10 Dec 2013

The World is Anything but Flat


Harvard Business School Professor John Quelch, author of All Business: Why Place Matters More Than Ever in a Global, Virtual World, talks about the increasing importance of place in global marketing.

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Brian Kenny: Since the 1960s, marketing students around the world have committed to memory the four Ps of the marketing mix. They are product, pricing, place, and promotion. But a lot has changed in the realm of marketing in the past 50 years. So do the four Ps still hold up? Today, we’re speaking with Professor John Quelch of Harvard Business School. He’s the former dean of the London Business School and CEIBS, the largest business school in China. He’s also a marketing expert and the author of All Businesses Local: Why Place Matters More Than Ever in a Global, Virtual World. John, thank you for joining us.

John Quelch: Thank you, Brian.

BK: I read a review of the book.

BK: I read a review of the book and they said something that I thought really struck a chord. They said: “this book comes timely to give us a much-needed intellectual cold shower in the hot waves of globalization.” What drove you to write the book?

JQ: The book is an antidote to the standard thesis that globalization and global marketing is conquering the world. And of course, the world has become more flat over the last couple of decades, but the world is far from flat. And in the context of marketing, probably 90% plus of transactions that are made in the global economy every day are really local transactions, between a buyer who’s local and a seller who’s local. And there really isn’t an international ingredient in many of these transactions. You have to be adept at both local marketing and at global marketing in order to succeed.

And a good example of that might be Real Madrid, the Spanish soccer team. A certain portion of their revenues come, of course, from gate sales for every match in the Bernabéu Stadium, and that’s an important part of their revenue steam, but it’s probably only about 10% of the revenue stream.

And the other 90% of the revenue streams are emanating from media sales – in other words, sales of the television content that’s associated with the matches – to a global fan base that stretches from Asia, through Africa, the Middle East, and beyond.

If Real Madrid didn’t have this fantastic, enthusiastic body of local supporters pouring into the stadium every other week and shrieking their support and contributing, really, to the overall televised experience that the fan base around the world enjoys – if they were playing in an empty stadium with no local supporters, of course, the proposition would fall down.

So the local audience benefits the marketability of the brand to a much broader audience worldwide, and at the same time, the global audience provides tremendous revenue streams that enable Real Madrid to go into the marketplace and buy top talent for its team. So the two groups of customers feed off of each other and one can’t get what it wants without the other being involved.

BK: Right. So technology has a big role to play in this because Real Madrid is – they’re situated in a particular place in the world. So the advent of the Internet – has that fueled the whole notion of place in a much more virtual way?

JQ: Well, most people, of course, think about the Internet as contributing to the end of geography. And it is, of course, true that one of the great benefits of the Internet has been that people in emerging economies, for instance, can go online, access product choice, and check prices of products in the international marketplace in a way that they couldn’t 25 years ago. On the other side of the coin, if you look at the data regarding, let’s say, Facebook or Twitter or other social media sites, you find that the vast preponderance of the communications on the sites are between friends who are within 10 miles of each other. So, to that extent, the Internet and the social media are actually reinforcing friendships, relationships, and commercial transactions that are taking place locally. And so the Internet is both, again, a phenomenon that is aiding global marketing, but it’s also greatly aiding local marketing, as well.

BK: So there’s a lot of contrasts like that that play throughout the book. You talk about the physical and the virtual. Can you break those down a little bit?

JQ: Even in this virtual world, physical place is still very important. And you can capture that in the question which we always ask people within a few minutes of meeting them, which is where are you from or where’s home. We’re actually cognitively wired to use place – geographical place – as a reference point in many of the things that we do, not just in terms of answering the question where are you from and putting that pin a map, but also in terms of the way in which we think and compare and contrast phenomena.

So yes, physical place is important and even in a global economy, where you’re from or indeed, where some products are from – whether it’s Wisconsin cheese or Angus steak or –

BK: Swiss chocolate.

JQ: – Swiss chocolate and so on – I mean, there are numerous examples where country or place of origin is associated with a perceived value of that particular commodity.

BK: If you look back in 1960 when the four P’s were first coined, I think by and large, they were talking about placement on a shelf – the place of a product in a physical environment - versus place as a merchandising option in and of itself.

JQ: Place typically was used as the surrogate in the four P’s for distribution - what is now typically referred to as the supply chain. But it also did refer, as you correctly say, to the physical placement of the product on the shelf. And all of the meaning of place was really physical, and there wasn’t, of course, any need for there to be a virtual element to one’s consideration of place.

We believe that place is now very much more important as a key success factor in marketing than it has been previously.

Let me, if I may, just give you the example of any multinational company rolling out a product in China, for instance. What’s the biggest challenge in doing that? The product innovation has probably already been done. The pricing presents a certain challenge in terms of the affordability issue in a market of that size but relatively emerging economy. Promotion – you can pretty easily do that in any marketplace. It’s just a matter of figuring out what the sweet spot is for the consumer in terms of positioning the brand.

But actually, the biggest challenge in launching in China is the distribution, and the reason for that is three-fold. First of all, the enormity of the market, which is about the same geographical size as the U.S. Secondly, the dramatically fragmented nature of the market. There are really no national brands in China at the moment. There are certainly no national retailers, and many companies have tremendous challenges in reaching anything approaching significant regional distribution, let alone national distribution.

So when I was talking to Muhtar Kent, the CEO of Coca-Cola, recently, I said to him, just by chance, do you know how many distribution points you need in China to achieve the level of distribution that you’re aiming for? And the answer was 11 million – 11 million points of distribution, which is really, basically, a military operation. I mean, it’s of a scale of distribution penetration that has not heretofore been implemented.

BK: What are the challenges that China faces as it, again, tries to take its spot on the center of the world economic stage?

JQ: Well, of course, there aren’t really any significant Chinese brands – commercial brands that have established themselves on the global stage yet. What China has is a tremendous number of state-owned companies that are enormous but domestic. So the global brands that are going to take off for China are going to probably come from the private sector, not from the state-owned sector.

BK: So, anybody who travels around the world has probably had the same experience that I’ve had, which is that you’re driving through a major metropolitan area and there it is – Starbucks – and you’re looking for a cup of coffee and I’m drawn to that because it reminds me of home. And Starbucks has done a great job of creating a very common experience for me no matter where I am in the world. How does that fit with this concept of local, because it feels to me very much like they’ve replicated the experience for me in a way that feels familiar no matter where I am.

JQ: Right. So there’s a commonality of interest that the core brand values appeal to around the world. But at the same time, Starbucks has a very acute understanding of how to adapt its proposition to each place in which it’s located.

BK: Are there examples that you can site of companies where their global strategy has really conflicted with their ability to have a successful local strategy?

JQ: Well, I think you find this particularly in product categories where there’s a big gap between the level of consumer sophistication in the developed economies where the brand may have originated and the emerging economies where the brand and, indeed, the product category may be quite unfamiliar.

Certainly, the world is flatter than it used to be, but from the point of view of a marketer operating either from global headquarters or locally in a particular country market, I can tell you that the world is anything but flat.

BK: He’s Professor John Quelch form Harvard Business School. Thank you for joining us today.

JQ: Pleasure.

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