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Study 4.6 International marketing conceptsOpen the corresponding Concept lesson for explanations, examples and exam connections.

[Maximum number: 10]

A component of the cost to customers is delivery costs, which are based primarily upon weight and distance to delivery location. Given the cost of delivery, RDM can generally offer competitive pricing in a 700-kilometre radius of Lobjanec. This 700-kilometre range means RDM can be price competitive in crucially important Germany but less so in such potentially lucrative markets as Scandinavia, the Netherlands, Belgium, France and northern Italy. To continue to grow and access these potentially lucrative markets, the chief financial officer has proposed that RDM build an additional production facility elsewhere in Europe, which would extend RDM’s market area. Given that the entire order/manufacture/delivery process could still be performed in Lobjanec, this new facility would require limited staff and most of the work will be done by robots. Before considering the expansion proposal, Jan knows that RDM’s marketing strategy must be addressed. RDM has no marketing strategy but rather a series of practices that have evolved since the Radeki de Dovnic family regained control of RDM in 1990. RDM has an outdated name, a weak brand identity, no relevant vision or mission statement and no written operations management strategy or human resources plan. The company makes good products at competitive prices and is responsive to customers’ needs. As a result, the company enjoys healthy profits for now. RDM’s relationship with stakeholders was profoundly changed by the move to automation. In the 1970s, RDM employed roughly 500 workers, making it the largest single employer in Lobjanec. In 2019, the business employs 117 people, only a small number of whom are involved in manufacturing. Further, most of those involved in manufacturing are not skilled manual labourers but highly trained engineers and computer experts who manage the automated process. Their attitudes, aspirations and motivations differ significantly from the workers who survived the Second World War and had worked under the Communist regime. With this reduction in, and transformation of, RDM’s labour force, the company no longer has the level of local influence that it formerly had.

If RDM builds a new production facility in Europe, an immediate consequence will be an increase in capacity. At current levels of output this would lead to a reduction in capacity utilization. The current output of RDM's factory is 20000 units a year, with a productive capacity of 21000 units a year before the new facility is built. If the new production facility is built, the greater capacity for the whole business will, at current levels of output, result in the capacity utilization falling to 50 % until production at the new facility starts.

Xi, the marketing manager, suggests that this increased capacity provides the opportunity for market development to be achieved by entering the United States (US) market.

The US market has similarities with Europe, with an aging population and low birth rate. Demand for customized healthcare devices is high. However, the healthcare system in the US is very different, with a much greater role for private sector healthcare compared to Europe, where much of the healthcare is state funded. In the US, 18 % of gross domestic product (GDP) is spent on healthcare compared with an average of 11 % in Europe. Advertising spend in the US is very high for the typical healthcare equipment business, which uses TV and the internet to reach individuals, whereas in Europe healthcare equipment businesses typically negotiate with government organizations. Average incomes in the US are higher than in Europe. Competition in the US is very high, although some major healthcare equipment businesses dominate the market. Industrial/ employee relations in the US are generally more decentralized than in Europe, with a lower level of unionization.

To assess the best way to enter the US market, some senior managers may have to move to the US and Xi may need to recruit some new staff in the US with specialized knowledge of US laws and regulations, as well as some additional marketing employees. Xi is aware that industrial/ employee relations are different in the US.

Existing staff will have to get used to new ways of working and are concerned about having to work with new staff in the US.

Using information from the case study and the additional information above, discuss the opportunities and threats for RDM of entering the US market.

[Maximum number: 9]

Chips to Go (C2G)

Chips to Go (C2G) produce potato chips for the British market. C2G's Chief Executive Officer (CEO) is Charles Chip who is a dynamic entrepreneur famous for taking risks with chip flavours such as "banana and sour cream" and "chocolate fudge" and promoting them with humour especially appealing to British culture. C2G has created a number of successful snack products under the C2G family brand. Charles uses intuitive rather than scientific decision-making. He rarely consults with senior managers or considers financial data.
C2G's value as a company in terms of goodwill, brand value and other intangible assets is tied very closely to the personality and lifestyle of Charles. He is the company's most valuable intangible asset and is very popular among the younger generation. He is constantly in the news trying to travel around the world in a canoe, or taking risks by parachuting off high buildings to gain free publicity and word-of-mouth promotion. Current and potential investors have contacted the finance department as to what may happen to the value of these intangible assets if Charles were to have a serious accident.
C2G is looking for ways to increase market share in an increasingly competitive domestic snack market. One long-time aim for Charles has been the creation of a potato chip with all the taste of regular chips but without any fat. The marketing department of C 2 G is very excited with this idea but the Production Manager has indicated to Charles that it cannot be produced. Charles has been told and was furious.
A second strategic option could be to launch the potato chips into a new international market. One of Charles's closest advisers has argued that C2G would need to be careful with its product and promotion, as overseas customers may not share British tastes in potato chips, or British humour in promotion. He urges Charles to take time to carry out extensive market research of the new international market.

Evaluate the strategic decision to launch C2G's potato chips into a new international market.

The decision to launch C2G's potato chips into a new international market would seem suitable given the increasingly competitive snack market at home. The Production Manager rejected the first and possibly the more favourable decision to launch a new type of potato chip, Charles would appear confident that his current products, yet unique chip flavours would provide C2G with a market gap to be exploited.

Assuming that suitable resources would be made available to finance the strategic move, the decision could be viewed as a market development opportunity in the Ansoff matrix as a growth strategy and as an internal growth strategy. Using well received concept products and taking it to a new market is a medium risk strategy which the candidate may judge as an advantage or a disadvantage.

However, internal growth is a slower method of growth, but in this case may be more suitable than any other form of external growth like takeover / mergers where Charles might have to modify his leadership style.

Both current and potential investors should be content with this decision.
N.B. an application of Ansoff matrix is not required and is given as an illustration of a strategic tool a candidate may wish to use in their response.

To ensure the success of the decision, additional finance will be required to adapt some if not all of C2G's marketing mix as suggested by Charles's closest advisers. Especially the promotion and the product to ensure that there are no misunderstandings about their products or Charles's personality and lifestyle choices.

A carefully considered public relations campaign will need to be created so that the brand value of C2G is not diluted. Translators / marketing consultants at the new overseas market will need to be employed so that potential consumers are not confused by "banana and sour cream" and other flavours which may not translate well into local media or other above-the-line promotional methods. Finance will also need to be found to fund further "cultural intelligence" information and of course further market research to see if the growth strategy is on track, once C2G enters the market. Clearly, given that knowledge of this new market may be developing, on top of the extra costs of the suggested need for marketing mix adaptation, Charles will need to review his intuitive decision

making style in a market in which he is unfamiliar.

Moving into a new international market will take time. Initial sales may be small and with further promotional support, it is hoped that the product life cycle will enter the growth phase. Given that C2G's success is linked to the personality of Charles, patience will be critical and it is indicated in the stimulus that Charles may lack this.

The decision to move into a new international market is justified from the stimulus given competitive pressures in domestic markets. The creation of a zero-fat chip (although currently not possible) given increasing concerns about obesity could prove to be a potential "cash cow" for C2G.

However, given the conflicts outlined in the stimulus and the associated challenges of entry into a new international market, the decision to move into a new market will still be risky unless Charles is willing to modify his leadership style and communication between departments within C2G improves.

It is expected that the candidate will provide some conclusions and judgment. It appears that the arguments for, based on some of the above arguments / reasons, especially C2G's past success and the current market conditions are stronger than the arguments against. Provided some attention is paid to the market research and product adaptation, C2G should launch the chips into a new international market.

Accept any other relevant evaluation with substantiated judgment.
It is not expected that the candidate incorporates all of the above arguments.

For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

Award a maximum of [5] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.

Candidates cannot reach the [5-7] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.

Marks should be allocated according to the markbands on page 4.

[Maximum number: 4]

Dean West Tutoring (DWT)
Dean West was an International Baccalaureate (IB) business management teacher in a developing country (country X). He also offered private tuition to students in need of additional support. Five years ago, he decided to leave teaching and set up Dean West Tutoring (DWT).
DWT has grown in the last five years and now employs ten tutors offering face-to-face tuition in a range of IB subjects. The tutors work part-time. DWT takes a percentage of the fees that students pay for the tutoring. To establish positive branding for DWT, Dean expects all tutors to follow a strict code of conduct. He also reviews each tutor's performance and student feedback every week. Some tutors are feeling demotivated.
With the worldwide growth of online learning in the last few years, Dean saw an opportunity to expand DWT. He discovered a large market in Asia, particularly in China. Online one-to
one tuition in Asia is charged at an hourly rate that is three times higher than that usually charged in country X. DWT would need to hire agents in Asia to find potential students who want to learn online.
As the new school year is starting soon in China, Dean will need to act quickly. He is considering drawing up a Gantt chart to assist his planning.
However, DWT's existing tutors are concerned about the expansion due to their lack of experience and equipment for online tutoring.
Dean is now considering two options to ensure that D W T has enough suitable tutors for expansion to online tuition:
- Option 1: Offer training and support to the existing tutors.
- Option 2: Recruit new tutors from anywhere in the world with online teaching experience.

Explain one advantage and one disadvantage for D W T of expanding into online tuition in Asia.

Dean is considering offering online tutoring to countries across the world, especially Asia. He has previously only offered the services of DWT locally and face-to-face. This move is therefore a radical change for DWT.

Advantages:

There is a good chance of increased revenues both in terms of value and volume since
- DTW's market will be developed beyond their current customer base, as it seems that there is a large market, particularly in China, for DWT s service.
- Given that Dean simply takes a commission from work carried out by his team of tutors, the online expansion to Asia might be seen as less risky than other developments e.g. he is not undertaking the training himself.
- The online expansion may lead to further growth beyond Asia as the move embraces changes in technology, and the nature of customer demand, which has led to a worldwide growth of online learning.
- In terms of value, DWT has also good chances of increasing their income, as in Asia tuition fees are paid three times more than in country X .

Disadvantages:
- Asia is a new market for DWT. They have no obvious links (and experience) and DTW might find it hard to generate demand.
- DTW would be very reliant on the quality of the local agents.
- DTW may need to invest in training and IT equipment. Dean may become stretched by trying to manage both aspects of the business.
- Language culture and legal issues may be significant especially based on the reasonable assumption that DWT are not currently based in Asia.

Accept any other relevant advantage / disadvantage.

Mark as [2] + [2].

Award [1] for each correct advantage / disadvantage identified and [1] for a relevant explanation with application to DWT. Award up to a maximum of [2].
[2] cannot be awarded per advantage / disadvantage if the response lacks either explanation and / or application.

For example:

For an identification or a description of an advantage / disadvantage with or without application [1].

For explanation of an advantage / disadvantage with no application [1].
For explanation of an advantage / disadvantage and application [2].
It is NOT application if candidate simply repeats the question, e.g. online tuition in Asia is mentioned in the question.

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IB Business Management HL 4.6 International Marketing Topic Practice

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