International Marketing Week 4
Answer the question of each short case
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9GLOBAL MARKET ENTRY
STRATEGIES
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CASE 9-1
THE HOME DEPOT THROWS IN THE TOWEL IN CHINA
In September 2012, Home Depot, the U.S.-based home-
improvement retailer, announced that it would shutter all
seven of its remaining big-box stores in China after years of
losses. The retailer had been scaling down its operations since
2009, when it closed five big-box stores in Qingdao, Shenyang,
Tianjin, and Beijing. The exit from Beijing was of particular
concern as it was one of the few markets where car ownership
among households is more than 20 percent.
Home Depot first ventured into China in 2006 when the
retailer invested $100 million to acquire Home Way, a local
home-improvement chain. Home Way was the first “big-box”
home improvement retail chain in China and operated 12
stores in six cities in China (Beijing, Tianjin, Xi’an, Qingdao,
Shenyang, and Zhengzhou).
Home Depot’s do-it-yourself (DIY) concept, which is well
accepted in the United States and other countries, never found
enthusiasm among Chinese consumers. It was very rare that
Chinese people would do refurbishing jobs themselves. They
came to the store to select what they wanted and then hired
tradesmen to complete the job. The reasons for this were partly
economic, partly cultural. In terms of economics, low wages
and an abundance of migrant workers was one factor. Even
the more price-sensitive people would often hire laborers to
undertake home improvements. Moreover, the cultural mind-
set differed. Many Chinese who had the money to shop at
Home Depot or rival B&Q regarded it below their dignity to
do the installation themselves. According to Torsten Stocker,
a retail analyst at Monitor Group in Shanghai:
People don’t grow up with DIY, so they don’t have the skills, and
they also don’t have the storage space [for tools] … in Europe or the
US you have a garage or a basement where you can keep that lad-
der or drill but many Chinese have very small flats with no storage
space. Maybe it [DIY] is a business model whose time has not yet
come in China1
1“Home Depot Leaves Beijing,” Financial Times, January 27, 2011.
Chinese consumers also would not tend to do small projects
like a paint job. Instead, they might refurbish their homes
every 10 years. New homes were usually bought as a concrete
shell; customers would buy everything else they needed to
make the home livable such as the kitchen, electrical wiring,
plumbing, bathrooms, and furnishings.
China’s home improvement market is huge and grow-
ing rapidly: In 2011, the market increased by 15 percent to
RMB278.5 billion ($44.6 billion). However, the market was
very fragmented with the top five players accounting for just
4 percent. The top four branded outlets (B&Q, IKEA, Ori-
ental Home, and Home Mart) had only 2.5 percent of the
market. Although B&Q was the market leader, describing
itself as “China’s No. 1 home improvement retailer”, it had
a mere 1 percent market share. The remaining 97.5 percent
consisted of small-scale Chinese manufacturers and retail-
ers. Many of these used to ship their products to the West
to the likes of Home Depot. However, more recently, they
had opened up small shops (both retail and wholesale) within
China to grab a higher margin. Many of these suppliers under-
cut Home Depot’s prices. DIY retailers like Home Depot
also faced tough competition from China’s vast “home dec-
oration malls,” which combine under one roof many differ-
ent brands, offering sales and service. Moreover, Home Depot
lost customers due to a poor relationship with home decora-
tion companies who blamed the company’s business model for
squeezing their profits.
Making things worse was the Chinese government’s 2010
decision to rein in the property market via price controls.
This new policy lowered housing sales and greatly dampened
the home-improvement business. Indeed, Britain’s Kingfisher,
which operates B&Q, also reduced its number of stores in
China from 63 to 40.
Given its lackluster performance, Home Depot ultimately
decided to overhaul its China strategy. Instead of operat-
ing big-box stores as it does elsewhere in the world, the
chain would focus on specialty stores. It already had opened
a paint-and-flooring store and a home-decorations outlet in
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the port city of Tianjin. The group was also looking into the
e-commerce arena. Carol Tome, Home Depot’s CFO, said
that the firm had reached a partnership with 360Buy, China’s
second-biggest business-to-consumer website, and was seek-
ing a partnership with e-marketplace Taobao, a division of the
Alibaba group.
Whether Home Depot’s fortunes in China can be reversed
remains to be seen. In a company statement, Frank Blake,
Home Depot’s CEO, said: “We’ve learned a great deal over
the last six years in China, and our new approach leverages
Sources: “China’s slump brings Kingfisher to earth,” http://www.
theguardian.co.uk, accessed October 13, 2012; “Home Depot leaves
Beijing,” http://www.ft.com, accessed October 13, 2012; “How B&Q
does it all in China,” http://www.ft.com, accessed October 13, 2012;
“B&Q, Home Depot find the going tough,” China Daily, April 6,
2009; “Home Depot Learns Chinese Prefer ‘Do-It-for-Me,’” http://
www.wsj.com, accessed October 13, 2012; “Home Improvement
in China,” Euromonitor International, July 2012; http://multivu.
prnewswire.com/mnr/homedepot/26373/docs/China_HI_Overview.
pdf; “Closer Look: Home Depot Closes Up Shop in China,” http://
english.caixin.com, accessed October 19, 2012; “China Winds Shift for
U.S., European Retailers,” http://english.caixin.com, accessed October
19, 2012.
that experience and reflects our continuing interest in provid-
ing value to Chinese customers.”
DISCUSSION QUESTIONS
1. Many multinational companies entering China base their
investment decisions on the long-term hope that China’s mar-
ket will eventually catch up to the goods and services they
offer. Did Home Depot misread the China market? Why or
why not?
2. Home Depot blamed its poor performance in China
on local consumers’ negative attitude toward do-it-yourself.
While this undoubtedly was a factor, could there be other rea-
sons? IKEA has been doing pretty well in China. What could
Home Depot have done differently to increase its chances for
a more successful performance?
3. Home Depot decided to overhaul its China strategy and
focus on specialty stores and e-commerce. Is the company on
the right track? Why or why not?
4. Should Home Depot simply give up on the China market?
Are there other strategic initiatives it could pursue to improve
its performance?
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CASE 9-2
ALFA ROMEO—“IL RITORNO”
Fiat had been planning to relaunch Alfa Romeo in the United
States for so long that the wait had become part of the Alfa
Romeo myth, on a par with its racing prowess, style, and dis-
tinctive engine sound. Sergio Marchionne, Fiat’s CEO, repeat-
edly said that he did not want to relaunch Alfa Romeo until
the product was perfect. Alfa pulled out of the United States
in 1995 because of poor sales, quality issues, and the wrong
model range. Finally, after almost 20 years of absence, Fiat
intended to reintroduce the sports car marque in the United
States. The relaunch was seen as one of the biggest challenges
of the Fiat–Chrysler partnership. If Fiat was able to get it
right, Alfa Romeo could play a similar role as Audi for the
Volkswagen group.
Fiat planned to bring several models to the U.S. market. The
first model in the lineup would be the Giulia sedan, which Fiat
planned to introduce early 2014. Fiat planned to manufacture
it in the United States. The model would share many compo-
nents with the upcoming Chrysler 200 model. It was aimed
to compete with mass-market models like Audi A4. Another
Alfa model in the pipeline was a “compact crossover” sports
utility vehicle (SUV) that would be built on the same platform
as a new Jeep model. In the sports car segment, Fiat planned to
launch the 4C Coupe and the iconic Spider, formally branded
Sources: “Alfa Romeo Will Relaunch On The US Market With Four
New Models,” http://www.topspeed.com/cars/car-news/alfa-romeo-
will-relaunch-on-the-us-market-with-four-new-models-ar136132.html;
“Alfa Plots “Il Ritorno” as U.S. Re-Entry Takes Shape,” http://www.
reuters.com, accessed June 28, 2012.
as the Duetto sports car. The 4C would be priced in the same
range as mid-tier Mercedes and BMW models ($42,000 to
$67,000). The new Spider would be built in Japan and share
its chassis with the next-generation Mazda Miata. Fiat hoped
to lure younger buyers with the Spider; the Spider would be
priced in the $23,500 to $31,225 range.
Fiat intended to rely on its 160-strong Chrysler/Fiat dealer
network in the United States. It hoped to avoid the mistakes
it made for the 500 mini Fiat model. When Fiat introduced
the 500 mini in 2011, it set an unrealistically high target of
50,000 unit sales for the first year. It ultimately sold fewer than
20,000 units.
DISCUSSION QUESTIONS
1. Alfa Romeo was rumored to return in 2004 to the U.S.
market. One Alfa Romeo owners club had planned to call the
club’s annual celebration “Il Ritorno” or “The Return” in the
summer of 2004. In the end, they had to change the name for
the 2004 party. Marchionne delayed the reentry and when Fiat
took control of Chrysler in 2009, it was postponed even fur-
ther. Chrysler dealers were itching to get going. Was Fiat right
to push back the reentry for Alfa Romeo? Why or why not?
2. Could Alfa Romeo successfully compete in the United
States? What are the key challenges that Fiat would encounter
for the reentry of the Alfa Romeo in the U.S. market?
3. Whom would you target, and how would you position Alfa
Romeo?
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CASE 9-3
STARBUCKS’ FORAY IN TEA-LOVING INDIA
On September 28, 2012, Starbucks announced its long-awaited
plans to expand its coffee retailing empire in tea-loving India.
A few weeks later, on October 19, 2012, the global coffee chain
opened its first store in Mumbai’s Horniman Circle, the heart
of the city’s commercial district. The area is home to luxury
shops, including a Hermès store, and numerous offices and
bank headquarters. The 4,500-sq. ft. store (418 m2) is far larger
than most Starbucks stores elsewhere around the world.
To enter India, Starbucks set up an $80 million 50–50 joint
venture with Tata Global Beverages, a division of the very
diversified Tata Group conglomerate. The joint venture was
already set up before the Indian government decided to allow
the so-called single-brand retailers to set up shop in the mar-
ket on their own. The Indian partner describes itself as “Asia’s
largest coffee plantation company.” In fact, the Mumbai-first
shop is located in a restored heritage building that is owned
by Tata Sons, another division of the Tata Group. The coffee
chain had initially planned to open its first stores in India in
mid-2011, but needed to postpone its debut when it had diffi-
culty finding suitable real estate.
In a first for the firm, all the coffee sold in Starbucks stores
across India would be locally sourced and roasted in India.
Tata Coffee, a unit of Starbucks joint venture partner, had built
the roasting facility in the southern Indian state of Karnataka.
The new facility would have a capacity of 375 metric tons of
coffee beans annually.
Even though India is a nation of tea lovers, the country has
seen a rise in the coffee shop culture over the past few years.
According to one consultancy, the total coffee shop market
was expected to grow from $230 million in 2012 to $410 mil-
lion by 2017. At the time of Starbucks’ entry, Bangalore-based
Café Coffee Day dominated the market with more than 1,300
stores across the country. Other notable coffee chains included
The Coffee Bean and Tea Leaf, a privately held U.S. firm, and
U.K.-based Costa Coffee. Costa Coffee set up business in India
in 2005. By mid-2012, the chain had stores in six cities across
Sources: “Starbucks to Enter India in $80m Tata Joint Venture,”
Financial Times, January 31, 2012, p. 15; “Costa Coffee Opens 100th
Outlet in Mumbai,” http://articles.economictimes.indiatimes.com/
2012-07-14/news/32674990_1_costa-coffee-india-cafe-brand-100th-
outlet; “Starbucks Makes Long-Awaited India Entry in South
Mumbai,” http://india.blogs.nytimes.com/2012/09/28/starbucks-makes-
long-awaited-india-entry-in-south-mumbai/; “Tata Setting up Star-
bucks Coffee Roasting Facility,” http://online.wsj.com, accessed
October 13, 2012; “Starbucks Out to Woo Tea-Loving Indians,”
http://www.ft.com, accessed October 20, 2012.
India; it opened its 100th outlet in Mumbai in August 2012.
Costa Coffee planned to open another 100 stores over the
coming 2 years. Costa Coffee also recognized the need to go
beyond serving coffee alone.
Starbucks’ expansion into India is part of its strategy to
reduce the dominance of the United States in its operations.
Of its more than 17,000 outlets, about 6,000 were in more than
50 countries outside the United States. In Europe, Starbucks
had struggled in some countries, particularly France. China, on
the other hand, has been a crown jewel of the company’s inter-
national empire. The China business, however, did meet a few
obstacles. A Starbucks outlet set up in 2000 in Beijing’s For-
bidden City was closed 7 years later after protesters claimed
that the store tarnished the historical site. By 2012, Starbucks
had over 500 outlets in China. It expected that China would
become its second-largest market by 2014 and planned to have
1,500 stores across the country by 2015. Starbucks also had
high aspirations for India. In an interview with the New York
Times, John Culver, president of Starbucks China and Asia
Pacific, said: “We’re going to be very thoughtful on how we
grow, but at the same time we’re going to look at accelerating
growth and capturing the opportunity that exists for us here
in India.”
DISCUSSION QUESTIONS
1. Starbucks decided to enter India through a 50–50 joint
venture with Tata Global Beverages. As the case points out,
the first store was based in Mumbai. Assess Starbucks’ entry
strategy—entry-mode choice, partner choice, and scope.
2. Starbucks entered India relatively late. Costa Coffee, a
major global chain based in the United Kingdom, set up
business 7 years earlier. By the time of Starbucks’ entry in the
country, Costa already operated 100 outlets. In fact, Starbucks
planned to enter India much earlier but it had to postpone its
move. Evaluate the timing decision. Does Costa Coffee have
a significant first mover advantage vis-à-vis Starbucks? If so,
would Starbucks be able to overcome it?
3. What criteria would you use for selecting future cities in
India to set up shop?
4. What marketing mix recommendations in terms of menu
and promotion would you recommend to Starbucks? Should
it make concessions to the Indian palate as other Western
global restaurant chains operating in India have done? Should
Starbucks charge a premium price as it does in most other
countries or lower the price for its coffees?
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8GLOBAL MARKETING
STRATEGIES
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CASE 8-1
GM AND FORD’S PURSUIT OF DIFFERENT BENEFITS FROM GLOBAL MARKETING
GLOBAL MARKETING THOUGHT: THE 1990s
Ford and General Motors have approached globalization dif-
ferently. In its quest for a “world car,” Ford developed the
so-called Ford 2000 program by creating five new vehicle
centers—four in the United States and one in Europe—each
responsible for designing and developing a different type of
car worldwide. Ford’s plan was put to test when it built a mid-
size world car in 1993 known as the Mondeo in Europe and
the Ford Contour in North America. Its plan was to manu-
facture 700,000 cars a year in Europe and North America for
nearly a decade with only a “refreshing” after 4 or 5 years. Ford
executives say they can no longer afford to duplicate efforts
and they want to emulate the Japanese, who develop cars that
with minor variations can be sold around the world. While
the Mondeo/Contour sold 642,000 units in the first 2 years
in Europe, it had disappointing sales in the United States,
attributed to its comparably higher price relative to the car’s
predecessors. Successful product development efforts require
that the company avoid two problems that can arise from pur-
suing global design. First, the high cost of designing products
or components that are acceptable in many settings could
negatively affect efficiency. Second, the product, in this case
a “world car,” may be low cost but meet the lowest common
denominator of taste in all countries.
Alternatively, General Motors took a more regional tack
by retaining strong regional operations that develop distinctly
different cars for their own. If a car has a strong crossover
potential, engineers and marketers cross the Atlantic to
suggest customization. Thus, Cadillac got an Americanized
version of the Opel Omega small luxury sedan developed by
GM’s Opel subsidiary in Germany. GM managers contend
that ad hoc efforts are cheaper and more flexible. One senior
executive at Ford of Europe countered that “doing two con-
ventional car programs would have cost substantially more
than doing one global program.”
The two automakers’ contrasting product development and
marketing programs in the 1990s illustrate the traditionally
viewed tradeoffs of efficiency and effectiveness, global stan-
dardization versus customization, market segmentation versus
product differentiation, and product orientation versus cus-
tomer orientation. These debates are framed by the tension
between bending demand to the will of supply (i.e., driving
the market) versus adjusting to market demand (i.e., driven
by the market).
It is difficult to conclude that one strategy is always better
than the other. One has to be reminded that while the Ford
Mondeo/Contour project cost $6 billion and took 6 years to
develop, potential cost savings from the global strategy could
also be enormous for years to come. On the other hand, GM’s
regional strategy could also make sense if regional taste differ-
ences remain so large that a Ford-style global strategy could,
indeed, end up producing a “blandmobile” that hits the lowest
common denominator of taste in different markets.
Which was a winning strategy in the 1990s? Ford’s
ex-president, Jacques Nasser, wanted to keep the efficiencies
generated from central thinking about design and production.
Buthewantedtoreintroducethemarketfocusinregionsacross
the globe that will give Ford stronger brands and more appeal-
ing products. The Ford 2000 was a good idea carried a bit too
far. Ford Contour was discontinued from the U.S. market in
2001. Ford is now trying to redefine the Ford 2000 program
with a heightened emphasis on the company’s brands and to
give the various regional and brand units more autonomy.
GLOBAL MARKETING THOUGHT: THE 2000s
The first decade of the twenty-first century proved to be period
of struggle and retrenchment for both Ford and GM as they
faced eroding U.S. market share, soaring gasoline prices, and
an overdependence on declining sales of sport utility vehicles
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(SUVs) as well as high U.S. healthcare costs for their aging
workforce. By 2005, both Ford and GM’s corporate bonds
had been downgraded to junk status. In order to shore up its
cash flow, Ford had to sell its luxury brands, Aston Martin
and Volvo, ending its intended goal to build strong luxury
divisions. While Ford managed to further reduce debt and
maintain cash flow by a debt-for-equity exchange, GM filed for
bankruptcy in 2009. While in bankruptcy, GM shed Hummer,
Pontiac, Saturn, and Saab to streamline its operations. With
the U.S. government’s financial backing (i.e., the government’s
majority ownership), GM appeared from bankruptcy and
made an initial public offering in 2010 to continue its business
and returned to profitability in 2011. During this period, both
automakers were busy dealing with their own survival issues
and as a result, they did not develop any clear strategic vision
other than cutting costs and streamlining operations.
GLOBAL MARKETING THOUGHT: THE 2010s
The automobile industry today is a growth industry in emerg-
ing markets. Only about 12 percent of the earth’s 7 billion
people enjoy the benefits of vehicle ownership, and industry
growth remains positive at about 20 percent per decade, with
the potential for global annual sales of 96 million vehicles by
2016. Most of this expansion will occur in emerging markets
such as China, India, Russia, and Brazil.
General Motors’ strategy in China and other Asian mar-
kets is very aggressive. Alliances have been the key to its
marketing strategies. For example, GM earlier acquired the
majority of Korea’s Daewoo Motor Company’s automotive
assets in 2002. At the same time, the company has used an
approach that is more akin to a “loose confederation” in join-
ing recently with other partners such as Suzuki, Fuji, and Fiat.
GM has a minority equity stake in each of these companies.
In addition, GM has major joint ventures in both China and
Russia. GM’s alliance strategy and its initiatives to develop
new markets are key elements in the company’s approach
to globalization. Alliances afford the opportunity for com-
ponent and architecture sharing as well as the reduction in
Sources: Larry J. Howell and Jamie C. Hsu, “Globalization within the
Auto Industry,” Research Technology Management, 45, July/August
2002, pp. 43–49; “Where Are the Hot Cars?” Business Week, June 24,
2002, pp. 66–67; “Small Carmakers Rise in Large China Market,”
China Daily, June 3, 2005; Jill Jusko, “Counterfeiters Be Gone,”
“Can Global Automakers Learn from Their Mistakes?,” Business-
Week.com, June 16, 2008; “Autos: China Auto Sales Up 17% in
First Half Year,” ChinaDialy.com, July 10, 2008; “Autos: GM, Ford:
China H1 Sales Up Steadily,” ChinaDaily.com, July 9, 2008; “China
2011 Car Sales up 5.2 Percent,” Reuters, January 16, 2012; “2nd
UPDATE: GM, Ford China Sales Exceed Industry Forecast,” Wall
Street Journal, January 9, 2012; “Global Auto Forecasts 77.2 Million
in 2012 and 96 Million in 2016,” NextBigFigure.com, January 3, 2012;
“GM Seen Planning Global Reorganization Against ‘Fiefdoms’,”
Bloomberg.com, August 17, 2012; and “China Car Sales Growth Slows
Further,” Wall Street Journal, January 12, 2016.
R&D costs that will be critical for manufacturers look-
ing ahead to hybrid vehicle technology and, ultimately,
hydrogen-based fuel-cell vehicles. By pulling together the tal-
ents and resources from its global R&D network, GM has been
able to reduce redundancy, accelerate ongoing development,
and jump-start new development. Nevertheless, globaliza-
tion entails risks from many quarters: economics, political
forces, energy, and national differences in social and cultural
norms. Consequently, GM is now focusing on the recruitment
and empowerment of an international executive team, which
will help accelerate the globalization process. For example,
in Australia, GM operates through a subsidiary Holden, and
it is closely integrated into GM’s global manufacturing and
marketing strategies. In other words, GM is now planning a
reorganization that would move it away from long-entrenched
regional authority toward a structure built on global functions
to improve efficiency. Power would shift from regional chiefs
to global leaders in areas such as marketing, purchasing, and
product development.
Ford is also planning to boost its worldwide sales volumes,
putting it close to parity with GM and Toyota. But the task
will not be easy. The company faces a variety of challenges,
including the need to revive its long-struggling Lincoln brand
and rebuild its European operations for the past decade. Its
new global goal calls for a much stronger market position
in emerging markets, including China where Ford has been
able to capture only 4 percent market share as opposed to
GM’s 15 percent. Although Ford once tried to emulate GM’s
regional strategy focus, a new management team at Ford
has shaken up its management structure and transformed
its operations from a network of regional fiefdoms into a
truly integrated global entity. Again, we see a much clearer
efficiency-seeking strategy at work.
In the promising growing economy, car demand in China is
shifting away from large sedans long favored by government
officials to economy models demanded by families. GM and
Ford face harsh competition from both homegrown and
Korean and Japanese automakers.
Car sales in China climbed 5.2 percent in 2011, the slowest
pace since the turn of the century when the nation’s car culture
started to take off. This rate is much lower than that of 2007
and 2008, which reached 22.3 percent and 17.1 percent, respec-
tively. Still, according to the China Association of Automobile
Manufacturers, a total of 14.5 million sedans, SUVs, and mul-
tipurpose vehicles were shipped to dealers in 2011. Amid a
slowing economy and a less favorable domestic policy envi-
ronment that caused this drop, GM and Ford still exceeded
an industry group’s forecast for total vehicle sales growth in
China, suggesting that demand for some foreign brands con-
tinues to grow in the market. Ford’s vehicle sales in China
rose 7 percent to 519,390 units in 2011, following growth of
40 percent in 2010. GM’s sales in China rose 8.3 percent to 2.55
million in 2011. China’s car sales reached a new high in 2015,
but due to a recent recessionary cooling-off of the Chinese
economy, growth in vehicle sales has slowed and demand in
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the world’s largest auto market is expected to cool further in
2016 and beyond. With looming overcapacity, it could result in
more severe competition among foreign automakers.
Although we cannot say that General Motors’ and Ford’s
global strategies are converging to emphasize manufacturing
and marketing efficiency, one thing is clear. When the cost
and competitive pressures are mounting, the companies have
to emphasize operational efficiency on a global scale. And as
the growth markets have shifted from developed countries to
emerging markets, the automakers have to shift their focal
marketing strategy to these new markets. As a result, the new
markets’ customer needs and tastes are increasingly shaping
the automakers’ product development strategy.
DISCUSSION QUESTIONS
1. Discuss what is missing in GM’s and Ford’s global strategy.
2. Evaluate GM’s going eco-friendly in China and discuss
the possible global strategy for GM and Ford in an era of oil
shortages.
3. Do you think GM’s success in China was largely helped
by its joint ventures? If so, do you think the approach can be
applied in other emerging markets? Explain your answer.
4. Evaluate Ford’s decision to expand its factory and assem-
bly plant in China. To what extent do you think Ford’s move
will help the company gain better position in the market as
compared to its GM counterpart?
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CASE 8-2
P&G: WE’RE ALSO CHINESE
It is common knowledge that having dominated the Triad
region comprising of North America, Europe, and Japan for
the better half of the last century, multinational firms (MNCs)
turned their heads toward emerging economies like China,
India, and other Asian economies, which are no longer just
sources of cheap labor for MNC operations but are also large
consumer bases. China, with the largest national population
in the world, just became part of the World Trade Organiza-
tion and therefore became even more attractive to Western
multinationals.
However, as MNCs are aware, doing business in China is
not simple even though the economy is more open to foreign
firms now than it has ever been. Local Chinese firms are grow-
ing rapidly and therefore pose a significant threat to foreign
firms that are often unable to provide goods at competitive
prices the way the local firms can. Today, more MNCs are find-
ing success in the unique Chinese market than they used to.
But, they have learned the formula to success the hard way.
Take the example of American consumer products giant
Procter & Gamble (P&G) that first set up shop in China in
1998 through a joint venture with a local partner, Hutchison
Whampoa. Eventually P&G bought out the remaining stake
in the venture. P&G’s brands like Tide detergent, Crest tooth-
paste, and skin care product Oil of Olay made their place in
homes in over 75 different countries worldwide and P&G’s
modus operandi included marketing its products as quality
goods at profitable prices. When the company started sell-
ing its products in China, it soon discovered that its tried and
tested global marketing strategy would not work the same way
it had in other markets—for a variety of reasons.
A developing market like China is characterized by huge
disparity in income levels between the wealthy and the not
so wealthy. Another glaring feature is the diversity in con-
sumer needs based on whether the area is rural, urban, or
semi-urban. These differences are further enhanced by the
variety of outlets for sale of consumer goods ranging from
large-scale foreign stores like French retailer Carrefour to
local Chinese retailers and independent small stores. There-
fore, for a company to succeed in China would mean offering
a wide variety of products at reasonable prices. And succeed
P&G did!
After entering the Chinese market, P&G soon figured
out that selling its premium priced products would not help
it achieve a significant market share let alone grant it the
status of market leader, as many of its brands enjoyed in
other foreign markets. Therefore, the company planned out a
detailed marketing strategy specifically for the Chinese mar-
ket. An important feature of strategic implementation was
the three-tiered market system, whereby P&G divided the
Chinese market up into three segments. According to Laurent
Philippe, head of P&G’s Greater China region, “Because we
aspire to leadership, we need to compete in more than the
premium segment. We need to compete at least in the mid-
dle segment as well. In volume terms, you can segment our
categories into three price tiers: the top tier is 15 percent of
the volume in units, the middle tier is 30 percent, and the
bottom tier is 55 percent. The split in value, or revenue, is a
little bit different: it is 30 percent in premium, 40 percent in
the mid-priced segment, and only 30 percent in the low-end
segment. This segmentation, by the way, is not mechanical; it
is consumer driven.” The main objective behind the company’s
marketing efforts in China was to promote their global prod-
ucts sold in China as Chinese brands so that consumers could
identify with these products. And this strategy proved to be
important given that P&G’s competitors in the market include
not only other foreign firms but also indigenous Chinese ones.
So, how did the company manage to successfully implement
this strategy? Well, in the words of Philippe, “You cannot just
take a global technology and make it cheaper by simply remov-
ing or replacing certain ingredients. The cost gap is too big.
So we are now using our research-and-development capabili-
ties to create different value offerings superior to those of the
local competitors but at an equal or even lower manufacturing
cost. These products are designed from the outset to meet
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4 • Case 8 • Global Marketing Strategies
certain cost, and therefore pricing, targets.” P&G realized
that low-income consumers in China often purchase single
serve packets of shampoo, detergent, and so on, and it soon
began offering some of its products in these sizes. The com-
pany is using local resources to achieve its goals. Research and
development for the Chinese market is done in Beijing at the
Beijing Technical Center, and it makes use of local ingredients
desired by consumers.
P&G is also sending its advance staff into as many out-of-
the-way villages as it can to get a feel for what rural Chinese
want to buy and how much they are willing to spend. Just as
it has done for years in the cities, P&G’s teams of so-called
customer research managers descend on villages, often mov-
ing in with families for a few days. They have discovered that
Sources: Jacques Penhirin, “Understanding the Chinese Consumer,”
McKinsey Quarterly, 2004 Special Edition, p. 46; “Scrambling to
Bring Crest to the Masses in China,” Business Week, June 25, 2007,
pp. 72–73; “Emerging Markets Key to P&G Growth Plans,” Finan-
cial Times, June 25, 2008; and Procter & Gamble Greater China,
http://www.pghongkong.com/en-US/Company/China.aspx, accessed
March 10, 2016.
while low prices surely help sales, it is equally important
to develop products that follow cultural traditions. Urban
Chinese are happy to pay more than $1 each for tubes of Crest
toothpaste with exotic flavors such as Icy Mountain Spring and
Morning Lotus Fragrance. However, those living in the coun-
tryside are apt to prefer 50 cents Crest Salt White, since many
rural Chinese believe that salt whitens teeth. P&G applies sim-
ilar segmenting strategies to its Olay moisturizing cream, Tide
detergent, Rejoice shampoo, and Pampers diapers.
With more than $2.5 billion of annual sales, P&G has
become the biggest consumer goods company in China today.
DISCUSSION QUESTIONS
1. How does China’s entry into the WTO affect multinational
firms’ outlook toward China and their future investment in the
country?
2. What are the drawbacks of P&G’s strategy for the Chinese
market?
3. What other marketing strategy could P&G have adopted
for the Chinese market as an alternative to the tier system one?