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Knowing the various types of display options and payment models available is all very well, but you may be wondering how to put this all together as you plan your campaign. Here is a step-by-step guide that you can follow to ensure that you run effective adverts.
Don’t forget to keep an eye on any non-digital advertising that the brand is doing. This could have a significant effect on your results, and you want to ensure that you are communicating the same message.
Step 1. Determine the goal of your campaign
Are you embarking on a branding campaign, or is your primary focus direct response? Keep your overall channel and brand objectives in mind when planning your digital campaign.
Step 2. Identify your key performance indicators (KPIs)
Which figures will let you know if you are succeeding? This should tie in closely to your goal.
Step 3. Investigate your target audience
What websites are they likely to be visiting? The type of creative you use and the payment model you follow will largely be determined by the websites on which you advertise.
Online advertising is an acquisition and awareness channel. It does not require users to seek an interaction actively, as search advertising and email marketing do. So it is crucial that the adverts are placed in front of the audience that is most likely to convert. Sites such as Effective Measure can help give this type of insight (http://www.effectivemeasure.com/).
Step 4. Research potential publishers to host your adverts
Niche websites with a smaller, more targeted audience will most likely charge a flat rate for display advertising, or a CPA rate. They could be flexible in display options that they offer, but you will need to take into account their bandwidth costs if they serve the adverts.
High-traffic websites with a broad audience will usually charge on a CPM basis. They will broker their advertising inventory through an advertising network, or even a number of advertising networks.
Step 5. Set a budget
Most advertising platforms will let you set and dynamically manage your budget. Decide how much you are willing to pay per click, impression, action or engagement, and set your total budget in line with this.
Step 6. Create your adverts
Now, you will need to brief your creative team to ensure that you have the optimum banners for your campaign. Your online adverts will need to:
• Attract attention
• Convey a message
• Entice action.
Animation attracts attention, but be wary of being one of several animated banners on a website. Banners should not be considered in isolation, but rather in the context of the website on which they will appear.
Web users respond well to being told what to do, and the content of an online advert should be concise and directional. Examples of these CTAs include:
• ’Click for a quote.’
• ’Click here for the full video and win.’
• ’Donate now.’
Step 7. Choose or create a landing page
All advertising needs an appropriate landing page or destination URL. Whether this involves creating a microsite, or merely leading users to an existing page on the website, ensure that clickthroughs are not being wasted. Generally, sending advertising traffic to your home page is not a good idea as it leaves the user confused about where to go next.
Step 8. Run your adverts
Now that you’re all set up, you can let your ads go live! Keep a close eye on your spending to ensure that you’re getting a decent return for your money, and that nothing unusual is occurring.
Note
If a problem comes up, you can simply stop your campaign, change the creative elements or modify your approach. The beauty of online advertising is that it can be revised almost instantly.
Step 9. Track, measure, optimise
As with all online marketing tactics, you need to track what your ads are doing and the results they are generating, measure your returns and successes, and then optimise your online advertising campaigns to get even better returns in future. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.07%3A_Implementing_online_advertising.txt |
On the web, the convergence of digital devices and channels is leading to new avenues for online advertising. Digital advertising can reach customers anywhere where they can access the web.
While we have become used to the Internet as a free medium where we can read and interact with any content we want, it is the fact that it is an advertisers’ medium that keeps it free. And that means that as technologies evolve and the way we interact with content changes, so advertising follows.
Previously the level of interaction a web user had with a website could be measured by the number of pages of that website the user viewed. Now, technology such as AJAX and rich media such as video mean that the time spent on a web page can be more meaningful than the number of pages viewed. The key word here is ‘engagement’, and technology and data analysis is working towards being able to determine how websites can quantify the level of engagement with a viewer.
A little online research will reveal plenty of commentary declaring the decline of display advertising. Increasingly, consumers are becoming both weary and wary of advertising. Already low clickthrough rates on banners are dropping, so the effectiveness of display advertising is being questioned by some. However, there is a counterargument to be made here using different types of online advertising. Native advertising, for example, has a fairly good engagement rate. With the focus in digital marketing on tracking and measuring response and engagement, should a company spend money on less measurable activities such as ‘brand building’, where they are paying on a CPM basis?
Note
View-through conversions are important to look at as well, especially if your campaign is focused on raising awareness
Using third-party ad servers and post-impression tracking, the effects of different advertising and marketing channels on each other can be observed. Banner advertising can see an increase in search volume, for example.
What does this tell us? Measurement should take place across all channels, and no channel should be utilised in isolation. The best results will be gained through an integrated and holistic approach to digital marketing.
12.09: Advantages and challenges
Advantages of online advertising
Banner advertising goes a long way towards bridging the advertising divide. These adverts have a set size, they can look very similar to print adverts, and they occupy a particular bit of real estate in a publication with a particular number of views. It’s easy to understand, and it does the things with which buyers are familiar.
Online advertising can take advantage of the emotive qualities of images, videos and animations. Some campaigns are better suited to images than plain text.
Since banners can contain rich media, they offer levels of interactivity that other forms of advertising cannot achieve. This allows your target market not only to see your banner, but also to play with it. Interaction builds a bond and improves the chances of the consumer remembering your brand tomorrow. Cognitive learning is a powerful outcome of interactive display advertising.
Modern online advertising is able to bring together a number of other online marketing tactics such as animations, games, video and Flash.
Banner ads, like all digital marketing tactics, are measurable. Track clickthrough rates and you get an idea of exactly how many users are responding to your call to action. Some publishers even have the ability to do post-click tracking, which means that you can track the user all the way to a sale if that is the purpose of the advert.
Challenges of online advertising
A lot of display advertising is intrusive, so popup blockers can often prevent adverts from being served as they were intended by the advertisers. There are also extensions available for web browsers, such as AdBlock Plus, that will block advertising on web pages. Technologically savvy consumers are increasingly using these methods to limit the advertising that they see.
Note
Advertising is not a problem that’s unique to the web, for example, TV viewers are increasingly skipping ads or watching episodes through online streaming services.
Bandwidth can also be an issue, although this is a shrinking problem. However, campaigns should be planned according to demographics in determining the richness (and investment) of interaction.
Consumers are suffering from advertising fatigue, so while new technologies can provide great results, as soon as the market moves mainstream it can get saturated. Consumers are increasingly ignoring adverts. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.08%3A_The_future_of_online_advertising.txt |
How you measure the success of an online advertising campaign will depend heavily on the objectives you set for that campaign. For this reason, it is important to set those objectives before the campaign begins. The objective you have in mind will inform the goals you monitor (where “goal” is a specific user action), and that in turn will inform the KPIs you track. You will also want to measure events, or steps in the conversion process.
As an example, if your objective is awareness, you may want to look into the following KPIs, among others:
• Number of visits to your website
• Amount of user engagement (measured by time on site, comments on or shares of a social ad)
• Number of product views
• Number of brochure downloads.
Remember, KPIs are going to differ based on your objectives, so always keep that in mind!
12.11: Case study - Post-It and Proximity Russia
One-line summary
Post-It and Proximity Russia came up with a banner ad campaign that people actually liked!
The challenge
The major problem with banner ads is that users don’t like them. They find display ads annoying and rarely actually engage with them. Retargeting banners are seen as even more invasive. PostIt wanted to create a retargeting banner that users actually wanted to see.
The solution
Post-It created a banner that users could use as Post-It notes. They would click on the banner, type a note to themselves, and then retargeting technology would show them their own Post-It notes instead of retargeting banners.
This involved using the same technology other websites use for retargeting, as well as choosing placements for their ads on the most commonly used websites so that users would see their PostIt stickers wherever they visited.
Clicking on a note brought users to a Post-It page where they could manage their stickers, create new ones, or delete all of them.
Results
Users engaged with this campaign happily. It received:
• 47.6% active engagement
• 152.40 seconds average interaction time
• Considerable earned media reach, including users asking for the same campaign to be brought to other countries.
(Webby Awards, 2016)
12.12: The bigger picture
Offline advertising and marketing campaigns can be adapted for an online audience in order to ensure maximum brand exposure. It is very effective in enhancing offline marketing and advertising activity and in ensuring a wider reach.
As mentioned, online advertising can be used as an acquisition channel, reaching out to a new audience. It can be used to initiate a buying cycle and customer relationship, which then plays out across other online channels. Addressing advertising and other channels to complement each other will result in a consistent message, and optimum results. Online advertising can be used to reach a large audience, and then other digital marketing tactics can be used to refine and engage this audience further. Social media advertising in particular is crucial for building communities and keeping the brand top of mind.
Online advertising and affiliate marketing go hand in hand. Affiliate networks also act as advertising networks, allowing for advertising to be purchased on a performance basis.
When seeding new products and viral campaigns, which are shared by many users on social media, display advertising can be used to reach a wide audience at a low cost. It can expose a campaign to many new users, and increase the chance that those who are most likely to pass on a message receive it in the first place. Display advertising also supports other advertising and marketing channels, such as search advertising and marketing.
12.13: References
Webby Awards, 2016. The Banner That Makes You Like Banners. [Online] Available at: http://webbyawards.com/winners/2016/...u-like-banners [Accessed 1 November 2017] | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.10%3A_Measuring_success.txt |
To get your ads to appear online, you need to find and pay for the space where they will appear. There are several options for doing this:
• Premium booked media
• Advertising networks
• Advertising exchanges and programmatic buying
• Social media advertising placement (see more in the Social media advertising chapter)
• Native advertising
• Mobile advertising
• Ad servers.
Premium booked media
Premium booked media works very much in the traditional way of booking advertising; the advertiser contacts the premium media provider (usually a single group that oversees a key, high-profile online space) and discusses options for placing an advert. This will involve negotiating on targeting and pricing for the space desired, and is usually a costly but high-profile option.
Advertising networks
An advertising network is a group of websites on which adverts can be purchased through a single sales entity. It could be a collection of sites owned by the same publisher, for example, New Line Cinema, Time Inc. and HBO are all owned by Time Warner Inc., or it could be an affiliation of sites that share a representative.
The Google Display Network is one of the largest advertising networks in the world.
The advertising network acts as an intermediary between advertisers and publishers, and provides a technology solution to both. As well as providing a centralised ad server that can serve adverts to a number of websites, the networks offer tracking and reporting, as well as targeting.
Advertising networks can categorise the sites by factors such as demographics, topic, or area of interest. Audience targeting is a particularly useful option, in which an ad can be targeted according to remarketing lists, custom lists, or interest categories. Advertisers pay to advertise in specific channels, and not in individual sites. Usually, the campaign will then be optimised based on the best converting sites or on the objectives of the campaign. Rates are often negotiated with the network, and placements are booked over a period of time.
Advertising exchanges and programmatic buying
Advertising exchanges, on the other hand, are where unsold advertising space, called inventory is placed by publishers for bidding. The inventory is sold to the highest bidding advertiser. Giving advertisers far more control, this type of advertising mimics the PPC model of search advertising (GSP auction) but bids are for audience profiles and space rather than for keywords. It allows publishers to fill unsold inventory at the highest available price, and can give smaller advertisers access to this inventory.
Programmatic buying is the automated purchasing of digital advertising space using software. This is much more efficient than the old process of human ad buyers and salespeople, and thus it is also cheaper. Programmatic buying can happen in advance from specific publisher sites, or in real time bidding. Real time bidding is one kind of programmatic ad buying in which ads are bought on a per-impression basis through real time instantaneous auctions.
Programmatic is exciting because it makes targeting much easier. It uses small predictive analysis to present your ads to the most likely optimal target market, and then evolves from there based on what is working best. This frees marketers up to focus on KPIs, creative, strategy, and other aspects.
Social media advertising
Note
Read more about this in the Social media advertising chapter.
Many social media platforms offer an advertising option, as this is their primary source of revenue. Social media can be an excellent place to reach prospects because you can usually target very accurately based on user-provided demographic information.
Native advertising
Native advertising is presenting advertising in a way that matches the platform on which it is presented and that meets audience expectations for that platform. It is an indirect promotion of the brand or product in that it is primarily focused on providing value to a specific readership, but it differs from content marketing in that it is paid. Essentially, it is paid advertising that works very hard not to disrupt the user experience. In its ideal form, this means the user is presented with useful, engaging content, which in turn is much more engaging than a banner ad.
It can look like paid search ads on a search engine, sponsored content like on LinkedIn or Facebook, or promoted listings, like on Twitter. However, it looks much more like content than advertising.
Mobile advertising
Mobile advertising is no longer something that should be considered in isolation. While there are still mobile-online networks, online advertising is moving toward real time buying and networks, and so device is becoming just another targeting option. All of the ad options already discussed are also available on mobile.
Blind networks
These networks target a large number of independent mobile publishers, and generally allow you to target by country or type of content, but not by specific websites. Payment tends to be on a CPC basis, which can vary. An example of this kind of network is mob ads (www.mobads.com). Very few low-cost blind networks exist these days, as they have all been bought up by programmatic engines.
Premium blind networks
Advertising on premium blind networks tends to be more expensive but allow the advertiser to target better-known brands and high-traffic sites. Broadcasters or operator portals fall under this category. Payment here is often on a CPM basis. Millennial Media (www.millennialmedia.com) is an example premium blind network. While targeting options are available, different networks can work in different ways, with varying levels of support.
Premium networks
These networks often offer sales as a direct extension of the big brands that they offer. More detailed targeting and sales support is available, but they also charge higher rates. They also offer different ad bidding options such as CPC and CPView for video ads. An example of this kind of network is Widespace (www.widespace.com).
Gaming console advertising
Note
The IAB has some guidelines for responsive creative that you can find at https://www.iab.com/ newadportfolio/
Of course, a phone isn’t the only kind of mobile device. Internet-connected game consoles are also classified as mobile devices, and they also allow for advertising. Consoles like the Xbox One can replace a cable box, DVD player, stereo, and older gaming consoles, so users of all ages and demographics could find them appealing.
Ad servers
Ad servers are servers that store advertisements and serve them to web pages. Ad servers can be local, run by a publisher to serve adverts to websites on the publisher’s domain, or they can be third-party ad servers, which serve adverts to web pages on any domain. Ad servers facilitate advert trafficking and provide reports on advert performance. They have two functions: to help publishers manage their ad inventory, and to help advertisers monitor and optimise their campaigns.
The benefits of ad servers
Rather than distribute copies of each piece of creative advertising to each publisher or media buyer, you can send out a line of code that calls up an advertisement directly from the ad server each time an advert is scheduled to run. The agency loads the creative to the server once and can modify rotations or add new units on the fly without needing to re-contact the vendors. This is referred to as third-party ad serving.
The ad servers provide a wealth of data, including impressions served, adverts clicked, CTR and CPC. While publishers have their own ad servers, most of the third-party ad servers also have the ability to provide performance against postclick activities such as sales, leads, downloads, or any other site-based action the advertiser may want to measure.
Ad servers provide a consistent counting methodology across the entire campaign enabling the advertiser to gain an ‘apples to apples’ comparison of performance across the entire media schedule, which includes multiple websites. This ensures that the advertiser gets what they are paying for, and avoids fraudulent activities, such as click fraud, as a good third-party ad server should be audited.
The ad server also allows sophisticated targeting of display advertising. Examples of third-party ad servers include Google DoubleClick and Sizmek. It is generally accepted practice to run one of these ad servers, but they all cost a percentage of the CPM rates. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.14%3A_Getting_your_ads_online.txt |
Ad servers serve adverts across a number of websites, and can track a user visiting websites using cookies or IP addresses. This means that ad servers can offer advertisers:
• Frequency capping: This limits the number of times a specific user sees the same advert in a set time period.
• Sequencing: This ensures that a user sees adverts in a particular order.
• Exclusivity: This ensures that adverts from direct competitors are not shown on the same page.
• Roadblocks: This allows an advertiser to own 100% of the advertising inventory on a page.
The ad server can also target adverts based on the business rules of the advertiser or the profiles of the users:
• Geo-targeting: Online advertising has the ability to target markets by country, province or city, and can even drill them down to something as specific as their IP address. This is also known as IP targeting. Network or browser type; in this case markets can further be targeted via networks or browser types such as Mozilla Firefox, Internet Explorer, Chrome and Safari.
Note
Location targeting can be very cost-effective for physical events and regional offers.
• Connection type: Users can be segmented and targeted according to their Internet connection type, for example, whether they use broadband or dialup connections.
• Day and time: Advertisers can choose the time of day or day of the week when their adverts are shown. Advertisers can specify when their campaign should flight, down to the minute. This usually depends on the client’s objective for the campaign or the product itself.
• Social serving: Websites gather demographic data about users and then serve each user targeted and relevant advertising. For example, Facebook will allow advertisers to select specific characteristics of users who will be shown an advert.
• Audience targeting: The ad server uses the profile of a user, built up over websites visited previously, to determine which adverts to show during a given visit. Ad servers can base this profile on cookies or on IP addresses. For example, the ad server may choose to show adverts for pet insurance on a news page to a user who has visited the pets and animals section of a general media site previously.
Remarketing is another form of audience targeting. This allows the ad server to display ads to users after they have interacted with a website in a certain way, for example, by adding an item to their cart on an eCommerce page but not checking out. The user may then see an ad for the product they have in their cart, to encourage them to go back and make a purchase. This can be done through various engines, the most popular of which is DoubleClick Digital Marketing (DDM) from Google.
Note
You can find out more about DoubleClick Marketing at: https:// www.thinkwithgoogle. com/intl/en-154/ products/doubleclick
Another approach to audience targeting is to set up parameters to determine when a certain advert needs to be shown. For example, if the user has clicked on a banner advertising a test drive, and the user has actually booked the test drive, the next time they see an advert from the advertiser, a different advert will be shown because the user has already responded to the first one.
• Contextual advertising: The ad server deduces the optimum adverts to serve based on the content of the page. For example, on an article about mountain bike holidays in Europe, the ad server would show adverts for new mountain bikes, or adverts from travel companies offering flights to Europe, or perhaps adverts for adventure travel insurance. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.15%3A_Targeting_and_optimising.txt |
The trackability of online advertising is what makes it so superior to conventional advertising. Not only can an advertiser tell how many times an advert has been seen (impressions), but also how many times the advert has been successful in sending visitors to the advertised website (clicks). As discussed in the chapter on conversion optimisation, the tracking needs to continue on the website to determine how successful the advert has been in creating more revenue for the website (conversions).
Note
Read more about this in the Conversion optimisation chapter.
As well as tracking adverts, advertising networks can also provide information about the users who saw the advert, as well as those who acted on it, including:
• Connection type
• Browser
• Operating system
• Time of day
• Internet service provider.
Many third-party ad servers will set a cookie on impression of an advert, not only on clickthrough, so it is possible to track conversions that happen indirectly (called view-through conversions). Simply put, third-party ad servers can track not only the post click data, but also the post view data; when a user sees an advert, does not click on it, but goes to the website after viewing the advert either by typing in the URL, or by searching for the site.
Using this information, the ad server can target the adverts displayed, helping advertisers to optimise campaigns and get the most from their budgets.
12.E: Online advertising(Exercises)
Case study questions
1. Why did users find this banner ad campaign so engaging?
2. Which elements of best practice did Proximity Russia follow?
3. How did understanding the audience play a role in this campaign?
Chapter questions
1. Online banner advertising and outdoor display advertising both use images to try to increase sales. In planning, both need to consider placement so as to be seen by their most likely audience. What are the key differences?
2. Is display advertising an effective acquisition channel? Why or why not?
3. Go to www.thetimes.co.uk and www.forbes.com. What advertising can you find on the front page of these two websites? What products are being advertised, and how are they being advertised? What can you deduce about the target market for these products?
Further reading
www.adrants.com – Commentary on online advertising campaigns. US focused. econsultancy.com/uk/blog – UK industry-focused advertising articles.
www.bannerblog.com.au – Have a look at BannerBlog for rich media examples.
https://blog.optimizely.com/tag/display-advertising/ – Optimizely’s Display Advertising section, with articles on best practice and case studies.
12.S: Online advertising(Summary)
Online advertising has two main objectives:
• Branding
• Direct response, engagement and sales.
The Internet allows for highly targeted and highly trackable advertising across a variety of online media. Some ways that advertisers can use the Internet are:
• Banner adverts
• Interstitial banners
• Popups and pop-unders
• Floating adverts
• Wallpaper adverts
• Map adverts.
Ad servers provide trafficking, tracking and reporting solutions to both advertisers and publishers. They allow advertisers to target display adverts based on parameters, including: User profile (location, operating system, browser, connection type)
• Behaviour
• Frequency and sequencing
• Exclusivity
• Context of content.
Technology allows for increased levels of interaction within an advert, and for advertising tailored to engagement media such as online videos and social network applications. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/12%3A_Engage_-_Online_advertising/12.16%3A_Tracking.txt |
Learning Objectives
In this chapter, you will learn:
• How to use social media advertising as part of your complete paid, earned and owned strategy.
• How to create and place effective social media ads for a number of platforms.
• How to use the available targeting options to reach consumers at the right time and in the right place.
• How to approach measuring the effectiveness of social media advertising.
13: Engage - Social media advertising
Social media first became a choice for marketers back in 2005, when Facebook launched its first advertising option. The medium has advanced in leaps and bounds since then, offering a reasonably low cost ad option to marketers, as well as the opportunity to reach a wide audience for little money as long as the ads are engaging enough.
Social media ads can be recognised by labels such as ‘suggested post’, ‘promoted pin’ and so on, depending on the platform. The ad formats available are continuously evolving, which means that marketers need to keep up with what’s available to them, and that there are ever-increasing opportunities to reach your consumers on a platform and in a format that suits them.
13.02: Key terms and concepts
Table 13.2.1
Term Definition
Ad Types The kind of ads you can create on social media; these could be Twitter Cards, Facebook sponsored posts or, Lenses or Geofilters on Snapchat.
Demographics Statistical information about a particular population, such as age, gender, language or location.
Hashtags A word preceded by a hash, such as #nofilter, used to help users find posts related to their interests.
KPI Key performance indicator, important metrics that can be measured to indicate success.
Objectives What you want to achieve from a marketing effort.
Payment models The various ways available to pay for ads online, such as cost per click (CPC), cost per engagement (CPE), and cost per mille meaning cost per thousand views, (CPM).
Platform A single social media network, such as Facebook, Instagram, or WeChat
Promoted content Content (posts) that extends its reach via paid-for advertising/ promotion.
Social media ROI The return on investment on social media, difficult to measure straightforwardly, but important to track.
Targeting options The options available for ensuring that ads reach the right users at the right time.
13.03: Understanding social media advertising
Social media advertising should be considered as part of an overall social media effort. While brands can start a Facebook page and share engaging posts, those posts would be seen only by a fraction of the possible audience. Even if they have already liked your page. Paying to promote your posts is necessary to ensure that you reach a much larger percentage of your target audience.
Social media advertising is a form of online advertising that takes place on social media networks. Many platforms offer extraordinarily detailed targeting options that match users whom advertisers have identified as belonging to specific purchasing groups, making it a great way to reach exactly the right group of users with your ads.
While more traditional forms of advertising are arguably somewhat inefficient, the targeting offered by social media platforms make it stand out even from other forms of online advertising, such as search or display ads. Social also tends to have higher clickthrough and engagement rates at a lower cost (Hootsuite, 2015).
While it is possible to use social media advertising without considering any other aspect of your digital marketing strategy, it should be considered holistically. The Social media strategy chapter discusses how social media in general can fit into other channels. Social media advertising can be used to:
• Draw attention to products and drive sales
• Drive traffic to websites and other online properties
• Encourage foot traffic
• Encourage other activities offline.
Used well, given the targeting options and access to consumers it offers, social media should be an essential part of any paid media campaign. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/13%3A_Engage_-_Social_media_advertising/13.01%3A_Introduction.txt |
Social media consists of a vast number of different platforms, most of which have different rules for what will and will not work well as an advertisement. However, there are some general principles that govern social media advertising as a whole.
General guidelines
First, remember that 80% of social media time takes place on mobile devices (comScore, 2016). This means that any ad you create for social media is highly likely to be viewed on mobile so you need to make sure that it will look good on that device. Test your posts on mobile devices before you pay to promote them. Consider:
• Images should be clear and convey meaning even when small.
• Text should be brief enough to minimise the need for scrolling.
• The point of the ad should come across immediately with a clear CTA.
• Any links in the ad should lead to mobile-optimised landing pages.
Second, most content on social media is user-generated so if you’re creating paid ads, you need to match the rules of the platform you’re on and generate content that fits what users of that platform will expect. Make sure you understand the platform before you start advertising on it.
Example \(1\)
As an example of matching content to platform, take a look at Denny’s, an American restaurant chain, on Tumblr.
Compare their tone on Tumblr to their tone on Facebook, which, while still informal and friendly, is much more in line with the slightly more professional feel expected by users of that platform.
Similarly, compare Wendy’s, an American fast-food chain, tone on Twitter to their tone on Facebook.
While promoted ads aren’t the same thing as responding to customers, the same principle applies: fit your tone and content to the platform. On Facebook, because reading the audience can be a little difficult, because their audience is so broad, a more neutral, but still brand-relevant, tone is best. On other platforms, because you can see more about the users you are speaking to, it can be easier to adapt your tone to them. Remember, though, that your tone should also be informed by your brand identity and overarching strategy.
Third, use your regular, unpaid posts to test out your paid ads. Make sure that you use effective social media copy in every post. Keep your copy short and to the point, with a clear call to action that tells the reader exactly what to do next, and give them a reason to click or carry out the CTA. Then, track which posts are being liked, shared, or commented on, those should be your first choice for paid promotion. The feedback you get on posts is often near-instantaneous, so this will allow you to respond quickly to whichever posts are doing well and which are doing badly. Facebook Ads Manager can help you do A/B testing by putting equal funds behind two different posts. The one that gets a better initial response gets the rest of the funds.
Fourth, rotate ads often. Social media users expect fresh content; they should not be seeing the same ad multiple times over multiple days, so rotate ads every three to five days (Hootsuite, 2016a). The general rule is that a user should see an ad a maximum of four times.
Payment models
Note
Read more about payment models in the Online advertising chapter.
You should be familiar with the various payment models available from the Online advertising chapter.
The most likely payment models you will encounter on social media include:
• CPC (Cost per click, pay only when the ad is clicked on)
• CPE (Cost per engagement, pay only for demonstrated engagement with the ad)
Note
You can learn more about Facebook’s oCPM bidding here: blog. adstage.io/2014/06/16/ learn-about-facebookocpm-bidding.
• CPM (Cost per thousand impressions)
• oCPM (Optimised cost per mille, Facebook’s flexible ad bid type, where bids can be adjusted based on the goals the advertiser hopes to achieve).
Other payment models will be encountered on other platforms, for example, Pinterest uses an auction bid model for its CPM. Users set a maximum price, but are only charged the amount needed to top the second-highest bidder. They are then charged per thousand views. As another example, a lot of specialised paid media on Twitter is done via third parties like Ad Dynamo and can require high budgets and one-off costs rather than being cost per view or engagement.
Platforms
One of the core principles to keep in mind when choosing a social media platform on which to advertise is that you need to go where your audience is. Be sure to choose a platform that fits your needs as a business as well. Let’s take a look at a few of the most popular platforms to see what they can offer and why you might want to focus your attention on them. Note that the demographic statistics given are for the US. As you read, keep in mind that for most networks, the number of older users is increasing which can lead to changes in the behaviour of younger users on the platform or even drive them off entirely.
Note
Learn more about the popular platforms in the Social media platforms chapter.
Facebook
What they offer: Facebook offers a wide array of targeting options and the biggest social media audience in the world, with 1.79 billion users as of the third quarter of 2016 (Statista, 2016). Ad formats are based on desired objectives (which we will discuss in the next section). Their pricing can vary significantly based on a number of factors, but their ad platform is fairly intuitive, and Facebook Analytics gives you a lot of information you can use to optimise ad performance.
You will have access to Facebook Ads Manager, which allows you to manage campaigns, ad sets, and individual ads. This is also available as an app.
Who uses it: 83% of female-identified and 75% of male-identified Internet users use Facebook. The demographics are skewed toward the youth market, with 88% of 18 to 29-year-olds, 84% of 30 to 49-year-olds, and 62% of online users aged 65 and up using the platform 82% of users have some form of higher education (Sprout Social, 2017).
Best suited to: Every business should have a Facebook page, as it is the bare minimum of what users expect. Your business should be on Facebook even if it is just listed with an address, website, and other basic details. Whether a business should use paid advertising to promote posts depends on what it wants to achieve, but if you plan to use social media advertising at all, you should consider starting on Facebook.
Instagram
What they offer: Instagram offers photo, video and carousel ads in a number of formats. Because it is owned by Facebook, it has many of the same features, including analytics (through Facebook Ads Manager), good targeting options, and various objectives to drive campaigns. Instagram stories is also a powerful feature, which is mentioned in the Social media platforms chapter. Finally, Instagram is potentially the best platform at the moment to work with influencers. It has a very tight community culture with a focus on quality, unique content and creativity.
Who uses it: More women use Instagram than men, and more people in urban areas use it than in rural areas. Income is split fairly evenly among various income brackets, with 38% of users earning more than US \$75 000 annually active on the platform. The important thing to note for Instagram is age, 59% of users between 18 and 29 use Instagram, compared to only 8% above 65 (Sprout Social, 2017).
Best suited to: In theory, any business can use Instagram. The key attraction for Instagram is visually attractive pictures and videos, so businesses that lend themselves to visuals like this, such as food, decoration, or travel-related brands, will have an advantage, but any business that wants to capture that all-important 18−24 year-old demographic should be active here.
Twitter
What they offer: Twitter offers ad campaigns based on objectives, much like Facebook and Instagram, and the kind of targeting you would expect from a major social media platform. Many marketers point out that advertising on Twitter is a problem because the ads are expensive, the targeting is not as good as Facebook’s, and user growth has stalled, but pay-per-click (PPC) on Twitter can be cheaper than other options.
Note
Read more about payment models such as PPC in the Online advertising and Search advertising chapters.
Followers earned from a Twitter campaign tend to be fairly qualified prospects. They will have been chosen to see your tweets based on how well they fit your targeting profile, and they then choose to follow you based on how well your tweet speaks to their needs.
Who uses it: Twitters users are also skewed towards the youth market, 36% of adults aged 18 to 29, but only 10% of adults over 65, use it. And there is an equal percentage of men and women active on the platform. For location, 77% of Twitter accounts are from outside the US, with a fairly even distribution across urban, suburban and rural areas. Like Facebook, college graduates make up the largest audience for Twitter, 54% have some tertiary education or have graduated college. The income demographics are very similar to Instagram, with 30% of adults who earn more than US \$75 000 a year using Twitter (Sprout Social, 2017).
Best suited to: Any business that wants to reach an audience like the one described. Twitter audiences are used to instant gratification, Twitter feuds (check out the hashtag #cuteanimaltweetoff for a good example of this), and snappy comebacks. Twitter is a highly politicised space, so any slip-ups or faux pas on the part of your brand will be quickly picked up.
LinkedIn
What they offer: Most social media sites offer good targeting options, but in keeping with its position as a social network for business professionals, LinkedIn’s targeting options involve someone’s professional abilities. It also tends to convert well on gated content that requires users to enter an email address or other information to download something.
Who uses it: Until 2017, LinkedIn was one of the few social networks that didn’t skew toward 18−29 year olds, however this shifted in 2017.
LinkedIn is used by:
• 34% of adults 18−29
• 33% of adults 30−49
• 24% of adults 50−64
• 21% of adults over 65.
More men than women use LinkedIn, 31% to 27%. On the LinkedIn press page, you can see a map of all their users.
LinkedIn is even more focused on users with some tertiary experience, 50% of adult college graduates and 27% of adults with some college experience use it. Higher levels of users are high earners, with 45% of adults making over US \$75 000 using the platform (Sprout Social, 2017).
Best suited to: B2B marketers who want to target business professionals should start with LinkedIn, and companies that hire a lot of people.
Pinterest
What they offer: Pinterest doesn’t offer as many targeting options as some other social media platforms, but it still has basic location, device, gender, and language targeting. Users often visit Pinterest specifically to gather information about and plan potential purchases, and those who view ads on Pinterest tend to have greater awareness and purchase intent than those who do not.
Who uses it: Pinterest is a great platform for targeting women. 45% of women use it, while only 17% of men do. It is again skewed toward the younger market, with 36% of adults 18−29 using it, dropping steadily as age increases. Only 16% of adults aged 65+ use the platform. Pinterest is most popular in suburban areas, 34% of people living in suburban areas use it, while 30% of urban users are active. Like many social media platforms, its users tend to have at least some tertiary education (Sprout Social, 2017).
Best suited to: Retailers tend to make the most use of this platform, though other businesses can create successful accounts as well. The key is to create beautiful, useful boards that people want to look at, and use advertising to capitalise on that.
Snapchat
What they offer: Snapchat is one of the newer major social networks, but it has come a long way since its origin as a niche platform mostly used by teenagers. It still has a lot of pull with young demographics, and it encourages real-time content creation and consumption, with users paying more attention to content. Most video snaps are watched with audio on, which differs greatly from Facebook, and Snapchat has an engagement rate five times higher than the average clickthrough rate for other platforms (Wallaroo Media, 2017). Facebook, Instagram and WhatsApp have been fairly blatant about stealing Snapchat’s features, including Stories and Filters, which could mean a drop-off in users over time. However, Snapchat is fighting back with new offerings such as Lenses.
Who uses it: Snapchat is dominated by younger users, with 60% of users under 25. About 23% of users haven’t yet graduated from high school. Only about 12% of users are aged 35 to 54, with a mere 2% of users aged 65+. However, this is changing, more than half of new users signing up to Snapchat are over 25. Snapchat doesn’t publish gender information for its users, but in 2013, about 70% of users were women, and a survey from 2015 showed that more women than men use the platform (Hootsuite, 2016b). The highest penetration rate for Snapchat is in Ireland, then Saudi Arabia and Sweden. College students are more likely to have Snapchat accounts than other demographic groups.
Best suited to: Snapchat has fewer options for small businesses than most other social media platforms simply because their options are expensive. Prices have come down, however, with cheapest option, the Sponsored Local Geofilters ad, coming in at as little as US \$5. This means that, while the bigger options are still only available to big businesses, other options are available to almost anyone. This means that Snapchat is suited to any business that wants to find a particularly young audience.
Yelp
What they offer: Yelp is a review site that helps users select a business that suits their needs. There are many sites similar to Yelp, so keep in mind that you may want to choose a different option that is more active in your area. Tracking leads generated by Yelp can be difficult, but it does provide some metrics like page views and ad clicks. With users relying more and more on reviews and review sites when choosing where to buy, platforms like Yelp are increasingly attractive.
Who uses it: Men use Yelp more than women, and women are 50% less likely to leave a review if they use the site regularly. People in urban areas are twice as likely as those in rural or suburban areas to use Yelp to choose a business. Yelp users are active on mobile, with 71% of searches on the platform originating from mobile devices worldwide. The largest age demographic for Yelp users is 18−34, which accounts for almost 42% of Yelp users. Most users, 60%, have at least some college education, and 38% of users have an annual household income of at least US \$100 000 (Gaille, 2015).
Best suited to: Yelp works best for location-based businesses. That said, many advertisers argue that advertising on Yelp may not be worth the money compared to a free profile so weigh your options carefully. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/13%3A_Engage_-_Social_media_advertising/13.04%3A_Core_principles.txt |
Each platform has its own objectives, ad types, and targeting options. In this section, we will examine a few of the most popular ones.
Facebook
We have already looked at what kind of audience can be found on Facebook and the broad strokes of what they offer.
Objectives
Facebook offers several paid-for advertising solutions based on the action the advertiser wants the audience to take, the purpose of the ads. The core objectives are awareness, consideration, or conversions, which Facebook has broken down further into more specific objectives on which you can base your ad creation.
• Awareness
• Brand awareness
• Local awareness (promoting to users nearby)
• Reach (show your ad to the maximum possible number of users).
• Consideration
• Traffic (sending users to your website or app)
• App installs
• Engagement (encourage comments, page likes, shares, event responses, and offer claims)
• Video views
• Lead generation (collect lead information from interested parties).
• Conversion
• Conversions (encourage valuable actions on your website or app)
• Product catalogue sales (create ads that automatically show products from your catalogue based on your target audience)
• Store visits (promote multiple business locations to users nearby) (Facebook, 2017).
The ad format you choose will match your advertising objective.
Ad types
Once you have chosen an objective, Facebook offers a set number of ad formats to choose from that will help you meet that objective. Those formats are:
• Single image
• Single Video
• Carousel
• Slideshow (video-like ads)
• Dynamic ads
• Lead ads
• Boosted posts and promoted posts
• Collection
• Messenger ads
• Canvas (an ad type that offers different components in various configurations to tell a brand story).
These ads have several options for placement in your users’ feed. They can appear RHS (right hand side) desktop, in the news feed on desktop, or in the news feed on mobile. Because Facebook owns Instagram, you also have the option of showing certain ad types there. The vast majority of Facebook’s revenue comes from mobile, so they are very focused on a good mobile experience for their users. Find out more about their ads here: https://www.facebook.com/business/ads-guide You can also find a very useful infographic summarising the various options here: wersm.com/the-complete-guide-to-facebook-ad-specs/#prettyPhoto/0/.
Targeting options
Once you have chosen an objective and ad type, you will need to look at Facebook’s targeting options, which gathers user data from Instagram and WhatsApp as well. They offer three audience options to choose from:
Note
Facebook advertising information can be found at: www.facebook.com/ business/products/ads.
1. Core audiences, where you select your audience manually based on demographics like age and location.
2. Custom audiences, where you upload a contact list to connect with customers on Facebook.
3. Lookalike audiences, where you use customer information to find people similar to them on Facebook.
Core audience (manual) selection allows many detailed targeting options:
1. Location: Where the users are located, city, region etc. Allows exclusion of locations.
2. Demographics: Age, gender, languages, relationships status, type of work, education, and more.
3. Interests: Interests, hobbies, and Pages they like on Facebook.
1. Behaviours: Activities users do on or off Facebook that give information on which device they use, their purchase behaviours or intent, travel preferences, and more.
2. Detailed targeting: Offers the option to include or exclude users who meet at least one parameter (not all of them). This can include whether people have a connection to you on Facebook (or have friends who do).
For a full list of Facebook targeting options, look at this infographic: i.marketingprofs. com/assets/images/daily-chirp/170213-infographic-complete-guide-to-facebookad-targeting-full.jpg
If you select multiple options from within an ad targeting category, you’ll reach users who meet any of the options you’ve selected. For example, if you choose multiple Locations like the United States and Canada, you’ll target anyone who lives in either the United States OR Canada, not both.
Another example might be choosing multiple options from the Interests targeting category. If you choose interests like Golf and Tennis, you’ll target anyone who likes golf OR tennis, not just users who like both golf and tennis. Keep in mind that it’s not possible to target ad sets only to the users who fall into all of the selected categories. Custom audience selection has several benefits, including:
• Powerful exact targeting
• No wastage
• Cap bidding and frequency
• Data is encrypted and secure.
Using these selectors, you can create a list of who you want to reach using their email addresses. Facebook matches the email addresses and allows exact targeting of those users through their ads. Custom audiences are extremely powerful; if you have users’ email addresses, you can target individuals. This is useful for any brand that uses newsletters or gathers email addresses elsewhere.
Lookalike Audiences is useful because it helps you find a similar audience to your existing fans and gives more accurate targeting. This makes it easy to find more users on Facebook who are like the people you know. You can build a Lookalike Audience based on:
• People who like your Page
• Custom Audiences that you’ve created with emails, phone numbers, or website or app data.
It’s an effective way to reach even more potential customers because you can target your Lookalike Audience with the adverts you create.
The Facebook Pixel
The Pixel is a piece of code you can build into your website to help you track user actions and remarket to them on Facebook. Your conversions can be tracked across mobile phones, tablets and desktops, you can optimise your bids for website conversions and ensure that your ads will be shown only to the users most likely to convert, and you can remarket to or reach users on Facebook who have visited your website. You can learn more about the pixel and get started with it here: www.facebook.com/business/a/facebook-pixel.
Facebook advertising tips
As you dip your toes into Facebook advertising, remember:
• Ads can be unpublished posts targeted at a specific audience.
• Multiple ads can run at the same time.
• Targeting should not be too granular, unless the audience is highly qualified.
• With awareness-based advertising, keep your reach and frequency as high as possible.
• Check your ads in Facebook’s Ads Manager (or, for more advanced advertisers with multiple campaigns and ad sets, the Power Editor).
Note
Facebook will suggest a bid to help make sure that your ad will reach a significant portion of your audience.
Instagram
Instagram is a very large mobile platform with an engaged mobile audience, making it a good option for some businesses.
Note
You can do Facebook’s own training course, Facebook Blueprint, for free to learn every aspect of its offering: www.facebook. com/blueprint
Objectives
Instagram offers three ad types driven by the objectives you want to achieve, which are not surprisingly, similar to Facebook ad objectives:
• Brand awareness
• Reach
• Traffic
• App installs
• Engagement
• Video views
• Lead generation
• Conversions
Ad types offered
Not every ad type is available for every objective. Once you choose an objective, you will be shown the ad types you can use. The three ad types offered by Instagram are:
1. Single image ads, which are exactly what they sound like.
2. Video ads, which can share videos up to 60 seconds long.
3. Carousel ads, which are similar to single image ads but include multiple images that users can swipe to see.
4. Slideshow ads, which are like Carousel ads, except the images scroll on their own with music creating a mini video.
5. Instagram Stories Ads, which include single image and single video ad formats that are placed within Instagram Stories (ShorterURLs, 2017).
Some companies can expand the types of Twitter advertising available, For example, Ad Dynamo (www.addynamo.com/new), which is focused on Africa, offers a range of ad types that are not available through self-service. Blue Robot (www.bluerobot. com/index.jsp#about) is another company that allows you to automate Twitter in a number of ways, such as automatically responding to Tweets with live data or building automated responses based on Tweets from various locations.
Targeting options
Instagram has many of the same targeting options as Facebook. They include:
• Custom audiences (target audiences of users you already know, which includes lookalike audiences)
• Location, age, gender, language targeting
• Detailed targeting (include or exclude users based on demographics, interests and/or behaviours)
• Connections (include or exclude users based on connections to your page, apps, or events).
You can also save an audience to use it for future ad sets.
Instagram advertising tips
• Remember, Instagram shares targeting options with Facebook so make use of them, but don’t go too granular.
• Don’t make your post look like an ad, it should be visually arresting and enjoyable first, advertising second. It should blend in with organic content rather than stand out as an ad.
• Include a hashtag so that users can find your posts/ads more easily. Bigger brands can create their own hashtags.
Note
You can find out more about advertising on Instagram at: https:// business.instagram. com/advertising or at blog. hootsuite.com/howto-use-instagram-forbusiness/
• Try to tell a brand story and think carefully about how details will affect what audiences take from your images.
Twitter
Twitter offers a self-service ad platform with several options and allows a degree of specific targeting. The service does still tend to change frequently, and not all options may be available to all regions or user accounts. Objectives Like Facebook, this is mobile first and the ad formats match the actions you want users to take. The basic objectives are:
1. Promote your brand
• Website clicks or conversions
• Increase followers
• Awareness
• Tweet engagements
1. Promote your video
• Video views
1. Drive conversions
• App installs or re-engagements.
Learn more about Twitter campaign types (which are slightly different from ad objectives) here: business.twitter.com/en/advertising/campaign-types.html
Ad types offered
• Plain text tweet are tweets that appear at the very top of a user’s timeline, or in Twitter mobile apps. There is no minimum spend, and advertisers pay when users retweet, @reply to, favourite, or click on a promoted tweet.
• Single image card, is a tweet with a single image.
• Multi-image card includes up to 4 images that users can click on each image to enlarge.
• Promoted video, a tweet that includes a single video.
• Basic App card and Image app card, a tweet that includes a call to action button that installs the app, or directs users to their App store.
• Video app card, an app install tweet that includes a video.
• Website card, a tweet that includes a button that takes the user to the website.
• Lead Generation Card, a tweet card that enables a user’s details to be autofilled in and sent to the brand with the simple click of a button.
• Conversational ads, are ads that enables brands to engage directly with users, and that users can share with their followers.
These are the most popular options available, but there are others. You can find a full list of Twitter cards here; they change fairly frequently, so make sure to check in often: dev.twitter.com/cards/types
Targeting options
Twitter targeting options are nearly as detailed as Facebook. You can choose an audience based on:
• Location (country, state, region, metro area, or postal codes)
• Gender
• Language
• Device, platform, and carrier
• Keywords
• Followers
• Interests
• Tailored audiences (you can upload a list of emails or Twitter IDs, or you can put a code snipped on your website to collect visitors, purchasers, or downloaders and then target them)
• TV targeting (to target users who engage with television programs in a specific market, or by show)
• Behaviours
• Events (users interested in global or regional events).
Twitter advertising tips
• Use your own campaign, specific hashtags rather than using generic ones
• Use multiple tweets per campaign, test your options
• Include a deadline
• Monitor influencers, what works for others could work for you
• Make sure your ads contain content worth sharing.
LinkedIn
LinkedIn ads allows you to create and place adverts on prominent pages on the LinkedIn website, including a user’s home page, search results pages, groups and more. It has both self-service and premium options, and offer ’sponsored updates’ as a self-service option. There is a minimum budget requirement of US \$10 a day, though no minimum spend, that is, you have to budget at least US \$10 a day, but you don’t actually have to spend any of it. Ads can be served on a CPM or CPC basis.
Objectives
LinkedIn offers 3 main objectives:
1. Reach LinkedIn members in their LinkedIn feed and beyond.
2. Drive targeted ads across multiple LinkedIn pages.
3. Send targeted messages directly to those who matter the most to your business.
Ad types offered
LinkedIn offers five types of ad:
• Sponsored content
• Sponsored InMail (reaching your audience through their LinkedIn inbox)
• Dynamic Ads
• Display Ads
• Text ads.
Sponsored stories are when content posted on a brand’s profile is promoted through display ads or into the feeds of users across the LinkedIn network, according to your targeting preferences. Text ads can be shown on the right-hand side across desktop, mobile, and tablet.
Targeting options
LinkedIn offers many targeting options, including:
• Job title
• Job function
• Seniority
• Industry
• Skills
• Degrees
• Geography
• Age
• Gender
• Company name
• Company size
• LinkedIn group.
LinkedIn advertising tips
• Test variations of your ads to see which is the most successful. The text ad option allows you to create up to 15 variations of a single ad.
Note
You can find more information about LinkedIn advertising at: business.linkedin.com/.
• Consider your budget carefully. Sponsored InMail ensures you’ll at least be seen by your target, and display ads are a good way to stay top of mind, but both can be quite expensive.
• Make sure you use all the allotted characters for ad copy to describe your service.
• Use images with the correct ratio so that they look good, both on desktop and mobile.
Pinterest
Pinterest advertising is still relatively new and has limited availability worldwide. A business account is necessary to advertise on this platform.
Objectives
When creating a Pinterest Promoted Pin, you will be asked to choose a goal for your campaign. Your options are:
Traffic campaign: To draw users to your website
Engagement campaign: To encourage close ups, repins and clicks on your Pin
Awareness campaign: To reach a wide audience.
Ad types offered
The only ad type on Pinterest is Promoted Pin. Here, you select an already existing Pin to use. When you choose a Pin while setting up an ad, you have the option to filter your Pins to see which are your best-performing (most clicked and most repinned) Pins from the last 30 days.
Targeting options
Targeting options for Pinterest are:
• Interests and Keywords: You have 420 interests to choose from, and you can manually add keywords, import an existing list of keywords, or use the keywords that Pinterest recommends for you. Choose carefully, and try not to use all 150 keywords that the platform allows you to add, be focused.
• Specific audience: Users who have visited your site or app, engaged with Pins that link to your site, or – similar to Facebook’s ’lookalike’ audience – an ’actalike’ audience that is similar to users who are already engaging with you.
• Location
• Language
• Device
• Gender.
Pinterest advertising tips
• Make sure that the ads you select reflect your brand promise. Misleading or exaggerated claims are more than a bad idea; Pinterest prohibits them.
Note
Read more about advertising with Pinterest at: https://ads.pinterest.com.
• Use vertical images. This isn’t required, but users prefer it.
• Optimise your pins for mobile viewing.
• Research Pinterest trends so that you can keep your campaigns relevant.
Snapchat
Snapchat’s paid advertising options are relatively young, but they have grown almost as rapidly as the app itself. There are a variety of ways that brands can advertise on Snapchat.
1. Lenses and geo-filters
2. Discover channels
3. Live channels
4. With influencers
5. Takeover
6. Promotion
7. Unboxing
8. Product placements.
Objectives
Snapchat does not require you to select an objective to create an ad, but it can help you reach the usual objectives, such as:
• Visit a mobile website
• Install an app
• Watch a long-form video
• View an article.
Ad types offered
Snapchat offers a few unusual ways to reach your audience:
• Snap Ads: Mobile video ads that can be up to ten seconds long and will be vertical and full screen. Users can swipe up and reveal extended content, which could be an article, app install, long-form video, or mobile website.
• Sponsored Geofilters: A small piece of art or writing that covers part of the snap. A business chooses a location (or more than one), and when Snapchatters in that location take a Snap, the sponsored Geofilter appears as a filter option that can help users explain the context of that snap. This is great for local targeting and can cover a specific location, event, or theme (for examples, coffee shops across Florida). Sponsored Geofilters should be fun and attractive, provide context to the Snap, and encourage users to share them.
Note
Take a look at the first campaign to use limited-time Geofilters, where McDonald’s achieved 12 million filter snaps, 308 million filter views, and 400 million filter impressions: http:// shortyawards.com/8th/ mcdonalds-geofilters
• Sponsored Lenses: An interactive ad. The brand creates an interactive filter that can be added to a Snap, an animation can be added, and the Lens can be shared or posted to users’ own Snap Stories. They are a lot more complex to develop, and thus are a very costly and labour intensive option. Many movie franchises have found great success in raising awareness for new releases.
Targeting options
Snapchat includes a variety of targeting options:
• Snapchat Audience Match: Brands can anonymously match data from an existing list of email addresses and mobile device IDs to Snapchat’s consumer data. Users can opt out of being included.
• Snapchat Lifestyle Categories: Brands can target users who view certain types of videos, such as pets or cooking.
• Lookalikes: Like the Facebook option, brands can target users with characteristics similar to their existing customers.
Snapchat is also aiming to up their targeting game by enabling marketers to use data from offline purchases to target users with relevant ads.
Snapchat advertising tips
• As always, make sure your content fits the platform: Snapchat is informal and natural, using fun filters and add-ons, rather than the more posed images you might see on Instagram.
Note
Read more about Snapchat advertising at www.snapchat.com/ads.
• Tell a story: Test your content to see what works best.
• Use influencers: This is a great way to reach even more users.
Other platforms
Of course, this is by no means an exhaustive examination of available platforms for social media advertising. For example, some marketers still like Google+, and YouTube is a huge platform for marketers. YouTube offers a wide range of advertising formats and options for businesses. These are covered in detail in the chapter on video marketing.
Note
Read more about this in the Video marketing chapter
Different countries have different preferred platforms. For example, Weibo and WeChat are very big in China. Check out a case study focusing on Russian audiences here: www.digitaltrainingacademy.com/casestudies/2017/01/social_media_case_ study_asos_reaches_russian_audience_through_vk_and_yandex.php#more
Make sure you do your research so that you know which platforms your audience is active on and where you might want to advertise. For example, Reddit (www. reddit.com), along with similar content curation platforms, is great for sharing good content, but the community is very advertising-savvy and does not welcome overt ads that do not provide value to the user.
You may also want to keep an eye on up-and-coming platforms, such as Wanelo (wanelo.com). | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/13%3A_Engage_-_Social_media_advertising/13.05%3A_Implementing_social_media_advertising.txt |
Some of the difficulties of advertising on social media are the same as the difficulties of being on social media in general. They include:
• Promoted posts all need to work hard to make an authentic connection with the audience.
• You need to consistently promote good content.
• There is always the chance that your audience will respond negatively to a post, which can escalate quickly.
• Choosing the right platform to advertise on can be a challenge.
• Tying ad spend on social media to revenue increases can be difficult, since the benefits of advertising on these platforms are often indirect. Take a look at Sprout Social’s Ultimate Guide to Measuring Social Media ROI for some tips: sproutsocial.com/insights/social-media-roi-guide.
It is important to clarify with whomever you are reporting to that ROI on social media is not an exact science. Far more data is available than on traditional media, but it has its limits. So rather than drawing a clear line from social media advertising to sales, look at encouraging behaviours that lead to sales, such as convincing users to sign up for a test drive rather than attempting to sell a car. You can easily calculate ROI if you know how many signups for test drives you get from Facebook, and how many test drives result in sales.
Despite its challenges, advertising on social media cannot be avoided. If you want to reach the maximum possible number of users with granular targeting that ensures you’re reaching exactly the right users at the right time, social media advertising is the way to go. It is also the only way to ensure that a significant portion of your audience per platform will see your posts.
Like social media in general, advertising on this channel can:
• Increase brand recognition
• Improve brand loyalty.
It is:
• Fairly low cost
• Easy to share, and
• Allows for real-time analysis of your campaigns and audience.
13.07: The bigger picture
Social media advertising ties in with any number of other marketing channels. You can use it to push content marketing to an audience that will appreciate it and encourage shares and earned media coverage, to drive traffic to your website, to push offline campaigns and encourage chatter about them, and much more. Any marketing campaign should keep social media advertising in mind as a potential way to increase reach and engagement.
The incredible targeting opportunities offered by social media advertising allow content to reach exactly the right audience at the right time to encourage interaction or conversions, and paid promotion is the best way to boost the reach of any post.
13.08: References
ComScore, 2016. 2016 U.S. Cross-Platform Future in Focus. [Online] Available at: www.comscore.com/Insights/Presentations-and-Whitepapers/2016/2016-US-CrossPlatform-Future-in-Focus [Accessed 1 November 2017]
Digital Training Academy, 2016. Kraft Mac & Cheese reaches 2 million with Snapchat Sponsored Lenses. [Online] Available at: www.digitaltrainingacademy.co...ese_reaches_2_ million_with_snapchat_sponsored_lenses.php#more [Accessed 1 November 2017]
Facebook, 2017. Advertising objectives. [Online] Available at: https://www.facebook.com/business/he...97976123664242 [Accessed 1 November 2017]
Gaille, B., 2015. 17 Terrific Yelp Demographics. [Online] Available at: brandongaille.com/17-terrific-yelp-demographics [Accessed 1 November 2017]
Hootsuite, 2015. Display Ads, Search Ads, and Social Media Ads: Pros and Cons. [Online] Available at: blog.hootsuite.com/display-ads-search-ads-and-social-media-ads [Accessed 1 November 2017]
Hootsuite, 2016a. Social Media Advertising: The Complete Guide. [Online] Available at: blog.hootsuite.com/social-media-advertising [Accessed 1 November 2017]
Hootsuite, 2016b. Top Snapchat Demographics That Matter to Social Media Marketers. [Online] Available at: blog.hootsuite.com/snapchat-demographics [Accessed 1 November 2017]
Pagemodo, 2016. The 9 Types of Twitter Ads You Need to Know for 2016. Available at: www.pagemodo.com/blog/the-9-types-of-twitter-ads-you-need-to-know-for-2016 [Accessed 1 November 2017]
ShorterURLs. 2017. The complete guide to Instagram ads: A step-by-step guide to [Online] Available at: shorterurls.com/2017/03/16/th...-stepguide-to/ [Accessed 1 November 2017]
Sprout Social, 2017. Social Media Demographics to Inform a Better Segmentation Strategy. [Online] Available at: https://sproutsocial.com/insights/ne...ics/#instagram [Accessed 1 November 2017]
Statista, 2016. Number of monthly active Facebook users worldwide as of 3rd quarter 2016. [Online] Available at: www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide [Accessed 1 November 2017]
Wallaroo Media, 2017. Why Advertising on Snapchat is Better Than Advertising on TV, And Why You Need It Now. [Online] Available at: wallaroomedia.com/why-advertising-on-snapchat-is-better-than-advertising-on-tv-andwhy-you-need-it-now [Accessed 1 November 2017] | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/13%3A_Engage_-_Social_media_advertising/13.06%3A_Advantages_and_challenges.txt |
Measuring the success of your social media advertising activities can be tricky. As mentioned, ROI can be difficult to establish, but it can be done!
Note
Not only is ‘number of followers’ a vanity metric, too many followers who are not quality followers can actually harm you. Remember, only a tiny percentage of your total audience will see your content organically, so you want them to be engaged.
First, you want to identify your KPIs. Note the difference between vanity metrics and those metrics that will actually be useful. The number of fans on Facebook, for example, is a vanity metric. It doesn’t mean much on its own. Instead, you would want to look at percentage increase in number of fans, or the engagement rate of the fans that you have, to see whether you are doing well.
The KPIs you identify as important will depend on the goals of any campaign you run. For example:
• If you want to drive revenue, your important KPIs will be sales related such as product purchases, signups for trials, or traffic to your website (which could then turn into a conversion).
• If your goal is awareness, your most important KPI might be reach.
• If your goal is building customer relationships, you would want to look at engagement numbers and sentiment.
If you want to attach actual monetary value to your KPIs, you need to decide what method you want to use. Do you want to look at average sales, the lifetime value of a customer, or how much similar reach would cost you if you used different methods of advertising?
To measure your KPIs, you’ll need to use the analytics tool of the platform you’re advertising on (see below). You can use Google Analytics to see whether social drives traffic to your website, to which specific posts you can attribute revenue, to find out how visitors from social consume your content, and to discover how social impacts conversions. Find out more about how to do this here: www.socialmediaexaminer. com/how-to-measure-social-media-using-google-analytics-reports and here: blog.hootsuite.com/tracking-social-media-in-google-analytics.
You may also consider social media dashboards like Hootsuite, which help you monitor campaigns across platforms.
13.10: Tools of the trade
The most important tools you’ll need here are the analytics tool for each platform you work on:
• Facebook Page Insights: www.facebook.com/business/learn/facebookpage-insights-basics
• Facebook Ads Manager: https://www.facebook.com/business/ help/415745401805534
• Facebook Power Editor: https://www.facebook.com/business/ help/162528860609436
• Instagram Insights: www.facebook.com/business/help/1533933820244654. You can also find some free Instagram analytics tools here: socialbeesmedia.com/best-free-instagram-analytics-tools-2016
• Twitter Analytics: analytics.twitter.com
• LinkedIn’s Campaign Manager: www.linkedin.com/uas/login
• Pinterest Analytics: analytics.pinterest.com
• It can be difficult to measure on Snapchat, but a few tools exist, such as Snaplytics: snaplytics.io.
Google Analytics can also be used, as discussed in section 13.7, Measuring Success. You can find a list of 5 Tools to Measure Social Media ROI here: www.socialmediaexaminer.com/5-tools-to-measure-social-media-roi.
As mentioned, you may also want to consider a social media dashboard. Some popular options include:
• Hootsuite: hootsuite.com
• Sprout Social: lps.sproutsocial.com/social-media-dashboard
• Fan Page Robot (a free tool): fanpagerobot.com
• Datorama: direct.datorama.com/lp4.
13.11: Case study - Kraft Mac and Cheese
One-line summary
To show off its new recipe, Kraft Mac & Cheese created a first-of-its-kind Snapchat Lens that used gamification to engage users (Digital Training Academy, 2016).
The challenge
Kraft wanted to share with their customers the news that they had removed artificial flavours, preservatives, and dyes from Kraft Mac & Cheese. They wanted a nostalgic campaign that would reach a younger audience, so they chose Snapchat as their platform.
The solution
The brand created the ‘It’s changed. But it hasn’t.’ campaign, partnering with Snapchat to create a Sponsored Lens that was interactive and encouraged engagement through gamification.
With this Lens, Snapchatters could virtually catch macaroni with their mouths. Each successful catch scored them points. This gamification aspect encouraged sending and receiving snaps with this Lens.
The results
The brand saw very favourable results from this campaign.
• It reached almost 20 million Snapchatters.
• 84% of those who remembered the Lens enjoyed it.
• Snapchatters played with the lens for an average of 20 seconds.
• Kraft Mac & Cheese saw a five point increase in brand favourability.
• They saw a 13% lift in purchase intent.
13.E: Social media advertising(Exercises)
Case study questions
1. Why do you think Snapchat was the right platform for this campaign?
2. What do you think was so attractive about this Lens?
3. What could other brands learn from this campaign about advertising on Snapchat?
Chapter questions
1. What should be the primary consideration when choosing a platform on which to advertise?
2. What are the most exciting targeting capabilities offered by social media advertising?
3. What sets social media advertising apart from other forms of online advertising?
Further reading
Take a look at this infographic on How to Navigate the Social Media Advertising Solar System: www.marketingprofs.com/chirp/2017/31385/how-to-navigate-the-social-media-advertising-solar-systeminfographic?adref=nlt020717
Read The 7 Hidden Factors of the Most Effective Social Media Ads: blog.bufferapp.com/social-media-ads-strategies
Here is 10 Facebook Marketing Tips for Advertising on Advertising on Social Media: www.bluefountainmedia.com/blog/10-facebook-marketing-tips-for-advertising-on-social-media
And check out Social Media Advertising: The Complete Guide from Hootsuite: blog.hootsuite.com/social-media-advertising
Hootsuite’s blog is always a good source of tips: blog.hootsuite.com
So is Sprout Social’s blog: sproutsocial.com/insights
And Social Media Examiner has a lot of useful resources: www.socialmediaexaminer.com
13.S: Social media advertising(Summary)
Social media advertising is an effective channel, at the very least, to reach as many of your users as possible on the platforms on which they are active. Certain guidelines apply to all social media advertisements, such as ensuring that ads will look good and function well on mobile, but others are platform-specific.
Each platform offers its own unique advertisements, targeting options, and analytics capabilities. Which platform you use should be informed not by where you wish to be active, but by where your audience already is.
In this chapter, we covered some of the most popular advertising platforms, but others do exist and should be considered depending on audience, location, and capabilities. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/13%3A_Engage_-_Social_media_advertising/13.09%3A_Measuring_success.txt |
Learning Objectives
In this chapter, you will learn:
• Why CRM is essential for any business.
• The role that customers play in shaping and steering your business.
• The difference between applying CRM as a communications strategy or a core business strategy.
• How to collect, store, analyse and update your essential CRM data.
• The step-by-step process of putting together your CRM strategy
14: Retain - Customer relationship management (CRM)
Customer relationship management (CRM) has existed since people first started selling things. The first shopkeeper who stopped to chat with his customers, who knew them by name, and perhaps gave them a small ‘freebie’ for continually using his services, was practicing a form of customer relationship marketing by making customers feel special. He was also probably seeing the favourable impact on his bottom line. It helped that customers were being served directly by the business owner.
Today, with businesses becoming more digitally remote, and with person-to-person contact becoming more scarce, CRM is more important than ever. We need to build and maintain relationships with our customers. A faceless company is not personable or engaging so it has to work harder to fill the gap between attracting and retaining customers (and their good will). The relationship a customer builds with a company is often the reason they return. Building those relationships today is more difficult than ever, in a society where data is protected, customers are smart and exercise their right to choose, and a competitor can be just a click away.
CRM is a customer-focused approach to business based on fostering long-term, meaningful relationships. CRM is not about immediate profit. It’s about the lifetime value of a customer, the purchases they will make in future, the positive word of mouth they will generate on your behalf, and the loyalty they will show your brand. Effective CRM enables businesses to collaborate with customers to inform overall business strategies, drive business processes, support brand development, and maximise ROI.
There are two approaches to CRM. Either one can apply it as an approach to communication strategy using personalised and segmented contact, or as a core business strategy such as loyalty programmes. Which you choose depends on the size and goals of your business.
There is a truism that a happy customer tells one person, but an unhappy customer tells ten. With your customers’ voices being heard on blogs, forums, review sites and social media, they can talk loudly and impact your business easily.
14.02: Key terms and concepts
Table 14.2.1
Term Definition
Churn rate The annual percentage rate at which a business loses customers.
Customer A person who buys or uses goods or services, with whom a company should develop a relationship.
Customercentric Placing the customer at the centre of an organisation’s business planning and execution.
Customer lifetime value (CLV) The profitability of a customer over their enti
Customer relationship management (CRM) A strategy for managing a company’s relationships with current, potential and lapsed clients. It often makes use of technology to automate the sales, marketing, customer service and technical processes of an organisation.
Data mining The process of analysing data to discover unknown patterns or connections.
Key performance indicator (KPI) A metric that shows whether an objective is being achieved.
Lapsed Someone who is no longer a customer
Model A strategic visual representation of a process that a company adheres to.
Prospect A potential customer
Segmentation The practice of dividing customers into smaller sub-groups based on shared interests or characteristics.
Stakeholder A person or organisation with an interest in how a resource is managed.
14.03: A CRM model
Many companies that practice CRM rely on a simple model to guide them strategically. In many cases, this sums up exactly what CRM is about. Below is a simple model that demonstrates this.
Note
Notice the Pareto effect, discussed later in this chapter, demonstrated in this model.
As you can see, a good CRM strategy turns strangers into customers, customers into friends, and friends into advocates for your business. One needs to identify the right touchpoints and messaging to drive a customer further along this funnel. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.01%3A_Introduction.txt |
Customers should be seen as the most important stakeholders in a business. Without customers purchasing goods or services, most businesses would not have a revenue stream. It can be difficult to shift from realising this important fact to implementing it in day-to-day business decisions and strategy.
A successful relationship with a customer is based on meeting or even exceeding their needs. It is in determining what problems the customer has, and in providing solutions, sometimes before the problem occurs. It depends on continually giving the customer a reason to transact with your company above any other.
CRM should not only mean implementing customer-centric processes and consider technology, but embracing customer-driven processes. Through innovations in digital technologies, enhanced customer engagement, social listening and the introduction of mass personalisation, the customer can often drive the business.
Consumer touchpoints
Consumer touchpoints are all the points at which brands touch consumers’ lives during their relationship. This is the starting point for all CRM, a brand needs to speak with one voice across all of these touchpoints and deliver a rewarding and relevant experience every time it interacts with its customers. CRM can drive the anticipation of customer needs. Touchpoints can be brand initiated, for example, a brand sending an email newsletter, or customer initiated, for example, the customer making a purchase in a store or calling a call centre.
Note
A good CRM infrastructure must ensure touchpoints for dialogue.
A consumer touchpoint can be as simple as a print or banner ad. It can also be as multifaceted as a conversation between a call centre agent and a customer. It can be a timely tweet, or an outbound email giving the customer details about their account. Even statements and bills are touchpoints and need to be managed carefully to ensure that the brand continues its relationship with the customer successfully.
Customer touchpoints can generally be divided into three spheres or phases, prepurchase, purchase and post purchase.
Pre-purchase or pre-usage covers the various ways brands and prospects interact before the prospect decides to conduct business with a company. The brand’s goals here are to:
• Gain customers
• Heighten brand awareness
• Shape brand perceptions or to highlight the benefits it offers over competitors
• Indicate how the brand provides value and fulfils the needs and wants of consumers
• Educate consumers about products and services
• Ignite the possibility of a relationship.
Purchase or usage covers the touchpoints at which the customer decides to purchase a product, use a service or convert according to set criteria, and initiates the brand-customer relationship. The key goals are to:
• Instil confidence
• Deliver value
• Reinforce the purchase decision
• Heighten brand perceptions
• Facilitate ease of purchase
• Reduce post purchase dissonance.
Post-purchase or usage covers all the post-sale interactions between the brand and customer. Now, the brand wants to:
• Deepen the relationship
• Maximise the customer experience
• Deliver on the brand promise
• Increase brand loyalty
• Remain top of mind
• Invite repeat purchases.
Customer loyalty
The main objective of any CRM strategy should be to gain customer loyalty over the long term. But what is loyalty? This may mean different things for different organisations. Ultimately, it is about acquiring and retaining customers who:
Note
Think of a brand that has extremely loyal fans, for example, Apple, Nike or HarleyDavidson. What do you think the brand did that encouraged people to support them so vocally?
• Have a projected lifetime value that makes them a profitable prospect to your business
• Buy a variety of your products or use your services repeatedly during their time as a customer
• Share their positive experiences with others
• Provide honest feedback on these products and services, and their experiences
• Collaborate with you on ways to improve their experiences. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.04%3A_Understanding_customers.txt |
Data is central to the success of CRM initiatives. Knowing who your customer is, how they behave and what they want makes a CRM strategy successful. Data gathering can begin even before your prospect becomes a customer. Matching a prospect’s profile to the product or offer is the first step.
But data on its own is meaningless if it is not analysed and acted upon. Through analysis, data can be turned into insights, which can then inform the various CRM processes and, indeed, the business itself.
Data should underpin the way each touchpoint is utilised to build loyalty.
Consider the consumer who shops on her store card at a retail outlet. Her transactions are recorded against her card and she is sent offers that detail the latest fashion trends and earns points on her card shopping for these. At some point, her transactional data shows that she has started shopping for baby clothes so she can now be cross-sold products to do with babies, and rewarded with double points when she buys them. Now she is increasing her spend in the store, cross-shopping for both herself and her family and being rewarded for this, thus ensuring that the retail outlet is offering her value and retaining her business.
Customer data
A good CRM programme begins with data. Who are my customers and what do they want? What are their demographic and psychographic needs? Why did they choose me in the first place? How many of them are active, and continue doing business with me? Why do the others stop? What is the average tenure of a customer?
Note
Read more about this in the Data analytics chapter
Often, you will need to research this information. If the company has a database, conducting surveys, focus groups or dipstick telephonic research can help you get an idea. Consider that an Audi Q7 driver is vastly different to an Audi A1 driver, for instance. They both pick the brand for similar reasons, but their motivations behind choosing the products differ vastly.
Data can give you these insights. It can enable a company to create real value for the customer and thereby gain true loyalty. There is little point in running a customer insights survey, looking at the results and saying, “that’s interesting” without putting into action any changes suggested by the results. Not auctioning noticeable changes also means customers are less likely to take part in surveys going forward, and quite rightly so, what’s in it for them? Conversely, if you do action changes, customers will feel increased ownership in the brand and its offering.
Note
Choosing a CRM system and operationalising it in your business is no small undertaking. Cost can be dramatically impacted by how well this system can integrate with other processes and tools in your business. Make sure to do your homework before jumping in.
The actual technology you use to gather and collate data is also crucial. Remember that there are many facets to CRM, and the quality and accessibility of the data will have a major impact on how well these processes run.
When looking at data, it is essential to keep in mind the Pareto principle. The Pareto principle, or 80/20 rule, holds that in many situations approximately 80% of profits are delivered by 20% of customers. Also keep in mind the traditional view that 20% of customers are responsible for 80% of problems related to service and supply (Koch, 2008).
This means designing solutions with efforts directed at the 20% of customers who generate the most profits. To do this, you should segment customers effectively. High value segments are unique to each business.
You’ll also want to consider the exact data to collect. While this will depend largely on your business objectives. Here are some considerations.
• Information should be commercially relevant.
• Capture additional contact details from the customer at every organic interaction such as on purchases, contracts, negotiations, quotes, conversations.
• Allow your customers to manage their data along with you.
• Capture any information you send out to the customer.
• Consider anything that adds value to the relationship.
• Note any legal implications around capturing and storing data, particularly web-based behavioural data, as the user’s privacy must always be taken into account.
Where and how to gather CRM data
CRM data is gathered from a variety of touchpoints. Let’s look at some of the possible opportunities for CRM data capture and analysis. Each avenue discussed below collects a range of data from whichever touchpoints the business deems valuable.
Traditional CRM system data
Most traditional CRM systems are used to capture data for sales, support and marketing purposes. On top of simply creating a central repository for data access, these systems and their related databases also offer basic analytics. The actual range of data collected within the traditional CRM system is dictated by the CRM objectives. For instance, data could include:
• Demographic details on potential leads, current leads and contacts, such as contact information, age, gender, and income
• Quotes, sales, purchase orders, and invoices (transactional data)
• Psychographic data on contacts such as customer values, attitudes, and interests
• Service and support records
• Customer reviews or satisfaction surveys
• Web registration data
• Shipping and fulfilment dates, such as when orders were shipped and delivered.
Data mining and testing hypotheses
Data mining involves analysing data to discover unknown patterns or connections. It is usually conducted on large datasets and looks for patterns that are not obvious. Data is analysed with statistical algorithms that look for correlations. It is used by businesses to better understand customers and their behaviour, and then to use this data to make more informed business decisions. For instance, women might traditionally be shopping for nappies during the week. On the weekend, men may become the primary nappy-shoppers. The things that they choose to purchase on the weekend, such as beer or chips, might dictate different store layout over a weekend.
Note
Data mining is typically performed by computers, which can sift through massive amounts of data and find tiny but significant patterns that a human researcher may overlook.
Analytics data
Analytics data is generally captured through specialised analytics software packages. These packages can be used to measure most, if not all, digital marketing campaigns. Web analytics should always look at the various campaigns being run. For example, generating high traffic volumes by employing CRM marketing tactics like email marketing, can prove to be a pointless and costly exercise if the visitors that you drive to the site are leaving without achieving one or more of your website’s goals.
Note
Read more about this in the Data analytics chapter
Social media monitoring data
There are many social media metrics that are important to monitor, measure and analyse, and some of these can provide valuable insights for CRM implementation. This can cover everything from quantitative data about number of fans and interactions, to qualitative data about the sentiment towards your brand in the social space. Social media metrics can also lead you to new prospects.
Collating and organising your data
Typically, you’ll find that a business has:
• One or more databases such as email, customer, mobile, or call centre databases, or datasets in silos.
• A point of sale system where product purchase data is stored.
• Various forms of web data from display or search networks, keyword research, site analytics, social media, or email marketing.
• Social media profiles on sites like Twitter, Facebook, or LinkedIn, which can also be considered databases of sorts.
CRM software can be used to automate lead and sales processes, and to collect all of this customer information in a centralised place, allowing a company to get a holistic view of the customer; from this, meaningful data insights can emerge.
Note
Have you ever had a frustrating service experience with a brand? How did you feel about the brand afterwards? Large organisations need a single view of the customer to avoid frustrating them.
Organisations can be large, and a customer often speaks to several members of the organisation, depending on the nature of the communication. It would be extremely frustrating for the customer to have to explain all previous dealings with the organisation each time, and equally frustrating for an organisation not to know who has spoken previously with a customer and what was dealt with. This could be a touchpoint at which a company falls down, and leaves a less than positive impression with the customer.
Fortunately, there are many technological options that help to record all this information in one place. Most of these services can also schedule elements of the sales process, and set reminders where appropriate for follow-up action.
Note
Consider user adoption rates and the cost of time and integration when making a decision about which CRM software to use.
Some notable examples include Salesforce (www.salesforce.com), Genius (www.genius.com) and Highrise (www.highrisehq.com) from 37signals. Bespoke technology tailored to business problems can have remarkable results.
Keeping data fresh
Call it what you will, but ‘stale’, ‘outdated’ or ‘unhealthy’ data doesn’t benefit anyone. Some generic older data can help you assess trends over time, but identifiable customer data is usually redundant if not up to date. People move house, update their contact numbers and email addresses, and change jobs. They earn more or less, stop working, start working, have kids, and retire. All of these mean that their needs change, and their contactability changes, so maintaining a customer relationship and delivering relevant communication becomes impossible if your information is not fresh.
So, how do you keep your data fresh?
For generic data (like web analytics), you must continuously monitor trends and note what causes changes over time. This is also useful for monitoring trends and identifying gaps in data when a business evolves. For instance, if you know that you generally receive increased website and store visits during December, but your sales drop, you know that you need to gather more data around your inventory and in-store environment during that time.
Keeping identifiable data current means you need to facilitate regular dialogue with contacts on your database. Whether it’s through a call centre, an online prompt or a quick question at your in-store point of sale, there needs to be a plan for updating details at regular intervals. You can empower your customers and incentivise them with programme attractiveness.
Analysing data for marketing
One of the most powerful features of interactions and transactions over the Internet is that everything is tracked and recorded (see the Data analytics and Conversion optimisation chapters). This provides a wealth of data that can be analysed to make business decisions.
Note
Read more about this in the Data analytics and Conversion optmisation chapters.
For CRM, this means that the customer acquisition source can be recorded and analysed against sales data. This leads to a very accurate return on investment (ROI) calculation and indicates where CRM and marketing efforts should be focused.
ROI stands for return on investment – and it’s key to understanding whether marketing efforts have been successful. Here’s a simple example: Company A sells accounting software and makes R10 000 on each product it sells. It sends an email to its customer base, users who have bought a previous version of the software and might be interested in upgrading. The campaign has an overall cost of R100 000. Of the 5 000 users who receive the email, 10% decide to buy. That means it cost R200 to acquire each of the 500 customers. The company has made R5 million, an ROI of 50:1.
The key to effective use of technology in CRM is integration. Ensure that all channels can be tracked, and that information is usable to all parties within an organisation. Knowing where your customers come from, but not what they purchase, is pointless: these two metrics need to be compared in order to produce actionable insights. Analysing CRM data can aid marketing initiatives in a variety of ways.
• Campaign analysis: Find out which marketing campaigns are leading to the best returns so you can refine them and increase ROI
• Personalisation: Customise your communications to each customer
• Event monitoring: Tie offline events, like shows or sales, to your online interactions and sales
• Predictive modelling: Predict a customer’s future behaviour and meet this need at the right time.
Note
Mobile marketing can play a key role in offline events, after all, the mobile phone is portable and connected to the internet, meaning that users can engage a brand directly on location.
Improved customer segmentation, including:
• Customer lifetime value (CLV) analysis: Predicting each customer’s lifetime value and managing each segment appropriately, for example, offering special deals and discounts.
• Advanced customer profiles that identify certain behaviours, such as big spenders or those who look for bargains by attending sales. This information can be used to tailor marketing communications accordingly.
• Customer prioritisation: Target small groups of customers with customised products and service offerings that are aligned to meet customer needs, rather than simply generic current offerings. You should craft specialised retention strategies for customers with the highest CLV.
• Identifying brand influencers and advocates. Consider the realm of social media, where influencers are central to the spread of content. Brands are increasingly prioritising relationship building with social media influencers to build brand advocates who will help market the business for them. By identifying which customers are providing the most value and positively influencing others to become customers, you can focus efforts towards them and increase their loyalty, creating true brand advocates.
Understanding customer lifetime value
CLV is the profitability of a customer over their entire relationship with the business. Businesses need to look at long-term customer satisfaction and relationship management, rather than short-term campaigns and quick wins. This approach leads to increased value over the entire lifetime of a customer and means that CLV is a metric central to any CRM initiative.
It’s important to look at your customer base and segment them according to how often they purchase and how much they spend with your company. Very often, customers who spend more cost more to acquire, but they might also stay with the company for longer. Referrals made by a customer can also be included as part of the revenue generated by the customer.
The key is to understand these costs and then target your CRM strategies appropriately. CLV lets you decide what a particular type of customer is really worth to your business, and then lets you decide how much you are willing to spend to win or retain them.
For example, a potential customer looking to purchase a digital camera is likely to search on Google for cameras. As a company selling digital cameras, your excellent search advert and compelling offer attract the potential customer, who clicks through to your website. Impressed with your product offering, the user purchases a camera from you, and signs up to your email newsletter as part of the payment process.
Analysing the amount spent on your search campaign against the sales attributed to the campaign will give the cost per acquisition of each sale. In this case, this is the cost of acquiring the new customer.
As the user is now signed up to your newsletter, each month you send her compelling information about products she may be interested in. These newsletters could be focused on her obvious interest in photography, and highlight additional products she can use with her new camera. Think about the value exchange that is necessary for a customer to give you their attention. Content marketing is a powerful tool here. The costs associated with sending these emails are the costs of maintaining the relationship with the customer. When she purchases from you again, these costs can be measured against the repeat sales likely to be made over the course of the customer’s lifetime.
Note
See the chapter on Content marketing strategy for more on the importance of offering customer s value.
Assuming that a customer buys a new camera every three years, moves up from a basic model to a more expensive model, perhaps buys a video recorder at a certain point. All of these allow a company to calculate a lifetime value and ensure that their spending on a particular customer is justified. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.05%3A_CRM_and_data.txt |
At its core, effective CRM promises the following:
• Increased revenue and profitability
• Improved customer satisfaction and loyalty
• Improved service delivery and operational efficiencies
• Decreased acquisition costs, keeping churn low through CRM offsets the need to spend as much on acquisition of new clients, while retention of existing ones is cheaper for obvious reasons.
Note
See the chapter on Content marketing strategy for more on the importance of offering customer s value.
Maintaining good customer relationships is critical to the success of a business. The cost associated with acquiring a new customer is generally far higher than the cost of maintaining an existing customer relationship. While an investment in a CRM communication programme or platform can be large, these costs are often offset over the increased revenue generated by encouraging repeat business.
Note
A CRM communication programme is a cross functional investment, which requires leadership buy in.
Putting a value on CRM
Broadly, CRM can be looked at from:
• A marketing perspective: Understanding your customer segments and building a relationship with them.
• A cost perspective: Decreasing the amount you spend on customers; it costs more to attract a new customer than maintain an existing one.
• A sales perspective: Turning the users who know about your service or product into customers who have made a purchase, in other words, managing prospects.
• A service perspective: Ensuring that users who have interacted with you are satisfied and delighted.
Effective CRM can also create a powerful new marketing and referral force for a company: its happy customers. Delighting customers fosters positive word of mouth.
The first step to any CRM initiative is to understand the value of a customer relationship to a business.
Relationship value = Revenue generated by customer – Cost of maintaining/servicing the relationship
CRM implementations
CRM should infuse every aspect of a business in the same way that marketing should be integral to everything you do, but it is useful to look at the different ways CRM is implemented.
Marketing
• Conduct personalised targeting and profiling across a range of marketing channels such as telemarketing, email marketing, social media marketing and campaign management projects.
• Place the right mix of a company’s products and services in front of each customer at the right time.
• Understand what customers do and want, matching that knowledge to product and service information and measuring success.
Sales
• Ensure the customer receives the correct product.
• Ensure correct sales-related processes are carried out within the organisation. This could include:
• Client or campaign management
• Sales configuration, for configuring products or pricing
• Call management
• Contact management
• Ad management
• Sales force automation (including territory)
• Account and lead management systems.
• Enable all parties in the transaction to interact with one another.
• Include systems that put sales reps directly in touch with customers at the point of sale.
Service and service fulfilment
Improve the service you give to current customers through:
• Email response management
• Social media support systems
• Telephony capabilities such as automatic call distribution
• Computer-telephony integration
• Queue/workflow management
• Interactive voice response and predictive dialling.
Include the development of problem resolution systems, workflow automation and field service dispatch systems.
Services invoked by the customer
Create and manage systems or capabilities that can be directly invoked by the customer.
• Web self-service
• Search
• Instant messaging
• Email queries
• Voice over IP (VoIP)
• Browser and application sharing
• Conferencing
• ‘Call me’ capabilities
• Social media support
• Online forums.
CRM loyalty programs
There is a difference between CRM and loyalty programmes; often loyalty programmes actively seek to maintain customers by rewarding them with a hard currency, like points. Loyalty programmes are designed to develop and maintain customer relationships over a sustained period of time by rewarding them for every interaction with the brand. For instance, you may earn points on a purchase, for shopping on certain days, completing a survey, or choosing to receive a statement by email.
Consider South African health insurer Discovery and their Vitality program. It aims to keep customers healthy by rewarding them for health-related behaviours like exercising, having regular check-ups, stopping smoking and buying fresh foods. By doing so, it reduces the burden of ill-heath on the medical aid itself.
Not all loyalty programmes are created equal. Many brands have embraced them as a way to improve their sales, and consumers have come to believe that they are simply a way of extorting more money from them.
To create an effective loyalty programme, consider the following:
• Carefully calculate the earning and redemption rates of points: A loyalty programme needs to give the appearance of real value, while working within the company’s profit projections.
• Loyalty programmes are about value exchange: You need to find a way to partner with the customer.
• Rewards are key to success: You need to offer value to the customer in a way that is real and desirable.
• Customer care is important, but it’s a hygiene factor, not a differentiator: Technology allows for effective real-time conversations.
• Data, a single view of our customer, is central to success: You need to maintain accurate records in one central place.
• Digital allows for innovation: This can apply to new payment technology, digital communications channels and more.
• Trust is pivotal to success: Customers need to know that their data is being protected and that you will honour your commitments. Legal requirements in your country may demand it.
• Loyalty programmes are not quick wins: Consider up-front how the programme might come to a close or you risk alienating and disappointing customers and undoing any positive results.
Loyalty currencies offered as part of the loyalty programme offer huge potential for brands. Amazon’s loyalty currency, Amazon Coin, is available in eight countries and already has many customers investing hundreds of millions in the currency (BizCommunity, 2017).
But any financial rewards offered as part of your loyalty programme need to be carefully considered and their value proposition evaluated and assessed before implementation. Pick ‘n Pay, a large grocery store chain in South Africa, drastically cut the rewards on its Smart Shopper loyalty programme in early 2017. Customers went from earning R1 for each R100 spent, to earning R1 for each R200 spent. The initially generous loyalty program and associated loyalty currency was impacting on the business’ bottom line. Such a radical change in reward levels did not go down well with customers, and the brand did experience some fall out. The impact of the programme on the business’ operational costs should have been assessed and addressed earlier, rather than so many years after implementation leaving customers with a negative experience of the brand (Business Day, 2017).
Where loyalty programmes are built around straightforward points and rewards systems, they can also become a point of parity. A loyalty programme should deliver on value that is unique and central to your organisation. You don’t want to be competing with your competitor on who can provide more points, which essentially means more discounts, and ends up being a competition based on price. The sum of the parts of your loyalty programme should be difficult for a competitor to replicate.
Cryptocurrencies
Like loyalty currencies, cryptocurrencies, are also based in the digital world, and not tied to a central banking authority. Cryptocurrencies, like Bitcoin, were developed as a means of facilitating electronic payments online using a peer-to-peer network that was not managed by a server or central authority. Essentially, cryptocurrencies are digital money created from code. The data is encrypted and encoded to signify a single unit of currency. Such currencies are not secured by people or by trust, but by pure mathematics – making it a much more secure system that is not impacted by central banks and monetary supply. It is also almost immune to corruption. As well as Bitcoin, there is Ripple, Litecoin, Ethereum and Monero, to name a few (Blockgeeks, 2016).
These digital currencies, both universal cryptocurrencies and loyalty currencies, are challenging the traditional banking and international monetary system. Individuals are losing trust in banks and national governments’ roles in monetary policy.
To learn more about cryptocurrencies visit: https://blockgeeks.com/guides/ what-is-cryptocurrency/
Apps
CRM apps are a great step forward in customer relationship management. They help to track customer contact info, as well as which members of your team they interacted with, their emails, and positions, as well as the last conversation the customer had with your company. Larger companies make use of software tools like Salesforce, but the high price tag, makes the software unattainable for small businesses and start-ups.
CRM apps like HubSpot CRM, Zoho CRM and Intercom are popular choices. If you’re looking for a full-featured team CRM, HubSpot works for up to 1 million contacts and integrates with Gmail or Microsoft Outlook. Google contacts is a nice simple choice that works inside of Gmail and is ideal for smaller and start-up businesses. Intercom is a CRM that focuses on what people view on your site, so that you can track what they are likely to purchase. It links user behaviour to user profiles and the paid options include chat options allowing you to chat directly with customers online. Zoho is a great choice if you already use Zoho software.
Apps are making CRM easier by managing your contacts and tracking their interactions with your brand. They continue to get better and better, and brands should be making use of these useful tools.
Apps for payment services
As well as CRM apps, brands can also develop loyalty apps that enable payment. Brand specific apps that enable purchases are becoming a preferred means of payment. Payments through Starbucks’ app have begun to account for more than 50% of Starbuck’s revenue in 2017. Over 60% of millennials are happy to use apps to purchase products in store, which is changing the landscape of loyalty currencies and how such currencies are managed by brands (BizCommunity, 2017). More and more brands are offering payment gateways and even credit and microloans through their apps. This is impacting on how customers view brands as service providers, and greatly changing how they see banks and traditional monetary institutions.
SMS
SMS is a handy tool for communicating with customers about product delivery and updating them about specials and promotions. As with all mobile channels you will have access to your customer exactly where they are at that moment, and in a very personal space. So use this channel responsibly and only when you have permission to do so. Sending endless SMS can lead to customers removing themselves from your SMS contact list and could give that customer a negative perception of your brand.
Live chat
Note
See more about SMS and Apps as marketing tools in the Mobile Channels and Apps chapter.
Having the ability to chat to your customers when they are on your site is very useful in addressing customer queries immediately and can lead to valuable conversions. Real live customer service agents or sales people can converse directly with customers addressing any concerns easily and directly, or selling them any products they may be browsing at that moment. Live chat offers many benefits, including improved conversions, SEO, reduced average order times, increased awareness of additional products, efficient management of issues, and reduced overhead costs. Cost per contact is much lower than call centre or in-store customer assistance.
Various providers offer live chat functionality to websites, such as Intercom, Pure Chat, Live Chat, Live Agent, and Freshdesk. It is becoming increasingly common to have live chat on brand sites, and customers that expect to find live chat and don’t, could walk away from your brand. Just like not being on Facebook could be detrimental to your band, because customers expect all credible businesses to be on the social network, not having a live chat could also negatively impact on customer’s perception of your brand as a viable business.
Be wary of using chat bots to address clients on live chat. Customers dislike robotic responses and want to feel heard and acknowledged by a real person. So, although chat bots offer great solutions to CRM at large scale, their use should be carefully considered against customer response and attitude to communicating with a bot. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.06%3A_The_benefits_of_CRM.txt |
One-line summary
Amazon Prime has become one of the largest and best loyalty programmes in recent years, despite not using point systems and oversimplified projections of loyalty. They provide consumers real value by addressing their needs for instant gratification and exclusivity, while streamlining the customer experience and seeing a substantial financial return for the company.
The problem
Amazon noticed that shipping was often a stumbling block when it came to completing purchases. If shipping took too long, users would drop out of the purchase. Similarly, if users purchased an item that was less than the minimum to receive free shipping they would also abandon the purchase. They needed to somehow streamline this process, so that customers would complete their purchases.
They considered a loyalty program that would address these two aspects, but knew that customers are inundated with loyalty programmes that offer cash-backs and promotions. Every retailer, bank and service provider all provide some form of loyalty programme that is very similar to all the others.
Amazon noted that many loyalty programmes fail because they don’t meet the needs of the customer and promise delayed gratification. They offer customers nothing new nor anything they can derive any real benefit from in the short term. Customers have to build up points and cashbacks and wait to receive their reward. Many customers have become wary of loyalty programs, and see them as just another way to extort more money from consumers.
Customers need something that offer real benefits, and that they are willing to pay US\$ 99 a year for. They want real value immediately and not something they need to wait months or years to see any benefit from.
The solution
Amazon Prime provides its customers with what they really want and need from the brand. It has created a program that is designed to meet customer’s need for instant gratification and removed the stumbling blocks in the purchase process. Prime members receive next day delivery on all items, and do not need any minimum value in their shopping carts to receive free shipping. They reap the benefits of the program immediately and every time they shop online.
Instead of making these shipping features free, Amazon Prime made the service part of an exclusive loyalty programme that users had to pay a yearly fee to benefit from. So, in addition to tapping into instant gratification, Amazon Prime also made use of customers’ want to be involved in something exclusive, that would set them apart from general customers. As well as shipping benefits, Amazon Prime users would get access to exclusive deals and discounts, as well as first option on new products. Prime members get to see and purchase products before they are made available to other customers.
To ensure they provided perceived real value, Amazon also included access to their entire library of Amazon Prime videos in the Prime membership. Although the fledging library cannot rival Netflix, offering the content free enables it to gain an audience to test out content and gain insights for future content development. This means that the customer receives great value in the form of online viewing content, and the brand gains invaluable input that it can use to fuel further development.
Amazon Prime is more than a loyalty or a rewards program, it is a privilege program that taps into customers’ need for feeling important and special, as well as addressing stumbling blocks in the purchase process, and meeting our growing need for instant reward (YourStory, 2017).
The results
Amazon has created a truly extraordinary loyalty programme that users are prepared to pay for. By providing customers with what they need and streamlining the customer experience, Amazon has demonstrated that gimmicks and cash backs are not the solution for loyalty programmes. Amazon Prime saw rapid adoption in the US, and still sees a 40% increase in subscriptions year on year even though the loyalty program is nearly 12 years old. As of early 2017, 60% of Amazon’s US customers have a Prime membership, with the total number of Prime subscribers hitting 80 million. Prime members also spend nearly double (US\$ 1 300) what non-Prime members do (US\$ 700) per year (Business Insider, 2017). The programme has been a huge success for the brand, with revenue from Prime alone making up US\$ 6.4 billion in 2016. The programme is so successful that revenue from subscriptions alone is nearly enough to cover the largest cost of the company, its overall shipping costs (Bloomberg, 2017).
Essentially, establishing customer loyalty is about providing users with an experience that is simply better than anything else, so that users change their purchase behaviour to favouring your brand. And that is exactly what Amazon has been able to achieve through Prime (LooseThreads, 2017). | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.07%3A_Case_study_-_Amazon_Prime.txt |
Managing customer relationships should be built into every marketing tactic and activity you perform, especially if your organisation has adopted CRM as an ongoing strategy to drive customer retention.
Successful email marketing is built on two very basic customer needs: privacy and permission. The very first step in using email to communicate with a customer is gaining their permission. Data mining and segmenting customer databases allows email marketing to be tailored and personalised. Email is often the primary point of contact for service-related messages.
Online advertising is a double-edged sword when it comes to CRM. It can be a very effective acquisition tool for new customers, but intrusive advertising can attract attention for all the wrong reasons. Effective online advertising speaks to customers’ needs and presents solutions to them, attracting attention without being overly intrusive. The key is to be relevant and useful wherever possible.
Search engine optimisation and search advertising start with customer intent. Existing customer data can indicate where to focus search engine marketing efforts, especially when it comes to analysing how well a website caters to the intent indicated by a customer’s search term. Social media marketing is based on customer needs and preferences. It is also a powerful tool for turning delighted customers (who are expressive online) into advocates for an organisation. Social media creates new communication channels for an organisation, enabling discussions and customer service to take place where the customer feels most comfortable.
Effective web development and design starts with understanding and catering for customer needs, and should focus on the experience of the web user. Designing for customers first and foremost gives web visitors a seamless experience. CRM data can tell you what your customers need, and web experiences can support the customer journey. Web designers and developers can also create sophisticated customer service portals to manage CRM, such as the Nike+ support page: nikeplus.nike.com/plus/support.
Through all of the digital marketing tactics, effective analytics is the most useful CRM tool. It allows each channel to be measured on its merits, and the customers acquired by each channel can be analysed.
14.09: References
BizCommunity, 2017. Brands to bankers: Are retailers taking over the finance space? [Online] Available at: http://www.bizcommunity.com/Article/...13/168093.html [Accessed 1 November 2017]
Blockgeeks, 2016. What is cryptocurrency: Everything you to need to know (Ultimate Guide). [Online] Available at: https://blockgeeks.com/guides/what-is-cryptocurrency/ [Accessed 1 November 2017]
Bloomberg, 2017. Amazon Reveals Some Prime Numbers. [Online] Available at: https://www.bloomberg.com/gadfly/art...secret-formula [Accessed 1 November 2017]
Business Day, 2017. Pick n Pay cuts Smart Shopper rewards. [Online] Available at: www.businesslive.co.za/bd/co...opper-rewards/ [Accessed 1 November 2017]
Business Insider, 2017. Amazon Prime subscribers hit 80 million. [Online] Available at: http://www.businessinsider.com/amazo...million-2017-4 [Accessed 1 November 2017]
Koch, R., 2008. The 80/20 Principle: The Secret of Achieving More with Less. United States: Doubleday.
Loose Threads, 2016. A Prime misunderstanding: explaining amazon Prime’s Success. [Online] Available at: loosethreads.com/blog/2016/6...primes-success [Accessed 1 November 2017]
YourStory, 2017. Why Amazon Prime stands out where most other loyalty programmes fail? [Online] Available at: https://yourstory.com/2017/09/amazon...programs-fail/ [Accessed 1 November 2017]
14.10: Social CRM
Widespread social media usage means that CRM has to be conducted on social to deliver an all-round experience for the customer. Not only should social media be integrated into any existing CRM strategy and looked at from a touchpoint and channel perspective, but social media can also be used to drive CRM.
Social media platforms allow customers to easily share their brand experience (good or bad) with their online social connections, who in turn can share this experience on. This means a potential word-of-mouth audience of millions could witness a single user’s brand experience and weigh in on the situation.
Customers place a great deal of value on the opinions of their peers, and are more likely to look favourably on a brand, product or service if a peer has recommended or praised it.
Brands have realised that they need to leverage this in their CRM strategies and now understand that communication is not one way (from brand to consumer), or even two way (between consumer and brand) but multi-directional (brand to consumer, consumer to brand, consumer to consumer).
The convergence of social media with CRM has been termed social CRM or CRM 2.0, and has developed into a field on its own.
Social CRM and support
Social customers are increasingly turning to social media channels for support. With the immediate accessibility offered through mobile devices, they see this as a convenient channel to communicate with brands. This means that brands need to respond quickly and transparently to consumers’ questions, gripes and even compliments. A support query going unanswered on Twitter, for instance, is likely to cause frustration for the consumer, and prompt them to take a situation that is already visible to other consumers even further, potentially causing a brand crisis.
Brands should carefully consider whether all social media channels are appropriate for them, and be prepared for any eventuality. Brands that are well liked will generally have positive responses on social media, those that receive a mediocre response from consumers will have a bit of a mixed bag, but those that have a lot of support issues are likely to experience very large numbers of complaints that need to be addressed.
Social support staff should have access to all the historical data relating to customer issues such as all the data collected about previous complaints and reference numbers. These channels make customer support public. In this way, they can respond directly to the consumer in the social channel that they’ve selected and escalate the problem appropriately.
Social CRM and online monitoring
Social CRM can also make use of online reputation management and monitoring tools. Online monitoring, or reputation management, entails knowing what is being said about your organisation and ensuring that you are present in or leading the conversation.
By using these tools, brands can rate and sort these mentions based on their sentiment. This allows them to effectively test the temperature of the online community’s feeling towards the brand, which can then guide any future action. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.08%3A_The_bigger_picture.txt |
Step 1. Conduct a business needs analysis and develop a problem statement
A major part of determining where to begin with a CRM implementation is having a clear understanding of the business needs, and where CRM would most benefit the organisation. CRM touches on sales, marketing, customer service and support both online and offline. It’s important to review the needs of each business area so that you can determine your strategy for CRM.
Ideally you should have individual goals for each department and all members within the organisation should buy in to the strategy in order to drive it successfully, from the highest rank to the lowest. Implementing successful CRM across the organisation is a process, with stakeholders making decisions collectively and sharing their views and needs. Decisions should be based on realistic budgets and resources and full calculations carried out before any kind of loyalty currency is decided upon. Remember the Smart Shopper example from Pick n Pay above, and how not carefully considering how rewards may impact on your bottom line could cause problems later on.
Step 2. Understand customer needs
CRM is about the customer. You might have identified a range of business needs, but what about the needs of the customer?
Two elements of CRM in particular, service delivery and customer support, are actually all about meeting the needs of the customer. And what’s the best way of determining customer needs? By asking them, of course. There are various ways to find out what customers want, but in all of them, it is important to listen. Use online monitoring tools and insights from social media to gather a more rounded view of what your customers think, feel and want. Look at past behaviour, churn rates, and successes. It may be worth doing a detailed data mining exercise to understand which of your customers is the most valuable and why.
Step 3. Set objectives and measurements of success
CRM is a long-term commitment and you need to consider a long-term approach. Depending on the business needs, you may decide to focus on communications objectives, sales objectives, business objectives, or all three. Objectives and success measures could include:
• Increasing customer numbers: Sales objective/business objective
• Increasing profitability per customer: Business objective
• Increasing market share: Sales objectives
• Improving responses to campaigns: Communication objective
• Raising customer satisfaction: Business objective
• Improving end-to-end integration of the sales process cycle: Communication objective.
The metrics you select for measurement will depend on these objectives. There are numerous metrics that you can choose from when measuring your performance, and the actual metrics you choose are generally referred to as your key performance indicators (KPIs).
Note
Read more about this in the Data Analytics chapter.
Step 4. Develop your CRM strategy, and determine how you will implement it
Once you’ve identified all of the objectives of your CRM implementation, you will need to determine how you are actually going to roll it out. What channels will you use? What touchpoints will you leverage? What data will you need for this?
Next, you need to determine which tools you will use to gather this data and how you will implement your initiatives across these channels. Don’t forget that you need to communicate with your internal stakeholders before you launch the initiative to your external ones.
You will need to make choices based on what is available to you, or what you intend to embrace. The digital space offers a range of innovative spaces for CRM delivery; you simply need to get creative in your execution.
Step 5. Choose the right tools
There are lots of excellent CRM tools available, but these are useless without a clear CRM strategy in place. You can only select your tools once you know what your objectives are, what touchpoints and channels you are going to utilise, and what data you need to collect and analyse.
CRM systems that gather information on customer preferences and needs, as well as information on competitors, and in the industry in general, let organisations focus on providing customer solutions instead of simply pushing products.
We’ve outlined a host of options in the Tools of the trade section on the next page. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.11%3A_Step-by-step_guide_to_implementing_a_CRM_strategy.txt |
Collaborative CRM tools
Collaborative CRM refers to a process that combines customer data across all facets of a company. For example, queries regularly submitted to the technical support or customer service arm of a business can be used to inform product development and website content. Instead of various departments collecting their own customer data and using this in isolation, data is collated so that all channels make informed decisions based on the holistic customer experience.
MindTouch (www.mindtouch.com) is an example of a CRM product that offers collaborative authoring. This means that multiple users can simultaneously edit shared documents while maintaining an audit trail and version control.
Social CRM tools
Social CRM tools perform a number of functions, from standardising the collection of data from social media channels to automatically posting links and accepting friend requests. These tools can also be used to identify customer sentiment within social media channels.
BrandsEye (www.brandseye.com) and Simplify360 (www.simplify360.com) are examples of social CRM listening tools that collect data on brand mentions across social media channels online, in real time.
Operational CRM tools
Operational CRM tools deal with the most obvious channels that relate to customers: the front end of a business and its customer service. From a web technology point of view, operational CRM informs the website a customer sees as well as their entire online user experience.
Two examples of operational CRM tools are OnContact (www.oncontact.com) and Zoho CRM (www.zoho.com/crm).
Sales and marketing automation CRM tools
Sales force automation (www.salesforce.com) uses CRM software to manage sales cycles and to collect customer sales data. The software enables businesses to track leads, schedule transactions and communications with potential and existing customers, and generate detailed reporting on the sales process.
Marketing automation tools identify current customers and use their response information to manage email marketing lists. The tools can also identify prospects, as well as unhappy customers.
HubSpot (www.hubspot.com) offers a marketing automation tool that allows companies to generate and send behaviour-driven emails.
Analytical CRM tools Analytical CRM tools allow companies to record, save, and investigate customer data to better understand customers through their behaviour. For instance, data collected about the nature of visits to your website can be used to make informed decisions about where to focus attention based on customer behaviour. Past purchasing behaviour of customers can be analysed to predict future purchasing behaviour. Data can be used to segment customers and tailor communications. These tools can help target marketing campaigns at customers and predict future sales and customer spending.
KXEN (www.kxen.com) is a popular analytical CRM tool with the ability to forecast customer behaviour and shed light on customer preferences and spending power. It also allows you to tailor marketing campaigns to specific customers, segmented by various demographics.
14.E: Customer relationship management(Exercises)
Case study questions
1. Why do you think Amazon Prime has been so successful for so many years, when most other programmes lose their allure?
2. What aspect of loyalty does Prime tap into?
3. What do you think of Amazon’s decision to include their video streaming as part of their Prime membership?
Chapter questions
1. How do you think CRM changed or evolved as social media rose to popularity?
2. Why do customers respond so positively to personalised communication?
3. What ethical problems do you think customers might raise with regards to behavioural tracking?
Further reading
www.insidecrm.com – This useful website regularly posts white papers and reports breaking down updates and developments in the field of CRM.
churchofcustomer.com/ – This useful blog regularly features guest writers and experts in the field of social media and CRM.
www.cluetrain.com – Home of the Cluetrain Manifesto, a set of guiding principles geared towards conducting business in the digital world.
14.S: Customer relationship management(Summary)
Customer relationship management is the cornerstone of your interactions with customers. Digital technology makes the process of discovering key insights seamless, effective and very useful, but CRM cannot be restricted to only digital channels as customer interactions happen offline too. There are many benefits to implementing a CRM strategy from reduced customer service costs to happier customers, and quicker, more tailored, and effective communications.
Naturally, understanding customers is the biggest outcome of CRM and this understanding leads to meeting their needs much more effectively, which in turn has direct bottom-line benefits for the brand.
There are many facets to CRM that you should consider before deciding how you will approach it. The key ones are:
• Brand touchpoints: How do customers interact with the brand, and vice versa?
• The tools you need for your business: Operational CRM, analytical CRM, collaborative
• CRM and sales force automation are the main categories.
• What channels are available to you to communicate with your clients?
• Implementations: CRM can be implemented for sales, marketing and customer support and service fulfilment.
• What are the steps you need to take within your organisation to ensure a successful CRM strategy?
• What cost are you looking at and what return on investment are you expecting?
• Your long-term aims: CRM is never a short-term solution.
• What are your data capabilities and needs: Are you gathering the correct data, storing it correctly, updating it constantly and then analysing it for insights? | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/14%3A__Retain_-_Customer_relationship_management_(CRM)/14.12%3A_Tools_of_the_trade.txt |
Learning Objectives
In this chapter, you will learn:
• To understand the role of content marketing strategy within your marketing plan.
• To be familiar with the steps involved in developing your content marketing strategy.
• To recognise some models for understanding how types of content are absorbed or experienced by your target audience.
15: Retain - Content Marketing Strategy
While the phrase ‘content is king’ has been referenced for some time, it is only in the last decade that content marketing strategy has been solidified into a discipline of its own. Defining content marketing strategy can be tricky, however, with some practitioners focusing more on the role it plays in information architecture and others believing that it should be considered on a campaign by campaign basis.
This chapter looks at content marketing strategy from a holistic perspective, as a process that includes an understanding of all the content your brand is creating, those for whom it is intended, and to what purpose. Content marketing is important for positioning your brand in the minds of consumers. As a content marketer, you need to understand the brand and consumer context and be able to craft appropriate content based on user receptiveness and channel-appropriateness. You also need to select the best route to customer in terms of tactics, and understand how content marketing fits and contributes to your overall marketing strategy. Ultimately this supports the design of communication that impacts people enough to make them want to share the content on.
15.02: Key terms and concepts
Table 15.2.1
Term Definition
Algorithm An algorithm is a mathematical, computational or statistical method pre-determined to take a number of variables into account and output a single, quantifiable result that is a function of all the variables. A good example of a commonly used algorithm is the one used by Google to determine which pages rank more highly on SERPs.
Content audit An examination and evaluation of the existing content which a brand publishes.
Editor A person who determines the ultimate content of copy, traditionally understood to be in the newspaper, magazine or publishing industry context.
Information architecture The way data and content are organised, structured, and labelled to support usability.
Persona In this context, a character created to define a group of users in order to speak to them as though they were a unique user. Usually a hypothetical character created to represent and personify a set of traits.
Usability A measure of how easy a system is to use. Sites with excellent usability fare far better than those that are difficult to use.
15.03: Defining content marketing
Content marketing is an umbrella term which focuses on matching content (information, inspiration, or entertainment) to your customer needs at whichever stage they are in the buying cycle or customer journey. Unlike TV, where the advertiser pushes messages to a captive audience, the focus is on engaging content, which means that marketers must think like publishers (attracting an audience) rather than seeing themselves as advertisers (buying an audience) of a product. The Internet has, in many respects, cut out the middle man. Consumers and brands can now connect directly through a number of easily accessible online platforms.
The Content Marketing Institute offers the following definition:
Content marketing is a strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearlydefined audience — and, ultimately, to drive profitable customer action (Content Marketing Institute, 2017).
This definition applies to all the spaces in which you share content both traditional and digital. This includes printed magazines, booklets, and promotional material as well as your social media space, website, campaigns, competitions, and your company blog. The way in which that information is shared is also important.
Kristina Halvorson suggests the model illustrated below for approaching the different areas of content marketing strategy.
Content components
Substance: Who are you trying to reach, and why?
Structure: Where is your content? How is it organised? How do people find your content?
People components
Workflow: How does your content happen?
Governance: Politics, guidelines and standards that your brand operates in (Halvorson, 2010).
As you can see in the above discussion, Halvorson suggests that one consider the bigger picture of content creation rather than just the product which is the end result. Content marketing looks at staff, tools, processes, and outcomes. The end goal for these processes isconversion. All content should be created with a strategic outcome in mind. Such outcomes could include talkability, referral, affinity, and ultimately purchase or increased usage of your product or service. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/15%3A_Retain_-_Content_Marketing_Strategy/15.01%3A_Introduction.txt |
Translating your brand essence
The brand essence sums up the unique attributes of a brand and the basis for its emotional connection with customers. Remember your emotional connection with your customer is the very things that differentiates your brand from your competitors. Your brand essence should assist in defining a tone of voice for your brand and the style in which it engages with its customers. The brand essence can be a useful guide for ensuring that the content you create (and your marketing activity) represents the brand appropriately. You can relate this to your brand story. What is your reason for being? How do you connect that with the interests of your customers? What is the value you add to your customers’ lives? Is it convenience, health, status?
Consider a brand like Mercedes Benz. Their essential product is transportation, but the brand offers so much more than that to its customers. For example, it provides a sense of safety and security, customers know they are driving a car with the latest safety technology. But the brand’s most powerful aspect is the sense of achievement and status that owning a Mercedes Benz provides. The value of the brand is less about the product itself and transporting passengers, and more about the feeling and status the customer gets by owning the product.
Will It Blend? is a video series by Blendtec which builds on this principle. Blendtec produce industrial blenders. Their value proposition is that they can blend anything, and their very popular videos demonstrate this.
Market research and consumer personas
The sweet spot for content marketing lies in an intercept between the marketing goals of a brand, the brand personality as it guides and differentiates that brand in the marketplace, and the consumer motivation for paying any attention to a brand at all. One device that is used in addressing consumer needs is the development of a consumer persona.
A persona is a profile that a writer creates to embody the aggregated characteristics of the target audience for whom he or she is writing. It helps to personalise the brand. Personas are based on the profile of users of your content. Creating a profile is all about considering the characteristics of your customers and their needs and desires. For example, a brand like Philadelphia Cream Cheese could have a couple of customer personas. A busy father, who works full time, but still wants to provide healthy and nutritious lunches for his family. Or a young female foodie, who wants to try new recipes she finds online from international celebrity chefs to impress her friends at dinner parties. Each of these would require slightly different approaches when developing content. Both would benefit from videos featuring recipes, but one would appreciate regular basic options for lunchboxes, and the other a celebrity endorsement or even a celebrity hosted video of finer and more elaborate meals.
It’s important to focus on the motivations of the persona that you may create, rather than exterior signifiers that lead to the creation of a stereotype. The persona assists you in segmenting and understanding your target market and is a framework through which you can guide any content that you create.
Creating content themes
Linked to the brand identity are certain themes or concepts. These are areas of focus that support the creation of content that match a consumer’s interest. These themes must be true to the brand essence, not focused directly on sales, and should also speak to the interests of the audience.
For Coca-Cola, for example, consumer interests filtered through the brand essence of ‘Coke brings joy’ could result in the following themes:
Friendship
Sharing is caring
Spreading smiles.
These themes are then used as the basis on which to develop content ideas.
In the above tweet, we can see how a particular content theme was translated into a question that is focused on relationships and family. It also encourages engagement from the audience by asking for their input.
Another example which demonstrates this is how Corona brought their brand essence to life through an interactive documentary. The essence of the brand is to live the extraordinary, and provide amazing experiences to its customers. The documentary depicted a group of people from Bulin in China, officially the town furthest away from any ocean in the world, encountering the ocean for the very first time. A truly extraordinary and amazing experience, facilitated by Corona. You can view it here: https://www.youtube.com/watch?v=V8ELAv3Ovho.
Matching content formats to objectives
Information can be presented through any number of mediums, which is both an opportunity and a challenge faced by content marketers. Traditional print distribution allows for magazines, pamphlets and even events. Digital distribution allows for videos, images, interactive infographics, GIFs, live photos, live video, cinemagraphs, and any number of other formats. To gain and keep the attention of consumers/users, it’s sometimes not enough to rely simply on text-based forms of content. The role of the content marketer is to select the right medium based on overall objectives, production capabilities, and the needs of the audience. Consider the illustration below.
As discussed in the Strategy and context chapter, determining your objectives is an essential part of your marketing planning, and should feed into your content marketing strategy, and ultimately the business strategy. Understanding the journey your consumers go through as they approach your ultimate sales goal will enable you to match content formats to their needs. A humorous video may be successful in initially making potential customers aware of your brand. However, once you have their attention, a research paper or useful case study could be more effective in convincing them that you are the best choice in the market.
Price Waterhouse Cooper (PWC) is one of the largest international financial consulting firms, offering a range of financial services and advice across the globe. Every year they publish valuable content and guides to assist their customers with tax and wealth management. You can find the 2017 guide here: www.pwc. com/us/en/private-company-services/publications/tax-wealth-managementguide.html
There are many examples of online journalism using multimedia to convey information most effectively to their users. The New York Times has presented a number of different methods for conveying complex information in an engaging manner. ‘Snow Fall’ by John Branch is one example: http://www.nytimes.com/ projects/2012/snow-fall/#/?part=tunnel-creek.
The New York Times also often publishes infographics that demonstrate this principle powerfully.
Because users consume content across multiple screens, multimedia is necessary to ensure you keep the audience engaged, and they do not get bored with your content. See this infographic on the importance of exploring different types of multimedia with content marketing: blog.marketingv2.com/the-impo...eting-strategy .
To take advantage of these various forms of content delivery, it is necessary to build the correct capabilities. But how do you determine what forms of content you need?
The content audit
Once you have established your marketing goals, your brand personality and a guiding understanding of who you are trying to reach, the content audit is a necessary but sometimes laborious next step. The content audit involves an audit of all the existing content supplied by the brand such as the website, white papers, articles, videos, and content shared on social media sites can all be considered.
An assessment can then be made of how well these pieces of content match the strategic needs of the brand, its audience, and the appropriateness to the chosen channel.
While you can either thoroughly immerse yourself in this process or attempt to get a more time-efficient overview, the goal is to map what is currently on offer versus what is needed to achieve the strategic objective. It is important not just to understand what you have and who accesses it, but also how it is currently organised, through which channels, and how often it is accessed by your audience.
Many practitioners suggest the use of a spreadsheet to achieve this. Content can be found to be either mismatched to the goals of the organisation, or spot on. Most importantly, you can establish what is missing. Are your customer needs being addressed? Where do the opportunities lie? | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/15%3A_Retain_-_Content_Marketing_Strategy/15.04%3A_Strategic_building_blocks.txt |
Learning from publishers
Referring to a brand as publisher refers to expanding the function of the marketer or brand manager, and opening up additional opportunities to influence and/or convert. Rather than focusing on the immediate sale or conversion, a publisher focuses on value and interest for the user, and building a relationship based on supplying information, inspiration, or entertainment that suits the customer’s needs. Makeup. com by L’Oreal is an oft-cited example of a brand publishing useful tips and content that does not link to a product or sales directly, but demonstrates how the brand can facilitate the lifestyle consumers desire or aspire to. In content marketing a brand has to give customers more than just the product or service.
Resource planning – thinking like a publisher
Content marketing touches on a number of departments in an organisation. Marketing, sales, customer service, corporate communications, human resources, and website management teams should all be aware of the content marketing strategy for a business. Co-ordinating content between these teams can be challenging if not impossible if turnaround times are tight. This is why it is important not only to look at where content production should live in your organisation, but also to map the workflow of content creation, an essential function. Are designers involved? Where does quality control take place? Where can a piece of content be adapted and reused on a different distribution channel?
Some organisations opt to have a central role for someone to oversee content; others build in-house departments. Factors to consider are budget, creative control, approval and sign off processes, objective perspectives, and full-time versus freelance resources. Whether you are outsourcing to a publishing house, or training a team in house, the decision must be made and planned for so that workflow can be mapped to facilitate your strategic needs.
Always on content planning
Given that a large part of the global population is constantly engaging with content via various digital devices and platforms, it is necessary to consider content creation in terms of not only short campaign bursts, but ongoing delivery and engagement. Consider the illustration below.
By constantly engaging with audiences, which is well suited to social media, for example, it is possible to build and maintain a relationship with customers/users. Consider the image above, where constant engagement is built by a constant presence, and amplified by shorter-term campaigns.
Content models
Your organisation’s content requirements and objectives should determine the structure of your content teams. Do you have a need for ongoing content creation, or are there less frequent high-input forms of content that will benefit your organisation? There are many models which are constantly evolving, so invest in some research around what will suit your organisation. We have outlined two approaches below.
Stock and flow
Stock content refers to bigger, beautiful assets that require more investment and age well, meaning that they will be interesting in six months as well as today. ‘Inside Chanel’ by Chanel, is an example of this. High-production value documentary type videos are created and sponsored by the brand to achieve awareness and develop brand affinity across its target market. You can visit the Chanel channel on YouTube here: https://www.youtube.com/user/CHANEL
Flow content has a lower production value and a quicker production and publishing time frame. Images depicting what is going on at a business on any given day, for example, freshly baked goods at a bakery, can be placed in this category. Weekly or even daily blogs as well as event and holiday themed content would all be considered flow.
Both types of content should be considered for balancing out a content strategy. It can also be useful to consider destination and distributed content. Content which you are either sending out to the world through various platforms and networks, or which pulls your user towards a page on your website or an article on your blog. Rather than focusing solely on driving users to your owned media spaces, such as your website, consider how to create content that engages with your target audience in the spaces and platforms they use online. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/15%3A_Retain_-_Content_Marketing_Strategy/15.05%3A_Content_creation.txt |
Algorithmic curation
Algorithmic curation is a term that refers to the algorithms platforms have created for dealing with information overload. Various platforms, like Facebook,Twitter, and the search engine Google, use algorithms to filter out the amount of information that is delivered to users. Each algorithm will use a number of factors to determine what is actually relevant and interesting to the user doing a search or looking at their news feed.
One of the factors that influences whether a piece of content is considered relevant is how much an individual engages with the brand’s presence on that platform over time. Posts shared by a Facebook Page, for example, may reach only users who have previously engaged with posts from that page through commenting or liking. It is therefore important to create content that encourages engagement and sharing.
Increasingly SEO and content marketing have to work together if they are to reach their audience and achieve their objectives. Without good content, SEO will struggle, and without SEO even good content will not be seen. SEO approaches content differently to content marketing. SEO wants the content as narrow and focused as possible, so that they can give the right answer to the right user while users are searching. It also recognises the need for enjoyable shareable content as this improves search rankings and earns backlinks. Content marketers, on the other hand, prefer broader content, and focuses on the quality and exposing the content appropriately (Postan, 2016).
Note
For more on aligning content marketing and SEO go to this blog post by Outbrain: www. outbrain.com/blog/ content-marketing-andseo
Understanding channels and platforms
Understanding the channels through which you share content is as important as the crafting of that content itself. Reaching people effectively will only be achieved if the medium supports the message and vice versa. Social media, email marketing, mobile marketing, and video marketing are just some disciplines that will form part of your content creation arsenal. The rest of this book is dedicated to best practice in communicating effectively through the various digital disciplines available to you.
15.07: The bigger picture
Content is a significant component of many digital marketing disciplines. When creating content, you should always keep the principles of writing for the web in mind.
Email marketing relies on great content since most people suffer from email fatigue, they will only stop to read emails that they know are of high quality and that provide excellent content.
Social media marketing also depends on sharing relevant and valuable content with social fans. While your brand promise may get them to your social page, your ongoing stream of quality content will encourage them to interact and share, spreading the word about your company. If your content is great and really resonates with your audience, it could go viral.
Search engine optimisation is strongly influenced by the quality, frequency and value of content. Not only will search engines favour your site, but others will choose to link in to your content, creating a valuable referrer for your brand.
Video marketing is a whole new approach to content, in which you create dynamic and shareable videos specifically tailored to the interests and needs of your audience.
Mobile marketing also requires that you consider the unique requirements of your audiences across a series of devices. If you understand the role that each device plays in a user’s life and buying cycle, you structure content according to user purpose and frame of mind.
15.08: References
Bowman, M., 2017. Video marketing the future of content marketing. [Online] Available at: www.forbes.com/sites/forbesa.../#27eb8d106b53 [Accessed 1 November 2017]
Content Marketing Institute, 2013. What is Content Marketing? [Online] Available at: http://contentmarketinginstitute.com...ent-marketing/ [Accessed 1 November 2017]
Digital Training Academy, n.d. Content Marketing case study: How Intel and Toshiba got an audience of 70 million with social storytelling. [Online] Available at: www.digitaltrainingacademy.co...arketing_case_ study_how_intel_and_toshiba_got_an_audience_of_70_million_with_social_storytelling.php [Accessed 1 November 2017]
Halvorson, K., 2010. Kristina Halvorson, Content Strategy on Conversation Agent. [Online] Available at: http://www.conversationagent.com/201...-strategy.html [Accessed 1 November 2017]
Postan, L., 2016. Content Marketing and SEO. [Online] Available at: http://www.outbrain.com/blog/content...keting-and-seo [Accessed 1 November2017]
Cognitive Media, n.d. Coca-Cola Content 2020 Part One. [Online] Available at: http://www.youtube.com/watch?feature...&v=LerdMmWjU_E [Accessed 1 November 2017]
Vipat, R., (2013) Digital marketing at Nike. [Online] Available at: http://www.slideshare.net/ojasvipat/...keting-at-nike [Accessed 1 November 2017] | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/15%3A_Retain_-_Content_Marketing_Strategy/15.06%3A_Content_channel_distribution.txt |
In order to support the ongoing production of interesting content, it is necessary to have some planning documents in place. Consider those outlined below.
Brand style guides
This document guides anyone creating content for a brand at any time. What is the tone of voice and brand personality? How is it best represented visually, and what are the brand colours and fonts? This can be a challenging document to put together, and it usually isn’t the content marketer who is tasked with doing so, but is essential to aligning brand communications. It is also a document that tends to be ‘live’ as it is constantly updated as the brand and content landscapes evolve and new conventions need to come into play. Brand style guidelines are also referred to as Corporate Identity( CI) or Brand Identity (BI).
Content calendars
Content calendars assist the content marketer in planning the content they will be sharing, across which platforms, and when. The more advance planning is undertaken, the easier it is to react quickly to tactical opportunities.
Workflow map
A workflow map documents the path a piece of content takes when it is created. What are the steps in approval, how is it optimised for digital publishing, who has final sign off? Is it a duplicate of existing content, and where else can it be used? A workflow map assists you in streamlining this process.
Persona map
As discussed, the persona map assists content creators in focusing on those for whom they are in fact creating content, and what the motivations of consumers may be.
15.10: Advantages and challenges
Content marketing can position your brand as an expert through the sharing of useful content in your specific field. It also enables you to reach the customer who has a fragmented attention span spread across many devices and content touchpoints.
One of the more powerful benefits, however, is that you can learn a lot about your target consumer through the content with which they do or do not engage. The more targeted and ongoing your content, the more data you can gather about how effectively you are reaching those you need to.
One of the great challenges in content marketing is providing content that is truly interesting and engaging to the right people with the right mix of subject matter and brand. Matching content to the required outcome for your strategic purposes takes dedication and focus. In the context of ongoing content production, it can also be a challenge to maintain levels of quality over time, which is why process and quality assurance steps must be put in place. Consider that the goal is not to create as much content as possible, rather it is to focus on relevance and content that matches strategic outcomes.
15.11: Case study - Intel and Toshiba
One-line summary
Toshiba and Intel paired up to create an extremely successful social storytelling campaign that refreshed the ‘Intel inside’ slogan and boosted awareness of the new Ultrabook.
The problem
Intel and Toshiba both wanted to an opportunity to interact and raise awareness with younger consumers, aged 18–34 years old. They knew they didn’t want a regular ad, but something that would really engage the audience and get them to interact with the brands.
The solution
An interactive social film called ‘The Beauty inside’. The film starred real Hollywood stars and was a film about a character called Alex, who wakes up every day as a different person. On the inside he is the same, but on the outside, he looks like someone different. The story was about the fluid nature of identity and that despite outside appearances, it is what is inside that counts.
The campaign included a strong social element. Due to the changing nature of Alex, he could be played by anyone (male or female), and fans were invited to audition via the brand’s Facebook application for the role. Those chosen would star in the professionally filmed episodes with real Hollywood players. Additional audience created content was also shared in the Alex story on the Facebook page.
Watch this video about this incredible case study:
https://www.youtube.com/watch?v=qyMQIMeSCVY or the full six episodes as one movie here: https://www.youtube.com/watch?v=rbNP_c0wUxE
The outcome
Over 26 fans were cast in the film as Alex, chosen from over 4 000 contenders. And an additional 50 Alexes were featured on the ‘The Beauty Inside’s Facebook Timeline. The content resonated with the audience, and the social nature of the film sparked engagement and shares.
The results of the campaign were:
• 70 million video views
• 97% YouTube approval rating
• 26 million social interactions
• 40% lift in brand perception for Toshiba
• 66% lift in brand perception for Intel
• Increase in sales of 300% during the event, when compared to previous weeks (Digital Training Academy, n.d.).
Despite being a few years old, this case study is a great example of how providing content with strong entertainment value to customers and engaging with them on an emotional and social level, can have dramatic results.
15.E: Content marketing strategy
Case study questions
1. What is brand storytelling?
2. Why do you think Intel and Toshiba chose this option?
3. What in particular do you think drove the dramatic lift in brand perception for both brands?
Chapter questions
1. What is content marketing strategy? How does it compare to business strategy?
2. Why is the customer journey or buying cycle relevant to content marketing strategy?
3. How do you decide what new forms of content your brand needs?
Further reading
contentstrategy.com/ – Content strategy for the web.
http://contentmarketinginstitute.com/blog/ – the official blog of the Content Marketing Institute
the-cma.com – The Content marketing Association website. News, research and case studies on Content marketing.
15.S: Content marketing strategy(Summary)
Content marketing presents a pull mechanism for the marketer rather than a push one. It’s a gentler approach to traditional advertising and product or price promotions. Brands must consider their brand identity and the market they are trying to reach in order to create targeted and valuable brand content that delivers on strategic objectives.
It’s about more than creating a piece of content. Content marketing strategy looks at how you structure your organisation to create that content, and how you match specific types of content and methods of delivery for achieving strategic outcomes.
These ideas need to resonate with people rather than simply existing across an array of media with which they are presented. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/15%3A_Retain_-_Content_Marketing_Strategy/15.09%3A_Tools_of_the_trade.txt |
Learning Objectives
In this chapter, you will learn:
• About the largest and most popular social media platforms.
• How to track, monitor and measure your social media marketing success.
• The best ways to engage with audiences on social media.
16: Retain - Social Media Platforms
Social media is such an ever-present part of our lives, that it is nearly impossible to engage in online activity without coming into contact with it at one point or another. It is also becoming difficult to avoid social media in offline channels as well - consider hashtags and snapcodes on posters, or television shows and ads sending viewers to their social media accounts.
The Internet has changed how we see and engage with media. We can now collaborate, publish, share content and ideas much more easily than ever before, in real time and with people all over the world. All this online sharing and collaboration is facilitated by social media.
In social media’s early days, chat rooms and social networks enabled individuals to ‘meet-up’ online to discuss topics, interact with one another and share their views and ideas. Today social media is so much more, as it plays a key role in the hyperconnected, Internet-dependent world we find ourselves in. It offers immediate content that is relevant to the user, when and where they need it. With social, the longer you take to post about an event or trend the less relevant that content becomes.
This inter-connectedness and real-time nature of social enables marketers to connect with their audience in ways they never could have dreamed of. Social media also provides new ways to address business challenges, such as awareness and conversion, and enables small and large businesses alike to grow their business and customer base.
To succeed in social media, you need to understand the basics, such as the various platforms available to you, which objectives social media can help you to achieve, and how to create a strategy using social media to achieve these objectives. This chapter will walk you through some of the larger platforms, and the following chapter on Social media strategy will demonstrate how to use social media strategically to achieve your marketing objectives.
16.02: Key terms and concepts
Table 16.2.1
Term Definition
Ads manager An online dashboard provided by Facebook where one can view, edit, and access performance reports for campaigns, ad sets and individual ads. With Ads Manager you can view all your Facebook campaigns, track your payment history, make changes to your bids and budgets, export ad performance reports, and pause or restart your ads.
Avatar A manifested online identity on social media and other online communities. An Avatar can be whatever the user chooses and is the personal image the user wants to project to other users.
Blog Short for weblog. A type of website that allows users (bloggers) to post entries and self-published musings on different topics and which often allows readers to comment on these posts.
Boosted posts A boosted post is a post such as status updates, photos, videos and offers, that will appear higher in news feeds so that more users will see the post. Posts can only be boosted from a brand or business page. Personal profiles cannot be boosted. The cost of a Boosted post depends on the number of users you want to reach.
Carousel ads An ad form that allows the brand to show multiple images and/ or videos and a link to some action in a single ad. Up to 10 pieces of content can be included. Carousel ads have proven to be much more effective in driving traffic to advertisers’ websites from social media platforms.
Chiclets Social share buttons that appear as small icons adjacent to a blog post, image, article or web page which enable users to share the information via a social media platform, whose icon is indicated by the chiclet.
Cinemagraph Online photographs, with elements that move, using looped video, published as an animated GIF, or other video format, to give the impression the viewer is watching an animation.
Content Any items you post online are considered content. This includes status updates, images, posts, videos and any copy. Good content should engage users and build your brand.
Cover image The main image on a social media page. It needs to catch the attention of the user, be consistent with your brand, and encourage the user to read more on the page and engage further with your brand.
Crowdsourcing Taking a job traditionally performed by a professional and distributing it to an undefined, generally large, group of people in the form of an open call.
Crowdfunding Funding a project or venture by raising financial contributions from a larger number of people. Kickstarter and Thundafund are examples of crowdfunding platforms that source funds for a variety of projects.
Facebook Business Manager A service from Facebook that assists with managing access to multiple Pages and ad accounts. The service is ideal for businesses that need different permissions for different people in the organization.
Forum A website where users can engage in discussions by commenting on threads or previous posts made.
GIF Graphics Interchange format is a computer file in the form of a bitmap image that enables short lops of video to be transferred online easily in small file sizes.
Handle A public username used to identify individual users online, usually on social media. For example, @RedAndYellowEd is the Twitter handle for Red & Yellow.
Hashtag # A type of label or metadata tag. It is used on social media to label what content is about. It enables content to be searched and discovered more easily.
Hyperlink A reference to data that users can find by clicking on a link, which will take them to the document or page to which it refers.
Keywords Words identified as crucial search and advertising parameters. These words are used in copy or posts to optimise discovery and engagement.
Paid media Any marketing efforts that involve a paid placement. PPC ads, branded content, display ads and promoted and boosted posts are all considered paid media. Paid media involves paying a third party to broadcast your message to others.
Power Editor Another Facebook advertising tool. It is designed for larger advertisers that may have a large number of ads running simultaneously. The tool provides precise control over all the campaigns.
Social network In the online sense, a type of website model where individual members become part of a broader virtual community, where they can share, communicate and collaborate in online commentary and engagement around a shared interest or goal.
Tagging Using a keyword or phrase to group pieces of content together under a specific theme, or assigning a piece of content to another user.
Trend To trend on social media means your content experiences a spike in popularity on a social media channel.
Viral When a piece of content is shared in very large numbers it is considered to be viral. There is no exact number of shares that constitute viral. If the number of shares of a piece of content is exponentially larger than the usual number of shares of posts from that specific user, it can be considered to have gone viral.
16.03: Marketing with social media
Social media has changed the world of marketing. Social media is all about the ways in which we create, connect, converse and share content online, and can be used as an integral part of an online marketing campaign.
To keep up with increasingly digital audiences, traditional media has had to adapt. This has changed the way content is published, both online and offline, as well as how advertising is sold.
For example, many newspapers now publish their content online as well as in their print publications. Online, they can get instant commentary on their articles, learn what their readers think and use this information to make editorial decisions.
News also comes from citizen journalists; ordinary people who post instant updates to social media about events unfolding around them. Often, news breaks via Twitter users rather than news outlets.
Social media has evolved significantly over the last ten years. Initially, social media was mainly earned media, but brands started to claim ownership of their pages, profiles and channels across the various social media platforms. More and more paid options have also arisen for brands to promote themselves on social media. With an ever-increasing number of players entering the social media space, brands need to spend more and more on promotion on social media for users to see and engage with their content. Social media is a mix of owned, paid and earned media options for marketing. Knowledge of how each of these forms is managed and planned is integral to developing and maintaining a brand.
Working with social media can be broken up into three phases:
1. Strategy
2. Implementation, which includes content creation and community engagement
3. Analytics.
The process is cyclical, with the analytics of current content and engagement feeding back into the strategy. Depending on results, this alters the content created and shared, as well as how the brand engages with the community. These changes, in turn, are analysed and the cycle continues.
The next chapter, Social media strategy, addresses the strategic use of social media to achieve a variety of outcomes. This chapter focuses on the different social media platforms available to brands. It discusses the key features, marketing and advertising options, as well as how to access and interpret the analytics of the platform, and ultimately how to select an appropriate platform for your brand. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.01%3A_Introduction.txt |
Introduction and stats
Facebook has become the most dominant personal social network in the world. As of late June 2017, 2 billion users are now registered on the platform (that is nearly a third of the world’s population), and more than 1.2 billion of them are active on Facebook daily. Because users are spending so much time on Facebook, advertisers and marketers want to capitalise on this audience.
Note
There are over 16 million Facebook users in South Africa (2Oceansvibe, 2017)
Facebook originally presented a means of forming and maintaining online social networks for communities of users who already shared real-world connections, interests and activities. But now, in the realm of social networking, it is unnecessary to have met someone in person to connect with them online. Social networks created new meaning for the term ‘friend’, with many connections existing solely online. Users can also choose to follow users’ public posts without being Facebook friends with them.
Facebook has a number of ways for brands and organisations to use the platform to connect with potential customers. These include business pages, adverts, promoted posts, app promotions and now even direct online sales. Such marketing efforts are especially helpful to small businesses. Facebook enables content creation and distribution, and allows brands to engage with their customers in real-time twoway conversations through their ‘page’. Facebook is a powerful platform for the implementation of a digital marketing strategy.
Note
Read more about advertising on Facebook and other social media channels in the chapter on Social media advertising.
Facebook has not only changed social media, it is changing how users access content on the Internet. Many users already receive most of their news and entertainment content through their News Feed on Facebook. Mark Zuckerberg intends to make Facebook the dominant channel through which users access content and online services. In 2014, Zuckerberg announced the plan to take on Google as a search engine and make Facebook the means through which users access the web (Edwards, 2014). It could be argued that Facebook is no longer a social media platform, but a media platform that offers a social community as one of its many facets.
Features
Pages
Personal profile pages remove much of the anonymity of the Internet. Users of social networks reveal a great deal of information about themselves, from basic demographics such as age, gender and location, to nuanced lists of likes and dislikes. By divulging this information to the network, they are sharing it with the networks’ advertisers. For marketers, the accessible personal information is like gold and can be used for targeted marketing. While only de-identified data can be accessed for marketing, users are often unaware of the data that is amassing on their online profile. For users, this can lead to privacy risks. Social networks do offer privacy management control options for users, but the default setting shares information. Different levels of information control must be activated in user settings.
Note
To see how much of your data is being shared publicly on Facebook, click on the three dots on the bottom right of your cover image and click ‘View as’ to view your profiles as an anonymous viewer. Are you surprised by what you see? Each post or share can have a tailored privacy level, either to friends, public or a custom audience.
For brands, a Page is the profile for a brand, organisation or celebrity. It looks very similar to a personal profile, and users can choose to connect with a brand on Facebook by liking its Page.
Each Page consists of the following elements:
• A cover/header image, GIF or video (the large banner at the top)
• A profile image that represents the brand
• Buttons to like, share, comment or some other form of call to action
• The ‘wall’, where the brand’s posts and interactions are displayed in a chronological timeline
• Tabs are distinct pages of information on the brand’s Page. Tabs can be used to house richer, more graphic content, such as more detailed ’About’ pages, photos, videos, services, shop and event news.
Users tend to expect that a credible business would have a Page on Facebook, and neglecting a well thought out presence on the network can lead to lost opportunities.
Reaction buttons
The Facebook Reaction buttons allow users to share their feeling about a certain piece of content with their social circle. The reactions include the original iconic ‘Like’ button, ‘Love’, ‘Haha’, ‘Wow’, ‘Sad’ and ‘Angry’.
The Like button can also be used on websites outside of the Facebook ecosystem, which allows visitors to recommend this site and content easily, and spot if their friends have liked the same content.
The use of the like button is sometimes tracked as a performance indicator for business Pages, to quantify the amount of reach and engagement for a piece of content. Liking content signifies that someone has actively interacted with it, while liking a brand Page does not prove continual or repeated engagement. For this reason the number of likes on a brand Page can be seen as a vanity metric.
Note
The heart, or Love button, as well as the Like button is used to gauge what content users enjoy the most on their newsfeed. The Facebook algorithm then ensures similar content is shown to the user.
Metrics can’t identify who actually read a post, but they can show how many users were reached, shown as impressions, through either paid or organic search. Impressions, shares or comments are much more reliable measures of reach and engagement.
News Feed
News Feed is the term used for the stream of content users see when they log on to Facebook. It’s a selection of recent posts and updates from friends, and brands with which they have connected on Facebook.
Facebook uses an algorithm to determine what information to show in each user’s news feed.
This algorithm is called the News Feed Algorithm. According to an official Facebook update, the following factors are considered by the algorithm before it displays content in a user’s news feed:
• Who posted it? – If you engage regularly with this person or brand, Facebook will show you more of their content.
• Type of content – Whether the content is a photo, article or video can carry different weight in the algorithm.
• Interactions – The number of likes, shares and comments.
• Recency - When the content was created or posted.
Stories are ordered, or shown at all, according to the relevancy score that is calculated from the factors listed above.
A user is more likely to interact with content that is displayed in their News Feed, so it is vital to ensure that your page content takes this algorithm into consideration.
There are five things publishers can do to optimise their potential for appearing in news feeds. These are:
• Use compelling headlines
• Avoid being overly promotional
• Try a range of media forms and monitor which is most appreciated by the audience
• Use publisher tools to provide Facebook with audience optimisation and audience restriction information (Facebook, 2016b)
• Use boosted posts or paid ads to gain exposure.
When users tag their friends or brand pages in their personal Facebook content, the post will appear on their page wall, and it will notify the friend and the brand page. If it is a public post, it could be shown to some of the brand page’s fans. This is also true for brands tagging other brands, which is encouraged to increase exposure.
Facebook Connect
Facebook users can conveniently login to services or websites other than Facebook with the same login details by using Facebook Connect. Users can grant permission for profile information to be shared between Facebook and the service they have logged in to. Users can also easily see who else in their social circle is using that service, and share information back to their social circle.
Facebook Video
Facebook Video allows for the upload of videos directly to Facebook. These videos play automatically and silently (unless clicked on) as users scroll through their newsfeeds. For brands, these videos have visible view counts, which in turn help more users discover them.
Note
Because the videos start playing automatically, the view counts on Facebook appear much higher than on other sites, and this means that more brands are starting to promote on Facebook Video rather than on YouTube.
To use Facebook Video effectively, and ensure high engagement and high rankings on news feeds, content creators should:
• Focus on quality from the first frame – lead with imagery and key messaging that will draw attention.
• Include text overlay if videos include voice overs – autoplay usually does not include sound, and the text overlay ensures the message is not going unheard.
• Premiere exclusive video content – show content that is only available to users on your page
• Provide context – pull out key quotes as the text component of your post, this helps draw attention and raises expectation of what is to come.
Facebook videos can have calls to action as a button at the end of the video itself or in the post. The video post copy can tag other pages as well (Facebook, 2016).
Facebook Live
Facebook Live allows people, public figures and brands to share live video with their followers and friends on Facebook. It is available to anyone with a page or profile on Facebook. Viewers can react and comment in real time on the video and brands can monitor how the broadcast is going. Facebook Live records the videos as well, which can then be viewed like any other Facebook video. The news feed algorithm has been tweaked to ensure that videos that are actually live are at that moment are more likely to be shown in a user’s newsfeed (Facebook, 2017). It is a popular tool for brands and influencers and has proven very successful for brands like Starbucks, Kohls, and Sephora, as well as influencers like Martha Stewart. Mashable uses Facebook live to release a daily live show (Impact, 2017).
Note
You can find out more about how these brands have used Facebook Live at: www. impactbnd.com/blog/ facebook-live-businessexamples
Advertising and marketing with Facebook
Facebook, like many social networks, is free for its members, and relies on advertising for revenue. In turn, Facebook offers opportunities for brands to create a presence and use the existing social network to connect with and reach out to customers. Its search functionality has opened up dramatically and is becoming more advanced, which means it is providing more and more searchable keyword information for market researchers as well.
Note
People come to social networks to socialise and connect, not to see marketing messages; try to respect this by keeping your presence personal and valuable.
Because demographic and psychographic information is collected by the social network, advertisers are able to target their adverts to a very specific audience segment. Facebook ads that use ‘conversion’ objectives during set up, leveraging pixels to track conversions, remarketing and call to action buttons such as ‘buy now’, amongst others, are the most effective and can be tracked to monitor your conversion rates.
A conversion objective encourages users to take some form of action such as clicking through to your site, signing up for a newsletter, browsing your product catalogues, making purchases, and even driving users to visit your brick and mortar store.
Note
Refer to the chapter on Social media advertising for more information on targeting of your audience.
Brands can run promotions, offers and competitions through their Facebook Pages, but must ensure that they comply with Facebook’s terms and conditions. You can access offers at the top of your brand’s profile page.
Facebook campaign guidelines have become more relaxed and allow users to enter a competition through commenting on a post on Facebook, which does a great job of driving engagement.
Note
Read more about the Facebook competition regulations here: www.facebook.com/ page_guidelines.php
Facebook is now a pay to play space, where organic reach has dropped significantly, meaning brands now need to pay to have their content reach users’ news feeds.
Selling on Facebook
Facebook is a great tool for education and awareness, which can convert to a sale over time, but up until 2016, this rarely happened through Facebook itself. Users had to click through to the online store via the Facebook page or search for the products on Google and find the online store. Facebook Store, introduced in 2016, enables brands to import their online store onto their Facebook page (www. facebook.com/store.tab), meaning users can shop and purchase without having to leave Facebook.
Facebook is not considered a hard sales platform and is predominantly used for gaining awareness and reach, recruiting leads, or channelling users into a database from which they can be targeted in future marketing, ultimately leading to a sales conversion. At the time of writing, purchases were rarely done directly from Facebook, without the user already being a warm lead, having previously seen a sales-driving advert.
Facebook Analytics
Analytics are the key to informing social media strategy, so monitoring your posts and marketing efforts is essential. Facebook Insights is available to business page administrators. It provides data on how users are interacting with your content and your page. This includes demographic information about the users connecting with your content (age, gender and location breakdown), which tabs and which content posts are seen and interacted with, and how many users hide your content from their news feed and when.
With the inclusion of Facebook Video, Facebook also created Video Insights, which provides metrics for video uploads. You can see unique views, duration, and audience retention, which help you to understand how your videos are performing. Video Insights helps you to refine and revise your video strategy.
Facebook summary
Because of its sheer size, 2 billion users and counting, Facebook is a popular marketing choice for many brands. It offers incredible reach and is particularly powerful for brand awareness. Other social media platforms seem to appeal predominantly to younger markets, while Facebook has a broad appeal across age groups, making it a clear winner for brands who want to market to a more mature audience. The accessible analytics, helpful business tools, diverse ad options, and detailed assistance (through https://www.facebook.com/business) have all helped to make Facebook the number one social media choice for many marketers. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.04%3A_Facebook.txt |
Introduction and stats
Creating and sharing content for free is one of the hallmarks of social media, and YouTube is considered the largest of the content creation and sharing websites. The key word here is free: there are no fees for joining, whether you are uploading or viewing content, although premium paid-for membership such as YouTube Red can provide added features. This means that such sites attract an enormous audience. In fact, according to Alexa rankings, YouTube is the second largest website in the world, after Google! (Alexa, 2016). YouTube is now owned by Google and thus has the benefit of receiving prime results in the Google SERP.
YouTube encourages distribution of its content and allows videos to be embedded easily into other websites.
Online video consumption continues to grow year on year as bandwidth gets faster and cheaper. Sharing video content is easy with YouTube. Anyone can upload videos captured on simple devices such as webcams and mobile phones or on high-end professional cameras.
Some stats on YouTube:
• Over 1.3 billion active users
• Over 60% of users are male
• 50% of users are between 25 and 44 years old
• 300 hours of video are uploaded every minute
• Every day, hundreds of millions of hours are spent watching YouTube
• 3.25 billion hours of content are watched each month
• More than half of YouTube views come from mobile devices
• The number of hours spent watching YouTube is up 60% from 2016 (FortuneLords, 2017).
Features
YouTube is simple to use. Unregistered users can watch most of the publicly available videos. However, logging in with your Google account, or following the simple registration on YouTube, provides additional benefits. Registered users can upload an unlimited number of clips, comment on and add video responses to videos, and subscribe to content feeds that catch their attention and interest. Frequently enhanced functionality and clever features continually push YouTube to deliver bigger and better services to its ever-increasing user base.
YouTube allows individuals and businesses to own a channel on the site. They can brand and customise the channel as they like and manage the content that is created and shared. Viewers subscribe to various channels and get updates on new content. Vloggers, video bloggers, who create monthly, weekly or even daily posts, have become increasingly popular and some vloggers earn money and make a living through their YouTube programs.
Note
The most watched video in YouTube history is the music video for Despacito performed by Luisi Fonsi and featuring Daddy Yankee, which has netted over 3.3 billion views.
Marketing and advertising on YouTube There are two aspects to marketing through YouTube. The first is paid advertising by promoting video content next to, or during, other content on the site. The second is having a brand channel, which provides analytics and community features.
Marketing and advertising on YouTube
There are two aspects to marketing through YouTube. The first is paid advertising by promoting video content next to, or during, other content on the site. The second is having a brand channel, which provides analytics and community features.
YouTube has a host of advertising options. YouTube’s Promote Your Video feature and YouTube Fan Finder are just two of the many ways the site can be leveraged for promotion. Adverts can also be managed through Google AdWords. See more about this in the Social media advertising and Video marketing chapters.
Having a brand channel is perfect for content marketing. Content shared on your brand channel should not be too promotional, but should offer value to your viewers. Some promotion is expected and accepted by viewers, but if you want to entertain viewers and encourage them to subscribe and continue to tune in to view your content, it is necessary that the content offer value.
Note
Refer to the Video marketing chapter for more information on marketing on YouTube.
Using social platforms such as YouTube allows brands and video creators to tap into an existing community of avid video viewers. For example, YouTube has changed the way we view video commercials. Marketers have shown that if an advert is good enough, many users will choose to watch it. Super Bowl commercials, for example, are highly anticipated each year, and the best ones receive millions of online video views. These are users who have chosen to watch this advert at a media cost of zero! Other advertisers have realised that far longer adverts can be created and uploaded. As long as the content is good, users will watch, and hopefully share. Time constraints online are not the same as they are for television networks.
Online video sharing also makes it possible for conferences to generate a far greater audience than ever before. The companies that run these conferences are able to engage with a massive audience by posting videos of the conference presentations, an excellent example of content marketing. TED ( https://www.ted.com/ ) and Nokia, which runs Nokia World, are excellent examples of organisations that increase interest by making their remarkable presentations available for free.
YouTube’s Community tab
YouTube has created the Community tab, which allows viewers to respond to a creator’s posts. It allows users to reply to messages with text to react and share their thoughts. Brands can make posts consisting of text, image, polls, or video, and users can respond to these, making YouTube a far more social platform than before.
Read more about it here:
https://support.google.com/youtube/a..._topic=6059684
YouTube analytics
YouTube Analytics is available to all YouTube users for their videos and channels. Video views and popularity are broken up by geographical territory, as well as some demographic information. Discovery data shows how users got to your video.
One of the most useful reports for any video is audience attention. This report shows when users stop viewing a video, or rewind sections of video, and compares this to videos of a similar kind.
YouTube summary
YouTube offers brands and businesses a great platform to share content with their customers. Being able to personalise and brand your own YouTube channel helps to develop your brand’s online presence and assists with SEO. Your own brand channel means having an online collection of all your video content that users can peruse in their own time. And through analytics, you can observe what types of content resonate more with your users. You can optimize your efforts by sharing popular content on other platforms or even paying for promotion of popular content to get further reach and awareness. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.05%3A_YouTube.txt |
Introduction and stats
Instagram (instagram.com) is a mobile-based photo app that allows you to take a picture with your phone camera, and then add an interesting artistic filter to make it look polished and beautiful. This can then be shared on Instagram itself and on other social networks for followers to view and comment on.
People love to share photos, images, art and funny pictures online. Images tend to attract higher engagement than text-only posts.
Some statistics on Instagram as of 2016:
• 700 million monthly users
• 400 million daily active users
• 32% of people online use Instagram
• Over 40 billion photos shared.
• 59% of internet users between 18 and 29 use Instagram, compared to only 33% of internet users aged between 30 and 49 years.
(Omnicore, 2017a)
Features
Users have a profile and a unique username. On their profile, users post images or videos. They can include hashtags and tag other users who may appear in the image or video or who they think the post would particularly appeal to and who might wish to engage with it. Instagram also provides for direct posts, which are posts sent directly to up to 15 specific users. This is a useful feature for businesses to engage with key influencers, who may in turn share the post with all their followers.
Note
Hashtags are key means of tracking relevant subjects, categories and trends. As on Twitter, hashtags help users find and give context to your post. For example, your post about a dog could have the hashtag #DogsOfInstagram or #dogstagram.
Users follow other users or brand pages that they find interesting. Posts can be liked, by double tapping the picture or tapping the heart icon, and commented on. Each user has an activity feed which provides the recent activity of the users they follow, as well as how people have engaged with what they have posted (Kirschner, 2015).
Instagram also offers Shopping on Instagram. Users will be able to tap on item to find a larger image, a description of the product and how much the product costs.
There will also be a link that takes users directly to the website where they can purchase that specific product. (Facebook, 2017b).
Note
You can watch a video on how shopping on Instagram works here: vimeo. com/209655799.
Marketing and advertising with Instagram
With over 400 million daily users, Instagram is one of the world’s largest mobile social media platforms. Its benefit lies in boosting brand relevance through eyecatching visual content and potential large audiences. Business pages and posts cost nothing to set up, but like other social media platforms, Instagram is becoming a pay to play space. Brands need to use promoted posts to reach a more extensive audience than they would with simple organic reach. Brands can promote posts without a business page, but do not have access to analytics and data about their users and their engagement with posts and ads.
The large number of potential followers and the analytics data provided for business accounts provides marketers with key information about potential customers. To benefit from Instagram’s analytics tool, Follower Insights, brands need a business profile, which can automatically be linked to their Facebook Page. Their contact information will be imported directly and any Instagram followers will be able to contact the brand through Instagram. Because Instagram is owned by Facebook, it integrates with Facebook’s advertising interface, making posting across these channels seamless.
Note
Read more about this in the Social media advertising chapter.
Brands need to ensure they connect with the right communities so that they reach the right followers, but also need to monitor competitors and their posts and followers. Brands should use hashtags in every post, preferably those that are popular and actually used by their audience. Hashtags enable tracking of mentions and shares and tends to make content discoverable. Rare hashtags can make content less easy for potential customers or users to find. But, only using popular hashtags means your content could get lost among a million other posts. A more unique hashtag, marketed and publicised well, can make your content easier to find. For example, #food renders millions of results, while #vegan will narrow these results. Hashtags are also good for SEO. Understanding your audience is crucial as a brand, and monitoring their engagement is necessary to ensure that your posts are relevant.
Note
For more details on marketing with Instagram, see https:// www.forbes.com/sites/ ajagrawal/2016/03/25/ the-101-of-marketing-oninstagram/#5e87f4be5db3
Business profiles can promote posts directly and can specify the business objective and call to action. Budgets and time periods for the promotion can also be tailored to the brand.
Note
For more information on the features of Instagram, see http:// sproutsocial.com/ insights/instagramfeatures
Instagram Analytics
If your Instagram account is tied to your Instagram, then you will have access to Instagram Insights. Instagram insights tracks followers and what they like. Information on posts such how many followers saw a specific post and how many engagements and views it received as well as total number of followers can all be tracked. Follower activity is also monitored, with insights into demographic details, competitor posts they have engaged with, time of day they are most likely to engage, and what trends your followers are following. Individual promoted posts can also be tracked.
Marketers can use this information to improve their posts, increase engagement by planning a strategy that will ensure posts occur at optimal times, and include correct hashtags.
Instagram summary
Instagram is a great platform for brands that have a strong visual identity, or who are able to tap into this visual audience with beautiful and eye-catching content. Instagram can be managed through Facebook’s Ad manager, meaning you can share content and manage ads and promotions seamlessly across both platforms from one place.
Instagram is constantly updating its features, integrating Snapchat like features, such as Stories and filters, and providing a pin board type feature for brands to collect and showcase their content and products. With the addition of Shopping on Instagram, there are new exciting eCommerce opportunities for retail based brands. Instagram is a popular mobile platform and should be considered by any brand that wishes to engage with a mobile, millennial audience. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.06%3A_Instagram.txt |
Introduction and stats
Pinterest started in 2010. It is classified as a visual bookmarking site, where users can ‘pin’, categorise and share images and ideas they find online. Despite being pitched as a catalogue of ideas rather than a social networking platform, the site is considered one of the most popular social media websites with over 100 million active monthly users (Rouse and Wigmore, 2016).
Features
Each pin is an idea. This could be a recipe, an image, an article, or a quote. Each pin links back to its original site. By including the Save button (or Pin It) button to your site, you make it easier for users to pin your content onto their boards in Pinterest.
Pinterest’s main feature is the board. You create ‘boards’ on your profile by posting content or pinning content you find online. You can also repin content from other users’ boards. Boards need to be designed and crafted around themes, and each board should be uniquely named. Users can follow a board or a profile. Boards are classified under subject categories, which help users find what they are interested in.
You can now shop directly on Pinterest from a selected group of retail partners within the US. This will be extended to other retailers. Users browse pins as normal, and when viewing a buyable pin an “Add to bag” button will appear. The “Add to bag” button links back to the merchant’s store, enabling the user to purchase on Pinterest, with all necessary order details and payment information sent directly to the merchant for processing. To find out more about buying products on Pinterest, visit https://help.pinterest.com/en/articl...g-on-pinterest.
Marketing and advertising on Pinterest
As a business, you can create your own business page. This includes a host of tools, such as:
• Analytics
• Direct links back to your website
• Easier pinning of your website content via the save button
• Newsletters
• Buyable pins
• Options for promoting material
Even widget builders. Business profiles should not only be providing boards of their products. Boards should include the lifestyle or essence behind the brand. A makeup brand, for example, could also include boards on high fashion, new trends in makeup, interesting use of makeup in movies, and even general skin care.
Rich Pins allow businesses to add extra details to their Pins, such as the ability to:
• Directly install an app
• Include location and contact information
• Connect to articles
• Link to product information and purchase details
• Include recipes
• Show ratings and reviews for the latest movies.
Note
To see more about using Pinterest for marketing and advertising, see business.pinterest. com/en/tools and www. forbes.com/sites/ ajagrawal/2016/03/15/ top-tips-forbeing-successfulon-pinterest-in2016/2/#3d8b49317df1 as well as the Social media advertising chapter
Promoted pins are pins that the business pays for to reach more people. They’re native ad units that help users discover and save your ideas. Promoted pins work for awareness, engagement and directing traffic to your website. Pinterest has also introduced buyable pins, which allow users to buy your products directly through Pinterest.
Pinterest Analytics
Pinterest Analytics is the native analytics tool built into the site. It is available automatically to business account holders. It provides information on some important metrics, including:
• The most repinned items on your boards
• Various metrics about your audience, including their interests and the types of things they want to repin
• Impressions and viewers.
It gives information about what is working and not working on your boards, which can be adjusted accordingly. This should inform strategy and board design going forward (Pinterest, 2016).
Pinterest summary
The visual nature of Pinterest and the ability to use boards as collections make the platform a good choice for retail brands. Brands that target women are likely to do well on the platform due to its strong female demographic. Marketers who have used Pinterest comment on its higher than average conversion rate, with some attributing it to the fact that users of the platform are further along in the buying cycle. Pinterest is gaining in popularity as a social media space for marketing, and should not be written off when considering platforms. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.07%3A_Pinterest.txt |
Blogging
A blog is a website where entries (blog posts) are typically displayed in reverse chronological order. Blogbasics (2017), defines a blog as a “frequently updated online personal journal or diary”. Blogs usually allow readers to comment on blog posts. A typical blog will feature text, images and links to other related blogs and websites.
Blogs for marketing can help you:
• Create an online identity
• Create a voice for yourself or your company
• Promote engagement with your audience
• Build a community.
Blogs can be very successful marketing tools. They’re an excellent way to communicate with staff, investors, industry members, journalists and prospective customers. Blogging also helps to foster a community around a brand, and provides an opportunity to garner immediate feedback on developments.
Corporate blog content should be:
• Industry relevant
• Appealing to your target market
• Transparent and honest
• Personal and entertaining
• Related to what’s going on in the blogosphere
• Posted regularly.
Search engines value regular, fresh content, and blogging can create just that. The more you post, the more often search engines will crawl your site looking for additional, relevant content. Basing your blog on the keyword strategy created during the SEO process can also ensure that your website ranks highly for key phrases. Blogs, by their social nature, can also increase the incoming links to your website.
Using a blog platform that is designed to be search engine-friendly is crucial to harnessing the SEO power of blogging. Some features of SEO-friendly blogging platforms:
• Each blog post should be assigned a unique page that can easily be accessed and indexed by the search engines (this is called a permalink).
• It should be possible to tag pages with keywords relevant to your SEO strategy.
• Each post should be able to have its own unique metadata (title, description and key phrases).
• Social sharing and bookmarking functionality should be built in.
Promoting your blog
Note
Cards Against Humanity used Medium in early 2017 to post about a ‘fake news’ press release after the Super Bowl. You can read more about this at: www. adweek.com/creativity/ why-did-cardsagainst-humanity-airor-not-air-a-horriblesuper-bowl-ad-abouta-potato/
List the blog in blog directories. While they’re not as popular as search engines, many Internet users visit them when looking for information. Examples include Blogarama (www.blogarama.com) and BlogCatalog (www.blogcatalog.com).
Blogs are powerful because of their reach, their archives and the trust that other consumers place in them. For a marketer, they present opportunities to learn how others perceive your brand and to engage with the audience. Some brands get this right; some get it wrong. Blogs can provide a snapshot of audience sentiment regarding a brand. Marketers can also listen to blog activity around competitors to gain market insights.
Blogging platforms that can be used to set up a blog quickly and easily include:
• WordPress (www.wordpress.com)
• Tumblr (www.tumblr.com)
• Blogger (www.blogger.com)
• Medium (https://medium.com/)
Note
Tumblr is a part blogging, part microblogging tool and part social community. Each user has his or her own Tumblelog where they publish short text posts, images, quotes, links, video, audio and chats. Tumblr is perfect for users who don’t need a full blog, and want to publish quick multimedia posts, usually from their mobile device. If you are interested in seeing how to use this platform see this article: How to use Tumblr www. lifewire.com/how-touse-tumblr-4049305
Podcasts
A podcast is a digital radio or video programme downloadable from the Internet. It is possible to subscribe to a podcast as one would to a blog. You can listen to a whole range of programmes and voices; just as blogs have allowed users to become writers without having to deal with a media channel controlled by someone else, podcasting has allowed anyone who fancies doing so to become a broadcaster. Many traditional radio shows are now also available in podcast format. Many liken the shift from traditional radio to podcasts to that of traditional TV channels to on demand online services, but at a much faster pace. Users see podcasts as the “Netflix for radio” (Main, 2016).
‘Podcatching’ software allows you to download the latest edition of any podcast you subscribe to automatically. Most people use iTunes, go to www.apple.com/ itunes/store for loads more information on podcasting and a huge list of available podcasts. You can listen on your computer or transfer the file to an iPod or MP3 player. Podcasts are usually free, and the most successful ones have very highquality content and production value.
Podcasts are usually recorded and edited using home equipment, and are done for the love of it. Specialised podcasting software is available, such as Apple’s Garage Band or QuickTime Pro. These packages make it quite simple to record, mix and format the audio files correctly. Just like bloggers, though, many podcasters are trying to figure out ways of making money from their podcasts and turn listeners into revenue.
21% of Americans have listened to a podcast in the last month, which is the same number of Americans that use Twitter. In addition, 75% of podcast listeners take action on a sponsored message, which creates a huge potential audience for your marketing messages (Main, 2016). Podcasts thus offer an incredible opportunity for marketers. The bottom line is that you now have a way of getting content to your target markets without having to persuade a media channel to carry it or to pay huge advertising rates.
Podcasts are:
• Targetable: You can create highly relevant, niche content and then promote it to a specific target market.
• Measurable: You can see exactly how many downloads and subscribers you have.
• Controllable: It’s your content.
• Responsive: Set up a blog alongside your podcast and alter content according to the comments; you are actually having a conversation with your market.
• Boundary free: It’s the Internet.
• Relatively inexpensive: The equipment, software and skills are readily and cheaply available, and there are few or no distribution costs.
However, the content must be:
• Excellent quality: Like anything on the Internet, it is just as easy to unsubscribe as it is to subscribe. Quality content is what keeps listeners coming back.
• Real and valuable: While there is value in having product or service information embedded in a website, there is no point at all in producing an audio version of a company brochure as a regular podcast. Even if editorial is not actually paid for, a lot of the time it has been influenced in some way by advertisers. Although there are podcasts that carry adverts, users can fast forward straight past them and the chance of real success lies in branded content.
This is not about advertising or even just product information. It is about coming up with ideas for real programmes that, through informing or entertaining, enhance your customers’ experience of your brand. Refer to the chapter on Content marketing for more on creating non-promotional content that generates real value for customers.
It is also worth noting that brands do not need to make their own podcasts. A number of companies are advertising on other podcasts and doing well. In fact podcasts have become entry points for media consumers for plenty of brands. And with the audience growing rapidly, it is a strong channel that shouldn’t be ignored (Main, 2016).
Bookmarking and aggregating
If there are websites you visit often, or that you would like to keep as a reference to come back to, it is easy to use your browser to ‘bookmark’ them. This means that you store the URL so that you can locate it again easily. It also gives you a personal library of websites that you can store on your computer.
Social bookmarking sites, however, allow you to store these links online, use tags to describe them, and share these lists with other users. Some of these sites allow you to submit URLs that other users vote on, while others allow you to use the tags saved to browse through the lists and libraries that have been generated.
Websites that encourage users to submit content to bookmarking and aggregating sites use chiclets. These are buttons placed around the content that make it easier to submit and share the article. These services allow you to see what the community of web users finds useful, interesting or humorous. You are able to find other users with similar interests to yours, and explore the websites that they have found that you might not have come across yet.
Content submitted to a social bookmarking or aggregating site can dramatically increase traffic to a website, and expose the site to many new views.
Seeing how users categorise your content will give you an idea of how your audience perceives your website and company. It may be remarkably different to how you think they see you. Look at other websites which are tagged similarly. You may find new competitors, and possibly new ideas. You can also use these services to share what URLs your company finds interesting. This can be a useful resource to add to an online press room, as well as a utility that fanatics of your company would get really excited about.
To generate links and traffic, investigate the sort of content for which your target audience loves voting, and create that content. A word of warning: never do the content submission and voting yourself. It’s one sure-fire way to incur the wrath of these communities. Organic growth is the only way to go here. It may take time as you build your reputation and value among the community, but the end result can be very worthwhile. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.08%3A_Other_social_media_options.txt |
As with any digital marketing tactic, you need to be able to track and measure your campaigns to understand how successful they are and what you can do to improve them.
As we have shown, most platforms have native analytics, but because you do not actually host your presence, custom tracking is limited. Smaller businesses, in particular, rely on the built-in tracking offered by the various platforms, although new third-party tracking services are emerging and offering competitive and sophisticated tools, often for a fee. In some cases, it is also possible to integrate tracking to some extent if you are directing traffic to a web property that you own.
Web analytics software such as Google Analytics can also be used for social media tracking. On Facebook, tracking script can be inserted in applications and tabs where content is served through an iFrame. When sharing links to your own site and content, campaign tracking parameters can be used to track the source of visits and report on them in your web analytics tool. Here is an example of a url with a tracking tag.
is: www.redandyellow.co.za/5-way...er-women/?utm_source=newsletter&utm_medium=email&utm_campaign=AugNewsletter
The campaign tracking tag appended on the end of the URL is: ?utm_source=newsletter&utm_medium=email&utm_campaign=AugNewsletter
Click tracking with URL shorteners for social media
URL shorteners offer analytics that show how many users are clicking on links, when they are clicking, and where in the world they are. When you share links on services like Twitter, you should be tracking this data. When selecting a URL shortener, consider whether or not they keep the click analytics private. URL shortening services provide an easy way to share long links by generating a short URL that redirects to the original link. This is especially important when sharing links in messages with limited character counts.
There are several URL shortening services: bitly, goo.gl and ow.ly are three examples, and some websites have their own bespoke services, such as nyti.ms for The New York Times, which is excellent for reinforcing brand recognition. Twitter also has their own bespoke service, and no longer requires you to use one of the URL shortening service. Twitter will automatically alter the length of any URL provided in the tweet to 23 characters.
Using URL shorteners is very effective. For example, we may want to tweet a link to Red & Yellow’s online Digital marketing course. The URL to a post may be
https://www.redandyellow.co.za/cours...keting-course/
That’s 64 characters!
Using bitly, a URL shortening service, the link becomes http://bit.ly/1jpqs4e. It’s now just 21 characters long, and can be tracked.
Even better, some link shorteners allow you to customise your link, so the result could be bit.ly/R&YCourse, which is much easier to read and share.
16.10: Selecting the appropriate platform
When choosing the most appropriate platform for your brand or business, you need to look at three key questions.
Who is your audience?
You need to define your target audience as much as possible, and research them well. Find out as much about them as possible. Include their digital habits and typical online behaviours in your research.
How can you reach them?
Once you know who your target audience is, you can analyse the demographics and psychographics of the typical users of the different platforms and choose the platform your target audience uses and spends the most time on.
Facebook and YouTube are popular choices because of their large user base and thus potential reach. However, more niche platforms such as Pinterest or LinkedIn may be better choices as your content will appeal to and resonate more to these refined target audiences possibly resulting in more engagement than on one of the larger platforms.
What are your goals?
Certain platforms lend themselves to certain business and marketing goals. Do you just want awareness? Or do you want to build relationships and establish yourself as an industry expert? Are you looking for hard sales and traffic? Each platform will meet different objectives, and it is important to choose one that is most appropriate to what you want to achieve.
As discussed earlier in the chapter, marketing on social media is no longer without costs. As more and more players enter the market, getting your content seen and noticed requires promoted posts, paid-for ads and targeted marketing. Even if having a channel, page or profile on a platform is free, creating content, especially videos, to put on the platform, costs money. It is important that the channel you post your content on provides the necessary return on investment.
With its large userbase and sophisticated targeting options Facebook provides the largest return on investment for most brands. With over 95% of brands sampled declaring a return from the platform. Snapchat with its expensive ads, smaller userbase, and limited ad control makes it a less attractive option. Only 2% of brands sampled declared any type of return on investment from Snapchat. These means that most marketers are putting their money on Facebook to see a return on their investment (Socialfresh, 2016). | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.09%3A_Analytics_for_social_media.txt |
Social media implies a democratisation of information, and requires authenticity and openness from those who deliberately use it for marketing. This means that good and bad stories spread easily and stay accessible. Jeff Jarvis had problems with Dell way back in 2005, and you can easily find all the relevant information about his ordeal with a quick Google search for ‘Dell hell’.
Although you engage publicly with a wide audience when marketing online, marketers need to remember that they are communicating with individuals. While marketers should engage in the conversation, and ideally lead it, they cannot control it.
Marketing to content creators
Content creators can have strong followings on social media and are thus regarded as online influencers.
Online influencers hold a lot of sway, and should form part of any social media strategy. Supply such content creators with the tools and resources they need to talk easily about your product, including links to your social profiles, Twitter handles and hashtags.
Marketing to content consumers
Social media allow anyone to have a say, and the same tools that are available to individuals are available to companies. Company blogs allow a brand to build an online personality and to interact with their target market. Entertainment created and spread via social media increases brand touchpoints. Using the same channels that are available to your consumer aids in understanding the consumer, and levels the plane of conversation.
When using social media to reach out to content consumers, go to where your consumers are. The media you use is dictated by your users. For example, a nightclub for students can create a Facebook Page to advertise its weekly specials and interact with fans, while Land Rover enthusiasts may prefer to engage on a discussion forum.
With all interactions, marketing messages need to be clearly identified and labelled, with a disclaimer added if necessary. Trying to hide them as something else will only decrease your authenticity and probably your following.
Marketing to content sharers
Content sharers are content consumers who also pass your message on, whether it’s by chat or email, by sharing a link on a blog or by submitting your content to a bookmarking or aggregating service. They are a crucial link in the chain that passes your message around. Make it as easy as possible to share your content by using chiclets and unique and easy-to-read URLs.
Advertise on social media platforms
While marketers can use the tools of social media to convey their message, the characteristics that define a social media platform are also important. Social media allows users to express themselves, and this means that rich demographic and psychographic information can be compiled for more useful and targeted advertising. This presents many opportunities for finding creative ways to reach an advert-fatigued demographic. It also introduces the risk of dealing with personal information so make sure you’re up to speed with the relevant laws in your country.
16.12: Advantages and challenges
People are finding it easier to switch off or ignore traditional advertising, particularly through traditional media channels such as TV or radio. Social media gives brands the opportunity to interact with customers through relevant and targeted communications that customers can choose to engage with on their terms. For example, a consumer may visit a branded YouTube channel as opposed to deliberately ignoring advert breaks on television.
Social media’s potential shareability can be one of its greatest benefits; if users like your content enough, they may share it with their own communities. This is increasingly rare and difficult to engineer.
Social media allows you to engage with an online community and connect your brand to the appropriate audience. Together these create an online community for your brand and its supporters. Social media has created a forum for brand evangelists.
The numerous interactions on social, allow you to garner feedback from your communities. Such feedback helps drive future business insights and innovation, as well as marketing strategies. You can learn more about your audience’s likes, dislikes, behaviours and needs.
However, companies need also be aware that bad messages spread as quickly as good ones. The connectedness that can prove so useful can also be a conduit for negative messages and brand attacks. Social media facilitates a two-way conversation between customer and company. This necessitates that the company shifts approach from ‘deploy and watch’ to one of constant involvement with the audience.
This new landscape is one in which the customer really is king, and any attempt to dethrone the king can have dire consequences. Efforts to control the conversation in social media are soon found out, and can backfire horribly. Any company embarking on a social media strategy needs to be sure to monitor their reputation online regularly. It is crucial to know what is being said about your brand online, and to respond timeously when communicating in the social media sphere.
Finally, never forget that special rules and laws apply when you are dealing with personal information provided by users so be very careful how and where you use this data. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.11%3A_Rules_of_engagement.txt |
One-line summary
Harley-Davidson Australia used Instagram to successfully reach a younger audience in the 18−35 year old millennial market.
The challenge
Harley-Davidson is an iconic American motorcycle brand. The brand has come to symbolise freedom and individuality, but is associated with an older market. The brand wanted to raise brand awareness and engage a younger audience.
The solution
Harley Davidson decided to use Instagram ads, for the first time, to reach 18−to 35-year old men in Australia and New Zealand.
Harley-Davidson used a series of illustrations to fit in with the visual nature of Instagram. They wanted to appeal to young, adventurous people who appreciate the world through a more visual lens. The brand identified three themes they felt resonated with their intended audience, and tapped in to their own artistic heritage of seeing motorcycles as pieces of art. The brand commissioned local Australian artists to interpret these themes.
The illustrations were displayed as carousel ads for each theme. When swiped the images connected to form a storyline. The visual style was designed to mimic tattoo-like images and motifs that are popular in biking culture.
The results
Over a run of just over two weeks, the ads reached almost 1.4 million men, aged between 18 and 35.
The ad drove over 8 000 clicks through to the brand’s website.
Harley-Davidson achieved their objective of resonating with a younger audience, and ultimately expanding their demographic (Digital Training Academy, 2016).
16.14: The bigger picture
A strong digital marketing strategy draws successfully on various tactics, leveraging these together. Social media can complement tactics as follows:
Social media is inextricably linked to content marketing strategy. Content is the foundation of any social media marketing endeavour, whether you’re creating digital copy, images, videos or other media.
Social media can have SEO benefits. By using social media services, either to create or share content, websites can attract links and generate engagement, helping to enhance search engine rankings. Signing up to several social media channels can help a company own a larger chunk of the search engine results page. Companies can also use their SEO keyword strategy to focus their social media efforts.
Social media can provide a targeted network for online advertising. Detailed demographic information can play a large role in media planning and buying. Advertisers should create targeted interactive advertising for these mediums to encourage engagement. Social media also provides affiliates with new avenues for targeted traffic, resulting in revenue growth for the company being marketed this way. Social media plays a large role in online monitoring and reputation management, viral marketing and digital PR. Social media is used to express opinion, and so is the bedrock of online reputation. Any company that wants to communicate to this connected audience needs to listen to social media. Social media is also key to finding and accessing your biggest brand advocates and influencers, who can be powerful allies in building your reputation.
All other marketing efforts should feed into building your online community. Chiclets and referrals to your social media pages should be included in all other marketing materials. Social media should in turn try to convince users to sign up for newsletters or loyalty programs to get users to join your brand owned CRM. If the user is simply following you on the platform, their customer data lies on the third-party platform. Having their data in your own CRM allows you deeper access to that data so that you can engage with your customers through other mediums such as email and mobile.
16.15: References
2OceansVibe, 2017. Facebook, Twitter, Instagram, LinkedIn – all the SA Social Media Stats. [Online] Available at: www.2oceansvibe.com/2017/09/1...l-media-stats/ [Accessed 1 November 2017]
Alexa, 2016. Top Sites.[Online] Available at: www.alexa.com/topsites/global [Accessed 1 November 2017]
Blogbasics, 2017. What is a Blog? [Online] Available at: https://blogbasics.com/what-is-a-blog/ [Accessed 1 November 2017]
Digital Training Academy, 2016. Instagram case study: Harley Davidson uses carousel cartoons to win over adventurous Australians. [Online] Available at: www.digitaltrainingacademy.co..._study_harley_ davidson_uses_carousel_cartoons_to_win_over_adventurous_australians.php#more [Accessed 1 November 2017]
Edgecomb, C., 2016. 20 Examples of Powerful LinkedIn Company pages. [Online] Available at: https://www.impactbnd.com/blog/21-ex...-company-pages [Accessed on 1 November 2017]
Edwards, J., 2014. Mark Zuckerberg says Facebook will compete directly against Google as a search engine. [Online] Available at www.businessinsider.com/faceb...fsearch-2014-1 [Accessed 1 November 2017]
Facebook, 2016a. Newsroom.[Online] Available at: http://newsroom.fb.com/news/2016/04/...ws-feed-works/ [Accessed 1 November 2017] Facebook, 2016b. News feed. Best practices [Online] Available at: https://www.facebook.com/facebookmed...facebook-video [Accessed 1 November 2017]
Facebook, 2017. Go Live on Facebook. [Online] Available at: https://live.fb.com/about/ [Accessed 11 October 2017]
FortuneLords, 2017. 36 Mind blowing YouTube facts, figures and statistics – 2017. [Online] Available at: https://fortunelords.com/youtube-statistics/ [Accessed 1 November 2017]
Impact, 2017. 9 Facebook Live for Business Examples You’ve Got to See. [Online] Available at: https://www.impactbnd.com/blog/faceb...iness-examples. [Accessed 1 November 2017]
Instagram Business, 2016. Getting Started. [Online] Available at: https://business.instagram.com/gettingstarted/ [Accessed 1 November 2017]
Kaplan, D., 2016. Can Gamification Change Millenial’s Behaviour. JetBlue has the answer. [Online] Available at: www.geomarketing.com/can-gami...-hasthe-answer [Accessed 1 November 2017]
Karr, D., 2015. How to use LinkedIn for marketing. [Online] Available at: marketingtechblog.com/how-to...for-marketing/ [Accessed 1 November 2017] Kirschner, A., 2015. Instagram 101: Understanding the Basics. [Online] Available at: http://www.techlicious.com/tip/insta...ng-the-basics/ [Accessed 1 November 2017]
LinkedIn, 2016. Market to who matters. [Online] Available at: https://business.linkedin.com/marketing-solutions#! [Accessed 1 November 2017]
Main, S., 2016. 4 Things You Should Know About Podcast Advertising, According to the Pros: Brands build a relationship with listeners over time. [Online] Available at: http://www.adweek.com/digital/4-thin...g-pros-173829/ [Accessed 1 November 2017]
Newberry, N., 2016. LinkedIn for Business: The Ultimate Marketing Guide[Online] Available at: https://blog.hootsuite.com/linkedin-for-business/ [Accessed 1 November 2017]
Omnicore, 2017a. Instagram but the numbers: stats, demographics and fun facts. [Online] Available at: https://www.omnicoreagency.com/instagram-statistics/ [Accessed 1 November 2017]
Omnicore, 2017b. Twitter by the numbers: stats, demographics and fun facts. [Online] Available at: https://www.omnicoreagency.com/twitter-statistics/ [Accessed 1 November 2017]
PerfectBoom, 2016. LinkedIn is 277% more effective for lead generation than Facebook. [Online] Available at: http://www.perfectboom.com/linkedin-...tion-facebook/ [Accessed 1 November 2017]
Pinterest, 2016. Pinterest Analytics. [Online] Available at: https://business.pinterest.com/en/pinterest-analytics [Accessed 1 November 2017]
Rouse, W. and Wigmore, I., 2016. Pinterest. [Online] Available at: http://whatis.techtarget.com/definition/Pinterest [Accessed 1 November 2017]
Socialfresh, 2016. 5 Unpublished stats on the future of social media marketing. [Online] Available at: https://www.socialfresh.com/the-futu...rketing-stats/ [Accessed 1 November 2017]
TechCrunch, 2017. Snapchat reportedly hit 160M daily users and \$400M revenue in 2016. [Online] Available at: https://techcrunch.com/2017/02/02/snap-ipo/ [Accessed 1 November 2017] Webwise, 2016. Explainer: What is Snapchat? [Online] Available at: https://www.webwise.ie/parents/expla...is-snapchat-2/ [Accessed 1 November 2017]
White, L., 2016 Snapchat for Business: Best Practices. [Online] Available at: http://trackmaven.com/blog/2016/06/s...est-practices/ [Accessed 1 November 2017]
White, R.L., 2016b, The Marketer’s Guide to LinkedIn: Best practices, analytics and more. [Online] Available at: http://trackmaven.com/blog/2016/09/m...o-linkedin/#ad [Accessed 1 November 2017]
YouTube, 2016. Statistics. [Online] Available at: http://www.youtube.com/yt/press/statistics.html [Accessed 1 November 2017]. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.13%3A_Case_Study_-_Harley-Davidson.txt |
Introduction and stats
Twitter is the most popular microblogging service. Microblogging is a form of blogging that allows a user to publish short text updates, usually limited to 140 characters, which can be viewed by anyone or restricted to a specific community. Twitter (www.twitter.com) was launched in July 2006. These 140-characters posts, called tweets, are usually short thoughts or links to interesting articles.
Note
Twitter trialled using 280 characters in 2017. You can find out more here: www.nytimes. com/2017/09/26/ technology/twitter280-characters.html
Twitter boasts over 328 million monthly active users, with 100 million of those active daily sharing over 500 million tweets every day. Twitter was thought to be a platform for older users, but latest stats show that nearly 40% of users are between 18 and 29 years old, compared to around 30% of users being between 30 and 49 years old. Twitter is definitely a platform that users access on the go, with over 80% of Twitter users accessing the site from their mobile phone (Omnicore, 2017b)
Features
Each user on Twitter will have a unique username denoted with @ and their chosen name, for example, @robstokes for www.twitter.com/robstokes. Tweets can be directed to a specific user simply by typing their @username at the start of the tweet. This is also known as their twitter handle.
Note
The hashtag was first used in 2007, and used so that users could track the online communications and discussions about a specific event, Barcamp. The #barcamp is thus the first use of the hashtag in social media.
Like Instagram, Twitter users use hashtags to categorise their posts by adding a word or phrase prefaced with the # symbol for example, #DigitalMarketing. The hashtag will become a link that you can click to see other tweets that share this tag. Users can also choose to follow a hashtag, meaning that they will see all public messages with that tag, whether they follow the user who posted it or not. This can be a very useful way of collating information at events such as conferences. If you’re not at the event, you can still follow messages from the event by following the hashtag. For those at the event, all tagged messages can be broadcast in a shared location.
If a hashtag or keyword is used very frequently in a short time, it can become a trending topic and is displayed to the left of a user’s tweet stream. Events of global interest usually feature heavily, but sometimes brands can trend too (although not always for the right reasons). If a tweet is considered noteworthy, it can be retweeted or quote retweeted. Retweeting means reposting somebody else’s tweet to your own profile, along with their username. Twitter automatically displays this as a retweet. A quote retweet allows you to retweet another post, and include a comment about the tweet as well.
Marketing and advertising with Twitter
Twitter has become a popular and important marketing tool for many organisations, brands and individuals. Many brands use it successfully for rapid customer service, for example, @jetblue @klm and @dstvcare.
Twitter has become a great market research and consumer insights tool. The ability to search for brand keywords on Twitter and track indirect conversations, offers huge insight to brands.
Its immediacy allows for news to be broadcast to dedicated followers and fans first, as pop star Lady Gaga has done with single releases (@ladygaga). Dell lists several Twitter channels (www.dell.com/twitter), many of which exclusively release offer information (@delloutlet).
Twitter has a series of self-service advertising options, which are covered in detail in the chapter on Online advertising. These include Promoted Tweets, Promoted Accounts and Promoted Trends.
Twitter Analytics
Currently, Twitter Analytics is available to everyone that uses the Twitter API to provide analysis. Hootsuite’s Twitter management tools have built in analytics (https://hootsuite.com/)that can provide insightful data. Important metrics for Twitter include how many users interact with your content by clicking through on links, how many reply to you, how many retweets you receive, as well as hashtags and trends.
Twitter summary
Twitter remains a powerful platform for brands. It facilitates two-way communication with users, and provides great reach and awareness through possible retweets. The analytics are good, and the hashtags enable great tracking of sentiment about your brand, products and events. The increasing number of ad options is also a great plus for marketers. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.16%3A_Twitter.txt |
Introduction and stats
Snapchat was launched in 2011. It is a mobile messaging service that sends photos, videos, texts and drawings, but the message only lasts for ten seconds and then disappears. Snapchat is free to download and free to send messages.
Snapchat has proven extremely popular with teenage audiences, who seem to enjoy the ephemeral nature of the app. 71% of Snapchat users are under 25, though this is changing rapidly, and 28% of US teens consider it the most important social network. Around 35% of users admitted to using the app because the content disappears.
In 2017, there were 166 million daily active users, with 60% contributing content daily. Over 9 000 snaps are shared per second, averaging out to 400 million a day, and the platform receives 10 billion daily video views. The average user spends 30 minutes a day on the app.
Snapchat has seen exponential revenue growth. In 2014 its revenue was US \$3 million; this grew to US \$50 million in 2015, US \$404 million in 2016 and a whopping projected US \$1 billion for 2017 (Techcrunch, 2017).
Features
Users have a profile and use the app to share Snaps. A Snap is an image that the user can modify with filters or the drawing tool. A filter can denote the outside temperature, your speed, time, location and more. The Draw tool allows users to draw over the photo or video, with a full colour spectrum, and Type allows them to annotate and add personalized text. Users can also add Geofilters and sponsored lenses to the photos, both of which have proven strong marketing tactics for brands.
Another popular Snapchat feature is Snapchat stories. These stories are groups of images or videos, put together as a kind of mini-movie, that is available for a user’s followers to view for 24 hours (Webwise, 2016).
Marketing and advertising on Snapchat
Snapchat can be used for sharing various content with your audience. This can either be value added content, in the form of how to’s, latest industry material, and relevant tips; or it can be storytelling content, taking your audience behind the scenes of your business or showcasing aspects of your company culture and values and providing a glimpse into the brand. Geofilters and sponsored lenses are also great ways to get your audience to engage with the brand on the platform. Brands pay a daily rate, sometimes as much as US \$750 000 a day, to provide branded filters and lenses for users to play with and share.
Snapchat Analytics
Just like any other platform, it is necessary to monitor your performance on Snapchat and to continuously improve and optimise your content to drive a larger audience. Snapchat analytics provides information on the number of total story completions, unique views and screenshots. Seeing which type of content your users prefer means you can really optimise your efforts.
Snapchat Summary
Snapchat is proving to be a powerful marketing tool, albeit an expensive one. Paid marketing efforts on the platform are mostly limited to big brands that can afford the high rates and the development costs to create engaging and interactive filters. However, smaller independent brands can still make good use of the platform to share behind the scenes information, build up to events, and build a loyal following, especially if your target market is more youth orientated. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.17%3A_Snapchat.txt |
Introduction and stats
LinkedIn is a professional social network. It has 433 million members in 200 countries around the world. More importantly, one in three professionals in the world has a LinkedIn account, and almost 50% of key decision makers use LinkedIn for business purposes. LinkedIn is also 277% more effective for lead generation than Facebook or Twitter (PerfectBoom, 2016). To access all the benefits of LinkedIn, you need to have a company presence. LinkedIn is used for building networks, improving credibility, and driving recruitment. LinkedIn can:
• Help your business to engage and connect with influential industry figures
• Boost search engine page rank
• Provide a host of data for market research
• Allow businesses to monitor prospects and customers
• Enable businesses to clarify what they stand for
• Track and learn more about the media covering your industry
• Assist in positioning your business as an industry thought leader
• Engage customers with LinkedIn hosted content.
(Karr, D. 2015)
Features
Company page
A company page helps LinkedIn members learn about your business, your brand, and any job opportunities in your company. A company page is a great starting point for developing a reputation as a leader or player in your industry.
Initially, company pages were viewed as HR landing pages, but they have evolved. They can help drive business results, increase awareness about your business and its products and services, and promote career opportunities. Your LinkedIn company page should be viewed as a supplement to your company website and should help to drive traffic to your website. These pages provide free marketing opportunities and can enhance the credibility of your company. Good copy on your page should incorporate your key phrases and key words to ensure your site is optimised for search engines.
Some key tips for a great company page include:
1. Highlight your business entities with a showcase page
2. Share engaging content regularly
3. Optimise for search engines using keywords
4. Target prospective candidates with a Careers tab
5. Use an eye-catching cover image to grab user attention (Edgecomb, 2016).
Note
For more information on creating a quality company page see the following link: https:// www.forbes.com/sites/ williamarruda/2016/07/21/ how-to-create-acompelling-companypage-on-linkedin
Showcase pages
LinkedIn also has Showcase pages, which provide a way for companies to highlight their individual brands, specific products, or new initiatives. Showcase pages are an extension of Company pages. A dedicated page helps drive engagement, and allows businesses to share specific content with a targeted audience. LinkedIn users can now follow only the aspects of your business they are interested in. Showcase pages are designed to build relationships with relevant LinkedIn members, and LinkedIn suggests using Sponsored Content and Sponsored InMail for more campaign-based marketing efforts.
LinkedIn Groups
LinkedIn Groups allows for your company to join with other professionals and businesses outside of your immediate circle of contacts. It broadens exposure and connects your business with others in your industry. It provides a platform for you to share industry expertise and establish your business as a thought leader. Participating in Group discussions also potentially attracts visitors to your company page.
Groups help extend the reach of your content and provide constructive feedback from relevant professionals. Groups share information about target audiences and provide market researchers with insights. It is important to join Groups that are relevant to your business and interests. Sharing company content on a Group increases traffic to your page and your website. To avoid being seen as overly promotional in Groups and only pushing your own agenda, engage in a courteous manner and share, comment and use the opportunity to create meaningful relationships.
Job postings
LinkedIn is often the first place top talent look for work, so it’s important that your job vacancies are displayed and kept updated. It is also useful for HR to recruit new talent by looking at potential candidates using LinkedIn and asking them to apply for specific positions.
Advanced People search
The Advanced People search enables your business to network by seeing who your contacts know, and in turn connect with them directly. The power of LinkedIn lies in its ability to make new connections and relationships through existing ones, and using such opportunities to expand the business. Current stats say that 50% of B2B buyers use LinkedIn as a resource to inform purchasing decisions, while 76% of B2B buyers use recommendations from their professional networks for whom they wish to work with (Newberry, 2016).
LinkedIn Pulse
LinkedIn Pulse is a blog platform. Brands are not able to use it themselves, but by working with influencers, the platform can be leveraged for marketing.
Marketing and advertising on LinkedIn
LinkedIn is a great marketing tool in terms of generating awareness, understanding your target audience, making connections and building relationships. It also offers a range of advertising solutions. These include:
Note
For more information on advertising on LinkedIn see https:// business.linkedin.com/ marketing-solutions/ how-to-advertise-onlinkedin and the Social media advertising chapter.
• Sponsored content – boosting your content
• Sponsored InMail – deliver relevant content directly to your potential customer’s LinkedIn mail boxes
• Text Ads – self-service advertising platform offering high quality leads within tight budgets. (LinkedIn, 2016)
LinkedIn Analytics
LinkedIn has its own native analytics service which provides a good amount of information on audience and engagement. It provides useful data on updates, reach and engagement.
’Updates’ is a table showing the most recent updates, including:
• Previews of posts
• The date posted
• The audience the post was sent to
• Whether the content was sponsored or not
• The number of impressions to LinkedIn members
• The number of clicks your content received
• The number of interactions (likes, comments or shares)
• Any additional followers who were acquired due to the post
• Total engagement.
Additional graphs showing the reach of the post include the trend on the number of times updates were seen organically and through paid channels. Engagement is also illustrated on a graph to demonstrate engagement across organic and sponsored campaigns for various time lines (White, 2016b).
Other companies, like Quintly (www.quintly.com/linkedin-analytics) and simply measured (simplymeasured.com/linkedin-analytics) also offer detailed analysis of LinkedIn pages and their performance for your business.
LinkedIn Summary
For B2B marketing, LinkedIn is definitely the platform of choice. The unique targeting and search functionalities of the platform make it well suited to such marketing efforts. It also provides a lot of unique options for B2C marketers, and can be leveraged nicely for professional contacts and to gain acclaim within your industry.
16.E: Social media platforms(Exercises)
Case study questions
1. Why was Instagram an appropriate choice for Harley-Davidson?
2. Why do you think the brand decided on illustrations?
3. What other platforms would you have considered and why?
4. Are the themes the brand chose relevant to their target audience? Motivate your answer.
Chapter questions
1. Visit www.guardian.co.uk. List the ways in which this print publication is embracing social media.
2. Why is transparency so important to marketing using social media? Has this halted or accelerated the use of social media for marketing?
3. What is the difference between advertising using social media and marketing using social media? What are the benefits of social media to each, and what are the challenges?
Further reading
www.mashable.com – a blog that covers social networking and social media.
http://www.socialmediaexaminer.com/ – an online magazine that publishes original research oversees multiple communities for social media marketers.
16.S: Social media platforms(Summary)
Social media refers to the creation and sharing of content by consumers on the Internet. It gives all Internet users, including brands and organisations, the opportunity to become both creators and consumers of content.
Social media refers to a collection of sites and platforms that include the following activities:
• Creating and engaging in social networks
• Creating and sharing content
• Using other Internet users’ preferences to find content.
Most social media services are free to all users and rely on advertising for revenue. Social media provides targeted demographic information to advertisers looking to direct their advertising.
In this chapter we have discussed some of the main platforms, but there are many other smaller niche platforms, such as Tumblr, Vine, Spotify and SlideShare. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/16%3A_Retain_-_Social_Media_Platforms/16.18%3A_LinkedIn.txt |
Learning Objectives
In this chapter, you will learn:
• The strategic uses of social media.
• The steps involved in creating a social media strategy.
• To design documents and protocols you should have in place for social media success.
17: Retain - Social media strategy
In the previous chapter we covered some of the major social media channels and platforms, and the three phases involved in using them to reach your customers. These included strategy, implementation, and analytics. Strategy is by far the most important, as it informs what and how often you post, and how you choose to engage and relate to your audience. Strategy also informs how and what you will analyse. It is important that all these parameters are clearly established in your strategy, and that your strategy is in turn informed by the analytics you receive on your content and style of engagement.
Social media can be used to solve business, marketing and communication challenges, and is an important part of digital marketing. With so many platforms and choices available in social media, this chapter will show you how to use these spaces strategically to address these challenges. The last few years have seen a shift in social media strategy. The space is becoming a more traditional medium for advertising, but with a far better ability to target consumers. While it is still recommended to build a community on Facebook, there are brands using the platform for effective advertising, without actually having any followers.
Despite these changes, effective community and reputation management should remain key considerations in your social media strategy. Planning and thinking strategically, while leaving room to be flexible and respond to analytics and tactical opportunities is your key to making the most of social media marketing.
Consumers spend more and more time online, and that time is increasingly being spent on social media sites. In 2016 over 67% of Internet users were active social media users, equating to 2.3 billion people, 10% more than in January 2015 (Chaffey, 2016). Users spend an average of 30% of their time online, on social media (Mander, 2016).
The largest demographic of social media users is still young adults, aged 18 to 29, but the largest growing demographic is the over 65 year olds, who have tripled in number since 2010. Mobile is the device of choice when accessing social media, eclipsing desktop. In fact, 80% of Facebook’s audience access the platform via mobile (PewResearchCenter, 2015).
17.02: Key terms and concepts
Table 17.2.1
Term Definition
Community guidelines The rules and principles that community members must adhere to when communicating on a social media platform.
Community management Community management is the building and monitoring of online communities generated from your brand’s blogs, forums, social network pages, etc.
Key performance indicator (KPI) A metric that shows whether an objective is being achieved.
Lead A person who has shown interest in a brand, product or service and could be converted into a customer.
Objective A desired outcome of a digital marketing campaign.
Online reputation management (ORM) Understanding and influencing the perception of an entity online.
Search engine optimisation (SEO) The process of improving website rankings in search engines.
Social media dashboard A service that allows you to centralise management of your social media properties.
Social network In an online context, a type of website model where individual members become part of a broader virtual community
URL Shortener A web tool that creates a shorter version of a full URL. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.01%3A_Introduction.txt |
Strategy is an important aspect of social media planning. Part of that strategy is identifying which business challenges, marketing and communication challenges in particular, your social media will address. These can include:
• Communication and outreach
• Community management
• Support and customer service
Note
Not all businesses face all of these challenges. Which ones are relevant to your brand?
• Reputation management
• Advertising and awareness
• Sales and lead generation
• Search engine optimisation
• Insights and research.
Communication and outreach
Social media offers brands an effective two-way communication and real-time broadcast channels. This bi-directional communication is what makes social communities so exciting (and challenging). Just as consumers can communicate with each other, and send messages to businesses and brands, so businesses and brands can use this medium to communicate with and reach out to the public. Social media is a highly effective public communications tool.
Businesses, governments, and other organisations use Twitter and Facebook to broadcast timely messages, allowing interested parties to keep informed in real time. This has become a vital aspect of newsworthy and breaking news events such as elections, disasters, and global sports. Many organisations also use social media tools to broadcast service updates.
Note
Ideally, you want to be the trusted go-tosource of information about your industry
Community management
Social media platforms are built around communities, and are sometimes virtual representations of real-world networks and communities. This feature of social media can be used to build and maintain a supportive community around your organisation.
Community manager’ is a role that has risen to prominence as more organisations start using social media, but it has always been an important role in any community, from groups that thrive on forums, to communities run on Facebook.
Creating, building and nurturing a community means that organisations don’t just participate in conversations that are happening around and about them, but also actively lead and guide those conversations. These communities are generally made up of the organisation’s biggest fans, often called brand evangelists, who feel as if they have a big stake in that organisation. This creates an environment where those fans can interact directly with the organisation, and where the organisation can send messages directly to those fans and solicit their feedback. See some great tips on successful social media management at: http://www.toprankblog.com/2016/10/7- helpful-hacks-successful-social-media-community-management/
Building and maintaining a community is a long-term project. It starts with determining what the best platform is for that community; something that already exists (such as Facebook), or developing a customised new community platform created for the specific brand’s purpose (either from scratch or using a service such as Ning – www.ning.com).
Support and customer service
Social media is also an additional customer service channel. As consumers are increasingly comfortable transacting online, they expect the businesses with which they transact to respond to customer queries in the social space, as they would do through a call centre or email. Some customers have found that problems or questions on social media tend to be resolved more quickly, as brands are wary of having unresolved issues left out in public. For any organisation that runs a social community, customer service is often one of its primary functions.
It is important that brands do respond to customer complaints or queries, as platforms like Twitter keep track of response times, rates and tone of responses. Every year Twitter publishes the best and worst brands for customer service on their platform. It does not help with brand image to appear on the ten worst list.
Interestingly, social media customer service becomes collaborative, with customers assisting each other and, in doing so, reducing the reliance on the organisation for support. Collaborative support tools such as Get Satisfaction (www.getsatisfaction. com), a customer community platform, are used to great effect. According to Get Satisfaction’s website, over 70 000 communities use their service, including Microsoft and Intuit’s Mint (Get Satisfaction, 2016). Even businesses that use social media channels such as Facebook for customer support can see other community members helping each other.
Reputation management
Social media is a very effective tool for crisis communication and management. In certain instances, it is the place where some crises start. This can be due to offensive content, an employee saying something stupid or inappropriate, or even just angry customers sharing their complaints and getting reactions. It is important that you do not delete angry post, but acknowledge them.
Social media is also a great tool for monitoring what is being said about your brand, and to spot a potential crisis long before it becomes one. Such a ‘heads up’ allows your brand to mediate the crisis by being proactive and ameliorating the crisis before it takes hold. And when a crisis does hit, social media is a great space for managing your communication as it enables you to get your side of the story out.
Advertising and awareness
Note
Learn more about the advertising options available on social media in the Social media advertising chapter.
Where there is an audience, there is advertising. The more time users spend in social media, the more brands want to advertise there. It’s not just the large numbers or users, and the time users spend on social networks that make them appealing to advertisers, it’s also the rich demographic and psychographic targeting opportunities. Adverts can be targeted based on the profile information that individuals provide, either overtly or through their actions on the social network. Most social networks offer a number of advertising options that are accessible to both small advertisers and big spenders. Social advertising is dynamic, with new advertising options released regularly. Brands should experiment with the different formats and models offered by the various platforms to find the platform and ad type or format that works the best for their audience.
Sales and lead generation
Adding a social layer to a commercial transaction can create a richer experience for online consumers. These can be based overtly on social connections, or on inferred connections based on behaviour.
An excellent example of the layer based on inferred connections is Amazon’s collaborative filtering. If you’ve browsed on Amazon.com, you will no doubt have seen product information such as ’People who bought this also bought that’. In real time, based on consumer purchase behaviour, Amazon presents products that you are likely to have an interest in, based on users who browsed and purchased products that you like. Although you may not realise it, this is a social layer on the online shopping experience. Users benefit as they are exposed to new items they may not have thought about looking for and the shopping experience is made easier and is tailored towards them. The brand benefits from additional sales on items that the user may not have considered purchasing until they were shown it.
Social communities can also be lead generation or sales generation assets. Facebook, Instagram and Pinterest already have, or are looking to include, direct shopping channels within the platform.
Search engine optimisation (SEO)
Social media plays an important role in SEO. It provides additional assets that can be optimised so that a brand ‘owns’ the results page for searches for their brand.
A savvy SEO strategy will also make use of social media assets, links and likes for strengthening the position of other web assets in the search engine results pages.
With a little bit of planning and keyword research, a brand can use social assets effectively to own searches on their brand name. This ties back neatly to managing their online reputation, too.
Insight and research
Social media can be a very powerful insight and research asset, but the information needs to be judged in its proper context. When you are planning a campaign, social media can provide a rich source of data, both demographic and preference based. You can use the information users share freely to understand more about your market, brand or product. ORM tools help you to track mentions and sentiment, giving you insight into how you are perceived by consumers.
Using social network ad planners, such as Facebook’s Ads manager or Google Display Planner (Google discontinued Ad Planner in November 2016), can give you rich information about the size of your market, and things that consumers like. You can measure sentiment and the changing number of mentions to help you understand the impact of other campaigns. These can be offline or online campaigns.
Building your online community also gives you a group you can reach out to for information and feedback, creating an always-on online focus group. However, bear in mind that these users are inherently biased just by the fact that they would join your social community.
Social data can be very valuable, but must be treated correctly. It is qualitative and quantitative information, and is in many ways secondary research. For research purposes, it can and should be used to help form research questions for further evaluation. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.03%3A_Using_social_media_to_solve_business_challenges.txt |
Social media is fast-moving, which means proper planning is vital to success. Effective social media strategies come from embracing the fact that social media is a two-way communication tool. Organisations need the resources not only to push messages out, but to deal quickly with the messages coming in, too.
Planning is the foundation of success. Here is one method to approaching social media strategically.
Step 1. Get buy-in
Getting buy-in for using social media is essential. It may be seen as a free resource, but even if you are not paying for exposure, there is a time and resource investment required. A number of stakeholders will need to be aware of your social media plans, and these may be both internal and external. And, of course, you will need sign-off for any budgeting or additional resourcing requirements.
Note
It is important to choose your platforms wisely, and to consider the risks of not being on social media as well!
Addressing the various stakeholders will also force you to do the necessary research and planning to take the next steps.
Step 2. Listen and understand the landscape
Social media is more than the social spaces you may interact with in your personal capacity. A good first step to understanding the full social media landscape is to listen well to conversations your target market is already having around your brand or industry.
Some important questions to answer include:
• What conversation already exists around your brand, your industry and your competitors?
• Do they have the facts?
• Where does it take place?
• Who is doing most of the talking?
• What are the emotions involved in conversations about your brand?
• What are the motivations of those that comment on your brand online?
• What can you, as a brand, add to this conversation? Is it valuable?
Online monitoring tools such as BrandsEye (www.brandseye.com) can help you with the listening part of your planning, but in the early stages you may want to start with free tools such as Google Alerts (www.google.com/alerts).
Step 3. Analyse
Using all the data you have been gathering, analyse! Think critically about social media and your brand, as well as your brand’s broader marketing, communication and business challenges. All of this should be looked at within the context of the information that you already know about your local marketing and business environment.
Your outcomes here should include:
• A list of the social channels and platforms your brand should be on. This is based on who your customers are, where they interact, and where they expect to interact with you.
• Non-official groups or communities that already exist, which may have been created by fans.
• An overview of the existing conversation (volume, frequency and sentiment), as well as any content or conversation themes that occur.
• An overview of what your competitors are doing in this space.
• A list of potential brand evangelists and influencers in your industry.
Step 4. Set objectives
Your objectives are the desired outcome of your social media strategy. Your ultimate objective, as to what social media should achieve for your business, should be established upfront and be based within the context of your marketing and business challenges. After listening and analysing you can now set specific social media objectives that will feed into your overall outcome. You need to identify exactly how you will use social media to reach the business objectives for your organisation, and then set SMART objectives that will help you to achieve these.
To make them tangible and measurable, establish key performance indicators (KPIs) for your objectives, with benchmarks and targets where appropriate. Determine SMART objectives shown below.
For example, your objective could be to grow a community of fans around your brand in a particular country. Your KPI might therefore be fan numbers, and you could set a target of 5 000 Facebook fans over six months.
Step 5. Create an action plan
Once you have a clear idea of what you want, you can begin compiling an action plan to get there.
This is where you need to make sure that you have created the necessary documents and processes that form the foundation of your plan. Remember to keep your and chosen platform in mind when making these plans. You will need to:
• Decide on the roles and responsibilities of the project team and other stakeholders.
• Determine what social media tools you will use.
• Commit to a frequency and volume of activity, and how quickly you will respond.
• Develop a conversation plan.
• Create tone of voice guidelines, frequently asked questions, community guidelines and content plans.
Step 6. Implement
This is the fun part! It’s time for your plans to kick off and put all that research and thought into action. Set up your platforms according to the specific guidelines for the platform. Most platforms have helpful and informative guidance for businesses wanting to be on their site. They also provide brand packs and assistance in establishing yourself on the site. Pinterest, for example, offers detailed guidance on their platform, see: https://business.pinterest.com/en.
Alert stakeholders that you are starting your engagement plans, and make sure you have tracking in place. Continue to monitor for mentions of your organisation and responses to your messages. Keep to your general plan, but be prepared to adapt.
Step 7. Track, analyse, optimise
The beautiful thing about digital marketing is that you can track every single user interaction and use this information to learn from and improve your efforts continually. You should track the success of your social media campaigns on an ongoing basis, and set milestones for your team at less frequent intervals (every couple of months or so), when you will sit down and do an in-depth review.
There are several tools you can use for tracking social media. You will need to build a suite of tools to suit your measurement and reporting requirements.
Platform insights
From the previous chapter you saw how each major platform offers its own analytics to businesses and brands that sign up for business pages or profiles. These are a useful starting point for reporting on your social media efforts, from numbers of followers or fans, to interactions with the content you share.
Web analytics
If you are using social media channels to send traffic to your own website, you should tag the links so that you can segment that traffic in your website reports.
Note
Read more about this in the Data analytics chapter
In Google Analytics (www.google.com/analytics), you would use campaign tracking parameters.
URL Shorteners
URL shortening services such as bit.ly, goo.gl and ow.ly offer usage data that will tell you how many users click on links you share, when they click on them, and where in the world they are from.
UTM parameters
Note
UTM stands for Urchin Tracking Module because Urchin Tracking was one of the original web analytics software developers who came up with these tags.
UTM parameters are short text codes that you add to a URL to track data about users and traffic sources. UTM parameters are also known as UTM codes or UTM tags. UTM parameters do not modify any content on the site, but are simply for tracking purposes (Hootsuite, 2017).
UTM parameters help you to analyse how each of the marketing channels you have invested in, such as search, display, or social, have contributed to your campaign. You will be able to see which channel sent the most number of users to your site, what the conversion rate of the various channels are and which channel offers the best return on investment. You can also organise your data so that you can compare different campaigns to assess content, timing, distribution platforms, and so on. They are invaluable tools (Kissmetrics, 2017).
Here is an example that you saw in Chapter 16. Note the UTM tag at the end of the URL.
www.redandyellow.co.za/5-way...er-women/?utm_ source=newsletter&utm_medium=email&utm_campaign=AugNewsletter
You can read more on how to use UTM parameters at https://blog.kissmetrics.com/ utm-parameters-video/ which also includes a video on how to use UTM tags on Google Analytics.
Online monitoring software
Online monitoring software, also known as sentiment analysis or opinion mining software, is an important measurement investment that you will need to make. It helps you to keep track of all mentions of your brand, and to understand the sentiment and influence of those mentions. You should be tracking your reputation for trends and changes over time. Some popular choices are: BrandsEye (www. brandseye.com ), Brandwatch (www.brandwatch.com ), SEM Rush (www.semrush. com ) and Hootsuite (www.hootsuite.com ) (Ganot, 2016).
Social media dashboards
There are a number of services that make it easier for you to centralise management of your social media properties, as well as making collaborative management easier. They also integrate analytics data from a number of sources, making reporting easier.
Note
Some dashboards even let you schedule or respond to posts directly from the interface.
Some services include:
Everypost (http://everypost.me)
Buffer (http://buffer.com)
Hootsuite (www.hootsuite.com)
Nuvi (https://www.nuvi.com/)
Sprout Social (www.sproutsocial.com)
Socialbakers (www.socialbakers.com)
Tweetstats (www.tweetstats.com) | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.04%3A_Step-by-step_guide_to_creating_a_social_media_strategy.txt |
Good documentation and processes are the foundations of social media success and your social strategy is likely to involve many stakeholders from across your organisation. Processes and guidelines ensure consistency across the various channels. These should be created, agreed on, and approved before you take any action on social media.
Start with the documentation and processes you already have in place for marketing and communication, for example, brand and tone of voice guidelines, or PR policies. Build on these to create a robust foundation that suits this spontaneous, dynamic space.
A social media checklist is a good starting point to make sure that you have everything in place. Examples of the checklist, conversation calendars and escalation protocols are also included for you.
Community guidelines
As well as a privacy policy and terms and conditions, it’s a good idea to establish community guidelines for the communities you manage, especially when the community is on behalf of a brand. Community guidelines help to set the tone for the community, and are useful to refer to should members behave in a way that is undesirable. Guidelines indicate what will, and will not, be tolerated, such as hate speech, profanity, discrimination, or other inappropriate content. Of course, community guidelines don’t prevent such behaviour, but are useful to fall back on should you need to remove comments or community members.
Guidelines should be friendly, with the tone in keeping with your community or brand.
Many social media platforms provide their own guidelines that all users, including brands, have to adhere to. Failure to adhere to any of the guidelines could get you removed from the platform.
As well as recommendations for members’ conduct and the types of material that can and cannot be shared, guidelines should include information about how and who to report violations to. Methods for members to protect their personal information and intellectual property are also important things to include.
Content plan
Content plans help you to plan your community conversations and the messages you send. We suggest weighting your content to your objectives. Decide on what you want to achieve with each objective, and by when, and what level of priority it is for your business. Map these objectives weekly and monthly as necessary. Then create weekly or monthly content plans around these objectives, based on each objective’s relative priority for your business per week.
For example, if your objectives are brand awareness, sales and app installs, you need to weight them according to their importance. If your main objective on social media is brand awareness, make this 50% of your content plan. This means that 50% of all content you post will be aimed at increasing brand awareness. If the other two objectives are equivalent, then content driving sales and content driving app installs should each make up 25% of your content plan. If this changes over time, so that in week three, you want app installs to be your most important objective, then content driving app installs becomes 50% of your content plan, with content promoting brand awareness dropping down to making up only 25% of your content plan.
Content plans are useful, centralised planning documents that ensure that various teams are all aware of each other’s efforts, and that communications are integrated. For any kind of content and communication strategy, content plans are invaluable. Be sure your content plan speaks to your objective, your brand identity, your chosen target audience, and the themes or topics you have selected.
As you learnt in the Content marketing strategy chapter, reaching social audiences requires that you create content that truly resonates with them. Successful social content must be interesting, relevant, shareable, and remarkable. It is especially useful to plan and create social content around your content pillars, since this gives you a solid structure and starting point to follow.
Note
Read more about this in the Content marketing strategy chapter.
To start creating a conversation calendar, you should plot everything that is relevant to your community. This could include public events, dates and anniversaries, or events and communications already planned by your organisation.
You should also use your conversation calendar for reporting. Keeping track of interactions and responses to your planned posts will help you to determine what kind of posts your community responds to, what days are best for posting, and what frequency works best for your community.
CoSchedule, a content marketing editorial calendar software, provides some guidance on how often to post on each platform. Some platforms like Twitter and Pinterest require frequents posts each day, while Facebook, Instagram and LinkedIn require less posts (Neidlinger, 2016). However, with platform algorithms changing all the time, the frequency of posts is becoming less important. A great post will circulate and appear in newsfeeds for much longer because it has good relevant content.
Brands should only post content relevant to their objectives and not to fill spaces on a content calendar. Posting poor content to meet a prescribed number of posts, may end up negatively impacting on your brand. Because of the algorithms, competition for brands to create good content is becoming intense, but ultimately the user will get to experience better organic content. Some brands may have to resort to paid media to get their posts seen at all. Ultimately the content you choose to create and the frequency of your posts, should be informed by your community on each platform.
Planning the conversation helps to keep momentum, especially in the early days of building a community. However, it should not replace spontaneity, this is a conversation, after all!
There are many fields that can go into a conversation calendar (such as suggested copy, links, and more). Take the basic calendar provided in Figure 9. and adapt it to your needs and preferences.
Communication and escalation protocol
An established communication and escalation protocol helps to ensure that all parties are aware of procedures for handling social messages, and can respond as appropriate. This is especially important for large organisations where several users might be interacting in social media on behalf of a brand, or where several departments or agencies have a stake in the organisation’s social media presence.
A communication and escalation protocol should include:
• Anticipated messages, frequently asked questions and appropriate, standard responses (for both positive and negative situations).
• Guidelines for determining the sentiment and risk of messages, which includes a flagging system for comments that need more senior attention.
• The crisis management process to follow if a brand crisis erupts on social media.
• An escalation plan for messages that need signoff or further consideration.
Note
Make sure that all stakeholders understand their roles, and appreciate that social media interactions often need to be handled quickly.
• Contact details of relevant stakeholders.
• Guidelines for responding, including response rate, standard messages, brand voice and tone. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.05%3A_Documents_and_processes.txt |
The use of social media has equipped consumers with a voice and a platform, and the ability to amplify their views and truly inform their decision making. The connected nature of the Internet makes these views easy to share, and the accessibility of social media tools makes it easy for other consumers to find these views, and respond and build on them. All of this contributes to the perception of the brand.
The best way to show that you are listening to customer comments, complaints and questions online is the same as with a normal conversation. Comment when it’s appropriate, listen with interest, be polite, be respectful, and add value wherever possible. Brands should become active participants in the conversation.
Brands that are successful in communicating with their audiences are constantly on the lookout for opportunities to propel their brand forward, and are keeping their eyes peeled for risks that may threaten their reputation. In both situations, the power sits in how the brand responds. This response can range from a direct engagement to a full new marketing campaign. Ultimately it depends on how powerful the opportunity or risk is.
An extreme example of successfully grabbing a social media opportunity, is Morton’s, an American steak restaurant chain. One weary business traveller jokingly tweeted Morton’s asking them to deliver him a porterhouse steak at the airport when he landed. The Morton’s social media team were listening and responded by ensuring that the customer was met at the airport with a steak. This social media stunt garnered enormous media attention, a very loyal brand advocate, and a hefty increase in sales for the following weeks (Herrman, 2016).
When to talk (and when not to)
When everything being said is nice
A fantastic position to be in is that every possible mention is overwhelmingly positive. Well done. However, that does not mean that there is nothing to do. During this time, the brand must do everything in its power to drive high volumes of conversation.
Stakeholders are being positive about the brand because their expectations are being exceeded. Unfortunately, expectations change. Brands need to stay on their toes and constantly be on the lookout for new and innovative ways to meet and develop their brand promise.
When everything being said is neutral
If this is the case, it sounds as if the company is very boring and is not a good way to get attention. As Seth Godin puts it, “Safe is risky” (Godin, 2010). If a company is playing it so safe that no one can be bothered to send either praise or criticism its way, it’s in danger of being forgotten. The next step is no one talking about the company at all.
When negative things are being said
Negative statements can often be understood as broken brand promises. There is underperformance on expectation, and it must be dealt with as a matter of high priority. During this period, brands need to be very careful not to stir up any more conversation than is absolutely necessary. That said, it’s certainly not all doom and gloom. If the conversation is broadly negative, it is normally because there is some underlying problem, and this information provides the business with focus to resolve it.
Note
In fact, resolving a serious complaint to the customer’s satisfaction can gain you a loyal brand advocate; someone who has first-hand experience that your brand cares and goes the extra mile.
Complaints are from stakeholders who have had dealings with a company that hasn’t met their expectations. By complaining, this customer is, often unwittingly, giving the company the opportunity to make things right, and is probably indicating where the company can improve. Usually, the skilled customer service department of a company should deal with these. They should also share resulting insights with the business strategy department so that the underlying problems can be prioritised and resolved.
If a complaint is online, the resolution should be there as well, although you can try to have it taken offline first. Even though the customer service will likely take place either over email or by phone, posting a personalised comment in a blog post, for example, will demonstrate to the community that the company listens, responds, and serves the critical objective of actually resolving the underlying issues. Criticism need not necessarily come from customers, but it is important to be aware of it. If a criticism involves false information, it should be corrected. And if the criticism is true, then it should be dealt with as such.
Responding
Responding involves recognising that consumers hold the upper hand in the relationship. They are better trusted, there are more of them and, in most cases, the barriers to exit from a brand are relatively low. Customers dictate the channels of communication. An organisation needs to go to the consumer, not the other way around. Ignoring this will result in the business losing customers because they not willing to truly engage. This is why it is so important to research your audience and tailor your strategy to them and not vice versa.
Responses to customers on social media should be personalised for each individual. Do not use blanket responses.
Note
Read more about this in the Market research chapter
When responding, be transparent, be honest, and treat the person as you would like to be treated. At all times, remember that you are engaged in conversation, not a dictation. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.06%3A_Dealing_with_opportunities_and_threats.txt |
Chaffey, D., 2016. Global social media research summary 2016. [Online] Available at: www.smartinsights.com/social-...edia-research/ [Accessed 1 November 2017]
Digital Training Academy, 2016. Switch from TV and banners to Facebook boosts sales for Fjordland. [Online] Available at: www.digitaltrainingacademy.co...v_and_banners_ to_facebook_boosts_sales_for_fjordland.php#more [Accessed 1 November 2017]
Get Satisfaction, 2013. Get Satisfaction. [Online] Available at: https://getsatisfaction.com/ [Accessed 1 November 2017]
Godin, S., 2010. On self determination. [Online] Available at: http://sethgodin.typepad.com/seths_b...rmination.html [Accessed 1 November 2017]
Ganot, R., 2016. Top 10 Brand monitoring tools for 2016. [Online] Available at: http://www.codefuel.com/blog/top-10-...ng-tools-2016/ [Accessed 1 November 2017]
Hootsuite, 2017. How to use UTM parameters to track social media success. [Online] Available at: https://blog.hootsuite.com/how-to-use-utm-parameters/ [Accessed 1 November 2017]
Kissmetrics, 2017. How to track online marketing campaigns with UTM parameters in Google Analytics. [Online] Available at: https://blog.kissmetrics.com/utm-parameters-video/ [Accessed 1 November 2017]
Mander, J., 2016. Social media captures 30% of online time. [Online] Available at: http://www.globalwebindex.net/blog/s...of-online-time [Accessed 1 November 2017]
Neidlinger, J., 2016. How to create a social media strategy (With 3 steps and a template). Online. Available at: http://coschedule.com/blog/social-me...tegy-template/ [Accessed 1 November 2017]
Pew Research Center, 2015. Social Media Usage:2005 – 2015. [Online] Available at: http://www.pewinternet.org/2015/10/0...age-2005-2015/ [Accessed 1 November 2017]
Randolph, J., 2016. How to Use the Social Media Rule of thirds. [Online] Available at: www.marketing-partners.com/c...rule-of-thirds [Accessed 1 November 2017]
17.08: Step-by-step guide for recovering from an online brand attack
These rules to recovery provide a practical approach for brands facing an online threat.
Step 1. Be prepared
No brand is immune from an online brand attack. The best brands have strategies in place to identify a reputation crisis immediately and respond to it quickly enough to stop the negative word of mouth from spreading.
Keep your brand in front of consumers by engaging in the conversation. This can be done by making use of blogs, communicating with customers, and being as open and honest as possible. Engaging in, and leading, the conversation allows you to build an authentic voice. If a crisis hits, you will be well placed to respond in a way that is authentic.
Step 2. Act immediately!
The easiest way to solve most brand attacks is to respond quickly. A brand that shows it is listening and does indeed care will go far when it comes to ensuring a solid online reputation. Acknowledge what has been said and react accordingly.
Step 3. If what they’re saying is false
If the attack on your brand is factually incorrect, send the person evidence that they are wrong, and in a friendly tone, ask them to remove or retract the entry, and offer to keep them informed of future news. If the person doesn’t react or respond, add a comment to the post that it has been addressed.
Note
Cultivating a loyal community of fans can help immensely when clearing up false information. You will look much more credible if your fans back up your statements.
Step 4. If what they’re saying is true...
If the mention is negative but true, send your side of the story and try as hard as you can to take the conversation offline. If appropriate, apologise quickly and sincerely, and offer to make amends.
Step 5. Keep the negative pages out of the search engines
Keeping more users from reading negative things about your brand is imperative. Knock them off the first page of the results with basic SEO and some social media pages, such as Facebook, Twitter or blog posts. Keep adding pages and links until you’ve forced the offending pages out of sight.
Note
Read more about this in the Search engine optimisation chapter. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.07%3A_References.txt |
Any social media strategy should account for the risks and challenges of interacting in this environment, and should incorporate a protocol for dealing with these risks. Mistakes on the web can take a long time to recover from.
Some of the common risks and challenges are listed below.
No one cares. Especially when building a community from scratch, it can be difficult in the beginning to get the traction you want. This is why understanding the landscape in the context of your organisation’s market is so important. Make sure you are interacting in the spaces where your customers are, and where they are happy to hear from you.
The social media space is used by unhappy customers (who are free to post detractive comments). Even if the only feedback you are getting is negative, this is good feedback! Now you have an opportunity to do something about it.
It requires ongoing attention and monitoring. Social media channels may be free, but there is still a time and resource investment required to make your strategy a success. Understand what your objectives are for using social media, and budget the time required to meet those.
It can be difficult to measure the impact of the campaign. Social media can be difficult to measure, but that does not mean your campaigns are not successful. Don’t expect to find a solution (or success) overnight. Start with measuring things that can be measured easily, and watch for case studies in this space that will help you to turn your social media investment into revenue for your organisation.
17.10: Case study - Fjordlands 2015 Christmas campaign
One-line summary
Fjordland decided to run their Christmas marketing campaign exclusively on Facebook. The results showed a rise in sales, improved engagement and a substantial decrease in cost per click. All of this was achieved on a third of the usual campaign budget.
The challenge
Fjordland, a Norwegian food manufacturer, produces easy-to-make dinners and dessert dairy products. For its last three Christmas campaigns, the company offered a quiz on its website to introduce users to its Christmas products. In 2012 and 2013 the brand had used TV and banner ads to direct traffic to their site. In 2014 they included social media, in the form of Facebook. The results for Facebook were very promising.
The aim of the 2015 Christmas campaign was to focus the brand’s attention and budget on one channel, maximise the number of website visitors and increase sales.
The solution
Fjordland chose Facebook as their single channel of focus for their 2015 Christmas campaign, because of its high levels of reach and engagement.
Fjordland researched its target audience and identified that they liked polls, product related promotions and meal suggestions. The brand strategically used this information to create content using these elements featuring a pair of Christmas elves. The Facebook campaign, which was optimised for desktop and mobile, included video, photo ads and link ads. The Facebook ads and posts directed customers to the Fjordland quiz website, for the chance to win a holiday.
The results
Having a Facebook only campaign proved highly profitable for Fjordland. Their website traffic doubled, they saw a 14% uplift in year-on-year sales and experienced a 90% decrease in cost per click. All this was achieved on a third of the budget of previous years, providing an incredible ROI.
The power of social media is evident. Social media, and Facebook in this instance in particular, are more efficient than traditional banner ads with regard to reach, engagement and cost per click. For Fjordland, Facebook had even beaten TV advertising.
The Digital Manager at Fjordland noted the ’always on’ nature of Facebook and its incredible segmentation possibilities made it a powerful and efficient channel. They were exceptionally pleased at the results of choosing to focus on Facebook as an exclusive channel for this campaign (Digital training academy, 2016). To read more about this, look here: www.digitaltrainingacademy.com/casestudies/2016/06/switch_from_tv_and_banners_to_facebook_ boosts_sales_for_fjordland.php#more
17.E: Social media strategy
Case study questions
1. What strategic aspects of social media did Fjordland consider when electing to focus solely on social media?
2. What other aspects of social media would you have included in your campaign strategy?
3. Would you recommend using an exclusive channel as part of your marketing strategy? Why or why not?
Chapter questions
1. What are some of the pitfalls of engaging difficult customers on social media platforms?
2. What skills do you think are important for a great community manager to have?
3. Should all brands be active in social media spaces? What brands have less to gain from trying to create an online community?
Further reading
www.socialmediaexaminer.com – Social Media Examiner offers practical advice, tips and strategies for engaging on social media.
www.socialmediatoday.com – Social Media Today offers news, insights and analysis of social media trends.
17.S: Social media strategy
Social media can be used strategically in a number of marketing and communication challenges:
• Community management
• Support and customer service
• Reputation management
• Search engine optimisation
• Communication and outreach
• Advertising and awareness
• Sales and lead generation
• Insights and research.
Creating a social media strategy requires careful planning, and a strong foundation that will allow you to be dynamic.
The steps to creating a social media strategy include:
• Get buy-in
• Understand the landscape
• Analyse
• Set objectives
• Create an action plan
• Implement
• Track, analyse, optimise!
Social media is a vital strategic consideration for any brand. Whether your organisation is actively involved in social media or not, your consumers are. If nothing else, this means that there is market data available to you, if you just take a little time to find it.
Organisations that make a considered move in the social media sphere will find it both challenging and rewarding. The rapid feedback loop can often change preconceptions or even marketing plans, as the voice of the customer is amplified through social media. In addition, the collaboration with passionate customer stakeholders is extremely rewarding. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/17%3A_Retain_-_Social_media_strategy/17.09%3A_Social_media_strategy_risks_and_challenges.txt |
Learning Objectives
In this chapter, you will learn:
• The basics of email strategy.
• How to structure and design an effective marketing email.
• How to plan and execute a successful direct marketing campaign using email.
• Techniques for measuring and optimising your email campaigns.
• How mobile can tie into and enhance your direct marketing campaigns.
18: Retain - Direct marketing (email and mobile)
Direct marketing is all about communicating directly to customers rather than indirectly, via ads or billboards. Direct marketing via digital generally involves email, and to some extent, mobile channels.
At its core, email marketing is a tool for customer relationship management (CRM). Used effectively, this extension of permission-based marketing can deliver one of the highest returns on investment (ROI) of any digital marketing activity (the principles covered in this chapter can apply to any kind of permission marketing). Simply put, email marketing is a form of direct marketing that uses electronic means to deliver commercial messages to an audience. It is one of the oldest and yet most powerful of all digital marketing tactics. The power comes from the fact that it is:
• Extremely cost effective due to a low cost per contact
• Highly targeted
• Customisable on a mass scale
• Completely measurable.
Furthermore, email marketing’s main strength is that it takes advantage of a customer’s most prolific touchpoint with the Internet, their inbox.
In January of 2015, the number of emails opened on mobile phones overtook the number of emails opened via desktop. A large number of users first read their emails on mobile, according to Litmus, Desktop represents 19% of email opens, webmail represents 26%, and mobile represents 55% (eMailMonday, 2016). Depending on the market you’re targeting, and lower-end markets are fast catching up, if you send an email, it will at some point be opened on a mobile phone.
In other words, you cannot think about email without thinking about mobile at the same time.
Like mobile-specific channels, email marketing is a tool for building relationships with both existing and potential customers. It should maximise the retention and value of these customers, which should ultimately lead to a greater return on investment.
Some people consider email marketing to be old fashioned, arguments about its demise have been going on for years, but it can be one of the most powerful tools in your digital arsenal.
18.02: Key terms and concepts
Table 18.2.1
Term Definition
Alt Text The ‘alt’ attribute for the IMG HTML tag. It is used in HTML to attribute a text field to an image on a web page, normally with a descriptive function, telling a user what an image is about and displaying the text in instances where the image is unable to load. Also called alt tag.
Business-tobusiness (B2B) When businesses sell products or services to other businesses and not to consumers.
Business-toconsumers (B2C) When businesses sell products or services to consumers.
Call to action (CTA) A phrase written to motivate the reader to take action such assign up for our newsletter or book car hire today.
Clickthrough rate The total clicks on a link divided by the number of times that link was shown, expressed as a percentage.
Customer relationship management (CRM) A strategy for managing a company’s interactions with clients and potential clients. It often makes use of technology to automate the sales, marketing, customer service and technical processes of an organisation.
Database In email marketing, the database is the list of prospects to which emails are sent. It also contains additional information pertinent to the prospects.
Domain name system (DNS) DNS converts a domain name into an IP address. DomainKeys, an email authentication system designed to verify the DNS domain of an email sender and the message integrity.
Double opt-in The act of getting subscribers to confirm their initial subscription via a follow-up email asking them to validate their address and hence opt-in again.
Email service provider (ESP) A service that helps you design and send emails.
Hard bounce The failed delivery of email communication due to an undeviating reason like a non-existent address.
Internet Protocol (IP) Address An exclusive number that is used to represent every single computer in a network.
Internet service provider (ISP) The company providing you access to the Internet, for example, MWEB, AOL and Yahoo!.
Open rate The percentage of emails determined as opened out of the total number of emails sent.
Opt-in Giving permission for emails to be sent to you.
Opt-out Also known as unsubscribe. The act of removing oneself from a list or lists so that specified information is no longer received via email.
Return on investment (ROI) The ratio of profit to cost
Sender ID A method used by major ISPs to confirm that an email does originate from the domain that it claims to have been sent from.
Soft bounce The failed delivery of an email due to a deviating reason like an overloaded email inbox or a server failure.
Spam Email sent to someone who has not requested or given authorisation to receive it – EVIL!
Unique forwarders This refers to the number of individuals who forwarded a specific email on.
White list A list of accepted email addresses that an ISP, a subscriber or other email service provider allows to deliver messages regardless of spam filter settings. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.01%3A_Introduction.txt |
The first part of any digital direct marketing campaign should involve planning for the goals you need to achieve. Email and mobile marketing can be used as a tool to help you achieve your business and website goals. As with all tactics, direct marketing should be considered in line with your overall business, marketing and digital strategy.
As discussed in the chapters on analytics and conversion optimisation, you will decide on the key performance indicators (KPIs) for your campaign. KPIs are the metrics that indicate how well you are performing.
Note
Read more about this in the Conversion optimisation, and Data Analytics chapters.
You have a few options for digital direct marketing:
• Promotional emails
• Newsletters
• Transactional emails
• SMS marketing.
Promotional emails will usually have an immediate goal:
• Users make a purchase
• Users download some content
• Users request further information.
Newsletters tend to focus on longer-term goals and are usually geared at creating and retaining a long-term relationship with the reader so your KPIs are more important here.
Transactional emails are generally automated emails that inform customers of payments, subscriptions, or changes to their account. This category can also include confirmation email or reminders.
An SMS can be used in much the same way as a promotional or transactional email; to let the customer know about products or specials, deliver coupons, or send transactional reminders.
Note
Read more about SMS in the Mobile channels and apps chapter.
Email service providers
An email service provider (ESP) is a partner who can help manage your email design and send. For bigger organisations, it often makes sense to purchase your own software and server, or partner with an ESP. This is especially true if you are sending more than 50 emails at a time. Most ESPs are do-it-yourself services that do not manage or strategise your campaign, but give you the tools you need to manage it yourself.
Note
We have listed some ESPs in the Tools of the trade, section 18.6, at the end of this chapter
There are some important questions to ask when choosing an email service provider.
• How easy is it to use? This is important if you are managing the campaigns yourself.
• Can you upload and migrate the contact list? It’s important that you own your lists.
• Is the process self-service or managed?
• How does the reporting work?
• What is their deliverability like?
• Are they endorsed by email and deliverability authorities, such as Return Path or Trust-e?
• Do they adhere to best practices for direct marketing?
• How is the data stored, processed and secured? Who owns it?
Using mobile for direct marketing
You will remember from the Mobile channels and apps chapter that users see their mobile as a personal device and can resent intrusions on it. This means that there are certain principles you’ll need to keep in mind if you plan to use mobile for direct marketing purposes.
Privacy and permission
One of the most important principles for mobile is privacy. Users see their mobile as a very personal device; they do not respond well to unsolicited marketing messages invading that privacy. The location-based nature of mobile also presents some challenges to user privacy. No one wants their location published without their permission, and users need to be able to control notifications.
For a business to avoid damaging its brand by coming across as invasive, marketers using mobile need to use permission marketing and make it clear that they will value and respect users’ privacy. Users need to opt in to marketing messages, and should be able to opt out at will. A strong database of preference profiles and constant maintenance of consent can drastically reduce the risks and make users feel more in control of their marketing experience
Note
Remember that many countries have legislation governing the collection, storage and use of personal data. Make sure that you follow the laws of your country!
Take a look at how Hindustan Unilever targeted low-income consumers to build a permission database in an area with vast basic mobile penetration but relatively little smartphone presence: http://www.digitaltrainingacademy.com/ casestudies/2016/03/mobile_case_study_coffee_giant_wins_loyalty_with_ mobile_airtime_rewards.php#more
Value and reciprocity
The best way to avoid coming across as invasive and intrusive for mobile users is to ensure that every message you send them on this personal device is valuable to them. Push notifications from apps, for example, have a high engagement rate, but users won’t opt in unless you are offering clear value and have taken the time to build up some trust. Digital consumers have far too many distractions vying for their attention to pay attention to an unsolicited marketing message that gives them nothing.
Offering value to mobile users does two things: It helps to build up relationships, and as a result, loyalty, and, it uses the principle of reciprocity. If you give consumers something, they are more likely to be willing to give something back.
For this reason, any messages you send directly to users should be helpful and set the customer up to remember you in a positive light. For example, a hotel could send a confirmation SMS, a reminder or a way to shorten the check-in process, or a query about whether the guest needs anything upon arrival. None of these would be seen as intrusive.
Offering real value to your consumer won’t amount to much if they’re not reading the messages you send, which they won’t if they don’t trust you. To build up that trust, you need to consistently invest in a value exchange; their attention for your message.
Relationships
If you practice permission marketing and offer value to your mobile audience, you will ultimately build a stronger relationship with your customers. These relationships can result in a higher customer lifetime value as well as positive sentiment, which can be spread by your audience and result in more converts to your brand.
Because mobile’s ability to connect you to your customer at their moment of need is unparalleled, so is its ability to help you build a connection with your brand’s followers. When used well, mobile devices offer an effective way to build strong relationships, and those relationships should be your primary focus.
Choosing an SMS/MMS service provider
There are some important factors to consider when choosing an SMS/MMS provider. Here are some key questions to ask about any potential service provider:
• Can you pre-check cell numbers with networks and carriers to find out which numbers are MMS-enabled?
• How does the reporting work? What can you measure?
• Do they optimise the MMS for the screen size of the phone?
• How good are their creative services? Make sure you see some examples of previous work to assess their skills.
• Do they provide and manage an opt-out service?
• What are the personalisation options?
Email on mobile
You now know that most email is opened first on a mobile device. Users expect an engaging, attractive experience across devices, so an email that isn’t formatted for a mobile device isn’t going to get a good response and many users will simply delete the email or even opt out rather than opening it again on desktop.
This presents a challenge for email design. The mobile screen is obviously much smaller than a desktop screen, so the way an email is displayed differs as well. Not only that, but different mobile devices have different screen sizes, and they make use of different mobile operating systems. This means that each one has different standards and default settings and renders emails in a unique way.
To make things even more difficult, very few users view an email on only one device. They may switch from their smartphone to their laptop to their tablet and back to their mobile phone during the course of a day. This means that, although sending two versions of your email is an option, one for mobile, one for desktop; it’s probably not the best solution. You want an email that displays well across as many different clients and operating systems as possible. One way to achieve this is through responsive email design.
Note
Read more about this in the Web development and design chapter.
Some smartphones do render HTML emails and can auto-fit them to fit the mobile screen, but this can still affect the way the email displays.
The most important things to keep in mind when designing an email for mobile are:
Note
Don’t worry if some of this sounds a bit too technical. Your web developer will understand and be able to advise you.
• The screen is a lot smaller
• Inputs can vary, with touchscreens being the most common.
So, your content must be easy to skim, with clear calls to action.
Here are some common best practices to follow when designing your emails, to ensure optimal rendering on mobile devices:
• Generally, most emails are designed to be 600px wide to display well in an email preview pane and this scales well on typical mobile screen sizes. On a 320px screen, an email can be zoomed out to 50% and display perfectly; similarly, on a 480px screen it can display at 75%.
• Host your email newsletters online and link to them from your preheader. That way, anyone who opens your email on a mobile can click straight through to an HTML version of your newsletter.
• Design your email in a grid system. This means your content needs to be laid out in vertically and horizontally aligned blocks, with gaps in between. Doing this will make it easier for various operating systems and email clients to scale your email down to fit a mobile screen. This is not a guarantee that the email will display properly in mobile, but it should solve the problem for most mobile devices, such as iPhone and BlackBerry, which auto-fit HTML emails.
• Make sure that you include alt text for your images! Your email needs to convey its message with or without images.
• Mobile devices that don’t automatically scale your email down will display the content on the left of your email first. Make sure that your most important content is placed here.
• Button links need to be at least 44px to render well on mobile phones. Smashing Magazine recommends 72px so that users can easily tap buttons with their thumbs and see visual feedback that the button has been pushed.
Something important to remember: design for touch.
Many mobile devices have touchscreens. This means that, instead of clicking on your links with a mouse, users will be tapping your links with their fingers. If your links are placed too close together, it will be difficult for users to click on one link without accidentally also tapping the other. To make the user experience easier, make sure your links are placed in a 30–45px area, with a margin of at least 15px around them. By spacing links like this, it will be easier for touchscreen users to follow through on your call to action.
Rules and regulations
There are a number of laws across the world to protect users from unsolicited emails and SMSs and stop businesses from abusing these communication channels. While they vary in severity according to the country and we recommend that you do some research into your local legislation, it’s important to acknowledge two very important rules.
First, you cannot send communications to someone without their permission. Second, if someone requests to be unsubscribed from your communication, you have to meet their request or face penalties in many jurisdictions. This means including an unsubscribe option for emails and an “SMS ‘stop’ to opt out” option for SMS. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.03%3A_Direct_marketing_strategy_and_planning.txt |
Growing a database
Running a successful direct marketing campaign requires a business to have a genuine opt-in database. This database, or, list of subscribers who have agreed to allow a company to send them emails or SMSs with marketing messages, is the most valuable asset of a direct marketing campaign.
Permission must be explicitly given by all users to whom messages are sent. Companies that abuse this can put their reputation in jeopardy, and in many countries, legal action can be taken against companies that send unsolicited bulk messages also known as spam.
It is important to track the permissions that are generated for each user. A time stamp is a key part of the data capture and opt-in process and helps to protect you against spam complaints and potential legal action.
Spam is unsolicited bulk email or SMS messages. It means that the recipient has not given permission to be sent that message. While estimates of spam differ, Statista (2016) shows that the amount of email spam has dropped from over 70% in 2014 to around 55% in 2016. SMS Promotions (2016) indicates that the amount of SMS spam differs according to region, from around 1% of total messages in North America to around 30% in Asia.
Growing this database while keeping it targeted is a key factor in any direct marketing campaign. The database need have only one entry, the prospect’s email or phone number, but the following should also be considered:
• Name, surname and title
• Date permission granted
• Source of permission
• Gender
• Country
• Date of birth
• Phone number or email (depending on which you already have)
• Frequency (how often they’d like to hear from you).
Fields such as name, surname and title should be separated in your database. You should also gather date of birth as opposed to a prospect’s age as it ensures that your database can stay up to date.
Don’t be tempted to ask for more information than required. The more information a marketer can gather, the better he or she can customise marketing messages. However, the more information a prospect is required to give, the less likely they are to sign up. Further information can be requested over time.
Note
As always, the best long-term strategy for growing your database is to create valuable, shareable content that users want to read.
There are many ways to attract prospects to opt in to a database. An email sign up form on a company website is vital. Visitors to a website have already expressed an interest in a company by clicking through and this is an opportunity to develop that interest further. Following the same principle, any other properties where newsletter or SMS sign up can be promoted should be taken advantage of.
Consider having a sign-up form on your company blog, email signatures, Facebook page, and mobi site, or perhaps mention it during presentations you deliver. And don’t forget other offline marketing channels that you’re already using, such as flyers, posters or in-store displays. Many brands use competitions to encourage opt-ins as well. Remember, users are more likely to opt in with an email address than a mobile phone number on most channels.
Here are some best practice tips for sign-up forms:
• Put the sign-up form where it can be seen, above the fold and on every page.
• State your anti-spam stance explicitly, and be clear that you value subscribers’ privacy.
• Clearly state what the subscriber’s information will be used for.
• Use a clear call to action.
• Include a benefit statement. Tell subscribers what they will get, and how often they will get it.
• Ensure the email address or phone number is correct by checking the syntax.
• Test to see what works best!
Every interaction can be used to ask permission to send marketing material, though some work better for email than mobile.
• Offer something valuable, and ask them to sign up to your email newsletter at the same time, for example, white paper, gift voucher, music track.
• Add a newsletter subscribe box to the checkout process of your retail site.
• Use interactions at trade shows to ask for email addresses and possibly phone numbers.
• Ask for email addresses or phone numbers in-store.
• Call out your email campaign on your social networks, and link through to your subscription form.
• Users will often submit their phone number and email address to enter a competition.
Designing an email
Emails should be created and viewed as HTML for desktop and most mobile devices. Simpler phones require basic text emails. Be sure to check your audience’s preferred devices carefully, as cheaper smartphones are becoming available, which increases their penetration into lower-income areas.
Text emails are the small, plain ones; text only, as the name suggests. If you use a Windows Operating System, and you open Notepad and type there, you will be creating a text file. As these are text only, the copy really counts here.
HTML emails are the emails with more complex design. These emails can contain images, different fonts and hyperlinks. They’re probably what you’ve had in mind throughout this chapter when we referred to email marketing.
Parts of an email
Note
Refer to the images of the full newsletter later in this chapter to see how these elements look in context.
Sender information
This includes the ‘to’, ‘from’ and ‘reply to’ fields. These are opportunities to build a relationship through creating a perception of familiarity. In other words, the reader needs to perceive that the newsletter is somewhat unique and sent personally by the publisher. Using a personalised company email address, for example, trevor@ company.com, for the ‘reply’ field creates familiarity and builds trust with the reader provided the name is recognisable. Otherwise, using the brand name is fine. The ‘from’ address should also include the organisation’s name. A meaningless ‘from’ address that the reader cannot identify serves only to confuse the origin of the newsletter.
Subject line
The subject line may be the most important part of an email! Subject lines help the reader to identify the email and entice them to open it. The subject line is also scrutinised by spam filters, so you should avoid using unusual characters, for example, ‘#2\$%&^^%###’ or ‘!!!!!’. Emojis such as smiley faces or hearts can sometimes work, you’d need to test to see what works for you.
Consistent subject lines using the name of the company and the newsletter edition can build familiarity and help readers to sort their inbox. Subject lines should also reflect the content of the email. As with everything online, testing different subject lines will lead marketers to the formula that works for them. Some brands have found that using emojis can improve open rates, while others have had no success with them, for example.
Preheader
The preheader is a line or two of text displayed above your email header. Most commonly, it’s the line of text that will redirect you to ‘View online’. Where possible, try including your call to action in the preheader. This could be difficult, given the limited space but it does ensure that every recipient, even those who don’t necessarily open the email, but who view only the preheader within the preview pane or inbox, will still be exposed to it.
Header
The header is the colourful banner or image that is included in many emails. This often contains the logo, which is important for branding, as well as a CTA or image to catch the recipient’s attention. Not every email will have a header, but these do provide added impact.
Personalised greeting
With a database that has the capability to store readers’ names, it is possible to personalise the greeting of the email. “Hi, Kim Morgan” can elicit far better responses than “Dear Valued Customer”, but it is possible to create a greeting with personality without personalising it. Occasionally, the subject line can be personalised as well to boost responses.
Body
This is where the content of the email goes. Don’t be tempted to use too many images; they can increase the size of the email, and obscure text when images do not load. Be sure that text can be read without an image being loaded. The structure must allow readers to scan and navigate the email easily. Short paragraphs, emphasis through bolding and colours, as well as sectioning information with bullets and borders all contribute to a well-structured email.
Footer
A standard footer for emails helps to build consistency, and is the customary place to keep the contact details of the company sending the email. At the very least, this should include the name, physical address and contact email of the company. It can also include the privacy policy of the sender or even extra copy to reinforce branding. One way to grow the email list is to add a ‘forward to a friend’ link in the footer or, more commonly, social media buttons. The most important part of the footer is a clear unsubscribe link.
Unsubscribe link
In many countries, it is mandatory to have an unsubscribe link on all commercial emails. In best practice terms, you should also include a link for managing subscription preferences – this lets the receiver decide exactly which emails they receive from you, rather than opting them out from all of your email marketing.
Working with templates
Note
Read more about this in the User experience design chapter.
An email template is a predesigned structure you can use for each email you send; you just need to slot content into the appropriate sections. Some email service providers offer ready-made templates for you to use. As with website templates, paid-for email templates come with some benefits and disadvantages. While they are often cheaper than commissioning a custom template, they can be inflexible and generic, meaning that they will not uniquely represent your brand. If you are choosing a template to buy, consider picking the plainest one, so that you can adapt it to your brand as needed.
Note
Take a look here for some free email templates as a place to get started: https:// www.campaignmonitor. com/email-templates/
A custom-designed email template will allow you to plan your own content structure and ensure it displays well across many email readers and devices.
When having your template designed, it’s important to test it with a number of email readers, browsers and mobile devices so that you can ensure that it displays correctly. This can become challenging as some users still use preview panes to read their email.
Design considerations
How an email looks is integral to how well it is received by your database. Design also refers to how it is built, which can impact whether the email is delivered and how likely users are to interact with it. Some design considerations are included below. A few of these are a little more technical, so make sure that your email partner has these covered for you.
The look and feel
Studies have found that users read or scan emails following an F-shape (Nielsen, 2006). A follow-up study by the German Research Center for Artificial Intelligence looked at how users read text on smartphones, testing different layouts and paragraph lengths, and found that the F-shape still applies (Biedert, Dengel, Buscher, and Vartan, 2012). So, plan your important information to follow this flow.
Cluttered inboxes and busy subscribers mean an email that’s lengthy and difficult to get through probably won’t be read. Help your subscribers by structuring your email content into segments, making use of borders or colour blocks to accentuate and divide content. It’s important to balance image and text in your emails. Make a point of placing images next to the relevant text.
General design guidelines
Note
Read more about this in the Web development and design chapter.
HTML and CSS design principles differ for web and email. Here are a few things to keep in mind when designing your email:
• Don’t make use of external or embedded style sheets and avoid unnecessary embedded rows and columns.
• Make use of table nesting as far as possible, as this is generally considered to render the best results with difficult email clients. Email designers tend to make use of tables to design their email layout, using inline styles within these tables.
• Set a fixed width for your email by specifying the width and spacing of each cell rather than the entire table. When these specifics are not declared, email clients tend to render the email according to their own defaults and can break the design.
Note
Naturally, your email design should echo your overall corporate identity and personality
• If you are using a block background colour, be sure to include a 100% width table to cover the entire email.
• Keep fonts in your email design larger than 16px. Anything below that becomes difficult to view in mobile. Also bear in mind that, while coloured text (or light-on-dark text) may look visually impressive, it can be difficult to read an entire email like this and may strain your subscribers’ eyes. Rather limit such visual tricks to smaller sections of your email, or to emails that contain less written content. • Make use of inline CSS. Some email clients strip the CSS from the head and body of the email.
• Test your emails in a variety of email clients before you send.
• Use responsive design!
Designing for the preview pane
Many email users still use desktop clients to manage their email. Given the number of emails users receive on a daily basis, many still prefer to view emails in their preview panes rather than opening them. This has added another challenge for designers who want to ensure that their emails display properly.
Images and layout should consider the preview pane and be tested for rendering. Preview panes can be vertical or horizontal.
Tips for designing for the preview pane:
• There is no set width, and we reiterate that testing is the way to go. A width of 600px works best for preview pane display (HubSpot, 2016).
• Ensure that plain, email-friendly fonts are used toward the top of your email in order to ensure that the first text encountered is properly displayed.
• Consider carefully what images you display in the top section of your email, and test displays accordingly.
• Placing your logo prominently in the top left of your email can ensure optimal brand recognition and exposure.
• Try to include your call to action in the area displayed in the preview pane. That way, even if subscribers choose not to read your email, they’ll still see your primary message.
• Some successful email templates use the area likely to be seen in the preview pane to provide a table of contents for the email. Users know what they can look forward to when opening the email.
Email and images
Avoid using images to convey important content. Make sure that there is alt text for all images used in the email. This ensures that the message of the image will still be communicated even if the image itself is not seen. Even though most email clients display images by default, some users may still not see them. Your email should make sense whether or not the user can see images.
Note
The images you use in the email should support the overall message, rather than convey it directly. If the image doesn’t appear, the message should still be clear.
Tips for using images in email design:
• In the past, background images did not render well in emails, but this is changing. A block background colour tends to display well across most email clients. Some email clients, like Outlook, still do not display background images.
• When including images in your HTML, be sure to declare the height and width for each image to ensure consistent rendering across most email clients.
Emails that make sense without images and render correctly across all platforms are more likely to persuade a reader to open the email and click through to the website.
The call to action
Email design should support the calls to action. For your campaign to be effective, your goals and KPIs should be supported by the email layout and design. Calls to action can be hyperlinked text (also called text links), or can be images which look like buttons. Don’t forget though, that if images are blocked, your buttons will be blocked too.
Note
Check out this article for examples of good email CTAs. www. campaignmonitor. com/blog/emailmarketing/2016/03/75- call-to-actions-to-usein-email-marketingcampaigns
Generally, both text links and CTA buttons are effective for generating clickthroughs, though some studies find that buttons perform better. While you should use buttons for links that support your CTA, for example, ‘make a booking’, ‘check availability’, your email shouldn’t be littered with them, and hyperlinks should be used for additional links. You should test them to see what kinds of CTAs perform best for you.
The copy of the CTA is exceptionally important: a well-crafted and enticingly written CTA makes a big difference to the performance of your campaign. Again, test variations to determine what drives the highest clickthrough and conversion rates on your campaigns.
Testing
The design should be tested to ensure that it renders clearly in as many clients as possible. Make sure that images line up, that copy is clear and that all the links work.
SMS best practice
Structuring an SMS involves considerably fewer considerations than writing an email. Keep in mind:
• The core concern for SMS writing is that they are limited to 160 characters, which means the hardest part of writing one is finding a way to convey your core message with very limited space.
• Part of your SMS needs to be dedicated to offering an opt-out option so that users feel in control of the communications.
• Because the mobile phone is so personal, sending relevant, targeted SMS messages is imperative. Make sure that your mobile opt-in database is very carefully segmented; 200 subscribers who actually want to hear from you are far more valuable than 2 000 who feel annoyed or harassed by your messages.
• Think about when you send your messages, are they being sent at a time that is relevant to your customer? If you are sending a sales promotion message, are you sending it at 6 a.m. in the middle of the month, or at 10 a.m. on a weekend after payday?
• Make sure that if your SMS includes a next step such as clicking through to a website, the landing page is mobile-optimised.
SMS is often best used for customer relationship management, but you can also use it to send promotions targeted to a time of day when your customers are likely to be out shopping or aimed at specific demographics or geographic areas. Just remember, as with all direct marketing, these messages need to be relevant and valuable to your customer.
Creating content
Content that is relevant and valuable to readers is vital to ensuring the success of a direct marketing campaign. Valuable content is informative and should address the problems and needs of readers. It is important to realise that the reader determines the value of the content, not the publisher. Newsletters can offer:
• Humour
• Research
• Information
• Promotions
• Exclusive content.
SMS messages can offer:
• Special offers and discounts
• Information
• Time-dependent discounts
• Celebrations
• Contests
• Trivia or voting
• Reminders.
Determining the content of your direct marketing messages is an important element of your overall brand content strategy.
Note
Read more about this in the Content marketing strategy chapter
Any copy written for your brand should follow a predetermined brand voice guide. Consistency is important and will dictate how your customers trust and build a relationship with your brand.
The principles of writing good online copy apply. You should start with the most important information first, and make sure that your language is scannable, meaning that it makes use of the appropriate formatting, such as bolding and bulleted lists.
It may be helpful to review the Digital copywriting chapter at this stage, but there are two elements that are important to highlight now with respect to writing for direct marketing.
Note
Read more about this in the Digital copywriting chapter.
1. The first is in-message links. It’s important to consider that any links you include in your email copy will lead readers away from your email. You’ll want to keep these to a minimum, and include a link only when it is a call to action, a legal requirement or a service feature. Links in SMS messages should be shortened with a URL shortener like Bitly and should lead to a mobileoptimised page.
2. The second element is, for email, the all-important subject line. Many users decide whether or not to open an email based on their first point of contact: the subject line.
For an email newsletter, it’s useful to put together a recurring content structure. The example shown here depicts a consistent content structure with repeating elements.
Note
Note how the same elements recur for every newsletter, creating consistency and delivering on reader expectations.
If your newsletter contains a lot of content, you can use enticing snippets with a link to the full article displayed elsewhere, such as in your company blog. Sending out too much long content in your newsletter can be daunting for time-starved readers and they may not make it all the way through your newsletter.
However, if your newsletter consists of only one article, it may help to publish it in full.
Content in an SMS obviously needs to be more concise. You should get to the point as fast as possible, which can mean including price points so that users know immediately if they are interested. Remember to include an opt-out option.
Segmenting your database
The technology of direct marketing allows for mass customisation; it is one-to-one marketing on a macro scale. Even simple personalisation can see improved results.
Customisation covers everything from using the recipient’s name, to sending the correct email version to their device, to sophisticated measurement of a recipient’s preferences and tailoring content to suit them. This is even more important for SMS marketing, where content that doesn’t interest the reader can actively damage their relationship with your brand.
Segmenting a database can allow for customisation across demographics or purchase history. For example, you may choose to divide your database according to gender or age. A political campaign may benefit from targeting slightly different messages to different demographics. A pet store may find it useful to segment their list according to the different kinds of pets their customers own. In this way, it is possible to send messages that are slightly different and tweaked to different target groups.
Note
Other options include segmenting by location, user behaviour on site, or position in the sales funnel, for example, potential or existing customers.
Deploying
By creating valuable content, establishing the correct frequency and testing your messages for display and deliverability, an email marketer should be able to ensure an excellent delivery rate. Consistency in deploying newsletters also aids in fostering trust and fulfilling expectations.
When should you send emails? Common sense tells you not on Monday morning or Friday afternoon, but this varies by audience. Testing will guide you. Generally speaking, the best days of the week to send emails are between Tuesday and Thursday. SMS messages need to be timed even better, given that they will be delivered immediately to a device the consumer is carrying with them. Best times for delivery will vary depending on type, according to SMS Global (2016).
• General marketing messages should be sent between 10:30 and 11:30 a.m or 2:30-3:30 p.m.
• Appointment reminders should be sent 24 hours and/or directly after the appointment is made.
• Weekend sales and special events reminders should be sent on Thursdays or on the morning of the event. As always, of course, you need to test send times to check which works best for your customers.
Sender reputation
Email reputation is a score given to you depending on how well your emails are regarded by Internet Service Providers (ISPs) and your subscribers. If the sender’s score falls within the ISP’s thresholds, a sender’s messages will be delivered. If not, the sender’s emails may arrive in the bulk or spam folder, be quarantined, or be bounced back to the sender.
How it works: There are various authentication systems that can impact your reputation score. One of these is the Domain Keys Identified Mail (DKIM) and Domain Name System (DNS). DKIM associates domain names with individual email addresses, ensuring that each organisation has to take responsibility for emails sent that are associated with their domain. Basically, DKIM signs out any outbound emails.
The DKIM signature is added to the email header and includes an encrypted code. The receiving mail server will then take that DKIM signature and verify it with the DNS system to find the matching DKIM public key. Once it has this key, it can use it to unlock the encrypted code. If the code hasn’t been changed, the email hasn’t been tampered with, which means it can be authenticated and passed into the receiving mail server.
Becoming an effective email marketer requires constant list cleansing and hygiene. In fact, most lists shrink by about 22% each year as a result of subscribers changing email addresses (HubSpot, n.d.). Build a preference centre and send out an email once a year asking subscribers to update their details. Make sure you are diligent about maintaining a current opt-in list to achieve maximum deliverability via reputation.
Tips to help your reputation score:
• ISPs offer various authentication standards such as Sender ID, sender policy framework (SPF), and DomainKeys. We highly recommend the use of these standards.
• Remember that a huge but inaccurate and outdated database is far less useful to an email marketer than a tightly maintained, smaller database. Strive to boost your database, but don’t forget to clean as you go.
• Ensure that email broadcast rates are not too high.
• Respond to complaints and unsubscribe requests, if someone requests to be unsubscribed, do so. If you don’t, there’s a good chance you’ll face stiff penalties.
• Educate users about white lists.
An email’s reputation score can be checked at www.senderscore.org.
If the recipient has given permission to be sent marketing messages by email, then it is not spam. Users give permission when they tick a box that says, “Yes, please send me offers from your company by email/phone”. The email address can be provided to another company only if the user ticks a box that says, “Yes, please send me offers by email from third parties selected by you”.
Note
The success of your direct marketing relies on users explicitly indicating that they want to hear from you. Don’t break your customer’s trust.
Permission for any kind of direct marketing must be explicitly given to the company. Trying to gain permission in a sneaky way is illegal and should never be done.
An email’s spam score can be checked at spamassassin.apache.org.
SMS credibility
Reputation via SMS is just as important; consumers are becoming increasingly suspicious of marketing messages in general, so reputation is important to convince the customer even to take your message seriously.
To make sure your SMS is credible, you’ll need to pay attention to how it’s written, the message itself, the words you use, and so on. Time of delivery is also important, as is branding the message so that your customer knows who it’s from. Remember the key: send users only what they want, when they want it, and you’ll be trusted. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.04%3A_Step-by-step_direct_marketing_process.txt |
As with all things digital marketing, tracking, analysing and optimising are key to growth and success. Most direct messaging tracking systems produce statistics in a user-friendly manner.
Key measurables for understanding the performance of direct marketing campaigns include:
• Number of emails or SMSs delivered (delivery rate).
• Number of bounces (this should be separated into hard bounces and soft bounces).
• Number of unique opens: a message can be delivered, but not opened.
• Unsubscribes: significant or consistent loss in subscribers is a key indication you are not meeting the needs of your subscribers.
• Pass-on rate: a high pass-on rate (forwards) indicates that your customers value the content enough to share it constantly with others. Adding a signup link to forwarded emails will organically grow the opt-in list.
• Clickthrough rates and conversion: These measure the effectiveness of a message via the links placed in the content. When a reader clicks through to a web page, these can be easily measured as a percentage against the number of delivered, opened or sent emails. It reveals which content or promotion was the most enticing for the reader.
Some metrics are more useful than others. A good example of this is the open rate. Emails are tracked using a tiny, transparent image that gets downloaded, but some email desktop clients block the downloading of images. If the tracking image doesn’t load, the email won’t register as opened. However, this can be factored in to some extent, and open rates give you an idea of how well your subject lines resonate.
What you should be interested in is what activity takes place based on a message. This means you’ll need to track leads or actions. You can do this through link tagging, meaning appending tracking parameters to a URL in your newsletter or SMS. These parameters are then identified by the Google Analytics of your website, registering that the user has come to the site through your email or SMS. Google Analytics will then take the information in the tag and store it in a cookie, from which it can track the user’s interactions with the site after they arrived at the landing page.
Here is a link to the Mobile Marketing Watch website as it may appear in a Mobile Marketing Watch email campaign:
http://mobilemarketingwatch.com/urba...ns-69570/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MobileMarketingWatch+%28Mobile+Marketing+Watch%29
The tracking parameters are:
?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MobileMarketingWatch+%28Mobile+Marketing+Watch%29
These can then be used to report on traffic from that message using Google Analytics.
Generic direct messaging benchmarks can be used as a guide to see how well your campaigns are performing, but the best way to monitor performance is to benchmark your own campaign. Smaller lists tend to have a higher open rate, but this is probably because they’re more targeted. The overall average email open rate is 27.4%, though this varies by industry, while the average clickthrough rate is 4.5%. Overall rates are quite low because far too many ignorant or lazy email marketers bring down the average. It’s best to look at the average open rate for your industry, rather than the overall rates. You can do this by checking the Email Stat Centre website (EmailStatCenter, n.d.).
The overall SMS open rate is harder to determine. Many reports put it at between 82% and 98%, but this is difficult to ascertain. The average clickthrough rate varies by source but is generally far higher than for email, at anywhere between 6% and 19% with overall response rates at above 30% (Tatango, 2016; Apifonica, 2016).
Once the reports have been generated, it is time to work out what the numbers are revealing, and then use this information to improve the next message sent out.
To make sure that your email marketing efforts are continually improving, it’s important to test your campaigns. The most common form of direct marketing testing is to conduct an A/B split test. This is a test that involves sending one version of your newsletter or SMS to a specified percentage of your database, while sending a modified version to the remainder of your database. Some factors to test include:
• Open and response rates across different subject lines, calls to action, and delivery times.
• Optimal number of links in an email for clickthrough rates and conversions.
• Different copy styles and copy length.
• The effect of video on delivery rates, open rates and conversions for email and MMS.
• Balance of text and image ratio.
By monitoring the results of each send, you can determine which version yielded the desired results. You can, for instance, test variations of your call to action to determine which is more effective in persuading subscribers to click through.
Examples of what to test:
• Subject lines (for email)
• Send times
• Best day to send
• Layout
• Text vs. button links
• Database segmentation
• Call to Action
• Copy differences (for SMS).
Testing and monitoring your send statistics go hand in hand. It’s important to analyse your results after sending to ensure you’re implementing the most effective strategies for your database.
Useful KPIs include:
• Open rate
• Clickthrough rate
• Number of emails forwarded
• ROI
• Number of social shares
• Database growth
• Conversion rate (activity on your site generated by the email)
• Delivery or bounce rate. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.05%3A_Measuring_success.txt |
There are many good ESPs available. MailChimp (www.mailchimp.com) is one example of an email service provider that can manage the email send for you from start to finish. It provides tracking, support, subscriber list management and email templates.
More advanced ESPs that offer a range of message and campaign management facilities, as well as broader data management and delivery value, include Salesforce Marketing Cloud (www.marketingcloud.com), Silverpop (www.silverpop.com), Hubbion (hubbion.com) and Oracle Responsys (www.oracle.com/marketingcloud/ products/cross-channel-orchestration/index.html), which offer mobile and email solutions, among others.
All emails need to be tested for email client compatibility as well as for any potential spam problems.
• For email client compatibility, as well as mobile rendering, you can test your email at Litmus: litmus.com/email-testing or at PutsMail: putsmail.com
• An email’s spam score can be checked at: spamassassin.apache.org
• An email’s reputation score can be checked at: www.senderscore.org.
Once a message has been sent, results need to be analysed to pinpoint areas for growth for the next campaign. Use your ESP’s built-in analytics feature and correlate this with your Google Analytics data.
18.07: References
Apifonica, 2016. Finally, a well-researched post on SMS Marketing for 2016. [Online] Available at: https://www.apifonica.com/blog/sms-m...tics-2016.html [Accessed 1 November 2017]
Biedert, R., Dengel, A., Buscher, G., Vartan, A., 2012. Reading and Estimating Gaze on Smart Phones. [Online] Available at: http://gbuscher.com/publications/Bie...zeOnPhones.pdf [Accessed 1 November 2017]
eMailMonday, 2016. The ultimate mobile email statistics overview. [Online] Available at: www.emailmonday.com/mobile-email-usage-statistics [Accessed 1 November 2017]
HubSpot, n.d. Database Decay Simulation. [Online] Available at: www.hubspot.com/database-decay [Accessed 1 November 2017]
HubSpot, 2016 How can I optimize my emails for better engagement? [Online] Available at: knowledge.hubspot.com/articles/kcs_article/email/hubspot-email-tool-best-practices [Accessed 1 November 2017]
Marketing Sherpa, 2016. Email Marketing: Charity crowdfunding website sees 10x increase in engagement from personalized email. [Online] Available at: www.marketingsherpa.com/article/case-study/globalgiving-personalized-email [Accessed 1 November 2017]
Nielsen, J., 2006. F-Shaped Pattern For Reading Web Content. [Online] Available at: www.nngroup.com/articles/f-shaped-pattern-reading-web-content [Accessed 1 November 2017]
SMS Global., 2016. When Is The Best Time To Send An SMS? [Online] Available at: thehub.smsglobal.com/best-time-to-send-an-sms [Accessed 1 November 2017]
SMS promotions, 2016. Spamming and mobile phone advertising. [Online] Available at: www.smspromotions.org/advertising.html [Accessed 1 November 2017]
Statista, 2016. Global spam volume as percentage of total e-mail traffic from January 2014 to June 2016, by month. [Online] Available at: www.statista.com/statistics/420391/spam-email-traffic-share [Accessed 1 November 2017]
Tatango, 2016. AMA Marketing Statistics: 43% of SMS Responses Within 15 Minutes. [Online] Available at: www.tatango.com/blog/sms-marketing-statistics-43-of-sms-responses-within-15-minutes [Accessed 1 November 2017]
Write Clearly, 2016. Does the F-shaped pattern for reading web content still apply? [Online] Available at: writeclearlyblog.com/2016/01/27/does-the-f-shaped-pattern-for-reading-web-contentstill-apply [Accessed 1 November 2017]
18.08: Advantages and challenges
Permission-based direct marketing can give the highest return on investment of any marketing activities. Technology allows mass customisation, allowing personalisation across a large list of subscribers. When used to foster relationships with a customer base, direct marketing can go a long way to increasing the lifetime value of that customer.
Direct marketing is highly measurable, and databases are able to be easily and thoroughly segmented. However, with the increasing numbers of companies and individuals using email and SMS marketing, many consumers are fatigued. It requires ingenuity, focus and dedication to maintain a direct marketing database and consistently deliver useful quality messages that will be read. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.06%3A_Tools_of_the_trade.txt |
One-line summary
GlobalGiving website increased engagement by 10× using personalised email.
The challenge
GlobalGiving is a charity crowdfunding website that provides social entrepreneurs and non-profits the chance to raise money for community causes worldwide.
GlobalGiving sends more than 3.5 million emails per year, but they were getting decreasing marginal returns from each send, finding it more and more difficult to catch the attention of donors due to email fatigue. (Source: Marketing Sherpa, 2016)
The solution
The brand decided to personalise and customise content and make sure it was getting to the right people.
They worked with an ESP to make sure their emails were certified and created an entirely opt-in email list. Using tracking, they identified a handful of domains and sub-segments of donors that were reporting abnormally high spam rates, which they decided was due to regional differences - their campaigns worked well in the United States, but not in each of the 180 countries to which they send emails. For example, non-English-speaking countries reported higher spam rates. They suppressed these domains from their list and automatically unsubscribed anyone who reported an email as spam.
Next, they created a personalised recommendation email using a recommendation engine similar to Netflix, but which looks at users’ past giving habits rather than their watching habits, and used that along with a matching offer and a time-bound appeal for users to donate by a certain deadline.
They followed this with constant A/B split testing to ensure that their recommendation engine was working. They also tested subject lines, content, appeals, and more.
The results
The team saw a tenfold increase in engagement from email.
• Their recommendation emails dramatically outperformed the emails that sent random projects to donors.
• When factoring in the donor’s giving history, using projects they had supported in the past, they saw a 20% boost in engagement as well.
They also created an email program that is carefully set up to improve the brand’s reputation in the long term.
18.10: The bigger picture
While direct marketing can operate as a stand-alone marketing campaign, integrating it with other channels, both online and offline will serve to reinforce the brand’s message and increase responses.
There should never be a disparity between the content, tone or design of an email or SMS when compared to the rest of a company’s offerings. In-store promotions can be reinforced and promoted to a direct marketing database, or website information can be summarised for email or SMS.
Custom landing pages, if required, should be created for any promotions being communicated by email. For the most part, marketing messages should aim to get the customer to the site; landing pages are therefore essential. They need to be optimised to close the call to action. So the message gets the subscriber onto the page and the landing page gets them to sign up, buy, or engage. The idea is to create a flow between the two that brings the ‘selling’ process full circle, whether it’s actually buying something or just reading through the content to engage them with the brand.
Direct marketing and social media work very well together for cross-channel promotion. Where email and SMS can create a one-on-one feel between a brand and an individual, social media can move that attention towards a sense of community and keep your consumer involved in a dialogue.
18.E: Direct marketing - email and mobile(Exercises)
Case study questions
1. Which elements of GlobalGiving’s email marketing constitute best practice?
2. What role did the database play in this example? Why was it so important?
3. Explain how personalisation played a role in the campaign.
Chapter questions
1. What is meant by ‘mass customisation’ and why is this so beneficial?
2. What are the key differences between direct marketing by email or SMS and direct marketing by post?
3. Why is it important for permission to be gained before marketing by email or mobile to a prospect?
4. Emails that are expected and recognised are more likely to be read. How can a marketer use this knowledge to increase the readership of emails?
18.S: Direct marketing - email and mobile
Direct marketing can deliver the best ROI of any digital marketing tactic. It is:
• Highly targeted and customisable
• Cost effective
• Easy to set up, test, and track.
Gaining explicit permission to send marketing messages to a person is an essential prerequisite for successful direct marketing. Once you have this permission, all messages sent by an organisation and the individuals in that organisation can be seen as marketing opportunities.
Successful direct marketing requires careful planning and testing. HTML emails need to be tested across a range of email clients, and should be tested for a spam score before being deployed. All messages sent to a list of subscribers needs to provide an easy and accessible unsubscribe option. Make sure you adhere to your local regulations for direct marketing. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/18%3A_Retain_-_Direct_marketing_(email_and_mobile)/18.09%3A_Case_study_-_GlobalGiving.txt |
Learning Objectives
In this chapter, you will learn:
• Why video marketing is such a powerful, versatile and effective marketing channel online.
• How successful online videos are produced, step-by-step.
• Paid, earned and owned methods of promoting your online video.
19: Retain - Video Marketing
Video offers an extremely rich, engaging and stimulating experience for viewers. With the increased availability of bandwidth and improvements in video technology, people have started watching and sharing videos on a scale never seen before. From music videos to funny clips of animals to reviews, how-tos, exciting commercials, and movie trailers, users are turning to video for entertainment, information, and education.
According to HubSpot (2016), the most popular forms of online video content are:
• Comedy (39% of users)
• Music (31%)
• News (33%).
In September 2017, Google was the world’s largest desktop search engine, with a 91% global market share (Statcounter, 2017). Arguably the second largest search engine was YouTube, the popular video-sharing website (and third most visited website on the web). YouTube boasts over 1 billion unique users (YouTube, 2017). This indicates that users are turning to YouTube with precise, intent-driven behaviour, they’re not just browsing randomly or waiting for a link to land in their inbox.
With more and more users using search engines to find video content, understanding how to create and optimise videos for search is an important part of any digital strategy.
Every day, about 1 billion hours of video are watched on YouTube, more than half of which come from mobile devices, while every minute, 400 hours of video are uploaded (Expanded Ramblings, 2017). Other social media sites are getting in on the video action as well. By the end of 2016, Facebook was responsible for more than 3.8 billion video views per day, though there is a little uncertainty about what counts as a video view. Videos uploaded directly to Facebook have ten times more reach than shared YouTube links (Mediakix, 2017; Adelie Studios, 2016).
The introduction of live video such as Facebook Live and Periscope has also changed the video game – users spend three times longer, in total, watching Facebook Live video than they do pre-recorded video (Hootsuite, 2017).
Videos can come from anyone, and from anywhere. Small videos can experience massive global reach, as was the case with the popular Charlie Bit My Finger video, which had accumulated more than 854 million views as of October 2017.
Brands use video-sharing platforms to connect with their customers, who are increasingly interacting with brands by creating opinion videos, parodies and responses. Individuals have the power to market themselves, their ideas, who they are and what they do. Video content helps you connect with your audience, creating an experience and encouraging engagement.
19.02: Key terms and concepts
Table 19.2.1
Term Definition
Annotation A comment or instruction usually added as text, on a YouTube video. A YouTube annotation may contain links directing users to other pages within YouTube or, if a brand is willing to pay, to outside websites. These have been phased out as of 2017 and replaced with video cards.
Captions Text that appears over a video that labels a scene, identifies a location or person, or narrates dialogue onscreen. Captions can be either open or closed.
Embedding Taking video from an online video provider and posting it elsewhere on the web.
Google AdWords Google’s search advertising program, which allows advertisers to display their adverts on relevant search results and across Google’s content network.
Metadata Information that can be entered about a web page and the elements on it to provide context and relevance information to search engines.
Search engine results page (SERP) The actual results returned to the user based on a search query.
Thumbnail The small, still image that is shown at the start of the video. This can be selected, and can make a video more enticing.
Video cards Calls to action that pop up during a video and entice certain actions from viewers. Replaced annotations in 2017.
Video search engine optimisation (VSEO) Optimising videos for search engines, similar to the way in which one would optimise a website to rank higher on the SERPs.
Video syndication The process of distributing and getting search coverage for videos
Views The number of times a video has been seen. Multiple views can come from one user.
Viral video A video that becomes immensely popular, leading to its spread through word of mouth on the Internet via email, sharing on social networks, and other hosting websites.
Vlogger Video blogger. A person who produces regular web videos about a chosen topic on a video-enabled blog. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.01%3A_Introduction.txt |
Videos are powerful because they can have a strong emotional effect on viewers. It’s no secret that funny, shocking, amazing, and inspirational videos do particularly well online. Video is the ideal tool for experiential marketing giving viewers the chance to experience something alongside the onscreen actors and to consider how they would feel or act in that situation. It also helps to show off a brand’s personality, tone and communication style.
Video content is a necessary part of the digital marketing mix. Dr James McQuivey famously exaggerated that, “Video is worth 1.8 million words” but exaggeration or not, video is more engaging than any other form of content.
• Video on social media generates 1 200% more shares than text and images combined (WordStream, 2017).
• Companies using video have 41% more web traffic from search and video can cause a 157% increase in organic traffic from search engines (Brightcove, 2016).
• Video on a landing page can increase conversions by 80% or more. (Wordstream, 2017).
• Businesses using video grow revenue 49% faster year-on-year than those that don’t use it (WordStream, 2017).
• 59% of company decision makers prefer to watch a video than read an article about a product (Forbes, 2017).
Many people are still under the misconception that online videos are expensive and difficult to produce. That’s not necessarily the case. While the most popular videos are professionally produced - for example, the Despacito music video has accrued around 4 billion views - the many millions of successful home video bloggers (vloggers) and marketers prove that low-cost videos can still make an impact.
Unlike content made for TV, web video content can be filmed at a much lower cost and quality, using readily available home video equipment. Affordable high-quality cameras have made quality content production a reality for everyone. Viewers don’t necessarily expect a super-slick offering (though even this is possible with some basic video editing software). To get started with making video marketing content, you will need:
A camera: Depending on what you can afford, this can range from a simple webcam or your mobile phone’s camera to a (top-of-the-line) professional camera, though there are many excellent mid-range options available at a low price.
A microphone: While some cameras have a built-in microphone, its worthwhile investing in a proper mic to ensure that you capture better sound quality as builtin microphones tend to catch a lot of background noise at the expense of the main audio.
Video editing software: You will need a software package to cut, edit and finish your video; there are a wide range of options, including free built-in software (Movie Maker for Windows and iMovie for Mac) and professional video editing suites (such as Final Cut Pro or Adobe After Effects), which can be more costly. YouTube also offers an online video editing tool, and you can take a look at some of the available apps like Filmmaker Pro, ProMovie Recorder, and Adobe Premiere Clip.
Note
There are many useful, free resources and tutorials on creating videos online, www.wikihow.com is a good place to start looking.
Video content versus video ads
Video marketing covers two approaches.
1. Video content: These are videos made to entertain, inform, share updates or otherwise enlighten or delight the viewer. Much like syndicated articles or blog posts, these are usually not directly promotional, but instead provide shareable content that gives value to the viewer. Some examples of video content include:
• How-to guides, tutorials, and explainer videos
• Conference talks
• Video presentations where video should be used to:
• Inspire, move people and connect with them emotionally
• Educate in a fun, informative, and entertaining way
• Reveal the unexpected
• Valuable industry updates
Note
Think about it now, if your company or brand wanted to create content videos, what format and approach would you use?
• Educational lectures
• Product reviews and advice
• Entertainment.
2. Video ads: These are simply adverts that are filmed and formatted for online use. These can be existing TV commercials that are shared online, or custom ads made specifically for the web. Statistics about video consumption make a compelling argument for the latter over the former. We’ll cover a range of options for posting your video ads below, in the section on paid video promotion.
Is it possible to go viral?
The Holy Grail of video marketing and, in fact, any marketing on the web, is word of mouth - having a piece of content ‘go viral’. This means that the content spreads from person to person through the web at a very high rate, attracting an exponentially growing audience as it gains popularity. The key to this viral effect is social media, where each user is connected to a wide network of others and can easily share content with their friends. Because this is a trusted social referral, it’s more likely that they will view and share it themselves, if it’s good enough.
Nobody quite knows the secret recipe for getting content to go viral, and quite possibly there isn’t one; the sheer variety and scope of viral videos shows that almost anything might catch the interest of the Internet on the right day. This means that it’s very difficult to craft a video in order to make it go viral. Instead, focus on making great content that you and your audience will love and that speaks to their wants and needs and then, if you’re lucky and your stars align just right, your video might go viral.
• Address a currently trending topic. Find something that users are already excited about or interested in, and see how you can contribute meaningfully to the conversation. For example, make your own edited version of a viral video.
• Make it enticing. Craft the video’s description, title and thumbnail so that they draw attention.
• Make it remarkable. Whether it’s funny, astonishing, scary, shocking or informational, your content has to have value for your viewers and it has to give them social capital for spreading it.
• Make it unique. The Internet loves new, fresh, crazy ideas so don’t rehash somebody else’s success or stick to a formula. Be truly creative and inventive.
• Make it shareable. Include the tools and incentives to make your video easy to share; consider social media chiclets, video cards, encouraging comments and more.
• Make it short. With very few exceptions, successful viral videos tend to be short, impactful clips. Users have short attention spans. You lose around 30% of your audience in the first two minutes, with a sharp drop off between 2 and 6 minutes, so make sure you get the message across quickly (Wistia, 2016). | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.03%3A_Video_content_strategy.txt |
Creating video content for the web can be easy and cost effective but it will always involve a lot of research, thought, and planning before you even get started with filming. Consider the following process:
Identifying your audience
As always, you first need to identify the audience for whom you are creating this video content. What are their wants and needs? What video content are they already consuming? Where are they consuming it? How can you engage their attention, provide something valuable that fits the platform, and promote your brand at the same time? Some solid market research will reveal the answers to these questions.
Planning and concept
Now you need to come up with the core concept for the video, which will be dictated by what will resonate with your target audience. Will it be a once-off clip or part of an ongoing series? What marketing message do you hope to convey? Decide on the best style and tone in which to convey this. What kind of story do you want to tell? Remember, storytelling is central to a good video, whether it covers B2B or B2C content.
Once you have decided these aspects, it’s time to start planning your actual video shoot. You will need to write a script, or at least prepare a breakdown of what the video should include, and schedule the shoot, consider the venue, crew required, actors, and any other props or elements you will need. How long this takes will depend on the complexity of the video you’re planning and your budget.
Producing the video
Note
For some helpful pointers and advice on producing your video, take a look at the Vimeo School: vimeo. com/videoschool
Now it’s time to get filming! Once you have all the footage and audio, edit it together, add any special effects and other elements, and save it as the final video.
Choosing and uploading to platform
Once you have the video, you need to decide where it will be uploaded to. There are two options for making your video content available online. These are not mutually exclusive and there are techniques for both to ensure the best distribution and search coverage for your video. For example, you could be embedding videos posted elsewhere on your site or on social media, which is where a massive amount of video is being consumed.
Online video can be hosted on your own site, or it can be posted to one or many video distribution channels. If you post your video somewhere such as YouTube or Vimeo, it is then easy to embed it into your website as well.
The main advantage of posting a video to a third-party site is the opportunity to quickly exploit an already existing audience. These websites also usually have a built-in social and viral media aspect to their user experience. Video-sharing sites tend to have simplified algorithms which are easier to take advantage of, leading to more rapid universal search exposure.
Many third-party video hosting options exist. Short-form videos like Vine, Instagram, and Snapchat have emerged to challenge existing heavyweights like YouTube (www. youtube.com) and, increasingly, Facebook. It is difficult to know whether Facebook or YouTube receives more daily views because on YouTube, a view is longer than 30 seconds, while on Facebook a view is counted after three seconds. However, Facebook claims that users watch around 100 million hours of video every day, compared to YouTube’s claims of around 300 million hours a day (arguably up to 500 million by November 2016) (Moz, 2016).
Evan James from Socialbakers suggests that the key to deciding where to distribute your content is “[t]o understand what content works on which platform – how it works – and to build your strategy around using each network to its fullest potential” (HubSpot, 2015). In other words, rather than placing your videos on the platform with the most views, you need to find out where your audience is consuming video, whichever platform that may be, make videos for those specific platforms, and post them appropriately.
Many channels allow you to add a logo, branded elements, a brand description and links to your other web properties. This means you can customise the page as you see fit. Channels also have a range of analytical features for measuring video engagement, and as an added bonus, they work well on mobile devices, too. Using YouTube can help you gain many benefits in ranking well on the world’s most popular search engine, Google.
Other good options for video hosting include:
• Vimeo (www.vimeo.com)
• Metacafe (www.metacafe.com)
• Dailymotion (www.dailymotion.com).
If your video is hosted on your own website, the obvious advantage is that you have control over the whole website and environment in which it is hosted, from the look and feel to on-page text, metadata and user experience. When it comes to advertising and related content, you control both, and you decide how to monetise it. Traffic and links go directly to your website, and can therefore be integral to a longer-term search strategy. However, consider embedding your videos from your account on your chosen video-sharing site. Not only does this allow you to crosspollinate content, but you will also gain more views via more points of entry.
Note
YouTube Analytics lets you see where users are viewing your videos. This can give you insight into your most effective videosharing channels.
Optimising
At this point, you need to optimise your video for easy discovery on the web. Most searching on the web is keyword based. Users type keywords relevant to their query into a search box, and the results of the search should list content that matches the keywords. Whether you are using a search box on a website, on YouTube, or Google, this outlines the very basic way in which we expect the search function to work.
The search engine tries to match your keywords to the content it has indexed, and is also trying to determine how to rank the results so that you get the most relevant content at the top of your search results page.
This is all covered in detail in the Search engine optimisation (SEO) chapter. Optimising video for search involves understanding the basics of SEO, as well as the particular challenges and tactics of optimising video content.
Search engines rely on being able to use text in the content to determine what it is about, and other indicators to determine how relevant that content is. When it comes to web pages, search engines can ‘read’ the text on the page to determine what the page is about, and can measure the links coming in to determine how relevant the page is. When it comes to video, the search engine cannot ‘watch’ or ‘read’ the video in the same way that a human can; although there are technological solutions that are starting to make this possible. Instead, it must rely on other text on the page, as well as the metadata added, to determine what the video is about. The search engine also needs to look for ways to measure relevance.
Marketers and website owners now need to optimise all their various forms of content, be their text pages, images or videos, in order to achieve better rankings. Video search engine optimisation (VSEO) involves the use of basic SEO foundations and additional creative optimisation methods to ensure that online video content appears higher up on the SERPs.
Optimising video for video-sharing sites such as YouTube means that you will appear not only in search results on the video-sharing site, but also on SERPs such as Google. While each video-sharing site will use its own algorithm, the guidelines below can be considered best practice across most of the video-sharing sites.
1. Video title is very important.
Video title is one of the first things a user sees when clicking through to a video, and is used first and foremost by the video search engines to determine the relevance of your video to the search query. Your most important keywords should appear in the first three words of the title. Longer, descriptive titles are better than short, concise and obscure ones.
1. Use informative, long descriptions.
Note
If you are creating a video series, use a standard naming structure for the title to make all videos easier to find.
Descriptions will contain key terms that search engines should be looking for to determine what the video is about. Use your most important keywords here! You can include as much information as possible, but put the most important information in the first 25 characters. You can include a link in your description, enabling you to direct users to other content that you have.
1. Use the tags to input several keywords.
Put your most important keywords first. You can also capitalise on popular search terms and piggyback on popular or topical phrases. The video hosting site will use your tags to help categorise your video. YouTube has also introduced hashtags to make searching easier; some other platforms already use these. Ensure that tags and hashtags are relevant to your video and utilise terms from the same category.
YouTube Suggest and Google Suggest are useful tools for generating ideas. You can view the tags other users use on YouTube to get some ideas by choosing ’view page source’ from your browser’s menu and doing a search for ‘keywords’.
1. Encourage comments, subscriptions, ratings, embedding and sharing.
Get users to engage with your video in any way you can, and don’t forget to respond to relevant comments. It’s critical that your budding community feels that they matter and that you are taking them seriously. This is a key point to remember if you want to create a thriving community. Engagement is a massive factor in search engine rankings, so it is very important to focus on content; strong optimisation is no substitute for weak content.
To incite discussion, consider posting a comment as soon as you have uploaded a video, or adding a video card to encourage feedback. Pose a provocative question to spark discussion and lead the conversation. The absolute key to success in the social media space is engagement.
1. Optimise the thumbnail
Consider adding an enticing thumbnail frame. YouTube allows you to choose any moment in the video to be the thumbnail, and many other video platforms also give you this opportunity. Simply optimising the thumbnail image can encourage increased clickthroughs and views, which helps to increase search visibility.
1. Use video cards and end screens
Use video cards to link to and from other video properties. Cards allow you to add text boxes with clickable URLs which are crawled by the search engine spiders as well, at points of your choosing in your video. Cards in already popular and current videos can be used to drive traffic to new videos, although it should be standard practice to include them in a video as soon as it has been uploaded. It’s also a great way to encourage viewers to subscribe to your YouTube channel.
The nature of YouTube is such that the number of views for pages on which videos are watched is always higher than channel views. However, if a paid search campaign is being run, the option to play clicked videos on the channel page exists. This is optimal as it could boost interactions with the branded channel header image, increase engagement with the playlist, and raise the channel view stats.
A great way to use end screens is to link to some of your other videos at the end. This works similarly to ‘articles you may like’ at the end of a blog post. You can also use video cards to do this during the video.
1. Upload videos regularly
Upload videos regularly to ensure continuous channel activity and topical interest. Consider the nature of the brand and what you are trying to communicate to your viewers; you must decide how often videos are uploaded. But remember, the more videos you upload, the higher your channel will rank as a result of Google picking up on your fresh content. Think of it like a TV schedule. let users know when your ‘show’ is on so they know when to come back.
It also helps to delete videos that are not successful. The amount of content you upload is also dependent on the service or product your brand offers, and your video budget. It’s a careful balance of not overloading your channel with useless media and keeping content fresh and engaging.
Promoting
We’ve covered promoting your video in detail in the next section. There are three ways you can promote your video using owned, earned and paid media channels.
Engaging the community
As we mentioned earlier, it’s essential that you engage with your community to keep them coming back for more. Respond in a timely manner to any comments or questions, and take feedback on your content into account when planning new videos. The audience won’t stay hooked for long, after all, there are millions of new videos being added every day, so ensure that you engage with them to create a sense of community, the ability to relate to them, and genuine interest.
Reporting
As with all digital marketing tactics, in video marketing it’s essential to track and analyse data about your activities, and then to optimise your strategy accordingly. When creating video content, use the various measurement options available to determine what you can do better going forward.
YouTube Analytics is a free tool that enables anyone with a YouTube account to view detailed statistics about the videos they upload to the site. You can see how often videos are viewed in different geographic regions, as well as how popular they are relative to all videos in that market over a given period of time.
You can also delve deeper into the lifecycle of videos, such as how long it takes for a video to become popular, and what happens to video views as popularity peaks. YouTube even breaks down the specific second when users stop watching the video.
Using these metrics, you can increase your videos’ view counts and improve popularity on the site. For example, you might learn that your videos are most popular on Wednesdays, that they have a huge following in Spain, or that new videos that play off previous content become more popular more quickly. If you see users dropping off halfway into the video, add a video card to mix things up. There are many creative ways to approach this.
With this information, you can concentrate on posting compelling, fresh content that appeals to selected target audiences, and post these videos on days when you know these viewers are on the site. You could even go a step further and customise the video, dubbing it in Spanish, closed captions also support SEO efforts. The range of possibilities to customise, and optimise your content is limited only by the brand’s level of willingness.
Furthermore, you can access a breakdown of how viewers discovered a specific video, which can then be used to optimise the keywords, tags and descriptions of videos.
Facebook Analytics also gives you some information about your video’s performance, though it tends to be less detailed. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.04%3A_Video_production_step-by-step.txt |
There are four main ways in which users find content and video online.
1. A user knows what sort of video they are looking for and goes directly to a search engine to search for content. This relies on SEO or search advertising, if you decide to promote the content on Google.
2. A user follows recommendations from others, found through emailed links, social bookmarking and sharing services, or social media such as blogs, Twitter, Facebook, and YouTube. This relies on social sharing.
3. Someone knows exactly what they are looking for and navigates to the appropriate URL directly. This relies on good branding and market awareness.
4. The user finds the video through paid advertisements and promotions. This relies on paid advertising.
Earned video promotion
We covered the general guidelines for optimising your video for search earlier in this chapter. Here are some specific considerations for YouTube search optimisation, as well as social sharing.
YouTube video search optimisation
YouTube, which is owned by Google, is still the dominant player in the video-sharing market despite increasing competition from social media sites. While we focus in this section on optimising for YouTube in particular, many of the same approaches apply to other video-sharing sites.
Once you’ve determined how users are already accessing your videos and where they appear in SERPs, you can use various techniques to improve your rankings. While YouTube, like Google, keeps its search algorithms a closely guarded trade secret, digital marketers can speculate and experiment to see what works and what doesn’t.
Firstly, the following components are evaluated on a keyword and key phrase level by the search engine spiders:
• Titles
• Descriptions
• Tags
• Playlist additions
• Inbound links.
Additionally, YouTube defines relevance in accordance with the popularity of a given video as well as the interaction taking place around it. The following factors play a dominant role in the algorithm:
• Video views
• Channel views
• Ratings
• Comments
• Shares
• Embeds
• Subscribers
• Age of video.
Keeping YouTube content current and entertaining is vital if a video is very new. This will allow the video to engage with viewers. Remember, a new video growing in popularity (that is, views), will take preference in the SERP over an older video with more views.
Social sharing
You should initiate and encourage social sharing; ask your viewers to post your video on social networks, aggregators, social bookmarking sites, and other channels. The more users share, the wider an audience you can potentially reach, and the more likely your video is to go viral or, at least, spread far and wide. Social sharing and recommendations are also increasingly relevant ranking factors for search engines.
Paid video promotion
In the same way as with Google’s search advertising, you can pay to have your video recommended on YouTube. You are able to bid on searches or popular videos, show pre-rolls on other videos, and have your video content displayed alongside the search results of other videos. Paid promotions on YouTube are a cost-effective and quick way to promote video content, especially if the content is topical. It’s targeted and controlled. For InStream, you pay only when a user watches 30 seconds or more of your video, or, if your video is shorter than 30 seconds, you’ll pay only if they finish watching the entire clip. For InSearch and InDisplay, you pay-per-click on your video. This is a great opportunity for brand awareness, coupled with a potentially lower cost. However, some users find this form of advertising highly intrusive, particularly in markets where bandwidth is slow and expensive, and it may take several seconds for the ad to load before it can be skipped. Some ad blockers block YouTube advertising. Besides standard Display Ads, YouTube offers a wide variety of video ad types:
• Overlay Ads: These ads are only available on YouTube’s desktop platform. They are 468 x 60 or 728 x 90 pixels and will appear in semi-transparent state over the lower 20% of the videos you choose to target. The ad can be text or images.
• In-Search Ads: These appear at the top of the search results page in YouTube, above the organic results and with a yellow “Ad” icon.
• Discovery Ads: These are thumbnail image ads that appear in the upperright corner of the search and watch pages.
• Sponsored Cards: Cards that appear during your video to display relevant products featured in the video.
• Bumper Ads: Non-skippable ads up to 6 seconds long that must be watched before a video can be viewed.
• Video Ads: These ads appear at the start of, or during, regular YouTube videos. These ads can be skippable after the first five seconds – in which case the full video can be 60 seconds long – or non-skippable, in which case the full video can be 30 seconds long. With this format, brands can include a small banner ad next to the video for free. Be sure to check out the YouTube Trends dashboard (www.youtube.com/feed/trending) to stay on top of the most popular videos at any given time.
The video you use for these ads doesn’t have to be an advert in itself, you could choose to promote some of your regular content too. Ensure that the key message appears in the first few seconds; to get viewers intrigued enough to keep watching.
Owned video promotion
If you are hosting your video content yourself, you can and should still optimise the content around it for best search opportunities. As with posted video, it’s the text content on the page with the video that is so important.
Make sure that your page title is descriptive, as well as the video title and the video file name. The text on the page with the video is important, so optimise it to reflect the content of the video. You can also use speech-to-text software such as Blinkx or Spinvox to transcribe the video. The text can then be used in the video metadata.
Use social media sharing chiclets to make it easy for visitors to share the video on their social networks, aggregators and blogs. If you have a Facebook page, post it there or upload it natively to Facebook. If you have a Twitter account, tweet about it! Don’t forget to drive website visitors to your video content. put a link or strong call to action on your home page or main landing pages, to encourage visitors to view and engage with your videos. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.05%3A_Video_promotion.txt |
While this chapter focuses on YouTube as the biggest video-only network, it faces a rising rival in Facebook. Although Facebook is a social network, it was boasting more than 100 million hours of video consumption per day back in 2016.
Facebook and YouTube are very different. People on Facebook don’t have the same kind of intention when they come across a video as people who deliberately search YouTube might. Facebook videos also disappear from the feed comparatively quickly, while YouTube videos remain easily findable. For marketers, possibly the most important difference is what counts as a view – on YouTube, 30 seconds counts; on Facebook, only 3 seconds is registered as a view – and given that Facebook often autoplays videos, this can be reached before a viewer even notices the video in their feed.
Your approach to videos on Facebook can’t be the same as YouTube. Some tips for Facebook Video:
• Videos need to be short (under 60 seconds). Facebook users want a distraction, and they’re more likely to like and share shorter videos – which results in increased newsfeed exposure.
• Facebook users have short attention spans. You have 4 seconds to catch their attention and keep it. Make the first 4 seconds of your video count!
• Play around with Facebook’s various video options – Live, 360, and even 360 Live. Live video gets considerably more engagement than pre-recorded.
• Let your viewer know what to expect in the post to entice them to click.
• Include a call to action – early on.
• As always, thumbnails matter – choose carefully.
• Most videos on Facebook are watched without sound – keep that in mind, and include closed captions (BufferSocial, 2017).
Remember, relevance is key for Facebook videos, so make good use of the Facebook targeting options (discussed in the Social Media chapters) to make sure your video reaches exactly the right people.
Don’t forget that Facebook allows you to create video ads. It is one of the options on Facebook Ads Manager. Facebook also allows you to create short mid-roll ads that play in the middle of another video. The viewer must finish these before they can continue with the video.
19.07: Case study - Nike Chicago Cubs Someday
One-line summary
Nike created a video celebration of the Chicago Cubs’ first World Series win since 1908.
The challenge
The Chicago Cubs hadn’t won a World Series in 107 years, so their win in 2016 offered brands a chance to show their support and win customer goodwill. Nike wanted to get in on this historic occasion.
The solution
Nike spent all week rallying Chicago with a “Make Someday Today” campaign that included billboards, social media, and more. On the night of the game, Nike purchased the first ad slot after the game and used it to air their video ad about a boy dreaming of winning the World Series.
They uploaded the video to YouTube. Because the branding in the video is subtle (mostly product placement on the boy’s shoes and gloves), the video is not overtly promotional and thus more likely to appeal to online viewers. This makes it one of the rare examples of a TV spot that works just as well online. They followed some important best practice principles when creating this video:
• Producing great video content with a focus on value for the consumer rather than for the brand
• Effective targeting
• Relevance. It was timed well and was emotionally relevant to their target audience
• Engaging with users on social media to drive traffic to the video and sharing the video itself on social media as well
• Effective research to understand what would appeal to their target market.
The results
The video gained 1.5 million views within a week. It also gained a huge amount of earned media via sports coverage, news articles mentioning the video and social media shares, all of which were incredibly positive. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.06%3A_Facebook_Video.txt |
Video marketing can form the cornerstone of a great content marketing strategy, linking closely with the other content that you create to engage and provide value to your customers. Videos can also be added to marketing messages such as email newsletters to improve engagement.
Because search engines serve a range of media types on their results pages, video content plays an important role in search engine optimisation. Not only can optimising videos for search increase your search engine ranking, but data show that it increases clickthrough rate from the search engine results pages, and that these visits are longer and more engaged than other search visits and more likely to result in conversions. Social media provides a great tool for spreading your video, and video content can be a strong driver for users to join your social media platforms. Make sure that you provide users with great value.
19.09: References
Adelie Studios, 2016. The Top 16 Video Marketing Statistics for 2016. (Online) Available at: www.slideshare.net/AdelieStudios/adelie-studios-top16videomarketingstatistics2016- 56658453/17-Adlie_Studios_Copyright_2016_All [Accessed 1 November 2017]
Brightcove, 2016. The Hero’s Guide to Video Marketing. (PDF) Available at: go.brightcove.com/begin-your-heros-journey-today [Accessed 1 November 2017]
BufferSocial, 2017. 17 Ways to get more views, engagement, and shares for your Facebook videos. [Online] Available at: https://blog.bufferapp.com/facebook-video [Accessed 1 November 2017]
BufferSocial, 2017b. What counts as a video view on Facebook, Instagram, Twitter and Snapchat? The Buffer guide to video metrics. [Online] Available at: https://blog.bufferapp.com/social-video-metrics [Accessed 1 November 2017]
Digital Training Academy, 2016. YouTube case study: Nike gets emotional to celebrate historic Cubs win. [Online] Available at: www.digitaltrainingacademy.com/casestudies/2016/11/youtube_case_study_nike_gets_ emotional_to_celebrate_historic_cubs_win.php [Accessed 1 November 2017]
Expanded Ramblings, 2017. 160 Amazing YouTube Statistics (September 2017). [Online] Available at: expandedramblings.com/index.php/youtube-statistics/#.WdzMlTCxWM8 [Accessed 1 November 2017]
Forbes, 2017. Video Marketing: The Future of Content Marketing. [Online] Available at: www.forbes.com/sites/forbesagencycouncil/2017/02/03/video-marketing-the-future-ofcontent-marketing/#1573ae106b53 [Accessed 1 November 2017]
Hootsuite, 2017. Facebook Live Video: The Complete Guide to Live-Streaming for Business. [Online] Available at: blog.hootsuite.com/facebook-live-video [Accessed 2 November 2017]
HubSpot, 2016. 31 Video Marketing Statistics to Inform Your Strategy. [Online] Available at: blog.hubspot.com/marketing/video-marketing-statistics#sm.0000qo6zqpq1dfmtswn2m355q fgee [Accessed 2 November 2017]
Mediakix, 2017. The 11 biggest Facebook Video & Live Statistics. Available at: mediakix.com/2016/08/facebook-video-statistics-everyone-needs-know/#gs.5ONG18A [Accessed 2 November 2017]
Moz, 2016. Facebook vs. YouTube: Which Side of the Video Battle Should You Join? [Online] Available at: moz.com/blog/facebook-vs-youtube [Accessed 2 November 2017]
Statcounter, 2017. Search Engine Market Share Worldwide, Sept 2016-Sept 2017. [Online] Available at: gs.statcounter.com/search-engine-market-share [Accessed 2 November 2017]
VideoInk, 2017. YouTube Bundles Up with Cable Networks. [Online] Available at: thevideoink.com/youtube-bundles-up-with-cable-networks-3f6e22fc66bd#.dglpve9as [Accessed 2 November 2017]
Wistia, 2016. How Long Should Your Next Video Be? [Online] Available at: wistia.com/blog/optimal-video-length [Accessed 2 November 2017]
Wordstream, 2017. 37 Staggering Video Marketing Statistics [Online] Available at: www.wordstream.com/blog/ws/2017/03/08/video-marketing-statistics [Accessed 2 November 2017]
YouTube, 2017. Statistics. [Online] Available at: https://www.youtube.com/intl/en-GB/yt/about/press [Accessed 2 November 2017]
19.10: Advantages and challenges
Posting regular video content shouldn’t result in any push back, provided it is done in a focused, engaging way. Videos are great for engaging viewers and growing your social media community. However, 62% of consumers are more likely to have a negative perception of a brand that published a video they considered poor quality (Adelie Studios, 2016), so that focus and engagement are important.
By studying analytics, platform insights and comments, you can see which videos on your channel are providing users with what they’re looking for. You can then choose to advertise your best videos with the various formats YouTube and Google have on offer and optimise future videos using this information.
Starting out with video production can be a bit challenging as you learn the ropes of what makes a viewable, entertaining video. It can also be difficult to come up with constantly new and interesting ideas, but this will become easier with time. Optimising video can also take a while to show results (as with normal SEO).
19.11: Measuring Success
The number of views you get is an important factor in getting ranked or featured on YouTube and, by pushing your best content through the paid medium, you can get the ball rolling and significantly increase your chances of picking up organic traction (both within YouTube and Google’s universal SERPs).
Number of views is far from the only important metric, however; you will also want to track:
• Average view time
• Conversion assists
• Clickthrough rate on the CTA
• Viewer engagement
• Drop off points (where the viewer stops watching).
All of these and more will help tell you whether your video is successful as well as where you can make changes to maintain viewer engagement.
Here is a handy guide from Buffer on Video Metrics (BufferSocial, 2017b).
19.12: Tools of the trade
A wide range of tools are at your disposal to help with your video marketing efforts. Most of these are listed in the chapter already, so look at the relevant sections for pointers on what to use.
YouTube is the king of video content marketing and offers a full suite of tools from video hosting and optimisation to paid advertising, analytics and social promotion. AdWords for Video (https://adwords.google.com/video/SignupFlow) is a feature of Google’s AdWords PPC tool that allows you to link your existing Google paid advertising account to your YouTube channel, and manage all your YouTube advertising from a single interface.
TubeMogul (www.tubemogul.com) is a video advertising tool that lets you buy paid video placements across the web. It simplifies the process of placing and paying for video adverts.
Feed (feedcompany.com) is a video seeding tool, a very handy thing to have if you host your videos on a variety of video platforms. Video seeders allow you to upload the video once, and then automatically upload that video to all of your chosen profiles and platforms for you.
Brightcove (www.brightcove.com) is a leading video hosting and publishing platform. Brightcove Video Cloud gives you everything you need to deliver professional quality video to audiences on every screen.
19.E: Video Marketing(Exercises)
Case study questions
1. When producing video content, what key points do you need to keep in mind?
2. How did Nike use best practices when creating their video?
3. How did online and offline channels work together to contribute to the success of this video?
Chapter questions
1. Why should commenting on videos be encouraged?
2. What sort of personalisation would self-hosting of a video allow?
3. How do you feel social media affects video marketing?
4. What possible obstacles could a brand face when seeding a viral video?
Further reading
tubularinsights.com – Regularly posts updates and developments in the world of online video.
youtube.googleblog.com – YouTube’s official blog. If there are announcements likely to affect a YouTube user, this is where you’ll find them first. mashable.com/category/online-video – Insightful and current articles on online video trends.
vimeo.com/channels/staffpicks – Curated Vimeo videos picked by staff members – some great creative inspiration.
19.S: Video Marketing(Summary)
Video has become an integral part of the online world. The potential for exposure, as well as interaction, is massive, and brands that fail to capitalise on this risk being left behind as competitors build thriving communities.
As with most content, it is up to the brand to decide how to represent its video content. Videos can be hosted on popular video-sharing websites to capitalise on already existing audiences and developed interfaces, or on bespoke websites that allow for free reign in customisation. Brands should then aim to optimise their videos on the chosen platforms to increase their visibility on search engines.
Creating a healthy community is also important in increasing exposure. Very rarely, if ever, does an audience come to video content without input from the creators. On top of optimising for search and other tweaks, brands should upload content regularly or risk losing any ground gained. Social media should also be considered as its platforms allow for the sharing of content, as well as commentary. Overall, brands should be aware that there is no quick fix for video. It requires planning and investment as well as long-term commitment to creating brand advocates. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/19%3A_Retain_-_Video_Marketing/19.08%3A_The_bigger_picture.txt |
Learning Objectives
In this chapter, you will learn:
• Which digital marketing tactics you can test and improve.
• How to pick the right test for your goals and purpose.
• How to perform conversion optimisation step by step to improve the effectiveness of your online marketing efforts.
20: Optimize - Conversion Optimization
Let’s look at a real-world example to help explain what conversion optimisation is. Think of a shoe store. When laying out the store, a lot of care has been taken in determining where to place displays, mirrors, chairs and the till. However, there is no way of easily determining if the current layout is the best option.
For example, the till may be at the front of the store. It may be worth testing to see if moving the till to the middle of the store affects sales. This would require tracking sales over a period of time with the till in the front of the store, then shutting down for a few days while the store is reorganised, and then tracking sales with the new layout, all a little impractical.
However, if we have an online store, we can just show slightly, or very, different versions of web pages to visitors, and track how different versions affect sales. We don’t need to shut down our website to create new versions, and we can watch the real-time results emerge as hundreds of customers pass through the store. The cycle of tweaking and testing websites in this way is called conversion optimisation. This chapter will take you through the steps in a conversion optimisation process, helping you understand how to make things work better.
20.02: Key terms and concepts
Table 20.2.1
Term Definition
A/B test Also known as a split test, it involves testing two versions of the same page or site to see which performs better.
Ad Server The technology that places ads on websites.
Call to action A phrase written to motivate the reader to take action such as sign up for our newsletter or book car hire today.
Click path The journey a user takes through a website.
Cookie A small text files that are used to transfer information between browsers and web servers. They help web servers to provide the right content when it is requested.
Conversion Completing an action that the website wants the user to take. Usually a conversion results in revenue for the brand in some way. Conversions include signing up to a newsletter or purchasing a product.
Conversion rate The number of conversions divided by the number of visitors expressed as a percentage.
Funnel In web analytics or conversion optimisation, an established set of steps a user should take in reaching a goal, such as making a purchase.
Heat map A data visualisation tool that shows levels of activity on a web page in different colours. Hypothesis A statement that is being tested.
Landing page The first page a visitor sees on a site. Usually it is specific to a campaign being run.
Micro-conversion A small conversion in the path to a full conversion, such as going from step one to step two in a checkout process of four steps.
Multivariate test Testing combinations of versions of the website to see which combination performs better
Null hypothesis The default or general position, usually where no difference is the hypothesis
Split test Also known as an A/B test. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/20%3A_Optimize_-_Conversion_Optimization/20.01%3A_Introduction.txt |
The short answer: everything! However, there are some good tactics to start testing.
Email marketing
The most obvious place to start testing your email marketing is with subject lines. A simple split test will help you to determine which version of a subject line improves open rate. Within an email, you can test your call to action copy to see how you can improve clickthrough rates. Email is also a good medium to test different kinds of offers to see how they influence sales. These can be combined with testing different types of content: long copy versus short copy, or images versus video.
You can also test delivery days and times for your email, either with a split test or by testing with your whole group at different times of the year.
Display and search advertising
There are many different conversion points you may want to test with advertising. You can test to see how different adverts may improve clickthrough rate, or you can test to see how different adverts affect the conversion rate of the traffic coming to your website.
Different calls to action in the adverts can be tested, as well as different headlines. When it comes to display advertising, completely different versions of banner adverts can be tested.
Most Ad Servers, including Sizmek (www.sizmek.com) and Google’s AdWords, have built-in testing. This means that no additional code is required in order to run tests. In most cases, the Ad Server will also serve adverts based on the results of the test, so that the better-performing advert is given preference over time.
Social media
If you are broadcasting or distributing messages via social media, you should test your messages to see which perform better. Usually, you will be testing to see how you can increase engagement, whether that’s replying to messages, liking Facebook posts, retweeting posts shared on Twitter, or clicking through on links shared.
Types of messages can be tested to see which increase interactions. Some options to try are direct questions, shared links, overt requests to take an action, or other messages to generate engagement. Types of media can be tested, such as images versus video. Time of day or day of the week can also be tested, to see how these affect interactions.
It can be trickier to test social media messages scientifically, as the environment is difficult to impossible to control.
Landing pages
A landing page is the first page a visitor sees on a website. In some web analytics packages, it is referred to as an entrance page. Any page of your website could be a landing page, especially if users are coming to your website via search engines.
However, when you are running online campaigns that utilise tactics such as email marketing or online advertising, you often send visitors to a specific landing page. Because you choose the page that visitors see first, you have an opportunity to craft a page that converts. There are many things you can test on landing pages.
• Heading: Different headings can make your visitors behave differently.
• Copy: Style, tone, layout and length of copy can all be tested, as well as things like the font size.
• Call to action: Different calls to action could increase actions.
• Colour: Test the colours of buttons, green and red are two common choices to try.
• Images: Ddifferent images can have an impact on conversions.
• Offer: Don’t forget, you can also test different types of offers on a landing page or word the same offer differently.
eCommerce
There are many things you can test on eCommerce websites, but the most obvious are to test your product pages and your checkout process. With eCommerce, you are usually testing to increase your conversion rate ( when more consumers buy from you), or to increase your basket size (when consumers buy more from you). As your testing becomes more sophisticated, you will hopefully be achieving both.
On product pages, you should be testing to see how you might encourage users to start the purchasing process. Some things to test include:
• Images: Images of different sizes, or entirely different image content, could make a big difference.
• Call to action: Seeing the words ’Add to cart’ or ‘Buy now’ may affect shopper behaviour.
• Shipping information: Test to see whether displaying shipping costs before actual checkout affects the volume of customers starting the checkout process, as well as its effect on completing the purchase.
• Credibility information: Do ‘secure shopping’ badges affect conversion rate?
Product pages are also a good place to test how you might increase basket size. You can test displaying complementary or similar products. If you spend time on Amazon, you’ll see that they display items that customers bought together, suggesting you should do the same.
The checkout process is incredibly important to test. Often, an online purchase takes place over several screens, or steps. Instead of looking at the overall conversion rate, you should be looking at the conversion rate between steps. This is referred to as funnel analysis.
If possible, you should test a single-page checkout versus the multi-page approach. Test credibility and reassurance statements in the checkout process. Font size can also have an effect on conversions.
The above should give you an idea of where you can start with your conversion optimisation, but it is by no means an exhaustive list. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/20%3A_Optimize_-_Conversion_Optimization/20.03%3A_What_can_you_test.txt |
To design tests successfully, you need to know what you can test, how you can test, and what sort of time periods you are looking at for testing. If it’s your first time doing conversion optimisation, you should start with simple and quick tests, to get a feel for the process before embarking on more complicated tests.
Types of tests
When we talk about conversion rate optimisation, we are usually referring to running split tests. A split test is one where we show different versions of a web page to groups of users and determine which one has performed better.
We can run A/B tests. Here each version being tested is different from all the others. A/B tests always involve just two versions of what is being tested: the original and an alternative.
A/B tests are ideal for an initial foray into conversion optimisation, as they can be easy to set up. If you are running just one alternate and the original, it can also mean that you get a quicker result. When conducting A/B testing, you should only change one element at a time so that you can easily isolate what impact each factor has on your conversion rate.
We can also run multivariate tests, sometimes referred to as MVTs. Here, a number of elements on a page are tested to determine which combination gives the best results. For example, we may test alternative headlines, alternative copy and alternative call to action buttons. Two versions of three elements mean that we are testing eight combinations!
Multivariate tests can be more complicated to set up, but allow you to test more elements at once. Multivariate tests are ideal when you have large traffic volumes. If traffic volumes are not very high, it can take a very long time to reach a statistically significant result, especially if there are many combinations being tested.
Length of tests and sample size
Several factors determine which tests you can run. Relatively simple calculations help you to determine how long a test is likely to take, which is based on the number of participants as well as the improvement in conversion rate. We’ve included some sample size calculators in Tools of the trade, in section 20.6 of this chapter.
Number of participants
The number of participants in the test is determined by how many users actually see the page being tested, as well as what percentage of your potential customers you want to include in your test.
The number of users who see the page being tested may not be the same as the number of visitors to your website. You’ll need to use your data analytics to determine the number of users viewing that specific page. Of course, if you are running advertising campaigns to direct traffic to the page being tested, you can always spend a bit more money to increase the number of users coming to that page.
You also want to determine what percentage of users will be involved in the test. In a simple A/B test, if you include 100% of your visitors in the test, 50% will see version A and 50% will see version B. If you include only 50% of your visitors in the test, this means that 25% of your overall visitors will see version A, and 25% will see version B. Including 100% of your visitors will give you results more quickly. However, you may be concerned that your alternative version could perform worse, and you don’t want to compromise your performance too much.
Change in conversion rate
While this is not something you will know upfront, the percentage change in conversion rate also affects the length of a test. The greater the change, the more quickly a statistically significant decision can be made.
Number of variations
The more variations you have, the longer it will take to determine which combination performs the best.
These factors can then be used to calculate the suggested length of time for a test to run. There are several online calculators that do this for you. A good one to try is this one, offered by Visual Website Optimizer: visualwebsiteoptimizer.com/ab-splittest-duration.
It is usually preferable to test bigger changes or variations, rather than very small changes, unless you have a very large audience.
Designing for analysis
The purpose of running tests is to improve performance. To do this, you analyse your results against what you expected to find and then choose the option that performed better. This sounds simple, but how do you know what counts as better enough to warrant a change? Is it one more click than the other option, three more clicks, or should one perform 25% better than the other? You also need to think about chance: how certain are you that the differences in your results were not just coincidental? These can be tricky questions.
To determine which option in your split test did better, set parameters and assess the statistical significance of your results. In statistics, we create a null hypothesis. For split tests, the null hypothesis is that there is no difference between the performance of the two options and any difference recorded is due to chance. You then use statistics to calculate the p value, which shows whether the difference was likely due to chance (or not). If the difference is significant, it is probably not due to chance. Generally, to be significant, the p value should be less than or equal to 0,05, indicating a less than 5% probability that the difference in performance between the two options was due to chance.
You do not have to be able to perform the complex statistical calculations. Handy tools like VWO’s split test significance calculator will do this for you. All you have to do is enter the number of users that visited your control version and the number of conversions, as well as the number of users that visited the variation and the number that converted. The calculator then provides your p value and states whether your test is significant enough to change to the variation. You can find the calculator here: https://vwo.com/ab-split-test-signif...ce-calculator/
When designing your tests, it is important to consider the null hypothesis and set the parameters for significance. By keeping these aspects in mind, you will develop tests that allow for clearer and easier analysis, which will make the whole testing process that much more effective. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/20%3A_Optimize_-_Conversion_Optimization/20.04%3A_Designing_tests.txt |
Proper planning is important to achieving success with your conversion optimisation. Whatever the outcome of your test, if you’ve planned and documented carefully, you’ll always learn something.
The basic approach to conversion optimisation is:
Step 1. Gather data
The very first step is to gather data about the site you are testing so that you can make smart decisions about what to test and how. There are many sources that can be used, depending on the nature of the site that you are testing. Of course, you also need to know the business for which you are testing, what do you want website visitors to do?
• Analytics data: Existing web analytics data can be used to determine which pages in your site should be tested. You can also gather data about particular pages on your site using tools such as Crazy Egg (www.crazyegg. com) or ClickTale (www.clicktale.com).
• User data: User labs or simple site surveys (www.kissmetrics.com is a useful tool for these) can also be used to add qualitative data to the quantitative data gathered using web analytics tools.
• Customer service data: If you are running tests for a site where users also speak to customer service, you can gather data about the site from customer service representatives. They should have information on common reasons why visitors make a phone call. Your CRM system may also hold some valuable data.
Step 2. Analyse
Having gathered data, you need to analyse it intelligently so that you can start designing tests. There are some key questions that you need to answer at this stage.
What should users be doing on the site?
This is where you look at the actual conversion. Usually, this is an action taken by a user that increases revenue for a business. There are obvious conversions to look at, such as placing an order or completing a lead generation form. However, it can also be useful to understand less obvious conversions, or micro-conversions.
You could run a test to see what would reduce the bounce rate of a page. The aim of an online bookstore is to sell books, but they could also test to increase newsletter signups, and focus on selling books later. Micro-conversions can also refer to the path to conversion. Often, there are established steps a visitor should take in the conversion process. Conversion optimisation can look at each step. The Visitor Flow report in Google Analytics can be a great help in providing this insight. Knowing what actions or conversions you are testing is about knowing the business and its website well.
Who is coming to the site, and why?
To understand who is coming to the website, and why, you need to look at data that tells you about your visitors and about how they got to your website. Visitor information includes their location and richer demographic information, such as age and income, if available. Another key point to look at is the type of device they use, desktop, tablet, or mobile phone, for example.
To understand why these visitors come to your website, you need to be able to analyse your sources of traffic. The search keywords sending you traffic should tell you something about the intent of your visitors, for example.
What are they doing on your site?
Of course, now you need to understand what your visitors are doing, and why they’re not doing what you want them to do. Here you need to look at metrics such as bounce rate and exit rate for important pages. As well as examining your overall conversion rate, look at the steps in the process and see where those drop offs occur.
Look at which page is the most visited landing page, especially as this may not be the home page. Look to see which pages are exit pages, and determine if those should be the last pages a user sees on your site. You can use internal site search information to see if visitors are looking for particular information on your website.
Step 3. Fix anything that’s broken
As part of your analysis, you may have identified problems that can be fixed without testing. Before you continue, fix these! You should also try to understand if there is traffic coming to your site that is not relevant, and try to segment that traffic from your calculations.
For example, if you have a beautifully designed website that sells custom couches, but is featured in a website design gallery, you may get a lot of traffic that is coming only to look at your site, and not to buy couches.
Step 4. Design tests
By now you should know what areas of your site need testing, so it’s time to design tests.
Wishpond (2016), provides
The 3 Step formula for creating an A/B Testing Hypothesis. These are:
Step 1: Conversion problem
Why aren’t people converting?
Step 2: Proposed solution
What tests can be run to fix the conversion problem?
Step 3: Impact statement
How do you anticipate your proposed solution will affect the conversion problem.
You now have a sound A/B testing hypothesis.
Step 5. Run tests
Implement the tracking code needed to run your tests. Most testing software uses cookies to ensure that return visitors see the same version of the test they saw initially. You will also need to put tracking code on your conversion page. Before taking your test live, test to make sure that the tracking code does not conflict with any other code on your website.
If everything checks out, take your test live, and wait for the data to be collected. Check in regularly to see how the test is proceeding, and wait for a statistically significant outcome.
Step 6. Report and repeat
When you have a result, it’s time to report on it. Refer back to your null hypothesis to determine if the outcome was as expected and if it was statistically significant. In your report, you should include why things went as expected, or why not.
Implement the better-performing solution, and plan your next test. There is always something you can improve. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/20%3A_Optimize_-_Conversion_Optimization/20.05%3A_Step-by-step_guide_to_conversion_optimisation.txt |
Online, conversion optimisation relies on being able to record which version of a test a web visitor sees, and whether or not that visitor converted. A returning visitor should also see the same version they saw the first time to avoid confusion. There are many software solutions that help you to do this.
Google now provides a dedicated tool called Google Optimize for website and AB testing, as well as personalisation solutions. It integrates seamlessly with Google analytics, provides for split testing, multivariate testing and redirect testing. A builtin visual editor helps you to create variations to test, without needing to recode each page. Optimize makes managing your experiments much simpler with an activity log, experiment previews and by keeping track of user permissions. By facilitating testing, Optimise enables you to create pleasant and engaging user experiences for your customers when they visit your website.
There are many split test calculators online that help you to determine the significance of split tests if you are running them yourself. Try www.usereffect.com/ split-test-calculatoror vwo.
Kissmetrics is a popular analytics package that also includes testing and optimisation features. It refers to itself and a customer engagement automation system. It is a system designed for deep data tracking, and provides real insights into performance and user experience. Its ability to store information from every customer who ever interacts with your brand, not only assists with CRM, but sales leads as well. www.kissmetrics.com/
ClickTale is a web analytics tool that helps you to visualise how particular pages are performing by showing heat maps of mouse movements and clicks on a page. It also offers form analysis, showing how particular form fields may be affecting completion rate: www.clicktale.com
HubSpot offers a free tool, HubSpot Marketing Free, which helps you improve your conversion optimisation. You can add a popup CTA to your site, and HubSpot will give you in-depth insights on prospects and current contacts. Find it here: www.hubspot.com/products/marketing/free.
20.07: Case study - Tinkoff Bank
One-line summary
Tinkoff Bank, one of Russia’s top four credit card issuers, improved its website conversion rate using split testing.
The challenge
Tinkoff Bank relies on its website for finding new customers, as it operates on a digital platform rather than using physical branches. Users fill in an application form on the website and submit it for approval, then receive their credit card at their homes.
The application page involves a multi-step form and details about the application process and credit card plan. The form submission counts as a conversion. Tinkoff is always looking for ways to increase these conversions.
The solution
Tinkoff identified key pages on the site that could be optimised. It used web analytics data to discover that the credit card application page had a high bounce rate, so it focused on helping the user stay on the application page to complete the conversion. They introduced new features in three areas:
1. An additional information box
2. Gamifying the form with a progress bar
3. Allowing users to fill in their details later on.
Additional information box
Tinkoff worked off the assumption that offering additional details about the credit card would increase signups. They created two variations of the original page. The first had a hyperlink to ’more details’ under the CTA, which led to a new page with additional information.
The second variation opened a box right below the link instead of leading to another page.
Progress bar
Here, the bank used the hypothesis that a progress bar on top of the four-step application form would encourage users to fill in the form completely.
They used two variations. The first had a yellow banner-like progress bar above the form that highlighted the step the user was currently on and used a black line to show the user’s progression.
The second variation had a green progress bar without an extra line to show the user’s progress. Instead, the green portion of the bar grew as users moved through the form.
Filling in details later
Tinkoff Bank thought that allowing users to fill in passport details later on would increase the number of submissions. This time, they only created one variation to compare to the original.
When users reached the section for passport information, they could click a box saying, “Don’t remember passport details”, and a window would appear asking them to choose phone or email to provide their details later on.
The results
Additional information box
The first variation, with a link to another page with extra information, did worse than the original page. However, the second variation:
• Improved conversion rates by 15.5%
• Had a 100% chance of beating the control.
Why these results? Key differentiators on a web page can improve conversions, and emphasising free shipping and the bank’s credibility both made users feel happier about their choice. However, the first variation led users away from the signup form, adding additional effort to return to the form.
Progress bar
Both progress bars outperformed the control. The first variation had a 6.9% higher conversion rate than the control, and the second variation improved the conversion rate of the original by 12.8%. Both had a 100% chance to beat the original page.
Why? Users don’t like lengthy forms but a progress bar can be reassuring.
Filling in details later
The variation was a resounding success:
• The conversion rate of the form improved by 35.8%
• The after-filling conversion rate improved by 10%.
Remember, users are less likely to complete a form if they are led away from it, and fetching a passport would mean leaving the form (VWO Blog, 2015).
20.08: The bigger picture
As you’ve seen at the start of this chapter, conversion optimisation applies to just about every part of your digital marketing strategy. Almost any tactic can be tweaked, tested and improved. In fact, this is best practice and highly recommended.
Conversion optimisation also speaks to a bigger consideration about keeping your channels up to date in the ever-changing online marketing space. Keeping things fresh and constantly improving is the way to go. Not only does this entice your customer, it also reflects on your bottom line, making valuable, incremental improvements increases your earnings in the short term, and decreases the need for radical changes over time.
20.09: References
References VWO Blog, 2015. 3 Ways Tinkoff Bank Optimized Credit Card Conversions – Case Study. [Online] Available at: vwo.com/blog/tinkoff-case-study [Accessed 13 November 2017]
Wishpond, 2016. The 3 step formula for creating an A/B testing hypothesis. [Online] Available at: https://blog.wishpond.com/post/11567...ing-hypothesis [Accessed 20 October 2017]
20.E: Conversion Optimization
Case study questions
1. Why did Tinkoff bank try two different variations for the first two tests?
2. Why was testing so important in this case?
3. Discuss why the winning variation outperformed the others in each case.
Chapter questions
1. Describe a situation where an A/B test would be more suited as a data-gathering method than a multivariate test.
2. What is a conversion rate, and why is it so important to marketers?
3. What can you test on an eCommerce product page? List three examples.
Further reading
www.grokdotcom.com – FutureNow’s GrokDotCom offers commentary, case studies and conversion optimisation best practice.
www.whichtestwon.com – Anne Holland’s Which Test Won shows case studies where you can guess the result, and compare your prowess to that of other visitors.
Always Be Testing: The Complete Guide to Google Website Optimizer by Bryan Eisenberg, John Quarto-von Tivadar and Lisa T. Davis
20.S: Conversion Optimization(Summary)
Conversion optimisation is the process of testing to increase the conversions from a website or digital campaign. A conversion can refer to any action that a web visitor takes. Tests are either A/B tests, or multivariate tests. It’s important to understand the business and customers, so you can create appropriate, useful tests.
The basic approach to conversion optimisation is:
1. Gather data
2. Analyse data
3. Fix anything that’s broken
4. Design tests
5. Run tests
6. Report and repeat. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/20%3A_Optimize_-_Conversion_Optimization/20.06%3A_Tools_of_the_trade.txt |
Learning Objectives
In this chapter, you will learn:
• The importance of analytics to digital marketing.
• What metrics you can and should be tracking.
• How to capture web analytics data.
• Techniques and guidelines for analysing data to better understand your users.
• How to present data clearly and how to use data visualisation to help users understand it.
21: Optimize - Data Analytics
Picture the scene: You’ve opened up a new fashion retail outlet in the trendiest shopping centre in town. You’ve spent a small fortune on advertising and branding. You’ve gone to great lengths to ensure that you’re stocking all of the prestigious brands. Come opening day, your store is inundated with visitors and potential customers.
And yet, you are hardly making any sales. Could it be because you have one cashier for every hundred customers? Or possibly it’s the fact that the smell of your freshly painted walls chases customers away before they complete a purchase? While it can be difficult to isolate and track the factors affecting your revenue in this fictional store, move it online and you have a wealth of resources available to assist you with tracking, analysing and optimising your performance.
Note
Remember, analytics data can be found in many places, not just your website. Consider data from email, social media, mobile devices, and more. Refer back to the Data driven decision making chapter for more on this.
To a marketer, the Internet offers more than just new avenues of creativity. By its very nature, the Internet allows you to track each click to your site and through your site. It takes the guesswork out of pinpointing the successful elements of a campaign, and can show you very quickly what’s not working. It all comes down to knowing where to look, what to look for, and what to do with the information you find.
At the beginning of this book, you learned how important it is for a business to be datadriven and client-focused. You also learned about a few of the forms and sources of data. Each chapter mentioned some elements you should track to measure the success of a particular area of digital marketing. Now you’re going to learn more specifics about data analytics and how to analyse the data you’ve gathered.
21.02: Key terms and concepts
Table 21.2.1
Term Definition
A/B test Also known as a split test, it involves testing two versions of the same page or site to see which performs better.
Click path The journey a user takes through a website.
Conversion Completing an action that the website wants the user to take. Usually a conversion results in revenue for the brand in some way. Conversions include signing up to a newsletter or purchasing a product.
Conversion funnel A defined path that visitors should take to reach the final objective.
Cookie A small text file that is used to transfer information between browsers and web servers. They help web servers to provide the right content when it is requested.
Count Raw figures captured for data analysis.
Event A step a visitor takes in the conversion process.
Goal The defined action that visitors should perform on a website, or the purpose of the website.
Heatmap A data visualisation tool that shows levels of activity on a web page in different colours.
JavaScript A popular scripting language. Also used in web analytics for page tagging.
Key performance indicator (KPI) A metric that shows whether an objective is being achieved.
Log file A text file created on the server each time a click takes place, capturing all activity on the website.
Metric A defined unit of measurement.
Multivariate test Testing combinations of versions of the website to see which combination performs better.
Objective A desired outcome of a digital marketing campaign.
Page tag A piece of JavaScript code embedded on a web page and executed by the browser.
Ratio An interpretation of data captured, usually one metric divided by another.
Referrer The URL that originally generated the request for the current page.
Segmentation Filtering visitors into distinct groups based on characteristics to analyse visits.
Target A specific numeric benchmark.
Visitor An individual visiting a website that is not a search engine spider or a script. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.01%3A_Introduction.txt |
In the days of traditional media, actionable data was a highly desired but scarce commodity. While it was possible to broadly understand consumer responses to marketing messages, it was often hard to pinpoint exactly what was happening and why.
As the Data driven decision making chapter showed, in the digital age, information is absolutely everywhere. Every single action taken online is recorded, which means there is an incredible wealth of data available to marketers to help them understand when, where, how and even why users react to their marketing campaigns.
Note
Read more about this in the Data driven decision making chapter.
Remember, this also means there is a responsibility on marketers to make datadriven decisions. Assumptions and gut feel are not enough – you need to back these up with solid facts and clear results.
Don’t worry if you’re not a ‘numbers’ person – working with data is very little about number crunching (the technology usually takes care of this for you) and a lot about analysing, experimenting, testing and questioning. All you need is a curious mind and an understanding of the key principles and tools.
Here are some data concepts you should be aware of.
Performance monitoring and trends
Data analytics is all about monitoring user behaviour and marketing campaign performance over time. The last part is crucial. There is little value in looking at a single point of data, you want to look at trends and changes over a set period to encourage a dynamic view of data.
For example, it is not that helpful to say that 10% of this month’s web traffic converted. Is that good or bad, high or low? But saying that 10% more users converted this month than last month shows a positive change or trend. While it can be tempting to focus on single ‘hero’ numbers and exciting-looking figures such as ‘Look, we have 5 000 Facebook fans!’, these really don’t give a full picture if they are not presented in context. In fact, we call these ‘Vanity metrics’ they look good, but they don’t tell you much.
Note
Pay close attention to any changes in the expected data, good or bad, and investigate any anomalies.
Big data
Big data’ is the term used to describe truly massive data sets, the ones that are so big and unwieldy that they require specialised software and massive computers to process. Companies like Google, Facebook and YouTube generate and collect so much data every day that they have entire warehouses full of hard drives to store it all. Understanding how it works and how to think about data on this scale provides some valuable lessons for all analysts.
• Measure trends, not absolute figures: The more data you have, the more meaningful it is to look at how things change over time.
• Focus on patterns: With enough data, patterns over time should become apparent so consider looking at weekly, monthly or even seasonal flows.
• Investigate anomalies: If your expected pattern suddenly changes, try to find out why and use this information to inform your actions going forward.
Data mining
Data mining is the process of finding patterns hidden in large numbers and databases. Rather than having a human analyst process the information, an automated computer program pulls apart the data and matches it to known patterns to deliver insights. Often, this can reveal surprising and unexpected results, and tends to break assumptions.
Data mining in action
Krux (2016) offers the example of examining an enormous dataset for an automotive brand that wanted to improve brochure downloads and increase requests for test drives. The data they analysed related to consumers, consumer attributes, and marketing touchpoints.
To determine a pattern, they had to explore 47 000 000 000 000 000 000 000 combinations of factors, obviously, too many to evaluate without using machines. These combinations came from 35 touchpoints, including the website, campaigns, and other marketing channels, and 37 analytics points, including auto buyers and smartphone users.
The brand was able to spot relevant patterns, such as that consumers who bought a certain brand of car were more likely to download brochures, but not more likely to request test drives. This allowed them to segment the consumers who bought cars into those who started the purchase process by downloading a brochure, and those who started with a test drive.
The first group was detail-oriented, so ads featuring specific models with links to the specifications page helped to drive conversions.
The second group wanted to know how driving the car felt, so they were targeted with ads that appealed to their senses and included a call to action about scheduling a test drive. This helped to drive media efficiency and campaign performance. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.03%3A_Working_with_data.txt |
A key problem with tracking users on websites used to be that it was impossible to track individual users - only individual browsers, or devices, since this is done through cookies. So, if Joe visits the website from Chrome on his home computer and Safari on his work laptop, the website will think he’s two different users. If Susan visits the site from the home computer, also using Chrome, the website will think she’s the same user as Joe, because the cookie set when Joe visited the site will still be there.
Email opens aren’t tracked with cookies. Instead, when the images in the email load, a tiny 1×1 pixel also loads and tracks open rate. This means that if the user is blocking images, their activity will not be tracked.
To track if those who did open your email then visited your page, or eventually converted, links within the email include utm tags. UTM tags are codes in the url that enable your analytics software to track where a user has come from.
In this link: www.redandyellow.co.za/5-way...ium=email&utm_ campaign=AugNewsletter
The campaign tracking tag appended on the end of the URL is: ?utm_source=newsletter&utm_medium=email&utm_campaign=AugNewsletter
An additional concern was the decline of cookies. Most modern browsers allow users to block them. With growing consumer privacy concerns, and laws like the EU Privacy Directive, which requires all European websites to disclose their cookie usage, cookies began to fall out of favour, making tracking more difficult.
Google’s Universal Analytics changed all that. Because of Google’s dominance in the search engine market, we will focus on them for this section.
Universal analytics
Google’s universal analytics allows you to track visitors (that means real people) rather than simply sessions. By creating a unique identifier for each customer, universal analytics means you can track the user’s full journey with the brand, regardless of the device or browser they use. You can track Joe on his home computer, work laptop, mobile phone during his lunch break, and even when he swipes his loyalty card at the point of sale allowing you to combine offline and online information about users.
Crucially, however, tracking Joe across devices requires both universal analytics and authentication on the site across devices, in other words, Joe has to be logged in to your website or online tool on his desktop, work laptop and mobile phone in order to be tracked this way. If he doesn’t log in, we won’t know he’s the same person. Users who use Gmail are easy for Google to track because they’ll be logged in across devices.
You can see:
• How visitors behave depending on the device they use (browsing for quick ideas on their smartphone, but checking out through the eCommerce portal on their desktop).
• How visitor behaviour changes the longer they are a fan of the brand, do they come back more often, for longer, or less often but with a clearer purpose?
• How often they’re really interacting with your brand.
• What their lifetime value and engagement is.
Another useful feature of universal analytics is that it allows you to import data from other sources into Google Analytics, for example, CRM information or data from a point-of-sale cash register. This gives a much broader view of the customers and lets you see a more direct link between your online efforts and real-world behaviour.
How does universal analytics work?
Universal analytics has three versions of the tracking code that developers can implement, helping them track users on:
1. Websites
2. Mobile apps
3. Other digital devices such as game consoles and even information kiosks.
It collects information from three sources to provide the information that you can access from your Google Analytics account:
1. The HTTP request of the user: This contains details about the browser and the computer making the request, including language, hostname, and referrer.
Note
What kind of privacy concerns might a user have about the data you’re collecting about them?
1. Browser and system information: This includes support for Java and Flash and screen resolution.
2. First-party cookies: Analytics sets and read these cookies to obtain user session and ad campaign information.
This information is sent to the Google Analytics servers as a list of parameters attached to a one-pixel GIF image request.
You don’t need to know the technical details of how tracking works, but if you are interested, you can read about Google Analytics tracking here: developers. google.com/analytics/resources/concepts/gaConceptsTrackingOverview
How to set up Google Analytics
Note
You will need to make adjustments to your Analytics account so that you can get the most out of tracking your users. You can learn a little more about that here: moz.com/blog/absolutebeginners-guide-togoogle-analytics.
First, you need a primary Google account, used for services such as Gmail or YouTube. You can use this to set up your Analytics account. This should be set up using a Google account that will always be available for your business.
Next, go to www.google.com/analytics and follow the steps to sign up. You can set up multiple accounts here if you want to track a website, an app, or multiple websites and apps.
After the sign-up process, you will be issued a Google Analytics tracking ID. This will be UA followed by a series of numbers. You need to add this code to the HTML file of your website, before the </head> tag, on each of your pages.
Now Google is tracking every visitor to your website!
Note
Try it now – go to a random website, such as www.redandyellow. co.za, and right click on it, then click ’View page source’ to view the HTML code for the site. Do a search for ’UA-‘ to view the tracking code for that site. The tracking code for the website above is UA-43748615-1.
Google Analytics is, obviously, not the only analytics package available. Other packages exist for detailed tracking of social media accounts, emails, and website data. Website analysis should always account for any campaigns being run. For example, generating high traffic volumes by employing various digital marketing tactics such as SEO, PPC, and email marketing can be a pointless and costly exercise if visitors are leaving your site without achieving one or more of your website’s goals. Conversion optimisation aims to convert as many of a website’s visitors as possible into active customers.
Gathering data
Google Analytics can measure almost anything about the customers that visit your website. To gather the kind of data that can help you optimise your site, you’ll need to know a little about where to look. When you log into your analytics account, you will see seven main menu items on the left. They are:
Note
Read more about this in the Conversion optimisation chapter.
Views
The Views button lets you switch between various pictures of the data.
Customization
The Customization tab lets you create dashboards that give you an overview of different data elements, custom reports, shortcuts, or custom alerts.
Real time
Real time allows you to monitor activity as it happens on your website. Data updates continuously so that you can see how many users are on your site right now, where they are from, the keywords and sites that referred them, which pages they are viewing, and what conversions are happening.
Audience
The audience section helps you understand the characteristics of your audience, including their demographics, interests, behaviour (level of engagement). The mix of new and returning users and how their behaviour differs, and the browsers, networks and mobile devices they are using to access your site.
Acquisition
Acquisition lets you compare traffic from search, referrals, email, and marketing campaigns. It shows you which sources drive the most traffic to your site.
Behaviour
This section shows how users interact with your content, how the content performs, its searchability and its interactivity. You can see how fast your pages load, how successful users are when searching the site, how any interactive elements on your site are being used, popular content, which pages drive revenue, and more.
Conversions
Conversions does exactly what it says on the box, it shows you how users are converting on your site. You can look at:
• The Goals tab, which shows how well your site meets business objectives
• The eCommerce tab, which shows what your visitors buy and can link it to other data to show what drives your revenue
• Multi-channel funnels, which shows how your channels work together to generate sales and conversions (for example, if a customer sees a display ad about your brand, visits your site to do research, and later does a search for a specific product before converting)
• Attribution, which shows you how traffic from various channels converts.
Note
You can play around on Google’s Analytics site using their free demo account, here: https:// analytics.google. com/analytics/web/ demoAccount.
The type of information captured
By now, you should know the difference between objectives, goals, KPIs, and targets. KPIs are what you’ll be focusing on when you measure data that has been captured.
KPIs are the metrics that help you understand how well you are meeting your objectives. A metric is a defined unit of measurement. Definitions can vary between various web analytics vendors depending on their approach to gathering data, but the standard definitions are provided here.
Web analytics metrics are divided into:
• Counts: These are the raw figures that will be used for analysis.
• Ratios: These are interpretations of the data that is counted.
Metrics can be applied to three different groupings:
• Aggregate: All traffic to the website for a defined period of time.
• Segmented: A subset of all traffic according to a specific filter, such as by campaign (PPC) or visitor type (new visitor vs. returning visitor).
• Individual: The activity of a single visitor for a defined period of time.
Here are some of the key metrics you will need to get started on with website analytics.
Building-block terms
These are the most basic web metrics. They tell you how much traffic your website is receiving. For example, looking at returning visitors can tell you how well your website creates loyalty; a website needs to grow the number of visitors who come back. An exception may be a support website where repeat visitors could indicate that the website has not been successful in solving the visitor’s problem. Each website needs to be analysed based on its purpose.
• Traffic: The number of users that visit a website
• Page: Unit of content (so downloads and Flash files can be defined as pages).
• Page views: The number of times a page was successfully requested.
• Session: An interaction by an individual with a website consisting of one or more page views within a specified period of time.
• Unique visitors: The number of individual users visiting the website one or more times within a set period of time. Each individual is counted only once.
• New visitor: A unique visitor who visits the website for the first time ever in the period of time being analysed.
Note
New visitors show that you are reaching new audiences and markets, while returning visitors are an indicator of brand loyalty. Most websites should aim for a healthy balance between the two.
• Returning visitor: A unique visitor who makes two or more visits (on the same device and browser) within the time period being analysed.
Visit characteristics
These are some of the metrics that tell you how visitors reach your website, and how they move through the website. The way that a visitor navigates a website is called a click path. Looking at the referrers, both external and internal, allows you to gauge the click path that visitors take.
• Entry page: The first page of a visit.
• Landing page: The page intended to identify the beginning of the user experience resulting from a defined marketing effort.
• Exit page: The last page of a visit.
• Visit duration: The length of time in a session.
• Referrer: The URL that originally generated the request for the current page.
• Internal referrer: A URL that is part of the same website.
• External referrer: A URL that is outside of the website.
• Search referrer: A URL that is generated by a search function.
• Visit referrer: A URL that originated from a particular visit.
• Original referrer: A URL that sent a new visitor to the website.
• Clickthrough: The number of times a link was clicked by a visitor.
• Clickthrough rate: The number of times a link was clicked divided by the number of times it was seen (impressions).
• Page views per visit: The number of page views in a reporting period divided by the number of visits in that same period to get an average of how many pages being viewed per visit.
Content characteristics
When a visitor views a page, they have two options: leave the website, or view another page on the website. These metrics tell you how visitors react to your content. Bounce rate can be one of the most important metrics that you measure. There are a few exceptions, but a high bounce rate usually means high dissatisfaction with a web page.
Note
A high bounce rate is not always bad. On a blog, for example, most users click through from a search to read one article and, having satisfied their curiosity, leave without visiting any other pages.
• Page exit ratio: Number of exits from a page divided by total number of page views of that page
• Single page visits: Visits that consist of one page, even if that page was viewed a number of times
• Bounces (or single page view visits): Visits consisting of a single page view
• Bounce rate: Single page view visits divided by entry pages.
• Conversion metrics: These metrics give insight into whether you are achieving your analytics goals (and through those, you overall website objectives).
• Event: A recorded action that has a specific time assigned to it by the browser or the server.
• Conversion: A visitor completing a target action.
Mobile metrics
When it comes to mobile data, there are no special, new or different metrics to use. However, you will probably be focusing your attention on some key aspects that are particularly relevant here namely, technologies and the user experience.
Note
Why do you think Google Analytics has a separate category for tablets, rather than including them under mobile devices?
• Device category: Whether the visit came from a desktop, mobile or tablet device
• Mobile device info: The specific brand and make of the mobile device
• Mobile input selector: The main input method for the device (such as touchscreen, click wheel, stylus)
• Operating system: The OS that the device uses to run, sch as iOS or Android.
Now that you know what tracking is, you can use your objectives and KPIs to define what metrics you’ll be tracking. You’ll then need to analyse these results, and take appropriate actions. Then the testing begins again! | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.04%3A_Tracking_and_collecting_data.txt |
Note
Google Analytics can send you email alerts whenever something unusual happens on your website. Simply set a triggering condition and decide what sort of report you want to receive. For example, you may want to know when more than a certain number of users have accessed your site in one day as this could mean an opportunity to capitalise on high traffic.
In order to test the success of your website, you need to remember the TAO of conversion optimisation.
Track – Analyse – Optimise
A number is just a number until you can interpret it. Typically, it is not the raw figures that you will be looking at, but what they tell you about how your users are interacting with your website. Because your web analytics package will never be able to provide you with 100% accurate results, you need to analyse trends and changes over time to truly understand your brand’s performance.
Key elements to analyse
Avinash Kaushik, author of Web Analytics: An Hour a Day, recommends a threepronged approach to web analytics:
1. Analysing behaviour data infers the intent of a website’s visitors. Why are users visiting the website?
2. Analysing outcomes metrics shows how many visitors performed the goal actions on a website. Are visitors completing the goals we want them to?
Note
Read more about this in the User experience design chapter.
1. A wide range of data tells us about the user experience. What are the patterns of user behaviour? How can we influence them so that we achieve our objectives?
Behaviour
Web users’ behaviour can indicate a lot about their intent. Looking at referral URLs and search terms used to find the website can tell you a great deal about what problems visitors are expecting your site to solve.
Some methods to gauge the intent of your visitors include:
• Click density analysis: Looking at a heatmap to see where users are clicking on the site and if there are any noteworthy ’clumps’ of clicks such as many users clicking on a page element that is not actually a button or link.
• Segmentation: Selecting a smaller group of visitors to analyse, based on a shared characteristic for example, only new visitors, only visitors from France, or only visitors who arrived on the site by clicking on a display advert. This lets you see if particular types of visitors behave differently.
• Behaviour and content metrics: Analysing data around user behaviours for example, time spent on site, number of pages viewed, can give a lot of insight into how engaging and valuable your website is. Looking at content metrics will show you which pages are the most popular, which pages users leave from most often, and more providing excellent insight for your content marketing strategy, as well as discovering what your audience is really interested in.
Note
Analytics data cannot give you a definitive answer to why users behave a certain way. It does provide plenty of clues about intent, it’s up to you to put the pieces together.
A crucial, often-overlooked part of this analysis is internal search. Internal search refers to the searches of the website’s content that users perform on the website. While a great deal of time is spent analysing and optimising external search such as using search engines to reach the website in question, analysing internal search goes a long way to exposing weaknesses in site navigation, determining how effectively a website is delivering solutions to visitors, and finding gaps in inventory on which a website can capitalise.
Consider the keywords a user may use when searching for a hotel website, and keywords they may use when on the website.
Keywords to search for a hotel website may be:
• Cape Town hotel
• Bed and breakfast Cape Town.
Once on the website, the user may use the site search function to find out more. Keywords they may use include:
• Table Mountain
• Pets
• Babysitting service.
Analytics tools can show what keywords users search for, what pages they visit after searching, and, of course, whether they search again or convert.
Outcomes
At the end of the day, you want users who visit your website to perform an action that increases your revenue. Analysing goals and KPIs indicates where there is room for improvement. Look at user intent to establish if your website meets users’ goals, and if these match with the website goals. Look at user experience to determine how outcomes can be influenced.
After performing a search, 100 visitors land on the home page of a website. From there, 80 visitors visit the first page towards the goal. This event has an 80% conversion rate. 20 visitors take the next step. This event has a 25% conversion rate. Ten visitors convert into paying customers. This event has a 50% conversion rate. The conversion rate of all visitors who performed the search is 10%, but breaking this up into events lets us analyse and improve the conversion rate of each event.
User experience
To determine the factors that influence user experience, you must test and determine the patterns of user behaviour. Understanding why users behave in a certain way on your website will show you how that behaviour can be influenced to improve your outcomes. This is covered in the next chapter on Conversion optimisation.
Funnel analysis
Funnel analysis is crucial to understanding where problems in a conversion process lie, and helps you to track whether your website is achieving its ultimate goal. The process of achieving that goal can be broken down into several steps. These are called events or micro-conversions. Analysing each step in the process is called funnel analysis or path analysis.
For example, on a hotel booking website, the ultimate goal is that visitors to the site make a booking on the website with a credit card.
Each step in the process is an event that can be analysed as a conversion point.
Event 1: Perform a search for available dates for hotels in the desired area.
Event 2: Check prices and amenities for available hotels.
Event 3: Select a hotel and go to checkout.
Event 4: Enter personal and payment details and confirm booking (conversion).
One naturally expects fewer users at each step. Increasing the number of visitors who progress from one step to the next will go a long way to improving the overall conversion rate of the site.
Note
Here are some examples of possible objectives, goals and KPIs for different websites.
Hospitality eCommerce site, such as www.expedia.com
• Objective: Increase bookings
• Objective: Decrease marketing expenses
• Goal: Make a reservation online
• KPIs:
• Conversion rate
• Cost per visitor
• Average order value.
News and content sites, such as www.news24.com
• Objective: Increase readership and level of interest
• Objective: Increase time visitors spend on website
• Goal: A minimum time on site
• KPIs:
• Length of visit
• Average time spent on website
• Percentage of returning visitors.
KPIs help you to look at the factors you can influence in the conversion process. For example, if your objective is to increase revenue, you could look at ways of increasing your conversion rate, that is, the number of visitors who purchase something on your site. One way of increasing your conversion rate could be to offer a discount. So, you would have more sales, but probably a lower average order value. Or, you could look at ways of increasing the average order value, so that the conversion rate would stay the same, but you would increase the revenue from each conversion.
Once you have established your objectives, goals and KPIs, you need to track the data that will help you to analyse how you are performing, and will indicate how you can optimise your website or campaign.
Segmentation
Every visitor to a website is different, but there are some ways in which we can characterise groups of users, and analyse metrics for each group. This is called segmentation.
Some segments include:
Referral source
Users who arrive at your site via search engines, those who type in the URL directly, and those who come from a link in an online news article are all likely to behave differently. As well as conversion rates, click path and exit pages are important metrics to consider. Consider the page that these visitors enter your website from, can anything be done to improve their experience?
Landing pages
Users who enter your website through different pages can behave very differently. What can you do to affect the page on which they are landing, or what elements of the landing page can be changed to positively influence outcomes?
Connection speed, operating system, browser
Consider the effects of technology on the behaviour of your users. A high bounce rate for low-bandwidth users, for example, could indicate that your site is taking too long to load. Visitors who use open source technology may expect different things from your website to other visitors. Different browsers may show your website differently, how does this affect these visitors?
Geographical location
Do users from different countries, provinces or towns behave differently on your website? How can you optimise the experience for these different groups?
First-time visitors
How is the click path of a first-time visitor different from that of a returning visitor? What parts of the website are most important to first-time visitors?
In-page heat maps
Software such as Crazy Egg (www.crazyegg.com) can show you exactly where users click on a web page, regardless of whether they are clicking on links or not.
It produces information that helps you to know which areas of a website are clickable, but which attract few or no clicks, and which areas are not clickable but have users attempting to click there. This can show you what visual clues on your web page influence where your visitors click, and this can be used to optimise the click path of your visitors.
There are many factors that could be preventing your visitors from achieving specific end goals. From the tone of the copy to the colour of the page, anything on your website may affect conversions. Possible factors are often so glaringly obvious that one tends to miss them, or so small that they are dismissed as trivial. Changing one factor may result in other unforeseen consequences and it is vital to ensure that you don’t jump to the wrong conclusions.
Hotjar (www.hotjar.com) another popular analytics tool, demonstrates how heatmaps can help you improve your web page. You can find more information here: https://www.hotjar.com/heatmaps | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.05%3A_Analysing_data.txt |
In the Data-driven decision making chapter, we discussed the importance of reporting on data and making sure that the information gets to the right users, in the right way. Not everyone is adept at understanding a detailed financial breakdown, and analytics reports often intimidate people, so how can a data-focused marketer present information in a way that’s accessible to everyone?
The answer lies in data visualisation, which involves placing data in a visual context to help users understand it. Data visualisation software can help demonstrate patterns and trends that might be easily missed in purely text-based data reporting. It can refer to something as simple as an infographic, or something as complex as a multi-point interactive program that lets users decide what to compare.
Many data visualisation online are also interactive. Visit this link to see an interactive data visualisation about voting habits of Americans: https:// www.nytimes.com/interactive/2016/06/10/upshot/voting-habits-turnoutpartisanship.html
For a good lesson in data visualisation, including how to start using it, check out this article from SAS: Data Visualization: What it is and why it matters - https:// www.sas.com/en_za/insights/big-data/data-visualization.html.
It can be challenging to decide on what data you want to visualise and the information you want to communicate, but as long as you know how your audience is likely to process visual information and what they need to know, you should be able to choose something that conveys the necessary information simply.
Note
For some tips on how to begin with data visualisation, take a quick look at some tools and some more resources on the topic. The Guardian actually has a remarkably useful article: https:// www.theguardian.com/ global-developmentprofessionalsnetwork/2014/ aug/28/interactiveinfographicsdevelopment-data
21.07: Tools of the trade
The first thing you need is a web analytics tool for gathering data. Some are free and some need to be paid for. You will need to determine which package best serves your needs. Bear in mind that if you switch vendors, you may lose historical data. Below are some leading providers:
• Google Analytics – www.google.com/analytics
• AWStats – awstats.sourceforge.io
• Webalizer – www.webalizer.org
• Hotjar – www.hotjar.com
• GoSquared – www.gosquared.com
• Kissmetrics – www.kissmetrics.com
• Clicky – clicky.com
When it comes to running split tests, if you don’t have the technical capacity to run these in-house, there are some third-party services that can host them for you.
Google Optimize, which you would have learnt about in the Conversion optimisation chapter is Google’s platform for running tests and assessing your website’s performance.
A test the significance of basic split tests, a split-test calculator is available at: www.usereffect.com/split-test-calculator. When you use cookie-based tracking, you need to add code tags to your web pages and these need to be maintained, updated and changed occasionally. Google Tag Manager (www.google.com/ tagmanager) makes it easy to add and work with these tags without requiring any coding knowledge. Other professional tag management tools include TagMan (www. tagman.com), Ensighten (www.ensighten.com) and Tealium (www.tealium.com).
21.08: Advantages and challenges
Tracking, analysing and optimising is vital to the success of all marketing efforts. Digital marketing allows easy and fast tracking, and the ability to optimise frequently. When you use real data to make decisions, you’re likely to make the best choices for your business and website.
However, it can be easy to become fixated on figures and metrics, instead of looking at broader trends and using them to optimise campaigns. Generally, macro or global metrics should be looked at before analysing the micro elements of a website.
Testing variables is vital to success. Results always need to be statistically analysed, and marketers should let these numbers make the decisions. Never assume the outcome, wait for the numbers to inform you. The next chapter covers this in much more detail. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.06%3A_Data_Visualisation.txt |
One-line summary
eFinancialCareers, the world’s leading financial services careers website, used Google Analytics 360 and DoubleClick Manager to improve its programmatic display remarketing.
The challenge
eFinancialCareers uses dynamic remarketing ads to drive leads to its site, where their goal – the major conversion they hope for – is for the user to fill out a job application. The company wanted to boost the number of conversions coming to them from programmatic ads.
The solution
With help from Google 360 experts Periscopix, they decided to gather and analyse insights about site visitors, including behavioural, demographic, and geographic information.
They set up event tracking for a number of variables, including:
• Country
• Job sector
• City
• Company
• Job ID number.
After collecting data about their website users for six weeks, they segmented them into:
• Passive users, who have visited the website and potentially registered for job updates, but haven’t viewed or applied for any jobs.
• Active users, who have viewed and applied for jobs.
Once they had this data about each segment, they could tailor programmatic remarketing ads to send the right message to individual users. Messages could encourage passive users to apply for vacancies, while active users could be sent tailored ads based on information such as the job sector in which they had displayed interest.
They created almost 300 different remarketing lists, adding layers of detail to each identified segment.
Because Analytics 360 and DoubleClick can be integrated, updated remarketing lists can be automatically passed to DoubleClick to ensure relevant targeting for programmatic ads.
The results
Because the new system allowed remarketing to reach users within the ideal conversion period, and with relevant messaging that was updated based on the user’s site activity, the ads performed considerably better. eFinancialCareers saw:
• A 21% increase in site traffic from real-time bidding campaigns
• A 423% increase in conversion rates for job applications coming from remarketing efforts.
(Google, 2016)
21.10: The bigger picture
Tracking, analysing and optimising are fundamental to any digital marketing activity, and it is possible to track almost every detail of any online campaign.
Most analytics packages can be used across all digital marketing activities, allowing for an integrated approach to determining the success of campaigns. While it is important to analyse each campaign on its own merits, the Internet allows for a holistic approach to these activities. The savvy marketer will be able to see how campaigns affect and enhance each other.
The data gathered and analysed can provide insights into the following fields, among others:
• SEO: What keywords are users using to search for your site, and how do they behave once they find it?
• Email: When is the best time to send an email newsletter? Are users clicking on the links in the newsletter and converting on your website?
• Paid media: How successful are your paid advertising campaigns? How does paid traffic compare to organic search traffic?
• Social media: Is social media driving traffic to the website? How do fans of the brand behave compared to those who do not engage socially?
• Mobile: How much of your traffic comes from mobile devices? Is it worth optimising your site for these? (It usually is!)
21.11: References
Google, 2016. Google Analytics 360 and DoubleClick Bid Manager boost conversions by 423%. [Online] Available at: services.google.com/fh/files/misc/ga360_efinancialcareers_case_study_v3.pdf [Accessed 6 November 2017]
Krux, 2016. Data Mining Is Becoming The New Market Research. [Online] Available at: www.krux.com/blog/general/data-mining-is-becoming-the-new-market-research [Accessed 23 February 2017] - Link no longer active
21.E: Data Analytics(Exercises)
Case study questions
1. Why did eFinancialCareers create so many remarketing lists?
2. Describe what analytics data was gathered to create these lists. Why did they choose to focus on this data?
3. How did the integration of various digital elements improve this brand’s remarketing efforts?
Chapter questions
1. Why is it so important to use data to inform business decisions?
2. What would you learn from a single-page heat map?
3. What is the difference between a goal and a KPI?
Further reading
www.kaushik.net/avinash – Avinash Kaushik is an analytics evangelist, and his regular insight on his blog, Occam’s Razor, is essential reading for any digital marketer.
Web Analytics 2.0 by Avinash Kaushik – if you are looking to get started in web analytics, you can’t go wrong with this book by the web analytics legend.
www.analyticspros.com/blog – Analytics Pros has a blog with great advice and thoughts about analytics.
blogs.adobe.com/digitalmarketing – Adobe has a good blog with a lot of analytics information as well.
contentmarketinginstitute.com/?s=analytics – Believe it or not, the Content Marketing Institute has some great analytics tips.
support.google.com/analytics#topic=3544906 – Google Analytics Help Center is an excellent starting point for anyone who wants to get to grips with this free, excellent web analytics service.
21.S: Data Analytics(Summary)
The ability to track user behaviour on the Internet allows you to analyse almost every level of a digital campaign, which should lead to improved results over time. The foundation of successful web analytics is to determine campaign and business objectives upfront and to use these to choose goals and KPIs grounded in solid targets.
Web analytic packages come in two flavours – server-based and cookie-based tracking – although some packages combine both methods.
Data can be analysed to discover how users behave, whether outcomes have been achieved, and how appealing the user experience is. Testing to optimise user experience can demonstrate ways in which to influence user behaviour so that more successful outcomes can be achieved. segmenting the audience allows specific groups of users to be analysed. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/21%3A_Optimize_-_Data_Analytics/21.09%3A_Case_study_-_eFinancialCareers.txt |
There is no doubt about it: the Internet has changed the world we live in. Never before has it been so easy to access information, communicate with people all over the globe, and share articles, videos, photos and all manner of media. The Internet has led to an increasingly connected communications environment, and the growth of Internet usage has resulted in declining distribution of traditional media such as television, radio, newspapers and magazines.
Digital marketing embraces a wide range of strategies, but what underpins its success is a user-centric and cohesive approach. Over the past few decades, marketers have begun to wake up to the power of the Internet, both as a platform for communication and as a way of tracking conversations. By its very nature, the Internet is a network of interlinking nodes. Marketers use these nodes to track conversations and behaviour patterns.
22: Appendix - Understanding the Internet
1958 US ARPA (Advanced Research Projects Agency) established to lead science and military technological developments.
1961 MIT research paper on Packet Switching Theory.
1961-69 Ongoing research into inter-computer communications and networks.
1969 ARPANET, commissioned by US Defense Department, goes live. US universities connect up network facilities for the first time.
1971 Ray Tomlinson creates first network email application.
1973 Development of protocols to enable multi-network Internet opportunities. First international ARPANET connections made.
1976 HM Queen Elizabeth II sends an email.
1978 First spam email is recorded.
1980 Tim Berners-Lee develops rules for the World Wide Web and is credited as the Web Father. Alan Emtage develops the first search tool, known as ‘ARCHIE’.
1982 Standard network protocols are established: Transmission Control Protocol (TCP) and Internet Protocol (IP), commonly referred to as TCP/IP.
1984
Joint Academic Network (JANET) is established, linking higher education institutions.
Domain Name System (DNS) is introduced.
1985 A company named Symbolics becomes the first registered dot-com domain.
1987
National Science Foundation (US) is the catalyst for the surge in funded work into the Internet.
Number of Internet hosts increases significantly in this period.
1988-90 28 countries sign up to hook up to the NSFNET, reinforcing international Internet potential.
1990 Senator Al Gore coins the term ‘information superhighway’.
1991 Web Father Tim Berners-Lee releases World Wide Web (www) with scientists from CERN.
1992
America Online (AOL) is launched and raises \$23m in floatation. The term ‘surfing the net’ is introduced by Jean Armour Polly.
The World Bank goes online.
1993
Mainstream media attention increases awareness of the Internet. The first Internet publication, Wired, goes on sale.
Mosaic introduces the first web browser with graphical interface and is the forerunner of Netscape Navigator.
First online shopping malls and virtual banks emerge, as does evidence of spam.
First clickable banner advert is sold by Global Network Navigator to a law firm.
1995
Amazon is launched by Jeff Bezos.
Trial dial-up systems such as AOL and CompuServe launch.
Charging is introduced for domain names.
Search technology companies such as Alta Vista, Infoseek, Excite and Metacrawler rapidly appear.
1996 Yahoo! is launched on the stock exchange and shares are up nearly 300% on first day.
1997 MP3.com is founded. The term ‘search engine optimisation’ is used for the first time in a forum.
1998 XML is released to enable compatibility between different computer systems. Google founded by Larry Page and Sergey Brin.
1999 Peter Merholz coins the word ‘blog’.
2000
AOL and Time-Warner announce that they are merging.
Pay-per-click campaigns are introduced for top ten search rankings.
Google AdWords launches, charging for adverts on a CPM basis.
2002
UK online monthly consumer shopping breaks through the £1 billion barrier.
Google AdWords charges on a PPC basis instead of CPM.
2003 eBay topples Amazon as the most visited UK website.
2004
CD-WOW loses court case and rights to source cheaper CDs outside EU, undermining the global concept of the Internet.
Facebook launches from the Harvard dorm room of Mark Zuckerberg, Dustin Moskovitz, Chris Hughes and Eduardo Saverin.
2005
Iceland leads the world with broadband penetration: 26.7 inhabitants per 100 have broadband compared with 15.9 per 100 in the UK.
YouTube launches.
Google buys Android Inc.
2006
Google buys YouTube for \$1.6 billion. Facebook membership opens to everyone.
Twitter launches.
Technorati notes that a blog is created every second of every day.
TIME Magazine names ‘You’ as person of the year, as a result of online activity.
2007
Facebook launches Facebook Ads.
Apple launches the iPhone.
The Google Phone, with the Android operating system, launches.
Google launches Gmail.
2008
Firefox 3.0 launches with over 8 million downloads in 24 hours.
Groupon launches, to become the fastest growing company of all time.
Google Chrome, a browser, launches.
Apple opens the App Store.
2009
Facebook adds the ‘like’ feature.
Foursquare launches.
2010
Facebook reaches 500 million users.
24 hours of video are uploaded to YouTube every minute.
Pinterest launches.
Apple releases the first iPad. Google launches Nexus One.
The number of Internet users tops 1.9 billion worldwide.
Instagram launches.
Astronaut TJ Creamer sends the first tweet from space.
2011
200 million tweets are sent daily on Twitter – about one billion a week.
Social media is credited with a crucial role in political movements in Egypt, Tunisia and Libya.
Apple’s App Store downloads top 10 billion.
Google+ launches.
YouTube reaches 1 trillion views.
2012
Facebook tops 1 billion users.
Apple releases the iPad Mini.
The number of Internet users tops 2.4 billion worldwide.
Online advertising spend surpasses print advertising spend for the first time.
Facebook buys Instagram for \$1 billion, as the service tops 100 million active users.
2013
Video-sharing service, Vine, launches.
Smartphone sales overtake feature phone sales globally.
100 hours of video are uploaded to YouTube every minute.
Over 45 billion apps have been downloaded from the Apple App Store.
2014
Number of Internet users hits 3 billion.
Facebook buys messaging app WhatsApp for US \$19 billion.
Facebook introduces autoplay videos and provides video metrics as part of its native analytics package for brands and businesses.
2015
Smartphones become the most popular device used to browse the Internet.
WordPress powers 25% of websites.
The use of mobile banking and payment apps rises by 54%.
2016
The Internet of Things (IoT) gains momentum.
From wearables to smart homes, increasingly things are becoming connected online.
2017
Facebook hits 2 billion active monthly users.
Big data and AI continue to change how we conduct business.
Gaming becomes a 2.6 billion US\$ dollar industry and voice begins to replace typing for online queries.
Note
What new developments have happened recently? Keep an eye on the news for digital updates. | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/22%3A_Appendix_-_Understanding_the_Internet/22.01%3A_History_of_the_Internet.txt |
In its simplest form, the Internet is a collection of documents connected by hyperlinks.
A hyperlink is a virtual link from one document on the World Wide Web to another. It includes the Uniform Resource Locator (URL) of the linked-to document, which describes where on the Internet a document is. It is what you enter in the address bar of the browser, because it is the address of that document on the Internet.
A URL provides information to both browsers and people. URLs include domain names that translate to Internet Protocol (IP) addresses. Every website corresponds to an IP address, which is a structured series of dots and numbers indicating where it is physically located. In fact, every device on the network has an IP address.
When you enter a URL into the address bar of a browser, the Domain Name System (DNS) record indicates where the document you are linking to is.
Confused? Look at the domain name and IP address for Red & Yellow’s website:
Domain name: www.redandyellow.co.za
IP address: 212.100.243.204
A domain name looks something like this: www.domainname.com.
But a lot more information can be included in this. URLs can carry the following information: subdomain.domain.tld/directory
Domain – the registered domain name of the website.
Subdomain – a domain that is part of a larger domain.
TLD – the top level domain, uppermost in the hierarchy of domain names.
Directory – a folder to organise content.
The TLD can indicate the country in which a domain is registered, and can also give information about the nature of the domain.
.com – the most common TLD.
.co.za, .co.uk, .com.au – these TLDs give country information.
.org – used by non-profit organisations.
.gov – used by governments.
.ac – used by academic institutions.
Domain names must be registered, and there is a fee for doing so.
A website, or any content on the Internet, is hosted on a server. A web server is a machine that serves web content, and the term often refers to the software (applications) and the hardware (machine) that serve the content.
Very simplistically, it works a little something like this:
1. Someone enters a URL in a browser.
2. This is translated into an IP address, which indicates where the content is located, or where the server for the content is.
Note
All of this happens in a fraction of a second!
1. The server then returns the content requested.
2. The person sees the website that they requested.
Sometimes, the server is not able to fulfil the request meaning it cannot return the content requested, and instead it returns a status code. Two common status codes you will encounter in this book are below.
301: This is used to indicate that the content requested has moved permanently, and the new version of the content is returned instead. These 301 redirects are often used in search engine optimisation (SEO) or when a new website is launched to make sure that old links are redirected to the correct, new content.
404: This is returned when the content has not been found on the server, either because there was an error in the link, or because the content has been moved or deleted. Website owners can design a custom page for when a 404 error occurs, giving users useful information.
You can find a full list of status codes at www.w3.org/Protocols/rfc2616/rfc2616- sec10.html.
This information can be sent via Hypertext Transfer Protocol (HTTP), or HTTPS, which is a combination of HTTP with a secure way of transmitting information.
Note
How aware are you of security when browsing the web? Pay close attention to the sites that use secure protocols, what does this say about them?
HTTP makes it easy to request and transfer information. It’s what makes our websites load, and allows us to connect with people on social networks. However, the information that is transferred is not transferred securely, meaning that it could be viewed by third parties. If this was the only way of sending information online, it would be a bad idea to bank online, or to purchase anything over the Internet.
This is why we use HTTPS to encrypt information when it is sensitive. In order to make use of HTTPS, the relevant website needs to get a security certificate, which ensures that various details have been verified by a trusted third party.
If you’re unsure, look in the browser address bar to check whether the site you are on is HTTP or HTTPS. Most browsers will indicate a secure site with a little padlock in the address bar, or somewhere else in the browser, to make sure that you know you are in a secure site.
22.03: How people access the Internet
People connect to the Internet and access content in many different ways. When it comes to the physical connection to the Internet, the market presents a number of options:
• Dial-up
• 3G and 4G connection
• Wi-Fi and WiMAX
• Broadband
• ADSL.
The list goes on. The devices people use vary from mobile phones and expensive tablets to personal notebooks and desktop computers. The environment that people are in when they access the Internet also differs:
• At home
• At the office or place of work
• At libraries and education centres
• In Internet cafes and coffee shops
• On the go.
Not only do these environmental factors affect how people use the Internet, but their reasons for using the Internet also have an effect on how they interact online.
For some people, the Internet is primarily a communications channel, and their online activity is focused on social media or their email inbox, while for others it may be a research channel, with search engines playing a large role in their online experience.
22.04: What does this have to do with marketing
Marketing is about conversations, and the Internet facilitates these on a global scale. The rest of this book has covered the tools and tactics you need to understand and use the Internet to its full potential.
22.05: References
Gasiorowski-Denis, E. 2016. How the Internet of Things will change our lives. [Online] Available at: http://www.iso.org/iso/news.htm?refid=Ref2112 [Accessed 24 October 2017]
PewResearch Center, 2014. World Wide Web Timeline. [Online] Available at: http://www.pewinternet.org/2014/03/1...-web-timeline/ [Accessed 24 October 2017]
Recode, 2017. Mary Meeker’s 2017 internet trends report: All the slides plus analysis. [Online] Available at: www.recode.net/2017/5/31/156...ends-code-2017 [Accessed 24 October 2017] | textbooks/biz/Marketing/Book%3A_eMarketing__The_Essential_Guide_to_Marketing_in_a_Digital_World_(Stokes)/22%3A_Appendix_-_Understanding_the_Internet/22.02%3A_How_the_Internet_works.txt |
Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. A company that engages in global marketing focuses resources on global market opportunities and threats. Successful global marketers such as Nestle, Coca-Cola, and Honda use familiar marketing mix elements – the four Ps – to create global marketing programs.
Marketing, R&D, manufacturing, and other activities comprise a firm’s value chain; the value equation (V =B/P) expresses the relationship between values and the marketing mix.
Global companies also maintain strategic focus while pursuing competitive advantage. The marketing mix, value chain, competitive advantage, and focus are universal in their applicability, irrespective of whether a company does business only in the home country or has a presence in many markets around the world. However, in a global industry, companies that fail to pursue global opportunities risk being pushed aside by stronger global competitors.
A firm’s global marketing strategy (GMS) can enhance its worldwide performance. The GMS addresses several issues. First is nature of the marketing program in terms of the balance between a standardization (extension) approach to the marketing mix and a localization (adaptation) approach that is responsive to country or regional differences. Second is the concentration of marketing activities in a few countries or the dispersal of such activities across many countries. Companies that engage in global marketing can also engage in coordination of marketing activities. Finally, a firm’s GMS will address the issue of global market participation.
The importance of global marketing today can be seen in the company rankings compiled by the Wall Street Journal, Fortune, Financial Times, and other publications. Whether ranked by revenues, market capitalization, or some other measure, most of the world’s major corporations are active regionally or globally. The size of global markets for individual industries or product categories helps explain why companies “go global”. Global markets for some product categories represent hundreds of billions of dollars in annual sales; other markets are much smaller. Whatever the size of the opportunity, successful industry competitors find that increasing revenues and profits means seeking markets outside the home country.
Company management can be classified in terms of its orientation toward the world: ethnocentric, polycentric, regiocentric, or geocentric. The terms reflect progressive levels of development or evolution. An ethnocentric orientation characterizes domestic and international companies; international companies pursue marketing opportunities outside the home market by extending various elements of the marketing mix. A polycentric worldview predominates at a multinational company, where the marketing mix is adapted by country managers operating autonomously. Managers at global and transnational companies are regiocentric or geocentric in their orientation and pursue both extension and adaptation strategies in global markets.
The dynamic interplay of several driving and restraining forces shapes the importance of global marketing. Driving forces include market needs and wants, technology, transportation and communication improvements, product costs, quality, world economic trends, and recognition of opportunities to develop leverage by operating globally. Restraining forces include market differences, management myopia, organizational culture, and national controls such as nontariff barriers (NTBs).
Source
The above note was adapted from the course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘Introduction to Global Marketing’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.01%3A_Introduction_to_International_Marketing_Summary.txt |
Learning Objectives
After reading this section, students should be able to …
1. Recall the definition of ‘Marketing’ learned in their previous marketing courses.
While we are attempting to understand and define International Marketing, it may help to go back to our basic definitions of ‘Marketing’, and the concepts that we learned in one of our introductory marketing courses.
Noted Harvard Professor of Business Theodore Levitt, states that the purpose of all business is to “find and keep customers”. Furthermore, the only way you can achieve this objective is to create a competitive advantage. That is, you must convince buyers (potential customers) that what you have to offer them comes closest to meeting their particular need or want at that point in time. Hopefully, you will be able to provide this advantage consistently, so that eventually the customer will no longer consider other alternatives and will purchase your product out of habit. This loyal behavior is exhibited by people in the US who drive only Fords, brush their teeth only with Crest, buy only Dell computers, and have their plumbing fixed only by “Samson Plumbing—On Call 24 hours, 7 days a week”. Creating this blind commitment—without consideration of alternatives—to a particular brand, store, person, or idea is the dream of all businesses. It is unlikely to occur, however, without the support of an effective marketing program. In fact, the specific role of marketing is to provide assistance in identifying, satisfying and retaining customers.
While the general tasks of marketing are somewhat straightforward, attaching an acceptable definition to the concept has been difficult. A textbook writer once noted, “Marketing is not easy to define. No one has yet been able to formulate a clear, concise definition that finds universal acceptance”. Yet a definition of some sort is necessary if we are to lay out the boundaries of what is properly to be considered “marketing”. How do marketing activities differ from non-marketing activities? What activities should one refer to as marketing activities? What institutions should one refer to as marketing institutions?
Marketing is advertising to advertising agencies, events to event marketers, knocking on doors to salespeople, direct mail to direct mailers. In other words, to a person with a hammer, everything looks like a nail. In reality, marketing is a way of thinking about business, rather than a bundle of techniques. It is much more than just selling stuff and collecting money. It is the connection between people and products, customers and companies. Like organic tissue, this kind of connection—or relationship—is always growing or dying. It can never be in a steady state. And like tissue paper, this kind of connection is fragile. Customer relationships, even long-standing ones, are contingent on the last thing that happened.
Tracing the evolution of the various definitions of marketing proposed during the last thirty years reveals two trends: (1) expansion of the application of marketing to non-profit and non-business institutions; e.g. charities, education, or health care; and (2) expansion of the responsibilities of marketing beyond the personal survival of the individual firm, to include the betterment of society as a whole. These two factors are reflected in the official American Marketing Association definition published in 1988.
“Marketing is the process of planning and executing the conception. pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual (customer) and organizational objectives.”
While this definition can help us better comprehend the parameters of marketing, it does not provide a full picture. Definitions of marketing cannot flesh out specific transactions and other relationships among these elements. The following propositions are offered to supplement this definition and better position marketing within the firm.
The overall directive for any organization is the mission statement or some equivalent statement of organizational goals. It reflects the inherent business philosophy of the organization.
Every organization has a set of functional areas (e.g. accounting, production, finance, data processing, marketing) in which tasks that are necessary for the success of the organization are performed. These functional areas must be managed if they are to achieve maximum performance.
Every functional area is guided by a philosophy (derived from the mission statement or company goals) that governs its approach toward its ultimate set of tasks.
Marketing differs from the other functional areas in that its primary concern is with exchanges that take place in markets, outside the organization (called a transaction).
Marketing is most successful when the philosophy, tasks, and manner of implementing available technology are coordinated and complementary.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4
Section 1.1 Defining Marketing is also adapted from the chapter section of the same title appearing in ‘Chapter 1: What is Marketing?’ of the textbook ‘Principles of Marketing,’ authored by University of Minnesota Libraries Publishing edition, 2015 – this book was adapted from a work originally produced in 2010 by a publisher who has requested that it not receive attribution.
The following changes were made to the most recent edition: Created new title for Figure 1.1: Marketing activities; Created new title for Figure 1.2: Creating Offerings That Have Value – BMW versus CRV; Created new title for Figure 1.3: Creating Offerings That Have Value – Social media sites; Added learning objectives. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.02%3A_Defining_Marketing.txt |
Learning Objectives
After reading this section, students should be able to …
1. Extend the definition of ‘Marekting’ to ‘International Marketing’
2. Define ‘International Marketing’
Case: Toyota has a vehicle for every market
Each market has unique cultural characteristics and contextual circumstances that must be considered. For example, in the United States roads tend to be wide; highways can accommodate a broad array of vehicles with a high number of lanes, and people demand a mix of cars based on their needs. Conversely, in Europe roads tend to be narrow, and the market demands smaller, more fuel-efficient vehicles. Therefore, while a Toyota 4Runner tends to sell extremely well in the United States, it would not be a very popular model in Europe for these very reasons. As a result, Toyota invests billions of dollars every year into market research and market development to make sure they meet the needs and wants of its customers, in each specific country that they sell their vehicles in. This has led to Toyota’s success in the US automotive market, as our earlier case suggested. With their #1 selling sedan, Toyota Camry, a wide array of hybrid models, trucks, and SUVs to meet the United States constantly-changing expectations, Toyota is, arguably, the strongest player in the automotive industry.
Now that the world has entered the next millennium, we are seeing the emergence of an interdependent global economy that is characterized by faster communication, transportation, and financial flows, all of which are creating new marketing opportunities and challenges. Given these circumstances, it could be argued that companies face a deceptively straightforward and stark choice: they must either respond to the challenges posed by this new environment or recognize and accept the long-term consequences of failing to do so. This need to respond is not confined to firms of a certain size or particular industries. It is a change that to a greater or lesser extent will ultimately affect companies of all sizes in virtually all markets. The pressures of the international environment are now so great, and the bases of competition within many markets are changing so fundamentally, that the opportunities to survive with a purely domestic strategy are increasingly limited to small and medium-sized companies in local niche markets.
Perhaps partly because of the rapid evolution of international marketing, a vast array of terms have emerged that suggest various facets of international marketing. Clarification of these terms is a necessary first step before we can discuss this topic more thoroughly.
Let us begin with the assumption that the marketing process that you have learned in any basic marketing course is just as applicable to domestic marketing as to international marketing. In both markets, we are goal-driven, do necessary marketing research, select target markets, employ the various tools of marketing (i.e. product, pricing, distribution, communication), develop a budget, and check our results. However, the uncontrollable factors such as culture, social, legal, and economic factors, along with the political and competitive environment, all create the need for a myriad of adjustments in the marketing management process.
One of the inevitable questions that surfaces concerning international marketing are: how does international marketing truly differ from domestic marketing, if at all? There has historically been much discussion over commonalities and differences between global and domestic marketing, but the three most common points of view upon which scholars agree are the following. First, all marketing is about the formulation and implementation of the basic policies known as the 4 P’s: Product, Price, Place, and Promotion. Second, international marketing, unlike domestic marketing, is understood to be carried out “across borders”. Third, international marketing is not synonymous with international trade (Perry, 1990). Perhaps the best way to distinguish between the two is simply to focus on the textbook definition of international marketing. One comprehensive definition states that, “international marketing means identifying needs and wants of customers in different markets and cultures, providing products, services, technologies, and ideas to give the firm a competitive marketing advantage, communicating information about these products and services and distributing and exchanging them internationally through one or a combination of foreign market entry modes” (Bradley, 2005)
At its simplest level, international marketing involves the firm in making one or more marketing decisions across national boundaries. At its most complex, it involves the firm in establishing manufacturing and marketing facilities overseas and coordinating marketing strategies across markets. Thus, how international marketing is defined and interpreted depends on the level of involvement of the company in the international marketplace.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4
1.04: The Motivation for International Marketing
Learning Objectives
After reading this section, students should be able to …
1. appreciate why firms enter international markets
2. explain why firms may want to avoind entering international markets
Reasons for entering international markets
Many marketers have found the international marketplace to be extremely hostile. A study by Baker and Kynak, for example, found that less than 20 per cent of firms in Texas with export potential actually carried out business in international markets. But although many firms view in markets with trepidation, others still make the decision to go international. Why?
In one study, the following motivating factors were given for initiating overseas marketing involvement (in order of importance):
• large market size
• stability through diversification
• profit potential
• unsolicited orders
• proximity of market
• excess capacity
• offer by foreign distributor
• increasing growth rate
• smoothing out business cycles
Other empirical studies over a number of years have pointed to a wide variety of reasons why companies initiate international involvement. These include the saturation of the domestic market, which leads firms either to seek other less competitive markets or to take on the competitor in its home markets; the emergence of new markets, particularly in the developing world; government incentives to export; tax incentives offered by foreign governments to establish manufacturing plants in their countries in order to create jobs; the availability of cheaper or more skilled labor; and an attempt to minimize the risks of a recession in the home country and spread risk.
Reasons to avoid international markets
Despite attractive opportunities, most businesses do not enter foreign markets. The reasons given for not going international are numerous. The biggest barrier to entering foreign markets is seen to be a fear by these companies that their products are not marketable overseas, and a consequent preoccupation with the domestic market. The following points were highlighted by the findings in the previously mentioned study by Barker and Kaynak, who listed the most important barriers:
• too much red tape
• trade barriers
• transportation difficulties
• lack of trained personnel
• lack of incentives
• lack of coordinated assistance
• unfavorable conditions overseas
• slow payments by buyers
• lack of competitive products
• payment defaults
• language barriers
It is the combination of these factors that determines not only whether companies become involved in international markets, but also the degree of any involvement.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.03%3A_Defining_International_Marketing.txt |
Learning Objectives
After reading this section, students should be able to …
1. define domestic marketing, international marketing, export marketing, multinational marketing, and global marketing
2. explain the difference between domestic marketing, international marketing, export marketing, multinational marketing, and global marketing
Earlier in our discussion on definitions, we identified several terms that relate to how committed a firm is to being international. Here we expand on these concepts and explain the rationale behind this process. Two points should be noted. First, the process tends to be ranked in order of “least risk and investment” to “greatest involvement”. Second, these are not necessarily sequential steps, even though exporting is apparently most common as an initial entry.
Firms typically approach involvement in international marketing rather cautiously, and there appears to exist an underlying lifecycle that has a series of critical success factors that change as a firm moves through each stage. For small and medium-sized firms, in particular, exporting remains the most promising alternative to a full-blooded international marketing effort, since it appears to offer a degree of control over risk, cost, and resource commitment. Indeed, exporting, especially by the smaller firms, is often initiated as a response to an unsolicited overseas order-these are often perceived to be less risky. Therefore, the following possibilities exist:
Domestic marketing.
This involves the company manipulating a series of controllable variables, such as price, advertising, distribution, and the product, in a largely uncontrollable external environment that is made up of different economic structures, competitors, cultural values, and legal infrastructure within specific political or geographic country boundaries.
International marketing.
This involves the company operating across several markets in which not only do the uncontrollable variables differ significantly between one market and another, but the controllable factor in the form of cost and price structures, opportunities for advertising, and distributive infrastructure are also likely to differ significantly.
Export marketing.
In this case the firm markets its goods and/or services across national/political boundaries. In general, exporting is a simple and low risk-approach to entering foreign markets. Firms may choose to export products for several reasons. First, products in the maturity stage of their domestic life cycle may find new growth opportunities overseas, as Perrier chose to do in the US. Second, some firms find it less risky and more profitable to expand by exporting current products instead of developing new products. Third, firms who face seasonal domestic demand may choose to sell their products to foreign markets when those products are “in season” there. Finally, some firms may elect to export products because there is less competition overseas.
A firm can export its products in one of three ways: indirect exporting, semi-direct exporting, and direct exporting. Indirect exporting is a common practice among firms that are just beginning their exporting. Sales, whether foreign or domestic, are treated as domestic sales. All sales are made through the firm’s domestic sales department, as there is no export department. Indirect exporting involves very little investment, as no overseas sales force or other types of contacts need to be developed. Indirect exporting also involves little risk, as international marketing intermediaries have knowledge of markets and will make fewer mistakes than sellers.
In semi-direct exporting, an American exporter usually initiates the contact through agents, merchant middlemen, or other manufacturers in the US. Such semi-direct exporting can be handled in a variety of ways: (a) a combination export manager, a domestic agent intermediary that acts as an exporting department for several noncompeting firms; (b) the manufacturer’s export agent (MEA) operates very much like a manufacturer’s agent in domestic marketing settings; (c) a Webb-Pomerene Export Association may choose to limit cooperation to advertising, or it may handle the exporting of the products of the association’s members and; (d) piggyback exporting, in which one manufacturer (carrier) that has export facilities and overseas channels of distribution handles the exporting of another firm (rider) noncompeting but complementary products.
When direct exporting is the means of entry into a foreign market, the manufacturer establishes an export department to sell directly to a foreign film. The exporting manufacturer conducts market research, establishes physical distribution, and obtains all necessary export documentation. Direct exporting requires greater investment and also carries a greater risk. However, it also provides greater potential return and greater control of its marketing program.
Multinational marketing.
Here the marketing activities of an organization include activities, interests, or operations in more than one country, and where there is some kind of influence or control of marketing activities from outside the country in which the goods or services will actually be sold. Each of these markets is typically perceived to be independent and a profit center in its own right.
Global marketing.
The entire organization focuses on the selection and exploration of global marketing opportunities and marshals resources around the globe with the objective of achieving a global competitive advantage. The primary objective of the company is to achieve synergy in the overall operation, so that by taking advantage of different exchange rates, tax rates, labor rates, skill levels, and market opportunities, the organization as a whole will be greater than the sum of its parts.
Thus Toyota Motors started out as a domestic marketer, eventually exported its cars to a few regional markets, grew to become a multinational marketer, and today is a true global marketer, building manufacturing plants in the foreign country as well as hiring local labor, using local ad agencies, and complying to that country’s cultural mores. As it moved from one level to the next, it also revised attitudes toward marketing and the underlying philosophy of business.
Ultimately, the successful marketer is the one who is best able to manipulate the controllable tools of the marketing mix within the uncontrollable environment. The principal reason for failure in international marketing results from a company not conducting the necessary research, and as a consequence, misunderstanding the differences and nuances of the marketing environment within the country that has been targeted.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.05%3A_Stages_in_International_Marketing.txt |
Learning Objectives
After reading this section, students should be able to …
1. explain why international marketing matters to firms and marketing managers
Why It Matters
Suppose you’re in the marketing department for a highly successful snack food company in the U.S. You’re in a brainstorming meeting about expanding into China, and the discussion is starting to get heated. Should you lead with your company’s best-selling nacho-cheese-flavored snacks to take China by storm? Or would it be better to start out with the ranch-dressing-flavored snack instead, because it’s so quintessentially American and it’d be a great way to introduce the Chinese to the tastes Americans love?
Or would something else be a better fit?
It’s time to vote: your manager wants everyone on the team to name the flavor they want to lead with. What are you going to choose?
Set aside your top pick while you watch this short but very interesting video.
You can read a transcript of the video here.
So . . . how did you do? How close did you come to favorite flavors in the video? Were you in the ballpark? Are you ready for a career developing snack foods for global markets?
If you’re like most Americans, your recommendation probably wasn’t very close to the mark, and you’re probably thinking that many of the flavors that are delicious to Chinese consumers sound a bit odd to you. Well, now you know how a lot of Chinese consumers probably feel when presented with Cheetos Crunchy Flamin’ Hot Limon Cheese Flavored Snacks or Zapp’s Spicy Cajun Crawtator potato chips. A little queasy.
Hopefully this scenario helps highlight some of the challenges of global marketing, as companies start selling products in other countries. How should you enter a new market? Are you offering products that consumers in other countries will want to buy? What should you do to make sure your product–and the rest of your marketing mix–is a good fit for the global customers you want to attract?
Global marketing is a complex and fascinating business. The rest of the sections will introduce key challenges, opportunities, and factors to consider when marketing to target audiences outside your home country.
Source
The above content was adapted from textbook content provided by: Lumen Learning. License: CC BY: Attribution, titled “Why It Matters: Marketing Globally”. CC LICENSED CONTENT, SHARED PREVIOUSLY
Chinese Flavors for American Snacks. Provided by: BBC. Located at: https://youtu.be/BA8bCNiKZsg. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives
1.07: Challenges of Global Marketing
Learning Objectives
After reading this section, students should be able to …
1. appreciate the challenges and opportunities presented by global markets
2. explain the challenges and opportunities presented by globalization
A global company is generally referred to as a multinational corporation (MNC). An MNC is a company that operates in two or more countries, leveraging the global environment to approach varying markets in attaining revenue generation. These international operations are pursued as a result of the strategic potential provided by technological developments, making new markets a more convenient and profitable pursuit both in sourcing production and pursuing growth.
McDonald’s Locations: Over the last 70 years, McDonald’s has become a global corporation.International operations are therefore a direct result of either achieving higher levels of revenue or a lower cost structure within the operations or value-chain. MNC operations often attain economies of scale, through mass producing in external markets at substantially cheaper costs, or economies of scope, through horizontal expansion into new geographic markets. If successful, these both result in positive effects on the income statement (either larger revenues or stronger margins), but contain the innate risk in developing these new opportunities.
Opportunities
As gross domestic product (GDP) growth migrates from mature economies, such as the US and EU member states, to developing economies, such as China and India, it becomes highly relevant to capture growth in higher growth markets. It is a particularly strong visual representation of the advantages a global corporation stands to capture, where the darker green areas reppresent where the highest GDP growth potential resides. High growth in the external environment is a strong opportunity for most incumbents in the market.
Challenges
However, despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors:
• Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum.
• Ethics: Arguably the most substantial of the challenges faced by MNCs, ethics have historically played a dramatic role in the success or failure of global players. For example, Nike had its brand image hugely damaged through utilizing ‘sweat shops’ and low wage workers in developing countries. Maintaining the highest ethical standards while operating in developing countries is an important consideration for all MNCs.
• Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations.
• Leadership: The final factor worth noting is attaining effective leaders with the appropriate knowledge base to approach a given geographic market. There are differences in strategies and approaches in every geographic location worldwide, and attracting talented managers with high intercultural competence is a critical step in developing an efficient global strategy.
Combining these four challenges for global corporations with the inherent opportunities presented by a global economy, companies are encouraged to chase the opportunities while carefully controlling the risks to capture the optimal amount of value. Through effectively maintaining ethics and a strong public image, companies should create strategic business units with strong international leadership in order to capture value in a constantly expanding global market.
Globalization
Opportunities
Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases. This means larger volumes of sales and exchange, larger growth rates in GDP, and more empowerment of individuals and political systems through acquiring additional resources and capital. These benefits of globalization are viewed as utilitarian, providing the best possible benefits for the largest number of people.
Challenges
Along with arguments supporting the benefits of a more globally-connected economy, there are criticisms that question the profits that are captured. Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage. Other commonly raised concerns include damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values.
Source
The above content was adapted from textbook content provided by: Lumen Learning. License: CC BY: Attribution, titled “Introduction to Global Marketing”.
CC LICENSED CONTENT, SHARED PREVIOUSLY
CC LICENSED CONTENT, SPECIFIC ATTRIBUTION | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.06%3A_Why_International_Marketing_Matters.txt |
Learning Objectives
After reading this section, students should be able to …
1. list the elements of economic globalization
2. explain the positive and negative effects of globalization
Case: United States Domestic Automaker, Ford
Nowhere are the effects of globalization seen more drastically than in the automobile industry, especially for the United States “Big 3” automakers: General Motors, Chrysler, and Ford.
Ford’s history dates back to the Model T created by Henry Ford, with the goal of building a car for every family. Today, Ford is in dire competition with not only their domestic competitors, but also now foreign car manufacturers such as Toyota, Volkswagen and Hyundai.
At the current pace, the automotive market is approaching a 50/50 split between United States and overseas-based control of the US market. As a result, Ford is challenged to constantly reevaluate and revamp its market strategy. This is evident, as Ford decided that it was more cost-effective to buy existing networks than to start from scratch, by bringing Jaguar, Volvo, Mazda, Aston Martin and Land Rover under its control. However, Ford has recently decided to sell its stake in both Jaguar and Land Rover to the Indian automaker, Tata, and may divest other divisions as well.
Today, Ford faces a number of important questions. As the globalization of the auto industry continues, how should Ford market its vehicles? What target markets should Ford appeal to? How can it continue to improve production and quality and adhere to the needs of even more demanding customers? And, how should Ford position itself, as a company, in the face of formidable competition?
While the future of Ford is uncertain, one thing is clear, globalization will continue to affect the way domestic and foreign companies do business.
Globalization is difficult to define because it has many dimensions—economic, political, cultural and environmental. The focus here is on the economic dimension of globalization. Economic globalization refers to the “quickly rising share of economic activity in the world [that] seems to be taking place between people in different countries” (World Bank Briefing Paper, 2001). More specifically, economic globalization is the result of the increasing integration of economies around the world, particularly through trade and financial flows and the movement of people and knowledge across international borders (IMF Issue Brief, 2000).
As this figure suggests, the “Big Three” must adapt to changes in the market and globalization factors to remain key players in the automotive market. At one point in 2007, for the first time in history, US automaker’s share of their home market fell below 50 percent.
Elements of economic globalization
The growth in cross-border economic activities takes five principal forms: (1) international trade; (2) foreign direct investment; (3) capital market flows; (4) migration (movement of labor); and (5) diffusion of technology (Stiglitz, 2003).
International trade:
An increasing share of spending on goods and services is devoted to imports and an increasing share of what countries produce is sold as exports. Between 1990 and 2001, the percentage of exports and imports in total economic output (GDP) rose from 32.3 per cent to 37.9 per cent in industrialized countries, and from 33.8 per cent to 48.9 per cent in low and middle-income countries (World Briefing Paper, 2001). In the 1980s, about 20 per cent of industrialized countries’ exports went to less industrialized countries; today, this share has risen to about 25 per cent, and it appears likely to exceed 33 per cent by 2010 (Qureshi, 1996).
The importance of International trade lies at the root of a country’s economy. In the constant changing business market, countries are now more interdependent than ever on their partners for exporting, importing, thereby keeping the home country’s economy afloat and healthy. For example, China’s economy is heavily dependent on the exportation of goods to the United States, and the United States customer base who will buy these products.
Foreign Direct Investment (FDI):
According to the United Nations, FDI is defined as “investment made to acquire lasting interest in enterprises operating outside of the economy of the investor”.
Direct investment in constructing production facilities, is distinguished from portfolio investment, which can take the form of short-term capital flows (e.g. loans), or long-term capital flows (e.g. bonds) (Stiglitz, 2003). Since 1980, global flows of foreign direct investment have more than doubled relative to GDP (World Briefing, Paper, 2001).
Capital market flows:
In many countries, particularly in the developed world, investors have increasingly diversified their portfolios to include foreign financial assets, such as international bonds, stocks or mutual funds, and borrowers have increasingly turned to foreign sources of funds (World Briefing, Paper, 2001). Capital market flows also include remittances from migration, which typically flow from industrialized to less industrialized countries. In essence, the entrepreneur has a number of sources for funding a business.
Migration:
Whether it is physicians who emigrate from India and Pakistan to Great Britain or seasonal farm workers emigrating from Mexico to the United States, labor is increasingly mobile. Migration can benefit developing economies when migrants who acquired education and know-how abroad return home to establish new enterprises. However, migration can also hurt the economy through “brain drain”, the loss of skilled workers who are essential for economic growth (Stiglitz, 2003).
Diffusion of technology:
Innovations in telecommunications, information technology, and computing have lowered communication costs and facilitated the cross-border flow of ideas, including technical knowledge as well as more fundamental concepts such as democracy and free markets (Stiglitz, 2003). The rapid growth and adoption of information technology, however, is not evenly distributed around the world—this gap between the information technology is often referred to as the “digital divide”.
As a result, for less industrialized countries this means it is more difficult to advance their businesses without the technical system and knowledge in place such as the Internet, data tracking, and technical resources already existing in many industrialized countries.
Negative effects of globalization for developing country business
Critics of global economic integration warn that: (Watkins, 2002, Yusuf, 2001)
• the growth of international trade is exacerbating income inequalities, both between and within industrialized and less industrialized nations
• global commerce is increasingly dominated by transnational corporations which seek to maximize profits without regard for the development needs of individual countries or the local populations
• protectionist policies in industrialized countries prevent many producers in the Third World from accessing export markets;
• the volume and volatility of capital flows increases the risks of banking and currency crises, especially in countries with weak financial institutions
• competition among developing countries to attract foreign investment leads to a “race to the bottom” in which countries dangerously lower environmental standards
• cultural uniqueness is lost in favor of homogenization and a “universal culture” that draws heavily from American culture
Critics of economic integration often point to Latin America as an example where increased openness to international trade had a negative economic effect. Many governments in Latin America (e.g. Peru) liberalized imports far more rapidly than in other regions. In much of Latin America, import liberalization has been credited with increasing the number of people living below the USD \$1 a day poverty line and has perpetuated already existing inequalities (Watkins, 2002).
Positive effects of globalization for developing country business
Conversely, globalization can create new opportunities, new ideas, and open new markets that an entrepreneur may have not had in their home country. As a result, there are a number of positives associated with globalization:
• it creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world
• this can lead to more access to capital flows, technology, human capital, cheaper imports and larger export markets
• it allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade
For example, the experience of the East Asian economies demonstrates the positive effect of globalization on economic growth and shows that at least under some circumstances globalization decreases poverty. The spectacular growth in East Asia, which increased GDP per capita by eightfold and raised millions of people out of poverty, was based largely on globalization—export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002).
Also, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the Internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent “brain drain” because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work.
Further, some of the allegations made by critics of globalization are very much in dispute—for example, that globalization necessarily leads to growing income inequality or harm to the environment. While there are some countries in which economic integration has led to increased inequality—China, for instance—there is no worldwide trend (Dollar, 2003). With regard to the environment, international trade and foreign direct investment can provide less industrialized countries with the incentive to adopt, and the access to, new technologies that may be more ecologically sound (World Bank Briefing Paper, 2001). Transnational corporations may also help the environment by exporting higher standards and best practices to less industrialized countries.
In the fortune at the bottom of the pyramid, Prahalad and Stuart point out that
C.K. Prahalad and Stuart L. Hart have suggested that the four billion people in the world whose per capita income is less than U-S- \$1500 (the people "at the bottom of the pyramid ") represent an enormous opportunity for business. Their theory is that the poor in developing countries comprise a vast, untapped market for goods and services, including basic needs as well as more advanced offerings such as financial services, cellular telephones and inexpensive computers.
An example of a successful business that services this market is the Crameen Bank Ltd. in Bangladesh. Founded by Nobel Prize winner Muhammad Yunus, Grameen Bank extends small loans ("micro-credit") to low- income customers. Cirameen Bank charges high interest rates of approximately 20% a year, but does not require collateral, which enables even the very poor to obtain credit and gain an opportunity to participate in the formal economy. Grameen Bank's success has stimulated interest in micro-credit around the world.
Although Prahalad and Hart mostly discuss "the bottom of the pyramid" as a potential market for transnational corporations ("TNCs") based in developed countries, this market also offers opportunities to businesses in developing countries. These firms, either alone or in partnership with TNCs, can use their understanding of the needs, and obstacles faced by, the poor to create sustainable enterprises, which will have the added benefit of helping to alleviate poverty.
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Learning Objectives
After reading this section, students should be able to …
1. Understand the flattening world perspective in the globalization debate.
2. Understand the multidomestic perspective in the globalization debate.
3. Know the dimensions of the CAGE analytical framework.
In today’s global economy, everyone is accustomed to buying goods from other countries—electronics from Taiwan, vegetables from Mexico, clothing from China, cars from Korea, and skirts from India. Most modern shoppers take the “Made in [a foreign country]” stickers on their products for granted. Long-distance commerce wasn’t always this common, although foreign trade—the movement of goods from one geographic region to another—has been a key factor in human affairs since prehistoric times. Thousands of years ago, merchants transported only the most precious items—silk, gold and other precious metals and jewels, spices, porcelains, and medicines—via ancient, extended land and sea trade routes, including the famed Silk Road through central Asia. Moving goods great distances was simply too hard and costly to waste the effort on ordinary products, although people often carted grain and other foods over shorter distances from farms to market towns.1
What is the globalization debate? Well, it’s not so much a debate as it is a stark difference of opinion on how the internationalization of businesses is affecting countries’ cultural, consumer, and national identities—and whether these changes are desirable. For instance, the ubiquity of such food purveyors as Coca-Cola and McDonald’s in practically every country reflects the fact that some consumer tastes are converging, though at the likely expense of local beverages and foods. Remember, globalization refers to the shift toward a more interdependent and integrated global economy. This shift is fueled largely by (1) declining trade and investment barriers and (2) new technologies, such as the Internet. The globalization debate surrounds whether and how fast markets are actually merging together.
We Live in a Flat World
The flat-world view is largely credited to Thomas Friedman and his 2005 best seller, The World Is Flat. Although the next section provides you with an alternative way of thinking about the world (a multidomestic view), it is nonetheless important to understand the flat-world perspective. Friedman covers the world for the New York Times, and his access to important local authorities, corporate executives, local Times bureaus and researchers, the Internet, and a voice recorder enabled him to compile a huge amount of information. Many people consider globalization a modern phenomenon, but according to Friedman, this is its third stage. The first stage of global development, what Friedman calls “Globalization 1.0,” started with Columbus’s discovery of the New World and ran from 1492 to about 1800. Driven by nationalism and religion, this lengthy stage was characterized by how much industrial power countries could produce and apply.
“Globalization 2.0,” from about 1800 to 2000, was disrupted by the Great Depression and both World Wars and was largely shaped by the emerging power of huge, multinational corporations. Globalization 2.0 grew with the European mercantile stock companies as they expanded in search of new markets, cheap labor, and raw materials. It continued with subsequent advances in sea and rail transportation. This period saw the introduction of modern communications and cheaper shipping costs. “Globalization 3.0” began around 2000, with advances in global electronic interconnectivity that allowed individuals to communicate as never before.
In Globalization 1.0, nations dominated global expansion. Globalization 2.0 was driven by the ascension of multinational companies, which pushed global development. In Globalization 3.0, major software advances have allowed an unprecedented number of people worldwide to work together with unlimited potential.
The Mumbai Taxman
What shape will globalization take in the third phase? Friedman asks us to consider the friendly local accountants who do your taxes. They can easily outsource your work via a server to a tax team in Mumbai, India. This increasingly popular outsourcing trend has its benefits. As Friedman notes, in 2003, about 25,000 US tax returns were done in India.2 By 2004, it was some 100,000 returns, with 400,000 anticipated in 2005. A software program specifically designed to let midsized US tax firms outsource their files enabled this development, giving better job prospects to the 70,000 accounting students who graduate annually in India. At a starting salary of \$100 per month, these accountants are completing US returns and competing with US tax preparers.
Chris C. Got It Wrong?
In 1492, Christopher Columbus set sail for India, going west. He had the Niña, the Pinta, and the Santa María. He never did find India, but he called the people he met “Indians” and came home and reported to his king and queen: “The world is round.” I set off for India 512 years later. I knew just which direction I was going in—I went east. I was in Lufthansa business class, and I came home and reported only to my wife and only in a whisper: “The world is flat.”
And therein lies a tale of technology and geoeconomics that is fundamentally reshaping our lives—much, much more quickly than many people realize. It all happened while we were sleeping, or rather while we were focused on 9/11, the dot-com bust, and Enron—which even prompted some to wonder whether globalization was over. Actually, just the opposite was true, which is why it’s time to wake up and prepare ourselves for this flat world, because others already are, and there is no time to waste.3
This job competition is not restricted to accountants. Companies can outsource any service or business that can be broken down to its key components and converted to computerized operations. This includes everything from making restaurant reservations to reporting corporate earnings to reading x-rays. And it doesn’t stop at basic services. With the “globalization of innovation,” multinationals in India are filing increasing numbers of US patent applications, ranging from aircraft-engine designs to transportation systems and microprocessor chips. Japanese-speaking Chinese nationals in Dailian, China, now answer call-center questions from Japanese consumers. Due to Dailian’s location near Japan and Korea, as well as its numerous universities, hospitals, and golf courses, some 2,800 Japanese companies outsource operations there. While many companies are outsourcing to other countries, some are using “home sourcing”—allowing people to work at home. JetBlue uses home sourcing for reservation clerks. Today, about 16 percent of the US workforce works from home. In many ways, outsourcing and home sourcing are related; both allow people to work from anywhere.
How the World Got Flat
Friedman identifies ten major events that helped reshape the modern world and make it flat:4
1. 11/9/89: When the walls came down and the windows went up. The fall of the Berlin Wall ended old-style communism and planned economies. Capitalism ascended.
2. 8/9/95: When Netscape went public. Internet browsing and e-mail helped propel the Internet by making it commercially viable and user friendly.
3. Work-flow software: Let’s do lunch. Have your application talk to my application. With more powerful, easier-to-use software and improved connectivity, more people can share work. Thus, complex projects with more interdependent parts can be worked on collaboratively from anywhere.
4. Open-sourcing: Self-organizing, collaborative communities. Providing basic software online for free gives everyone source code, thus accelerating collaboration and software development.
5. Outsourcing: Y2K. The Internet lets firms use employees worldwide and send specific work to the most qualified, cheapest labor, wherever it is. Enter India, with educated and talented people who work at a fraction of US or European wages. Indian technicians and software experts built an international reputation during the Y2K millennium event. The feared computer-system breakdown never happened, but the Indian IT industry began handling e-commerce and related businesses worldwide.
6. Offshoring: Running with gazelles, eating with lions. When it comes to jobs leaving and factories being built in cheaper places, people think of China, Malaysia, Thailand, Mexico, Ireland, Brazil, and Vietnam. But going offshore isn’t just moving part of a manufacturing or service process. It means creating a new business model to make more goods for non-US sale, thus increasing US exports.
7. Supply-chaining: Eating sushi in Arkansas. Walmart demonstrates that improved acquisition and distribution can lower costs and make suppliers boost quality.
8. Insourcing: What the guys in funny brown shorts are really doing. This kind of service collaboration happens when firms devise new service combinations to improve service. Take United Parcel Service (UPS). The “brown” company delivers packages globally, but it also repairs Toshiba computers and organizes delivery routes for Papa John’s pizza. With insourcing, UPS uses its logistics expertise to help clients create new businesses.
9. Informing: Google, Yahoo!, MSN Web Search. Google revolutionized information searching. Its users conduct some one billion searches annually. This search methodology and the wide access to knowledge on the Internet transforms information into a commodity people can use to spawn entirely new businesses.
10. The steroids: Digital, mobile, personal, and virtual. Technological advances range from wireless communication to processing, resulting in extremely powerful computing capability and transmission. One new Intel chip processes some 11 million instructions per second (MIPS), compared to 60,000 MIPS in 1971.
These ten factors had powerful roles in making the world smaller, but each worked in isolation until, Freidman writes, the convergence of three more powerful forces: (1) new software and increased public familiarity with the Internet, (2) the incorporation of that knowledge into business and personal communication, and (3) the market influx of billions of people from Asia and the former Soviet Union who want to become more prosperous—fast. Converging, these factors generated their own critical mass. The benefits of each event became greater as it merged with another event. Increased global collaboration by talented people without regard to geographic boundaries, language, or time zones created opportunity for billions of people.
Political allegiances are also shifting. While critics say outsourcing costs US jobs, it can also work the other way. When the state of Indiana bid for a new contract to overhaul its employment claims processing system, a computer firm in India won. The company’s bid would have saved Indiana \$8 million, but local political forces made the state cancel the contract. In such situations, the line between the exploited and the exploiter becomes blurred.
Corporate nationality is also blurring. Hewlett-Packard (HP) is based in California, but it has employees in 178 countries. HP manufactures parts wherever it’s cheapest to do so. Multinationals like HP do what’s best for them, not what’s best for their home countries. This leads to critical issues about job loss versus the benefits of globalization.
Since the world’s flattening can’t be stopped, new workers and those facing dislocation should refine their skills and capitalize on new opportunities. One key is to become an expert in a job that can’t be delegated offshore. This ranges from local barbers and plumbers to professionals such as surgeons and specialized lawyers.
We Live in a Multidomestic World, Not a Flat One!
International business professor Pankaj Ghemawat takes strong issue with the view that the world is flat and instead espouses a world he characterizes as “semiglobalized” and “multidomestic.” If the world were flat, international business and global strategy would be easy. According to Ghemawat, it would be domestic strategy applied to a bigger market. In the semiglobalized world, however, global strategy begins with noticing national differences.5
Ghemawat’s research suggests that to study “barriers to cross-border economic activity” you will use a “CAGE” analysis. The CAGE framework covers these four factors:6
1. Culture.
Generally, cultural differences between two countries reduce their economic exchange. Culture refers to a people’s norms, common beliefs, and practices. Cultural distance refers to differences based in language, norms, national or ethnic identity, levels of trust, tolerance, respect for entrepreneurship and social networks, or other country-specific qualities. Some products have a strong national identification, such as the Molson beer company in Canada (see Molson’s “I am Canadian” ad campaign).7 Conversely, genetically modified foods (GMOs) are commonly accepted in North America but highly disdained in Western Europe. Such cultural distance for GMOs would make it easier to sell GMO corn in the United States but impossible to sell in Germany. Some differences are surprisingly specific (such as the Chinese dislike of dark beverages, which Coca-Cola marketers discovered too late).
2. Administration.
Bilateral trade flows show that administratively similar countries trade much more with each other. Administrative distance refers to historical governmental ties, such as those between India and the United Kingdom. This makes sense; they have the same sorts of laws, regulations, institutions, and policies. Membership in the same trading block is also a key similarity. Conversely, the greater the administrative differences between nations, the more difficult the trading relationship—whether at the national or corporate level. It can also refer simply to the level and nature of government involvement in one industry versus another. Farming, for instance, is subsidized in many countries, and this creates similar conditions.
3. Geography.
This is perhaps the most obvious difference between countries. You can see that the market for a product in Los Angeles is separated from the market for that same product in Singapore by thousands of miles. Generally, as distance goes up, trade goes down, since distance usually increases the cost of transportation. Geographic differences also include time zones, access to ocean ports, shared borders, topography, and climate. You may recall from the opening case that even Google was affected by geographic distance when it felt the speed of the Internet connection to Google.com was slowed down because the Chinese were accessing server farms in other countries, as none were set up in China (prior to the setup of Google.cn).
4. Economics.
Economic distance refers to differences in demographic and socioeconomic conditions. The most obvious economic difference between countries is size (as compared by gross domestic product, or GDP). Another is per capita income. This distance is likely to have the greatest effect when (1) the nature of demand varies with income level, (2) economies of scale are limited, (3) cost differences are significant, (4) the distribution or business systems are different, or (5) organizations have to be highly responsive to their customers’ concerns. Disassembling a company’s economy reveals other differences, such as labor costs, capital costs, human capital (e.g., education or skills), land value, cheap natural resources, transportation networks, communication infrastructure, and access to capital.
Each of these CAGE dimensions shares the common notion of distance. CAGE differences are likely to matter most when the CAGE distance is great. That is, when CAGE differences are small, there will likely be a greater opportunity to see business being conducted across borders. A CAGE analysis also requires examining an organization’s particular industry and products in each of these areas. When looking at culture, consider how culturally sensitive the products are. When looking at administration, consider whether other countries coddle certain industries or support “national champions.” When looking at geography, consider whether products will survive in a different climate. When looking at economics, consider such issues as the effect of per capita income on demand.
An Amusing Anecdote
Pankaj Ghemawat provides this anecdote in partial support of his multidomestic (or anti-flat-world) view. “It takes an aroused man to make a chicken affectionate” is probably not the best marketing slogan ever devised. But that’s the one Perdue Chicken used to market its fryers in Mexico. Mexicans were nonplussed, to say the least, and probably wondered what was going on in founder Frank Perdue’s henhouse. How did the slogan get approved? Simple: it’s a literal translation of Perdue’s more appetizing North American slogan “It takes a tough man to make a tender chicken.” As Perdue discovered, at least through his experience with the literal translation of his company motto into Spanish, cultural and economic globalization have yet to arrive. Consider the market for capital. Some say capital “knows no boundaries.” Recent data, however, suggests capital knows its geography quite well and is sticking close to home. For every dollar of capital investment globally, only a dime comes from firms investing “outside their home countries.” For every \$100 US investors put in the stock market, they spend \$15 on international stocks. For every one hundred students in the Organisation for Economic Co-operation (OECD) universities, perhaps five are foreigners. These and other key measures of internationalization show that the world isn’t flat. It’s 90 percent round, like a rugby ball.8
Source
The above content was adapted from textbook content provided in the chapter “The Globalization Debate”, section 1.4 from the book Challenges and Opportunities in International Business (v. 1.0), published by publishers and authors who would like to remain anonymous. Their book was licensed under a Creative Commons by-nc-sa 3.0 license. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/01%3A_Introduction_to_International_Marketing/1.09%3A_The_Globalization_Debate.txt |
Learning Objectives
After reading this section, students should be able to …
1. make the argument for standardized marketing
2. make the argument to localize marketing
3. make the case for blending standardization and localization
Most of the basic principles for effective marketing apply equally well to domestic and global marketing activity. However, globalization introduces a number of challenges that are unique to operating simultaneously in different countries and global markets. What is the best way to enter a global market? When should you adjust a product’s features to customize it to consumer needs in a different global market? How do you manage the costs and complexities of product promotion when it must take place in different locations, with different languages, cultural sensitivities and consumer expectations? What considerations should go into product pricing, when a good is offered in different markets using different currencies and exchange rates?
In 1983, Harvard marketing professor Theodore Levitt wrote an article entitled, “The Globalization of Markets”, and nothing about marketing has been the same since. According to Levitt, a new economic reality-the emergence of global consumer markets for single standard products-has been triggered in part by technological developments. Worldwide communications ensure the instant diffusion of new lifestyles and pave the way for a wholesale transfer of goods and services.
Adopting this global strategy provides a competitive advantage in cost and effectiveness. In contrast to multinational companies, standardized (global) corporations view the world or its major regions as one entity instead of a collection of national markets. These world marketers compete on a basis of appropriate value: i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function. Ultimately, consumers tend to prefer a good price/quality ratio to a highly customized but less cost-effective item.
Levitt distinguished between products and brands. While the global product itself is standardized or sold with only minor modifications, the branding, positioning, and promotion may have to reflect local conditions.
Critics of Levitt’s perspective suggest that his argument for global standardization is incorrect and that each market strategy should be customized for each country. Kotler notes that one study found that 80 per cent of US exports required one or more adaptations. Furthermore, the average product requires at least four to five adaptations out of a set of eleven marketing elements: labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion. Kotler suggests that all eleven factors should be evaluated before standardization is considered.
To date, no one has empirically validated either perspective. While critics of Levitt can offer thousands of anecdotes contradicting the validity of standardization, a more careful read of Levitt’s ideas indicate that he offers standardization as a strategic option, not a fact. Although global marketing has its pitfalls, it can also yield impressive advantages. Standardized products can lower operating costs. Even more important, effective coordination can exploit a company’s best product and marketing ideas.
Too often, executives view global marketing as an either/or proposition-either full standardization or local control. But when a global approach can fall anywhere on a spectrum-from tight worldwide coordination on programming details to loose agreements on a product ideas-there is no reason for this extreme view. In applying the global marketing concept and making it work, flexibility is essential. The big issue today is not whether to go global, but how to tailor the global marketing concept to fit each business and how to make it work.
Global Marketing Strategies
U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program—depending on how much centralized control a firm wishes to maintain over its marketing. If an organization wants to maintain strong centralized control and uniformity in its products and marketing activities, it is choosing a strategy called standardization. If an organization wants to adjust products, messaging, and marketing activities to fit the needs and preferences of local markets around the world, it is choosing a localization strategy. You’ll recall our earlier discussion of the unique flavors of Oreo cookies developed for the Chinese market: that’s an example of a localization strategy.
Global Standardization: The Argument for Standardized Marketing
To the extent that global consumers desire standardized products, companies can pursue a global standardization strategy. Using this approach, a product and the way in which it is marketed are largely uniform across the world, with little variation in the marketing mix from country to country. Advocates of standardization strategy argue that companies can achieve competitive advantage by offering the optimal combination of price, quality, and reliability with products that are identical in design and function throughout the world; they also claim that consumers will prefer this standardized product to a highly localized product that is also more expensive.
Standardization can translate into lower operating costs because there aren’t extra costs associated with developing and marketing unique products tailored to local market needs. It also expands the customer base receptive to a common global product. There is no need to adjust product features, naming, or other attributes for each new market, and marketing materials themselves can be repurposed across different world regions. Below are the primary benefits of a global standardization strategy:
Marketers can use the same approach for developing, promoting, and delivering products and services worldwide, creating lower operating costs and economies of scale in product development and marketing
The ability to develop and invest in a unified brand and/or company identity throughout the world, along with the opportunity to develop brand awareness and brand equity that give a competitive advantage
Product lines that consist of a small number of global brands rather than a plethora of localized product brands and extensions, along with cost savings and improved efficiencies associated with managing a smaller total number of brands
Companies that pursue this approach assume that consumer needs are relatively homogenous around the world and that the same basic marketing mix will work across global markets. These organizations typically have a centralized approach to the marketing function and try to minimize the need for developing localized marketing strategies.
The case for a standardization strategy was made by Harvard marketing professor Theodore Levitt in his 1983 article, “The Globalization of Markets.” He argued that technology and worldwide communications have helped trigger the emergence of global consumer markets that are receptive to single, standardized global products. According to Levitt, adopting a standardized global strategy provides a competitive advantage in cost and effectiveness.
Localization: The Argument to Localize Marketing
On the other end of the spectrum is localization strategy, in which firms adjust their products and marketing mix for each target market. Advocates of localization argue that, in reality, global standardization doesn’t work, and in fact nearly all exported products require one or more adaptations to be successful. In work by Kotler, one study found that 80 percent of U.S. exports require one or more adaptations, and the average product requires at least four to five adaptations out of eleven different elements: labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion.
Localization strategy recognizes that diversity exists in global markets and that marketers need to understand and respond to this diversity in the goods they offer and the way they market to consumers in these markets. Language, culture, customs, the physical environment, the degree of economic development, societal institutions, and other factors all contribute to how well a product fits a local market’s needs. Localization may involve: 1) altering existing products to fit the needs of the local target market, or 2) creating completely new products to fit the needs of the local target market.
Although localization does increase the cost and complexity associated with developing and marketing tailored products, its supporters argue that it results in products and marketing strategy that are a better fit for local market needs and ultimately a greater sales success. A localized approach can protect companies from high-profile, disastrous consequences when a standardized product fails. Standardization is often responsible for marketing misfires like offensive marketing images, catastrophic naming, and product-design glitches. Its critics argue that standardization strategy overestimates how well any single, uniform product and marketing approach will succeed in markets all over the world.
The Middle Ground: Blending Standardization and Localization
In reality, global marketing is not an either/or proposition requiring either full standardization or localized control of product and marketing. In fact, a successful global approach can fall anywhere on a spectrum–from tight worldwide coordination on programing details to loose agreements on product ideas. Most organizations find that flexibility is essential in order to allow organizations to capitalize global opportunities available to them. The right answer for each business depends on organizational structure, leadership and operations; the product category; the markets in question; and other factors. Both strategies offer attractive benefits as well as costs and risks. Most organizations find ways to balance the options available to them with a focus on how to maximize success in their target markets.
Few would disagree that fast-food chain McDonald’s is a master of global marketing. As you watch this video, look for ways that McDonald’s has blended elements of global standardization strategy with localization strategy to penetrate global markets and offer products that align perfectly with local appetites and preferences.
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Summary
It’s easy to think that trade is just about business interests in each country. But global trade is much more. There’s a convergence and, at times, a conflict of the interests of the different stakeholders—from businesses to governments to local citizens. In recent years, advancements in technology, a renewed enthusiasm for entrepreneurship, and a global sentiment that favors free trade have further connected people, businesses, and markets—all flatteners that are helping expand global trade and investment. An essential part of international business is understanding the history of international trade and what motivates countries to encourage or discourage trade within their borders. In this chapter we’ll look at the evolution of international trade theory to our modern time. We’ll explore the political and legal factors impacting international trade. This chapter will provide an introduction to the concept and role of foreign direct investment, which can take many forms of incentives, regulations, and policies. Companies react to these business incentives and regulations as they evaluate with which countries to do business and in which to invest. Governments often encourage foreign investment in their own country or in another country by providing loans and incentives to businesses in their home country as well as businesses in the recipient country in order to pave the way for investment and trade in the country. The opening case study in the next section shows how and why China is investing in the continent of Africa.
A country’s balance of payments is a record of its economic transactions with the rest of the world; this record shows whether a country has a trade surplus (value of exports exceeds value of imports) or a trade deficit (value of imports exceeds value of exports). Trade figures can be further divided into merchandise trade and services trade accounts; a country can run a surplus in both accounts, a deficit in both accounts, or a combination of the two. The U.S. merchandise trade deficit was \$819 billion in 2007. However, the U.S.enjoys an annual service trade surplus. Overall, however, the United Statesis a debtor; Japanenjoys an overall trade surplus and serves as a creditor nation.
Foreign exchange provides a means for settling accounts across borders. The dynamics of international finance can have a significant impact on a nation’s economy as well as the fortunes of individual companies. Currencies can be subject to devaluation or revaluation as a result of actions taken by a country’s central banker. Currency trading by international speculators can also lead to devaluation. When a country’s economy is strong or when demand for its goods is high, its currency tends to appreciate in value. When currency values fluctuate, global firms face various types of economic exposure. Firms can manage exchange rate exposure by hedging.
Source
The above note was adapted from the following sources (i) course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘International Business and Trade’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license, and (ii) under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. I would like to thank Andy Schmitz for his work in maintaining and improving the HTML versions of these textbooks. This textbook is adapted from his HTML version, and his project can be found here. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.01%3A_International_Business_and_Trade_Summary.txt |
Learning Objectives
After reading this section, students should be able to …
1. Define international trade.
2. Compare and contrast different trade theories.
3. Determine which international trade theory is most relevant today and how it continues to evolve.
Opening Case: China in Africa
Foreign companies have been doing business in Africa for centuries. Much of the trade history of past centuries has been colored by European colonial powers promoting and preserving their economic interests throughout the African continent.1 After World War II and since independence for many African nations, the continent has not fared as well as other former colonial countries in Asia. Africa remains a continent plagued by a continued combination of factors, including competing colonial political and economic interests; poor and corrupt local leadership; war, famine, and disease; and a chronic shortage of resources, infrastructure, and political, economic, and social will.2 And yet, through the bleak assessments, progress is emerging, led in large part by the successful emergence of a free and locally powerful South Africa. The continent generates a lot of interest on both the corporate and humanitarian levels, as well as from other countries. In particular in the past decade, Africa has caught the interest of the world’s second largest economy, China.3
At home, over the past few decades, China has undergone its own miracle, managing to move hundreds of millions of its people out of poverty by combining state intervention with economic incentives to attract private investment. Today, China is involved in economic engagement, bringing its success story to the continent of Africa. As professor and author Deborah Brautigam notes, China’s “current experiment in Africa mixes a hard-nosed but clear-eyed self-interest with the lessons of China’s own successful development and of decades of its failed aid projects in Africa.” 4
According to CNN, “China has increasingly turned to resource-rich Africa as China’s booming economy has demanded more and more oil and raw materials.”5 Trade between the African continent and China reached \$106.8 billion in 2008, and over the past decade, Chinese investments and the country’s development aid to Africa have been increasing steadily.“China-Africa Trade up 45 percent in 2008 to \$107 Billion,” 6 “Chinese activities in Africa are highly diverse, ranging from government to government relations and large state owned companies (SOE) investing in Africa financed by China’s policy banks, to private entrepreneurs entering African countries at their own initiative to pursue commercial activities.”7
Since 2004, eager for access to resources, oil, diamonds, minerals, and commodities, China has entered into arrangements with resource-rich countries in Africa for a total of nearly \$14 billion in resource deals alone. In one example with Angola, China provided loans to the country secured by oil. With this investment, Angola hired Chinese companies to build much-needed roads, railways, hospitals, schools, and water systems. Similarly, China provided nearby Nigeria with oil-backed loans to finance projects that use gas to generate electricity. In the Republic of the Congo, Chinese teams are building a hydropower project funded by a Chinese government loan, which will be repaid in oil. In Ghana, a Chinese government loan will be repaid in cocoa beans.8
The Export-Import Bank of China (Ex-Im Bank of China) has funded and has provided these loans at market rates, rather than as foreign aid. While these loans certainly promote development, the risk for the local countries is that the Chinese bids to provide the work aren’t competitive. Furthermore, the benefit to local workers may be diminished as Chinese companies bring in some of their own workers, keeping local wages and working standards low.
In 2007, the UNCTAD (United Nations Conference on Trade and Development) Press Office noted the following:
Over the past few years, China has become one of Africa´s important partners for trade and economic cooperation. Trade (exports and imports) between Africa and China increased from US\$11 billion in 2000 to US\$56 billion in 2006….with Chinese companies present in 48 African countries, although Africa still accounts for only 3 percent of China´s outward FDI [foreign direct investment]. A few African countries have attracted the bulk of China´s FDI in Africa: Sudan is the largest recipient (and the 9th largest recipient of Chinese FDI worldwide), followed by Algeria (18th) and Zambia (19th).9
Observers note that African governments can learn from the development history of China and many Asian countries, which now enjoy high economic growth and upgraded industrial activity. These Asian countries made strategic investments in education and infrastructure that were crucial not only for promoting economic development in general but also for attracting and benefiting from efficiency-seeking and export-oriented FDI.10
Criticized by some and applauded by others, it’s clear that China’s investment is encouraging development in Africa. China is accused by some of ignoring human rights crises in the continent and doing business with repressive regimes. China’s success in Africa is due in large part to the local political environment in each country, where either one or a small handful of leaders often control the power and decision making. While the countries often open bids to many foreign investors, Chinese firms are able to provide low-cost options thanks in large part to their government’s project support. The ability to forge a government-level partnership has enabled Chinese businesses to have long-term investment perspectives in the region. China even hosted a summit in 2006 for African leaders, pledging to increase trade, investment, and aid over the coming decade.11 The 2008 global recession has led China to be more selective in its African investments, looking for good deals as well as political stability in target countries. Nevertheless, whether to access the region’s rich resources or develop local markets for Chinese goods and services, China intends to be a key foreign investor in Africa for the foreseeable future.12
What Is International Trade?
International trade theories are simply different theories to explain international trade. Trade is the concept of exchanging goods and services between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries.
People or entities trade because they believe that they benefit from the exchange. They may need or want the goods or services. While at the surface, this many sound very simple, there is a great deal of theory, policy, and business strategy that constitutes international trade.
“Around 5,200 years ago, Uruk, in southern Mesopotamia, was probably the first city the world had ever seen, housing more than 50,000 people within its six miles of wall. Uruk, its agriculture made prosperous by sophisticated irrigation canals, was home to the first class of middlemen, trade intermediaries. A cooperative trade network…set the pattern that would endure for the next 6,000 years.”1
Mercantilism
Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an economic theory. This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings. In it’s simplest sense, mercantilists believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. In other words, if people in other countries buy more from you (exports) than they sell to you (imports), then they have to pay you the difference in gold and silver. The objective of each country was to have a trade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid a trade deficit, or a situation where the value of imports is greater than the value of exports.
A closer look at world history from the 1500s to the late 1800s helps explain why mercantilism flourished. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. By increasing exports and trade, these rulers were able to amass more gold and wealth for their countries. One way that many of these new nations promoted exports was to impose restrictions on imports. This strategy is called protectionism and is still used today.
Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. The British colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India. France, the Netherlands, Portugal, and Spain were also successful in building large colonial empires that generated extensive wealth for their governing nations.
Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. Countries such as Japan, China, Singapore, Taiwan, and even Germany still favor exports and discourage imports through a form of neo-mercantilism in which the countries promote a combination of protectionist policies and restrictions and domestic-industry subsidies. Nearly every country, at one point or another, has implemented some form of protectionist policy to guard key industries in its economy. While export-oriented companies usually support protectionist policies that favor their industries or firms, other companies and consumers are hurt by protectionism. Taxpayers pay for government subsidies of select exports in the form of higher taxes. Import restrictions lead to higher prices for consumers, who pay more for foreign-made goods or services. Free-trade advocates highlight how free trade benefits all members of the global community, while mercantilism’s protectionist policies only benefit select industries, at the expense of both consumers and other companies, within and outside of the industry.
Absolute Advantage
In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of Nations.Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). Recent versions have been edited by scholars and economists. Smith offered a new trade theory called absolute advantage, which focused on the ability of a country to produce a good more efficiently than another nation. Smith reasoned that trade between countries shouldn’t be regulated or restricted by government policy or intervention. He stated that trade should flow naturally according to market forces. In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good. Similarly, if Country B was better at producing another good, it could focus on specialization as well. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Production would also become more efficient, because there would be an incentive to create faster and better production methods to increase the specialization.
Smith’s theory reasoned that with increased efficiencies, people in both countries would benefit and trade should be encouraged. His theory stated that a nation’s wealth shouldn’t be judged by how much gold and silver it had but rather by the living standards of its people.
Comparative Advantage
The challenge to the absolute advantage theory was that some countries may be better at producing both goods and, therefore, have an advantage in many areas. In contrast, another country may not have any useful absolute advantages. To answer this challenge, David Ricardo, an English economist, introduced the theory of comparative advantage in 1817. Ricardo reasoned that even if Country A had the absolute advantage in the production of both products, specialization and trade could still occur between two countries.
Comparative advantage occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that product better and more efficiently than it does other goods. The difference between these two theories is subtle. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity.
Let’s look at a simplified hypothetical example to illustrate the subtle difference between these principles. Miranda is a Wall Street lawyer who charges \$500 per hour for her legal services. It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid \$40 per hour. Even though Miranda clearly has the absolute advantage in both skill sets, should she do both jobs? No. For every hour Miranda decides to type instead of do legal work, she would be giving up \$460 in income. Her productivity and income will be highest if she specializes in the higher-paid legal services and hires the most qualified administrative assistant, who can type fast, although a little slower than Miranda. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. This is comparative advantage. A person or a country will specialize in doing what they do relatively better. In reality, the world economy is more complex and consists of more than two countries and products. Barriers to trade may exist, and goods must be transported, stored, and distributed. However, this simplistic example demonstrates the basis of the comparative advantage theory.
Modern or Firm-Based Trade Theories
In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed in large part by business school professors, not economists. The firm-based theories evolved with the growth of the multinational company (MNC). The country-based theories couldn’t adequately address the expansion of either MNCs or intraindustry trade, which refers to trade between two countries of goods produced in the same industry. For example, Japan exports Toyota vehicles to Germany and imports Mercedes-Benz automobiles from Germany.
Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows.
Country Similarity Theory
Swedish economist Steffan Linder developed the country similarity theory in 1961, as he tried to explain the concept of intraindustry trade. Linder’s theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. When they explore exporting, the companies often find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Linder’s country similarity theory then states that most trade in manufactured goods will be between countries with similar per capita incomes, and intraindustry trade will be common. This theory is often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyers’ decision-making and purchasing processes.
Product Life Cycle Theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. The theory assumed that production of the new product will occur completely in the home country of its innovation. In the 1960s this was a useful theory to explain the manufacturing success of the United States. US manufacturing was the globally dominant producer in many industries after World War II.
It has also been used to describe how the personal computer (PC) went through its product cycle. The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. Today, the PC is in the standardized product stage, and the majority of manufacturing and production process is done in low-cost countries in Asia and Mexico.
The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. Even though research and development is typically associated with the first or new product stage and therefore completed in the home country, these developing or emerging-market countries, such as India and China, offer both highly skilled labor and new research facilities at a substantial cost advantage for global firms.
Global Strategic Rivalry Theory
Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. The barriers to entry refer to the obstacles a new firm may face when trying to enter into an industry or new market. The barriers to entry that corporations may seek to optimize include:
• research and development,
• the ownership of intellectual property rights,
• economies of scale,
• unique business processes or methods as well as extensive experience in the industry, and
• the control of resources or favorable access to raw materials.
Porter’s National Competitive Advantage Theory
In the continuing evolution of international trade theories, Michael Porter of Harvard Business School developed a new model to explain national competitive advantage in 1990. Porter’s theory stated that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. His theory focused on explaining why some nations are more competitive in certain industries. To explain his theory, Porter identified four determinants that he linked together. The four determinants are (1) local market resources and capabilities, (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics.
1. Local market resources and capabilities (factor conditions). Porter recognized the value of the factor proportions theory, which considers a nation’s resources (e.g., natural resources and available labor) as key factors in determining what products a country will import or export. Porter added to these basic factors a new list of advanced factors, which he defined as skilled labor, investments in education, technology, and infrastructure. He perceived these advanced factors as providing a country with a sustainable competitive advantage.
2. Local market demand conditions. Porter believed that a sophisticated home market is critical to ensuring ongoing innovation, thereby creating a sustainable competitive advantage. Companies whose domestic markets are sophisticated, trendsetting, and demanding forces continuous innovation and the development of new products and technologies. Many sources credit the demanding US consumer with forcing US software companies to continuously innovate, thus creating a sustainable competitive advantage in software products and services.
3. Local suppliers and complementary industries. To remain competitive, large global firms benefit from having strong, efficient supporting and related industries to provide the inputs required by the industry. Certain industries cluster geographically, which provides efficiencies and productivity.
4. Local firm characteristics. Local firm characteristics include firm strategy, industry structure, and industry rivalry. Local strategy affects a firm’s competitiveness. A healthy level of rivalry between local firms will spur innovation and competitiveness.
In addition to the four determinants of the diamond, Porter also noted that government and chance play a part in the national competitiveness of industries. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries.
Porter’s theory, along with the other modern, firm-based theories, offers an interesting interpretation of international trade trends. Nevertheless, they remain relatively new and minimally tested theories.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.02%3A_International_Trade.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand the global trading system.
2. Explain how and why the GATT was created and what its historical role in international trade is.
3. Know what the WTO is and what its current impact on international trade is.
In the post–World War II environment, countries came to realize that a major component of achieving any level of global peace was global cooperation—politically, economically, and socially. The intent was to level the trade playing field and reduce economic areas of disagreement, since inequality in these areas could lead to more serious conflicts. Among the initiatives, nations agreed to work together to promote free trade, entering into bilateral and multilateral agreements. The General Agreement on Tariffs and Trade (GATT) resulted from these agreements. In this section, you’ll review GATT—why it was created and what its historical successes and challenges are. You’ll then look at the World Trade Organization (WTO), which replaced GATT in 1995, and study the impact of both these organizations on international trade. While GATT started as a set of rules between countries, the WTO has become an institution overseeing international trade.
General Agreement on Tariffs and Trade (GATT)
The General Agreement on Tariffs and Trade (GATT) is a series of rules governing trade that were first created in 1947 by twenty-three countries. By the time it was replaced with the WTO, there were 125 member nations. GATT has been credited with substantially expanding global trade, primarily through the reduction of tariffs.
The basic underlying principle of GATT was that trade should be free and equal. In other words, countries should open their markets equally to member nations, and there should be neither discrimination nor preferential treatment. One of GATT’s key provisions was the most-favored-nation clause (MFN). It required that once a benefit, usually a tariff reduction, was agreed on between two or more countries, it was automatically extended to all other member countries. GATT’s initial focus was on tariffs, which are taxes placed on imports or exports.
MFN Is Everywhere
As a concept, MFN can be seen in many aspects of business; it’s an important provision. Companies require MFN of their trading partners for pricing, access, and other provisions. Corporate or government customers require it of the company from which they purchase goods or services. Venture capitalists (VC) require it of the companies in which they invest. For example, a VC wants to make sure that it has negotiated the best price for equity and will ask for this provision in case another financier negotiates a cheaper purchase price for the equity. The idea behind the concept of MFN is that the country, company, or entity that has MFN status shouldn’t be disadvantaged in comparison with others in similar roles as a trading partner, buyer, or investor. In practice, the result is that the signing party given MFN status benefits from any better negotiation and receives the cheaper price point or better term. This terminology is also used in sales contracts or other business legal agreements.
Gradually, the GATT member countries turned their attention to other nontariff trade barriers. These included government procurement and bidding, industrial standards, subsidies, duties and customs, taxes, and licensing. GATT countries agreed to limit or remove trade barriers in these areas. The only agreed-on export subsidies were for agricultural products. Countries agreed to permit a wider range of imported products to enter their home markets by simplifying licensing guidelines and developing consistent product standards between imports and domestically produced goods. Duties had to result from uniform and consistent procedures for the same foreign and domestically produced items.
The initial successes in these categories led some countries to get more creative with developing barriers to trade as well as entering into bilateral agreements and providing more creative subsidies for select industries. The challenge for the member countries of GATT was enforcement. Other than complaining and retaliating, there was little else that a country could do to register disapproval of another country’s actions and trade barriers.
Gradually, trade became more complex, leading to the Uruguay Round beginning in 1986 and ending in 1994. These trade meetings were called rounds in reference to the series of meetings among global peers held at a “roundtable.” Prior to a round, each series of trade discussions began in one country. The round of discussions was then named after that country. It sometimes took several years to conclude the topic discussions for a round. The Uruguay Round took eight years and actually resulted in the end of GATT and the creation of the World Trade Organization (WTO). The current Doha Development Round began in 2001 and is actually considered part of the WTO.
World Trade Organization (WTO)
Brief History and Purpose
The World Trade Organization (WTO) developed as a result of the Uruguay Round of GATT. Formed officially on January 1, 1995, the concept of the WTO had been in development for several years. When the WTO replaced GATT, it absorbed all of GATT’s standing agreements. In contrast to GATT, which was a series of agreements, the WTO was designed to be an actual institution charged with the mission of promoting free and fair trade. As explained on its website, the WTO “is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.”1
The global focus on multilateral trade agreements and cooperation has expanded trade exponentially. “The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6 percent annually. Total trade in 2000 was 22-times the level of 1950. GATT and the WTO have helped to create a strong and prosperous trading system contributing to unprecedented growth.”2
The WTO’s primary purpose is to serve as a negotiating forum for member nations to dispute, discuss, and debate trade-related matters. More than just a series of trade agreements, as it was under GATT, the WTO undertakes discussions on issues related to globalization and its impact on people and the environment, as well as trade-specific matters. It doesn’t necessarily establish formal agreements in all of these areas but does provide a forum to discuss how global trade impacts other aspects of the world.
Headquartered in Geneva, Switzerland, the current round is called the Doha Round and began in 2001. With 153 member nations, the WTO is the largest, global trade organization. Thirty nations have observer status, and many of these are seeking membership. With so many member nations, the concept of MFN has been eased into a new principle of normal trade relations (NTR). Advocates say that no nation really has a favored nation status; rather, all interact with each other as a normal part of global trade.
The biggest change from GATT to the WTO is the provision for the settlement of disputes. If a country finds another country’s trade practices unfair or discriminatory, it may bring the charges to the WTO, which will hear from both countries and mediate a solution.
The WTO has also undertaken the effort to focus on services rather than just goods. Resulting from the Uruguay Round, the General Agreement on Trade in Services (GATS) seeks to reduce the barriers to trade in services. Following the GATT commitment to nondiscrimination, GATS requires member nations to treat foreign service companies as they would domestic ones. For example, if a country requires banks to maintain 10 percent of deposits as reserves, then this percentage should be the same for foreign and domestic banks. Services have proven to be more complex to both define and regulate, and the member nations are continuing the discussions.
Similar to GATS is the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Intellectual property refers to just about anything that a person or entity creates with the mind. It includes inventions, music, art, and writing, as well as words, phrases, sayings, and graphics—to name a few. The basic premise of intellectual property rights (IPR) law is that the creator of the property has the right to financially benefit from his or her creation. This is particularly important for protecting the development for the creation, known as the research and development (R&D) costs. Companies can also own the intellectual property that their employees generate. This section focuses on the protection that countries agree to give to intellectual property created in another country.
Over the past few decades, companies have become increasingly diligent in protecting their intellectual property and pursuing abusers. Whether it’s the knock-off designer handbag from China that lands on the sidewalks of New York or the writer protecting her thoughts in the written words of a book (commonly understood as content), or the global software company combating piracy of its technical know-how, IPR is now formally a part of the WTO agreements and ongoing dialogue.
Current Challenges and Opportunities
Agriculture and textiles are two key sectors in which the WTO faces challenges. Trade in agriculture has been impacted by export-country subsidies, import-country tariffs and restrictions, and nontariff barriers. Whether the United States provides low-cost loans and subsidies to its farmers or Japan restricts the beef imports, agriculture trade barriers are an ongoing challenge for the WTO. Global companies and trade groups that support private-sector firms seek to have their governments raise critical trade issues on their behalf through the WTO.
For example, Japan’s ban of beef imports in response to mad cow disease has had a heavy impact on the US beef industry.
At the moment, unfortunately there’s some distance between Japan and the U.S.,” Japan Agriculture Minister Hirotaka Akamatsu told reporters in 2010 after meeting [US Agriculture Secretary Tom] Vilsack in Tokyo. “For us, food safety based on Japan’s scientific standards is the priority. The OIE standards are different from the Japanese scientific ones.
The U.S. beef industry is losing about \$1 billion a year in sales because of the restrictions, according to the National Cattlemen’s Beef Association, [a trade group supporting the interests of American beef producers]. Japan was the largest foreign buyer of U.S. beef before it banned all imports when the first case of the brain-wasting disease, also known bovine spongiform encephalopathy [i.e., mad cow disease], was discovered in the U.S.
The ban was eased in 2005 to allow meat from cattle aged 20 months or less, which scientists say are less likely to have contracted the fatal illness….
Japan was the third-largest destination for U.S. beef [in 2009], with trade totaling \$470 million, up from \$383 million in 2008, according to the U.S. Meat Export Federation. That compares with \$1.39 billion in 2003.
Mexico and Canada were the biggest buyers of U.S. beef [in 2009].3
The role of the WTO is to facilitate agreements in difficult bilateral and multilateral trade disputes, but this certainly isn’t easy. Japan’s reluctance for American beef may appear to be the result of mad cow disease, but business observers note Japan’s historical cultural preference for Japanese goods, which the country often claims are superior. A similar trade conflict was triggered in the 1980s when Japan discouraged the import of rice from other countries. The prevailing Japanese thought was that its local rice was easier for the Japanese to digest. After extensive discussions in the Uruguay Round, on “December 14, 1993 the Japanese government accepted a limited opening of the rice market under the GATT plan.”4
Antidumping is another area on which the WTO has focused its attention. Dumping occurs when a company exports to a foreign market at a price that is either lower than the domestic prices in that country or less than the cost of production. Antidumping charges can be harder to settle, as the charge is against a company and not a country. One example is in India, which has, in the past, accused Japan and Thailand of dumping acetone, a chemical used in drugs and explosives, in the Indian market. In an effort to protect domestic manufacturers, India has raised the issue with the WTO. In fact, India was second only to Argentina among the G-20 (or Group of Twenty) nations in initiating antidumping investigations during 2009, according to a recent WTO report.5
Future Outlook
While the end of the Doha Round is uncertain, the future for the WTO and any related organizations remains strong. With companies and countries facing a broader array of trade issues than ever before, the WTO plays a critical role in promoting and ensuring free and fair trade. Many observers expect that the WTO will have to emphasize the impact of the Internet on trade. In most cases, the WTO provides companies and countries with the best options to dispute, discuss, and settle unfair business and trade practices.
Key Takeaways
• The General Agreement on Tariffs and Trade (GATT) is a series of rules governing trade that were first created in 1947 by twenty-three countries. It remained in force until 1995, when it was replaced by the WTO.
• The World Trade Organization (WTO) is the only global, international organization dealing with the rules of trade between nations. The WTO agreements that have been negotiated and signed by the organization’s 153 member nations and ratified in their parliaments are the heart of the organization. Its goal is to help the producers, exporters, and importers of goods and services conduct business. The current round of the WTO is called the Doha Round.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.03%3A_International_Economic_Cooperation_among_Nations.txt |
Learning Objectives
After reading this section, students should be able to …
1. Learn the different methods used to assess a tariff.
2. Measure, interpret, and compare average tariffs around the world.
The most common way to protect one’s economy from import competition is to implement a tariff: a tax on imports. Generally speaking, a tariff is any tax or fee collected by a government. Sometimes the term “tariff” is used in a nontrade context, as in railroad tariffs. However, the term is much more commonly used to refer to a tax on imported goods.
Tariffs have been applied by countries for centuries and have been one of the most common methods used to collect revenue for governments. Largely this is because it is relatively simple to place customs officials at the border of a country and collect a fee on goods that enter. Administratively, a tariff is probably one of the easiest taxes to collect. (Of course, high tariffs may induce smuggling of goods through nontraditional entry points, but we will ignore that problem here.)
Tariffs represent the primary way in which countries either liberalize trade or protect their economies. It isn’t the only way, though, since countries also implement subsidies, quotas, and other types of regulations that can affect trade flows between countries. When people talk about trade liberalization, they generally mean reducing the tariffs on imported goods, thereby allowing the products to enter at a lower cost. Since lowering the cost of trade makes it more profitable, it will make trade freer. Complete elimination of tariffs and other barriers to trade is what economists and others mean by free trade. In contrast, any increase in tariffs is referred to as protection or protectionism. Because tariffs raise the cost of importing products from abroad but not from domestic firms, they have the effect of protecting the domestic firms that compete with imported products. These domestic firms are called import competitors.
There are two basic ways in which tariffs may be levied: specific tariffs and ad valorem tariffs. A specific tariff is levied as a fixed charge per unit of imports. For example, the U.S. government levies a \$0.51 specific tariff on every wristwatch imported into the United States. Thus, if one thousand watches are imported, the U.S. government collects \$510 in tariff revenue. In this case, \$510 is collected whether the watch is a \$40 Swatch or a \$5,000 Rolex.
An ad valorem tariff is levied as a fixed percentage of the value of the commodity imported. “Ad valorem” is Latin for “on value” or “in proportion to the value.” The United States currently levies a 2.5 percent ad valorem tariff on imported automobiles. Thus, if \$100,000 worth of automobiles is imported, the U.S. government collects \$2,500 in tariff revenue. In this case, \$2,500 is collected whether two \$50,000 BMWs or ten \$10,000 Hyundais are imported.
Occasionally, both a specific and an ad valorem tariff are levied on the same product simultaneously. This is known as a two-part tariff. For example, wristwatches imported into the United States face the \$0.51 specific tariff as well as a 6.25 percent ad valorem tariff on the case and the strap and a 5.3 percent ad valorem tariff on the battery. Perhaps this should be called a three-part tariff!
As the above examples suggest, different tariffs are generally applied to different commodities. Governments rarely apply the same tariff to all goods and services imported into the country. Several countries prove the exception, though. For example, Chile levies a 6 percent tariff on every imported good, regardless of the category. Similarly, the United Arab Emirates sets a 5 percent tariff on almost all items, while Bolivia levies tariffs either at 0 percent, 2.5 percent, 5 percent, 7.5 percent, or 10 percent. Nonetheless, simple and constant tariffs such as these are uncommon.
Thus, instead of one tariff rate, countries have a tariff schedule that specifies the tariff collected on every particular good and service. In the United States, the tariff schedule is called the Harmonized Tariff Schedule (HTS) of the United States. The commodity classifications are based on the international Harmonized Commodity Coding and Classification System (or the Harmonized System) established by the World Customs Organization.
Measuring Protectionism: Average Tariff Rates around the World
One method used to measure the degree of protectionism within an economy is the average tariff rate. Since tariffs generally reduce imports of foreign products, the higher the tariff, the greater the protection afforded to the country’s import-competing industries. At one time, tariffs were perhaps the most commonly applied trade policy. Many countries used tariffs as a primary source of funds for their government budgets. However, as trade liberalization advanced in the second half of the twentieth century, many other types of nontariff barriers became more prominent.
Table \(1\) “Average Tariffs in Selected Countries (2009)” provides a list of average tariff rates in selected countries around the world. These rates were calculated as the simple average tariff across more than five thousand product categories in each country’s applied tariff schedule located on the World Trade Organization (WTO) Web site. The countries are ordered by highest to lowest per capita income.
Table \(1\) Average Tariffs in Selected Countries (2009)
Country Average Tariff Rates (%)
United States 3.6
Canada 3.6
European Community (EC) 4.3
Japan 3.1
South Korea 11.3
Mexico 12.5
Chile 6.0 (uniform)
Argentina 11.2
Brazil 13.6
Thailand 9.1
China 9.95
Egypt 17.0
Philippines 6.3
India 15.0
Kenya 12.7
Ghana 13.1
Generally speaking, average tariff rates are less than 20 percent in most countries, although they are often quite a bit higher for agricultural commodities. In the most developed countries, average tariffs are less than 10 percent and often less than 5 percent. On average, less-developed countries maintain higher tariff barriers, but many countries that have recently joined the WTO have reduced their tariffs substantially to gain entry.
Problems Using Average Tariffs as a Measure of Protection
The first problem with using average tariffs as a measure of protection in a country is that there are several different ways to calculate an average tariff rate, and each method can give a very different impression about the level of protection.
The tariffs in Table \(1\) “Average Tariffs in Selected Countries (2009)” are calculated as a simple average. To calculate this rate, one simply adds up all the tariff rates and divides by the number of import categories. One problem with this method arises if a country has most of its trade in a few categories with zero tariffs but has high tariffs in many categories it would never find advantageous to import. In this case, the average tariff may overstate the degree of protection in the economy.
This problem can be avoided, to a certain extent, if one calculates the trade-weighted average tariff. This measure weighs each tariff by the share of total imports in that import category. Thus, if a country has most of its imports in a category with very low tariffs but has many import categories with high tariffs and virtually no imports, then the trade-weighted average tariff would indicate a low level of protection. The simple way to calculate a trade-weighted average tariff rate is to divide the total tariff revenue by the total value of imports. Since these data are regularly reported by many countries, this is a common way to report average tariffs. To illustrate the difference, the United States is listed in Table \(1\) “Average Tariffs in Selected Countries (2009)” with a simple average tariff of 3.6 percent. However, in 2008 the U.S. tariff revenue collected came to \$29.2 billion from imports of goods totaling \$2,126 billion, meaning that the U.S. trade-weighted average tariff was a mere 1.4 percent.
Nonetheless, the trade-weighted average tariff is not without flaws. For example, suppose a country has relatively little trade because it has prohibitive tariffs (i.e., tariffs set so high as to eliminate imports) in many import categories. If it has some trade in a few import categories with relatively low tariffs, then the trade-weighted average tariff would be relatively low. After all, there would be no tariff revenue in the categories with prohibitive tariffs. In this case, a low average tariff could be reported for a highly protectionist country. Also, in this case, the simple average tariff would register as a higher average tariff and might be a better indicator of the level of protection in the economy.
Of course, the best way to overstate the degree of protection is to use the average tariff rate on dutiable imports. This alternative measure, which is sometimes reported, only considers categories in which a tariff is actually levied and ignores all categories in which the tariff is set to zero. Since many countries today have many categories of goods with zero tariffs applied, this measure would give a higher estimate of average tariffs than most of the other measures.
The second major problem with using average tariff rates to measure the degree of protection is that tariffs are not the only trade policy used by countries. Countries also implement quotas, import licenses, voluntary export restraints, export taxes, export subsidies, government procurement policies, domestic content rules, and much more. In addition, there are a variety of domestic regulations that, for large economies at least, can and do have an impact on trade flows. None of these regulations, restrictions, or impediments to trade, affecting both imports and exports, would be captured using any of the average tariff measures. Nevertheless, these nontariff barriers can have a much greater effect on trade flows than tariffs themselves.
Key Takeaways
• Specific tariffs are assessed as a money charge per unit of the imported good.
• Ad valorem tariffs are assessed as a percentage of the value of the imported good.
• Average tariffs can be measured as a simple average across product categories or can be weighted by the level of imports.
• Although average tariffs are used to measure the degree of protection or openness of a country, neither measure is best because each measure has unique problems.
• In general, average tariffs are higher in developing countries and lower in developed countries.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.04%3A_Understanding_Tariffs.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand regional economic integration.
2. Identify the major regional economic areas of cooperation.
What Is Regional Economic Integration?
Regional economic integration has enabled countries to focus on issues that are relevant to their stage of development as well as encourage trade between neighbors.
There are four main types of regional economic integration.
1. Free trade area. This is the most basic form of economic cooperation. Member countries remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations. An example is the North American Free Trade Agreement (NAFTA).
2. Customs union. This type provides for economic cooperation as in a free-trade zone. Barriers to trade are removed between member countries. The primary difference from the free trade area is that members agree to treat trade with nonmember countries in a similar manner.1
3. Common market. This type allows for the creation of economically integrated markets between member countries. Trade barriers are removed, as are any restrictions on the movement of labor and capital between member countries. Like customs unions, there is a common trade policy for trade with nonmember nations. The primary advantage to workers is that they no longer need a visa or work permit to work in another member country of a common market. An example is the Common Market for Eastern and Southern Africa (COMESA).2
4. Economic union. This type is created when countries enter into an economic agreement to remove barriers to trade and adopt common economic policies. An example is the European Union (EU).3
In the past decade, there has been an increase in these trading blocs with more than one hundred agreements in place and more in discussion. A trade bloc is basically a free-trade zone, or near-free-trade zone, formed by one or more tax, tariff, and trade agreements between two or more countries. Some trading blocs have resulted in agreements that have been more substantive than others in creating economic cooperation. Of course, there are pros and cons for creating regional agreements.
Pros
The pros of creating regional agreements include the following:
• Trade creation. These agreements create more opportunities for countries to trade with one another by removing the barriers to trade and investment. Due to a reduction or removal of tariffs, cooperation results in cheaper prices for consumers in the bloc countries. Studies indicate that regional economic integration significantly contributes to the relatively high growth rates in the less-developed countries.
• Employment opportunities. By removing restrictions on labor movement, economic integration can help expand job opportunities.
• Consensus and cooperation. Member nations may find it easier to agree with smaller numbers of countries. Regional understanding and similarities may also facilitate closer political cooperation.
Cons
The cons involved in creating regional agreements include the following:
• Trade diversion. The flip side to trade creation is trade diversion. Member countries may trade more with each other than with nonmember nations. This may mean increased trade with a less efficient or more expensive producer because it is in a member country. In this sense, weaker companies can be protected inadvertently with the bloc agreement acting as a trade barrier. In essence, regional agreements have formed new trade barriers with countries outside of the trading bloc.
• Employment shifts and reductions. Countries may move production to cheaper labor markets in member countries. Similarly, workers may move to gain access to better jobs and wages. Sudden shifts in employment can tax the resources of member countries.
• Loss of national sovereignty. With each new round of discussions and agreements within a regional bloc, nations may find that they have to give up more of their political and economic rights. In the opening case study, you learned how the economic crisis in Greece is threatening not only the EU in general but also the rights of Greece and other member nations to determine their own domestic economic policies.
Major Areas of Regional Economic Integration and Cooperation
There are more than one hundred regional trade agreements in place, a number that is continuously evolving as countries reconfigure their economic and political interests and priorities. Additionally, the expansion of the World Trade Organization (WTO) has caused smaller regional agreements to become obsolete. Some of the regional blocs also created side agreements with other regional groups leading to a web of trade agreements and understandings.
North America: NAFTA
Brief History and Purpose
The North American Free Trade Agreement (NAFTA) came into being during a period when free trade and trading blocs were popular and positively perceived. In 1988, the United States and Canada signed the Canada–United States Free Trade Agreement. Shortly after it was approved and implemented, the United States started to negotiate a similar agreement with Mexico. When Canada asked to be party to any negotiations to preserve its rights under the most-favored-nation clause (MFN), the negotiations began for NAFTA, which was finally signed in 1992 and implemented in 1994.
The goal of NAFTA has been to encourage trade between Canada, the United States, and Mexico. By reducing tariffs and trade barriers, the countries hope to create a free-trade zone where companies can benefit from the transfer of goods. In the 1980s, Mexico had tariffs as high as 100 percent on select goods. Over the first decade of the agreement, almost all tariffs between Mexico, Canada, and the United States were phased out.
The rules governing origin of content are key to NAFTA. As a free trade agreement, the member countries can establish their own trading rules for nonmember countries. NAFTA’s rules ensure that a foreign exporter won’t just ship to the NAFTA country with the lowest tariff for nonmember countries. NAFTA rules require that at least 50 percent of the net cost of most products must come from or be incurred in the NAFTA region. There are higher requirements for footwear and cars. For example, this origin of content rule has ensured that cheap Asian manufacturers wouldn’t negotiate lower tariffs with one NAFTA country, such as Mexico, and dump cheap products into Canada and the United States. Mexican maquiladoras have fared well in this arrangement by being the final production stop before entering the United States or Canada. Maquiladoras are production facilities located in border towns in Mexico that take imported materials and produce the finished good for export, primarily to Canada or the United States.
Current Challenges and Opportunities
Canadian and US consumers have benefited from the lower-cost Mexican agricultural products. Similarly, Canadian and US companies have sought to enter the expanding Mexican domestic market. Many Canadian and US companies have chosen to locate their manufacturing or production facilities in Mexico rather than Asia, which was geographically far from their North American bases.
When it was introduced, NAFTA was highly controversial, particularly in the United States, where many felt it would send US jobs to Mexico. In the long run, NAFTA hasn’t been as impactful as its supporters had hoped nor as detrimental to workers and companies as its critics had feared. As part of NAFTA, two side agreements addressing labor and environmental standards were put into place. The expectation was that these side agreements would ensure that Mexico had to move toward improving working conditions.
Mexico has fared the best from NAFTA as trade has increased dramatically. Maquiladoras in Mexico have seen a 15 percent annual increase in income. By and large, Canadians have been supportive of NAFTA and exports to the region have increased in the period since implementation. “Tri-lateral [merchandise] trade has nearly tripled since NAFTA came into force in 1994. It topped \$1 trillion in 2008.”4
Future Outlook
Given the 2008 global economic recession and challenging impact on the EU, it isn’t likely that NAFTA will move beyond the free-trade zone status to anything more comprehensive (e.g., the EU’s economic union). In the opening case study, you read about the pressures on the EU and the resistance by each of the governments in Europe to make policy adjustments to address the recession. The United States, as the largest country member in NAFTA, won’t give up its rights to independently determine its economic and trade policies. Observers note that there may be the opportunity for NAFTA to expand to include other countries in Latin America.5 Chile was originally supposed to be part of NAFTA in 1994, but President Clinton was hampered by Congress in his ability to formalize that decision.6 Since then, Canada, Mexico, and the United States have each negotiated bilateral trade agreements with Chile, but there is still occasional mention that Chile may one day join NAFTA.7
Mexico, NAFTA, and the Maquiladoras
The Mexican economy has undergone dramatic changes during the last decade and a half as the country has become integrated into the global marketplace. Once highly protected, Mexico is now open for business. Successive governments have instituted far-reaching economic reforms, which have had a major impact on the way business is conducted. The scale of business has changed as well. Forced to compete with large multinationals and Mexican conglomerates, many traditional family-owned firms have had to close because they were unable to compete in the global marketplace.
NAFTA has added to the already-strong US influence on Mexico’s corporate and business practices. In particular, competitiveness and efficiency have become higher priorities, although company owners and managers still like to surround themselves with people they know and to groom their sons and sometimes their daughters to be their successors. US influence is also pervasive in the products and services offered throughout Mexico.
Mexico has always had a strong entrepreneurial business culture, but until NAFTA, it was protected from the pressures of international finance and the global marketplace. Business and particularly interpersonal business relationships were viewed as something that should be pleasurable, like other important aspects of life.
Long-term relationships are still the foundation on which trust is established and business is built. In Mexico, patience and the willingness to wait are still highly valued—and necessary—in business transactions. This is slowly changing, spurred in part by an aggressive cadre of young professionals who pursued graduate education in the United States.
Since the mid-1960s, production facilities known as maquiladoras have been a regular feature of Mexican border towns, especially along the Texas and New Mexico borders. US multinational companies, such as John Deere, Zenith, Mattel, and Xerox, run the majority of the more than 3,600 maquiladoras in northern Mexico. Billions of dollars’ worth of products—from televisions to clothes to auto parts—are assembled in maquiladoras and then shipped back, tax free, to the United States for sale to US consumers.
Maquiladoras employ more than a million Mexicans, mostly unskilled women in their twenties and early thirties who work long hours. Wages and benefits are generally poor but much better than in the rest of Mexico. The huge growth in trade between the United States and Mexico has greatly expanded the role—and scale—of these assembly operations.
Along with the benefits, challenges have also come with the increased trade. A large number of Mexicans are concerned that wealth is distributed more unevenly than ever. For example, many commentators see the political situation in the state of Chiapas as underscoring the alienation large groups have suffered as a result of the opening of the Mexican economy to global forces. A rural region in southern Mexico, Chiapas is home to extremely poor Mayan, Ch’ol, Zoque, and Lacandón Indians. Although it is the poorest state in Mexico, Chiapas has the richest natural resources, including oil, minerals, and electrical power.
On January 1, 1994, the day NAFTA officially took effect, a group of Indian peasants, commanded by Subcomandante Marcos, rose up in armed rebellion. This was shocking not only to Mexico’s leadership but to the international community. The unrest in Chiapas stems from long-standing economic and social injustice in the region and from the Indians’ isolation and exploitation by the local oligarchy of landowners and mestizo bosses (caciques). While NAFTA clearly advanced the goals of free trade, global businesses are often forced to deal with local economic, political, and social realities within a country.
The Mexican government has indicated that improving the social conditions in the region is a high priority. However, only partial accords have been reached between the government and the peasants. At the same time, the army continues to exert tight control over the state, particularly in and around towns where residents are known to support the rebels.
The low standard of living in Chiapas and of Indians throughout Mexico remains a significant challenge for the Mexican government. In the years following the Chiapas uprising, poverty in southern Mexico has risen to about 40 percent, while in the north, poverty has decreased thanks to closer economic links with the United States.8
South America: MERCOSUR
The Common Market of the South, Mercado Común del Sur or MERCOSUR, was originally established in 1988 as a regional trade agreement between Brazil and Argentina and then was expanded in 1991 to include Uruguay and Paraguay. Over the past decade, Bolivia, Chile, Colombia, Ecuador, and Peru have become associate members, and Venezuela is in the process for full membership.
MERCOSUR constituents compose nearly half of the wealth created in all of Latin America as well as 40 percent of the population. Now the world’s fourth-largest trading bloc after the EU, NAFTA, and the Association of South East Asian Nations (ASEAN),9 the group has been strategically oriented to develop the economies of its constituents, helping them become more internationally competitive so that they would not have to rely on the closed market arena. MERCOSUR has brought nations with long-standing rivalries together. Although this is an economic trade initiative, it has also been designed with clear political goals. MERCOSUR is committed to the consolidation of democracy and the maintenance of peace throughout the southern cone. For example, it has taken stride to reach agreements between Brazil and Argentina in the nuclear field.10
MERCOSUR has emerged as one of the most dynamic and imaginative initiatives in the region. Surging trade, rising investment, and expanding output are the economic indicators that point to the group’s remarkable achievement. More than this, the integration is helping transform national relations among South American nations and with the world as a whole, forging a new sense of shared leadership and shared purpose, which is sending ripples of hope across the continent and beyond.
Other Trade Agreements in the Americas
CARICOM and Andean Community
The Caribbean Community and Common Market (CARICOM), or simply the Caribbean Community, was formed in 1973 by countries in the Caribbean with the intent of creating a single market with the free flow of goods, services, labor, and investment.11 The Andean Community (called the Andean Pact until 1996)12 is a free trade agreement signed in 1969 between Bolivia, Chile, Colombia, Ecuador, and Peru. Eventually Chile dropped out, while Venezuela joined for about twenty years and left in 2006. This trading bloc had limited impact for the first two decades of its existence but has experienced a renewal of interest after MERCOSUR’s implementation. In 2007, MERCOSUR members became associate members of the Andean Community, and more cooperative interaction between the trading groups is expected.13
CAFTA-DR
The Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR) is a free trade agreement signed into existence in 2005. Originally, the agreement (then called the Central America Free Trade Agreement, or CAFTA) encompassed discussions between the US and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. A year before the official signing, the Dominican Republic joined the negotiations, and the agreement was renamed CAFTA-DR.14
The goal of the agreement is the creation of a free trade area similar to NAFTA. For free trade advocates, the CAFTA-DR is also seen as a stepping stone toward the eventual establishment of the Free Trade Area of the Americas (FTAA)—the more ambitious grouping for a free trade agreement that would encompass all the South American and Caribbean nations as well as those of North and Central America (except Cuba). Canada is currently negotiating a similar treaty called the Canada Central American Free Trade Agreement. It’s likely that any resulting agreements will have to reconcile differences in rules and regulations with NAFTA as well as any other existing agreements.15
Did You Know?
As a result of CAFTA-DR, more than 80 percent of goods exported from the United States into the region are no longer subject to tariffs.16 Given its physical proximity, Florida is the main investment gateway to the CAFTA-DR countries: about three hundred multinational firms have their Latin American and Caribbean regional headquarters in Florida. In all, more than two thousand companies headquartered outside the United States operate in Florida.
US companies, for example, sell more than \$25 billion in products to the Latin American and Caribbean regions annually, ranking it among the top US export markets. With the removal of virtually all tariffs and other barriers to trade, the CAFTA-DR agreement is making commerce with these countries even easier, opening opportunities to a range of industries. At the same time, it’s making the CAFTA-DR countries richer and increasing the purchasing power of their citizens.
For international companies looking to access these markets, the United States, recognized worldwide for its stable regulatory and legal framework and for its robust infrastructure, is the most logical place to set up operations. And within the United States, no location is as well positioned as Florida to act as the gateway to the CAFTA-DR markets. For a variety of reasons—from geography and language to well-developed business and family connections—this is a role that Florida has been playing very successfully for a number of years and which, with the implementation of CAFTA-DR, is only gaining in importance.17
Europe: EU
Brief History and Purpose
The European Union (EU) is the most integrated form of economic cooperation. As you learned in the opening case study, the EU originally began in 1950 to end the frequent wars between neighboring countries in the Europe. The six founding nations were France, West Germany, Italy, and the Benelux countries (Belgium, Luxembourg, and the Netherlands), all of which signed a treaty to run their coal and steel industries under a common management. The focus was on the development of the coal and steel industries for peaceful purposes.
In 1957, the six nations signed the Treaty of Rome, which established the European Economic Community (EEC) and created a common market between the members. Over the next fifty years, the EEC added nine more members and changed its name twice—to European Community (EC) in the 1970s and the European Union (EU) in 1993.18
The entire history of the transformation of the EEC to the EU has been an evolutionary process. However, the Treaty of Maastricht in 1993 stands out as an important moment; it’s when the realeconomic union was created. With this treaty, the EU identified three aims. The first was to establish a single, common currency, which went into effect in 1999. The second was to set up monetary and fiscal targets for member countries. Third, the treaty called for a political union, which would include the development of a common foreign and defense policy and common citizenship. The opening case study addressed some of the current challenges the EU is facing as a result of the impact of these aims. Despite the challenges, the EU is likely to endure given its historic legacy. Furthermore, a primary goal for the development of the EU was that Europeans realized that they needed a larger trading platform to compete against the US and the emerging markets of China and India. Individually, the European countries would never have the economic power they now have collectively as the EU.
Today, the EU has twenty-seven member countries. Croatia, Iceland, Macedonia, and Turkey are the next set of candidates for future membership. In 2009, the twenty-seven EU countries signed the Treaty of Lisbon, which amends the previous treaties. It is designed to make the EU more democratic, efficient, and transparent and to tackle global challenges, such as climate change, security, and sustainable development.
The European Economic Area (EEA) was established on January 1, 1994, following an agreement between the member states of the European Free Trade Association (EFTA) and the EC (later the EU). Specifically, it has allowed Iceland (now an EU candidate), Liechtenstein, and Norway to participate in the EU’s single market without a conventional EU membership. Switzerland has also chosen to not join the EU, although it is part of similar bilateral agreements.
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Sweden
United Kingdom
Candidate Countries
Croatia
The former Yugoslav Republic of Macedonia
Turkey
Iceland
Potential Candidate Countries
Albania
Bosnia and Herzegovina
Kosovo under UN Security Council Resolution 1244
Montenegro
Serbia
Source: “The Member Countries of the European Union,” Europa, accessed May 1, 2011, http://europa.eu/about-eu/member-cou...s/index_en.htm .
CEFTA
Central European Free Trade Agreement (CEFTA) is a trade agreement between non-EU countries in Central and Southeastern Europe, which currently includes Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova, Montenegro, Serbia, and the United Nations Interim Administration Mission on behalf of Kosovo (UNMIK)—all of whom joined in 2006.19
Originally signed in 1992, CEFTA’s founding members were the Visegrad Group, also called the Visegrad Four or V4, which is an alliance of four Central European states—the Czech Republic, Hungary, Poland, and Slovakia. All of the Visegrad Group have relatively developed free-market economies and have formal ties.20
Many of the Central European nations have left CEFTA to become members of the EU. In fact, CEFTA has served as a preparation for full EU membership and a large proportion of CEFTA foreign trade is with EU countries. Poland, the Czech Republic, Hungary, Slovakia, and Slovenia joined the EU on May 1, 2004, with Bulgaria and Romania following suit on January 1, 2007.21 Croatia and Macedonia are in the process of becoming EU members.22
Amusing Anecdote
There are twenty-three official and working languages within the EU, and all official documents and legislation are translated into all of these languages. With this in mind, it’s easy to see why so many Europeans see the need to speak more than one language fluently!
Bulgarian
Czech
Danish
Dutch
English
Estonian
Finnish
French
German
Greek
Hungarian
Italian
Irish
Latvian
Lithuanian
Maltese
Polish
Portuguese
Romanian
Slovene
Spanish
Swedish
EU Governance
The EU is a unique organization in that it is not a single country but a group of countries that have agreed to closely cooperate and coordinate key aspects of their economic policy. Accordingly, the organization has its own governing and decision-making institutions.
• European Council. The European Council provides the political leadership for the EU. The European Council meets four times per year, and each member has a representative, usually the head of its government. Collectively it functions as the EU’s “Head of State.”
• European Commission. The European Commission provides the day-to-day leadership and initiates legislation. It’s the EU’s executive arm.
• European Parliament. The European Parliament forms one-half of the EU’s legislative body. The parliament consists of 751 members, who are elected by popular vote in their respective countries. The term for each member is five years. The purpose of the parliament is to debate and amend legislation proposed by the European Commission.
• Council of the European Union. The Council of the European Union functions as the other half of the EU’s legislative body. It’s sometimes called the Council or the Council of Ministers and should not be confused with the European Council above. The Council of the European Union consists of a government minister from each member country and its representatives may change depending on the topic being discussed.
• Court of Justice. The Court of Justice makes up the judicial branch of the EU. Consisting of three different courts, it reviews, interprets, and applies the treaties and laws of the EU.23
Current Challenges and Opportunities
The biggest advantage of EU membership is the monetary union. Today, sixteen member countries use the euro. Since its launch, the euro has become the world’s second-largest reserve currency behind the US dollar. It’s important to remember several distinctions. First, the EU doesn’t consist of the same countries as the continent of Europe. Second, there are more EU member countries than there are countries using the euro. Euro markets, or euro countries, are the countries using the euro.
The European single market is the foremost advantage of being a member of EU. According to Europa, which is the official website of the EU (http://europa.eu), the EU member states have formed a single market with more than five hundred million people, representing 7 percent of the world’s population. This single market permits the free flow of goods, service, capital, and people within the EU.24 Although there is a single tariff on goods entering an EU country, once in the market, no additional tariffs or taxes can be levied on the goods.25
Businesses conducting business with one country in the EU now find it easier and cheaper, in many cases, to transact business with the other EU countries. There’s no longer a currency–exchange rate risk, and the elimination of the need to convert currencies within euro markets reduces transaction costs. Further, having a single currency makes pricing more transparent and consistent between countries and markets.
Despite the perceived benefits, economic policymakers in the EU admit that the Union’s labor markets are suffering from rigidity, regulation, and tax structures that have contributed to high unemployment and low employment responsiveness to economic growth. This is the case, particularly, for relatively low-skilled labor.
Future Outlook
Europe’s economy faces a deeper recession and a slower recovery than the United States or other parts of the world. Because the EU’s \$18.4 trillion economy makes up 30 percent of the world economy, its poor prospects are likely to rebound on the United States, Asia, and other regions.26 Fixing the EU’s banking system is particularly tricky, because sixteen of the twenty-seven countries share the euro currency and a central bank, but banking regulation mostly remains under the control of the national governments.27
The Europe 2020 strategy put forth by the European Commission sets out a vision of the EU’s social market economy for the twenty-first century. It shows how the EU can come out stronger from this crisis and how it can be turned into a smart, sustainable, and inclusive economy delivering high levels of employment, productivity, and social cohesion. It calls for stronger economic governance in order to deliver rapid and lasting results.28
Asia: ASEAN
The Association of Southeast Asian Nations (ASEAN) was created in 1967 by five founding-member countries: Malaysia, Thailand, Indonesia, Singapore, and the Philippines. Since inception, Myanmar (Burma), Vietnam, Cambodia, Laos, and Brunei have joined the association.29
ASEAN’s primary focus is on economic, social, cultural, and technical cooperation as well as promoting regional peace and stability. Although less emphasized today, one of the primary early missions of ASEAN was to prevent the domination of Southeast Asia by external powers—specifically China, Japan, India, and the United States.
In 2002, ASEAN and China signed a free trade agreement that went into effect in 2010 as the ASEAN–China Free Trade Area (ACFTA). In 2009, ASEAN and India also signed the ASEAN–India Free Trade Agreement (FTA). In 2009, ASEAN signed a free trade agreement with New Zealand and Australia. It also hopes to create an ASEAN Economic Community by 2015.30 While the focus and function remains in discussion, the intent is to forge even closer ties among the ten member nations, enabling them to negotiate more effectively with global powers like the EU and the United States.31
Asia: APEC
The Asia–Pacific Economic Cooperation (APEC) was founded in 1989 by twelve countries as an informal forum. It now has twenty-one member economies on both sides of the Pacific Ocean. APEC is the only regional trading group that uses the term member economies, rather than countries, in deference to China. Taiwan was allowed to join the forum, but only under the name Chinese Taipei.32
As a result of the Pacific Ocean connection, this geographic grouping includes the United States, Canada, Mexico, Chile, Peru, Russia, Papua New Guinea, New Zealand, and Australia with their Asia Pacific Rim counterparts.33 This assortment of economies and cultures has, at times, made for interesting and heated discussions. Focused primarily on economic growth and cooperation, the regional group has met with success in liberalizing and promoting free trade as well as facilitating business, economic, and technical cooperation between member economies. With the Doha Round of the WTO dragging, APEC members have been discussing establishing a free-trade zone. Given its broader membership than ASEAN, APEC has found good success—once its member countries agree. The two organizations often share common goals and seek to coordinate their efforts.
China Seeks to Create a Trading Bloc
On June 29, 2010, China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA), a preferential trade agreement between the two governments that aims to reduce tariffs and commercial barriers between the two sides. It’s the most significant agreement since the two countries split at the end of the Chinese Civil War in 1949.34 It will boost the current \$110 billion bilateral trade between both sides. China already absorbed Hong Kong in 1999, after the hundred-year lease to Britain ended. While Hong Kong is now managed by China as a Special Administrative Region (SAR), it continues to enjoy special economic status. China is eager for Hong Kong and Taiwan to serve as gateways to its massive market. Taiwan’s motivation for signing the agreement was in large part an effort to get China to stop pressuring other countries from signing trade agreements with it.35
“An economically stronger Taiwan would not only gain clout with the mainland but also have more money to entice allies other than the 23 nations around the globe that currently recognize the island as an independent state. Beijing is hoping closer economic ties will draw Taiwan further into its orbit.”36 While opposition in Taiwan sees the agreement as a cover for reunification with China, the agreement does reduce tariffs on both sides, enabling businesses from both countries to engage in more trade.
Middle East and Africa: GCC
The Cooperation Council for the Arab States of the Gulf, also known as the Gulf Cooperation Council (GCC), was created in 1981. The six member states are Bahrain, Kuwait, Saudi Arabia, Oman, Qatar, and the United Arab Emirates (UAE). As a political and economic organization, the group focuses on trade, economic, and social issues.37 The GCC has become as much a political organization as an economic one. Among its various initiatives, the GCC calls for the coordination of a unified military presence in the form of a Peninsula Shield Force.38
In 1989, the GCC and the EU signed a cooperation agreement. “Trade between the EU and the GCC countries totalled €79 billion in 2009 and should increase under the FTA. And while strong economic relations remain the basis for mutual ties, the EU and the GCC also share common interests in areas such as the promotion of alternative energy, thus contributing to the resolution of climate change and other pressing environmental concerns; the promotion of proper reform for the global economic and financial policies; and the enhancement of a comprehensive rules-based international system.”39
In 2008, the GCC formed a common market, enabling free flow of trade, investment, and workers.40 In December 2009, Bahrain, Saudi Arabia, Kuwait, and Qatar created a monetary council with the intent of eventually creating a shared currency.41 Since its creation, the GCC has contributed not only to the expansion of trade but also to the development of its countries and the welfare of its citizens, as well as promoting peace and stability in the region.42
Middle East and Africa: AEC
The African Economic Community (AEC) is an organization of the African Union states. Signed in 1991 and implemented in 1994, it provides for a staged integration of the regional economic agreements. Several regional agreements function as pillars of the AEC:43
• Community of Sahel-Saharan States (CEN-SAD)
• Common Market for Eastern and Southern Africa (COMESA)
• East African Community (EAC)
• Economic Community of Central African States (ECCAS/CEEAC)
• Economic Community of West African States (ECOWAS)
• Intergovernmental Authority on Development (IGAD)
• Southern African Development Community (SADC)
• Arab Maghreb Union (AMU/UMA)
Economists argue that free trade zones are particularly suited to African countries which were created under colonial occupation when land was divided up, often with little regard for the economic sustainability of the newly created plot.
Plus, post-independence conflict in Africa has left much of the continent with a legacy of poor governance and a lack of political integration which free trade zones aim to address….
[In October 2008,] plans were agreed to create a “super” free trade zone encompassing 26 African countries, stretching from Libya in the north to South Africa. The GDP of this group of nations is put at \$624bn (£382.9bn).44
Ambitiously, in 2017 and after, the AEC intends to foster the creation of a free-trade zone and customs union in its regional blocs. Beyond that, there are hopes for a shared currency and eventual economic and monetary union.
How Do These Trade Agreements and Efforts Impact Business?
Overall, global businesses have benefited from the regional trade agreements by having more consistent criteria for investment and trade as well as reduced barriers to entry. Companies that choose to manufacture in one country find it easier and cheaper to move goods between member countries in that trading bloc without incurring tariffs or additional regulations.
The challenges for businesses include finding themselves outside of a new trading bloc or having the “rules” for their industry change as a result of new trade agreements. Over the past few decades, there has been an increase in bilateral and multilateral trade agreements. It’s often called a “spaghetti bowl” of global bilateral and multilateral trade agreements, because the agreements are not linear strands lining up neatly; instead they are a messy mix of crisscrossing strands, like a bowl of spaghetti, that link countries and trading blocs in self-benefiting trading alliances. Businesses have to monitor and navigate these evolving trade agreements to make sure that one or more agreements don’t negatively impact their businesses in key countries. This is one reason why global businesses have teams of in-house professionals monitoring the WTO as well as the regional trade alliances.
For example, American companies doing business in one of the ASEAN countries often choose to become members of the US–ASEAN Business Council, so that they can monitor and possibly influence new trade regulations as well as advance their business interests with government entities.
The US–ASEAN Business Council is the premiere advocacy organization for U.S. corporations operating within the dynamic Association of Southeast Asian Nations (ASEAN). ASEAN represents nearly 600 million people and a combined GDP of USD \$1.5 trillion across Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The Council’s members include the largest U.S. companies working in ASEAN, and range from newcomers to the region to companies that have been working in Southeast Asia for over 100 years….
The Council leads major business missions to key economies; convenes multiple meetings with ASEAN heads of state and ministers; and is the only U.S. organization to be given the privilege of raising member company concerns in consultations with the ASEAN Finance and Economic Ministers, as well as with the ASEAN Customs Directors-General at their annual meetings. Having long-established personal and professional relationships with key ASEAN decision makers, the Council is able to arrange genuine dialogues, solve problems and facilitate opportunities in all types of market conditions, and provide market entry and exclusive advisory services.45
US–ASEAN member companies read like the Fortune Global 500 and include AT&T, Coca-Cola, Microsoft, Johnson & Johnson, Chevron, Ford Motor Company, and General Electric. While other countries and the EU have ongoing dialogues with ASEAN, the US–ASEAN Business Council is the most formal approach. 46
It’s easy to see how complicated the relationships can be with just one trading bloc. A global firm with operations in North America, the EU, and Asia could easily find itself at the crosshairs of competing trade interests. Staffed with lawyers in an advocacy department, global firms work to maintain relationships with all of the interested parties. If you are curious about a business career in trade, then you may want to consider combining a business degree with a legal degree for the most impact.
Key Takeaways
• Regional economic integration refers to efforts to promote free and fair trade on a regional basis.
There are four main types of economic integration:
1. Free trade areais the most basic form of economic cooperation. Member countries remove all barriers to trade between themselves, but are free to independently determine trade policies with nonmember nations.
2. Customs unionprovides for economic cooperation. Barriers to trade are removed between member countries, and members agree to treat trade with nonmember countries in a similar manner.
3. Common marketallows for the creation of an economically integrated market between member countries. Trade barriers and any restrictions on the movement of labor and capital between member countries are removed. There is a common trade policy for trade with nonmember nations, and workers no longer need a visa or work permit to work in another member country of a common market.
4. Economic unionis created when countries enter into an economic agreement to remove barriers to trade and adopt common economic policies.
• The largest regional trade cooperative agreements are the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Asia–Pacific Economic Cooperation (APEC). The African Economic Community (AEC) has more member countries than the EU, NAFTA, and APEC but represents a substantially smaller portion of global trade than these other cooperatives.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.05%3A_Regional_Economic_Integration.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand how and why peace impacts business.
2. Describe the role of the United Nations.
3. Identify how global businesses benefit from political and economic stability
The final section in this chapter reviews an institution, the United Nations, whose primary purpose is to promote peace between countries. Peace fosters stability and that stability provides the framework for the expansion of business interests and trade.
Why Does Peace Impact Business?
The opening case study demonstrated how political, economic, and military instability in Europe led to two world wars and eventually the development of the EU. It’s clear that conflict between countries significantly reduces international trade and seriously damages national and global economic welfare.
It’s worth noting that there is a wide range of businesses that benefit from war—for example, companies in industries that manufacture arms, plastics, clothing (uniforms), and a wide range of supplies and logistics. Companies such as BAE Systems, Lockheed Martin, Finmeccanica, Thales Group, General Dynamics, KBR (Halliburton), Rolls-Royce, Boeing, and Honeywell are just some of the world’s largest companies in this sector, and all receive benefits that are woven into economic and trade policy from their respective governments directly as well as through general preferences in trade policies and agreements.
Did You Know?
Industrialized countries negotiate free trade and investment agreements with other countries, but exempt military spending from the liberalizing demands of the agreement. Since only the wealthy countries can afford to devote billions on military spending, they will always be able to give their corporations hidden subsidies through defence contracts, and maintain a technologically advanced industrial capacity.
And so, in every international trade and investment agreement one will find a clause which exempts government programs and policies deemed vital for national security.1
Nevertheless, military conflict can be extremely disruptive to economic activity and impede long-term economic performance. As a result, most global businesses find that operating in stable environments leads to the best business operations for a range of reasons:
• Staffing. It’s easier to recruit skilled labor if the in-country conditions are stable and relatively risk-free. Look at the challenges companies have in recruiting nonmilitary personnel to work in the fledging private sectors of Iraq or Afghanistan. Even development organizations have been challenged to send in skilled talent to develop banking-, finance-, and service-sector initiatives. Historically, regardless of which country or conflict, development staff has only been sent into a country after stability has been secured by military force. Companies have to pay even higher levels of hardship and risk pay and may still not necessarily be able to bring in the best talent.
• Operations. In unstable environments, companies fear loss or damage to property and investment. For example, goods in transit can easily be stolen, and factories or warehouses can be damaged.
• Regulations. Unclear and constantly changing business rules make it hard for firms to plan for the long term.
• Currency convertibility and free-flowing capital. Often countries experiencing conflict often impose capital controls (i.e., restrictions on money going in and out of their countries) as well as find that their currency may be devalued or illiquid. Financial management is a key component of global business management.
While bilateral or multilateral trade doesn’t always dissuade countries from pursuing military options, countries that are engaged in trade discussions are more likely to use these forums to discuss other conflict areas. Furthermore, the largest global companies—Siemens, General Electric, Boeing, Airbus, and others—have the economic might to influence governments to promote initiatives to benefit their companies or industries.
Business in Conflict Zones: Angola and Conflict Diamonds
Angola, located in southern Africa, is a country that faced internal devastation from an intense civil war raging from its independence in 1975 until 2002. For many businesspeople, Angola may seem a relatively obscure country. However, it is the second-largest petroleum and diamond producer in sub-Saharan Africa. While the oil has brought economic success, the diamonds, known as conflict or blood diamonds, have garnered global attention. Even Hollywood has called attention to this illicit trade in a 2006 movie entitled Blood Diamond as well as numerous other movie plots focusing on conflict diamonds, including one in the James Bond franchise.
So what are conflict diamonds? The United Nations (UN) defines them as follows:
Conflict diamonds are diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments, or in contravention of the decisions of the Security Council….
Rough diamond caches have often been used by rebel forces to finance arms purchases and other illegal activities. Neighbouring and other countries can be used as trading and transit grounds for illicit diamonds. Once diamonds are brought to market, their origin is difficult to trace and once polished, they can no longer be identified.2
First discovered in 1912, diamonds are a key industry for Angola. During its twenty-seven years of conflict, which cost up to 1.5 million lives, rebel groups in Angola traded diamonds to fund armed conflict, hence the term conflict diamonds. Some estimate that Angola’s main rebel group, National Union for the Total Independence of Angola (UNITA), sold more than \$3.72 billion in conflict diamonds to finance its war against the government.3
These morally tainted conflict diamonds, along with those from other conflict countries, were bad for the global diamond industry—damaging the reputation and integrity of their key commodity product.
In 1999, the UN applied sanctions to ban the Angolan rebels’ trade in conflict diamonds, but a portion of diamonds continued to be traded by the rebels. The UN conducted extensive investigations. “The Security Council’s diamond campaign is part of an ongoing UN effort to make sanctions more selective, better targeted and more rigorously enforced instruments for maintaining international peace and security.”4
Eventually, the UN, various governments, the diamond industry, and nongovernmental organizations, including Global Witness, Amnesty International, and Partnership Africa Canada (PAC), recognized the need for a global system to prevent conflict diamonds from entering the legitimate diamond supply chain and thus helping fund conflicts. The process that was established in 2003 provides for certification process to assure consumers that by purchasing certified diamonds they weren’t financing war and human rights abuses. As a result, seventy-four governments have adopted the Kimberley Process certification system, and more than 99 percent of the world’s diamonds are from conflict- free sources.5
The Kimberley Process and global attention have addressed a critical global-business ethics issue. By taking collective ethical action, the global diamond industry, including firms such as De Beers, Cartier, and Zale, have not only done the right thing but have also helped preserve and grow their businesses while restoring the reputation of their industry.
For example, South African De Beers is the world’s largest diamond mining and trading company. Prior to UN action and the Kimberley Process, De Beers was buying conflict diamonds from guerilla movements in three African countries, thereby financing regional conflicts. One UN investigation in Angola found that rebel forces bartered uncut diamonds for weaponry, thereby allowing the civil war to continue in 1998 despite international economic and diplomatic sanctions. In 1999, under UN pressure, De Beers decided to stop buying any outside diamonds in order to guarantee the conflict-free status of its diamond.6
Today, De Beers states that 100 percent of the diamonds it sells are conflict-free and that all De Beers diamonds are purchased in compliance with national law, the Kimberley Process, and its own Best Practice Principles.7
Angola is still dealing with the loss and devastation of an almost thirty-year conflict with its quality of life among the worst in the world in terms of life expectancy and infant mortality. Nevertheless, the country has made rapid economic strides since 2002 and is now one of the fastest-growing economies in Africa. Conflict diamonds are no longer traded in Angola. The country is a Kimberley Process participant and currently produces approximately 9 percent of the world’s diamonds.8
The United Nations
The United Nations (UN) was formed in 1945 at the end of World War II to replace the League of Nations, which had been formed in 1919. Its original goals remain the same today: to maintain international peace and security; to develop friendly relations between nations; and to foster international cooperation in solving economic, social, humanitarian, and cultural issues. There is an underlying premise of human rights and equality. Almost all of the world’s countries are members—currently 192 nations—with only a few smaller territories and Taiwan, out of deference to China, given observer status and not membership. The UN is funded by member countries’ assessments and contributions.
The work of the UN reaches every corner of the globe. Throughout the world, the UN and its agencies assist refugees, set up programs to clear landmines, help expand food production, and lead the fight against AIDS. They also help protect the environment, fight diseases, reduce poverty, and strive for better living standards and human rights. Although the UN is often best known for peacekeeping, peace building, conflict prevention, and humanitarian assistance, the organization also works on a broad range of fundamental social, economic, environment, and health issues. In the Ethics in Action sidebar on Angola, you learned how the UN led the way to resolving the problem of conflict diamonds and partnered with the global diamond industry to develop a long-term solution to a thorny ethical trading problem and promote peace and stability in former conflict countries like Angola.
A secretary-general leads the UN and serves for a five-year term. Structurally, the UN consists of six main bodies:
1. General Assembly. This is the deliberative body of the UN and consists of all of the member countries that meet in regular sessions throughout the year. All of the members have an equal vote in the General Assembly.
2. Security Council. This body is responsible for addressing issues related to peace and security. It has fifteen members, five of which are permanent country representations—the United States, the United Kingdom, Russia, China, and France. The remaining ten are elected by the General Assembly every two years. As you may expect, there’s a great deal of political wrangling by countries to be on the Security Council, which is deemed to have significant power. All decisions by the Security Council are supposed to be binding on the rest of the member nations of the UN.
3. Economic and Social Council (ECOSOC). This body is responsible for issues related to economics, human rights, and social matters. A number of smaller commissions and specialized agencies carry out this council’s work. The ECOSOC works closely with the World Bank and the International Monetary Fund.
4. Secretariat. The Secretariat oversees the operations of the UN and is technically headed by the Secretary-General
5. International Court of Justice. Located in The Hague, this body hears disputes between nations. The court consists of fifteen judges who are elected by the General Assembly and the Security Council. The court reviews cases concerning war crimes, genocide, ethnic cleansing, and illegal interference by one country in the affairs of another, among others.
6. UN Trusteeship Council. While an official part of the UN Charter charged with overseeing all trustee territories under UN custody, this body is currently inactive.
Did You Know?
A strong UN is the world’s most effective voice for international cooperation on behalf of peace, development, human rights, and the environment. The UN has also sought to forge partnerships outside of the traditional diplomatic arena. One such partnership that is of growing interest to private sector businesses is the UN Global Compact. This is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles. Why would companies want to align their businesses with these principles? For starters, some businesses see it as a way to be a good global corporate citizen, a label that they can use to attract and retain the best workforce as well as use in marketing efforts to exhibit their global corporate responsibility. The UN is motivated to engage the private sector in helping solve the world’s most pressing problems, often with for-profit solutions.
The United Nations Global Compact presents a unique strategic platform for participants to advance their commitments to sustainability and corporate citizenship. Structured as a public-private initiative, the Global Compact offers a policy framework for the development, implementation, and disclosure of sustainability principles and practices related to its four core areas: human rights, labour, the environment and anti-corruption. Indeed, managing the enterprise risks and opportunities related to these areas is today a widely understood aspect of long-term “value creation”—value creation that can simultaneously benefit the private sector and societies at large.
With over 7700 business participants and other stakeholders from more than 130 countries, the Global Compact offers participants a wide spectrum of specialized work streams, management tools and resources, and topical programs and projects—all designed to help advance sustainable business models and markets in order to contribute to the initiative’s overarching objective of helping to build a more sustainable and inclusive global economy.9
Companies use their participation in the UN Global Compact to illustrate that they are good global corporate citizens, in an effort to satisfy the objectives of consumers, suppliers, and investors as well as government and nongovernment entities—all of whose support a global company needs to achieve its global business objectives.
One example is Coca-Cola and its adherence to maintaining its good global business citizenship also earns it the ability to influence trade and economic policy with governments and organizations that can positively impact its business interests in select markets around the world. For example, Coca-Cola highlights its commitment on its website and in global reports. The company explains on its website, “In March 2006, The Coca-Cola Company became a signatory to the United Nations (UN) Global Compact, affirming our commitment to the advancement of its 10 universal accepted principles…in the areas of human rights, labor, the environment and anti-corruption. Several of our bottling partners are also signatories.”10
Human Rights
• Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
• Principle 2: make sure that they are not complicit in human rights abuses.
Labour
• Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
• Principle 4: the elimination of all forms of forced and compulsory labour;
• Principle 5: the effective abolition of child labour; and
• Principle 6: the elimination of discrimination in respect of employment and occupation.
Environment
• Principle 7: Businesses should support a precautionary approach to environmental challenges;
• Principle 8: undertake initiatives to promote greater environmental responsibility; and
• Principle 9: encourage the development and diffusion of environmentally friendly technologies.
Anti-Corruption
• Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.11
UN as a Business Partner
The UN has a very clear diplomatic role on the global stage. It’s also important to remember that it works closely with the private sector, which actually carries out the vast amount of services and projects around the world. Global businesses sell to the UN just as they do to their own governments and public-sector organizations. Each arm of the UN has a procurement office. The UN Procurement Division does business with vendors from all over the world and is actively working to increase its sources of supply from developing countries and countries with economies in transition.
Key Takeaways
• While certain industries (e.g., defense companies) benefit from conflict, in general global firms prosper best in peaceful times. The primary impact for businesses is in the areas of staffing, operations, regulations, and currency convertibility and financial management.
• The United Nations (UN) was formed at the end of World War II in 1945. Its original intent remains the same: to maintain international peace and security; to develop friendly relations between nations; and to foster international cooperation in solving economic, social, humanitarian, and cultural issues.
• The six main bodies of the UN are the (1) Secretariat, (2) Security Council, (3) General Assembly, (4) Economic and Social Council, (5) International Court of Justice, and (6) UN Trusteeship Council. The Secretary-General leads the UN. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.06%3A_The_United_Nations_and_the_Impact_on_Trade.txt |
Learning Objectives
After reading this section, students should be able to …
1. Identify some of the ways the world has stepped closer to free trade recently.
2. Identify some of the ways the world has stepped further from free trade recently.
In the spring of 2009, the world was in the midst of the largest economic downturn since the early 1980s. Economic production was falling and unemployment was rising. International trade had fallen substantially everywhere in the world, while investment both domestically and internationally dried up.
The source of these problems was the bursting of a real estate bubble. Bubbles are fairly common in both real estate and stock markets. A bubble describes a steady and persistent increase in prices in a market—in this case, in the real estate markets in the United States and abroad. When bubbles are developing, many market observers argue that the prices are reflective of true values despite a sharp and unexpected increase. These justifications fool many people into buying the products in the hope that the prices will continue to rise and generate a profit.
When the bubble bursts, the demand driving the price increases ceases and a large number of participants begin to sell off their product to realize their profit. When this occurs, prices quickly plummet. The dramatic drop in real estate prices in the United States in 2007 and 2008 left many financial institutions near bankruptcy. These financial market instabilities finally spilled over into the real sector (i.e., the sector where goods and services are produced), contributing not only to a world recession but also to a new popular attitude that capitalism and free markets may not be working very well. This attitude change may fuel the antiglobalization sentiments that were growing during the previous decade.
As the current economic crisis unfolded, there were numerous suggestions about similarities between this recession and the Great Depression in the 1930s. One big concern was that countries might revert to protectionism to try to save jobs for domestic workers. This is precisely what many countries did at the onset of the Great Depression, and it is widely believed that that reaction made the Depression worse rather than better.
Since the economic crisis began in late 2008, national leaders have regularly vowed to avoid protectionist pressures and maintain current trade liberalization commitments made under the World Trade Organization (WTO) and individual free trade agreements. However, at the same time, countries have raised barriers to trade in a variety of subtle ways. For example, the United States revoked a promise to maintain a program allowing Mexican trucks to enter the United States under the North American Free Trade Agreement (NAFTA), it included “Buy American” provisions it its economic stimulus package, it initiated a special safeguards action against Chinese tire imports, and it brought a case against China at the WTO. Although many of these actions are legal and allowable under U.S. international commitments, they are nevertheless irritating to U.S. trading partners and indicative of the rising pressure to implement policies favorable to domestic businesses and workers. Most other countries have taken similar, albeit subtle, protectionist actions as well.
Nevertheless, this rising protectionism runs counter to a second popular sentiment among people seeking to achieve greater liberalization and openness in international markets. For example, as the recession began, the United States had several free trade areas waiting to be approved by the U.S. Congress: one with South Korea, another with Colombia, and a third with Panama. In addition, the United States has participated in talks recently with many Pacific Rim countries to forge a Trans-Pacific Partnership (TPP) that could liberalize trade around the region. Simultaneously, free trade area discussions continue among many other country pairings around the world.
This current ambivalence among countries and policymakers is nothing new. Since the Great Depression, trade policymaking around the world can be seen as a tug of war between proponents and opponents of trade liberalization. Even as free trade advocates have achieved trade expansions and liberalizations, free trade opponents have often achieved market-closing policies at the same time; three steps forward toward trade liberalization are often coupled with two steps back at the same time.
To illustrate this point, we continue with a discussion of both recent initiatives for trade liberalization and some of the efforts to resist these liberalization movements. We’ll also look back to see how the current policies and discussions have been shaped by events in the past century.
Doha and WTO
The Doha Round is the name of the current round of trade liberalization negotiations undertaken by WTO member countries. The objective is for all participating countries to reduce trade barriers from their present levels for trade in goods, services, and agricultural products; to promote international investment; and to protect intellectual property rights. In addition, member countries discuss improvements in procedures that outline the rights and responsibilities of the member countries. Member countries decided that a final agreement should place special emphasis on changes targeting the needs of developing countries and the world’s poor and disadvantaged. As a result, the Doha Round is sometimes called the Doha Development Agenda, or DDA.
The Doha Round was begun at the WTO ministerial meeting held in Doha, Qatar, in November 2001. It is the first round of trade liberalization talks under the auspices of the WTO, which was founded in 1994 in the final General Agreement on Tariffs and Trade (GATT) round of talks, the Uruguay Round. Because missed deadlines are commonplace in the history of GATT talks, an old joke is that GATT really means the “General Agreement to Talk and Talk.”
In anticipation, WTO members decided to place strict deadlines for different phases of the agreement. By adhering to the deadlines, countries were more assured that the talks would be completed on schedule in the summer of 2005—but the talks weren’t. So members pushed off the deadline to 2006, and then to 2007, and then to 2008, always reporting that an agreement was near. As of 2009, the Doha Round has still not been completed, testifying to the difficulty of getting 153 member countries to conceive of a trade liberalization agreement that all countries can accept mutually.
This is an important point: WTO rounds (and the GATT rounds before them) are never finalized until every member country agrees to the terms and conditions. Each country offers a set of trade-liberalizing commitments, or promises, and in return receives the trade-liberalizing commitments made by its 152 potential trading partners. This is a much stronger requirement than majority voting, wherein coalitions can force other members into undesirable outcomes. Thus one reason this round has so far failed is because some countries believe that the others are offering too little liberalization relative to the liberalization they themselves are offering.
The DDA is especially complex, not only because 153 countries must reach a consensus, but also because there are so many trade-related issues under discussion. Countries discuss not only tariff reductions on manufactured goods but also changes in agricultural support programs, regulations affecting services trade, intellectual property rights policy and enforcement, and procedures involving trade remedy laws, to name just a few. Reaching an agreement that every country is happy about across all these issues may be more than the system can handle. We’ll have to wait to see whether the Doha Round ever finishes to know if it is possible. Even then, there is some chance an agreement that is achievable may be so watered down that it doesn’t result in much trade liberalization.
The primary stumbling block in the Doha Round (and the previous Uruguay Round too) has been insufficient commitments on agricultural liberalization, especially by the developed countries. Today, agriculture remains the most heavily protected industry around the world. In addition to high tariffs at the borders, most countries offer subsidies to farmers and dairy producers, all of which affects world prices and international trade. Developing countries believe that the low world prices for farm products caused by subsidies in rich countries both prevents them from realizing their comparative advantages and stymies economic development. However, convincing developed country farmers to give up long-standing handouts from their governments has been a difficult to impossible endeavor.
To their credit, developed countries have suggested that they may be willing to accept greater reductions in agricultural subsidies if developing countries would substantially reduce their very high tariff bindings on imported goods and bind most or all of their imported products. Developing countries have argued, however, that because this is the Doha “Development” Round, they shouldn’t be asked to make many changes at all to their trade policies; rather, they argue that changes should be tilted toward greater market access from developing into developed country markets.
Of course, this is not the only impasse in the discussions, as there are many other issues on the agenda. Nevertheless, agricultural liberalization will surely remain one of the major stumbling blocks to continued trade liberalization efforts. And the Doha Round is not dead yet, since continuing discussions behind the spotlight reflect at least some sentiment around the world that further trade liberalization is a worthy goal. But this is not a sentiment shared by all, and indeed opponents almost prevented this WTO round from beginning in the first place. To understand why, we need to go back two years to the Doha Round commencement in Seattle, Washington, in December 1999.
The WTO Seattle Ministerial—1999
Every two years, the WTO members agreed to hold a ministerial meeting bringing together, at minimum, the trade ministers of the member countries to discuss WTO issues. In 1999, the ministerial was held in Seattle, Washington, in the United States, and because it was over five years since the last round of trade discussions had finished, many members thought it was time to begin a new round of trade talks. There is a well-known “bicycle theory” about international trade talks that says that forward momentum must be maintained or else, like a bicycle, liberalization efforts will stall.
And so the WTO countries decided by 1999 to begin a new “Millennial Round” of trade liberalization talks and to kick off the discussions in Seattle in December 1999. However, two things happened, the first attesting to the difficulty of getting agreement among so many countries and the second attesting to the growing opposition to the principles of free trade itself.
Shortly before the ministers met, they realized that there was not even sufficient agreement among governments about what the countries should discuss in the new round. For example, the United States was opposed to any discussion about trade remedy laws, whereas many developing countries were eager to discuss revisions. Consequently, because no agreement—even about what to talk about—could be reached, the start of the round was postponed.
The second result of the meeting was a cacophony of complaints that rose up from the thousands of protesters who gathered outside the meetings. This result was more profound if only because the resulting disturbances, including property damage and numerous arrests, brought the issues of trade and the WTO to the international stage. Suddenly, the world saw that there was substantial opposition to the principles of the WTO in promoting trade and expanded globalization.
These protests at the Seattle Ministerial were perhaps directed not solely at the WTO itself but instead at a variety of issues brought to the forefront by globalization. Some protesters were there to protest environmental degradation and were worried that current development was unsustainable, others were protesting child labor and unsafe working conditions in developing countries, and still others were concerned about the loss of domestic jobs due to international competition. In many ways, the protesters were an eclectic group consisting of students, labor union members, environmentalists, and even some anarchists.
After Seattle, groups sometimes labeled “antiglobalization groups” began organizing protests at other prominent international governmental meetings, including the biannual World Bank and International Monetary Fund (IMF) meetings, the meeting of the G8 countries, and the World Economic Forum at Davos, Switzerland. The opposition to freer trade, and globalization more generally, was on the rise. At the same time, though, national governments continued to press for more international trade and investment through other means.
Ambivalence about Globalization since the Uruguay Round
Objectively speaking, ambivalence about trade and globalization seems to best characterize the decades of the 1990s and 2000s. Although this was a time of rising protests and opposition to globalization, it was also a time in which substantial movements to freer trade occurred. What follows are some events of the last few decades highlighting this ambivalence.
First off, trade liberalization became all the rage around the world by the late 1980s. The remarkable success of outward-oriented economies such as South Korea, Taiwan, Hong Kong, and Singapore—known collectively as the East Asian Tigers—combined with the relatively poor performance of inward-oriented economies in Latin America, Africa, India, and elsewhere led to a resurgence of support for trade.
Because the Uruguay Round of the GATT was on its way to creating the WTO, many countries decided to jump on the liberalizing bandwagon by joining the negotiations to become founding members of the WTO. One hundred twenty-three countries were members of the WTO upon its inception in 1995, only to grow to 153 members by 2009.
Perhaps the most important new entrant into the WTO was China in 2001. China had wanted to be a founding member of the WTO in 1995 but was unable to overcome the accession hurdle. You see, any country that is already a WTO member has the right to demand trade liberalization concessions from newly acceding members. Since producers around the world were fearful of competition from China, most countries demanded more stringent liberalization commitments than were usually expected from other acceding countries at a similar level of economic development. As a result, it took longer for China to gain entry than for most other countries.
But at the same time that many developing countries were eager to join the WTO, beliefs in freer trade and the WTO were reversing in the United States. Perhaps the best example was the struggle for the U.S. president to secure trade-negotiating authority. First, a little history.
Article 1, section 8 of the U.S. Constitution states, “The Congress shall have the power…to regulate commerce with foreign nations.” This means that decisions about trade policies must be made by the U.S. Senate and House of Representatives, and not by the U.S. president. Despite this, the central agency in trade negotiations today is the United States Trade Representative (USTR), an executive branch (or presidential) agency. The reason for this arrangement is that the U.S. Congress has ceded authority for these activities to the USTR. One such piece of enabling legislation is known as trade promotion authority (TPA).
TPA enables the U.S. president, or more specifically the USTR, to negotiate trade liberalization agreements with other countries. The legislation is known as fast-track authority because it provides for expedited procedures in the approval process by the U.S. Congress. More specifically, for any trade agreement the president presents to the Congress, Congress will vote the agreement, in its entirety, up or down in a yea or nay vote. Congress agrees not to amend or change in any way the contents of the negotiated agreement. The fast-track procedure provides added credibility to U.S. negotiators since trade agreement partners will know the U.S. Congress cannot change the details upon review.
TPA has been given to the U.S. president in various guises since the 1930s. In the post–World War II era, authority was granted to the president to negotiate successive GATT rounds. A more recent incarnation was granted to the president in the Trade Act of 1974. TPA enabled negotiations for the U.S.-Israel free trade area (FTA) in 1985 and NAFTA in 1993. However, this authority expired in 1994 under President Clinton and was never reinstated during the remainder of his presidency. The failure to extend TPA signified the growing discontent, especially in the U.S. House of Representatives, with trade liberalization.
When George W. Bush became president, he wanted to push for more trade liberalization through the expansion of FTAs with regional and strategic trade partners. He managed to gain a renewal of TPA in 2001 (with passage in the House by just one vote, 216 to 215). This enabled President Bush to negotiate and implement a series of FTAs with Chile, Singapore, Australia, Morocco, Jordan, Bahrain, Oman, Central America and the Dominican Republic, and Peru. Awaiting congressional approval (as of December 2009) are FTAs with South Korea, Colombia, and Panama.
Despite these advances toward trade liberalization, TPA expired in 2007 and has not yet been renewed by the U.S. Congress, again representing the ambivalence of U.S. policymakers to embrace freer trade. Another indication is the fact that the FTAs with South Korea, Colombia, and Panama were submitted for approval to Congress before the deadline for TPA expired in 2007 and these agreements still have not been brought forward for a vote by the U.S. Congress.
While the United States slows its advance toward freer trade, other countries around the world continue to push forward. There are new FTAs between China and the Association of Southeast Asian Nations (ASEAN) countries, Japan and the Philippines, Thailand and Chile, Pakistan and China, and Malaysia and Sri Lanka, along with several other new pairings.
Future prospects for trade liberalization versus trade protections are quite likely to depend on the length and severity of the present economic crisis. If the crisis abates soon, trade liberalization may return to its past prominence. However, if the crisis continues for several more years and if unemployment rates remain much higher than usual for an extended time, then demands for more trade protection may increase significantly. Economic crises have proved in the past to be a major contributor to high levels of protection. Indeed, as was mentioned previously, there is keen awareness today that the world may stumble into the trade policy mistakes of the Great Depression. Much of the trade liberalization that has occurred since then can be traced to the desire to reverse the effects of the Smoot-Hawley Tariff Act of 1930. Thus to better understand the current references to our past history, the story of the Great Depression is told next.
Key Takeaways
• Recent support for trade liberalization is seen in the establishment of numerous free trade areas and the participation of many countries in the Doha Round of trade talks.
• Recent opposition to trade liberalization is seen in national responses to the financial crisis, the protest movement at the Seattle Ministerial and other venues, and the failure in the United States to grant trade promotion authority to the president. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.07%3A_Trade_Controversies.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand the types of international investments.
2. Identify the factors that influence foreign direct investment (FDI).
3. Explain why and how governments encourage FDI in their countries.
Understand the Types of International Investments
There are two main categories of international investment—portfolio investment and foreign direct investment. Portfolio investment refers to the investment in a company’s stocks, bonds, or assets, but not for the purpose of controlling or directing the firm’s operations or management. Typically, investors in this category are looking for a financial rate of return as well as diversifying investment risk through multiple markets.
Foreign direct investment (FDI) refers to an investment in or the acquisition of foreign assets with the intent to control and manage them. Companies can make an FDI in several ways, including purchasing the assets of a foreign company; investing in the company or in new property, plants, or equipment; or participating in a joint venture with a foreign company, which typically involves an investment of capital or know-how. FDI is primarily a long-term strategy. Companies usually expect to benefit through access to local markets and resources, often in exchange for expertise, technical know-how, and capital. A country’s FDI can be both inward and outward. As the terms would suggest, inward FDI refers to investments coming into the country and outward FDI are investments made by companies from that country into foreign companies in other countries. The difference between inward and outward is called the net FDI inflow, which can be either positive or negative.
Governments want to be able to control and regulate the flow of FDI so that local political and economic concerns are addressed. Global businesses are most interested in using FDI to benefit their companies. As a result, these two players—governments and companies—can at times be at odds. It’s important to understand why companies use FDI as a business strategy and how governments regulate and manage FDI.
Factors That Influence a Company’s Decision to Invest
Let’s look at why and how companies choose to invest in foreign markets. Simply purchasing goods and services or deciding to invest in a local market depends on a business’s needs and overall strategy. Direct investment in a country occurs when a company chooses to set up facilities to produce or market their products; or seeks to partner with, invest in, or purchase a local company for control and access to the local market, production, or resources. Many considerations influence its decisions:
• Cost. Is it cheaper to produce in the local market than elsewhere?
• Logistics. Is it cheaper to produce locally if the transportation costs are significant?
• Market. Has the company identified a significant local market?
• Natural resources. Is the company interested in obtaining access to local resources or commodities?
• Know-how. Does the company want access to local technology or business process knowledge?
• Customers and competitors. Does the company’s clients or competitors operate in the country?
• Policy. Are there local incentives (cash and noncash) for investing in one country versus another?
• Ease. Is it relatively straightforward to invest and/or set up operations in the country, or is there another country in which setup might be easier?
• Culture. Is the workforce or labor pool already skilled for the company’s needs or will extensive training be required?
• Impact. How will this investment impact the company’s revenue and profitability?
• Expatriation of funds. Can the company easily take profits out of the country, or are there local restrictions?
• Exit. Can the company easily and orderly exit from a local investment, or are local laws and regulations cumbersome and expensive?
These are just a few of the many factors that might influence a company’s decision. Keep in mind that a company doesn’t need to sell in the local market in order to deem it a good option for direct investment. For example, companies set up manufacturing facilities in low-cost countries but export the products to other markets.
There are two forms of FDI—horizontal and vertical. Horizontal FDI occurs when a company is trying to open up a new market—a retailer, for example, that builds a store in a new country to sell to the local market. Vertical FDI is when a company invests internationally to provide input into its core operations—usually in its home country. A firm may invest in production facilities in another country. When a firm brings the goods or components back to its home country (i.e., acting as a supplier), this is referred to as backward vertical FDI. When a firm sells the goods into the local or regional market (i.e., acting as a distributor), this is termed forward vertical FDI. The largest global companies often engage in both backward and forward vertical FDI depending on their industry.
Many firms engage in backward vertical FDI. The auto, oil, and infrastructure (which includes industries related to enhancing the infrastructure of a country—that is, energy, communications, and transportation) industries are good examples of this. Firms from these industries invest in production or plant facilities in a country in order to supply raw materials, parts, or finished products to their home country. In recent years, these same industries have also started to provide forward FDI by supplying raw materials, parts, or finished products to newly emerging local or regional markets.
There are different kinds of FDI, two of which—greenfield and brownfield—are increasingly applicable to global firms. Greenfield FDIs occur when multinational corporations enter into developing countries to build new factories or stores. These new facilities are built from scratch—usually in an area where no previous facilities existed. The name originates from the idea of building a facility on a green field, such as farmland or a forested area. In addition to building new facilities that best meet their needs, the firms also create new long-term jobs in the foreign country by hiring new employees. Countries often offer prospective companies tax breaks, subsidies, and other incentives to set up greenfield investments.
A brownfield FDI is when a company or government entity purchases or leases existing production facilities to launch a new production activity. One application of this strategy is where a commercial site used for an “unclean” business purpose, such as a steel mill or oil refinery, is cleaned up and used for a less polluting purpose, such as commercial office space or a residential area. Brownfield investment is usually less expensive and can be implemented faster; however, a company may have to deal with many challenges, including existing employees, outdated equipment, entrenched processes, and cultural differences.
You should note that the terms greenfield and brownfield are not exclusive to FDI; you may hear them in various business contexts. In general, greenfield refers to starting from the beginning, and brownfield refers to modifying or upgrading existing plans or projects.
Why and How Governments Encourage FDI
Many governments encourage FDI in their countries as a way to create jobs, expand local technical knowledge, and increase their overall economic standards. Countries like Hong Kong and Singapore long ago realized that both global trade and FDI would help them grow exponentially and improve the standard of living for their citizens. As a result, Hong Kong (before its return to China) was one of the easiest places to set up a new company. Guidelines were clearly available, and businesses could set up a new office within days. Similarly, Singapore, while a bit more discriminatory on the size and type of business, offered foreign companies a clear, streamlined process for setting up a new company.
In contrast, for decades, many other countries in Asia (e.g., India, China, Pakistan, the Philippines, and Indonesia) restricted or controlled FDI in their countries by requiring extensive paperwork and bureaucratic approvals as well as local partners for any new foreign business. These policies created disincentives for many global companies. By the 1990s (and earlier for China), many of the countries in Asia had caught the global trade bug and were actively trying to modify their policies to encourage more FDI. Some were more successful than others, often as a result of internal political issues and pressures rather than from any repercussions of global trade.1
How Governments Discourage or Restrict FDI
In most instances, governments seek to limit or control foreign direct investment to protect local industries and key resources (oil, minerals, etc.), preserve the national and local culture, protect segments of their domestic population, maintain political and economic independence, and manage or control economic growth. A government use various policies and rules:
• Ownership restrictions. Host governments can specify ownership restrictions if they want to keep the control of local markets or industries in their citizens’ hands. Some countries, such as Malaysia, go even further and encourage that ownership be maintained by a person of Malay origin, known locally as bumiputra. Although the country’s Foreign Investment Committee guidelines are being relaxed, most foreign businesses understand that having a bumiputrapartner will improve their chances of obtaining favorable contracts in Malaysia.
• Tax rates and sanctions. A company’s home government usually imposes these restrictions in an effort to persuade companies to invest in the domestic market rather than a foreign one.
How Governments Encourage FDI
Governments seek to promote FDI when they are eager to expand their domestic economy and attract new technologies, business know-how, and capital to their country. In these instances, many governments still try to manage and control the type, quantity, and even the nationality of the FDI to achieve their domestic, economic, political, and social goals.
• Financial incentives. Host countries offer businesses a combination of tax incentives and loans to invest. Home-country governments may also offer a combination of insurance, loans, and tax breaks in an effort to promote their companies’ overseas investments. The opening case on China in Africa illustrated these types of incentives.
• Infrastructure. Host governments improve or enhance local infrastructure—in energy, transportation, and communications—to encourage specific industries to invest. This also serves to improve the local conditions for domestic firms.
• Administrative processes and regulatory environment. Host-country governments streamline the process of establishing offices or production in their countries. By reducing bureaucracy and regulatory environments, these countries appear more attractive to foreign firms.
• Invest in education. Countries seek to improve their workforce through education and job training. An educated and skilled workforce is an important investment criterion for many global businesses.
• Political, economic, and legal stability. Host-country governments seek to reassure businesses that the local operating conditions are stable, transparent (i.e., policies are clearly stated and in the public domain), and unlikely to change.
Encouraging Foreign Investment
Governments seek to encourage FDI for a variety of reasons. On occasion, though, the process can cross the lines of ethics and legality. In November 2010, seven global companies paid the US Justice Department “a combined \$236 million in fines to settle allegations that they or their contractors bribed foreign officials to smooth the way for importing equipment and materials into several countries.”2 The companies included Shell and contractors Transocean, Noble, Pride International, Global Santa Fe, Tidewater, and Panalpina World Transport. The bribes were paid to officials in oil-rich countries—Nigeria, Brazil, Azerbaijan, Russia, Turkmenistan, Kazakhstan, and Angola. In the United States, global firms—including ones headquartered elsewhere, but trading on any of the US stock exchanges—are prohibited from paying or even offering to pay bribes to foreign government officials or employees of state-owned businesses with the intent of currying business favors. While the law and the business ethics are clear, in many cases, the penalty fines remain much less onerous than losing critical long-term business revenues.3
Hong Kong: From Junks to Jets? The Rise of a Global Powerhouse
Policies of openness to FDI and international trade have enabled countries around the world to leapfrog economically over their neighbors. The historical rise of Hong Kong is one example. Hong Kong’s economic strengths can be traced to a combination of factors, including its business-friendly laws and policies, a local population that is culturally oriented to transacting trade and business, and Hong Kong’s geographic proximity to the major economies of China, Japan, and Taiwan.
Hong Kong has always been open to global trade. Many people, from the Chinese to the Japanese to the British, have occupied Hong Kong over the centuries, and all of them have contributed to its development as one of the world’s great ports and trading centers.
In 1997, Hong Kong reverted back to Chinese control; however, free enterprise will be governed under the agreement of Basic Law, which established Hong Kong as a separate Special Administrative Region (SAR) of China. Under its Basic Law, in force until 2047, Hong Kong will retain its legal, social, economic, and political systems apart from China’s. Thus, Hong Kong is guaranteed the right to its own monetary system and financial autonomy. Hong Kong is allowed to work independently with the international community; to control trade in strategic commodities, drugs, and illegal transshipments; and to protect intellectual property rights. Under the Basic Law, the Hong Kong SAR maintains an independent tax system and the right to free trade.
Hong Kong has an open business structure, which freely encourages foreign direct investment. Any company that wishes to do business here is free to do so as long as it complies with local laws. Hong Kong’s legal and institutional framework combined with its good banking and financial facilities and business-friendly tax systems have encouraged foreign direct investment as many multinationals located their regional headquarters in Hong Kong.
As a base for doing business with China, Hong Kong now accounts for half of all direct investments in the mainland and is China’s main conduit for investment and trade. China has also become a major investor in Hong Kong.
Culturally, many foreign firms are attracted to Hong Kong by its skilled workforce and the fact that Hong Kong still conducts business in English, a remnant of its British colonial influence. The imprint of the early British trading firms, known as hongs, is particularly strong today in the area of property development. Jardine Matheson and Company, for instance, founded by trader William Jardine, remains one of Hong Kong’s preeminent firms. In many of these companies, British management practices remain firmly in place. Every aspect of Hong Kong’s business laws—whether pertaining to contracts, taxes, or trusts—bears striking similarities to the laws in Britain. All these factors contribute to a business culture that is familiar to people in many multinationals.
Chinese cultural influences have always affected business and are increasingly so today. Many pundits claim that Hong Kong already resembles China’s free-trade zone. And, indeed, the two economies are becoming increasingly intertwined. Much of this economic commingling began in the 1990s, when Hong Kong companies began relocating production centers to the mainland—especially to Guangdong province.
Because of the shift in production to mainland China and other Asian countries, there is not much manufacturing left in Hong Kong. What remains is light in nature and veers toward high-value-added products. In fact, 80 percent of Hong Kong’s gross domestic product now comes from its high value-added service sector: finance, business and legal services, brokerage services, the shipping and cargo industries, and the hotel, food, and beverage industry.
Local Hong Kong companies, as well as foreign businesses based there, are uniquely positioned to play important roles as brokers and intermediaries between the mainland and global corporations. Doing business in China is not only complex and daunting but also requires connections, locally known as guanxi, to influential people and an understanding of local laws and protocol. Developing these relationships and this knowledge is almost impossible without the assistance of an insider. It is in this role that the Hong Kong business community stands to contribute enormously.
Hong Kong’s openness to foreign investment coupled with its proximity to China will ensure its global economic competitiveness for decades to come.
Key Takeaways
• There are two main categories of international investment: portfolio investment and foreign direct investment (FDI). Portfolio investment refers to the investment in a company’s stocks, bonds, or assets, but not for the purpose of controlling or directing the firm’s operations or management. FDI refers to an investment in or the acquisition of foreign assets with the intent to control and manage them.
• Direct investment in a country occurs when a company chooses to set up facilities to produce or market its products or seeks to partner with, invest in, or purchase a local company for control and access to the local market, production, or resources. Many considerations can influence the company’s decisions, including cost, logistics, market, natural resources, know-how, customers and competitors, policy, ease of entry and exit, culture, impact on revenue and profitability, and expatriation of funds.
• Governments discourage or restrict FDI through ownership restrictions, tax rates, and sanctions. Governments encourage FDI through financial incentives; well-established infrastructure; desirable administrative processes and regulatory environment; educational investment; and political, economic, and legal stability. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/02%3A_International_Business_and_Trade/2.08%3A_Foreign_Direct_Investment.txt |
Summary
Most people hear about culture and business and immediately think about protocol—a list of dos and don’ts by country. For example, don’t show the sole of your foot in Saudi Arabia; know how to bow in Japan. While these practices are certainly useful to know, they are just the tip of the iceberg. We often underestimate how critical local culture, values, and customs can be in the business environment. We assume, usually incorrectly, that business is the same everywhere. Culture does matter, and more and more people are realizing its impact on their business interactions.
Culture, in the broadest sense, refers to how and why we think and function. It encompasses all sorts of things—how we eat, play, dress, work, think, interact, and communicate. Everything we do, in essence, has been shaped by the cultures in which we are raised. Similarly, a person in another country is also shaped by his or her cultural influences. These cultural influences impact how we think and communicate.
Culture, a society’s “programming of the mind,” has both a pervasive and changing influence on each national market environment. Global marketers must recognize the influence of culture and be prepared to either respond to it or change it. Human behavior is a function of a person’s own unique personality and that person’s interaction with the collective forces of the particular society and culture in which he or she has lived. In particular, attitudes, values, and beliefs can vary significantly from country to country.
Also, differences pertaining to religion, aesthetics, dietary customs, and language and communication can affect local reaction to brands or products as well as the ability of company personnel to function effectively in different cultures. A number of concepts and theoretical frameworks provide insights into these and other cultural issues.
Cultures can be classified as high- or low-context; communication and negotiation styles can differ from country to country. Hofstede’s social value typology sheds light on national cultures in terms of power distance, individualism vs. collectivism, masculinityvs. femininity, uncertainty avoidance, and long-versus short-term orientation. By understanding the self-reference criterion, global marketers can overcome the unconscious tendency for perceptual blockage and distortion.
Source
The above note was adapted from the course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM) (‘Social and Cultural Environments’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license.), and under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor.
3.02: Factors Shaping the Global Marketing Environment
Learning Objectives
After reading this section, students should be able to …
1. appreciate the role of external environmental factors that shape the global marketing environment
While the same basic domestic marketing principles apply to global marketing, there are additional layers of complexity for marketers to consider when working across markets in different countries and world regions. Much of this complexity centers the need to develop a keen understanding of the consumer and the target market—a task essential for effective marketing, whether global or domestic. But in the global environment, there are additional questions to ask and issues to consider in order to fully appreciate the consumer and the marketing opportunities in a target market.
Additional complexity resides in the business environment created by government, regulatory bodies, and other societal institutions that shape the behaviors of individuals and institutions. This business environment is somewhat unique to every country and target market. Understanding these dynamics can help marketers work more effectively to achieve their organizations’ business objectives. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/03%3A_Social_and_Cultural_Environment/3.01%3A_Social_and_Cultural_Environment_Summary.txt |
Learning Objectives
After reading this section, students should be able to …
1. list the various elements in a firm’s cultural environment
The cultural environment consists of the influence of religious, family, educational, and social systems in the marketing system. Marketers who intend to market their products overseas may be very sensitive to foreign cultures. While the differences between our cultural background in the United States and those of foreign nations may seem small, marketers who ignore these differences risk failure in implementing marketing programs. Failure to consider cultural differences is one of the primary reasons for marketing failures overseas.
This task is not as easy as it sounds as various features of a culture can create an illusion of similarity. Even a common language does not guarantee similarity of interpretation. For example, in the US we purchase “cans” of various grocery products, but the British purchase “tins”. A number of cultural differences can cause marketers problems in attempting to market their products overseas. These include: (a) language, (b) color, (c) customs and taboos, (d) values, (e) aesthetics, (f) time, (g) business norms, (h) religion, and (i) social structures. Each is discussed in the following sections.
Student Example
I travel out of the country to Mexico almost every year. I can see the immense cultural differences between Mexico and the United States, from the language to colors, to the values, religious beliefs, and business norms. As soon as I step out of the plane in Mexico, I feel like I am in a different world. In terms of the language, the primary is obviously Spanish; however, in the past few years, I have noticed signs in the airport with translations to English and Chinese. In terms of values, they seem to focus more on survival. For example, marketing food, shelter products, and clothing. Their religious beliefs are centered around Catholicism.
Elizabeth Garcia
Class of 2020
Language
The importance of language differences cannot be overemphasized, as there are almost 3,000 languages in the world. Language differences cause many problems for marketers in designing advertising campaigns and product labels. Language problems become even more serious once the people of a country speak several languages. For example, in Canada, labels must be in both English and French. In India, there are over 200 different dialects, and a similar situation exists in China.
Student Example
I believe language is very important in marketing, advertising, and product labels. In the United States, I have noticed that most products have product labels in English and often you can peel off for a Spanish label under. Although I have heard many people complain about the fact that there are two languages on every product in America, it is very necessary. In the United States, we have many individuals who speak Spanish, or a language very similar to that, especially since we are so close to South America. Companies and organizations have come to terms with the fact that their product may be in the hands of an individual whose primary language is Spanish; thus, they provide a label in Spanish to properly cater to their consumers.
Natalie Vazquez-Lopez
Class of 2020
Colors
Colors also have different meanings in different cultures. For example, in Egypt, the country’s national color of green is considered unacceptable for packaging, because religious leaders once wore it. In Japan, black and white are colors of mourning and should not be used on a product’s package. Similarly, purple is unacceptable in Hispanic nations because it is associated with death.
Consider how the following examples could be used in development of international marketing programs:
• In Russia, it is acceptable for men to greet each other with a kiss, but this custom is not acceptable in the US.
• Germans prefer their salad dressing in a tube, while Americans prefer it in a bottle.
• In France, wine is served with most meals, but in America, milk, tea, water, and soft drinks are popular.
McDonalds Corporation has opened 20 restaurants in India. Since 80 percent of Indians are Hindu, McDonald’s will use a non-beef meat substitute for its traditional hamburger. The likely beef substitute will be lamb, a very popular meat in India. In anticipation of its restaurant openings, McDonald’s conducted extensive market research, site selection studies, and developed a relationship with India’s largest chicken supplier. McDonald’s has opted to market its product in India, largely because India’s population of more than 900 million represents one-sixth of the world’s population.
Values
An individual’s values arise from his/her moral or religious beliefs and are learned through experiences. For example, in America, we place a very high value on material well-being and are much more likely to purchase status symbols than people in India. Similarly, in India, the Hindu religion forbids the consumption of beef, and fast-food restaurants such as McDonald’s and Burger King would encounter tremendous difficulties without product modification. Americans spend large amounts of money on soap, deodorant, and mouthwash because of the value placed on personal cleanliness. In Italy, salespeople call on women only if their husbands are at home.
Aesthetics
The term aesthetics is used to refer to the concepts of beauty and good taste. The phrase, “Beauty is in the eye of the beholder” is a very appropriate description for the differences in aesthetics that exist between cultures. For example, Americans believe that suntans are attractive, youthful, and healthy. However, the Japanese do not.
Time
Americans seem to be fanatical about time when compared to other cultures. Punctuality and deadlines are routine business practices in the US. However, salespeople who set definite appointments for sales calls in the Middle East and Latin America will have a lot of time on their hands, as business people from both of these cultures are far less bound by time constraints. To many of these cultures, setting a deadline such as “I have to know next week” is considered pushy and rude.
Student Example
While traveling this past summer I was able to spend time in Italy. It took me a while to get used to having to plan around their typical schedule. During lunch they take what is called a riposo, or an extended lunch break where they go home to eat and spend time with their families and relax. This is in direct contrast to the culture in America, where I have on many occasions worked through lunch breaks. In the world of business, this would be something people would need to be sensitive to so that there would be no issues with trying to schedule meetings or even work lunches.
Brittney Harvey
Class of 2020
Business Norms
The norms of conducting business also vary from one country to the next. Here are several examples of foreign business behavior that differ from US business behavior:
• In France, wholesalers do not like to promote products. They are mainly interested in supplying retailers with the products they need.
• In Russia, plans of any kind must be approved by a seemingly endless string of committees. As a result, business negotiations may take years.
• South Americans like to talk business “nose to nose”. This desire for close physical proximity causes American businesspeople to back away from the constantly forward-moving South Americans.
• In Japan, business people have mastered the tactic of silence in negotiations. Americans are not prepared for this, and they panic because they think something has gone wrong. The result is that Americans become impatient, push for a closure, and often make business concessions they later regret.
These norms are reflected in the difficulty of introducing the Web into Europe.
Religious Beliefs
A person’s religious beliefs can affect shopping patterns and products purchased in addition to his/her values, as discussed earlier. In the United States and other Christian nations, Christmastime is a major sales period. But for other religions, religious holidays do not serve as popular times for purchasing products. Women do not participate in household buying decisions in countries in which religion serves as opposition to women’s rights movements.
Every culture has a social structure, but some seem less widely defined than others. That is, it is more difficult to move upward in a social structure that is rigid. For example, in the US, the two-wage earner family has led to the development of a more affluent set of consumers. But in other cultures, it is considered unacceptable for women to work outside the home.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/65dfa6e7-819...dae5f033aece@4 | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/03%3A_Social_and_Cultural_Environment/3.03%3A_The_Social_and_Cultural_Environment.txt |
Learning Objectives
After reading this section, students should be able to …
1. appreciate the importance of culture on markets
Because international marketing is closely correlated to the cultures in which a firm wishes to sell its product, culture itself must be analyzed to understand the best way to integrate into both existing and emerging foreign markets. There are five essential areas within which culture must be continually studied in order to achieve success in dealing with culture as it affects international marketing.
These are: (Tian, 2008)
• culture impacts on marketing (international versus domestic)
• cross-cultural dimensions of marketing research
• cross-cultural aspects of the marketing mix (products, price, promotion, and place)
• cross-cultural marketing education and professional training
• and cross-cultural practice in electronic marketing
Cross-cultural marketing occurs when a consumer’s culture differs from that of the marketer’s own culture.
Consumer behavior diverges across country lines with increased wealth, globalization, and technology; it does not converge (De Mooij, 2005).
Student Example
McDonald’s has done a great job introducing its chain around the world and moving into numerous markets and cultures. One location that I think is a great example of cross-cultural marketing is McDonald’s in France. The French have a very different culture than the United States. They live their life at a much slower pace and their meals are more about socializing and enjoying the time with people rather than eating and getting out. McDonald’s has created some new menu items for their French locations such as an Alpine burger and the McBaguette. McDonald’s also designed the French chains so that they are more spacious and decorated tastefully so that it does encourage the French to sit down and enjoy their meal at their own pace. There are also separate McCafe locations around France that are decorated with big comfortable chairs and couches to encourage socialization. In addition, the coffee is served in real coffee mugs and not it to-go cups.
Before entering the country, McDonald’s surely did their research because they not only added French-like items to the menu, but they also incorporated a French-like atmosphere. I think this is a very good example of cross-cultural marketing because these locations really encourage a dine-in and more relaxed experience compared to the fast pace take-out that Americans are used to. Many French people have actually commented on the fact that McDonald’s in France does not feel like a fast-food restaurant at all. With this information, I think it is easy to say that their research and cross-cultural marketing plan for France has been a success.
Courtney Kent
Class of 2020
This simple fact proves the importance of cultural knowledge in cross-cultural marketing endeavors. In fact, the importance of cross-cultural study has inspired a definition separate from that of international marketing. Cross-cultural marketing is defined as the strategic process of marketing among consumers whose culture differs from that of the marketer’s own culture at least in one of the fundamental cultural aspects, such as language, religion, social norms and values, education, and the living style (Tian, 2008).
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/22ef0f57-703...dd1287d17e0a@5 | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/03%3A_Social_and_Cultural_Environment/3.04%3A_Importance_of_Culture_on_Markets.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand what is meant by culture.
2. Know that there are different kinds of culture.
3. Identify several different kinds of culture.
Opening Case: Dunkin’ Brands
Dunkin’ Donuts and Baskin-Robbins: Making Local Global
High-tech and digital news may dominate our attention globally, but no matter where you go, people still need to eat. Food is a key part of many cultures. It is part of the bonds of our childhood, creating warm memories of comfort food or favorite foods that continue to whet our appetites. So it’s no surprise that sugar and sweets are a key part of our food focus, no matter what the culture. Two of the most visible American exports are the twin brands of Dunkin’ Donuts and Baskin-Robbins.
Owned today by a consortium of private equity firms known as the Dunkin’ Brands, Dunkin’ Donuts and Baskin-Robbins have been sold globally for more than thirty-five years. Today, the firm has more than 14,800 points of distribution in forty-four countries with \$6.9 billion in global sales.
After an eleven-year hiatus, Dunkin’ Donuts returned to Russia in 2010 with the opening of twenty new stores. Under a new partnership, “the planned store openings come 11 years after Dunkin’ Donuts pulled out of Russia, following three years of losses exacerbated by a rogue franchisee who sold liquor and meat pies alongside coffee and crullers.”1 Each culture has different engrained habits, particularly in the choices of food and what foods are appropriate for what meals. The more globally aware businesses are mindful of these issues and monitor their overseas operations and partners. One of the key challenges for many companies operating globally with different resellers, franchisees, and wholly owned subsidiaries is the ability to control local operations.
This wasn’t the first time that Dunkin’ had encountered an overzealous local partner who tried to customize operations to meet local preferences and demands. In Indonesia in the 1990s, the company was surprised to find that local operators were sprinkling a mild, white cheese on a custard-filled donut. The company eventually approved the local customization since it was a huge success.2
Dunkin’ Donuts and Baskin-Robbins have not always been owned by the same firm. They eventually came under one entity in the late 1980s—an entity that sought to leverage the two brands. One of the overall strategies was to have the morning market covered by Dunkin’ Donuts and the afternoon-snack market covered by Baskin-Robbins. It is a strategy that worked well in the United States and was one the company employed as it started operating and expanding in different countries. The company was initially unprepared for the wide range of local cultural preferences and habits that would culturally impact its business. In Russia, Japan, China, and most of Asia, donuts, if they were known at all, were regarded more as a sweet type of bakery treat, like an éclair or cream puff. Locals primarily purchased and consumed them at shopping malls as an “impulse purchase” afternoon-snack item and not as a breakfast food.
In fact, in China, there was no equivalent word for “donut” in Mandarin, and European-style baked pastries were not common outside the Shanghai and Hong Kong markets. To further complicate Dunkin’ Donuts’s entry into China, which took place initially in Beijing, the company name could not even be phonetically spelled in Chinese characters that made any sense, as Baskin-Robbins had been able to do in Taiwan. After extensive discussion and research, company executives decided that the best name and translation for Dunkin’ Donuts in China would read Sweet Sweet Ring in Chinese characters.
Local cultures also impacted flavors and preferences. For Baskin-Robbins, the flavor library is controlled in the United States, but local operators in each country have been the source of new flavor suggestions. In many cases, flavors that were customized for local cultures were added a decade later to the main menus in major markets, including the United States. Mango and green tea were early custom ice cream flavors in the 1990s for the Asian market. In Latin America, dulce de leche became a favorite flavor. Today, these flavors are staples of the North American flavor menu.
One flavor suggestion from Southeast Asia never quite made it onto the menu. The durian fruit is a favorite in parts of Southeast Asia, but it has a strong, pungent odor. Baskin-Robbins management was concerned that the strong odor would overwhelm factory operations. (The odor of the durian fruit is so strong that the fruit is often banned in upscale hotels in several Asian countries.) While the durian never became a flavor, the company did concede to making ice cream flavored after the ube, a sweetened purple yam, for the Philippine market. It was already offered in Japan, and the company extended it to the Philippines. In Japan, sweet corn and red bean ice cream were approved for local sale and became hot sellers, but the two flavors never made it outside the country.
When reviewing local suggestions, management conducts a market analysis to determine if the global market for the flavor is large enough to justify the investment in research and development and eventual production. In addition to the market analysis, the company always has to make sure they have access to sourcing quality flavors and fruit. Mango proved to be a challenge, as finding the correct fruit puree differed by country or culture. Samples from India, Hawaii, Pakistan, Mexico, the Philippines, and Puerto Rico were taste-tested in the mainland United States. It seems that the mango is culturally regarded as a national treasure in every country where it is grown, and every country thinks its mango is the best. Eventually the company settled on one particular flavor of mango.
A challenging balance for Dunkin’ Brands is to enable local operators to customize flavors and food product offerings without diminishing the overall brand of the companies. Russians, for example, are largely unfamiliar with donuts, so Dunkin’ has created several items that specifically appeal to Russian flavor preferences for scalded cream and raspberry jam.3 In some markets, one of the company’s brands may establish a market presence first. In Russia, the overall “Dunkin’ Brands already ranks as a dessert purveyor. Its Baskin-Robbins ice-cream chain boasts 143 shops there, making it the No. 2 Western restaurant brand by number of stores behind the hamburger chain McDonald’s Corp.”4 The strength of the company’s ice cream brand is now enabling Dunkin’ Brands to promote the donut chain as well.
As the opening case about Dunkin’ Brands illustrates, local preferences, habits, values, and culture impact all aspects of doing business in a country. But what exactly do we mean by culture? Culture is different from personality. For our purposes here, let’s define personality as a person’s identity and unique physical, mental, emotional, and social characteristics.5 No doubt one of the highest hurdles to cross-cultural understanding and effective relationships is our frequent inability to decipher the influence of culture from that of personality. Once we become culturally literate, we can more easily read individual personalities and their effect on our relationships.
So, What Is Culture, Anyway?
Culture in today’s context is different from the traditional, more singular definition, used particularly in Western languages, where the word often implies refinement. Culture is the beliefs, values, mind-sets, and practices of a group of people. It includes the behavior pattern and norms of that group—the rules, the assumptions, the perceptions, and the logic and reasoning that are specific to a group. In essence, each of us is raised in a belief system that influences our individual perspectives to such a large degree that we can’t always account for, or even comprehend, its influence. We’re like other members of our culture—we’ve come to share a common idea of what’s appropriate and inappropriate.
Culture is really the collective programming of our minds from birth. It’s this collective programming that distinguishes one group of people from another. Much of the problem in any cross-cultural interaction stems from our expectations. The challenge is that whenever we deal with people from another culture—whether in our own country or globally—we expect people to behave as we do and for the same reasons. Culture awareness most commonly refers to having an understanding of another culture’s values and perspective. This does not mean automatic acceptance; it simply means understanding another culture’s mind-set and how its history, economy, and society have impacted what people think. Understanding so you can properly interpret someone’s words and actions means you can effectively interact with them.
When talking about culture, it’s important to understand that there really are no rights or wrongs. People’s value systems and reasoning are based on the teachings and experiences of their culture. Rights and wrongs then really become perceptions. Cross-cultural understanding requires that we reorient our mind-set and, most importantly, our expectations, in order to interpret the gestures, attitudes, and statements of the people we encounter. We reorient our mind-set, but we don’t necessarily change it.
There are a number of factors that constitute a culture—manners, mind-set, rituals, laws, ideas, and language, to name a few. To truly understand culture, you need to go beyond the lists of dos and don’ts, although those are important too. You need to understand what makes people tick and how, as a group, they have been influenced over time by historical, political, and social issues. Understanding the “why” behind culture is essential.
When trying to understand how cultures evolve, we look at the factors that help determine cultures and their values. In general, a value is defined as something that we prefer over something else—whether it’s a behavior or a tangible item. Values are usually acquired early in life and are often nonrational—although we may believe that ours are actually quite rational. Our values are the key building blocks of our cultural orientation.
Odds are that each of us has been raised with a considerably different set of values from those of our colleagues and counterparts around the world. Exposure to a new culture may take all you’ve ever learned about what’s good and bad, just and unjust, and beautiful and ugly and stand it on its head.
Human nature is such that we see the world through our own cultural shades. Tucked in between the lines of our cultural laws is an unconscious bias that inhibits us from viewing other cultures objectively. Our judgments of people from other cultures will always be colored by the frame of reference we’ve been taught. As we look at our own habits and perceptions, we need to think about the experiences that have blended together to impact our cultural frame of reference.
In coming to terms with cultural differences, we tend to employ generalizations. This isn’t necessarily bad. Generalizations can save us from sinking into what may be abstruse, esoteric aspects of a culture. However, recognize that cultures and values are not static entities. They’re constantly evolving—merging, interacting, drawing apart, and reforming. Around the world, values and cultures are evolving from generation to generation as people are influenced by things outside their culture. In modern times, media and technology have probably single-handedly impacted cultures the most in the shortest time period—giving people around the world instant glimpses into other cultures, for better or for worse. Recognizing this fluidity will help you avoid getting caught in outdated generalizations. It will also enable you to interpret local cues and customs and to better understand local cultures.
Understanding what we mean by culture and what the components of culture are will help us better interpret the impact on business at both the macro and micro levels. Confucius had this to say about cultural crossings: “Human beings draw close to one another by their common nature, but habits and customs keep them apart.”
What Kinds of Culture Are There?
Political, economic, and social philosophies all impact the way people’s values are shaped. Our cultural base of reference—formed by our education, religion, or social structure—also impacts business interactions in critical ways. As we study cultures, it is very important to remember that all cultures are constantly evolving. When we say “cultural,” we don’t always just mean people from different countries. Every group of people has its own unique culture—that is, its own way of thinking, values, beliefs, and mind-sets. For our purposes in this chapter, we’ll focus on national and ethnic cultures, although there are subcultures within a country or ethnic group.
Precisely where a culture begins and ends can be murky. Some cultures fall within geographic boundaries; others, of course, overlap. Cultures within one border can turn up within other geographic boundaries looking dramatically different or pretty much the same. For example, Indians in India or Americans in the United States may communicate and interact differently from their countrymen who have been living outside their respective home countries for a few years.
The countries of the Indian subcontinent, for example, have close similarities. And cultures within one political border can turn up within other political boundaries looking pretty much the same, such as the Chinese culture in China and the overseas Chinese culture in countries around the world. We often think that cultures are defined by the country or nation, but that can be misleading because there are different cultural groups (as depicted in the preceding figure). These groups include nationalities; subcultures (gender, ethnicities, religions, generations, and even socioeconomic class); and organizations, including the workplace.
Nationalities
A national culture is—as it sounds—defined by its geographic and political boundaries and includes even regional cultures within a nation as well as among several neighboring countries. What is important about nations is that boundaries have changed throughout history. These changes in what territory makes up a country and what the country is named impact the culture of each country.
In the past century alone, we have seen many changes as new nations emerged from the gradual dismantling of the British and Dutch empires at the turn of the 1900s. For example, today the physical territories that constitute the countries of India and Indonesia are far different than they were a hundred years ago. While it’s easy to forget that the British ran India for two hundred years and that the Dutch ran Indonesia for more than one hundred and fifty years, what is clearer is the impact of the British and the Dutch on the respective bureaucracies and business environments. The British and the Dutch were well known for establishing large government bureaucracies in the countries they controlled. Unlike the British colonial rulers in India, the Dutch did little to develop Indonesia’s infrastructure, civil service, or educational system. The British, on the other hand, tended to hire locals for administrative positions, thereby establishing a strong and well-educated Indian bureaucracy. Even though many businesspeople today complain that this Indian bureaucracy is too slow and focused on rules and regulations, the government infrastructure and English-language education system laid out by the British helped position India for its emergence as a strong high-tech economy.
Even within a national culture, there are often distinct regional cultures—the United States is a great example of diverse and distinct cultures all living within the same physical borders. In the United States, there’s a national culture embodied in the symbolic concept of “all-American” values and traits, but there are also other cultures based on geographically different regions—the South, Southwest, West Coast, East Coast, Northeast, Mid-Atlantic, and Midwest.
Subcultures
Many groups are defined by ethnicity, gender, generation, religion, or other characteristics with cultures that are unique to them. For example, the ethnic Chinese business community has a distinctive culture even though it may include Chinese businesspeople in several countries. This is particularly evident throughout Asia, as many people often refer to Chinese businesses as making up a single business community. The overseas Chinese business community tends to support one another and forge business bonds whether they are from Indonesia, Malaysia, Singapore, or other ASEAN (Association of Southeast Asian Nations) countries. This group is perceived differently than Chinese from mainland China or Taiwan. Their common experience being a minority ethnic community with strong business interests has led to a shared understanding of how to quietly operate large businesses in countries. Just as in mainland China, guanxi, or “connections,” are essential to admission into this overseas Chinese business network. But once in the network, the Chinese tend to prefer doing business with one another and offer preferential pricing and other business services.
Organizations
Every organization has its own workplace culture, referred to as the organizational culture. This defines simple aspects such as how people dress (casual or formal), how they perceive and value employees, or how they make decisions (as a group or by the manager alone). When we talk about an entrepreneurial culture in a company, it might imply that the company encourages people to think creatively and respond to new ideas fairly quickly without a long internal approval process. One of the issues managers often have to consider when operating with colleagues, employees, or customers in other countries is how the local country’s culture will blend or contrast with the company’s culture.
For example, Apple, Google, and Microsoft all have distinct business cultures that are influenced both by their industries and by the types of technology-savvy employees that they hire, as well as by the personalities of their founders. When these firms operate in a country, they have to assess how new employees will fit their respective corporate cultures, which usually emphasize creativity, innovation, teamwork balanced with individual accomplishment, and a keen sense of privacy. Their global employees may appear relaxed in casual work clothes, but underneath there is often a fierce competitiveness. So how do these companies effectively hire in countries like Japan, where teamwork and following rules are more important than seeking new ways of doing things? This is an ongoing challenge that human resources (HR) departments continually seek to address.
Key Takeaways
• Culture is the beliefs, values, mind-sets, and practices of a specific group of people. It includes the behavior pattern and norms of a specific group—the rules, the assumptions, the perceptions, and the logic and reasoning that are specific to a group. Culture is really the collective programming of our minds from birth. It’s this collective programming that distinguishes one group of people from another. Cultural awareness most commonly refers to having an understanding of another culture’s values and perspective.
• When trying to understand how cultures evolve, we look at the factors that help determine cultures and their values. In general, a valueis defined as something that we prefer over something else—whether it’s a behavior or a tangible item. Values are usually acquired early in life and are usually nonrational. Our values are the key building blocks of our cultural orientation.
• When we say cultural, we don’t always just mean people from different countries. Cultures exist in all types of groups. There are even subcultures within a country or target ethnic group. Each person belongs to several kinds of cultures: national, subcultural (regional, gender, ethnic, religious, generational, and socioeconomic), and group or workplace (corporate culture).
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/03%3A_Social_and_Cultural_Environment/3.05%3A_What_is_Culture.txt |
Learning Objectives
After reading this section, students should be able to …
1. Know several methods to describe cultures.
2. Define and apply Hofstede’s and Hall’s categories for cultural identification.
3. Identify and discuss additional determinants of culture.
The study of cross-cultural analysis incorporates the fields of anthropology, sociology, psychology, and communication. The combination of cross-cultural analysis and business is a new and evolving field; it’s not a static understanding but changes as the world changes. Within cross-cultural analysis, two names dominate our understanding of culture—Geert Hofstede and Edward T. Hall. Although new ideas are continually presented, Hofstede remains the leading thinker on how we see cultures.
This section will review both the thinkers and the main components of how they define culture and the impact on communications and business. At first glance, it may seem irrelevant to daily business management to learn about these approaches. In reality, despite the evolution of cultures, these methods provide a comprehensive and enduring understanding of the key factors that shape a culture, which in turn impact every aspect of doing business globally. Additionally, these methods enable us to compare and contrast cultures more objectively. By understanding the key researchers, you’ll be able to formulate your own analysis of the different cultures and the impact on international business.
Hofstede and Values
Geert Hofstede, sometimes called the father of modern cross-cultural science and thinking, is a social psychologist who focused on a comparison of nations using a statistical analysis of two unique databases. The first and largest database composed of answers that matched employee samples from forty different countries to the same survey questions focused on attitudes and beliefs. The second consisted of answers to some of the same questions by Hofstede’s executive students who came from fifteen countries and from a variety of companies and industries. He developed a framework for understanding the systematic differences between nations in these two databases. This framework focused on value dimensions. Values, in this case, are broad preferences for one state of affairs over others, and they are mostly unconscious.
Most of us understand that values are our own culture’s or society’s ideas about what is good, bad, acceptable, or unacceptable. Hofstede developed a framework for understanding how these values underlie organizational behavior. Through his database research, he identified five key value dimensions that analyze and interpret the behaviors, values, and attitudes of a national culture:1
1. Power distance
2. Individualism
3. Masculinity
4. Uncertainty avoidance (UA)
5. Long-term orientation
Power distance refers to how openly a society or culture accepts or does not accept differences between people, as in hierarchies in the workplace, in politics, and so on. For example, high power distance cultures openly accept that a boss is “higher” and as such deserves a more formal respect and authority. Examples of these cultures include Japan, Mexico, and the Philippines. In Japan or Mexico, the senior person is almost a father figure and is automatically given respect and usually loyalty without questions.
In Southern Europe, Latin America, and much of Asia, power is an integral part of the social equation. People tend to accept relationships of servitude. An individual’s status, age, and seniority command respect—they’re what make it all right for the lower-ranked person to take orders. Subordinates expect to be told what to do and won’t take initiative or speak their minds unless a manager explicitly asks for their opinion.
At the other end of the spectrum are low power distance cultures, in which superiors and subordinates are more likely to see each other as equal in power. Countries found at this end of the spectrum include Austria and Denmark. To be sure, not all cultures view power in the same ways. In Sweden, Norway, and Israel, for example, respect for equality is a warranty of freedom. Subordinates and managers alike often have carte blanche to speak their minds.
Interestingly enough, research indicates that the United States tilts toward low power distance but is more in the middle of the scale than Germany and the United Kingdom.
Let’s look at the culture of the United States in relation to these five dimensions. The United States actually ranks somewhat lower in power distance—under forty as noted in Figure 3.1 “The United States’ Five Value Dimensions”. The United States has a culture of promoting participation at the office while maintaining control in the hands of the manager. People in this type of culture tend to be relatively laid-back about status and social standing—but there’s a firm understanding of who has the power. What’s surprising for many people is that countries such as the United Kingdom and Australia actually rank lower on the power distance spectrum than the United States.
Individualism, noted as IDV in Figure 3.1 “The United States’ Five Value Dimensions”, is just what it sounds like. It refers to people’s tendency to take care of themselves and their immediate circle of family and friends, perhaps at the expense of the overall society. In individualistic cultures, what counts most is self-realization. Initiating alone, sweating alone, achieving alone—not necessarily collective efforts—are what win applause. In individualistic cultures, competition is the fuel of success.
The United States and Northern European societies are often labeled as individualistic. In the United States, individualism is valued and promoted—from its political structure (individual rights and democracy) to entrepreneurial zeal (capitalism). Other examples of high-individualism cultures include Australia and the United Kingdom.
On the other hand, in collectivist societies, group goals take precedence over individuals’ goals. Basically, individual members render loyalty to the group, and the group takes care of its individual members. Rather than giving priority to “me,” the “us” identity predominates. Of paramount importance is pursuing the common goals, beliefs, and values of the group as a whole—so much so, in some cases, that it’s nearly impossible for outsiders to enter the group. Cultures that prize collectivism and the group over the individual include Singapore, Korea, Mexico, and Arab nations. The protections offered by traditional Japanese companies come to mind as a distinctively group-oriented value.
The next dimension is masculinity, which may sound like an odd way to define a culture. When we talk about masculine or feminine cultures, we’re not talking about diversity issues. It’s about how a society views traits that are considered masculine or feminine.
This value dimension refers to how a culture ranks on traditionally perceived “masculine” values: assertiveness, materialism, and less concern for others. In masculine-oriented cultures, gender roles are usually crisply defined. Men tend to be more focused on performance, ambition, and material success. They cut tough and independent personas, while women cultivate modesty and quality of life. Cultures in Japan and Latin American are examples of masculine-oriented cultures.
Student Example
In the United States, we typically tend to land somewhere in the middle when evaluated based on masculinity, i.e., we emphasize both masculine values and feminine values. Our culture creates a society that is driven by both competition and achievement as well as also the quality of life or caring for others. In countries like Japan, however, they rank much higher on the masculinity scale. The fundamental issue is what motivates people. This is not male vs. female but rather what characteristics motivate the collective individuals who make up the society. There is still an emphasis on collectivism in Japan, but competition between groups can be fierce. From a young age, where children compete in sports teams, to the corporate world of business where competition can lead to rivalry amongst firms. As a result of this competition, material production and presentation are held to a high standard, further demonstrating how they are a masculine society. Understanding the differences between a masculine or feminine society can play an integral part in determining success in terms of international marketing as promotion efforts should represent masculinity in a way that is received well by the consumers.
Mitchel Mertins
Class of 2020
In contrast, feminine cultures are thought to emphasize “feminine” values: concern for all, an emphasis on the quality of life, and an emphasis on relationships. In feminine-oriented cultures, both genders swap roles, with the focus on quality of life, service, and independence. The Scandinavian cultures rank as feminine cultures, as do cultures in Switzerland and New Zealand. The United States is actually more moderate, and its score is ranked in the middle between masculine and feminine classifications. For all these factors, it’s important to remember that cultures don’t necessarily fall neatly into one camp or the other.
The next dimension is uncertainty avoidance (UA). This refers to how much uncertainty a society or culture is willing to accept. It can also be considered an indication of the risk propensity of people from a specific culture.
People who have high uncertainty avoidance generally prefer to steer clear of conflict and competition. They tend to appreciate very clear instructions. At the office, sharply defined rules and rituals are used to get tasks completed. Stability and what is known are preferred to instability and the unknown. Company cultures in these countries may show a preference for low-risk decisions, and employees in these companies are less willing to exhibit aggressiveness. Japan and France are often considered clear examples of such societies.
In countries with low uncertainty avoidance, people are more willing to take on risks, companies may appear less formal and structured, and “thinking outside the box” is valued. Examples of these cultures are Denmark, Singapore, Australia, and to a slightly lesser extent, the United States. Members of these cultures usually require less formal rules to interact.
The fifth dimension is long-term orientation, which refers to whether a culture has a long-term or short-term orientation. This dimension was added by Hofstede after the original four you just read about. It resulted in the effort to understand the difference in thinking between the East and the West. Certain values are associated with each orientation. The long-term orientation values persistence, perseverance, thriftiness, and having a sense of shame. These are evident in traditional Eastern cultures. Based on these values, it’s easy to see why a Japanese CEO is likely to apologize or take the blame for a faulty product or process.
The short-term orientation values tradition only to the extent of fulfilling social obligations or providing gifts or favors. These cultures are more likely to be focused on the immediate or short-term impact of an issue. Not surprisingly, the United Kingdom and the United States rank low on long-term orientation.
Long- and short-term orientation and the other value dimensions in the business arena are all evolving as many people earn business degrees and gain experience outside their home cultures and countries, thereby diluting the significance of a single cultural perspective. As a result, in practice, these five dimensions do not occur as single values but are really woven together and interdependent, creating very complex cultural interactions. Even though these five values are constantly shifting and not static, they help us begin to understand how and why people from different cultures may think and act as they do. Hofstede’s study demonstrates that there are national and regional cultural groupings that affect the behavior of societies and organizations and that these are persistent over time.
Edward T. Hall
Edward T. Hall was a respected anthropologist who applied his field to the understanding of cultures and intercultural communications. Hall is best noted for three principal categories that analyze and interpret how communications and interactions between cultures differ: context, space, and time.
Context: High-Context versus Low-Context Cultures
High and low context refers to how a message is communicated. In high-context cultures, such as those found in Latin America, Asia, and Africa, the physical context of the message carries a great deal of importance. People tend to be more indirect and to expect the person they are communicating with to decode the implicit part of their message. While the person sending the message takes painstaking care in crafting the message, the person receiving the message is expected to read it within context. The message may lack the verbal directness you would expect in a low-context culture. In high-context cultures, body language is as important and sometimes more important than the actual words spoken.
In contrast, in low-context cultures such as the United States and most Northern European countries, people tend to be explicit and direct in their communications. Satisfying individual needs is important. You’re probably familiar with some well-known low-context mottos: “Say what you mean” and “Don’t beat around the bush.” The guiding principle is to minimize the margins of misunderstanding or doubt. Low-context communication aspires to get straight to the point.
Communication between people from high-context and low-context cultures can be confusing. In business interactions, people from low-context cultures tend to listen only to the words spoken; they tend not to be cognizant of body language. As a result, people often miss important clues that could tell them more about the specific issue.
Space
Space refers to the study of physical space and people. Hall called this the study of proxemics, which focuses on space and distance between people as they interact. Space refers to everything from how close people stand to one another to how people might mark their territory or boundaries in the workplace and in other settings. Stand too close to someone from the United States, which prefers a “safe” physical distance, and you are apt to make them uncomfortable. How close is too close depends on where you are from. Whether consciously or unconsciously, we all establish a comfort zone when interacting with others. Standing distances shrink and expand across cultures. Latins, Spaniards, and Filipinos (whose culture has been influenced by three centuries of Spanish colonization) stand rather close even in business encounters. In cultures that have a low need for territory, people not only tend to stand closer together but also are more willing to share their space—whether it be a workplace, an office, a seat on a train, or even ownership of a business project.
Attitudes toward Time: Polychronic versus Monochronic Cultures
Hall identified that time is another important concept greatly influenced by culture. In polychronic cultures—polychronic literally means “many times”—people can do several things at the same time. In monochronic cultures or “one-time” cultures, people tend to do one task at a time.
This isn’t to suggest that people in polychronic cultures are better at multitasking. Rather, people in monochronic cultures, such as Northern Europe and North America, tend to schedule one event at a time. For them, an appointment that starts at 8 a.m. is an appointment that starts at 8 a.m.—or 8:05 at the latest. People are expected to arrive on time, whether for a board meeting or a family picnic. Time is a means of imposing order. Often the meeting has a firm end time as well, and even if the agenda is not finished, it’s not unusual to end the meeting and finish the agenda at another scheduled meeting.
In polychronic cultures, by contrast, time is nice, but people and relationships matter more. Finishing a task may also matter more. If you’ve ever been to Latin America, the Mediterranean, or the Middle East, you know all about living with relaxed timetables. People might attend to three things at once and think nothing of it. Or they may cluster informally, rather than arrange themselves in a queue. In polychronic cultures, it’s not considered an insult to walk into a meeting or a party well past the appointed hour.
In polychronic cultures, people regard work as part of a larger interaction with a community. If an agenda is not complete, people in polychronic cultures are less likely to simply end the meeting and are more likely to continue to finish the business at hand.
Those who prefer monochronic order may find polychronic order frustrating and hard to manage effectively. Those raised with a polychronic sensibility, on the other hand, might resent the “tyranny of the clock” and prefer to be focused on completing the tasks at hand.
What Else Determines a Culture?
The methods presented in the previous sections note how we look at the structures of cultures, values, and communications. They also provide a framework for a comparative analysis between cultures, which is particularly important for businesses trying to operate effectively in multiple countries and cultural environments.
Additionally, there are other external factors that also constitute a culture—manners, mindsets, values, rituals, religious beliefs, laws, arts, ideas, customs, beliefs, ceremonies, social institutions, myths, and legends, language, individual identity, and behaviors, to name a few. While these factors are less structured and do not provide a comparative framework, they are helpful in completing our understanding of what impacts a culture. When we look at these additional factors, we are seeking to understand how each culture views and incorporates each of them. For example, are there specific ceremonies or customs that impact the culture and for our purposes, its business culture? For example, in some Chinese businesses, feng shui—an ancient Chinese physical art and science—is implemented in the hopes of enhancing the physical business environment and success potential of the firm.
Of these additional factors, the single most important one is communication.
Communication
Verbal Language
Language is one of the more conspicuous expressions of culture. As Hall showed, understanding the context of how language is used is essential to accurately interpret the meaning. Aside from the obvious differences, vocabularies are actually often built on the cultural experiences of the users. For example, in the opening case with Dunkin’ Donuts, we saw how the local culture complicated the company’s ability to list its name in Chinese characters.
Similarly, it’s interesting to note that Arabic speakers have only one word for ice, telg, which applies to ice, snow, hail, and so on. In contrast, Eskimo languages have different words for each type of snow—even specific descriptive words to indicate the amounts of snow.
Another example of how language impacts business is in written or e-mail communications, where you don’t have the benefit of seeing someone’s physical gestures or posture. For example, India is officially an English-speaking country, though its citizens speak the Queen’s English. Yet many businesspeople experience miscommunications related to misunderstandings in the language, ranging from the comical to the frustrating. Take something as simple as multiplication and division. Indians will commonly say “6 into 12” and arrive at 72, whereas their American counterparts will divide to get an answer of 2. You’d certainly want to be very clear if math were an essential part of your communication, as it would be if you were creating a budget for a project.
Another example of nuances between Indian and American language communications is the use of the word revert. The word means “to go back to a previously existing condition.” To Indians, though, the common and accepted use of the word is much more simplistic and means “to get back to someone.”
To see how language impacts communications, look at a situation in which an American manager, in negotiating the terms of a project, began to get frustrated by the e-mails that said that the Indian company was going to “revert back.” He took that to mean that they had not made any progress on some issues and that the Indians were going back to the original terms. Actually, the Indians simply meant that they were going to get back to him on the outstanding issues—again, a different connotation for the word because of cultural differences.
The all-encompassing “yes” is one of the hardest verbal cues to decipher. What does it really mean? Well, it depends on where you are. In a low-context country—the United States or Scandinavian countries, for example—“yes” is what it is: yes. In a high-context culture—Japan or the Philippines, for example—it can mean “yes,” “maybe,” “OK,” or “I understand you,”—but it may not always signify agreement. The meaning is in the physical context, not the verbal.
Language or words become a code, and you need to understand the word and the context.
Did You Know?
English Required in Japan
It’s commonly accepted around the world that English is the primary global business language. In Japan, some companies have incorporated this reality into daily business practice. By 2012, employees at Rakuten, Japan’s biggest online retailer by sales, will be “required to speak and correspond with one another in English, and executives have been told they will be fired if they aren’t proficient in the language by then. Rakuten, which has made recent acquisitions in the U.S. and Europe, says the English-only policy is crucial to its goal of becoming a global company. It says it needed a common language to communicate with its new operations, and English, as the chief language of international business, was the obvious choice. It expects the change, among other things, to help it hire and retain talented non-Japanese workers.”2
Rakuten is only one of many large and small Japanese companies pursuing English as part of its ongoing global strategy. English is key to the business culture and language at Sony, Nissan Motor, and Mitsubishi, to name a few Japanese businesses. English remains the leading global business language for most international companies seeking a standard common language with its employees, partners, and customers.
Body Language
How you gesture, twitch, or scrunch up your face represents a veritable legend to your emotions. Being able to suitably read—and broadcast—body language can significantly increase your chances of understanding and being understood. In many high-context cultures, it is essential to understand body language in order to accurately interpret a situation, comment, or gesture.
People may not understand your words, but they will certainly interpret your body language according to their accepted norms. Notice the word their. It is their perceptions that will count when you are trying to do business with them, and it’s important to understand that those perceptions will be based on the teachings and experiences of their culture—not yours.
Another example of the “yes, I understand you” confusion in South Asia is the infamous head wobble. Indians will roll their head from side to side to signify an understanding or acknowledgement of a statement—but not necessarily an acceptance. Some have even expressed that they mistakenly thought the head wobble meant “no.” If you didn’t understand the context, then you are likely to misinterpret the gesture and the possible verbal cues as well.
Did You Know?
OK or Not OK?
Various motions and postures can mean altogether divergent things in different cultures. Hand gestures are a classic example. The American sign for OK means “zero” in Tunisia and southern France, which far from signaling approval, is considered a threat. The same gesture, by the way, delivers an obscenity in Brazil, Germany, Greece, and Russia. If you want to tell your British colleagues that victory on a new deal is close at hand by making the V sign with your fingers, be sure your palm is facing outward; otherwise you’ll be telling them where to stick it, and it’s unlikely to win you any new friends.
Eye contact is also an important bit of unspoken vocabulary. People in Western cultures are taught to look into the eyes of their listeners. Likewise, it’s a way the listener reciprocates interest. In contrast, in the East, looking into someone’s eyes may come off as disrespectful, since focusing directly on someone who is senior to you implies disrespect. So when you’re interacting with people from other cultures, be careful not to assume that a lack of eye contact means anything negative. There may be a cultural basis to their behavior.
Amusing Anecdote
Kiss, Shake, Hug, or Bow
Additionally, touching is a tacit means of communication. In some cultures, shaking hands when greeting someone is a must. Where folks are big on contact, grown men might embrace each other in a giant bear hug, such as in Mexico or Russia.
Japan, by contrast, has traditionally favored bowing, thus ensuring a hands-off approach. When men and women interact for business, this interaction can be further complicated. If you’re female interacting with a male, a kiss on the cheek may work in Latin America, but in an Arab country, you may not even get a handshake. It can be hard not to take it personally, but you shouldn’t. These interactions reflect centuries-old traditional cultural norms that will take time to evolve.
Ethnocentrism
A discussion of culture would not be complete without at least mentioning the concept of ethnocentrism. Ethnocentrism is the view that a person’s own culture is central and other cultures are measured in relation to it. It’s akin to a person thinking that their culture is the “sun” around which all other cultures revolve. In its worst form, it can create a false sense of superiority of one culture over others.
Human nature is such that we see the world through our own cultural shades. Tucked in between the lines of our cultural laws is an unconscious bias that inhibits us from viewing other cultures objectively. Our judgments of people from other cultures will always be colored by the frame of reference in which we have been raised.
The challenge occurs when we feel that our cultural habits, values, and perceptions are superior to other people’s values. This can have a dramatic impact on our business relations. Your best defense against ethnocentric behavior is to make a point of seeing things from the perspective of the other person. Use what you have learned in this chapter to extend your understanding of the person’s culture. As much as possible, leave your own frame of reference at home. Sort out what makes you and the other person different—and what makes you similar.
Key Takeaways
• There are two key methods used to describe and analyze cultures. The first was developed by Geert Hofstede and focuses on five key dimensions that interpret behaviors, values, and attitudes: power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation. The second method was developed by Edward T. Hall and focuses on three main categories for how communications and interactions between cultures differ: high-context versus low-context communications, space, and attitudes toward time.
• In addition to the main analytical methods for comparing and contrasting cultures, there are a number of other determinants of culture. These determinants include manners, mind-sets, values, rituals, religious beliefs, laws, arts, ideas, customs, beliefs, ceremonies, social institutions, myths and legends, language, individual identity, and behaviors. Language includes both verbal and physical languages.
Source
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Learning Objectives
After reading this section, students should be able to …
1. understand the implications of host country research
2. appreciate the importance of cross-cultural training
While many similarities exist among businesses, there are dynamics that must be taken into consideration in an increasingly global environment, such as multicultural employees and varying experiences in countries outside that of the business. It is essential to take these differences seriously and not assume that individuals have similar values.
Host country research and cultural implications
Cultural issues can be divided into two categories, explicit and implicit. Explicit culture issues are related to characteristics that one can see or perceive. Implicit culture issues, on the other hand, are related to attitudes and values, symbolized in the figure below.
Explicit culture exists on the outer layer and is the observable reality of the language, food, buildings, houses, monuments, agriculture, shrines, markets, fashions and art. These products are visible in people’s behaviors, clothes, food, music and theater.
The middle layers include norms, values, and attitudes but are not directly visible. Norms are the mutual sense a group has of what is right and wrong that can develop on a formal level such as written law, or on an informal level such as social control. Values determine good from bad, and are closely related to the ideals shared by a group. A value in one culture may differ vastly from that of another, and therefore these differences must be studied and taken into consideration when doing business across cultures.
Cross-cultural Training
The creation of a stable and healthy workplace made up of people of varying cultural backgrounds is a matter of increasing importance in the global business environment. Employers must take into consideration the impact cultural diversity can have on both the homogeneity of the workplace and potential legal implications for improper discrimination.
The objective of training programs is to foster the four characteristics of preparedness, sensitivity, patience, and flexibility in managers and other personnel (Czinkota et al, 2005). Methods of training may range from factual preparation involving books and lectures to experiential training involving simulations and field experience. Some topics to be addressed in training might be, but are not limited to:
• comfort levels of trainees’ with people of a different background
• impact of trainees’ behaviors on others
• understanding stereotypes
• transforming knowledge into empathy
• embracing diversity as a source of strength
• learning a new language
Businesses with diverse cultural backgrounds must maintain an environment suited for every constituent so that the objectives of the business can be efficiently met. Installing cultural diversity training programs can help accomplish this by defining what cultural intelligence is, teaching employees to accept and work effectively with others from different cultural backgrounds, and taking advantage of advice from those who have a cross-cultural experience.
Cultural values determine the way people think and behave. International marketers must understand many subtle differences that may affect the way their marketing is made and perceived in foreign markets. One medium in which many such differences reside is language. Because language is a reflection of culture, some words cannot be cross-culturally translated, which implies that it is often better to have local copywriters write and translate marketing and advertising content to avoid cultural misunderstandings. Because of this phenomenon, global advertising, which is a main component of global marketing, often relies on symbol recognition to convey meaning in their ads, instead of words.
The approach to discussing culture, as it relates to global marketing, in most textbooks is a three-pronged approach. First, the concept of culture is defined, second, the various components of culture are identified, and third, vivid examples of cultural differences are provided. The dire consequences of firms not taking these differences into account are invariably described, as adherence to local culture is considered one of the most important, if not the most important, components of success in international marketing (Hofstede, 1996).
Ethical Considerations
Managers of businesses that conduct operations in an increasingly global environment face a dilemma when selecting and applying ethics to decisions in cross-cultural settings. Although ethical values may be similar across cultures in many cases, the application of those values to certain situations may vary. Ethics can be described as the science of human duty. It is upon the ethical standards of a person that judges whether or not an action is right or wrong.
Before a company does business across borders, it must first decide what its motivation is regarding ethical conduct, which will determine what kind of behavior is to be expected from employees.
Student Example
When we were analyzing the pros and cons of sweatshops in developing countries, Nike was brought up as an example of the dark side of sweatshops. As a quick recap: It was alleged that Nike cut jobs, stole money from workers, and created hazardous working conditions for sweatshop workers. Additionally, they allegedly turned away the Worker Rights Consortium (WRC) when the independent group came to review the factories. If these were true, ethics comes into play in two ways here. The first is that Nike would allow such terrible working conditions to persist, hurting hundreds if not thousands of workers. The ethical value of treating a human as a human should be cross-cultural, and the way a company treats workers shows the standards of the higher-management. Secondly, it is unethical to refuse a review by an independent sweatshop inspection organization. It essentially admits the guilt of treating workers so poorly that the company doesn’t want it getting out into the public.
Lucio Chavarria
Class of 2020
Source
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Summary
The economic environment is a major determinant of global market potential and opportunity. In today’s global economy, capital movements are the driving force, production is uncoupled from employment, and capitalism has vanquished communism. Based on patterns of resource allocation and ownership, the world’s economies can be categorized as market capitalism, centrally-planned capitalism, centrally-planned socialism, and market socialism. The final years of the twentieth century were marked by transitions toward market capitalism in many countries that had been centrally controlled. However, there still exists a great disparity among the nations of the world in terms of economic freedom.
The political environment of global marketing is the set of governmental institutions, political parties, and organizations that are the expression of the people in the nations of the world. In particular, anyone engaged in global marketing should have an overall understanding of the importance of sovereignty to national governments. The political environment varies from country to country, and political risk assessment is crucial. It is also important to understand a particular government’s actions with respect to taxes and seizure of assets. Historically, the latter have taken the form of expropriation, confiscation, and nationalization.
When global managers explore how to expand, they start by looking at the world. Knowing the major markets and the stage of development for each allows managers to determine how best to enter and expand. The manager’s goal is to hone in on a new country—hopefully, before their competitors and usually before the popular media does. China and India were expanding rapidly for several years before the financial press, such as the Wall Street Journal, elevated them to their current hot status.
It’s common to find people interested in doing business with a country simply because they’ve read that it’s the new “hot” economy. They may know little or nothing about the market or country—its history, evolution of thought, people, or how interactions are generally managed in a business or social context. Historically, many companies have only looked at new global markets once potential customers or partners have approached them. However, trade barriers are falling, and new opportunities are fast emerging in markets of the Middle East and Africa—further flattening the world for global firms. Companies are increasingly identifying these and other global markets for their products and services and incorporating them into their long-term growth strategies.
The legal environment consists of laws, courts, attorneys, legal customs, and practices. International law is comprised of the rules and principles that nation-states consider binding upon themselves. The countries of the world can be broadly categorized in terms of common-law legal systems or civil-law legal system. The United States and Canada and many former British colonies are common law countries; most other countries are civil-law. A third system, Islamic law, predominates in the Middle East. Some of the most important legal issues pertain to jurisdiction, antitrust, and licensing. In addition, bribery is pervasive in many parts of the world; the Foreign Corrupt Practice Act (FCPA) applies to American companies operating abroad. Intellectual property protection is another critical issue. Counterfeiting is a major problem in global marketing; it often involves infringement of a company’s copyright or trademark ownership. When legal conflicts arise, companies can pursue the matter in court or use arbitration.
Savvy global managers realize that to be effective in a country, they need to know its recent political, economic, and legal history. This helps them evaluate not only the current business opportunity but also the risk of political, economic, and social changes that can impact their business.
Source
This page is licensed under a Creative Commons Attribution Non-Commercial Share-Alike License (Links to an external site) Links to an external site and contains content from a variety of sources published under a variety of open licenses, including:
• “World Economies”, chapter 4 from the book Challenges and Opportunities in International Business (v. 1.0)under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor.
• The course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘The Economic and Political environment’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/04%3A_The_Economic_and_Political_Environment/4.01%3A_The_Economic_and_Political_Environment_Summary.txt |
Learning Objectives
After reading this section, students should be able to …
1. appreciate the importance of the economic environment
2. understand the implication of inflation, deflation and balance of payments
The economic environment is important because of the rapid integration of international economic markets. Increasingly, businesses, consumers, and governments realize that their lives are affected not only by what goes on in their own town, state, or country but also by what is happening around the world. Consumers can walk into their local shops today and buy goods and services from all over the world. Local businesses must compete with these foreign products. However, many of these same businesses also have new opportunities to expand their markets by selling to a multitude of consumers in other countries. The advance of telecommunications is also rapidly reducing the cost of providing services internationally, while the Internet will assuredly change the nature of many products and services as it expands markets even further.
A nation’s economic situation represents its current and potential capacity to produce goods and services. The key to understanding market opportunities lies in the evaluation of the stage of a nation’s economic growth. Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a country that creates 9,000,000 in goods and services in 2010 and then creates 9,090,000 in 2011 has a nominal economic growth rate of 1% for 2011.
In order to compare per capita economic growth among countries, the total sales of the countries to be compared may be quoted in a single currency. This requires converting the value of currencies of various countries into a selected currency, for example, U.S. dollars. One way to do this conversion is to rely on exchange rates among the currencies, for example, how many Mexican pesos buy a single U.S. dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same “basket of goods” in each country.
Inflation or deflation can make it difficult to measure economic growth. If GDP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation) or because more goods and services were produced and saved? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation.
For example, a table may show changes in GDP in the period 1990 to 2000, as expressed in 1990 U.S. dollars. This means that the single currency being used is the U.S. dollar, with the purchasing power it had in the U.S. in 1990. The table might mention whether the figures are “inflation-adjusted” or real. If no adjustments were made for inflation, the table might make no mention of inflation-adjustment or might mention that the prices are nominal.
A country’s balance of payments is a record of its economic transactions with the rest of the world; this record shows whether a country has a trade surplus (value of exports exceeds the value of imports) or a trade deficit (value of imports exceeds the value of exports). Trade figures can be further divided into merchandise trade and services trade accounts; a country can run a surplus in both accounts, a deficit in both accounts, or a combination of the two. The U.S. merchandise trade deficit was \$819 billion in 2007. However, the U.S.enjoys an annual service trade surplus. Overall, however, the United States is a debtor; Japan enjoys an overall trade surplus and serves as a creditor nation.
Student Example
The United States has been running on a trade deficit since 1976 because of high imports of consumer products and oil. It’s very easy for an American citizen to go into any store and find a product that was not manufactured in the United States. When I go shopping for clothes, I always see tags stating, “Made in Vietnam/China/India/Taiwan/Indonesia.” I don’t think I have ever seen a clothing item with a tag stating, “Made in the U.S.A.” The same could be said about other products, such as furniture, vehicles, and electronics. One of the main reasons why the United States is running on a trade deficit is because most companies in the United States make their products abroad due to cheaper labor and import them into the United States to sell them. One of the biggest ways a trade deficit can affect the economy is through employment. If imports have a higher demand than exports, domestic jobs could be lost abroad, which could lead to increased unemployment rates.
Ivan Chavez
Class of 2020
Let’s look at the growth of exports in the world during the past fifty or more years. \(1\): “World Exports, 1948–2008 (in Billions of U.S. Dollars)” shows the overall annual exports measured in billions of U.S. dollars from 1948 to 2008. Recognizing that one country’s exports are another country’s imports, one can see the exponential growth in outflows and inflows during the past fifty years.
However, rapid growth in the value of exports does not necessarily indicate that trade is becoming more important. A better method is to look at the share of traded goods in relation to the size of the world economy. Figure \(2\): “World Exports, 1970–2008 (Percentage of World GDP)” shows world exports as a percentage of the world gross domestic product (GDP) for the years 1970 to 2008. It shows a steady increase in trade as a share of the size of the world economy. World exports grew from just over 10 percent of the GDP in 1970 to over 30 percent by 2008. Thus trade is not only rising rapidly in absolute terms; it is becoming relatively more important too.
One other indicator of world interconnectedness can be seen in changes in the amount of foreign direct investment (FDI). FDI is foreign ownership of productive activities and thus is another way in which foreign economic influence can affect a country. Figure 4.3 “World Inward FDI Stocks, 1980–2007 (Percentage of World GDP)” shows the stock, or the sum total value, of FDI around the world taken as a percentage of the world GDP between 1980 and 2007. It gives an indication of the importance of foreign ownership and influence around the world. As can be seen, the share of FDI has grown dramatically from around 5 percent of the world GDP in 1980 to over 25 percent of the GDP just twenty-five years later.
The growth of international trade and investment has been stimulated partly by the steady decline of trade barriers since the Great Depression of the 1930s. In the post–World War II era, the General Agreement on Tariffs and Trade, or GATT, prompted regular negotiations among a growing body of members to reciprocally reduce tariffs (import taxes) on imported goods. During each of these regular negotiations (eight of these rounds was completed between 1948 and 1994), countries promised to reduce their tariffs on imports in exchange for concessions—that means tariffs reductions—by other GATT members. When the Uruguay Round, the most recently completed round, was finalized in 1994, the member countries succeeded in extending the agreement to include liberalization promises in a much larger sphere of influence. Now countries not only would lower tariffs on goods trade but also would begin to liberalize the agriculture and services markets. They would eliminate the many quota systems—like the multifiber agreement in clothing—that had sprouted up in previous decades. And they would agree to adhere to certain minimum standards to protect intellectual property rights such as patents, trademarks, and copyrights. The World Trade Organization (WTO) was created to manage this system of new agreements, to provide a forum for regular discussion of trade matters, and to implement a well-defined process for settling trade disputes that might arise among countries.
Foreign exchange provides a means for settling accounts across borders. The dynamics of international finance can have a significant impact on a nation’s economy as well as the fortunes of individual companies. Currencies can be subject to devaluation or revaluation as a result of actions taken by a country’s central banker. Currency trading by international speculators can also lead to devaluation. When a country’s economy is strong or when demand for its goods is high, its currency tends to appreciate in value. When currency values fluctuate, global firms face various types of economic exposure. Firms can manage exchange rate exposure by hedging.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/65dfa6e7-819...dae5f033aece@4. The above content was also adapted from textbook content provided by: (i) CANDELA OPEN COURSES at https://courses.candelalearning.com/principlesmktg1x2kscope/chapter/the-global-environment-economic-growth/under a Creative Commons Attribution NonCommercial Attribution License: CC BY-NC-SA 3.0 US, and from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘The Economic and Political environment’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license; and (ii) form the book ‘International Trade: Theory and Policy v. 1.0″ published by Saylor Academy (2012) under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor.
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Learning Objectives
After reading this section, students should be able to …
1. appreciate the importance of the political environment
The political environment abroad is quite different from that of the US. Most nations desire to become self-reliant and to raise their status in the eyes of the rest of the world. This is the essence of nationalism. The nationalistic spirit that exists in many nations has led them to engage in practices that have been very damaging to other countries’ marketing organizations. For example, foreign governments can intervene in marketing programs in the following ways:
• contracts for the supply and delivery of goods and services
• the registration and enforcement of trademarks, brand names, and labeling
• patents
• marketing communications
• pricing
• product safety, acceptability, and environmental issues
Student Example
Recently I ordered a product from China, and I was to receive it in four weeks. The product cost and shipping seemed to be reasonable. However, in the second week, I received an email from the seller saying Chinese customs had detained my shipment. Apparently, a new governmental charge was imposed on the type of product I was ordering. Now I was faced with paying the new fee (close to the price of the product) or canceling my order and trying to get it from another seller/country. The seller was friendly and paid for half of the charge while I paid for the other half. Then the product released, but it arrived four weeks after paying the imposed fee.
Mari Carrillo De Olivares
Class of 2020
Political Stability
Business activity tends to grow and thrive when a nation is politically stable. When a nation is politically unstable, multinational firms can still conduct business profitably. Their strategies will be affected however. Most firms probably prefer to engage in the export business rather than invest considerable sums of money in investments in foreign subsidiaries. Inventories will be low and currency will be converted rapidly. The result is that consumers in the foreign nation pay high prices, get less satisfactory products, and have fewer jobs.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/[email protected]
4.04: Political Risk
Learning Objectives
After reading this section, students should be able to …
1. define political risk
2. the effect of government policy changes on international marketing
What is political risk?
Political risk is generally defined as the risk to business interests resulting from political instability or political change. Political risk exists in every country around the globe and varies in magnitude and type from country to country. Political risks may arise from policy changes by governments to change controls imposed on exchange rates and interest rates(Barlett et al, 2004). Moreover, political risk may be caused by actions of legitimate governments such as controls on prices, outputs, activities, and currency and remittance restrictions. Political risk may also result from events outside of government controls such as war, revolution, terrorism, labor strikes, and extortion.
Political risk can adversely affect all aspects of the international business from the right to export or import goods to the right to own or operate a business. AON (www.aon.com), for example, categorizes risk based on economic; exchange transfer; strike, riot, or civil commotion; war; terrorism; sovereign non-payment; legal and regulatory; political interference; and supply chain vulnerability.
Student Example
A business that operates abroad or that imports things from a certain country can be affected by the countries’ political and economic environment. As most of us are aware, there have been constant riots in Venezuela in an effort to overthrow Nicolas Maduro. As one of the counties with the largest oil reserves, Venezuela is a great business source for U.S. based oil refineries. However, political instability has caused President Donald Trump to impose sanctions on Venezuelan oil. This has affected the U.S. refineries that purchase oil from that country. Additionally, Venezuela is currently facing hyperinflation rates that go above 2 million percent. This economic instability has led its citizens to live difficult lives. There has been news coverage on how individuals dig through garbage trucks to find scraps. Once more, President Donald Trump and other leaders have condemned Nicolas Maduro’s regime on various occasions. One way this could affect an Oil Refinery business is that if they continue to conduct business with Venezuela, they might face challenges in importing the oil. They might also not be able to find other sources of business, which could lead to loss of jobs. These are just “what if” scenarios.
Silviano Espana Silva
Class of 2020
How to evaluate your level of political risk
Forms of investment and risk
For a firm considering a new foreign market, there are three broad categories of international business: trade, international licensing of technology and intellectual property, and foreign direct investment. A company developing a business plan may have different elements of all three categories depending on the type of product or service.
The choice of entry depends on the firm’s experience, the nature of its product or services, capital resources, and the amount of risk it’s willing to consider (Schaffer et al, 2005)
The risk between these three categories of market entry varies significantly with trade ranked the least risky if the company does not have offices overseas and does not keep inventories there. On the other side of the spectrum is direct foreign investment, which generally brings the greatest economic exposure and thus the greatest risk to the company.
Protection from political risk
Companies can reduce their exposure to political risk by careful planning and monitoring political developments. The company should have a deep understanding of domestic and international affairs for the country they are considering entering. The company should know how politically stable the country is, the strength of its institutions, the existence of any political or religious conflicts, ethnic composition, and minority rights. The country’s standing in the international arena should also be part of the consideration; this includes its relations with neighbors, border disputes, membership in international organizations, and recognition of international law. If the company does not have the resources to conduct such research and analysis, it may find such information at their foreign embassies, international chambers of commerce, political risk consulting firms, insurance companies, and international businessmen familiar with a particular region. In some countries, governments will establish agencies to help private businesses grow overseas. Governments may also offer political risk insurance to promote exports or economic development. Private businesses may also purchase political risk insurance from insurance companies specialized in international business. Insurance companies offering political risk insurance will generally provide coverage against inconvertibility, expropriation, and political violence, including civil strife (US Small Business Administration). Careful planning and vigilance should be part of any company’s preparation for developing an international presence.
Government policy changes and trade relations
A government makes changes in policies that have an impact on international business. Many reasons may cause governments to change their policies toward foreign enterprises. High unemployment, widespread poverty, nationalistic pressure, and political unrest are just a few of the reasons that can lead to changes in policy. Changes in policies can impose more restrictions on foreign companies to operate or limit their access to financing and trade. In some cases, changes in policy may be favorable to foreign businesses as well.
To solve domestic problems, governments often use trade relations. Trade as a political tool may cause an international business to be caught in a trade war or embargo (Schaffer et al, 2005). As a result, international businesses can experience frequent changes in regulations and policies, which can add additional costs of doing business overseas.
Student Example
This past year President Trump has imposed 25% tariffs on raw materials like steel and aluminum coming from China. In turn, China imposed a retaliatory tariff on American Agriculture. By doing this it American farmers have been hit the hardest by these tariffs. They are now seeing decreases in overseas purchasing of items like soybeans because other countries are reluctant to pay the tariffs. China was the number one market for American soybeans, and without their buying of soybeans, American farmers will have a hard time recovering from this financial loss. Farmers are also experiencing higher prices on farming equipment, because the material it is made of had tariffs placed on it. Large businesses like John Deere had to raise their prices on farm equipment since the metal that they used had tariffs imposed, thus making the prices higher. While for now, these tariffs seem to only be deeply affecting the American agricultural business, but there is fear that if metal tariffs increase, more industries like the car industry will be impacted.
Remy Plate
Class of 2020
A trade war is a situation where countries try to damage each other’s trade. The most common way they do this is by imposing tariffs or quota restrictions. With the recent trade war the United States and China are having, there are a lot of American companies that are seeing an impact on their businesses and profits. One company seeing a negative impact is Apple. China is the third-largest market for Apple and since the market is currently unstable in-between the countries, Apple is skeptical about long-term outlooks. Analysts have stated that if the China market collapses, then Apple’s global market is going to fail. Apple has already seen a 10% drop in their stock and a 3% drop in the Dow Jones industrial average.
Courtney Kent
Class of 2020
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/65dfa6e7-819...dae5f033aece@4
4.05: Legal Risk
Learning Objectives
After reading this section, students should be able to …
1. define legal risk
2. appreciate the importance of the legal environment
What is legal risk?
Legal risk is the risk arising from failure to comply with statutory or regulatory obligations (http://www.ffiec.gov).
Generally, all laws in the host country will apply to an entrepreneur’s local business operations. Examples include filing procedures, employment law, environmental law, tax law, and ownership requirements. The World Bank has a rather extensive country business law library which can be accessed from their website. This can be helpful in the initial phases of considering the legal ramifications of direct investment in a given country.
Student Example
In 2015, the German car manufacturer, Volkswagen was found guilty of making cars that were not meeting the emission standards of the U.S, through the years 2009-2015. Devices that were called “defeat devices” were made by engineers to detect when vehicles were being tested and produced fake results. Ultimately, Volkswagen faced a huge lawsuit and CEO Martin Winterkorn was charged with fraud and conspiracy in the U.S.
Lucio Chavarria
Class of 2020
Many countries limit foreign ownership of assets and legally force foreign companies into a joint venture with a local partner in order to do business there. Poland, for example, limits foreign ownership of farmland and will continue to do so for another decade under agreements with the EU (Dadak, 2004).
It is important to remember that while doing business outside of the home country certain home country laws will still apply. Applicable laws differ from country to country, but one common extension is employment law.
The extent of jurisdiction beyond national boundaries varies widely. In anti-trust for instance, the United States law covers only situations where the violation affects the US, (meaning that it does not matter where the act causing the violation took place), while the EU considers only where the antitrust offense was implemented (Shaffer et al., 2005, pgs 657-664).
In order to minimize exposure to legal risks arising from confusion and excess cost, a company should seek legal advice if possible. In making such arrangements, written contracts should be used. This can minimize confusion in case of litigation.
Source
The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/65dfa6e7-819...dae5f033aece@4 | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/04%3A_The_Economic_and_Political_Environment/4.03%3A_The_Political_Environment.txt |
Summary
This chapter outlines how businesses and economists evaluate world economies. Then, the remaining sections review what developed and developing worlds are and how they differ, as well as explain how to evaluate the expanding set of emerging-market countries, which started with the BRIC countries (i.e., Brazil, Russia, India, and China) and has now expanded to include twenty-eight countries. Effective global managers need to be able to identify the markets that offer the best opportunities for their products and services. Additionally, managers need to monitor these emerging markets for new local companies that take advantage of business conditions to become global competitors.
Countries can be categorized in terms of their stage of economic development: low income, lower middle income, upper middle income, and high income. Gross domestic product (GDP) and gross national income (GNI) are commonly used measures of economic development. The 50 poorest countries in the low-income category are sometimes referred to as least-developed countries (LDCs). Upper middle-income countries with high growth are often called newly industrializing economies (NIEs). Several of the world’s economies are notable for their fast growth; the BRIC nations include Brazil, Russia, India, and China. The Group of Seven (G7), Group of Eight (G-8), and Organization for Economic Cooperation and Development (OECD) represent efforts by high-income nations to promote democratic ideals and free-market policies throughout the rest of the world. Most of the world’s income is located in the Triad, which is comprised of Japan, the United States, and Western Europe. Companies with global aspirations generally have operations in all three areas. Market potential for a product can be evaluated by determining product saturation levels in light of income levels.
Source
This page is licensed under a Creative Commons Attribution Non-Commercial Share-Alike License (Links to an external site) Links to an external site and contains content from a variety of sources published under a variety of open licenses, including:
• “World Economies”, chapter 4 from the book Challenges and Opportunities in International Business (v. 1.0)under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor.
• The course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘The Economic and Political environment’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license.
5.02: World Economies
Learning Objectives
After reading this section, students should be able to …
1. Understand the unique strengths as well as many similarities among the two major economies – China and India
When global marketing managers explore how to expand, they start by looking at the world. Knowing the major markets and the stage of development for each allows managers to determine how best to enter and expand. The manager’s goal is to hone in on a new country—hopefully, before their competitors and usually before the popular media does. China and India were expanding rapidly for several years before the financial press, such as the Wall Street Journal, elevated them to their current hot status.
It’s common to find people interested in doing business with a country simply because they’ve read that it’s the new “hot” economy. They may know little or nothing about the market or country—its history, evolution of thought, people, or how interactions are generally managed in a business or social context. Historically, many companies have only looked at new global markets once potential customers or partners have approached them. However, trade barriers are falling, and new opportunities are fast emerging in markets of the Middle East and Africa—further flattening the world for global firms. Companies are increasingly identifying these and other global markets for their products and services and incorporating them into their long-term growth strategies.
Opening Case
China versus India: Who Will Win??
India and China are among the world’s fastest-growing economies, contributing nearly 30 percent to global economic growth. Both China and India are not emerging economies—they’re actually “re-emerging,” having spent centuries at the center of trade throughout history: “These two Asian giants, which until 1800 used to make up half the world economy, are not, like Japan and Germany, mere nation states. In terms of size and population, each is a continent—and for all the glittering growth rates, a poor one.”1
Both India and China are in fierce competition with each other as well as in their quest to catch up with the major economies in the developed world. Each have particular strengths and competitive advantages that have allowed each of them to weather the recent global financial crisis better than most countries. China’s growth has been mainly investment and export driven, focusing on low-cost manufacturing, with domestic consumption as low as 36 percent of gross domestic product (GDP). On the other hand, India’s growth has been derived mostly from a strong services sector and buoyant domestic consumption. India is also much less dependent on trade than China, relying on external trade for about 20 percent of its GDP versus 56 percent for China. The Chinese economy has doubled every eight years for the last three decades—the fastest rate for a major economy in recorded history. By 2011, China is the world’s second largest economy in the world behind the United States.2 A recent report by PricewaterhouseCoopers forecasts that China could overtake the US economy as early as 2020.3
China is also the first country in the world to have met the poverty-reduction target set in the UN Millennium Development Goals and has had remarkable success in lifting more than 400 million people out of poverty. This contrasts sharply with India, where 456 million people (i.e., 42 percent of the population) still live below the poverty line, as defined by the World Bank at \$1.25 a day.4
China has made greater strides in improving the conditions for its people, as measured by the HDI. All of this contributes to the local business conditions by both developing the skill sets of the workforce as well as expanding the number of middle-class consumers and their disposable incomes.
India has emerged as the fourth-largest market in the world when its GDP is measured on the scale of purchasing power parity. Both economies are increasing their share of world GDP, attracting high levels of foreign investment, and are recovering faster from the global crisis than developed countries. “Each country has achieved this with distinctly different approaches—India with a ‘grow first, build later’ approach versus a ‘top-down, supply driven’ strategy in China.”5
The Chinese economy historically outpaces India’s by just about every measure. China’s fast-acting government implements new policies with blinding speed, making India’s fractured political system appear sluggish and chaotic. Beijing’s shiny new airport and wide freeways are models of modern development, contrasting sharply with the sagging infrastructure of New Delhi and Mumbai. And as the global economy emerges from the Great Recession, India once again seems to be playing second fiddle. Pundits around the world laud China’s leadership for its well-devised economic policies during the crisis, which were so effective in restarting economic growth that they helped lift the entire Asian region out of the downturn.6
As recently as the early 1990s, India was as rich, in terms of national income per head. China then hurtled so far ahead that it seemed India could never catch up. But India’s long-term prospects now look stronger. While China is about to see its working-age population shrink, India is enjoying the sort of bulge in manpower which brought sustained booms elsewhere in Asia. It is no longer inconceivable that its growth could outpace China’s for a considerable time. It has the advantage of democracy—at least as a pressure valve for discontent. And India’s army is, in numbers, second only to China’s and America’s…And because India does not threaten the West, it has powerful friends both on its own merits and as a counterweight to China.7
India’s domestic economy provides greater cushion from external shocks than China’s. Private domestic consumption accounts for 57 percent of GDP in India compared with only 35 percent in China. India’s confident consumer didn’t let the economy down. Passenger car sales in India in December jumped 40 percent from a year earlier.8
Since 1978, China’s economic growth and reform have dramatically improved the lives of hundreds of millions of Chinese, increased social mobility. The Chinese leadership has reduced the role of ideology in economic policy by adopting a more pragmatic perspective on many political and socioeconomic problems. China’s ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship. The result has been the largest reduction of poverty and one of the fastest increases in income levels ever seen.
China used to be the third-largest economy in the world but has overtaken Japan to become the second-largest in August 2010. It has sustained average economic growth of over 9.5 percent for the past 26 years. In 2009 its \$4.814 trillion economy was about one-third the size of the United States economy.9 China leapfrogged over Japan and became the world’s number two economy in the second quarter of 2010, as receding global growth sapped momentum and stunted a shaky recovery.
India’s economic liberalization in 1991 opened gates to businesses worldwide. In the mid- to late 1980s, Rajiv Gandhi’s government eased restrictions on capacity expansion, removed price controls, and reduced corporate taxes. While his government viewed liberalizing the economy as a positive step, political pressures slowed the implementation of policies. The early reforms increased the rate of growth but also led to high fiscal deficits and a worsening current account. India’s major trading partner then, the Soviet Union, collapsed. In addition, the first Gulf War in 1991 caused oil prices to increase, which in turn led to a major balance-of-payments crisis for India. To be able to cope with these problems, the newly elected Prime Minister Narasimha Rao along with Finance Minister Manmohan Singh initiated a widespread economic liberalization in 1991 that is widely credited with what has led to the Indian economic engine of today. Focusing on the barriers for private sector investment and growth, the reforms enabled faster approvals and began to dismantle the License Raj, a term dating back to India’s colonial historical administrative legacy from the British and referring to a complex system of regulations governing Indian businesses.10
Since 1990, India has been emerging as one of the wealthiest economies in the developing world. Its economic progress has been accompanied by increases in life expectancy, literacy rates, and food security. Goldman Sachs predicts that India’s GDP in current prices will overtake France and Italy by 2020; Germany, the United Kingdom, and Russia by 2025; and Japan by 2035 to become the third-largest economy of the world after the United States and China. India was cruising at 9.4 percent growth rate until the financial crisis of 2008–9, which affected countries the world over.11 Both India and China have several strengths and weaknesses that contribute to the competitive battleground between them.
China’s Strengths
1. Strong government control. China’s leadership has a development-oriented ideology, the ability to promote capable individuals, and a system of collaborative policy review. The strong central government control has enabled the country to experience consistent and managed economic success. The government directs economic policy and its implementation and is less susceptible than democratic India to sudden changes resulting from political pressures.
2. WTO and FDI. China’s entry into the World Trade Organization (WTO) and its foreign direct investment (FDI) in other global markets has been an important factor in the country’s successful growth. Global businesses also find the consistency and predictability of the Chinese government a plus when evaluating direct investment.
3. Cheap, abundant labor. China’s huge population offers large pools of skilled and unskilled workers, with fewer labor regulations than in India.
4. Infrastructure. The government has prioritized the development of the country’s infrastructure including roads and highways, ports, airports, telecommunications networks, education, public health, law and order, mass transportation, and water and sewer treatment facilities.
5. Effectiveness of two-pronged financial system. “The first prong is a well-run directed-credit system that channels funds from bank and postal deposits to policy-determined public uses; the second is a profit-oriented and competitive system, albeit in early and inefficient stages of development. Both prongs continue to undergo rapid government-sponsored reforms to make them more effective.”12
India’s Strengths
Infosys is one of India’s new wave of world-class IT companies.
Image courtesy of Infosys.
1. Quality manpower. India has a technologically competent, English-speaking workforce. As a major exporter of technical workers, India has prioritized the development of its technology and outsourcing sectors. India is the global leader in the business process outsourcing (BPO) and call-center services industries.
2. Open democracy. India’s democratic traditions are ingrained in its social and cultural fabric. While the political process can at times be tumultuous, it is less likely than China to experience big uncertainties or sudden revolutionary changes as those recently witnessed in the Middle East in late 2010 and early 2011.
3. Entrepreneurship. India entrepreneurial culture has led to global leaders, such as the Infosys cofounder, Narayana Murthy. Utilizing the global network of Indians in business and Indian business school graduates, India has an additional advantage over China in terms of entrepreneurship-oriented bodies, such as the TiE network (The Indus Entrepreneurs) or the Wadhwani Foundation, which seek to promote entrepreneurship by, among other things, facilitating investments.13
4. Reverse brain drain. Historically many emerging and developing markets experienced what is known as brain drain—where its best young people, once educated, moved to developed countries to access better jobs, incomes, and prospects for career advancement. In the past decade, economists have observed that the fast-growing economies of China and India are experiencing the reverse. Young graduates are remaining in India and China to pursue dynamic domestic opportunities. In fact, older professionals are returning from developed countries to seek their fortunes and career advancements in the promising local economies—hence the term reverse brain drain. The average age of the Indian returnees is thirty years old, and these adults are well educated—66 percent hold a master’s degree, while 12 percent hold PhDs. The majority of these degrees are in management, technology, and science. Indians returning home are encouraged by the increasing transparency in business and government as well as the political freedoms and the prospects for economic growth.14
5. Indian domestic-market growth. According to the Trade and Development Report 2010, for sustainable growth, policies “should be based on establishing a balanced mix of domestic and overseas demand.”15 Each country has embraced the trend toward urbanization differently. Global businesses are impacted in the way cities are run:
China is in much better shape than India is. While India has barely paid attention to its urban transformation, China has developed a set of internally consistent practices across every element of the urbanization operating model: funding, governance, planning, sectorial policies, and shape. India has underinvested in its cities; China has invested ahead of demand and given its cities the freedom to raise substantial investment resources by monetizing land assets and retaining a 25 percent share of value-added taxes. While India spends \$17 per capita in capital investments in urban infrastructure annually, China spends \$116. Indian cities have devolved little real power and accountability to its cities; but China’s major cities enjoy the same status as provinces and have powerful and empowered political appointees as mayors. While India’s urban planning system has failed to address competing demands for space, China has a mature urban planning regime that emphasizes the systematic development of run-down areas consistent with long-range plans for land use, housing, and transportation.16
Despite the urbanization challenges, India is likely to benefit in the future from its younger demographics: “By 2025, nearly 28 percent of China’s population will be aged 55 or older compared with only 16 percent in India.”17 The trend toward urbanization is evident in both countries. By 2025, 64 percent of China’s population will be living in urban areas, and 37 percent of India’s people will be living in cities.18 This historically unique trend offers global businesses exciting markets.
So what markets are likely to benefit the most from these trends? In India, by 2025, the largest markets will be transportation and communication, food, and health care followed by housing and utilities, recreation, and education. Even India’s slower-growing spending categories will represent significant opportunities for businesses because these markets will still be growing rapidly in comparison with their counterparts in other parts of the world. In China’s cities today, the fastest-growing categories are likely to be transportation and communication, housing and utilities, personal products, health care, and recreation and education. In addition, in both China and India, urban infrastructure markets will be massive.19
While both India and China have unique strengths as well as many similarities, it’s clear that both countries will continue to grow in the coming decades offering global businesses exciting new domestic markets.20
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/05%3A_Economic_Development_in_the_World/5.01%3A_Chapter_5-_Economic_Development_in_the_World.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand how economies are classified.
2. Evaluate the statistics used in classifications: GNP, GDP, PPP as well as HDI, HPI, GDI, and GEM.
Classification of Economies
Experts debate exactly how to define the level of economic development of a country—which criteria to use and, therefore, which countries are truly developed. This debate crosses political, economic, and social arguments.
When evaluating a country, a manager is assessing the country’s income and the purchasing power of its people; the legal, regulatory, and commercial infrastructure, including communication, transportation, and energy; and the overall sophistication of the business environment.
Why does a country’s stage of development matter? Well, if you’re selling high-end luxury items, for example, you’ll want to focus on the per capita income of the local citizens. Can they afford a \$1,000 designer handbag, a luxury car, or cutting-edge, high-tech gadgets? If so, how many people can afford these expensive items (i.e., how large is the domestic market)? For example, in January 2011, the Financial Times quotes Jim O’Neill, a leading business economist, who states, “South Africa currently accounts for 0.6 percent of world GDP. South Africa can be successful, but it won’t be big.”1 But clearly the size of the local market is an important key factor for businesspeople.
Even in developing countries, there are always wealthy people who want and can afford luxury items. But these consumers are just as likely to head to the developed world to make their purchase and have little concern about any duties or taxes they may have to pay when bringing the items back into their home country. This is one reason why companies pay special attention to understanding their global consumers as well as where and how these consumers purchase goods. Global managers also focus on understanding if a country’s target market is growing and by what rate. Countries like China and India caught the attention of global companies, because they had large populations that were eager for foreign goods and services but couldn’t afford them. As more people in each country acquired wealth, their buying appetites increased. The challenge is how to identify which consumers in which countries are likely to become new customers. Managers focus on globally standard statistics as one set of criteria to understand the stage of development of any country that they’re exploring for business.2
Let’s look more closely at some of these globally standard statistics and classifications that are commonly used to define the stage of a country’s development.
Statistics Used in Classifications
Gross Domestic Product
Gross domestic product (GDP) is the value of all the goods and services produced by a country in a single year. Usually quoted in US dollars, the number is an official accounting of the country’s output of goods and services. For example, if a country has a large black, or underground, market for transactions, it will not be included in the official GDP. Emerging-market countries, such as India and Russia, historically have had large black-market transactions for varying reasons, which often meant their GDP was underestimated.
Table \(1\): GDP for the largest 20 economies. (Public Domain, US Central Intelligence Agency, accessed June 3, 2011, https://www.cia.gov/library/publicat.../2001rank.html)
Rank Countries GDP (Purchasing Power Parity)
1 European Union \$14,430,000,000,000
2 United States \$14,140,000,000,000
3 China \$8,748,000,000,000
4 Japan \$4,150,000,000,000
5 India \$3,570,000,000,000
6 Germany \$2,810,000,000,000
7 United Kingdom \$2,128,000,000,000
8 Russia \$2,110,000,000,000
9 France \$2,097,000,000,000
10 Brazil \$2,013,000,000,000
11 Italy \$1,739,000,000,000
12 Mexico \$1,465,000,000,000
13 South Korea \$1,364,000,000,000
14 Spain \$1,362,000,000,000
15 Canada \$1,269,000,000,000
16 Indonesia \$962,500,000,000
17 Turkey \$874,500,000,000
18 Australia \$851,100,000,000
19 Iran \$827,100,000,000
20 Taiwan \$735,400,000,000
Table \(1\): shows the total size of the economy, but a company will want to know the income per person, which may be a better indicator of the strength of the local economy and the market opportunity for a new consumer product. GDP is often quoted on a per person basis. Per capita GDP is simply the GDP divided by the population of the country.
The per capita GDP can be misleading because actual costs in each country differ. As a result, more managers rely on the GDP per person adjusted for purchasing power to understand how much income local residents have. This number helps professionals evaluate what consumers in the local market can afford.
Companies selling expensive goods and services may be less interested in economies with low per capita GDP. Figure \(2\): “Per Capita GDP on a Purchasing Power Parity Basis” shows the income (GDP) on a per person basis. For space, the chart has been condensed by removing lower profile countries, but the ranks are valid. Surprisingly, some of the hottest emerging-market countries—China, India, Turkey, Brazil, South Africa, and Mexico—rank very low on the income per person charts. So, why are these markets so exciting? One reason might be that companies selling cheaper, daily-use items, such as soap, shampoos, and low-end cosmetics, have found success entering developing, but promising, markets.
Table \(2\): Per Capita GDP on a Purchasing Power Parity Basis (Public Domain, US Central Intelligence Agency, “accessed June 3, 2011, https://www.cia.gov/library/publicat.../2004rank.html )
Rank Countries GDP (Purchasing Power Parity) 2007 estimate
1 Lichtenstein \$122,100
2 Qatar \$119,500
3 Luxembourg \$79,600
4 Bermuda \$69,900
5 Norway \$57,400
6 Jersey \$57,000
7 Kuwait \$52,800
8 Singapore \$52,200
9 Brunei \$51,200
10 Faroe Islands \$48,200
11 United States \$46,000
15 Hong Kong \$42,800
17 Switzerland \$41,400
18 Ireland \$41,000
19 Australia \$40,000
20 Iceland \$39,600
21 Netherlands \$39,500
22 Austria \$39,200
23 United Arab Emirates \$38,900
24 Bahrain \$38,800
27 Canada \$38,200
29 Belgium \$36,800
30 Sweden \$36,600
31 Denmark \$36,000
32 Greenland \$35,900
35 United Kingdom \$34,800
36 Finland \$34,100
37 Germany \$34,100
38 Spain \$33,600
40 Japan \$32,700
41 France \$32,600
42 European Union \$32,500
43 Taiwan \$32,000
44 Greece \$31,000
46 Italy \$29,900
48 Israel \$28,400
49 South Korea \$28,100
50 Slovenia \$27,700
51 New Zealand \$27,400
53 Czech Republic \$24,900
56 Portugal \$21,700
58 Slovakia \$21,100
59 Cyprus \$21,000
61 Saudi Arabia \$20,600
62 Hungary \$18,800
63 Estonia \$18,500
65 Poland \$17,900
68 Croatia \$17,500
69 Puerto Rico \$17,100
72 Russia \$15,100
74 Malaysia \$14,900
76 Chile \$14,600
80 Argentina \$13,400
83 Mexico \$13,200
85 Venezuela \$13,000
97 Turkey \$11,400
101 World Average \$10,400
104 South Africa \$10,300
107 Brazil \$10,100
119 Thailand \$8,200
128 China \$6,600
136 Egypt \$6,000
163 India \$3,100
Purchasing Power Parity
To compare production and income across countries, we need to look at more than just GDP. Economists seek to adjust this number to reflect the different costs of living in specific countries. Purchasing power parity (PPP) is, in essence, an economic theory that adjusts the exchange rate between countries to ensure that a good is purchased for the same price in the same currency. For example, a basic cup of coffee should cost the same in London as in New York.
A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States. This is the measure most economists prefer when looking at per-capita welfare and when comparing living conditions or use of resources across countries. The measure is difficult to compute, as a US dollar value has to be assigned to all goods and services in the country regardless of whether these goods and services have a direct equivalent in the United States (for example, the value of an ox-cart or non-US military equipment); as a result, PPP estimates for some countries are based on a small and sometimes different set of goods and services. In addition, many countries do not formally participate in the World Bank’s PPP project to calculate these measures, so the resulting GDP estimates for these countries may lack precision. For many developing countries, PPP-based GDP measures are multiples of the official exchange rate (OER) measure. The differences between the OER- and PPP-denominated GDP values for most of the wealthy industrialized countries are generally much smaller.3
In some countries, like Germany, the United Kingdom, or Japan, the cost of living is quite high and the per capita GDP (nominal) is higher than the GDP adjusted for purchasing power. Conversely, in countries like Mexico, Brazil, China, and India, the per capita GDP adjusted for purchasing power is higher than the nominal per capita GDP, implying that local consumers in each country can afford more with their incomes.
Figure \(3\): Per Capita GDP (Nominal) versus Per Capita GDP (PPP) of Select Countries (2010). (Public Domain; US Central Intelligence Agency, https://www.cia.gov/library/publicat.../2004rank.html )
Country Per Capita GDP (Nominal) Per Capita GDP(PPP)
United States 47,100 47,400
Germany 40,500 35,900
United Kingdom 36,200 35,100
Japan 42,500 34,200
Mexico 8,900 13,800
Brazil 10,100 10,900
China 4,300 7,400
India 1,200 3,400
Human Development Index (HDI)
GDP and purchasing power provide indications of a country’s level of economic development by using an income-focused statistic. However, in recent years, economists and business analysts have focused on indicators that measure whether people’s needs are satisfied and whether the needs are equally met across the local population. One such indication is the human development index (HDI), which measures people’s satisfaction in three key areas—long and healthy life in terms of life expectancy; access to quality education equally; and a decent, livable standard of living in the form of income.
Since 1990, the United Nations Development Program (UNDP) has produced an annual report listing the HDI for countries. The HDI is a summary composite index that measures a country’s average achievements in three basic aspects of human development: health, knowledge, and a decent standard of living. Health is measured by life expectancy at birth; knowledge is measured by a combination of the adult literacy rate and the combined primary, secondary, and tertiary gross enrollment ratio; and standard of living by (income as measured by) GDP per capita (PPP US\$).4
While the HDI is not a complete indicator of a country’s level of development, it does help provide a more comprehensive picture than just looking at the GDP. The HDI, for example, does not reflect political participation or gender inequalities. The HDI and the other composite indices can only offer a broad proxy on some of the key the issues of human development, gender disparity, and human poverty.5 Table \(1\): “Human Development Index (HDI)—2010 Rankings” shows the rankings of the world’s countries for the HDI for 2010 rankings. Measures such as the HDI and its components allow global managers to more accurately gauge the local market.
Table \(4\): Human Development Index (HDI)—2010 Rankings
Very High Human Development High Human Development Medium Human Development Low Human Development
1. Norway 43. Bahamas 86. Fiji 128. Kenya
2. Australia 44. Lithuania 87. Turkmenistan 129. Bangladesh
3. New Zealand 45. Chile 88. Dominican Republic 130. Ghana
4. United States 46. Argentina 89. China 131. Cameroon
5. Ireland 47. Kuwait 90. El Salvador 132. Myanmar
6. Liechtenstein 48. Latvia 91. Sri Lanka 133. Yemen
7. Netherlands 49. Montenegro 92. Thailand 134. Benin
8. Canada 50. Romania 93. Gabon 135. Madagascar
9. Sweden 51. Croatia 94. Suriname 136. Mauritania
10. Germany 52. Uruguay 95. Bolivia (Plurinational State of) 137. Papua New Guinea
11. Japan 53. Libyan Arab Jamahiriya 96. Paraguay 138. Nepal
12. Korea (Republic of) 54. Panama 97. The Philippines 139. Togo
13. Switzerland 55. Saudi Arabia 98. Botswana 140. Comoros
14. France 56. Mexico 99. Moldova (Republic of) 141. Lesotho
15. Israel 57. Malaysia 100. Mongolia 142. Nigeria
16. Finland 58. Bulgaria 101. Egypt 143. Uganda
17. Iceland 59. Trinidad and Tobago 102. Uzbekistan 144. Senegal
18. Belgium 60. Serbia 103. Micronesia (Federated States of) 145. Haiti
19. Denmark 61. Belarus 104. Guyana 146. Angola
20. Spain 62. Costa Rica 105. Namibia 147. Djibouti
21. Hong Kong, China (SAR) 63. Peru 106. Honduras 148. Tanzania (United Republic of)
22. Greece 64. Albania 107. Maldives 149. Côte d’Ivoire
23. Italy 65. Russian Federation 108. Indonesia 150. Zambia
24. Luxembourg 66. Kazakhstan 109. Kyrgyzstan 151. Gambia
25. Austria 67. Azerbaijan 110. South Africa 152. Rwanda
26. United Kingdom 68. Bosnia and Herzegovina 111. Syrian Arab Republic 153. Malawi
27. Singapore 69. Ukraine 112. Tajikistan 154. Sudan
28. Czech Republic 70. Iran (Islamic Republic of) 113. Vietnam 155. Afghanistan
29. Slovenia 71. The former Yugoslav Republic of Macedonia 114. Morocco 156. Guinea
30. Andorra 72. Mauritius 115. Nicaragua 157. Ethiopia
31. Slovakia 73. Brazil 116. Guatemala 158. Sierra Leone
32. United Arab Emirates 74. Georgia 117. Equatorial Guinea 159. Central African Republic
33. Malta 75. Venezuela (Bolivarian Republic of) 118. Cape Verde 160. Mali
34. Estonia 76. Armenia 119. India 161. Burkina Faso
35. Cyprus 77. Ecuador 120. Timor-Leste 162. Liberia
36. Hungary 78. Belize 121. Swaziland 163. Chad
37. Brunei Darussalam 79. Colombia 122. Lao People’s Democratic Republic 164. Guinea-Bissau
38. Qatar 80. Jamaica 123. Solomon Islands 165. Mozambique
39. Bahrain 81. Tunisia 124. Cambodia 166. Burundi
40. Portugal 82. Jordan 125. Pakistan 167. Niger
41. Poland 83. Turkey 126. Congo 168. Congo (Democratic Republic of the)
42. Barbados 84. Algeria
85. Tonga
127. São Tomé and Príncipe 169. Zimbabwe
Source: UNDP, “Human Development Index (HDI)—2010 Rankings,” Human Development Reports, accessed January 6, 2011, http://hdr.undp.org/en/statistics.
In 1995, the UNDP introduced two new measures of human development that highlight the status of women in each society.
The first, gender-related development index (GDI), measures achievement in the same basic capabilities as the HDI does, but takes note of inequality in achievement between women and men. The methodology used imposes a penalty for inequality, such that the GDI falls when the achievement levels of both women and men in a country go down or when the disparity between their achievements increases. The greater the gender disparity in basic capabilities, the lower a country’s GDI compared with its HDI. The GDI is simply the HDI discounted, or adjusted downwards, for gender inequality.
The second measure, gender empowerment measure (GEM), is a measure of agency. It evaluates progress in advancing women’s standing in political and economic forums. It examines the extent to which women and men are able to actively participate in economic and political life and take part in decision making. While the GDI focuses on expansion of capabilities, the GEM is concerned with the use of those capabilities to take advantage of the opportunities of life.6
In 1997, UNDP added a further measure—the human poverty index (HPI).
If human development is about enlarging choices, poverty means that opportunities and choices most basic to human development are denied. Thus a person is not free to lead a long, healthy, and creative life and is denied access to a decent standard of living, freedom, dignity, self-respect and the respect of others. From a human development perspective, poverty means more than the lack of what is necessary for material well-being.
For policy-makers, the poverty of choices and opportunities is often more relevant than the poverty of income. The poverty of choices focuses on the causes of poverty and leads directly to strategies of empowerment and other actions to enhance opportunities for everyone. Recognizing the poverty of choices and opportunities implies that poverty must be addressed in all its dimensions, not income alone.7
Rather than measure poverty by income, the HPI is a composite index that uses indicators of the most basic dimensions of deprivation: a short life (longevity), a lack of basic education (knowledge), and a lack of access to public and private resources (decent standard of living). There are two different HPIs—one for developing countries (HPI-1) and another for a group of select high-income OECD (Organization for Economic and Development) countries (HPI-2), which better reflects the socioeconomic differences between the two groups. HPI-2 also includes a fourth indicator that measures social exclusion as represented by the rate of long-term unemployment.8
Why Does All This Matter to Global Marketing?
So, the richest countries—like Liechtenstein, Qatar, and Luxembourg—may not always have big local markets or, in contrast, the poorest countries may have the largest local market as determined by the size of the local population. Savvy business managers need to compare and contrast a number of different classifications, statistics, and indicators before they can interpret the strength, depth, and extent of a local market opportunity for their particular industry and company.
Advice to Students
The major classifications used by analysts are evolving. The primary criteria for determining the stage of development may change within a decade as demonstrated with the addition of the gender and poverty indices. In addition, with every global crisis or event, there’s a tendency to add more acronyms and statistics into the mix. Savvy global managers have to sort through these to determine what’s relevant to their industry and their business objectives in one or more countries. For example, in the fall of 2010, after two years of global financial crisis, global investors started using a new acronym to describe the changing economic fortunes among countries: HIICs, or heavily indebted industrialized countries. These countries include the United States, the United Kingdom, and Japan. “‘Developed markets are basically behaving like emerging markets,’ says HSBC’s Richard Yetsenga. ‘And emerging markets are quickly becoming more developed.’”9 Investors are pulling money from the developed countries and into the BRIC countries (i.e., Brazil, Russia, India, and China), which are “‘where the population growth is, where the raw materials are, and where the economic growth is,’ says Michael Penn, global equity strategist at Bank of America Merrill Lynch.”10 The key here is to understand that classifications—just like countries and international business—are constantly evolving.
Rather than being overwhelmed by the evolving data, it’s critical to understand why the changes are occurring, what attitudes and perceptions are shifting, and if they are supported by real, verifiable data. In the above example of HIICs, investors from the major economies are likely motivated by quick gains on stock prices and the prevailing perception that emerging markets offer companies the best growth prospects. But as a businessperson, the timeline for your company would be in years, not months; so it’s important to evaluate information based on your company’s goals rather than relying on the media, investment markets, or other singularly focused industry professionals.
To truly monitor the global business arena and select prospective countries, you need to follow the news, trends, and available information for a period of time. Over time, savvy global managers develop a geographic, industrial, or product expertise—or some combination. Those who become experts on a specific country spend a great deal of time in the country, sometimes learn the language, and almost always develop an understanding of the country’s political, economic, and social history as well as its culture and evolution. They gain a deeper knowledge of more than just the country’s current business environment. In the business world, these folks are affectionately called “old hands”—as in he is an “old China hand” or an “old Indonesia hand.” This is a reflection of how seasoned or experienced a person is with a country.
Key Takeaways
• There are some classifications that are commonly used to define a stage of a country’s development. The GDP is the value of all the goods and services produced by a country in a single year. The income per person, a better indicator of the strength of the local economy and the market opportunity for a new consumer product, is the nominal per capita GDP—the GDP divided by the population of the country. Finally, to compare production and income across countries, economists adjust this number to reflect the different costs of living in specific countries. PPP adjusts the exchange rate between countries to ensure that a good is purchased for the same price in the same currency.
• The HDI measures people’s satisfaction in three key areas: (1) long and healthy life in terms of life expectancy; (2) access to quality education equally; and (3) a decent standard of living in the form of income. Health is measured by life expectancyat birth; knowledge is measured by a combination of the adult literacy rate and the combined primary, secondary, and tertiary gross enrollment ratio; and standard of living by (income as measured by) per capita GDP.
• Standards are constantly evolving to meet changing global scenarios; for instance, in 1997, the UNDP added the HPI to factor in the denial of basic opportunities and choices to those who live in poverty. It’s critical to understand whythe changes are occurring, what attitudes and perceptions are shifting, and if they are supported by real, verifiable data.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/05%3A_Economic_Development_in_the_World/5.03%3A_Classifying_World_Economies.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand what the developed world is.
2. Identify the major developed economies.
The Developed World
Many people are quick to focus on the developing economies and emerging markets as offering the brightest growth prospects. And indeed, this is often the case. However, you shouldn’t overlook the developed economies; they too can offer growth opportunities, depending on the specific product or service. The key is to understand what developed economies are and to determine their suitability for a company’s strategy.
In essence, developed economies, also known as advanced economies, are characterized as postindustrial countries—typically with a high per capita income, competitive industries, transparent legal and regulatory environments, and well-developed commercial infrastructure. Developed countries also tend to have high human development index (HDI) rankings—long life expectancies, high-quality health care, equal access to education, and high incomes. In addition, these countries often have democratically elected governments.
In general, the developed world encompasses Canada, the United States, Western Europe, Japan, South Korea, Australia, and New Zealand. While these economies have moved from a manufacturing focus to a service orientation, they still have a solid manufacturing base. However, just because an economy is developed doesn’t mean that it’s among the largest economies. And, conversely, some of the world’s largest economies—while growing rapidly—don’t have competitive industries or transparent legal and regulatory environments. The infrastructure in these countries, while improving, isn’t yet consistent or substantial enough to handle the full base of business and consumer demand. Countries like Brazil, Russia, India, and China—also known as BRIC—are hot emerging markets but are not yet considered developed by most widely accepted definitions.
The following sections contain a sampling of the largest developed countries that focuses on the business culture, economic environment, and economic structure of each country.1
The United States
Geographically, the United States is the fourth-largest country in the world—after Russia, China, and Canada. It sits in the middle of North America, bordered to the north by Canada and to the south by Mexico. With a history steeped in democratic and capitalist institutions, values and entrepreneurship, the United States has been the driver of the global economy since World War II.
The US economy accounts for nearly 25 percent of the global gross domestic product (GDP). Recently, the severe economic crisis and recession have led to double-digit unemployment and record deficits. Nevertheless, the United States remains a global economic engine, with an economy that is about twice as large as that of the next single country, China. With an annual GDP of more than \$14 trillion, only the entire European Union can match the US economy in size. An economist’s proverb notes that when the US economy sneezes, the rest of the world catches a cold. Despite its massive wealth, 12 percent of the population lives below the poverty line.2
Throughout the cycles of growth and contractions, the US economy has a history of bouncing back relatively quickly. In recessions, the government and the business community tend to respond swiftly with measures to reduce costs and encourage growth. Americans often speak in terms of bull and bear markets. A bull market is one in which prices rise for a prolonged period of time, while a bear market is one in which prices steadily drop in a downward cycle.
The strength of the US economy is due in large part to its diversity. Today, the United States has a service-based economy. In 2009, industry accounted for 21.9 percent of the GDP; services (including finance, insurance, and real estate) for 76.9 percent; and agriculture for 1.2 percent.3 Manufacturing is a smaller component of the economy; however, the United States remains a major global manufacturer. The largest manufacturing sectors are highly diversified and technologically advanced—petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining.
The sectors that have grown the most in the past decades are financial services, car manufacturing, and, most important, information technology (IT), which has more than doubled its output in the past decade. It now accounts for nearly 10 percent of the country’s GDP. As impressive as that figure is, it hardly takes into account the many ways in which IT has transformed the US economy. After all, improvements in information technology and telecommunications have increased the productivity of nearly every sector of the economy.
The United States is so big that its abundant natural resources account for only 4.3 percent of its GDP. Even so, it has the largest agricultural base in the world and is among the world’s leading producers of petroleum and timber products. US farms produce about half the world’s corn—though most of it is grown to feed beef and dairy cattle. The US imports about 30 percent of its oil, despite its own massive reserves. That’s because Americans consume roughly a quarter of the world’s total energy and more than half its oil, making them dependent on other oil-producing nations in some fairly troublesome ways.
The US retail and entertainment industries are very valuable to the economy. The country’s media products, including movies and music, are the country’s most visible exports. When it comes to business, the United States might well be called the “king of the jungle.” Emboldened by a strong free-market economy, legions of US companies have achieved unparalleled success. One by-product of this competitive spirit is an abundance of secure, well-managed business partnerships at home and abroad. And although the majority of US companies aren’t multinational giants, an emphasis on hard work and a sense of fair play pervade the business culture.
In a culture where entrepreneurialism is practically a national religion, the business landscape is broad and diverse. At one end are enduring multinationals, like Coca-Cola and General Electric, which were founded by visionary entrepreneurs and are now run by boards of directors and appointed managers who answer to shareholders. At the other end of the spectrum are small businesses—millions of them—many owned and operated by a single person.
Today, more companies than ever are “going global,” fueled by an increased demand for varied products and services around the world. Expanding into new markets overseas—often through joint ventures and partnerships—is becoming a requirement for success in business.
Another trend that has gained much media attention is outsourcing—subcontracting work, sometimes to foreign companies. It’s now quite common for companies of all sizes to pay outside firms to do their payroll, provide telecommunications support, and perform a range of operational services. This has led to a growth in small contractors, often operating out of their homes, who offer a variety of services, including advertising, public relations, and graphic design.4
European Union
Today, the European Union (EU) represents the monetary union of twenty-seven European countries. One of the primary purposes of the EU was to create a single market for business and workers accompanied by a single currency, the euro. Internally, the EU has made strides toward abolishing trade barriers, has adopted a common currency, and is striving toward convergence of living standards. Internationally, the EU aims to bolster Europe’s trade position and its political and economic power. Because of the great differences in per capita income among member states (i.e., from \$7,000 to \$79,000) and historic national animosities, the EU faces difficulties in devising and enforcing common policies. The EU’s strengths also come from the formidable strengths of some of its economic powerhouse members. Germany is the leading economy in the EU.
Spotlight on Germany
Germany has the fifth-largest economy in the world, after the United States, China, Japan, and India. With a heavily export-oriented economy, the country is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. It remains the largest and strongest economy in Europe and the second most-populous country after Russia in Europe.
The country has a socially responsible market economy that encourages competition and free initiative for the individual and for business. The Grundgesetz (Basic Law) guarantees private enterprise and private property, but stipulates that these rights must be exercised in the welfare and interest of the public.
Germany’s economic development has been shaped, in large part, by its lack of natural resources, making it highly dependent on other countries. This may explain why the country has repeatedly sought to expand its power, particularly on its eastern flank.
Since the end of World War II, successive governments have sought to retain the basic elements of Germany’s complex economic system (the Soziale Marktwirtschaft). Notably, relationships between employer and employee and between private industry and government have remained stable. Over the years, the country has had few industrial disputes. Furthermore, active participation by all groups in the economic decision making process has ensured a level of cooperation unknown in many other Western countries. Nevertheless, high unemployment and high fiscal deficits are key issues.
Overall, living standards are high, and Germany is a prosperous nation. The majority of Germans live in comfortable housing with modern amenities. The choice of available food is broad and includes cuisine from around the world. Germans enjoy luxury cars, and technology and fashion are big industries. Under federal law, workers are guaranteed minimum income, vacation time, and other benefits. Recently, the government has focused on economic reforms, particularly in the labor market, and tax reduction.
Germany is home to some of the world’s most important businesses and industries. Daimler, Volkswagen, and BMW are global forces in the automotive field. Germany remains the fourth-largest auto manufacturer behind China, Japan, and the United States. German BASF, Hoechst, and Bayer are giants in the chemical industry. Siemens, a world leader in electronics, is the country’s largest employer, while Bertelsmann is the largest publishing group in the world. In the banking industry, Deutsche Bank is one of the world’s largest. In addition to these international giants, Germany has many small- and medium-sized, highly specialized firms. These businesses make up a disproportionately large part of Germany’s exports.
Services drive the economy, representing 72.3 percent (in 2009) of the total GDP. Industry accounts for 26.8 percent of the economy, and agriculture represents 0.9 percent. Despite the strong services sector, manufacturing remains one of the most important components of the Germany economy. Key German manufacturing industries are among the world’s largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, and textiles. Manufacturing provides not only significant sources of revenue but also the know-how that Germany exports around the world.5
Japan
Located off the east coast of Asia, the Japanese archipelago consists of four large islands—Honshu, Hokkaido, Kyushu, and Shikoku—and about four thousand small islands, which when combined are equal to the size of California.
The American occupation of Japan following World War II laid the foundation for today’s modern economic and political society. The occupation was intended to demilitarize Japan, to fully democratize the government, and to reform Japanese society and the economy. The Americans revised the then-existing constitution along the lines of the British parliamentary model. The Japanese adopted the new constitution in 1946 as an amendment to their original 1889 constitution. On the whole, American reforms rebuilt Japanese industry and were welcomed by the Japanese. The American occupation ended in 1952, when Japan was declared an independent state.
As Japan became an industrial superpower in the 1950s and 1960s, other countries in Asia and the global superpowers began to expect Japan to participate in international aid and defense programs and in regional industrial-development programs. By the late 1960s, Japan had the third-largest economy in the world. However, Japan was no longer free from foreign influences. In one century, the country had gone from being relatively isolated to being dependent on the rest of the world for its resources with an economy reliant on trade.
In the post–World War II period, Japanese politics have not been characterized by sharp divisions between liberal and conservative elements, which in turn have provided enormous support for big business. The Liberal Democratic Party (LDP), created in 1955 as the result of a merger of two of the country’s biggest political parties, has been in power for most of the postwar period. The LDP, a major proponent of big business, generally supports the conservative viewpoint. The “Iron Triangle,” as it is often called, refers to the tight relationship among Japanese politicians, bureaucrats, and big business leaders.
Until recently, the overwhelming success of the economy overshadowed other policy issues. This is particularly evident with the once powerful Ministry of International Trade and Industry (MITI). For much of Japan’s modern history, MITI has been responsible for establishing, coordinating, and regulating specific industry policies and targets, as well as having control over foreign trade interests. In 2001, its role was assumed by the newly created METI, the Ministry of Economy, Trade and Industry.
Japan’s post–World War II success has been the result of a well-crafted economic policy that is closely administered by the government in alliance with large businesses. Prior to World War II, giant corporate holding companies called zaibatsu worked in cooperation with the government to promote specific industries. At one time, the four largest zaibatsu organizations were Mitsui, Mitsubishi, Sumitomo, and Yasuda. Each of the four had significant holdings in the fields of banking, manufacturing, mining, shipping, and foreign marketing. Policies encouraged lifetime employment, employer paternalism, long-term relationships with suppliers, and minimal competition. Lifetime employment continues today, although it’s coming under pressure in the ongoing recession. This policy is often credited as being one of the stabilizing forces enabling Japanese companies to become global powerhouses.6
The zaibatsus were dismantled after World War II, but some of them reemerged as modern-day keiretsu, and many of their policies continue to have an effect on Japan. Keiretsu refers to the intricate web of financial and nonfinancial relationships between companies that virtually links together in a pattern of formal and informal cross-ownership and mutual obligation. The keiretsu nature of Japanese business has made it difficult for foreign companies to penetrate the commercial sector. In response to recent global economic challenges, the government and private businesses have recognized the need to restructure and deregulate parts of the economy, particularly in the financial sector. However, they have been slow to take action, further aggravating a weakened economy.
Japan has very few mineral and energy resources and relies heavily on imports to bring in almost all of its oil, iron ore, lead, wool, and cotton. It’s the world’s largest importer of numerous raw materials including coal, copper, zinc, and lumber. Despite a shortage of arable land, Japan has gone to great lengths to minimize its dependency on imported agricultural products and foodstuffs, such as grains and beef. Agriculture represents 1.6 percent of the economy. The country’s chief crops include rice and other grains, vegetables, and fruits. Japanese political and economic protectionist policies have ensured that the Japanese remain fully self-sufficient in rice production, which is their main staple.
As with other developed nations, services lead the economy, representing 76.5 percent of the national GDP.7 Industry accounts for 21.9 percent of the country’s output. Japan benefits from its highly skilled workforce. However, the high cost of labor combined with the cost of importing raw materials has significantly affected the global competitiveness of its industries. Japan excels in high-tech industries, particularly electronics and computers. Other key industries include automobiles, machinery, and chemicals. The service industry is beginning to expand and provide high-quality computer-related services, advertising, financial services, and other advanced business services.8
Key Takeaways
• The developed economies, also known as advanced economies, are characterized as postindustrial countries—typically with a high per capita income, competitive industries, transparent legal and regulatory environments, and well-developed commercial infrastructure. Developed countries also tend to have high human development index (HDI) rankings (i.e., long life expectancies, high-quality health care, equal access to education, and high incomes). In addition, these countries often have democratically elected governments.
• The major developed economies include Canada, the United States, Western Europe, Japan, South Korea, Australia, and New Zealand.
• The United States is the fourth-largest country in the world—after Russia, China, and Canada. However, the United States is the world’s largest single-country economy and accounts for nearly 25 percent of the global gross domestic product (GDP). The strength of the US economy is due in large part to its diversity. Today, the United States has a service-based economy. In 2009, industry accounted for 21.9 percent of the GDP; services (including finance, insurance, and real estate) for 76.9 percent; and agriculture for 1.2 percent.
• Germany, a member of the EU (European Union), has the fifth-largest economy in the world. The country is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. It is the largest and strongest economy in Europe. Services drive the economy, representing 72.3 percent (in 2009) of the total GDP. Industry accounts for 26.8 percent of the economy, and agriculture represents 0.9 percent.
• Japan’s post–World War II success has been the result of a well-crafted economic policy closely administered by the government in alliance with large businesses. It also benefits from its highly skilled workforce. Japan has very few mineral and energy resources and relies heavily on imports to bring in almost all of its oil, iron ore, lead, wool, and cotton. It is the world’s largest importer of numerous raw materials including coal, copper, zinc, and lumber. As with other developed nations, services lead the economy, representing 76.5 percent of the national GDP, while industry accounts for 21.9 percent of the country’s output.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/05%3A_Economic_Development_in_the_World/5.04%3A_Understanding_the_Developed_World.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand what the developing world is.
2. Identify the major developing economies and regions.
The Developing World
The developing world refers to countries that rank lower on the various classifications. The residents of these economies tend to have lower discretionary income to spend on nonessential goods (i.e., goods beyond food, housing, clothing, and other necessities). Many people, particularly those in developing countries, often find the classifications limiting or judgmental. The intent here is to focus on understanding the information that a global business professional will need to determine whether a country, including a developing country, offers an interesting local market. Some countries may perceive the classification as a slight; others view it as a benefit. For example, in global trade, being a developing country sometimes provides preferences and extra time to meet any requirements dismantling trade barriers.
[In the World Trade Organization (WTO), ] there are no WTO definitions of “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries. However, other members can challenge the decision of a member to make use of provisions available to developing countries.
Developing country status in the WTO brings certain rights. There are for example provisions in some WTO Agreements which provide developing countries with longer transition periods before they are required to fully implement the agreement and developing countries can receive technical assistance.
That a WTO member announces itself as a developing country does not automatically mean that it will benefit from the unilateral preference schemes of some of the developed country members such as the Generalized System of Preferences (GSP). In practice, it is the preference giving country which decides the list of developing countries that will benefit from the preferences.1
Developing countries sometimes find that their economies improve and gradually they become emerging markets. Many developing economies represent old cultures and rich histories. Focusing only on today’s political, economic, and social conditions distorts the picture of what these countries have been and what they might become again. This category hosts the greatest number of countries around the world.
Did You Know?
It’s important to understand that the term developing countries is different from Third-World countries, which was a traditional classification for countries along political and economic lines. It helps to understand how this terminology has evolved.
When people talk about the poorest countries of the world, they often refer to them with the general term Third World, and they think everybody knows what they are talking about. But when you ask them if there is a Third World, what about a Second or a First World, you almost always get an evasive answer…
The use of the terms First, the Second, and the Third World is a rough, and it’s safe to say, outdated model of the geopolitical world from the time of the cold war.
There is no official definition of the first, second, and the third world. Below is OWNO’s [One World—Nations Online] explanation of the terms…
After World War II the world split into two large geopolitical blocs and spheres of influence with contrary views on government and the politically correct society:
1. The bloc of democratic-industrial countries within the American influence sphere, the “First World.”
2. The Eastern bloc of the communist-socialist states, the “Second World.”
3. The remaining three-quarters of the world’s population, states not aligned with either bloc were regarded as the “Third World.”
4. The term “Fourth World,” coined in the early 1970s by Shuswap Chief George Manuel, refers to widely unknown nations (cultural entities) of indigenous peoples, “First Nations” living within or across national state boundaries…
The term “First World” refers to so-called developed, capitalist, industrial countries, roughly, a bloc of countries aligned with the United States after World War II, with more or less common political and economic interests: North America, Western Europe, Japan and Australia.2
Developing economies typically have poor, inadequate, or unequal access to infrastructure. The low personal incomes result in a high degree of poverty, as measured by the human poverty index (HPI). These countries, unlike the developed economies, don’t have mature and competitive industries. Rather, the economies usually rely heavily on one or more key industries—often related to commodities, like oil, minerals mining, or agriculture. Many of the developing countries today are in Africa, parts of Asia, the Middle East, parts of Latin America, and parts of Eastern Europe.
Developing countries can seem like an oxymoron in terms of technology. In daily life, high-tech capabilities in manufacturing coexist alongside antiquated methodologies. Technology has caused an evolution of change in just a decade or two. For example, twenty years ago, a passerby looking at the metal shanties on the sides of the streets of Mumbai, India, or Jakarta, Indonesia, would see abject poverty in terms of the living conditions; today, that same passerby peering inside the small huts would see the flicker of a computer screen and almost all the urban dwellers—in and around the shanties—sporting cell phones. Installing traditional telephone infrastructure was more costly and time-consuming for governments, and consumers opted for the faster and relatively cheaper option of cell phones.
Did You Know?
Gillette’s Innovative Razor Sales
Companies find innovative ways to sell to developing world markets. Procter & Gamble (P&G)’s latest innovation is a Gillette-brand eleven-cent blade. “Gillette commands about 70 percent of the world’s razor and blade sales, but it lags behind rivals in India and other developing markets, mainly because those consumers can’t afford to buy its flagship products.”3 The company has designed a basic blade, called the Gillette Guard, that isn’t available in the United States or other richer economies. The blade is designed for the developing world, with the goal of bringing “‘more consumers into Gillette,’ says Alberto Carvalho, P&G’s vice president of male grooming in emerging markets…Winning over low-income consumers in developing markets is crucial to the growth strategy….The need to grow in emerging markets is pushing P&G to change its product development strategy. In the past, P&G would sell basically the same premium Pampers diapers, Crest toothpaste, or Olay moisturizers in developing countries, where only the wealthiest consumers could afford them.”4 The company’s approach now is to determine what the consumers can afford in each country and adjust the product features to meet the target price.
Global companies also recognize that in many developing countries, the local government is the buyer—particularly for higher value-added products and services, such as high-tech items, equipment, and infrastructure development. In addition, companies assess the political and economic environment in order to evaluate the risks and opportunities for business in managing key government relationships. In much of Africa and the Middle East, where the economies rely on one or two key industries, the governments remain heavily involved in sourcing and awarding key contracts. The lack of competitive domestic industry and local transparency has also made these economies ripe for graft.5
Ethics in Action
Studies have shown that developing countries that are known to be rich in hydrocarbons [mainly oil] are plagued with corruption and environmental pollution. Paradoxically, most extractive resource-rich developing countries are found in the bottom third of the World Bank’s composite governance indicator rankings. Again, on the Transparency International Corruption Perception Index (CPI), 2007—most of the countries found at the bottom of the table are rich in mineral resources. This is indicative of high prevalence of corruption in these countries.6
Major Developing Economies and Regions
The Middle East
The Middle East presents an interesting challenge and opportunity for global businesses. Thanks in large part to the oil-dependent economies, some of these countries are quite wealthy. Interestingly enough Qatar, Kuwait, United Arab Emirates (UAE), and Bahrain all rank in the top twenty-five. Only Saudi Arabia ranks much lower, due mainly to its larger population; however, it still has a per capita GDP (PPP) twice as high as the global average.
While the income level suggests a strong opportunity for global businesses, the inequality of access to goods and services, along with an inadequate and uncompetitive local economy, present both concerns and opportunities. Many of these countries are making efforts to shift from being an oil-dependent economy to a more service-based economy. Dubai, one of the seven emirates in the UAE, has sought to be the premier financial center for the Middle East. The financial crisis of 2008 has temporarily hampered, but not destroyed, these ambitions.
Spotlight on the UAE
Tucked into the southeastern edge of the Arabian Peninsula, the UAE borders Oman, Qatar, and Saudi Arabia. The UAE is a federation of seven states, called emirates because they are ruled by a local emir. The seven emirates are Abu Dhabi (capital), Dubai, Al-Shāriqah (or Sharjah), Ajmān, Umm al-Qaywayn, Ras’al-Khaymah, and Al-Fujayrah (or Fujairah). Dubai and Abu Dhabi have received the most global attention as commercial, financial, and cultural centers.
Amusing Anecdote
Dubai, the Las Vegas of the Middle East
Dubai is sometimes called the Vegas of the Middle East in reference to its glitzy malls, buildings, and consumerism culture. Luxury brands and excessive wealth dominate the culture as oil wealth is displayed brashly. Among other things, Dubai is home to Mall of the Emirates and its indoor alpine ski resort.7 Dubai also features aggressive architectural projects, including the spire-topped Burj Khalifa, which is the tallest skyscraper in the world, and the Palm Islands, which are man-made, palm-shaped, phased land-reclamation developments. Visionary proposals include the world’s first underwater hotel, the Hydropolis. Dubai’s tourism attracts visitors from its more religiously conservative neighbors such as Saudi Arabia as well as from countries in South Asia, primarily for its extensive shopping options. Dubai as well as other parts of the UAE hope to become major global-tourist destinations and have been building hotels, airports, attractions, shops, and infrastructure in order to facilitate this economic diversification goal.
The seven emirates merged in the early 1970s after more than a century of British control of their defense and military affairs. Thanks to its abundant oil reserves, the UAE has grown from an impoverished group of desert states to a wealthy regional commercial and financial center in just thirty years. Its oil reserves are ranked as the world’s seventh-largest and the UAE possesses one of the most-developed economies in West Asia.8 It is the twenty-second-largest economy at market exchange rates and has a high per capita gross domestic product, with a nominal per capita GDP of US\$49,995 as per the International Monetary Fund (IMF).9 It is the second-largest in purchasing power per capita and has a relatively high human development index (HDI) for the Asian continent, ranking thirty-second globally.10 The UAE is classified as a high-income developing economy by the IMF.11
For more than three decades, oil and global finance drove the UAE’s economy; however, in 2008–9, the confluence of falling oil prices, collapsing real estate prices, and the international banking crisis hit the UAE especially hard.12
Today, the country’s main industries are petroleum and petrochemicals (which account for a sizeable 25 percent of total GDP), fishing, aluminum, cement, fertilizers, commercial ship repair, construction materials, some boat building, handicrafts, and textiles. With the UAE’s intense investment in infrastructure and greening projects, the coastlines have been enhanced with large parks and gardens. Furthermore, the UAE has transformed offshore islands into agricultural projects that produce food.
A key issue for the UAE is the composition of its residents and workforce. The UAE is perhaps one of the few countries in the world where expatriates outnumber the local citizens, or nationals. In fact, of the total population of almost 5 million people, only 20 percent are citizens, and the workforce is composed of individuals from 202 different countries. As a result, the UAE is an incredible melting pot of cultural, linguistic, and religious groups. Migrant workers come mainly from the Indian subcontinent: India, Pakistan, Bangladesh, and Sri Lanka as well as from Indonesia, Malaysia, the Philippines, and other Arab nations. A much smaller number of skilled managers come from Europe, Australia, and North America. While technically the diverse population results in a higher level of religious diversity than neighboring Arab countries, the UAE is an Islamic country.
The UAE actively encourages foreign companies to open branches in the country, so it is quite common and easy for foreign corporations to do so. Free-trade zones allow for 100 percent foreign ownership and no taxes. Nevertheless, it’s common and in some industries required for many companies outside the free-trade zone to have an Emirati sponsor or partner.
While the UAE is generally open for global business, recently Research in Motion (RIM) found itself at odds with the UAE government, which wanted to block Blackberry access in the country. RIM uses a proprietary encryption technology to protect data and sends it to offshore servers in North America. For some countries, such as the UAE, this data encryption is perceived as a national security threat. Some governments want to be able to access the communications of people they consider high security threats. The UAE government and RIM were able to resolve this issue, and Blackberry service was not suspended.
Human rights concerns have forced the UAE government to address the rights of children, women, minorities, and guest workers with legal consistency, a process that is continuing to evolve. Today, the UAE is focused on reducing its dependence on oil and its reliance on foreign workers by diversifying its economy and creating more opportunities for nationals through improved education and increased private sector employment.13
Africa
For the past fifty years, Africa has been ignored in large part by most global businesses. Initial efforts that focused on access to minerals, commodities, and markets have given way to extensive local corruption, wars, and high political and economic risk.
When the emerging markets came into focus in the late 1980s, global business turned its attention to Asia. However, that’s changing as companies look for the next growth opportunity. “A growing number of companies from the U.S., China, Japan, and Britain are eager to tap the potential growth of a continent with 1 billion people—especially given the weak outlook in many developed nations….Meanwhile, African governments are luring investments from Chinese companies seeking to tap the world’s biggest deposits of platinum, chrome, and diamonds.”14
Within the continent, local companies are starting to and expanding to compete with global companies. These homegrown firms have a sense of African solidarity.
Big obstacles for businesses remain. Weak infrastructure means higher energy costs and trouble moving goods between countries. Cumbersome trade tariffs deter investment in new African markets. And the majority of the people in African countries live well below the poverty line, limiting their spending power.
Yet many African companies are finding ways around these barriers. Nigerian fertilizer company, Notore Chemicals Ltd., for example, has gone straight to governments to pitch the benefits of improved regional trade, and recently established a distribution chain that the company hopes will stretch across the 20 nations of Francophone Africa.15
While the focus remains on South Africa, it’s only a matter of time until businesses shift their attention to other African nations. Political unrest, poverty, and corruption remain persistent challenges for the entire continent. A key factor in the continent’s success will be its ability to achieve political stability and calm the social unrest that has fueled regional civil conflicts.
Google in Africa
Africa has some of the lowest Internet access in the world, and yet Google has been attracted to the continent by its growth potential. Africa with its one billion people is an exciting growth market for many companies.
“The Internet is not an integral part of everyday life for people in Africa,” said Joe Mucheru of Google’s Kenya office…
[Yet] Google executives say Africa represents one of the fastest growth rates for Internet use in the world. Nigeria already has about 24 million users and South Africa and Kenya aren’t far behind, according to World Bank and research sites like Internet World Stats…
Other technology companies have also set their sights on the continent. Microsoft Corp., International Business Machines Corp. [IBM], Cisco Systems Inc., and Hewlett-Packard Co. have sales offices throughout Africa, selling laptops, printers and software to fast-growing companies and an emerging middle class.16
Infrastructure, oil, gas and technology firms are not the only businesses looking to Africa; the world of advertising has now set its sights on the continent, following their largest global corporate clients.
Advertising growth in Africa is soaring, driven by telecom companies, financial services firms and makers of consumer products…
“All of our major clients, as they are looking for geographical expansion opportunities, have Africa and the Middle East high up on their priority list, if not at the top,” said Martin Sorrell, chief executive of WPP, the world’s largest advertising company by revenue…
Nigeria, Angola, Kenya and Ghana have some of the highest growth potential, ad executives say….
And with so many languages and big cultural differences, crafting ads can be labor-intensive, marketing executives say. Ads in Nigeria, for example, need to be in five different languages to reach a large audience.
Africa and the Middle East together represent only about 2.9 percent, or around \$14 billion, of the total \$482.6 billion global ad market, according to market research firm, eMarketer.17
This small percentage indicates the potential for significant advertising growth and a huge opportunity for global advertising and marketing firms.
Spotlight on Nigeria
Located in West Africa, Nigeria shares borders with the Republic of Benin, Chad, Cameroon, and Niger. Its southern coast lies on the Atlantic Ocean. Nigeria is Africa’s most populous country and its second largest economy. Goldman Sachs included Nigeria in its listing of the “Next Eleven” emerging economies after the BRIC countries (Brazil, Russia, India and China).18
Since its independence from the United Kingdom in 1960, Nigeria has seen civil war, ethnic tensions and violence, and military rule. Although recent elections have been marred by violence and accusations of voter fraud, Nigeria is technically experiencing its longest period of civilian government since its independence. However, Nigeria remains a fractious nation, divided along ethnic and religious lines.
As noted in the Ethics in Action sidebar in this section, developing country economies that are primarily dependent on oil have widespread government corruption. The Nigerian government continues to face the challenge of reforming a petroleum-based economy, whose revenues have been squandered through corruption and mismanagement, and institutionalizing the early efforts at democracy. “Oil-rich Nigeria, long hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management, has undertaken several reforms over the past decade. Nigeria’s former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 95 percent of foreign exchange earnings and about 80 percent of budgetary revenues.”19 The economy of Nigeria is one of the largest in the world, with GDP (PPP) at \$341 billion. However on a per capita basis, the country ranks at a dismal 183rd in the world, with a per capita GDP (PPP) at just \$2,300. Seventy percent of its population remains below the poverty line, and the country ranks at 142nd on the human development index (HDI) rankings for 2010. Despite the low quality of life rankings for the country, Nigeria’s population of more than 152 million make it an interesting long-term prospect for global businesses, particularly as economic conditions enable more Nigerians to achieve middle-income status.20
Nigeria’s economy is about evenly split between agriculture (which accounts for 32.5 percent), industry at 33.8 percent, and services at 33.7 percent. The country’s main industries are crude oil, coal, tin, columbite, rubber products, wood, hides and skins, textiles, cement and other construction materials, food products, footwear, chemicals, fertilizer, printing, ceramics, and steel.21
Nigeria received IMF funding in 2000 but pulled out of the program in 2002, when it failed to meet the economic reform requirements, specifically failing to meet spending and exchange rate targets. In recent years, the Nigerian government has begun showing the political will to implement the market-oriented reforms urged by the IMF, such as to modernize the banking system, to curb inflation by blocking excessive wage demands, and to resolve regional disputes over the distribution of earnings from the oil industry. The country’s main issues remain government corruption, poverty, inadequate infrastructure, and ethnic violence, mainly over the oil producing Niger Delta region. Nevertheless, with continued economic and political reforms, the expanding economy and large potential domestic market will continue to attract global business attention to Nigeria.22
How Do Developing Countries Become Emerging Markets?
However, it’s important to remember that all of the emerging-market countries were once considered developing nations. What resulted in the transition? Are today’s developing countries turning into tomorrow’s emerging markets? These are the questions that not only global economists and development experts ask, but—more relevantly—global businesses as well.
Typically, the factors that result in the classification of many countries as developing economies are the same ones that—once addressed and corrected—enable these countries to become emerging markets. Countries that seek to implement transparency in the government as well as in the political and economic institutions help inspire business confidence in their countries. Developing the local commercial infrastructure and reducing trade barriers attract foreign businesses. Educating the population equally and creating a healthy domestic workforce that is both skilled and relatively cheap is another incentive for global business investment.
Unlike emerging markets, developing and underdeveloped countries still need special attention from international aid agencies to prevent starvation, mass disease and political instability. Developing countries need to improve their education systems and create a strategy to begin their transition to the global emerging market. Companies from developed and emerging markets should play an important role in this process. Companies from emerging markets are especially crucial, as they have a great deal of experience operating in conditions of non-developed economies.23
While developing countries comprise the largest category, it’s important to remember that there are wide differences between the nations in this classification. If a company wants to stay ahead of the competition, it must be able to identify those countries ripe for development. Early entrance into these markets helps create first-mover advantage in terms of brand recognition, forging essential relationships with the government and the private sector, and harnessing any early-stage cost advantages. First-mover advantage refers the benefits that a company gains by entering into a market first or introducing a new product or service before its competitors.
Did You Know?
Mongolia Is Becoming Hot!
For most people, the country of Mongolia conjures images of a remote place near China—a movie location. It hasn’t been at the forefront of anyone’s attention for almost two decades, and yet the “IMF says that Mongolia will be one of the fastest-growing economies over the next decade.”24 This is a remarkable turnaround for a country that lost its Soviet assistance—one-third of its economy—in 1990 with the fall of the Soviet Union. Traditionally an agriculture-based economy, Mongolia is landlocked by its borders with China and Russia and is the approximately the size of Western Europe, with a relatively small population. However, its tremendous untapped mineral resources, which include coal, copper, molybdenum, fluorspar, tin, tungsten, gold, and oil, are attracting foreign investment. The country is a major exporter to China—its large, relatively rich neighbor. The country is exploring new resources as well; according to Prime Minister Sukhbaatar Batbold, “Wind power could be a major opportunity for Mongolia and for export to China.”25
Key Takeaways
• The developing world refers to countries that rank lower on the various classifications. The residents of these economies tend to have lower discretionary income to spend on nonessential goods.
• The poorest countries of the world are often referred to as the Third World. However, the Third World is not synonymous with the developing world, instead it is part of an outdated model of the geopolitical world from the time of the Cold War. It encompasses three-quarters of the world’s population and consists of the states that were not aligned with either the democratic-industrial bloc or the eastern, communist-socialist bloc.
• A developing country, in order to evolve into an emerging market, must (1) seek to implement transparency in its government as well as in its political and economic institutions to help inspire business confidence in its country, (2) develop the local commercial infrastructure and reduce trade barriers to attract foreign businesses, and (3) educate the population equally and create a healthy domestic workforce that’s both skilled and relatively cheap.
Source
The above content was adapted under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/05%3A_Economic_Development_in_the_World/5.05%3A_The_Developing_World.txt |
Learning Objectives
After reading this section, students should be able to …
1. Understand what the emerging markets and BRIC countries are.
2. Identify key emerging markets.
What Exactly Is an Emerging Market?
On September 18, 2008, the Economist argued that the term emerging market is dated.
Is it time to retire the phrase “emerging markets”? Many of the people interviewed for this special report think so. Surely South Korea, with sophisticated companies such as Samsung, has fully emerged by now. And China already has the world’s fourth-largest economy. [Note: As of summer 2010, China has the world’s second-largest economy.]
The term “emerging markets” dates back to 1981, recalls the man who invented it, Antoine van Agtmael. He was trying to start a “Third-World Equity Fund” to invest in developing-country shares, but his efforts to attract money were constantly rebuffed. “Racking my brain, at last I came up with a term that sounded more positive and invigorating: emerging markets. ‘Third world’ suggested stagnation; ‘emerging markets’ suggested progress, uplift and dynamism.”1
The 2008 article clearly articulates the challenge for global businesses, as well as analysts, who are trying to both define and understand the group of countries typically termed the emerging market. In a 2008 Forbes article, Vladimir Kvint, president of the International Academy of Emerging Markets, noted the following:
During the last 20 years, the global business world has gone through drastic, but mostly positive changes. In the 1980s, international business was essentially an exclusive club of the 20 richest countries. This changed as dictatorships and command economies collapsed throughout the world. Countries that once prohibited foreign investment from operating on their soil and were isolated from international cooperation are now part of the global marketplace.
I remember well when, in 1987, the first \$80 million of foreign origin was allowed to be invested in the former Soviet Union. So-called “patriots” accused Mikhail Gorbachev of selling their motherland. Twenty years later, in 2007, Russia received about \$43 billion of foreign direct investment, and emerging-market countries received about 40 percent of the \$1.5 trillion FDI [foreign direct investment] worldwide.2
The definition of an emerging market is complex and inconsistent. There is a plethora of statistics and data available. The application and interpretation of this information varies depending on who is doing the analysis—a private sector business, the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), the United Nations (UN), or any number of global economic, political, and trade organizations. The varying statistics, in turn, produce a changing number of countries that “qualify” as emerging markets. For many businesspeople, the definition of an emerging market has been simply a country that was once a developing country but has achieved rapid economic growth, modernization, and industrialization. However, this approach can be limiting.
Knowing that there are wide inconsistencies, how do we define emerging markets consistently from the perspective of global businesses? First, understand that there are some common characteristics in terms of local population size, growth opportunities with changes in the local commercial infrastructure, regulatory and trade policies, efficiency improvements, and an overall investment in the education and well-being of the local population, which in turn is expected to increase local incomes and purchasing capabilities.
As a leading economic and strategic thinker in the area of emerging markets, Kvint concludes from his research that there are several major characteristics of emerging markets, which create “a comfortable and attractive environment for global business, foreign investment and international trade. Based on my study, an emerging market country can be defined as a society transitioning from a dictatorship to a free market-oriented economy, with increasing economic freedom, gradual integration within the global marketplace, an expanding middle class, improving standards of living and social stability and tolerance, as well as an increase in cooperation with multilateral institutions.”3
In April 2010, the chief of HSBC, the largest bank in Europe, forecasted a change for the next ten years in which six new countries (the CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) will replace the BRIC countries (Brazil, Russia, India and China) of the last decade:
“Each has a very bright future,” HSBC CEO Michael Geoghegan said of the CIVETS, named after the cat-like animals found in some of the countries. “Each has large, young, growing population. Each has a diverse and dynamic economy. And each, in relative terms is politically stable.”…
“Within three years, for the first time, the economic firepower of emerging markets will overtake the developed world, measured by purchasing power parity. It’s a defining moment.”
The size of the emerging market middle class will swell to 1.2 billion people by 2030, from 250 million in 2000, he said.
That bodes well for financial services, as households tend to open bank accounts and ask for other products when income reaches about \$10,000, Geoghegan said.
“Many Chinese households are about to hit this level. They number about 33 million now. But they will quadruple to 155 million by 2014. In India, the change will also be dramatic,” he said.4
In addition, to illustrate how experts debate the next group of emerging-market countries, the Goldman Sachs economist who created the term BRIC in 2001 in a report for the investment bank has added a new group, MITSK. A January article in the British Financial Times newspaper notes, “Jim O’Neill, who coined the term ‘Bric’, is about to redefine further emerging markets. The chairman of Goldman Sachs Asset Management (until end of 2010) plans to add Mexico, South Korea, Turkey and Indonesia into a new grouping with the Brics—Brazil, Russia, India and China—that he dubs ‘growth markets. It’s just pathetic to call these four “emerging markets.”5
The Financial Times continues to note how the Brics have frequently been dismissed as a marketing ploy. However, the nine-year-old term has spawned government summits, investment funds, business strategies and a host of countries keen to join. Adding that Mr O’Neill himself stated that the term “emerging markets” was no longer helpful because it encompassed countries with too great a range of economic prospects. Mexico and South Korea account for 1.6 per cent each of global GDP in nominal terms. Turkey and Indonesia are worth 1.2 and 1.1 per cent respectively. China is the world’s second-largest economy, at 9.3 per cent of global GDP (the US is worth 23.6 per cent), while Brazil, India and Russia combined provide a further 8 per cent. O’Neill offers a new approach that will involve looking at fresh ways to measure exposure to equity markets beyond market capitalisation—for example, looking at gross domestic product, corporate revenue growth and the volatility of asset returns.6
These opinions and analyses by different economists are highlighted in this chapter to illustrate that the category of emerging markets is complex, evolving, and subject to wide interpretation. So how then do savvy global professionals sort through all of this information? Managers focus on the criteria for emerging markets in an effort to take advantage of newly emerging ones. While there are differing opinions on which countries are emerging, it’s clear that global businesses are focused on the groups of countries offering strong domestic markets. Many of these emerging-market countries are also home to companies that are taking advantage of the improved business conditions there. These companies are becoming world-class global competitors in their industries. Regardless of which definition or classification is used, the largest emerging markets remain lucrative and promising.7
Key Emerging Markets
Asia
Spotlight on China
Located below Russia on the western seaboard of the Pacific Ocean, China is about as large as the continent of Europe and slightly larger than the United States. It is the third-largest country in the world after Russia and Canada.
For more than fifty years, China has had a centrally planned economy in which the state controlled most of the commercial activity. Under Mao Zedong’s over forty-year leadership, the Chinese government kept a firm grip on the country’s economic activity. That grip has been loosening since the 1980s as a result of Deng Xiaoping’s reforms, which introduced some strong capitalist characteristics into China’s centrally planned economy. Since the early 1980s, the Chinese economy has been in transition away from central planning and toward a market-driven economy. In today’s model, market forces work in conjunction with state ownership and intervention. This system is commonly referred to as “a socialist market economy with Chinese characteristics.” The government now realizes that it can’t provide all the resources needed to fuel the economy by itself and that the private sector has a major role to play in providing investment—and jobs. Today, China’s economy is caught between two opposing forces—a burgeoning market sector that is outgrowing government control and the inability of that market to function efficiently due to continued influence by the state on production and prices.
In 1979, China instituted economic reforms, established “special economic zones,” and opened its economy to foreign investments and companies. This change in attitude brought remarkable changes to the socialist market economy, resulting in improved living standards and new social attitudes. As local provinces have benefited from foreign investment, particularly in the south, central economic control has weakened. Since 1978, industrial output has increased more than sixfold, in large part due to foreign manufacturers and investors who have established operations in China (usually as joint ventures with corporations owned or influenced by the Chinese government but also with some private-sector companies).
In many areas, China remains a predominantly agricultural society. Major crops include rice, barley, millet, tobacco, sweet potatoes, wheat, soybeans, cotton, tea, raw silk, rapeseed, corn, peanuts, watermelon, and sesame seed. Under the 1979 regulations, peasants were permitted to lease land for private farming and were allowed to sell for profit any surplus produce above the quota demanded by the state in the open market. There are still more collectives than family farms, but this is changing. Besides agriculture, the leading industries include textiles, machinery, cement, chemicals, communications and transportation equipment, building materials, and electronic machinery and equipment.
The results of these reforms have been spectacular—China’s economy has grown an average of 9 percent per year over the last fifteen years and is now the second largest in the world. If it continues at this rate of expansion, some pundits predict China could eventually replace the United States in first place.
One of the most interesting facets of China’s economic transition has been the rise of the middle class. Prior to the 1980s, there was only a small middle class, with most people occupying the lower echelons of the economic ladder. Now it’s estimated that some 300 million Chinese have entered the middle-class cohort, fueling a huge increase in consumer spending.
In the 1990s, the seven-day workweek was progressively lowered to five days. With increased time off and longer national holidays, the average Chinese person now has more leisure time—and more time to spend money on consumer goods.
Take a look at some of China’s major cities—particularly those along the eastern coast—and you’ll see soaring skyscrapers, glitzy boutiques, luxury hotels, and expensive cars. There’s a feeling of economic prosperity and high-powered consumerism. Apartment buildings aimed at the prosperous middle-class market are sprouting up all over China’s major cities.
Travel just a few hundred miles from the cities, though, and you’ll encounter farming scenes reminiscent of the early days of the twentieth century. The economic disparity between the urban rich and the rural poor and all its accompanying problems are likely to continue for the foreseeable future.
With a burgeoning market sector that’s outgrowing government control, China is now at the crossroads of reform. Yet despite the high growth rates, enormous challenges remain, including marked regional inequality, an entrenched and at times inflexible bureaucracy, high unemployment, a large floating population, and environmental degradation. Most commentators agree that the country has recognized the complex issues facing its economic future and is now ready to address them.
The growth of China’s telecommunications industry is outstripping expectations. The number of mobile-phone subscribers, for example, has grown from 1 million in 1994 to around 700 million in 2009.8 But the industry’s expansion hasn’t automatically led to large profits. The growth has been fueled by an increase in competition, putting downward pressure on prices. In fact, a 2009 China Daily article claims that China’s telecom market the biggest battlefield in the world.9
Internet use is also expanding rapidly, although its spread is hindered by the government’s attempts to regulate the sector and control access as evidenced in the case between the government and Google in the spring of 2010. Keeping up with the newest technology in the areas of delivery networks, broadband access, payment procedures, and security has created enormous opportunities. The government has made extensive efforts to invest in infrastructure and emerging technologies.
In 2009, agriculture accounted for an estimated 10.6 percent of China’s gross domestic product (GDP), industry represented 46.8 percent, and services totaled 42.6 percent. Apart from agriculture, China’s leading industries include “mining and ore processing of iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment; commercial space launch vehicles; and satellites.”10 The production of consumer goods is now one of the fastest-growing sectors in the economy. Once a source of cheap consumer electronics for the West, China is now producing those items for its own rapidly expanding internal market.
Chinese economic statistics must still be regarded with a degree of skepticism. Often it’s unclear where the numbers have originated or how they have been derived. Still, there’s no doubt that phenomenal growth is taking place, and there are pressures for a more transparent economic reporting system.
In the past, China didn’t see the environment as an issue in its race to industrialize. Now, there is an increasing sense of environmental awareness. “China is changing from the factory of the world to the clean-tech laboratory of the world. It has the unique ability to pit low-cost capital with large-scale experiments to find models that work.”11
Government attention and foreign investment have been focused on further developing the country’s inadequate infrastructure, including roads, railways, seaports, communications systems, and power generation. Industrial capability, in both light and heavy industries, has also improved. China is a vast country rich in natural resources, including coal, oil, gas, various metals, ores, and minerals.
The largest Chinese companies are those that have capitalized on China’s natural strengths and have state backing or are state-run. For example, PetroChina is the country’s largest oil and gas producer and distributor. PetroChina is the listed arm of state-owned China National Petroleum Corporation (CNPC). It is one of the world’s largest oil producers and is the world’s most valuable company by market value as of 2010, exceeding a trillion-dollar market capitalization. China’s largest companies have benefited from this combination of government support through access to capital and markets along with private-sector efficiencies.
China joined the WTO in December 2001, and it will likely be drawn even more into the global economy as companies continue to vie for access to its 1.3 billion consumers and cheap and productive labor pool. Most companies expect that dealing with China will now become more straightforward, if not easier. Whatever the future brings, the Chinese economy continues to be a powerhouse of growth and opportunity.12
Spotlight on India
India is officially called the Republic of India and is also known as Hindustan or Bharat. As the seventh-largest country in the world, India spans 1.267 million square miles; it’s about one-third the size of the United States. India shares borders in the northwest with Pakistan; in the north with China, Bhutan, and Nepal; and in the east with Bangladesh and Myanmar (Burma). The Indian territory also extends to the Andaman and Nicobar Islands in the Bay of Bengal as well as to Lakshadweep in the Arabian Sea.
Prior to the mid-1980s, the country pursued a policy of socialism with the state planning and controlling many sectors of the economy. Foreign investment had been discouraged except in the area of technology transfers. Since the early 1990s, India has embarked on an economic liberalization scheme that has proven beneficial to the country.
In 1991, India was on the brink of defaulting on its foreign debt. The government responded with a series of successful measures to initiate widespread economic reforms, including reducing export and import barriers, dismantling some of its swollen bureaucracy, making the currency partially convertible, and eliminating the black market for foreign currency and gold. Efforts were also made to privatize or increase the efficiencies of unprofitable state companies. Finance Minister Manmohan Singh (who later became prime minister) was successful in beginning to dismantle the “License Raj,” an intricate system of government economic control through permits and quotas. Various policies initiated by the government provided a larger role for the private sector and encouraged foreign investment. As a result, investment increased, though at much lower levels than in other Asian countries.
Since the 1990s, central government intervention, licensing, and regulation have decreased, as have bureaucratic inefficiencies. India boasts an established free-market system; a sophisticated industrial and manufacturing base; and a huge pool of skilled, low-to-moderate-cost workers, including professional managers. Economic gains, particularly as a result of further integration into the global economy, have provided improved the standard of living for all communities. The country’s 2.1 percent annual population growth ensures that its population will surpass China’s within the next decade and remains a significant problem for the government, as limited resources threaten the distribution of economic reform benefits.
The country is rich in natural resources, such as rubber, timber, chromium, coal, iron, manganese, copper ore, petroleum, bauxite, titanium, mica salt, limestone, and gypsum. The country is one of the world’s leading producers of iron ore, and coal accounts for nearly 40 percent of all mined minerals. India also has reserves of natural gas and oil, but it remains a net importer of crude oil because its domestic generation is insufficient to meet demand. In addition, India has deposits of precious stones, including diamonds, emeralds, gold, and silver. Cut diamonds are one of India’s biggest exports.
Agriculture remains an important economic sector, contributing roughly 17 percent of the country’s GDP and employing almost 52 percent of the workforce. Major crops include rice, wheat, pulses, sugarcane, cotton, jute, oilseeds, tea, coffee, tobacco, onions, and potatoes. Other important agricultural interests include dairy products, sheep, goats, poultry, and fish.
Until the mid-1960s, India imported much of its food. The Green Revolution focused on improving farming techniques, increasing mechanization, and irrigating as well as introducing high-yielding seeds. All of these have increased agricultural production and made the country self-sufficient in food production. The government also provides incentives to farmers to expand production. Most of India’s farms tend to be small and provide subsistence for the families that operate them. They aren’t geared for commercial purposes. Northern fertile areas, such as those in the state of Punjab, account for much of the export production.
While India has more cattle than any other country, it isn’t farmed for food consumption as Hindus are not supposed to eat beef. The animals are used for a variety of other purposes, including plowing land, producing milk for dairy products, and supplying leather.
The growth of Indian industry, which accounts for about 28.2 percent of its GDP and 14 percent of employment, has resulted in widespread improvements and diversity in the country’s manufacturing base. The major manufacturing industries include cotton and jute textiles; iron, steel, and other basic metals; petrochemicals; electrical machinery and appliances; transport equipment; chemicals; cement; fertilizers; software; medicines and pharmaceuticals; and food products. The power, electronics, food processing, software, transportation equipment, and telecommunications industries are developing rapidly. The financial sector, including banking and insurance, is well developed, although efforts to modernize it are underway.
State-run entities continue to control some areas of telecommunications, banking, insurance, public utilities, and defense, as well as the production of minerals, steel, other metals, coal, natural gas, and petroleum. There have been some steps taken to shift more control to the private sector, although on a gradual and closely monitored scale.
Services account for 54.9 percent of the GDP, but employ only 34 percent of the workforce. The most dramatic change in the economy has come from the computer-programming industry, as companies around the world have turned to India for outsourcing. With its skilled, relatively cheap, and English-speaking professional workforce, India has received a much-needed boost in the form of investment and foreign earnings. This is expected to have continued significant impact on the economy, business environment, and the social values and expectations of the Indian population.
India’s technology firms have gained global recognition. One of the best known is Infosys. Founded in 1981 by seven Indian entrepreneurs, Infosys today is a NASDAQ-listed global consulting and information technology services company—with \$5.4 billion in revenues. Throughout twenty-nine years of growth, Infosys, in addition to other well-managed Indian companies, has been well positioned to take advantage of the Indian government’s efforts at economic liberalization that began in the early 1990s. Under this program, the government has systematically reduced trade barriers and embraced globalization. These changes have led to India’s emergence as the global destination for software services talent.13
Amusing Anecdote
India’s Currency Gets a Visible Promotion
A clear sign of a currency’s importance is its symbol. All of the major global economies’ currencies (e.g., the dollar, pound , euro, and yen) have one. In July 2010, the Indian government announced that there was a new symbol for the rupee. Not yet available on keyboards or any electronic devices, the symbol will replace the often-used Rs. “The symbol is a matter of national pride, underscoring ‘the robustness of the Indian economy,’ said Ambika Soni, India’s Information Minister” to the New York Times.14
Europe
Spotlight on Russia
Russia is the largest country in the world, stretching across two continents and eleven time zones. Eleven seas and two oceans wash the banks of this 6.6 million square mile territory. The south and southeast of the country are covered with mountains, and the central part is a plain, furrowed with rivers. Around 7,000 lakes spread over the western part of Russia. The border between Europe and Asia runs down the west side of the Ural Mountains, about 807 miles east of Moscow.
Anyone looking to do business in Russia today needs to comprehend the array of changes that have impacted the nation over the past three decades. Rising to power in the 1980s, General Secretary Mikhail Gorbachev was the first leader to end repressive political controls and to suffer nationalist movements in the constituent republics. Gorbachev set the forces in action that would overturn the Communist regime and seal his own expulsion. He relaxed government control on the media and the Russian culture, implementing a policy of glasnost, or openness and candor. Gorbachev also sought perestroika (i.e., restructuring) of the economy and political system that preserved some of the more positive elements of socialism. Gorbachev gained international fame as the head of the Soviet bloc who helped put an end to the Cold War. To reach a common understanding, Gorbachev met repeatedly with US Presidents Ronald Reagan and George Bush, helping broker arms-reduction agreements.
During Gorbachev’s term, Communist regimes began to fall all over Eastern Europe. In an abrupt departure from previous Soviet policy, Gorbachev refused to intervene. The Berlin Wall fell in 1989, and Gorbachev did nothing to stop it. Sensing weakness, republic parliaments all over the Soviet bloc asserted their sovereignty; a few even went so far as to assert complete independence. In 1991, when Gorbachev attempted to negotiate with the republics, alarmed Soviet leaders attempted a coup. The coup failed, but Gorbachev had lost his political cache to rival Boris Yeltsin, who succeeded Gorbachev as the hero of the era. This changed political, economic, and military dynamics around the world.
While the changes Gorbachev implemented did little to develop the Soviet Union’s struggling economy, he did overhaul Soviet elections by reintroducing multiparty elections in 1989. This essentially invited political dissidents and reform-minded leaders into the parliament. These individuals soon began to challenge Gorbachev’s leadership, pushing him to implement more changes. In 1991, Gorbachev conceded to their demands and installed their leader, Boris Yeltsin, as the president of Russia.
The economic and political challenges the newly independent country faced were considerable. The inefficiency of the Soviet government had left its stamp on every area of the economy. Russia’s industries had to update their technology, retrain their workers, and cut back their workforces. Russians were largely unfamiliar with Western ways of doing business and found it difficult to make the changes mandated by capitalism. Unemployment soared, and the plight of most Russians grew increasingly desperate.
In this climate of desperation, Yeltsin’s government instituted a so-called shock therapy program intended to galvanize the economy by reducing barriers to free trade. These policies, while well intentioned, produced sweeping inflation that almost completely devalued Russian currency. Western newspapers were plastered with images of Russians waiting in long lines, carrying bags of devalued bills. In an attempt to address the crisis, the government introduced a privatization program, which resulted in rampant cronyism and theft of state property.
While the government encouraged the emergence of small businesses and the already-flourishing black-market trade was finally legitimatized, small businesses faced many obstacles inadvertently caused by the government’s inefficiency. The tax system was so disorganized that the government couldn’t obtain the funds necessary to sustain adequate police or military forces. Health care and other basic welfare systems collapsed, and organized crime forced small businesses to make regular payoffs.
As quality of life took a precipitous drop for the majority of the Russian population, the gap between the rich and poor broadened dramatically. But crime lords weren’t the only ones profiting from the gap, the privatization of government assets enabled a few well-placed individuals to turn those assets into their private property. The nouveau riche, as this class of Russians was called, tended to be ostentatious, and the construction of elaborate mansions at a time when ordinary Russians were suffering, outraged the citizens’ sense of justice.
Since 1991, Russia has struggled to establish a market economy. The country “has undergone significant changes since the collapse of the Soviet Union, moving from a globally-isolated, centrally-planned economy to a more market-based and globally-integrated economy.”15 Today, Russia has shifted back to a more centralized, semi-authoritarian state. “Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy and defense-related sectors. Nonetheless, the rapid privatization process, including a much criticized ‘loans-for-shares’ scheme that turned over major state-owned firms to politically-connected ‘oligarchs’, has left equity ownership highly concentrated.”16 Corruption remains a challenge for businesses operating in Russia. New business legislation, including a commercial code and the establishment of an arbitration court to resolve business disputes, has passed. However, the “protection of property rights is still weak and the private sector remains subject to heavy state interference.”17 However, the system continues to evolve. Additionally, global economic conditions have impacted the value of the ruble and the status of the country’s international debts.18
Russian industry is primarily split between globally competitive commodity producers—in 2009 Russia was the world’s largest exporter of natural gas, the second largest exporter of oil, and the third largest exporter of steel and primary aluminum—and other less competitive heavy industries that remain dependent on the Russian domestic market. This reliance on commodity exports makes Russia vulnerable to boom and bust cycles that follow the highly volatile swings in global commodity prices. The government since 2007 has embarked on an ambitious program to reduce this dependency and build up the country’s high-technology sectors but with few results so far. A revival of Russian agriculture in recent years has led to Russia shifting from being a net grain importer to a net grain exporter. Russia has a highly industrialized and agrarian economy. Almost ten million people are engaged in the agriculture industry. Along with its vast spaces, Russia has always been known for its amazing resources. The country produces 30 percent of the world’s nonferrous, rare, and noble metals; 17 percent of the world’s crude oil; 30 percent of natural gas; and it holds 40 percent of the world’s known natural gas deposits. Today, agriculture accounts for 4.7 percent of the economy, industry represents 34.8 percent, and services total 60.5 percent (based on a 2009 estimate).19
Did You Know?
Russia, the Summer of 2010 Drought, and Wheat: Understanding the Domino Effect on Countries and Business
Think global business is all about leading-edge, high-tech gadgets, consumer products, or industrial manufacturing items? Think again. Since the early days of ancient trade, commodities, such as wheat, corn, spices, rice, and cotton, have been the primary objects of trade. Even today, wheat and corn, the most basic of foodstuffs across all cultures, can still make governments and economies—developed, developing, and emerging—quiver as a result of natural and unnatural disruptions to their marketplaces. Recently, in the summer of 2010, Russia experienced a crippling drought that led to a four-month ban on all grain exports. “Russia has become an increasingly important force in the global supply of grains and the move reignited fears that nervous governments would begin hoarding their own supplies, potentially causing a shortage….Countries such as Egypt, the world’s number one importer of wheat, which had bought Russian wheat, now must consider other options.”20 Russia provided almost 15 percent of the world’s wheat supply for global exports from the 2009–10 crop. As a result of the ban, many global packaged-foods companies, including Swiss giants, Migros-Genossenschafts-Bund and Coop Schweiz, and British-based Premier Foods, considered possible price increases as a result of the wheat ban.21
Like China, Russia’s largest companies are either state-run or have state backing, providing the government with access to resources, capital, and markets. Business analysts and investors are eager for the government to privatize more of the largest firms. “The Economic Development Ministry said in July [of 2010] that the privatization list for 2011–2013 included oil pipeline monopoly Transneft, Russia’s largest shipping company Sovcomflot, oil major Rosneft, the country’s largest banks Sberbank and VTB, the Federal Grid Company of Unified Energy System, the Russian Agricultural Bank, hydropower holding company RusHydro and other assets.”22
RUSAL is one of Russia’s largest privately held companies. Headquartered in Moscow, RUSAL is the world’s largest aluminum company and accounts for almost 11 percent of the world’s primary aluminum output and 13 percent of the world’s alumina production. The company has aggressively used a strategy of global mergers and acquisition to grow its operations, which now cover nineteen countries and five continents. To raise capital, the company listed on the Hong Kong Stock Exchange in 2010.23
Africa
Spotlight on South Africa
South Africa makes up the southern portion of the continent of Africa, from the Atlantic Ocean in the west to the Indian Ocean in the east. With a total land area of 750,000 miles, including the Prince Edward Islands, the country is the twenty-seventh largest in the world, or approximately the same size as France, Spain, and Portugal combined.
Initially a refueling station for Dutch sailors traveling to the East, South Africa gradually developed an agricultural sector, based on fruit, wine, and livestock production, along the coast of the Cape of Good Hope. All of this changed dramatically with the discovery of minerals in the late nineteenth century. Subsequently, the country emerged as the leading manufacturing and industrial economy on the African continent.
Surging prices for gold and the high demand for base metals and other mineral products propelled the country’s economy after World War II. South Africa was fortunate to have this strong economic base when international sanctions were applied in the 1970s and 1980s.
Nonetheless, import substitution and sanction busting were necessary for economic survival, and the country as a whole became increasingly isolated. A handful of massive corporations controlled most of the country’s wealth and provided the majority of goods and services. The national government controlled those sectors of the economy seen as critical to the national interest of the apartheid state, including transportation, telecommunications, and the media.
South Africa practiced legal racial segregation, under the apartheid system. In the 1970s, worldwide disapproval of apartheid led to economic sanctions against South Africa. An international oil embargo was imposed in 1974, and the country was suspended from participating in the United Nations. “Disinvestment (or divestment) from South Africa was first advocated in the 1960s, in protest of South Africa’s system of Apartheid, but was not implemented on a significant scale until the mid-1980s. The disinvestment campaign…is credited as pressuring the South African Government to embark on negotiations ultimately leading to the dismantling of the apartheid system.”24
During the 1980s, there was global political and economic isolation. Many global investment firms pulled out of South Africa as a result of the public outcry and investor pressures against apartheid. While global firms, such as PepsiCo, Coca-Cola, IBM, ExxonMobil, and others, didn’t leave South Africa, they endured public boycotts and protests in their home countries. The moral arguments against apartheid eventually won. After F. W. de Klerk was elected president in 1989, change was immediate. Political prisoners were released, and a national debate was initiated on the future of the country. The ban was lifted on the African National Congress (ANC), and in February 1990, Nelson Mandela was released from prison after twenty-seven years behind bars. He was elected president in 1994, and to further unite the country, de Klerk agreed to serve as deputy president in his administration.
Following the 1994 election, South Africa’s period as an international outcast came to a swift end. The country was readmitted into the United Nations, and sanctions were lifted. For the first time South Africans could travel freely, had a free press, and participated in truly democratic institutions. Global businesses could once again do business with South Africa without fear of investor or public backlash.
South Africa has emerged as a free-market economy with an active private sector. The country strives to develop a prosperous and balanced regional economy that can compete in global markets. As an emerging-market country, South Africa relies heavily on industrial imports and capital. Specialty minerals and metals, machinery, transport equipment, and chemicals are important import sectors.
Minerals and energy are central to South Africa’s economic activity, and manufacturing, the country’s largest industry, is still based to a large extent on mining. South Africa receives more foreign currency for its gold than for any other single item, although it exports other minerals including platinum, diamonds, coal, chrome, manganese, and iron ore. It is the world’s largest producer of platinum, gold, and chromium. Agricultural products, such as fruit, wool, hides, corn, wheat, sugarcane, fruits, vegetables, beef, poultry, mutton, dairy products, and grains, account for 3 percent of its GDP.
Today, industry accounts for 31 percent of the country’s GDP, focusing on mining and automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs, and commercial ship repair.
During the years of apartheid, the economy of South Africa stagnated and appeared directionless. That changed after the election of the Government of National Unity in 1994. The postapartheid government has clear priorities, including economic growth, job creation, and inequality reduction.
Under apartheid, large conglomerates achieved near-cartel status and stifled competition. In many instances, this occurred with tacit government approval, and many promising small companies were bought or forced out of the market by financial muscle. The overall effect was a blunting of innovation and growth throughout the country. Since the end of apartheid, the government has made significant strides in promoting small-business development, in part by offering large corporations incentives to donate funds to small companies.
With the growth of their international market, South African businesses are expanding their focus outward. Companies such as Anglo American and South African Breweries (SAB) are listed on the London Stock Exchange, and Sappi (formerly South African Pulp and Paper Industries), a giant paper concern, has invested in the US market.
As part of its effort to improve South Africa’s business climate, the government has made a strong commitment to privatization. To date, it has sold parts of South African Airways and Telkom (the former telecommunications monopoly), as well as other companies. The government is also offering incentives to overseas companies to partner with disadvantaged community-owned South African enterprises and requires businesses with government contracts to make contributions to social programs.
Since the end of apartheid, corporate life in South Africa has changed dramatically, and the business scene is now evolving at a fast pace. The government is committed to liberalizing the country’s economy in fundamental ways, and corporate culture is changing in response. Programs to encourage economic growth and globalization have attracted new companies from abroad and introduced new approaches to doing business. Companies have also experienced a boost in creative energy. Today, the hallmarks of the South African business culture are change and transformation.
Day to day, doing business in South Africa is relatively easy and becoming easier as regulations are modified to reflect international norms. At the same time, new policies, particularly in matters of employment and labor, are making business life more complex.
While South African society is officially color free, in practical terms there are many areas of business that are still segregated. Overseas companies looking to break into public-sector contract work would be wise to establish joint ventures with companies owned by blacks.
South Africa has one of the highest union-membership rates in the world—a total of 3.2 million workers, or 25 percent of the employed workforce. Although the labor movement has a reputation for militancy, strikes are virtually unheard of since the job market has become so tight, and labor relations have generally improved.
Because of the country’s strong union culture, managers tend to be highly sensitive to union concerns in the workplace, and union issues are never far from the surface in decision making. In fact, unions used rolling mass action to disrupt the apartheid economy, and this weapon is still available.
Services now total 65 percent of the economy. South Africa has a well-developed financial services sector, and the South African Futures Exchange ranks among the top-ten international (i.e., non-US) stock exchanges. Trade with countries on the African continent has been increasing rapidly. Finished goods and prepared foodstuffs, as well as base metals and chemicals, are in particularly high demand.25 Overall, the country has the most-sophisticated market economy on the African continent. Between its economic profile and its well-developed physical infrastructure, South Africa has become an attractive place to do business.26
“For much of the past decade, Asia has been the go-to continent for companies interested in tapping fast-growing economies. Now, Wal-Mart Stores’ agreement on September 27, 2010 to buy South African retailer Massmart Holdings for \$4.6 billion may signal a shift toward Africa as another deal-making destination for multinationals.”27 The deal was Walmart’s largest in a decade, which indicates just how serious global businesses are taking the emerging opportunity in Africa. Other large representative acquisitions include HSBC’s stake in Nedbank Group and Japan’s Nippon Telephone & Telegraph (NTT) purchase of Dimension Data. While these acquisitions are South African companies, it’s only a matter of time until the rest of Africa triggers global commercial interest as well.
Latin America
Spotlight on Brazil
With nearly 3.4 million square miles in area, Brazil is about the size of the continental United States and the fifth-largest country in the world. It covers nearly half of the South American continent, and, with the exception of Chile and Ecuador, it shares a border with every country in South America.
Brazil remains Latin America’s largest market, the world’s fifth-most-populous country, and the world’s tenth-largest economy in GDP terms. Government policies for disinflation and income support programs for the poorest families have contributed to a significant reduction in poverty rates and income inequality in recent years. However, poverty remains a stubborn challenge for Brazil.
Brazil’s economic history has progressed in cycles, each focused on a single export item. Soon after the arrival of the first Europeans, wood was the hot commodity. In the sixteenth and seventeenth centuries, the scramble was for sugar. Eighteenth-century traders lusted for gems, gold, and silver; and finally, in the nineteenth and twentieth centuries, coffee was king. Rubber had its day as well. Also of economic importance during these cycles were cattle and agriculture, though they mainly served the domestic market.
Brazil is best known as a leading world producer of coffee and sugar. These commodities, no doubt, enable the country to trade on the world’s stage and remain critical to the Brazilian economy to this day. Brazil is also one of the largest producers and exporters of soybeans, orange juice, cocoa, and tropical fruits. A little known fact, however, is that today, nonagricultural products—namely, auto parts, aircraft, and machinery—bring in more money. Ironically, it’s the oft-maligned industrial programs of the 1960s and 1970s that deserve much of the credit for these successes.
Industry came to Brazil in the mid-1800s. The depression of 1929 threw a wrench in development, but the setback was only temporary; during subsequent decades, expansion was steady. Growth was especially healthy between the 1960s and the oil crisis of 1979. It wasn’t until the 1980s, when interest rates busted the charts, that the economy began its descent. The flow of foreign and domestic capital slowed to a trickle, devaluations played havoc with the national currency, and foreign companies initiated debilitating cutbacks or left the country altogether. Severely handicapped in its ability to invest, Brazil plunged into a period of runaway inflation and negative growth rates. To this day, the 1980s are referred to as “the lost decade.”
In the 1990s, the government honed in on three economic goals: (1) trade reform, (2) stabilizing the economy, and (3) building the country’s relationship with the global financial community. In 1994, Minister of Finance Fernando Henrique Cardoso (often called FHC), launched the Real Plan, which inspired the name for Brazil’s currency (i.e., the real). The plan, with its emphasis on the need for a strong currency, high interest rates, strict limits on government spending, and an opening up of the economy, touched off a boom in Brazil. Foreign capital began pouring in. Brazil’s economic wizards outwitted the forces that wracked Mexico in the mid-1990s as well as Southeast Asia in 1997 and 1998. Their main premise was a strong (i.e., increasingly overvalued) real and spiraling interest rates. However, this premise lost validity in January 1999, when the Central Bank stopped defending the real and let the currency float freely.
Economically, the remainder of the 1990s was a qualified success. In 2001 and 2002, Brazil managed to avoid the fate of its neighbor, Argentina. Nevertheless, the country’s finances remained a disaster. Improved prudent economic policy led to early repayment of IMF loans in 2005 and stabilized the economy. Although Brazil has seen significant rates of economic growth in recent years, this growth hasn’t benefited all sectors or all groups to the same extent. Simultaneously, the economy is undergoing major structural changes as large-scale privatization of formerly state-owned enterprises continues.28
Today, “characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil’s economy outweighs that of all other South American countries, and Brazil is expanding its presence in world markets.”29 Its industry accounts for 25.4 percent of the GDP and focuses on textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, and other machinery and equipment. Agriculture, including coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus, and beef, accounts for 6.1 percent of the economy, while services total 68.5 percent.30
Since 2003, Brazil has steadily improved macroeconomic stability, building up foreign reserves, reducing its debt profile by shifting its debt burden toward real-denominated and domestically held instruments, adhering to an inflation target, and committing to fiscal responsibility. Brazil has also experienced the global “recession, as global demand for Brazil’s commodity-based exports dwindled and external credit dried up. However, Brazil was one of the first emerging markets to begin a recovery.”31
Today, Brazil is home to several global firms. Embraer builds innovative small jets and has become the world’s biggest producer of smaller jet aircraft. The Brazilian food processors, Sadia and Perdigao, exemplify the international entrepreneurship of modern Brazil. Each is a \$2 billion enterprise and exports about half of its annual production. Brazil’s abundant resources for producing pork, poultry, and grains and its ideal growing conditions for animal feed provide these companies with many advantages. Both Sadia and Perdigao also have world-class global distribution and supply-chain management systems for product categories in frozen foods, cereals, and ready-to-eat meals.
Key Takeaways
• There are some common characteristics of emerging markets in terms of the size of the local population, the opportunity for growth with changes in the local commercial infrastructure, the regulatory and trade policies, improvements in efficiencies, and an overall investment in the education and well-being of the local population, which in turn is expected to increase local incomes and purchasing capabilities.
• A current definition of an emerging market is a country that can be defined as a society transitioning from a centrally managed economy to a free-market-oriented economy, with increasing economic freedom, gradual integration within the global marketplace, an expanding middle class, and improving standards of living, social stability, and tolerance, as well as an increase in cooperation with multilateral institutions.
Source
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Summary
A wide variety of internationalization moves are available after choosing to expand. Moreover, some flatteners make global moves easier, while some make them more difficult. Indeed, even importing and outsourcing can be considered stealth, or at least early, steps in internationalization, because they involve doing business across borders. As companies look for growth in new areas of the world, they typically prioritize which countries to enter. Because many markets look appealing due to their market size or low-cost production, it is important for firms to prioritize which countries to enter first and to evaluate each country’s relative merits. For example, some markets may be smaller in size, but their strategic complexity is lower, which may make them easier to enter and easier from an operations point of view. Sometimes there are even substantial regional differences within a given country, so careful investigation, research, and planning are important to do before entry.
Evaluating whether to enter a new market is like peeling an onion—there are many layers. For example, when evaluating whether to enter China, the advantage most people see immediately is its large market size. Further analysis shows that the majority of people in that market can’t afford US products, however. But even deeper analysis shows that while many Chinese are poor, the number of people who can afford consumer products is increasing. 1
Through global market segmentation, a company can identify and group customers or countries according to common needs and wants. Demographic segmentation can be based on country income and population, age, ethnic heritage, or other variables. Psychographic segmentation groups people according to attitudes, interests, opinions, and lifestyles. Behavioral segmentation utilizes user status and usage rate as segmentation variables. Benefits segmentation is based on the benefit buyers seek. Global teens and global elites are two examples of global market segments.
After marketers have identified segments, the next step is targeting: The identified groups are evaluated and compared, and one or more segments with the greatest potential is selected from them. The groups are evaluated on the basis of several factors, including segment size and growth potential, competition, and compatibility and feasibility. Target market assessment also entails a thorough understanding of the product-marketing question and determining marketing model drivers and enabling conditions in the countries under study. The timing of market entry should take into account whether a first-mover advantage is likely to be gained. After evaluating the identified segments, marketers must decide on an appropriate targeting strategy. The three basic categories of global target marketing strategies are standardized global marketing, niche marketing, and differentiated multi-segment marketing.
Positioning a product or brand to differentiate it in the minds of target customers can be accomplished in various ways: positioning by attribute or benefit, positioning by quality/price, positioning by use or user, and positioning by competition. In global marketing global consumer culture positioning (GCCP), foreign consumer culture positioning (FCCP), and local consumer culture positioning (LCCP) are additional strategic options.
Source
This page is licensed under a Creative Commons Attribution Non-Commercial Share-Alike License (Links to an external site) Links to an external site and contains content from a variety of sources published under a variety of open licenses, including:
• “International Expansion and Global Market Opportunity Assessment”, chapter 8 from the book Challenges and Opportunities in International Business (v. 1.0)under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor.
• The course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘The Economic and Political environment’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/06%3A_Global_Market_Planning/6.01%3A_Global_Market_Planning_Summary.txt |
Learning Objectives
After reading this section, students should be able to …
1. understand the key factors in selecting global markets
2. appreciate the importance of cultural, administrative, geographic, and economic distance in estimating a market’s attractiveness
Four key factors in selecting global markets are (a) a market’s size and growth rate, (b) a particular country or region’s institutional contexts, (c) a region’s competitive environment, and (d) a market’s cultural, administrative, geographic, and economic distance from other markets the company serves.
Market Size and Growth Rate
There is no shortage of country information for making market portfolio decisions. A wealth of country-level economic and demographic data are available from a variety of sources including governments, multinational organizations such as the United Nations or the World Bank, and consulting firms specializing in economic intelligence or risk assessment. However, while valuable from an overall investment perspective, such data often reveal little about the prospects for selling products or services in foreign markets to local partners and end users or about the challenges associated with overcoming other elements of distance. Yet many companies still use this information as their primary guide to market assessment simply because country market statistics are readily available, whereas real product market information is often difficult and costly to obtain.
What is more, a country or regional approach to market selection may not always be the best. Even though Theodore Levitt’s vision of a global market for uniform products and services has not come to pass, and global strategies exclusively focused on the “economics of simplicity” and the selling of standardized products all over the world rarely pay off, research increasingly supports an alternative “global segmentation” approach to the issue of market selection, especially for branded products. In particular, surveys show that a growing number of consumers, especially in emerging markets, base their consumption decisions on attributes beyond direct product benefits, such as their perception of the global brands behind the offerings.
Specifically, research by John Quelch and others suggests that consumers increasingly evaluate global brands in “cultural” terms and factor three global brand attributes into their purchase decisions: (a) what a global brand signals about quality, (b) what a brand symbolizes in terms of cultural ideals, and (c) what a brand signals about a company’s commitment to corporate social responsibility. This creates opportunities for global companies with the right values and the savvy to exploit them to define and develop target markets across geographical boundaries and create strategies for “global segments” of consumers. Specifically, consumers who perceive global brands in the same way appear to fall into one of four groups:
1. Global citizens rely on the global success of a company as a signal of quality and innovation. At the same time, they worry whether a company behaves responsibly on issues like consumer health, the environment, and worker rights.
2. Global dreamers are less discerning about, but more ardent in their admiration of, transnational companies. They view global brands as quality products and readily buy into the myths they portray. They also are less concerned with companies’ social responsibilities than global citizens.
3. Antiglobals are skeptical that global companies deliver higher-quality goods. They particularly dislike brands that preach American values and often do not trust global companies to behave responsibly. Given a choice, they prefer to avoid doing business with global firms.
4. Global agnostics do not base purchase decisions on a brand’s global attributes. Instead, they judge a global product by the same criteria they use for local brands (Quelch (2003, August); Holt, Quelch, and Taylor (2004, September)).
Companies that use a “global segment” approach to market selection, such as Coca-Cola, Sony, or Microsoft, to name a few, therefore must manage two dimensions for their brands. They must strive for superiority on basics like the brand’s price, performance, features, and imagery, and, at the same time, they must learn to manage brands’ global characteristics, which often separate winners from losers. A good example is provided by Samsung, the South Korean electronics maker. In the late 1990s, Samsung launched a global advertising campaign that showed the South Korean giant excelling, time after time, in engineering, design, and aesthetics. By doing so, Samsung convinced consumers that it successfully competed directly with technology leaders across the world, such as Nokia and Sony. As a result, Samsung was able to change the perception that it was a down-market brand, and it became known as a global provider of leading-edge technologies. This brand strategy, in turn, allowed Samsung to use a global segmentation approach to making market selection and entry decisions.
Institutional Contexts Khanna, Palepu, and Sinha (2005)
Khanna and others developed a five-dimensional framework to map a particular country or region’s institutional contexts. Specifically, they suggest careful analysis of a country’s (a) political and social systems, (b) openness, (c) product markets, (d) labor markets, and (e) capital markets.
A country’s political system affects its product, labor, and capital markets. In socialist societies like China, for instance, workers cannot form independent trade unions in the labor market, which affects wage levels. A country’s social environment is also important. In South Africa, for example, the government’s support for the transfer of assets to the historically disenfranchised native African community has affected the development of the capital market.
The more open a country’s economy, the more likely it is that global intermediaries can freely operate there, which helps multinationals function more effectively. From a strategic perspective, however, openness can be a double-edged sword: a government that allows local companies to access the global capital market neutralizes one of the key advantages of foreign companies.
Even though developing countries have opened up their markets and grown rapidly during the past decade, multinational companies struggle to get reliable information about consumers. Market research and advertising are often less sophisticated and, because there are no well-developed consumer courts and advocacy groups in these countries, people can feel they are at the mercy of big companies.
Recruiting local managers and other skilled workers in developing countries can be difficult. The quality of local credentials can be hard to verify, there are relatively few search firms and recruiting agencies, and the high-quality firms that do exist focus on top-level searches, so companies scramble to identify middle-level managers, engineers, or floor supervisors.
Capital and financial markets in developing countries often lack sophistication. Reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms may not exist, and multinationals cannot count on raising debt or equity capital locally to finance their operations.
Emerging economies present unique challenges. Capital markets are often relatively inefficient and dependable sources of information, scarce while the cost of capital is high and venture capital is virtually nonexistent. Because of a lack of high-quality educational institutions, labor markets may lack well-trained people requiring companies to fill the void. Because of an underdeveloped communications infrastructure, building a brand name can be difficult just when good brands are highly valued because of lower product quality of the alternatives. Finally, nurturing strong relationships with government officials often is necessary to succeed. Even then, contracts may not be well enforced by the legal system.
Competitive Environment
The number, size, and quality of competitive firms in a particular target market compose a second set of factors that affect a company’s ability to successfully enter and compete profitably. While country-level economic and demographic data are widely available for most regions of the world, competitive data are much harder to come by, especially when the principal players are subsidiaries of multinational corporations. As a consequence, competitive analysis in foreign countries, especially in emerging markets, is difficult and costly to perform and its findings do not always provide the level of insight needed to make good decisions. Nevertheless, a comprehensive competitive analysis provides a useful framework for developing strategies for growth and for analyzing current and future primary competitors and their strengths and weaknesses.
Mini Case: Which BRIC Countries? A Key Challenge for Carmakers Haddock and Jullens (2009)
Today, automobile manufacturers face a critical challenge: deciding which BRIC countries (Brazil, Russia, India, and China) to bet on. In each, as per capita income rises, so will per capita car ownership—not in a straight line but in classic “S-curve” fashion. Rates of vehicle ownership stay low during the first phases of economic growth, but as the GDP or purchasing power of a country reaches a level of sustained broad prosperity, and as urbanization reshapes the work patterns of a country, vehicle sales take off. But that is about where the similarities end. Each of the four BRIC nations has a completely different set of market and industry dynamics that make decision choices about which countries to target, including making difficult decisions about which markets to avoid, extremely difficult.
For one thing, vehicle manufacturing is a high-profile industry that generates enormous revenue, employs millions of people, and is often a proxy for a nation’s manufacturing prowess and economic influence. Governments are extensively involved in regulating or influencing virtually every aspect of the product and the way the industry operates—including setting emissions and safety standards, licensing distributors, and setting tariffs and rules about how much manufacturing must take place locally. This reality makes the job of understanding each market and appreciating the differences more vital. For example, a summary overview of the BRIC nations reveals the differences among these markets and the operating complexities in all of them.
Brazil, with Russia, is one of the smaller BRIC countries, with 188 million people (by comparison, China and India each have more than 1 billion, Russia has 142 million). Yet car usage is already relatively high: 104 cars in use per 1,000 people, nearly 10 times the rate of usage in India, according to the Economist Intelligence Unit. Because of this, growth projections for Brazil are relatively low—more in line with developed nations than with the other BRIC countries. Projections made by the industry research firm Global Insight show that sales will grow just 2% until 2013, underperforming even the U.S. market’s projected growth rate.
On the plus side, Brazil is socioeconomically stable, with increasing wealth and a maturing finance system that is helping to propel growth among rural, first-time buyers who prefer compact cars. Few domestic brands exist, as the market is dominated by GM, Ford, Fiat, and Volkswagen. Prompted by generous government incentives, high import taxes, and exchange rate risks, foreign automakers have invested significantly in Brazil, which has thus become an unrivaled production hub for the rest of South America. Brazilian consumers live in a country with large rural areas and very rough terrain; they demand fairly large, SUV-like cars, made with economical small engines and flex-fuel power trains friendly to the country’s biofuel industry. When a Latin American family buys its first automobile, chances are it was made in Brazil.
Russia, even though it is the smallest of the BRIC countries in population, has the highest auto adoption of the four: 213 cars in use per 1,000 people. (Western Europe, by comparison, has 518, according to the Economist Intelligence Unit.) Yet Global Insight expects future sales growth to average 6.5% from 2008 to 2013, far outpacing Brazil (2%), Western Europe (1.2%), and Japan and Korea (0.2%).
Given Russia’s proximity to Europe, consumer preferences there are more akin to those of the developed markets than to those of China or India, and expensive, status-enhancing European models remain popular, although European safety features, interior components, and electronics are often stripped out to reduce costs. For vehicle manufacturers, the attractions of the Russian market include an absence of both local partnership requirements and significant local competitors. But there is high political risk. So far, the Russian government has permitted foreign carmakers to operate relatively freely, but the Kremlin’s history of meddling in private enterprise and undercutting private ownership worries some executives. These concerns were heightened in November 2008, when Russia implemented tariffs against car imports in hopes of avoiding layoffs that might spark labor unrest among the country’s 1.5 million car industry workers.
India has 1.1 billion people, but its level of car adoption is still low, with only 11 cars in use per 1,000 people. The upside is higher potential growth: among the BRIC countries, India is expected to have the fastest-growing auto sales, almost 15% per year until 2013, according to Global Insight. Sales of subcompact cars are strong, even during the global recession. The popularity of these small cars combines with India’s energy shortages and the country’s chronic pollution to provide foreign carmakers with an ideal opportunity to further develop electric power-train technologies there.
Until the early 1990s, foreign automobile manufacturers were mostly shut out of India. That has changed radically. Today, foreign automakers are welcomed and the government promotes foreign ownership and local manufacturing with tax breaks and strong intellectual property protection. And because foreign companies were shut out for a long period of time, India has capable manufacturers and suppliers for foreign vehicle manufacturers to partner with. Local competition is strong but is thus far concentrated among three players: Maruti Suzuki India, Ltd., Tata, and the Hyundai Corporation, which is well established in India.
China is almost as large as the other three combined in total auto sales and production. Its overall auto usage is just 18 cars per 1,000 households, but annual sales growth until 2013 is expected to be almost 10%. Its size and growth potential make China a dominant force in the industry going forward; new models and technologies developed there will almost certainly become available elsewhere.
But the Chinese government plays a central role in shaping the auto industry. Current ownership policies mandate that foreign vehicle manufacturers enter into 50-50 joint ventures with local automakers, and poor intellectual property rights enforcement puts the design and engineering innovations of foreign car companies at constant risk. At the same time, to cope with energy shortages and rampant pollution, the Chinese government is strongly encouraging research and development on alternative power trains, including electric cars and gasoline-electric hybrids. As a result, Chinese car companies may develop significant power-train capabilities ahead of their competitors.
Like their Indian counterparts, Chinese car companies have outpaced global automakers in developing cars specifically for emerging markets. A few Western companies, like Volkswagen AG, which has sold its Santana models in China through a joint venture (Shanghai Volkswagen Automotive Company) since 1985, are competitive. Some Chinese carmakers, like BYD Company, aspire to become global leaders in the industry. But many suffer from a talent shortage and inexperience in managing across borders. This may prompt them to acquire all or part of distressed Western automobile companies in the near future or to hire skilled auto executives from established companies and their suppliers.
In short, each of the four BRIC nations has a completely different set of market and industry dynamics. And the same is true for the other developing nations. Meanwhile, the number of autos in use in the developing world is projected to expand almost six-fold by 2018.
Cultural, Administrative, Geographic, and Economic Distance
Explicitly considering the four dimensions of distance can dramatically change a company’s assessment of the relative attractiveness of foreign markets. In his book The Mirage of Global Markets, David Arnold describes the experience of Mary Kay Cosmetics (MKC) in entering Asian markets. MKC is a direct marketing company that distributes its products through independent “beauty consultants” who buy and resell cosmetics and toiletries to contacts either individually or at social gatherings. When considering market expansion in Asia, the company had to choose: enter Japan or China first? Country-level data showed Japan to be the most attractive option by far: it had the highest per capita level of spending on cosmetics and toiletries of any country in the world, disposable income was high, it already had a thriving direct marketing industry, and it had a high proportion of women who did not participate in the work force. MKC learned, however, after participating in both markets, that the market opportunity in China was far greater, mainly because of economic and cultural distance: Chinese women were far more motivated than their Japanese counterparts to boost their income by becoming beauty consultants. Thus, the entrepreneurial opportunity represented by what MKC describes as “the career” (i.e., becoming a beauty consultant) was a far better predictor of the true sales potential than high-level data on incomes and expenditures. As a result of this experience, MKC now employs an additional business-specific indicator of market potential within its market assessment framework: the average wage for a female secretary in a country (Arnold (2004), p. 34).
MKC’s experience underscores the importance of analyzing distance. It also highlights the fact that different product markets have different success factors: some are brand-sensitive while pricing or intensive distribution are key to success in others. Country-level economic or demographic data do not provide much help in analyzing such issues; only locally gathered marketing intelligence can provide true indications of a market’s potential size and growth rate and its key success factors.
Mini Case: Tata Making Inroads Into China Chow (2008, April 28)
Not content with just India, Mumbai-based Tata Group, the maker of the \$2,500 Nano small car, is developing a small car for China. The platform is being designed and developed by a joint Indian and Chinese team based in China. The alliance won a new project for the complete design and development of a vehicle platform for a leading original equipment manufacturer for a small car for the China’s domestic market. The team is integrating components in automotive modules to radically improve manufacturability and bring down total cost.
Meanwhile, in 2009, Nanjing Tata AutoComp Systems began supplying automotive interior products to Shanghai General Motors and Changan Ford Automobile Company Products, including plastic vents, outlet parts, and cabin air-ventilation grilles. In the same year, Nanjing Tata began supplying General Motors Corporation in Europe. Eventually, the plant will supply global automakers in North America and Europe as well as emerging markets such as China.
Nanjing Auto is a wholly owned subsidiary of Tata AutoComp Systems, which is the automotive part manufacturing arm of India’s Tata Motors. The company has 30 manufacturing facilities, mainly in India, and production capabilities in automotive plastics and engineering. It also has 15 joint ventures with Tier 1 supplier companies, mainly in India.
The company has almost completed construction of the 280,000-square-foot Nanjing plant at a cost of approximately \$15 million. The first phase included capacity to make parts for air vents, handles, cupholders, ashtrays, glove boxes, and floor consoles. When completed, the plant will have double the current capacity and will also produce instrument panels, door panels, and larger parts. The plant is operated by local Chinese employees; only a few managers are Indian.
In its bid to become a \$1 billion global automotive supplier by 2008, Tata AutoComp had to expand into China. Total passenger car sales in India in 2007 were slightly more than 1.4 million units; in China, the number was more than 5.2 million units, according to data from Automotive Resources Asia, a division of J.D. Power and Associates. Tata Motors sold 221,256 passenger cars in India in 2007. In the same year, Shanghai General Motors sold 495,405 cars. “We see huge potential in China. To us, China is not just a manufacturing base, but a window to the global market. Our investments are keeping this promising future in mind,’” says the Tata AutoComp’s chief executive officer.
Source
The above content was adapted from “Measuring Market Attractiveness”, section 5.2 from the book Global Strategy (v. 1.0) under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensor. | textbooks/biz/Marketing/Core_Principles_of_International_Marketing_(Mariadoss)/06%3A_Global_Market_Planning/6.02%3A_Measuring_Market_Attractiveness.txt |
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