International Mktg Case Summary

PART SIX

cases 4 DEVELOPING GLOBAL MARKETING STRATEGIES

OUTLINE OF CASES

4-1 Tambrands—Overcoming Cultural Resistance

4-2 Iberia Airlines Builds a BATNA

4-3 Sales Negotiations Abroad for MRI Systems

4-4 National Office Machines—Motivating Japanese Salespeople: Straight Salary or Commission?

4-5 AIDS, Condoms, and Carnival

4-6 Making Socially Responsible and Ethical Marketing Decisions: Selling Tobacco to Third World Countries

4-7 The Obstacles to Introducing a New Product into a New Market

4-8 Mary Kay in India

4-9 Adidas Battles Allegations of Shirking Responsibility to Workers

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Tambrands—Overcoming Cultural Resistance

CASE 4-1

Tampax, Tambrands’s only product, is the best-selling tampon in the world, with 44 percent of the global market. North America and E urope account for 90 percent of those sales. Company earnings dropped 12 percent to $82.8 million on revenues of $662 million. Stakes are high for Tambrands because tampons are basically all it sells, and in the United States, which currently generates 45  percent of Tanbrands’s sales, the company is mired in competition with such ri vals as Playtex Products and Kimberly-Clark. What’s more, new users are hard to get because 70 percent of women already use tampons. In the overseas market, Tambrands officials talk glowingly of a huge opportunity. Only 100 million of the 1.7 billion eligible women in the world currently use tampons. In planning for expan- sion into a global market, Tambrands divided the world into three clusters, based not on geography but on how resistant women are to using tampons. The goal is to market to each cluster in a similar way. Most women in Cluster 1, including the United States, the United Kingdom, and Australia, already use tampons and may feel they know all they need to know about the product. In Cluster 2, which includes countries such as France, Israel, and South Africa, about 50 percent of women use tampons. Some concerns about virginity remain, and tampons are often considered unnatural products that block the flow. Tambrands enlists gynecologists’ endorsements to stress scientific research on tampons. Potentially the most lucra- tive group—but infinitely more challenging—is Cluster 3, which includes countries like Brazil, China, and Russia. There, along with tackling the virginity issue, Tambrands must also tell women how to use a tampon without making them feel uneasy. While the adver- tising messages differ widely from country to country, Tambrands is also trying to create a more consistent image for its Tampax tampons. The ads in each country show consecutive shots of women standing outside declaring the tampon message, some clutching a blue box of Tampax. They end with the same tagline, “Tampax. Women Know.” While marketing consultants say Tambrands’ strat- egy is a step in the right direction, some caution that tampons are one of the most difficult products to market worldwide.

GLOBAL EXPANSION “The greatest challenge in the global expansion of tampons is to address the religious and cultural mores that suggest that insertion is fundamentally prohibited by culture,” says the managing direc- tor of a consulting company. “The third market [Cluster 3] looks like the great frontier of tampons, but it could be the seductive noose of the global expansion objective.” The company’s new global campaign for Tambrands is a big shift from most feminine protection product ads, which often show frisky women dressed in white pants biking or turning cartwheels, while discreetly pushing messages of comfort. The new campaign features local women talking frankly about what had been a taboo subject in many countries. A recent Brazilian ad shows a close-up of a tampon while the narrator chirps, “It’s sleek, smooth, and really comfortable to use.” For years Tambrands has faced a delicate hurdle selling Tampax tampons in Brazil because many young women fear they’ll lose

their virginity if they use a tampon. When they go to the beach in tiny bikinis, tampons aren’t their choice. Instead, hordes of women use pads and gingerly wrap a sweater around their waist. Now, the number 1 tampon maker hopes a bold new ad campaign will help change the mindset of Brazilian women. “Of course, you’re not going to lose your virginity,” reassures one cheerful Brazilian woman in a new television ad. Tambrands’s risky new ads are just part of a high-stakes campaign to expand into overseas markets where it has long faced cultural and religious sensitivities. The new ads feature local women being surprisingly blunt about such a per- sonal product. In China, another challenging market for Tambrands, a new ad shows a Chinese woman inserting a tampon into a test tube filled with blue water. “No worries about leakage,” declares another. “In any country, there are boundaries of acceptable talk. We want to go just to the left of that,” says the creative director of the New York advertising agency that is creating Tambrands’s $65 million ad campaign worldwide. “We want them to think they have not heard frankness like this before.” The agency planned to launch new Tampax ads in 26 foreign countries and the United States. However, being a single-product company, it is a risky proposition for Tambrands to engage in a global campaign and to build a global distribution network all at the same time. Tam- brands concluded that the company could not continue to be prof- itable if its major market was the United States and that to launch a global marketing program was too risky to do alone.

PROCTER & GAMBLE ACQUIRES TAMBRANDS The company approached Procter & Gamble about a buyout, and the two announced a $1.85 billion deal. The move puts P&G back in the tampon business for the first time since its Rely brand was pulled in 1980 after two dozen women who used tampons died from toxic shock syndrome. Procter & Gamble plans to sell Tampax as a complement to its existing feminine-hygiene products, particu- larly in Asia and Latin America. Known for its innovation in such mundane daily goods as disposable diapers and detergent, P&G has grown in recent years by acquiring products and marketing them internationally. “Becoming part of P&G—a world-class company with global marketing and distribution capabilities—will acceler- ate the global growth of Tampax and enable the brand to achieve its full potential. This will allow us to take the expertise we’ve gained in the feminine protection business and apply it to a new market with Tampax.” Market analysts applauded the deal. “P&G has the worldwide distribution that Tampax so desperately needs,” said a stock market analyst. “Tambrands didn’t have the infrastructure to tap into growth in the developing countries and P&G does.”

P&G CREATES A GLOBAL MODEL Despite the early promise that Brazil seemed to offer with its beach culture and mostly urban population, P&G abandoned Tambrands’s marketing efforts there as too expensive and slow- growing. Instead, it set out to build a marketing model that it could

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Cases 4 Developing Global Marketing Strategies

export to the rest of the globe. P&G began studying cities in Mexico and chose Monterrey, an industrial hub of 4 million people—with 1.2 million women as its target customers—as a prime test spot. Research and focus groups of Mexican women in Monterrey resulted in a new marketing approach based on education. “Everywhere we go, women say ‘this is not for senoritas,’ ” says Silvia Davila, P&G’s marketing director for Tampax Latin America. They’re using the Spanish word for unmarried women as a modest expression for young virgins. This concern crops up in countries that are predominantly Catholic, executives say. In Italy, for instance, just 4 percent of women use tampons. P&G is finding that in countries where school health education is limited, that con- cept is difficult to overcome. P&G marketers say they often find open boxes of tampons in stores—a sign, P&G says, that women were curious about the product but unsure as to how it worked. Hanging out in blue jeans and tank tops and sipping Diet Pepsi on a recent afternoon, Sandra Trevino and her friends seem very much in tune with American culture. But the young women are get- ting a lesson in Trevino’s living room on how to use a product that is commonplace in the United States—and is a mystery to them. “We’re giving you the opportunity to live differently ‘those days’ of the month,” Karla Romero tells the group. She holds up a chart of the female body, then passes out samples to the 10 women. Tampons will bring freedom and discretion, Romero says. “For me, it’s the best thing that ever happened.” A few of the women giggle. Romero is on the front lines of a marketing campaign for one of the world’s most in-the-closet products. Procter & Gamble Co. pays Romero to give a primer on tampons in gatherings that resemble Tupperware parties. Romero and other counselors run through a slide show about the stages of puberty. She pours blue liquid through a stand-up model of a woman’s reproductive tract so the girls can see what happens inside their bodies when they have their periods. They see the tampon absorb the blue fluid. Romero points to the hymen on the model and explains they won’t lose their virginity with a tampon. Still, when Maria brought home a sample from another session a few months ago, “my mother said don’t use them,” she reported. While the 18-year-old can be rebellious—she wears a tiny tank top, heavy blue eye shadow, and three gold studs in each ear—she shares her mother’s doubts. “You can lose your virginity. The norm here is to marry as a virgin,” she says. In addition to in-home demonstrations, counselors in navy pantsuits or doctor’s white coats embroidered with the Tampax logo speak in stores, schools, and gyms—anywhere women gather. One counselor met with 40 late-shift women workers in a cookie factory at midnight. Counselors are taught to approach the subject in a dignified and sensitive manner. For example, they avoid using the word “tampon,” which is too close to the Spanish word tampone, mean- ing plug. P&G calls its product an “internal absorbent” or simply Tampax. Although tampons currently account for just 4 percent of the total Mexican market for feminine-protection products, early results indicate P&G’s investment is paying off. Sales for Tampax tripled in the first 12 months after the new program was launched. Based on the success in Mexico, P&G picked Venezuela to be its next market because it is relatively small—23 million people— and its population are mostly urban. P&G gathered women in Caracas for focus groups where they expressed some cultural simi- larities with their Mexican counterparts, emphasizing the sanctity of virginity. But the tropical weather fostered some promising

differences too. There’s a party culture where women seem com- fortable with their bodies in skimpy skirts and clingy pants. This attitude led P&G marketers to conclude that Tampax advertising could be racier in Venezuela. One slogan, though, mis- fired. On a list of common misconceptions, headed by “will I lose my virginity?” P&G wrote, “La ignorancia es la madre de todo los mitos,” which translates as “ignorance is the mother of all myths.” Focus groups were offended: “In a Latin culture, ignorance and mother don’t go together.” The title was scrapped. In the end, they unveiled ads like “Es Tiempo De Cambiar Las Reglas,” for billboards, buses, and magazines. The company knows that Venezuelan women will catch the pun: “reglas” is the slang they use for their period, but the ad also translates as “It’s time to change the rules.”

GETTING THE MESSAGE ONLINE P&G has always been an early and aggressive adopter of new media, dating back to radio and television. Continuing in this vein, Procter & Gamble is stepping up its Internet activity to use the Web as a marketing medium. P&G’s idea is to attract consumers to inter- active sites that will be of interest to particular target groups, with the hope of developing deeper relationships with consumers. Its first step was to launch a website for teenage girls with information on puberty and relationships, promoting products such as Clearasil, Sunny Delight, and Tampax. The website, www.beinggirl.com, was designed with the help of an advisory board of teenage girls. This site has been expanded to include an online interactive com- munity for teen girls between 14 and 19 years of age, which urges teenage girls to get the most out of life. The site includes a variety of subjects that interest teen girls, as well as an interactive game that lets girls pick from five available “effortless” boyfriends. Characters range from Mysterious and Arty to Sporty. The chosen boyfriend will send confidence-boosting messages and provide girls with a series of “Effortless Guides” to things like football. If the girl gets bored of her boyfriend, she can dump him using a variety of excuses, such as “It’s not you, its me,” and choose another. As one company source stated, “interactive Web sites have become the number one medium, and boys are the number one topic for teenage girls.” A feature of the site, “urban myths,” discusses many of the con- cerns about the use of tampons and related products. Visit www .beinggirl.co.uk for the British market and www.beinggirl.co.in for a comparable site for India. Hindustan Unilever has a similar campaign built around the Sunsilk Gang of Girls (see www.hul.co.in/brands -in-action/detail/Sunsilk/303990/), including a Facebook page.

PUBLIC HEALTH FOR YOUNG GIRLS In those markets where the Web is not readily available to the target market, a more direct and personal approach entails a health and education emphasis. The P&G brands Always and Tampax have joined forces with HERO, an awareness building and fund- raising initiative of the United Nations Association, to launch the “Protecting Futures” program (www.protectingfutures.com), designed to help give girls in Africa a better chance at an education. Girls living in sub-Saharan Africa often miss up to four days of school each month because they lack the basic necessities of sanitary protection and other resources to manage their periods. According to research, 1 in 10 school-age African girls do not attend school during menstruation or drop out at puberty because of the lack of clean and private sanitation facilities in schools.

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If a girl has no access to protective materials or if the materials she has are unreliable and cause embarrassment, she may be forced to stay at home. This absence of approximately 4 days every four weeks may result in the girl missing 10 to 20 percent of her school days. “Working with HERO, the Protecting Futures is a compre- hensive care program which brings puberty education, a traveling healthcare provider for all the children at these schools, nutritious feeding programs, educational support services, a pad distribution program, and significant construction projects to add restrooms and upgrade the school buildings. Support for this program is part of the P&G corporate cause, Live, Learn, and Thrive which has helped over 50 million children in need.” In addition, Tampax and Always brands help sponsor the HERO Youth Ambassador program (www.beinggirl.com/hero) through their teen-focused website. Twenty-four teens from across the United States were selected to become Youth Ambassadors and travel to Namibia and South Africa to work on the Protecting Futures program. Their personal experiences were documented in a series of webisodes airing on beinggirl.com/hero to help encour- age and empower all teens to become global citizens. All of this effort is done with the idea that better health education and the use of the company’s products will result in fewer days absent from school and, thus, better education for female students.

QUESTIONS 1. Evaluate the wisdom of Tambrands becoming part of

Procter & Gamble. 2. Tambrands indicated that the goal of its global advertising

plan was to “market to each cluster in a similar way.” Discuss this goal. Should P&G continue with Tambrands’s original goal adapted to the new educational program? Why? Why not?

3. For each of the three clusters identified by Tambrands, identify the cultural resistance that must be overcome. Suggest possible approaches to overcoming the resistance you identify.

4. In reference to the approaches you identified in Question 3, is there an approach that can be used to reach the goal of “mar- keting to each cluster in a similar way”?

5. P&G is marketing in Venezuela with its “Mexican” model. Should the company reopen the Brazilian market with the same model? Discuss.

6. A critic of the “Protecting Futures” program comments, “If you believe the makers of Tampax tampons, there’s a direct link between using Western feminine protection and achiev- ing higher education, good health, clean water and longer life.” Comment.

Sources: Yumiko Ono, “Tambrands Ads Aim to Overcome Cultural and Religious Obstacles,” The Wall Street Journal, March 17, 1997, p. B8; Sharon Walsh, “Procter & Gamble Bids to Acquire Tambrands; Deal Could Expand Global Sales of Tampax,” The Washington Post, April 10, 1997, p. C01; Ed Shelton, “P&G to Seek Web Friends,” The European, November 16, 1998, p. 18; Emily Nelson and Miriam Jordan, “Sensitive Export: Seeking New Markets for Tampons, P&G Faces Cultural Barriers,” The Wall Street Journal, December 8, 2000, p. A1; Weekend Edition Sunday (NPR), March 12, 2000; “It’s Hard to Market the Unmentionable,” Market- ing Week, March 13, 2002, p. 19; Richard Weiner, “A Candid Look at Menstrual Products— Advertising and Public Relations,” Public Relations Quarterly, Summer 2004; “Procter & Gamble and Warner Bros. Pictures Announce ‘Sisterhood’ between New Movie and Popular Teen Web Site,” PR Newswire, June 1, 2005; “Tampax Aims to Attract Teens With New ‘Effortless’ Message,” Revolution (London), May 2006; “It’s Back; Dotcom Funding Has Jumped 10 Times to $166 Million,” Business Today, May 2006; “Emerging Markets Force San Pro Makers to Re-examine Priorities,” Euromonitor International, November 2007; “Tampax and Always Launch Protect- ing Futures Program Dedicated to Helping African Girls Stay in School,” USA, Discussion Lounge, Africa, December 4, 2007; “Can Tampons Be Cool?” Slate, http://www.Slate.com, January 15; 2007; “Where Food, Water Is a Luxury, Tampons Are Low on Priorities,” Winnipeg Free Press, February 10, 2008.

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CASE 4-2 Iberia Airlines Builds a BATNA

MADRID—One day last April, two model airplanes landed in the offices of Iberia Airlines. They weren’t toys. The Spanish carrier was shopping for new jetliners, and the models were calling cards from Boeing Co. and Airbus, the world’s only two producers of big commercial aircraft. It was the first encounter in what would become a months-long dogfight between the two aviation titans—and Iberia was planning to clean up. Airbus and Boeing may own the jetliner market, with projected sales of more than $1 trillion in the next 20 years, but right now they don’t control it. The crisis in the air-travel industry makes the two manufacturers desperate to nail down orders. So they have grown increasingly dependent on airlines, engine suppliers, and aircraft financiers for convoluted deals. Once the underdog, Airbus has closed the gap from just four years ago—when Boeing built 620 planes to Airbus’s 294—and this year the European plane maker expects to overtake its U.S. rival. For Boeing, Iberia was a chance to stem the tide. For Airbus, Iberia was crucial turf to defend. Iberia and a few other airlines are financially healthy enough to be able to order new planes these days, and they are all driving hard bargains. Enrique Dupuy de Lome, Iberia’s chief financial officer and the man who led its search for widebody jets, meant from the start to run a real horse race. “Everything has been struc- tured to maintain tension up to the last 15 minutes,” he said. Throughout the competition, the participants at Iberia, Boeing, and Airbus gave The Wall Street Journal detailed briefings on the pitches, meetings, and deliberations. The result is a rarity for the secretive world of aircraft orders: an inside look at an all-out sales derby with globetrotting executives, huge price tags, and tortuous negotiations over everything from seats to maintenance and cabin- noise levels. The rivals’ offers were so close that on the final day of haggling, Iberia stood ready with multiple press releases and extracted last-minute concessions in a phone call between the airline’s chair and the winning bidder. By that point, both suitors felt like they’d been through the wringer. “With 200 airlines and only two plane makers, you’d think we’d get a little more respect,” said John Leahy, Airbus’s top salesman. Airbus, a division of European Aeronautic Defense & Space Co., reckoned it had a big edge. It had sold Iberia more than 100 planes since 1997. Leahy thought last summer that he might even bag the contract with minimal competition. In June he had clinched a separate deal with Iberia for three new Airbus A340 widebodies. But Dupuy made Leahy fight for the order—and so enticed Boeing to compete more aggressively. Then, “just to make things interesting,” Dupuy said, he upped the pressure by going shopping for secondhand airplanes. These are spilling onto the market at cut-rate prices as the airline industry’s problems force carriers to ground older jets with their higher operating costs. Iberia is one of the industry’s few highly profitable carriers, thanks to a thorough restructuring before the national carrier was privatized in early 2001. The world’s number 18 in passenger traf- fic, with a fleet of 145 planes, it has benefited by flying few routes

to North America, where air travel is in tatters, and by dominating the large Latin American market. The Spanish carrier was looking to replace six Boeing 747-200 jumbo jets more than 20 years old. It wanted as many as 12 new planes to complete a 10-year modernization program for Iberia’s long-haul fleet. Based on list prices, the 12-plane order was valued at more than $2 billion. Iberia’s Dupuy, a soft-spoken career finance man, first needed to woo Boeing to the table. The U.S. producer had last sold Iberia planes in 1995, and since then, the carrier had bought so many Airbus jets that Boeing considered not even competing. But in late July, Dupuy met Toby Bright, Boeing’s top salesman for jets. Over dinner in London, according to both men, Dupuy told Bright that Iberia truly wanted two suppliers, not just Airbus. The Boeing sales chief was skeptical, and he recalled think- ing at the time, “You’re running out of ways to show us.” Having worked as Boeing’s chief salesman in Europe, Airbus’s home turf, he had heard similar lines from customers who eventually bought Airbus planes. So he wondered: “Are we being brought in as a stalking horse?” Yet replacing Iberia’s old 747s with new 777s would be Boeing’s last chance for years to win back Iberia. The argument against Boeing was that an all-Airbus fleet would make Iberia’s operations simpler and cheaper. Still, going all-Airbus might weaken Iberia’s hand in future deals. Airbus would know that the carrier’s cost of switching to Boeing would require big investments in parts and pilot training. In early November, Airbus and Boeing presented initial bids on their latest planes. The four-engine Airbus A340-600 is the longest plane ever built. Boeing’s 777-300ER is the biggest twin- engine plane. The new A340 can fly a bit farther and has more lifting power than the 777. The new Boeing plane is lighter, holds more seats and burns less fuel. The Boeing plane, with a catalog price around $215 million, lists for some $25 million more than the A340. Dupuy, whose conference room is decorated with framed awards for innovative aircraft-financing deals, set his own tough terms on price and performance issues including fuel consump- tion, reliability, and resale value. He wouldn’t divulge prices, but people in the aviation market familiar with the deal say he demanded discounts exceeding 40 percent. As negotiations began, Dupuy told both companies his rule: Whoever hits its target, wins the order. The race was on. Bright, who had been appointed Boeing’s top airplane sales- person in January 2002, pitched the Boeing 777 as a “revenue machine.” He insisted that his plane could earn Iberia about $8,000 more per flight than the A340-600 because it can hold more seats and is cheaper to operate. A burly 50-year-old West Virginian, Bright joined Boeing out of college as an aerospace designer. He knew the new Airbus would slot easily into Iberia’s fleet. But he also felt that Dupuy’s target price undervalued his plane. At Airbus, Leahy also fumed at Iberia’s pricing demands. A New York City native and the company’s highest-ranking American, he pursues one goal: global domination over Boeing. Last year he spent 220 days on sales trips.

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To Iberia, he argued that his plane offered a better investment return because the A340 is less expensive to buy and is similar to Iberia’s other Airbus planes. From a hodge-podge of 11 models in 1997, Iberia now flies five types, and replacing the old 747s with A340s would trim that to four—offering savings on parts, mainte- nance, and pilot training. Even before presenting Airbus’s offer, Leahy had flown to Madrid in October to make his case. On November 18, he once again took a chartered plane for the one-hour flight from Airbus headquarters in Toulouse, France, to Madrid. For two hours that evening, he and his team sat with Dupuy and other Iberia manag- ers around a table in Dupuy’s office, debating how many seats can fit on a 777. Those numbers were crucial to the deal because each seat represents millions of dollars in revenue over the life of a plane and also adds weight and cost. Boeing had told Iberia that its 777 could hold 30 more seats than the 350 Iberia planned to put on the Airbus plane. Leahy argued that the Boeing carries at most five more seats. “Get guar- antees from Boeing” on the seat count, Leahy prodded the Iberia managers. At Boeing, Bright was eager to soften Iberia’s pricing demand. His account manager, Steve Aliment, had already made several visits to pitch the plane, and in late November, Bright sent him once again to protest that Iberia didn’t appreciate the 777’s revenue potential. Boeing desperately wanted to avoid competing just on price, so Bright pushed operating cost and comfort. On the Airbus side, Leahy also was feeling pressured because a past sales tactic was coming back to haunt him. In 1995, when Iberia was buying 18 smaller A340s and Dupuy expressed concern about their future value, Leahy helped seal the deal by guaran- teeing him a minimum resale price, which kicks in after 2005. If Iberia wants to sell them, Airbus must cover any difference between the market price of the used planes and the guaranteed floor price. The guarantee is one of the tools that Leahy has used to boost Airbus’s share of world sales to about 50 percent today from 20 percent in 1995. Boeing rarely guarantees resale values. Dupuy had wanted guarantees because they lower his risk of buying and thus cut his cost of borrowing. What mattered now was that the guarantees also freed him to sell the planes at a good price. Early in the competition, he suggested to both Airbus and Boeing that he might eventually replace all of Iberia’s A340s with Boeings—and potentially stick Airbus with most of the tab. “If we didn’t have the guarantees, the position of Airbus would be very strong,” Dupuy said in an interview. Instead, “we have a powerful bargaining tool on future prices.” On December 4, Leahy flew again to Madrid to try to persuade Iberia to close a deal by year’s end. Running through a presenta- tion in Dupuy’s office, Leahy and five colleagues ticked off fuel and maintenance costs for their plane. They asserted that passen- gers prefer the plane because it is quieter than the 777 and has no middle seats in business class. Dupuy then rattled Leahy’s cage with a new scenario: Iberia managers would be flying off next week to look at used Boeing 747-400 jumbo jets. Singapore Airlines had stopped flying the planes and was offering to lease them at bargain prices. Leahy chided Dupuy, saying that was “like buying a used car,” where a bargain can easily backfire. Dupuy replied that sometimes buying used makes sense because it offers the flexibility of other options. The message: Iberia could dump its Airbus fleet.

Within Iberia, another debate was ending. Dupuy heard from his managers the results of a yearlong analysis of the rival planes. The Airbus was cheaper than the Boeing, and the A340’s four engines help it operate better in some high-altitude Latin American airports. But Iberia managers had decided they could fit 24 more seats on the Boeing, boosting revenue. And Iberia engineers calculated that the 777 would cost 8 percent less to maintain than the A340. Maintenance on big planes costs at least $3 million a year, so the savings would be huge over the life of a fleet. Unaware of Iberia’s analysis, the Boeing team arrived in Dupuy’s office on the morning of December 11 with three bound selling documents. One contained Boeing’s revised offer, titled “Imagine the Possibilities . . . Iberia’s 777 Fleet.” Knowing Dupuy as a numbers guy, the Boeing team peppered him with data show- ing passengers would choose Iberia because they prefer the 777. Dupuy told the salespeople their price was still too high. By mid-December, Iberia chairman Xabier de Irala was get- ting impatient and wanted a decision by the end of the year. On December 18, Boeing’s Bright flew to Madrid. Over a long lunch, Dupuy reiterated his price target. “If that’s your number, let’s give this up,” Bright said. Talks continued cordially, but the men left doubtful they could close the gap. That Friday, December 20, Dupuy told Iberia’s board that prices from Airbus and Boeing were still too high, and he would push the used-plane option harder. By the start of the year, Airbus’s Leahy, growing frustrated, arranged a Saturday meeting with Dupuy. On January 4, the Iberia executive interrupted a family skiing holiday in the Pyrenees and drove two hours along winding French roads to meet Leahy for lunch. Leahy spent four hours trying to convince Dupuy and a colleague that Airbus couldn’t offer a better deal. Dupuy argued that Airbus had just given steep discounts to British airline easyJet, so it should do the same for Iberia. Annoyed, Leahy said media reports of a 50 percent price cut for easyJet were nonsense. “You get Boeing to give you a 50 percent discount and I’ll send you a bottle of champagne,” he told the Iberia executives. Bright was frustrated too. In the first week of January, Dupuy proposed visiting Seattle, where Boeing builds passenger planes. Bright’s reply: If Iberia was unwilling to budge, there was little reason to come. So when Dupuy said he would make the 14-hour journey, Bright was encouraged. On January 14, Dupuy and two colleagues arrived in Seattle. In the private dining room of Cascadia, a high-end downtown restaurant, they met for dinner with the Boeing salespeople and Alan Mulally, the chief executive of Boeing’s commercial-plane division. Dupuy was impressed by Mulally’s eagerness and was pleased when he urged Bright’s team to find a way to close the gap. The next day, the Boeing salesmen offered a new proposal— including a slightly lower price, improved financing and better terms on spare parts, crew training, and maintenance support from General Electric Co., the maker of the plane’s engines. When Dupuy left Seattle on January 16, Bright felt Iberia was relenting a bit on price and that Dupuy wanted to “find a way to do the deal.” Dupuy was also optimistic about striking a deal with Boeing. Back in Madrid the next day, he raced off to join Iberia’s chairman Irala for a meeting with Leahy and Airbus President Noel Forgeard. Irala, a bear of a man who is credited with saving Iberia from bankruptcy eight years ago, told the Airbus execu- tives that Dupuy’s price target remained firm. When the Airbus men relented on a few points, Irala yielded a bit too and spelled

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Cases 4 Developing Global Marketing Strategies

out Iberia’s remaining targets for Airbus. Forgeard said a deal looked possible. As the meeting broke up, Dupuy was pleased. He felt that Boeing and Airbus were digging deep. And no wonder. The world air-travel market was sinking deeper, and fears of war in Iraq and terrorism had slashed global bookings. In the next few days, the sales teams from Boeing and Airbus each huddled to refine their offers. Both remained about 10 percent above Dupuy’s price targets. Each called him several times daily, pushing for concessions. Dupuy didn’t budge. On January  23, he  told Iberia’s board that both companies could do better. The board scheduled a special meeting for the following Thursday, January 30. Energized by the Seattle meetings, Bright pushed his team “to go all out to win this bid,” and they worked around the clock. Bright phoned Dupuy daily from Seattle and occasionally fielded his calls at 3:00 a.m., Pacific time. By late January, Boeing had cut its price by more than 10 percent after haggling over engine price with GE and financing with leasing firms. The 777 was now less than 3 percent above Dupuy’s target—so close that Mr. Bright asked for a gesture of compromise from Iberia. Dupuy was impressed by Boeing’s new aggressiveness. But Airbus was also closing the gap so quickly, he said, that he could offer no concessions. To Leahy, he talked up Boeing’s willingness to deal. “I was just talking to Toby . . .,” Dupuy told Leahy dur- ing several conversations, referring to Bright. Airbus improved its offer further. On Wednesday, the day before the deadline, Boeing and Airbus were running about even. In Seattle, Bright threw some clothes in his briefcase and proposed to Dupuy that he hop on a plane to Madrid. Dupuy said the choice was his, but what really mattered was the price target. That day, Dupuy told Bright and Leahy that their bosses should call Irala with any final improvements before the board meeting. On Thursday morning, Bright offered to trim Boeing’s price further if Dupuy could guarantee that Boeing would win the deal. “I can’t control Forgeard,” Dupuy replied, referring to the Airbus president, who was due to talk soon with Irala. Bright made the price cut without the concession. “You’re very close,” Dupuy told him. Later, Forgeard got on the phone with Iberia’s Irala, who said he still needed two concessions on the financial terms and

economics of the deal. Airbus had already agreed to most of Dupuy’s terms on asset guarantees and, with engine maker Rolls-Royce PLC, agreed to limit Iberia’s cost of maintaining the jets. Forgeard asked if relenting would guarantee Airbus the deal. Irala replied yes, pending board approval—and looked over with a grin at Dupuy, who sat nearby with his laptop open. Forgeard acquiesced. Dupuy plugged the new numbers in his spreadsheet. Airbus had hit its target. That evening, Boeing got a call from Iberia saying the airline would soon announce it had agreed to buy nine A340-600s and taken options to buy three more. Hours later, Boeing posted on its website a statement criticizing Iberia’s choice as “the easiest decision.” Bright said later that he simply couldn’t hit Dupuy’s numbers and “do good business.” In the end, Airbus nosed ahead thanks to its planes’ lower price and common design with the rest of Iberia’s fleet. By offering guarantees on the planes’ future value and maintenance costs, plus attractive financing terms, Airbus edged out Boeing’s aggressive package. The deal’s final financial terms remain secret. At Airbus, Leahy was relieved, but he faced one last slap. Iberia’s news release crowed about Airbus’s price guarantees on the planes—a detail Leahy considered confidential. Iberia’s Dupuy said he wasn’t rubbing it in. But he had, he boasted, won “extraordinary conditions.”

QUESTIONS 1. Critique the negotiation strategies and tactics of all three key

executives involved: Dupuy, Leahy, and Bright. 2. Critique the overall marketing strategies of the two aircraft

makers as demonstrated in this case. 3. What were the key factors that ultimately sent the order in

Airbus’s direction? 4. Assume that Iberia again is on the market for jet liners. How

should Bright handle a new inquiry? Be explicit.

Source: Daniel Michaels, “Boeing and Airbus in Dogfight to Meet Stringent Terms of Iberia’s Executives,” The Wall Street Journal Europe, March 10, 2003, p. A1. Copyright 2003 by Dow Jones & Co. Inc. Reproduced with permission of Dow Jones & Co. Inc. via Copyright Clearance Center.

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CASE 4-3 Sales Negotiations Abroad for MRI Systems

International sales of General Medical’s Magnetic Resonance Imaging (MRI) systems have really taken off in recent months. Your representatives are about to conclude important sales con- tracts with customers in both Tokyo and Rio de Janeiro. Both sets of negotiations require your participation, particularly as final details are worked out. The bids you approved for both customers are identical (see Exhibits 1 and 2). Indeed, both customers had contacted you originally at a medical equipment trade show in Las Vegas, and you had all talked business together over drinks at the conference hotel. You expect your two new customers will be talking together again over the Internet about your products and prices as they had in Las Vegas. The Japanese orders are potentially larger because the doctor you met works in a hospital that has nine other units in the Tokyo/Yokohama area. The Brazilian doctor represents a very large hospital in Rio, which may require more than one unit. Your travel arrangements are now being made. Your local representatives will fill you in on the details. Best of luck!

[Note: Your professor will provide you with additional material that you will need to complete this case.]

Exhibit 1 Price Quotation

Deep Vision 2000 MRI (basic unit) $1,200,000 Product options •   2D and 3D time-of-flight (TOF)

angiography for capturing fast flow 150,000 •   Flow analysis for quantification

of cardiovascular studies 70,000 •  X2001 software package 20,000

Service contract (2 years normal maintenance, parts, and labor) 60,000 Total price $1,500,000

Exhibit 2 Standard Terms and Conditions

Delivery 6 months

Penalty for late delivery $10,000/month Cancellation charges 10% of contract price Warranty (for defective machinery)

parts, one year

Terms of payment COD

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CASE 4-4 National Office Machines—Motivating Japanese Salespeople: Straight Salary or Commission?

National Office Machines of Dayton, Ohio, manufacturer of cash registers, electronic data processing equipment, adding machines, and other small office equipment, recently entered into a joint venture with Nippon Cash Machines of Tokyo, Japan. Last year, National Office Machines (NOM) had domestic sales of over $1.4 billion and foreign sales of nearly $700 million. In addition to the United States, it operates in most of western Europe, the Mideast, and some parts of the Far East. In the past, it had no significant sales or sales force in Japan, though the company was represented there by a small trading company until a few years ago. In the United States, NOM is one of the leaders in the field and is consid- ered to have one of the most successful and aggressive sales forces found in this highly competitive industry. Nippon Cash Machines (NCM) is an old-line cash register manufacturing company organized in 1882. At one time, Nippon was the major manufacturer of cash register equipment in Japan, but it has been losing ground since 1970 even though it produces perhaps the best cash register in Japan. Last year’s sales were 9 billion yen, a 15 percent decrease from sales the prior year. The fact that it produces only cash registers is one of the major prob- lems; the merger with NOM will give it much-needed breadth in product offerings. Another hoped-for strength to be gained from the joint venture is managerial leadership, which is sorely needed. Fourteen Japanese companies have products that compete with Nippon; other competitors include several foreign giants such as IBM, National Cash Register, and Unisys of the United States, and Sweda Machines of Sweden. Nippon has a small sales force of 21 people, most of whom have been with the company their entire adult careers. These salespeople have been responsible for selling to Japanese trad- ing companies and to a few larger purchasers of equipment. Part of the joint venture agreement included doubling the sales force within a year, with NOM responsible for hiring and train- ing the new salespeople, who must all be young, college-trained Japanese nationals. The agreement also allowed for U.S. personnel in supervisory positions for an indeterminate period of time and for retaining the current Nippon sales force. One of the many sales management problems facing the Nippon/American Business Machines Corporation (NABMC, the name of the new joint venture) was which sales compensation plan to use. That is, should it follow the Japanese tradition of straight salary and guaranteed employment with no individual incentive program, or the U.S. method (very successful for NOM in the United States) of commissions and various incentives based on sales performance, with the ultimate threat of being fired if sales quotas go continuously unfilled? The immediate response to the problem might well be one of using the tried-and-true U.S. compensation methods, since they have worked so well in the United States and are perhaps the kind of changes needed and expected from U.S. management. NOM management is convinced that salespeople selling its kinds of products in a competitive market must have strong incentives to produce. In fact, NOM had experimented on a limited basis in the United States with straight salary about ten years ago, and it was a

bomb. Unfortunately, the problem is considerably more complex than it appears on the surface. One of the facts to be faced by NOM management is the tra- ditional labor–management relations and employment systems in Japan. The roots of the system go back to Japan’s feudal era, when a serf promised a lifetime of service to his lord in exchange for a lifetime of protection. By the start of Japan’s industrial revolution in the 1880s, an unskilled worker pledged to remain with a com- pany all his useful life if the employer would teach him the new mechanical arts. The tradition of spending a lifetime with a single employer survives today mainly because most workers like it that way. The very foundations of Japan’s management system are based on lifetime employment, promotion through seniority, and single- company unions. There is little chance of being fired, pay raises are regular, and there is a strict order of job-protecting seniority. Japanese workers at larger companies still are protected from outright dismissal by union contracts and an industrial tradition that some personnel specialists believe has the force of law. Under this tradition, a worker can be dismissed after an initial trial period only for gross cause, such as theft or some other major infraction. As long as the company remains in business, the worker isn’t discharged, or even furloughed, simply because there isn’t enough work to be done. Besides the guarantee of employment for life, the typical Japanese worker receives many fringe benefits from the company. Bank loans and mortgages are granted to lifetime employees on the assumption that they will never lose their jobs and therefore the ability to repay. Just how paternalistic the typical Japanese firm can be is illustrated by a statement from the Japanese Ministry of Foreign Affairs that gives the example of A, a male worker who is employed in a fairly representative company in Tokyo.

To begin with, A lives in a house provided by his company, and the rent he pays is amazingly low when compared with average city rents. The company pays his daily trips between home and factory. A’s working hours are from 9:00 a.m. to 5:00 p.m. with a break for lunch, which he usually takes in the company restaurant at a very cheap price. He often brings home food, clothing, and other miscellaneous articles he has bought at the company store at a discount ranging from 10  percent to 30 percent below city prices. The company store even supplies furniture, refrigerators, and television sets on an installment basis, for which, if necessary, A can obtain a loan from the company almost free of interest. In case of illness, A is given free medical treatment in the company hospital, and if his indisposition extends over a number of years, the company will continue paying almost his full salary. The company maintains lodges at seaside or mountain resorts where A can spend the holidays or an occasional weekend with the family at moderate prices. . . . It must also be remembered that when A reaches retirement age (usually 55) he will receive a lump-sum retirement allowance or a pension, either of which will assure him a relatively stable living for the rest of his life.

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Part 6 Supplementary Material

Even though A is only an example of a typical employee, a salesperson can expect the same treatment. Job security is such an expected part of everyday life that no attempt is made to moti- vate the Japanese salesperson in the same manner as in the United States; as a consequence, selling traditionally has been primarily an order-taking job. Except for the fact that sales work offers some travel, entry to outside executive offices, the opportunity to enter- tain, and similar side benefits, it provides a young person with little other incentive to surpass basic quotas and drum up new business. The traditional Japanese bonuses are given twice yearly, can be up to 40 percent of base pay, and are no larger for salespeople than any other functional job in the company. As a key executive in a Mitsui-affiliated engineering firm put it recently, “The typical salesman in Japan isn’t required to have any particular talent.” In return for meeting sales quotas, most Japanese salespeople draw a modest monthly salary, sweetened about twice a year by bonuses. Manufacturers of industrial products generally pay no commission or other incentives to boost their businesses. Besides the problem of motivation, a foreign company faces other different customs when trying to put together and manage a sales force. Class systems and the Japanese distribution system, with its penchant for reciprocity, put a strain on the creative talents of the best sales managers, as Simmons, the U.S. bedding manu- facturer, was quick to learn. In the field, Simmons found itself stymied by the bewildering realities of Japanese marketing, especially the traditional distribu- tion system that operates on a philosophy of reciprocity that goes beyond mere business to the core of the Japanese character: A favor of any kind is a debt that must be repaid. To lead another person on in business and then turn against that person is to lose face, abhor- rent to most Japanese. Thus, the owner of large Western-style apart- ments, hotels, or developments buys his beds from the supplier to whom he owes a favor, no matter what the competition offers. In small department and other retail stores, where most items are handled on consignment, the bond with the supplier is even stronger. Consequently, all sales outlets are connected in a compli- cated web that runs from the largest supplier, with a huge national sales force, to the smallest local distributor, with a handful of door- to-door salespeople. The system is self-perpetuating and all but impossible to crack from the outside. However, there is some change in attitude taking place as both workers and companies start discarding traditions for the job mobility common in the United States. Skilled workers are will- ing to bargain on the strength of their experience in an open labor market in an effort to get higher wages or better job opportuni- ties; in the United States, it’s called shopping around. And a few companies are showing a willingness to lure workers away from other concerns. A number of companies are also plotting how to rid themselves of deadwood workers accumulated as a result of promotions by strict seniority. Toyo Rayon company, Japan’s largest producer of synthetic fibers, started reevaluating all its senior employees every five years with the implied threat that those who don’t measure up to the company’s expectations have to accept reassignment and possibly demotion; some may even be asked to resign. A chemical engineer- ing and construction firm asked all its employees over 42 to negoti- ate a new contract with the company every two years. Pay raises and promotions go to those the company wants to keep. For those who think they are worth more than the company is willing to pay, the company offers retirement with something less than the $30,000 lump-sum payment the average Japanese worker receives at age 55.

More Japanese are seeking jobs with foreign firms as the lifetime-employment ethic slowly changes. The head of student placement at Aoyama Gakuin University reports that each year the number of students seeking jobs with foreign companies increases. Bank of America, Japan Motorola, Imperial Chemical Industries, and American Hospital Supply are just a few of the companies that have been successful in attracting Japanese students. Just a few years ago, all Western companies were places to avoid. Even those companies that are successful work with a multitude of handicaps. American companies often lack the intricate web of personal connections that their Japanese counterparts rely on when recruiting. Furthermore, American companies have the reputation for being quick to hire and even quicker to fire, whereas Japanese companies still preach the virtues of lifelong job security. Those U.S. companies that are successful are offering big salaries and prom- ises of Western-style autonomy. According to a recent study, 20- to 29-year-old Japanese prefer an employer-changing environment to a single lifetime employer. They complain that the Japanese system is unfair because promotions are based on age and seniority. A young recruit, no matter how able, has to wait for those above him to be promoted before he too can move up. Some feel that if you are really capable, you are better off working with an American company. Some foreign firms entering Japan have found that their merit- based promotion systems have helped them attract bright young recruits. In fact, a survey done by Nihon Keizai Shimbun, Japan’s leading business newspaper, found that 80 percent of top managers at 450 major Japanese corporations wanted the seniority promo- tion system abolished. But, as one Japanese manager commented, “We see more people changing their jobs now, and we read many articles about companies restructuring, but despite this, we won’t see major changes coming quickly.” A few U.S. companies operating in Japan are experimenting with incentive plans. Marco and Company, a belting manufacturer and Japanese distributor for Power Packing and Seal Company, was persuaded by Power to set up a travel plan incentive for salespeople who topped their regular sales quotas. Unorthodox as the idea was for Japan, Marco went along. The first year, special one-week trips to Far East holiday spots like Hong Kong, Taiwan, Manila, and Macao were inaugurated. Marco’s sales of products jumped 212 percent, and the next year, sales were up an additional 60 percent. IBM also has made a move toward chucking the traditional Japanese sales system (salary plus a bonus but no incentives). For about a year, it has been working with a combination that retains the semiannual bonus while adding commission payments on sales over preset quotas. “It’s difficult to apply a straight commission system in selling computers because of the complexities of the product,” an IBM Japan official said. “Our salesmen don’t get big commissions because other employees would be jealous.” To head off possible ill feeling, therefore, some nonselling IBM employees receive monetary incentives. Most Japanese companies seem reluctant to follow IBM’s example because they have doubts about directing older sales- people to go beyond their usual order-taking role. High-pressure tactics are not well accepted here, and sales channels are often pretty well set by custom and long practice (e.g., a manufacturer normally deals with one trading company, which in turn sells only to customers A, B, C, and D). A salesperson or trading company, for that matter, is not often encouraged to go after customer Z and get it away from a rival supplier. The Japanese market is becoming more competitive and there is real fear on the part of NOM executives that the traditional system

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Cases 4 Developing Global Marketing Strategies

just won’t work in a competitive market. However, the proponents of the incentive system concede that the system really has not been tested over long periods or even adequately in the short term because it has been applied only in a growing market. In other words, was it the incentive system that caused the successes achieved by the companies, or was it market growth? Other companies following the traditional method of compensation and employee relations also have had sales increases during the same period. The problem is further complicated for NABMC because it will have both new and old salespeople. The young Japanese seem eager to accept the incentive method, but older ones are hesitant. How do you satisfy both since you must, by agreement, retain all the sales staff? A study done by the Japanese government on attitudes of youth around the world suggests that younger Japanese may be more receptive to U.S. incentive methods than one would antici- pate. In a study done by the Japanese prime minister’s office, there were some surprising results when Japanese responses were compared with responses of similar-aged youths from other coun- tries. Exhibit 1 summarizes some of the information gathered on life goals. One point that may be of importance in shedding light on the decision NOM has to make is a comparison of Japanese attitudes with young people in 11 other countries—the Japanese young people are less satisfied with their home life, school, and working situations and are more passive in their attitudes toward social and political problems. Furthermore, almost one-third of those employed said they were dissatisfied with their present jobs primarily because of low income and short vacations. Asked if they had to choose between a difficult job with responsibility and

authority or an easy job without responsibility and authority, 64 percent of the Japanese picked the former, somewhat less than the 70 to 80 percent average in other countries. Another critical problem lies with the nonsales employees; traditionally, all employees on the same level are treated equally, whether sales, production, or staff. How do you encourage com- petitive, aggressive salesmanship in a market unfamiliar with such tactics, and how do you compensate salespeople to promote more aggressive selling in the face of tradition-bound practices of pater- nalistic company behavior?

QUESTIONS 1. What should NABMC offer—incentives or straight salary?

Support your answer. 2. If incentives are out, how do you motivate salespeople and

get them to compete aggressively? 3. Design a U.S.-type program for motivation and compensation

of salespeople. Point out where difficulties may be encoun- tered with your plan and how the problems are to be overcome.

4. Design a pay system you think would work, satisfying old salespeople, new salespeople, and other employees.

5. Discuss the idea that perhaps the kind of motivation and aggressiveness found in the United States is not necessary in the Japanese market.

6. Develop some principles of motivation that could be applied by an international marketer in other countries.

Exhibit 1 Life Goals

Japan

U.S.

U.K.

Germany

France

Switzerland

Sweden

Australia

India

Philippines

Brazil

35.4

6.2

11.2

9.0 17.8 60.6 5.5 7.5

7.1 16.4 62.2 10.9 3.4

3.7 9.2 72.3 11.9 3.0

2.51.7 84.8 7.5 3.4

6.7 5.1 76.0 10.5 1.6

22.3

Key: To get rich To acquire social position

To work on behalf of society

To live as I choose

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