Adapting Global Marketing Strategies To The Indian Context

Adapting Global Marketing Strategies To The Indian Context In this report, we look at how the global marketing strategies should be adopted to suit the Indian Customers. We initially look at the Global marketing strategies which can help the marketing managers to boost their sales in different parts of the world. In these strategies, the report covers various aspects of the marketing mix like product, promotion, price, branding, distribution etc. Then the report explains about our country India in terms of its demographics, Culture, Rural/Urban Divide, the decision makers etc and covers the aspects which differentiate our country from the rest of the world. Then the report explains how the global marketing strategies should be adopted to the Indian context with respect to the global marketing strategies which was explained initially. Then the report takes the case study of HUL and how it has modified the marketing strategy to suit the Indian needs and the report critically analyzes the strategies adopted by HUL. Introduction This study examines the global marketing strategies and how those strategies should be adapted to the Indian customers. Then we take the case study of HUL and critically analyze the strategies which it followed. As Prospective future managers of Multi National FMCG Companies operating in India, we might often have to tackle situations where we have to adopt their marketing strategies to India. This study would be of help to the budding managers to prepare themselves to tackle the marketing challenges which they might face in their careers. HUL being one of the multinational companies which has been present in India for a long time and which has been able to capture the minds of each and every Indian serves as the perfect case study to analyze the marketing strategies followed by an MNC in India. In this report, we would be analyzing the strategies of HUL and critically analyze the marketing strategies which they adopted in India. Methodology Our study The Adaptation of Global Marketing Strategies to the Indian Context essentially has the following major parts to it: Understanding the Marketing strategies that firms undertake when they expand Globally: The Marketing Mix Consideration of Local factors (Political, Economic, Social etc) The considered differences from the domestic strategy Understanding the Target market i.e. India The Situation (Conditions Suitable/Unsuitable for marketing) Demography Evaluating the Potential Economic Status Identifying the major buyers (Middle Class in the Indian context) Understanding the specifics: How the Indian market is different and how differently do the consumers behave Combination: Going through the above 2 steps and finding out how to incorporate the Indian specifics within a companys marketing strategy while in international expansion phase A case study of Unilever: To substantiate our study we did a case study on Unilever to find out what Unilever did right and wrong in its Indian subsidiary: HUL ANALYSIS Marketing Globally In whichever part of the world a company operates, the objective of marketing is to create, communicate and deliver value to the customers. But the methodology by which this process is carried out should be adapted to the country in which the company operates to market the product effectively to the customers. It is imperative for any Global marketing manager to feel and touch the hearts of the local customers to make his/her brands a success in the country in which the company operates. In this section, we describe the various marketing strategies which can be employed for Global Marketing and then we will analyze how various elements of the marketing mix like Product, pricing, promotion, Branding and distribution should be fine tuned to suit various geographies/countries. Global marketing Strategies The application of various Marketing Strategies will depend upon the orientation of the company towards a particular market. i.e., how the firm views a particular market. The various marketing orientations are explained below followed by various ways to segment the markets internationally. Orientations The various orientations can be classified as A Chinese Coke Bill Board: Notice the use of Chinese language and ActorsProduction orientation wherein the company focuses on maximizing the efficiency or quality of the product with very little spend on marketing, E.g. commodities like oil etc Sales orientation wherein a firm sells abroad what it sells in the domestic market. E.g. products like laptops, Tennis rackets etc Customer Orientation wherein the company modifies its product as well as marketing strategies to suit the customers needs. E.g. Mac Donalds made modifications in its product line in India to suit the preferences of the Indian Customer. Strategic Orientation which combines all the above mentioned orientations. Here the Marketing managers make slight modifications to their core product or marketing strategy without deviating from their expertise. E.g., A Pantene Sachet is made to suit the customers in developing countries even though the core product, shampoo remains the same. Segmentation There are basically three approaches to segmentation which are mentioned below By Country: A firm may first select a country based on certain parameters like GDP growth, Per capita consumption etc and then decide upon which segments to target in the particular country and decide upon the marketing mix and the promotional strategies to target those segments By Segment: In this case, the company would look at the global customers as a whole and then segment them. After segmenting, the company would choose to enter those countries which has a substantial number of customers in that segment By Country and segment: In this case, the company would find out the multiple segments within all the countries, find out the similar segments in multiple countries which can be targeted and enter the countries in which the segments which can be targeted exist. Product Often in many cases, when a company introduces its product in a foreign market, it would have to make modifications in its products for various reasons some of which are listed below. Legal/Environmental standards Often Legal/Environmental requirements forces companies to make alteration in its products to suit a particular country. For e.g., Environment Safety standards set by some countries for automobiles make it necessary for any firm willing to enter into those countries to make necessary changes in their products. Packaging requirements Pepsi Bottles in Japan. Notice the unique flavors and shape to suit Japanese CustomersSome countries might have some rules which insist on displaying warning information as in the case of cigarettes or detailed information of the contents in case of food products. This might force companies to use different countries. Language also could force companies to use different packaging for different countries. Social/Cultural Considerations Often companies would have to make minor modifications in the product for various countries to accommodate the social and cultural preferences of the country. For e.g, it is said The japanese eat with their eyes. So many firms improves the aesthetic dimension in their food products to attract Japanese customers. Economic Considerations Economic considerations like Income, Infrastructure etc forces companies to make changes in their product. For e.g, Nokia made some models meant for the developing countries to suit their rugged terrains. Decision on Product Alteration To decide whether a product should be altered for a particular country or not, the company should estimate the incremental profit which can be bought in by product alterations and the cost involved in alterations. If the incremental profit is higher than the cost involved, the company should go for the product alteration. Global Pricing Strategies Pricing, One of the elements of the marketing mix is very essential to ensure that it can generate sufficient sales for the company and able to provide sufficient margins for the company. When compared to pricing a product domestically, International pricing is much more complex due to the following factors Government Regulations: Government regulations like Tariffs, Quota, Price Ceiling and Floors makes it difficult for firms to price a product uniformly across the globe. Market Diversity: The diversity of markets among various countries can be taken advantage of to price a product at a premium in some markets. For e.g., Gold Jewellery is much admired in India than in other parts of the world and hence can be sold at a premium. Price Escalation due to Exports: When a company exports a product to another country, various costs like shipping costs, customs duty etc might result in escalation of costs. To retain the price competency, the company might have to sell its products to the intermediaries at a lower cost. Forex Volatility: When a firm sells its products abroad, it is exposed to the risk of the foreign currency losing its value in future. In a monopolistic market, the firm can manage the volatility by increasing the prices in such cases. But in highly competitive markets, firms should go for currency derivatives to manage the currency risk. Pricing Strategies In pricing a product, the company should take into account the competitive scenario in the target market. If its less competitive, the firm can have much discretion in setting prices. It can use the following strategies in such market Skimming strategy: This strategy involves charging a high price for the product to target the customers willing to pay the premium and then lowering the price over the time. Penetration strategy: This strategy involves introducing the product at a low price to penetrate the market Cost-plus strategy: This involves pricing the product at a particular price so as to maintain a desirable margin. Pricing should also take into account the stereo types customers have about products originating from certain countries. For e,g a German Car would be able to command a premium which a car manufacturer from a developing country would not be able to. Firms should also ensure that the price difference between two countries should not be higher than the cost involved in bringing the product to the higher priced country from the lower priced country as a spillover might occur otherwise. Global Promotion Strategies Promotion refers to the communication of messages intended to increase the sales of the product. In the case of Global promotion, managers often have to decide on the following strategies Push/Pull Strategy A push strategy refers to promoting the product by using direct selling strategies like distributing brochures, promotion via salesman, promotion at mass gatherings by distributing free samples. A Pull strategy refers to promotion by using the medium like newspaper, television, magazines etc. The decision of push/pull should be made taking into account various factors like the reach of mass media like TV, how educated the customers are and the distribution network. Higher spend on pull strategy is recommended when the reach of the mass media is high and the customers are well educated. Higher spend on push strategy is recommended in countries where the distribution network is well developed, customers are not highly educated and the reach of mass media is less. It is always advisable to go for a mix of both strategies. Standardization Vs Localization In many of the ads, some amount of localization would be required for various countries as the languages and the culture differs between countries. But at the same time, firms should ensure that it doesnt create confusion in the minds of the customers by portraying itself differently in different countries. It is preferable to localize the constituents of promotion like language, actors etc but it is preferable to keep the theme consistent across countries. The firms can also use some mediums like product placement in Hollywood movies to effectively promote the brand across the entire globe in an effective manner. For e.g. the recent movie Iron Man 2 featured an assortment of 54 brands in it. The firms should also consider the legality and the culture of the country into account when designing ads. For e.g. display of nudity or violence will not go well with all cultures and governments. Global Branding Strategies Product Placement of Honey Puffs in the movie Kick Ass released in 2010A Brand represents an identifying mark for products or services of a company. Consumers develop a perception about various brands and the firms can use this brand perception of the customers to their advantage. But in international marketing, linguistic issues as well as cultural issues can make it difficult for firms to maintain a uniform brand identity throughout the globe. For e.g. some of the brand names might resemble abusive words in certain languages which might force the firms to tweak their brand names to suit the local customer. Also in case of acquisitions, the acquiring company might choose to go by the domestic brand identity to retain the goodwill which was created over the years. E.g. Citibank after the acquisition of Banamex in Mexico decided to retain the brand identity of Banamex which proved to be a successful strategy. International Distribution Strategies A company can benefit from a great product and a great marketing campaign to support the product only if there is a good distribution system in place to make the product available to the customer. A firm might either go for standardizing or localizing the distribution system in different countries. But standardization would work only in those countries where the distribution structure is similar. Else, a localized distribution system is preferred. For e.g. In Developed countries most of the FMCG sales would happen via big retail chains whereas in developing countries, small kirana stores play a critical role in distributing the products to the nook and corner of the country. In International distribution, most firms also have to make the decision of whether to outsource distribution or do it on its own. The following guidelines should be followed for making the decision on outsourcing distribution Political Stability: When entering a country where political stability is less, it would be advisable to outsource distribution rather than investing in own distribution network Product Characteristics: In the case of complex or high technology products which require good after sales service, it is desirable to have the firms own distribution network. When planning to enter a country, the firms should also take into account the hidden costs involved in distribution like the infrastructure of the country, the number of distribution levels, inefficiencies in retail networks, inventory stock outs etc. Gap Analysis Gap AnalysisAfter entering a country, if a company finds it not being able to achieve the expected sales, it can use Gap Analysis to take corrective actions necessary to improve its sales. The Company should first estimate the market potential for its products which is represented by the total height of all the boxes. The height till point X represents the actual sales of all the firms combined. The bottom most box represent the companys current sales. The difference between X and Y represents the sales lost to competitors. Usage gap represents the difference between the sales potential and the actual sales of the product. If the usage gap is high, the company can improve its sales by making the public more aware of the product in general. The Distribution gap represents the sales lost to its competitors because the firm is not able to distribute in certain locations which is serviced by its competitors. If the distribution gap is high, the company can improve its sales by widening its distribution network. The product line gap represents the sales lost to its competitors because the competitors are able to come up with product variations which the company unable to. This gap can be closed by investing in R D, understanding the customer needs and promoting innovation in its local organization. Finally, Competitive gap is the loss in sales which cannot be explained due to the other two reasons. This could be because the competitors have better marketing campaigns, has better good will or is able to sell it at a lower price. Investing in marketing promotions and lowering prices would be of help in closing this gap. The Indian Context Quick Facts India An Overview A population in excess of 1 billion The 4th largest economy in the world in terms of Purchasing Power Parity (PPP) The largest democracy with a stable government An independent judiciary system Plentiful natural Resources A private sector that can return significant gains on foreign direct investment Strong Entrepreneurship interest among Indians World class quality products across domains India An Overview A population in excess of 1 billion The 4th largest economy in the world in terms of Purchasing Power Parity (PPP) The largest democracy with a stable government An independent judiciary system Plentiful natural Resources A private sector that can return significant gains on foreign direct investment Strong Entrepreneurship interest among Indians World class quality products across domains India on the Upsurge Indias huge population: A Huge Market as well? Figure 1 India PopulationIndia, with a population of 1.14 billion people (According to World Bank estimates), is the second most populated country in the world. This huge population means a huge market size for most multinational firms wishing to expand its operations in India. This however, has only partial merit. Though the number of people living in the country is large, we have to consider other factors as well. Only 64% of the people are in the age group 15-64. This makes this group the only active buyers. There are other factors which need to be looked at as well, when evaluating a potential market: The Purchasing Power of the inhabitants, their buying thought process and educational status etc. Nevertheless, India, in spite of all these factors, still provides a huge market place for firms to sell their products in. Literacy Rates: The Educated Buyer Literacy rates in India are rising as can be seen from the figure. India is striving hard to provide good education to children. Setting up premier educational institutes like the IIMs, IITs and NITs has given an impetus to the education levels in the nation. Kerala has become the first state to achieve 100% literacy. Indian scholars have achieved a name for themselves globally. Figure 2 India Literacy Rates (%)We can therefore say that though a lot still needs to be done in the educational sphere, India is well on its way to claim a strong position in international terms. The impact that education has on consumer behaviour is immense. A literate consumer is an informed consumer. He can easily read between the lines and establish on his own whether a particular product will be beneficia or not. With the immense choice available in the market, an informed customer can always make an educated choice. He will also be open to new ideas, new technologies and new products and will be able to adapt to them easily. Economic Conditions: Ability to buy India has been witnessing massive drops in unemployment rate which rings in good news for global marketers as well. Decrease in unemployment would mean an increase in living standards which would in turn mean that people have the ability to buy more. Marketers have an opportunity to sell more to Indian customers. With drop in unemployment rate, the sectors most likely to grow are those dealing with basic necessities. Figure 3 India: Unemployment Rate (%)Therefore the retail sector is likely to grow the most, riding high on growth in FMCG. Along with increased purchasing power at an individual level, the overall economic growth has a huge impact on the ability to buy. Indian GDP, in purchasing power parity terms, has been on the upsurge except for the past two years (which was majorly due to the global economic downturn and the sub-prime crisis). An improving economy of a country also indicates the improved buyer status of its residents. Figure 4 India GDP (PPP) (Billion $) Thus, we can see that with the factors of population, literacy and rising economic status on its side, India presents itself as a lucrative market for firms, national as well as international. Consumer Behaviour in India: Unique Patterns India as a market, though lucrative, poses challenges of its own. The consumption behavior of Indians in some manners is quite similar to other countries, but the culture and diversity in India pose specific problem statements that are unique to India. Impact of Cultural Diversity India is a country immersed in diversity. The sheer difference in the people of India, based on caste, creed, religion, gender, economic status etc, makes the life of a marketer very difficult. It is his responsibility that a perfect product mix, customized to the satisfaction of each and every member of the society (as a potential buyer) reaches the market. For example, some part of the population is non-vegetarian while others (Jains, some Hindus) are Vegetarian. Nestle produces its 2-minute instant noodles called Maggi in vegetarian as well as non-vegetarian (Chicken) variants to cater to all segments of the market. Females/ Housewives as decision makers Women in India are the major decision makers for all consumer purchases even though it might be men who do the actual buying. Ultimately it is the women who use most of the consumer products, Washing Soap, Detergent, Cosmetics etc. It is therefore important to understand the needs of the female customers before coming up with a marketing strategy. Rise of the Middle Class The major drivers of the Indian Economy are, without a doubt, people from the Middle Class. The Indian middle class has been growing and according to studies by McKinsey it will grow to 40-60% of the population. The Low-Income classes hardly have the purchasing power to drive an economy while Higher Classes are more into personalized buying rather than standardized retail shopping. The Middle Class, on the other hand, has become more empowered. With an upswing in educational status, decrease in unemployment, and rise in average annual incomes, the Middle Class has higher disposable incomes which it uses to increase its standard of living by purchasing more and more. This is virtually a retailers dream come true! Brand Loyalty versus Desire for new options Traditionally, Indian customers have been very loyal to their brand. We all would have seen their grandparents, or granduncles/aunts buying the same brand of Toothpaste or Hair Oil from the market even though better products exist on the shelves. This was very helpful for established brands to retain their customer and posed difficulties (in terms of entry barriers) for upcoming and small firms. This mentality is changing fast. The new generation, or the Gen-Y, is very brand conscious and evaluates all its options before making any purchase. They keep in mind their notion of Cool before buying a thing as simple as a toothbrush. Brand Loyalty is a thing of the past. Kids and Teens today will change their brand as fast as the wind. Shift from Kirana Shops to Large retailers The increase in the number of options that are available to the consumer, in terms of brand, product quality, colors, packaging and what not, has created another paradigm shift in consumer behavior. Gone are the days of the Kirana Shops with limited varieties of products stored on their shelves. People these days want to have the entire range of products in front of their eyes so that they can pick and choose. They want to experience the product by holding it in their hands before making the final decision whether to buy or not. This has created solid opportunity for FMCG companies so that they can showcase their product and make sure their product catches the customers eye. They no longer have to be at the mercy of established players for market share. Durability as a necessary quality Indian customers have traditionally desired durable and rugged products. They buy products with the intention of long time use and do not believe much in use-and-throw items. For example, it is only recently that the use and throw paper cups and plates are catching on. Indians generally dont prefer them as they find them to be more expensive. Another example would be the case of the Nokia-1100 phone, marketed with the tagline Made for India. Nokia 1100 was a sturdy phone, waterproof rubber coated and stain resistant, ideal for Indian farmers and truck drivers who do rough work every day and stand a chance of spoiling their phone. Larger/Joint Families and Bulk Purchases Families in India are larger compared to their international counterparts. Some of the households run as joint families. The major effect that this has is bulk buying. People will buy goods for the entire family in one shot. This means that companies need to come up with large, super saver packs for their products. On the other hand, there exist a significant number of students, bachelors and small households that prefer smaller packaging and refills. The challenge for firms is to establish the right package size and the amount to produce in each size. Impulsive buying With increased disposable income due to higher salaries, newly earning professionals (people straight out of college) tend to do a lot of impulsive shopping i.e. buying something that is not required only because it caught your eye. With more and more youngsters joining the impulsive buyers brigade, India is a sellers heaven. Adapting to The Indian context Core Product Basic Product Expected Product Augmented Product Potential Product India, as a market, poses unique opportunities and challenges to companies contemplating an entry. With a rapidly growing middle class and a promising growth rate, India is a lucrative destination for companies facing saturation in demand back home. A foray in Indian market, on the other hand, is not without its own perils. Companies who have ignored the unique Indian context in its marketing strategy have failed miserably while those who have given due attention to its type and taste have reaped enormous profits. Following are some of the factors which differentiate Indian context from the global one and must be taken into account by companies before entering Indian markets: India lives in villages: With 85% of India living in villages having about half of Indias buying potential, a company planning an entry in India(particularly FMCG) has to strategize for rural marketing. It cant think of succeeding by focusing on metros alone. All 4Ps need to be customized while tapping this market: Product: As per Kotler, there are various levels of product offering as one adds value to the core product (shown in the adj. fig) With low per capita incomes and a widening economic disparity between urban and rural India, the rural customer is highly price conscious and looks for the basic features. So, only basic or expected product should be marketed in rural India. Moreover the rural customer looks for durability and sturdiness in the product Promotion: An advertisement designed to promote a product in a metro or an urban set up needs to be customized to rural audience for it be effective in appeal to rural customers. Moreover, traditional media needs to be employed to make the advertisement reach rural audience. The use of numerous languages and dialects across the country warrants further customization of the promotion program .Literacy level being very low in rural India, conveying the message to the rural customer requires an entirely different approach. Pricing: With a highly price sensitive population, companies usually resort to aggressive pricing to succeed in rural markets. They yearn to achieve huge volumes to offset the low margins. Place: Distribution poses a serious challenge while marketing in rural India. To make more ground-contacts with the rural customers some channels which can be used are RMVS (Rural Marketing Vehicles) which are basically company delivery vans which are used both for promotion and sales. As per Indian Market Research Bureau, annual sales at melas in Indian rural countryside is around 3500 crore which offer a lucrative marketing ground for companies having rural aspirations. Infrastructure: As compared to western countries, India has a poor logistics infrastructure posing as a serious supply chain bottleneck. The distribution system has to be adapted to take care of this constraint .Inventory levels down the value chain cannot be allowed to go too low. While companies can reap the benefits of keeping a lean inventory in countries where there is a strong logistics network. By proper use of technology like monitoring POS data and analyzing it centrally, however, can give a competitive advantage in such situations. Other infrastructural issues include power deficit and poor internet penetration. The Cultural Aspect: As per Carl Jung Culture is the collective unconscious that is built over centuries and passed from generation to generation. Failure to appreciate the cultural differences between markets can make even behemoths to fail miserably(e.g. Disneyland in Germany).To complicate the situation more, the heterogeneity in India with respect to culture is immense and moving from one corner of the country to another is like changing a nation. No doubt there are commonalities as well. Let us evaluate India on Hofstedes cultural dimensions(which by large is the most widely accepted model for studying cultural differences) All these differences have huge implications on marketing strategy of a company e.g. an advertisement designed for a population having high masculinity index may not appeal an audience with low masculinity Index. Segmentation and Demographics: The usual demographic bases of segmentation like age, income, education etc. progressed to non demographic bases like values ,tastes and preferences .Rediscovering the elementary bases of segmentation taking into account the ground level realities can work wonders instead e.g. Introduction of Emami Fair and Handsome for men was based on the discovery that men were using the fairness cream meant for women and hence there was an unmet demand. Another example is the introduction of Allen Solly Women by Madura Garments based