since the 1997 takeover, has been relatively "hands-
off.“
 Marketing in China

ENTRY BARRIERS

• Import license controls – the Ministry of Foreign Trade &

Economic Cooperation (MOFTEC) is the main regulatory
organization
• Protective tariffs – with WTO entry, tariff reduction gradually in
place
• Foreign exchange control – new exchange rate system since
1994
 Marketing in China

TRADE REGIONS

• SPECIAL ECONOMIC ZONES (SEZ’s) to attract foreign investment in

production for export
• These areas are Shenzen, Zhuhai, Shantou, Xiamen, Hainen, &
Pudong New Area in Shanghai
• Corporate tax rate in SEZs is only 15% versus 33% national rate
• Some zones have additional tax exemptions
• Piracy and counterfeits still prevalent
 Marketing in China

HONG KONG’S ROLE

• HK handover had little impact on economic policy – so far.

• Many western firms enter China through HK, where sophisticated
HK trading companies are familiar with western business
practices
• Joint ventures with Chinese partners usually done through HK
intermediaries.
• Gradually, however, as more experience is gained, Western
companies are moving beyond Hong Kong, dealing with mainland
China directly.
 Marketing in China: MSPP
MARKET SEGMENTATION

• Geographic region. E.g. four regions: Eastern China (with Shanghai

as the center), Northern China (Beijing the center), Southern China
(with Guangzhou as the center) and Western China (with Chengdu as
the center).
• Languages & dialects, food and drink preferences, and even ethnic
roots vary across the regions.
• Urban/rural split in the typical emerging market pattern, weak
infrastructure in rural areas.
• Emerging middle class, rise in per capita income most rapid in
Shanghai, Beijing, Guangzhou
 Marketing in China: MSPP
MARKET SEGMENTATION (cont’d)

• Chinese talk about "Four big things" (shi da zen), the four products
everyone aspires to. In the 1970s, they were a bicycle, a black &
white television set, a refrigerator, and a washing machine. In the
1990s they have become a video camera, a CD hi-fi system, a
personal computer, and an air conditioner.

• Teenagers/college age people represent the Chinese version of the

global youth segment.
Marketing in China: MSPP (cont’d)
PRODUCT POSITIONING

• Globalbrands confer status. Domestic products still suffer from

negative image.
• Need to accommodate translation of brand names. Coca Cola
had to change its original transliteration from one meaning "dry
mouth full of wax" to one signifying "happiness in the mouth"
when read and spoken.
• Foreign competition in sales promotion, after-sale service,
product delivery, and price.
• Quality differences between foreign companies are perceived as
small.
• Consumers are brand loyal, making for definite first-mover
advantages.
 Marketing in China: The 4Ps
PRODUCT POLICIES
• Qualitygap between foreign &
local products still large
• High tariffs make it hard for
foreign brands to compete with
lower quality domestic brands
• For most Chinese, acquiring
foreign made products are a
novel experience
PRICING
• Chinese are very price-
sensitive consumers (due to
low income and due to habit)
• Prices still high for imported
products
• Low priced- products have
an inherently assumed low
quality
Marketing in China: The 4Ps (cont’d)
DISTRIBUTION
• National
product roll-outs close
to impossible due to large size
and weak infrastructure
• Most channels are government
run
• Most department stores are
state-owned
• Personal contacts (guanxi) play
an important role in transactions
PROMOTION
• Advertising still strictly
controlled by government
• Media penetration is weak (e.g.
TV)
• Advertised products are not
considered counterfeit
• Print & outdoor ads & in-store
promotions play a large role
Service in the new China: Outlawed comments

• If you don’t like it, go somewhere else.

• Ask someone else.
• Take a taxi if you don’t like the bus.
• I don’t care whom you complain to.
• If you’re not buying, what are you looking at?
• Buy it if you can afford it, otherwise get out of here.
• Are you buying or not? Have you made up your mind?
• Don’t you see I’m busy? What’s the hurry?
• I just told you. Why are you asking again?
• Why didn’t you choose well when you bought it? Go ask the person
who sold it to you.
Marketing in India
 Marketing in India
MARKET BACKGROUND

• Closeto 1 billion citizens. British

colony until 1947. The world's largest
democracy.
• Religious and ethnic violence. High
political risk, with religious rifts and
Pakistan problem.
• During the 1990s socialist policies
and government controls are gradually
giving way to privatization and free
markets.
 Marketing in India
MARKET BACKGROUND (cont’d)

•Excellent educational system introduced by the British.

•By 2000, the annual growth rate was a strong 6.5%. Western
outsourcing FDI very strong.

• With liberalization, foreign firms enter via FDI, usually as a joint

venture with local partners who better understand the marketplace.

• Domestic firms are forced to become more efficient, and can draw
upon a large and well educated pool of workers.
 Marketing in India: MSPP
MARKET SEGMENTATION PRODUCT POSITIONING

• Twolarge segments: an • Exposure to new products &

impoverished rural population services has increased the
and an increasingly well-off appetite for further purchases
urban middle class.
• Consumers are more
• Huge metropolitan markets, demanding
increased purchasing power,
• Products are bought for
family planning and women
status
working.
• Firms being forced to
• Traditional habits are
become more efficient as the
changing as the middle class
economic liberalization
becomes more Westernized.
continues
 Marketing in India: The 4Ps
PRODUCT POLICIES
• With increasing maturity, the
market can support a full line
of products also from foreign
firms.
• First-mover effects are
significant, favoring
multinationals which are "old
India hands."
PRICING
• Global brands can no longer
count on an automatic price
premium.
• Middle-income group of
consumers are price
sensitive.
• Price level is especially
important when brand name is
less known. Some MNC’s
acquire and use well
established local brands.
Marketing in India: The 4Ps (cont’d)
DISTRIBUTION
• Infrastructureis still weak in
a vast country. Entering
companies are assisting with
structural improvements.
• Urban distribution channels
are becoming more efficient.
Capacity is expanded.
PROMOTION
• Advertising agencies are
booming.
• Global advertising
campaigns are adapted to
meet local Indian tastes and
localized to India's many
dialects.
• TV advertising very popular,
but print and outdoor are
more cost effective.
 Takeaways

To take advantage of the opportunities in emerging markets,

the marketer needs to get back to the basics of what
marketing is supposed to bring to people.
 Takeaways

Emerging countries are usually characterized by political

uncertainty, and direct foreign investment can be very risky.

It is useful to distinguish between the newly democratized

countries that were part of the Soviet sphere of influence -
where education was strong but free markets did not exist -
and the typical developing countries which are defined mostly
by poverty.
 Takeaways

A functioning marketing infrastructure, especially an effective

distribution, is crucial in emerging markets.

When one is lacking, the local marketing effort has to help

build it.
 Takeaways

The political heritage of the newly democratized countries

means that middlemen & consumers have a very ambivalent
feeling about free markets.

They may expect too much while not wanting to accept the
uncertainties that free markets bring.

The local marketer from abroad becomes an educator about

free markets.
 Takeaways

Emerging markets are not all the same and do not even
necessarily move in tandem.
For example, in the new millennium as Russia has faltered,
China & India still more than hold their own.