International marketing 

International marketing

Read the instructions carefully. Select one of the following cases. Answer all the questions and You must use the template provided here. 

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In answering the assigned questions, please always note the following:

• Answer only the assigned question(s)
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• Make good use of evidence developed in the case

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• Case Studies should have 500-words MINIMUM.  The best work exceeds the minimum word count above.
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The following are writing style expectations:

• Use subject headers for all papers – your reader appreciates and expects that level or organization to your work!
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• Avoid wikis, blogs, tweets, videos, dictionaries, and encyclopedias as outside references – use Masters-level sources like the Journal of Marketing or the Journal of International Business – No wikis, prezis, slideshares, dictionaries, encyclopedias, videos, interviews, & podcasts allowed as references – only scholarly written sources from well-respected sources.

CASE STUDY

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In April of 2010, Gillette released its Guard razor, capturing 50 percent of the Indian shaving market in just 6 months. The Guard was a lightweight, disposable-blade razor that was devel- oped after a year of research that involved observing Indian men as they purchased and used razors in their daily lives. The result was a 15-rupee (0.34 USD) razor with 5-rupee (0.11 USD) blades, uniquely designed for Indian men. To help the Guard reach the 50 percent milestone, Gillette had been aggressively promoting the product throughout the country of India, with billboards and TV commercials featuring Bollywood actors shaving with the razor. The price of the Guard was higher than that of the market- leading double-edge blades, but the new razor offered a close shave without the frequent cuts that resulted from quick-rusting, double- edge models.

In contrast, Gillette’s leading product in the U.S.—the Gillette Fusion ProGlide—was Gillette’s most technologically innovative razor, with five blades on the skin contact surface. Gillette’s fre- quent TV commercials touted the ability of the Fusion ProGlide to give a comfortable, close shave, while enabling men to create elaborate facial hair designs. At $9.99 for the razor and $16.99 for a four-pack of blade cartridges, the Fusion ProGlide was not only Gillette’s most advanced razor, but it was also Gillette’s most expensive and most profitable razor.

John Sebastian,1 Gillette’s manager of male grooming products, sat at his desk at company headquarters in Boston, Massachusetts, holding a Gillette Guard and a Gillette Fusion ProGlide in his hands, pondering next steps. Sebastian had been given the task of analyzing market conditions and making a recommendation to the vice president of male grooming for the Gillette Guard global strat- egy. There were over a billion men in low-income countries who potentially would be willing to try the Guard. The Guard could be a viable low-cost option for many Americans. Despite the fact that the premium-priced Fusion ProGlide was Gillette’s best-selling razor, not every American was willing to pay such a high price. Many Americans were especially price sensitive due to the state of the economy, which was slowly recovering from the 2008 financial crisis. Introducing the Guard to the U.S. market could allow Gil- lette to dominate the low end of the shaving industry and boost sales in a slow-growing market. On the other hand, Gillette’s high- margin products like the Fusion ProGlide might suffer if the Guard began to cannibalize sales. Sebastian was preparing for the meeting with his supervisor, during which he would offer his strategy recom- mendations to the vice president of male grooming for the Gillette Guard. The meeting was quickly approaching.

COMPANY HISTORY The Gillette Company was founded in 1901 by King C. Gil- lette to manufacture his invention—the disposable-blade safety razor. At the time, the leading shaving products were straight- edge razors. (See Exhibit 1.) After repeated use, the blade of a

Gillette: The 11-Cent Razor, India, and Reverse Innovation

CASE 3-7

1The character and scenario are fictional. The company and market details are factual.

©productpackshotphotography/Getty Images

Exhibit 1 Straight-Edge Razor

Exhibit 2 Safety Razor

©arobinson343/iStock/Getty Images

straight-edge razor becomes misaligned, and must be realigned and polished by stropping the blade—dragging it along a strip of leather or canvas. While looking through a Montgomery Ward mail-order catalog in 1895, Gillette noticed that Montgomery Ward guaranteed that it would replace any defective razor, with the disclaimer, if “properly used and stropped on a good smooth strop.” Gillette recognized an opportunity to manufacture and sell a razor with disposable blades that would not require main- tenance. Patented in 1904, Gillette’s “safety razor,” as it came to be known, consisted of a razor (handle and blade compart- ment) and a disposable double-edge razor blade. (See Exhibit 2.) Because customers would need to continuously buy new blades, disposable razors would provide a steady, continuous source of revenue for Gillette. The company’s original safety razor sold for $5 in 1904 (about $135 in 2015 dollars), and a pack of blades that would last a year cost $1.

After expiration of the patent in 1921, Gillette feared that low- cost imitators would erode his margins. Rather than simply reduce his prices, he took a two-pronged approach. First, shortly before the patent was set to expire, Gillette released an upgraded version of the razor with a price of $5 and marked down the original razor

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to $1. This new upgrade kept Gillette ahead of competitors at the high end of the market. Increased sales of Gillette’s original razor provided an even bigger boost to profits. The new, lower price convinced large numbers of customers to try the razor. Second, Gillette strategized that once these customers owned the razor, they would be forced to buy the blades at full price to continue using the razor. Recognizing the continuous stream of profits that resulted from getting the razor into the hands of customers, Gil- lette began selling razors at low, promotional prices, and even giv- ing them away as a means to create demand for the high-margin blades. This method of selling an initial product at a low price to stimulate demand for a higher-margin-related product is used in many industries but is still referred to as the “razor-and-blades” business model.

Throughout the 20th century, Gillette lived up to its slogan, “The best a man can get,” by continuously developing the next “best” razor to the market every few years. Gillette’s innova- tions included a “Twist to Open” double-edge razor (Aristocrat, released in 1934), a two-blade razor (Trac II, 1971), a razor with a pivoting head (Atra, 1977), a razor with spring-loaded blades (Sensor, 1990), a three-blade razor (Mach 3, 1998), and a five- blade razor (Fusion, 2006). Several variations of these prod- ucts also were sold, including a women’s version of the Mach 3 (Venus), battery-powered razors that vibrated for an ever-closer shave (e.g., Fusion Power), and razors with various combinations of features such as color schemes and lubricating strips. Gillette also developed several disposable razors in which the entire razor, not just the blade, was to be thrown away after the blade became dull. Gillette expanded into the electric shaver market in 1967 by purchasing Braun, a German consumer products manufacturer. Electric shavers, in general, are faster and safer than shaving with a manual razor but are not able to provide the close shave of a traditional razor.

From the 1950s through the end of the 20th century, Gillette expanded into product lines outside of shaving by purchasing market-leading brands such as Duracell, Liquid Paper, and Cricket Lighters. Razors remained Gillette’s core business, however, con- sistently accounting for more than half of the company’s profits. The 1990s were an especially prosperous time for Gillette. The company developed innovative new products in all of its major product categories, while experiencing rapid growth in new mar- kets such as China and Eastern Europe. Gillette’s stock price grew more than tenfold from the late 1980s to the late 1990s. But by the early 2000s, the company’s rate of innovation and international expansion had slowed, and, with it, Gillette’s sales. Gillette’s earn- ings came in below estimates for 15 consecutive quarters, due in part to what board member Warren Buffett commented were unre- alistically high estimates.

Jim Kilts was hired as Gillette Chief Executive Officer (CEO) in 2001. Kilts’ mission was to reinvigorate the company, turn- ing it around by reducing costs and reinvesting the savings into aggressive research and development. This new strategy brought Gillette back to profitability, and it posted six consecutive quar- ters of record profits. Despite the company’s rebound, Kilts believed that relying so heavily on razors would endanger the company in the long run. Gillette merged with Proctor & Gam- ble (P&G) in 2005 to take advantage of the marketing and distri- bution strength of P&G’s global organization. Although billed as a merger, the deal was essentially a $57 billion acquisition of Gil- lette. After 2005, several business units were separated from Gil- lette, returning the company’s focus to its core business—shaving

products and personal care items, such as antiperspirant and body wash.

GILLETTE IN 2010 By 2010, Gillette’s male shaving product line was led by the Fusion ProGlide, a reengineered version of the Fusion razor with five thin blades. The Fusion ProGlide was backed by a national advertising campaign featuring celebrities including actor Adrien Brody and hip-hop musician André 3000 with highly stylized facial hair. Retailing for $10.99 ($11.99 for the battery-powered vibrating version) with a four pack of blade cartridges that retailed for $16.99, the Fusion ProGlide was Gillette’s best-selling and most profitable product. Gillette’s next most expensive prod- uct was the Mach 3, which retailed for US$6.99 with a four pack of blade cartridges selling for US$10.49. Gillette also sold several types of disposable razors, with prices as low as US$0.65 each when purchased in a multipack. The company benefited from a “trade-up” strategy—consumers often moved up from Gillette’s less-expensive products to its more-expensive ones, but rarely moved down the price scale. In this sense, cannibalization of the sales of existing products in favor of newer, more profitable ones was a fortuitous circumstance.

Gillette’s brand recognition, market share, and advantages in technology and manufacturing had kept it at the top of the razor market since the company’s founding. Gillette’s leading competitor—Schick—held a 15 percent global market share com- pared to Gillette’s 70 percent. Throughout the 2000s, however, Schick put pressure on Gillette as the two companies engaged in what the media referred to as the “Razor Wars.” Schick was the first company to release a razor with four blades: the Quattro. Gil- lette’s Fusion ProGlide was then the first razor with five blades. Schick quickly followed with its own five-blade razor—the Hydro 5. Volume growth in the U.S. shaving industry had been stagnant for several years, with sales growth derived primarily from price increases attached to new, innovative products.

Gillette, however, faced stiff competition in the disposable razor category, which was at the low end of the razor market. Gillette’s lowest-cost razors offered advanced features such as dual blades, pivoting heads, and lubricating strips. Competitors such as Bic, Wilkinson Sword, and Schick not only sold products that rivaled Gillette’s disposable razors in terms of features and price, but also produced bare-bones versions of the products. These very-low-end razors could be purchased for as low as $0.20 when purchased in a multipack.

Gillette also faced competition from store brands (“private labels”), or razors that would be a brand unique only to that store (such as “Great Value” in Walmart). Otherwise, nationally branded products were primarily sold to retailers that, in turn, sold the prod- ucts to consumers. Throughout the 1990s, the retail industry under- went consolidation, with Walmart becoming the largest player and Gillette’s largest customer. Walmart’s purchasing power, as well as its low-priced store brands, enabled it to place downward price pressure on its suppliers. Despite the lower prices, however, the store brands did not take significant market share from name-brand products.

INTERNATIONAL STRATEGY By 2010, Gillette held 70 percent of the global market share for razors. The market share varied by region, and Gillette’s indi- vidual country strategies of product development and pricing

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differed based on characteristics of the country, such as consumer income levels. Europe and Australia resembled the U.S. market, where consumers were willing to pay premium prices for pre- mium products. To stay ahead of competitors, Gillette introduced its high-end razors and put significant money and effort behind marketing the innovative products. By the year 2000, there were limited opportunities for growth in these regions. In less-mature markets, however, there were still huge opportunities for growth. Hundreds of millions of low-income consumers in countries such as China and India often shaved with double-edge blades instead of using Gillette’s products. Only wealthy consumers in these countries could afford Gillette’s high-end razors, so Gillette focused on marketing its lower-cost products, rather than promot- ing higher-cost razors.

India, in particular, represented a massive untapped market for Gillette. Of the 1.2 billion people in India, many belonged to a group referred to as the “Base of the Pyramid” in economic terms—the 4 billion people in the world who lived on US$1 to US$3 a day. In India, despite the fact that such consumers had low incomes, the sheer number of potential customers made the region very attractive to Gillette. The majority of low-income men in India—roughly 400 million—shaved using double-edge razors, which cost only 1.5 rupees to 2 rupees (US$0.05) per blade. Double-edge blades were inexpensive, but they rusted eas- ily and often caused cuts. Instead of trying to sculpt elaborate facial hair designs with a razor, many low-income Indian men would be satisfied with a blade that could give them a good shave without nicking their skin and drawing blood. The leading double-edge razor producer—Super-Max—held 15 percent market share. As of 2009, Gillette’s top two razors in India—the Vec- tor and the Mach 3—held only 13 percent and 9 percent market share respectively. (See Exhibit 3.)

GILLETTE GUARD DEVELOPMENT Gillette realized that it needed to change its approach to product development and pricing to achieve success in the low-income Indian market. Gillette’s previous marketing process in India involved little more than repackaging its existing razors and chang- ing the language on the labels. The Mach 3, which was one of Gil- lette’s leading razors in the U.S., had only 9 percent market share in India because the price for the product was too high for most

Indian consumers. Gillette’s lower-priced offering—the Vector—was closer to the appropriate price point, but it still could not win over more than 13 percent of the market. The Vector was a rebranded Gillette Atra, a product that was introduced in the U.S. in 1977 but had been discontinued.

Gillette turned to reverse innovation to develop the Guard. The traditional path of a new innovation involves research and development in wealthy Western countries, where plenty of capi- tal is available for investment, followed by market entry in low- income countries. Reverse innovation turns the process around, beginning with the development of an innovation in a low- income country, then perhaps introducing it in higher-income countries. For the new Indian razor, Gillette began with a price customers would be willing to pay, and then it built the features around the price.

A team of product development personnel was assembled and given the task of learning what it is that Indian men wanted from a razor. The team spent thousands of hours studying and observing the Indian market first hand, following Indian men as they shopped for and used razors. The team also conducted interviews and in- home visits, and fine-tuned its product ideas with thousands of con- sumers. Every element of the razor was viewed through the eyes of the low-income Indian consumer.

The Gillette team learned several lessons from its research. The company learned that Indian men purchased razors primarily in kiranas—small local shops—instead of at large retailers. Gillette also learned that Indian men often do not shave every day, and when they do shave, it often happens while sitting on the floor with a bowl of water and a hand-held mirror, rather than standing at a sink with a large mirror. Through the course of its interviews, the team learned that Indian consumers valued affordability first and foremost, followed by safety and ease of use.

The team developed the Gillette Guard to address each spe- cific need. For safety, the Guard included a safety comb and an easy-to-hold grip. For affordability, the lubrication strip was aban- doned; only a single blade was used, and the Guard contained 80 percent fewer parts compared to the Gillette Vector. For ease of use, the razor was lighter than double-edge razors and many American razors, easy to rinse, flexible enough to reach areas that are difficult to reach with a double-edge razor, and able to cut longer hair because many Indian men did not shave every day. (See Exhibit 4.)

Brand Company Indian Market Share

Super-Max Super-Max 15%

Gillette Vector P&G 13%

Topaz Malhotra Shaving Products 10%

Gillette Mach 3 P&G 9%

Schick-Wilkinson Sword Energizer Holdings 8%

Laser Malhotra Shaving Products 6%

Exhibit 3 Gillette Competition

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form, in each of these countries. On the other hand, lessons learned in the Indian market may not have applied to every country. Just as American products did not necessarily transfer easily to India, the Indian product may not have transferred easily to China. If they did, the possibilities of damaging stockouts loomed large if produc- tion could not keep up with demand.

Gillette’s next decision was whether or not it should complete the reverse innovation process by releasing the Guard in the U.S. Gillette had been profitable in recent years despite stagnating volume growth in the U.S. market, primarily due to high-margin products like the Fusion ProGlide. Industry analysts questioned the sustainability of this strategy. If Gillette chose to release the Guard in the U.S., the low price would surely attract customers, but this option carried some risk. The Guard may not meet the quality demands of American customers, and even if it did, it could cannibalize sales of Gillette’s higher-margin products such as the Mach 3 and Fusion ProGlide. Usually cannibalization worked the other way around: trading up from a low-priced prod- uct to a high-priced one. As John Sebastian prepared to deliver his recommendation to the vice president of male grooming, he considered the ripple effects each option would have on Gillette and its markets around the world. His recommendation could determine the direction of the company, as well as his career, for years to come.

QUESTIONS 1. Describe the razor-and-blades business model.

2. How and why do U.S. razor consumers differ from razor consumers in India?

3. How did Gillette’s product development process differ for the Gillette Guard when compared to its previous product development processes?

4. Should Gillette release the Gillette Guard in the U.S.? Should it release the product in other low-income countries besides India?

This case draws from “Gillette: The 11-Cent Razor, India, and Reverse Innovation,” written by Ryan Atkins, Terry School of Business, University of Georgia. Used by permission of William Davidson Institute, University of Michigan. It is intended to be the basis for class discussion rather than to illustrate either the effective or ineffective handling of a managerial situation. Sources: Byron, Ellen. “Gillette’s Latest Innovation in Razors: the 11-Cent Blade.” Wall Street Journal, October 1, 2010. Accessed January 25, 2013; Ibid; Picker, Randal C. “The Razors-and Blades Myth(s).” University of Chicago Law Review 78.1(2011): p. 227; Ibid; “The Gillette Company.” Form 10-Q Quarterly Report, March 31, 2005. Boston: The Gillette Com- pany; Roman, Kenneth. “The Man Who Sharpened Gillette.” Wall Street Journal September 5, 2007. Accessed January 25, 2013; Isidore, Chris. “P&G to Buy Gil- lette for $57B.” CNNMoney January 28, 2005. Accessed January 25, 2013. Walmart. com. Retail prices. Accessed January 25, 2013; “Triple Blades Hone Trade-up Pitch.” DSN Retailing Today 42.5. 2003; Narr, Susan McGinnis. “The Razor Wars.” Early Show. CBS News, New York. December 5, 2007; Glazer, Emily. “A David and Gillette Story.” Wall Street Journal April 12, 2012. Accessed January 25, 2013; Walmart.com. Retail prices. Accessed January 25, 2013; Govindarajan, Vijay, and Chris Trimble. “Is Reverse Innovation Like Disruptive Innovation?” HBR Blog Network Septem- ber 30, 2009; “Gillette Guard Fact Sheet.” Ed. Proctor & Gamble. 2013; Ibid; Ibid; Govindarajan, Vijay. “P&G Innovates on Razor-Thin Margins.” HBR Blog Network April 16, 2012. Accessed January 25, 2013; Coleman-Lochner, Lauren. “Why Proctor & Gamble Needs to Shave More Indians.” Bloomberg BusinessWeek. June 9, 2011. Accessed July 1, 2015; “How Gillette Execs Spent a Fortune Developing a Razor for India Using MIT Student Focus Groups… Without Considering the Country’s Lack of Running Water.” Daily Mail October 3, 2013. Accessed July 1, 2015; Reddy, Srini- vas and Christopher Dula. “Gillette’s ‘Shave India Movement.’” Ft.com/management. November 4, 2013. July 1, 2015.

©Editorial Image, LLC/Alamy Stock Photo

Exhibit 4 Gillette Guard

Gillette also set up its manufacturing and distribution with the Indian consumer in mind. Labor costs were much lower in India than in the U.S., and Gillette minimized shipping costs through the use of local production. On the distribution side, Gillette developed relationships with a number of the local kiranas to ensure that they would stock the Guard. This approach to distribution was vastly different from the company’s U.S. strategy, which focused on a few large retailers.

The Indian market’s response to the Gillette Guard was extremely favorable. In a survey, customers preferred the Gillette Guard 6-to-1 over double-edge razors. The positive perception of the Guard, along with its price that was not much more than double- edge razors, meant that the Guard became an affordable luxury for many customers. The Guard managed to surpass 50 percent of the razor market by volume only six months after its launch in October 2010. Whether or not these customers would trade up to higher-cost razors, as they often did in the U.S., remained to be seen, but Albert Carvlaho, Gillette’s Vice President of Male Grooming for Emerging Markets, felt confident that they would, saying, “When they start enjoying a better shave, they’ll be more open to all solutions.”

OPPORTUNITIES AND CHALLENGES The tremendous success of the Guard left Gillette with opportuni- ties. Hundreds of millions of potential customers in China, Indo- nesia, and other low-income countries still shaved with double-edge razors. Gillette could immediately release the Guard, in its present

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Strategic decisions move a company toward its stated goals and perceived success. Strategic decisions also reflect the firm’s social responsibility and the ethical values on which such decisions are made. They reflect what is considered important and what a com- pany wants to achieve.

Mark Pastin, writing on the function of ethics in business deci- sions, observes:

There are fundamental principles, or ground rules, by which organizations act. Like the ground rules of individuals, organizational ground rules determine which actions are possible for the organization and what the actions mean. Buried beneath the charts of organizational responsibility, the arcane strategies, the crunched numbers, and the politi- cal intrigue of every firm are sound rules by which the game unfolds.

The following situations reflect different decisions made by multi- national firms and governments and also reflect the social respon- sibility and ethical values underpinning the decisions. Study the following situations in the global cigarette marketplace carefully and assess the ground rules that guided the decisions of firms and governments.

EXPORTING U.S. CIGARETTE CONSUMPTION In the United States, 480,000 deaths, about one in five, are related to smoking each year. About 250 billion cigarettes were sold in the U.S. in 2017, but sales are shrinking rapidly. Unit sales have been drop- ping about 1 to 2 percent a year, and sales have been down by almost 5 percent in the last 10 years. The U.S. Surgeon General’s campaign against smoking, higher cigarette taxes, nonsmoking rules in public areas, and the concern Americans have about general health have led to the decline in tobacco consumption. Faced with various class- action lawsuits, the success of states in winning lawsuits, and pend- ing federal legislation, tobacco companies have stepped up their international marketing activities to maintain profits.

Even though companies have agreed to sweeping restrictions in the United States on cigarette marketing and secondhand smoke and to bolder cancer-warning labels, they are fighting as hard as ever in the Third World to convince the media, the public, and policymakers that similar changes are not needed. In seminars at luxury resorts worldwide, tobacco companies invite journalists, all expenses paid, to participate in programs that play down the health risks of smoking. It is hard to gauge the influence of such semi- nars, but in the Philippines, a government plan to reduce smoking by children was “neutralized” by a public relations campaign from cigarette companies to remove “cancer awareness and prevention” as a “key concern.” A slant in favor of the tobacco industry’s point of view seemed to prevail.

At a time when most industrialized countries are discourag- ing smoking, the tobacco industry is avidly courting consumers

throughout the developing world using catchy slogans, obvious image campaigns, and single-cigarette sales that fit a hard-pressed customer’s budget. The reason is clear: The Third World is an expanding market. As an example, Indonesia’s per capita ciga- rette consumption quadrupled in less than 10 years. Increasingly, cigarette advertising on radio and television is being restricted in some countries, but other means of promotion, especially to young people, are not controlled.

China, with more than 300 million smokers, produces and con- sumes about 1.4 trillion cigarettes per year, more than any other country in the world. Estimates are that China has more smokers than the United States has people. Just 1 percent of that 1.4 tril- lion cigarette market would increase a tobacco company’s overseas sales by 15 percent and would be worth as much as $300 million in added revenue.

American cigarette companies have received a warm welcome in Russia, where at least 50 percent of the people smoke. Consum- ers are hungry for most things Western, and tobacco taxes are low. Unlike in the United States and other countries that limit or ban cigarette advertising, there are few effective controls on tobacco products in Russia. Russia, the world’s fourth largest cigarette mar- ket, has proved to be an extremely profitable territory for British American Tobacco (BAT). BAT Russia, established in 1949, sold 65 billion cigarettes in Russia in 2005, giving it almost one-fifth of the market share.

ADVERTISING AND PROMOTION In Gambia, smokers send in cigarette box tops to qualify for a chance to win a new car. In Argentina, smoking commercials fill 20 percent of television advertising time. And in crowded African cities, billboards that link smoking to the good life tower above the sweltering shantytowns. Such things as baby clothes with cigarette logos, health warnings printed in foreign languages, and tobacco- sponsored contests for children often are featured in tobacco ads in Third World countries. Latin American tobacco consumption rose by more than 24 percent over a 10-year period.

Critics claim that sophisticated promotions in unsophisticated societies entice people who cannot afford the necessities of life to spend money on a luxury—and a dangerous one at that. The sophisti- cation theme runs throughout the smoking ads. In Kinshasa, Zaire, billboards depict a man in a business suit stepping out of a black Mercedes as a chauffeur holds the door. In Nigeria, promotions for Graduate brand cigarettes show a university student in his cap and gown. Those for Gold Leaf cigarettes have a barrister in a white wig and the slogan, “A very important cigarette for very important people.” In Kenya, a magazine ad for Embassy cigarettes shows an elegant executive officer with three young men and women equiva- lent to American yuppies. The most disturbing trend in develop- ing countries is advertising that associates tobacco with American affluence and culture. Some women in Africa, in their struggle for women’s rights, defiantly smoke cigarettes as a symbol of freedom. Billboards all over Russia feature pictures of skyscrapers and white

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

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sandy beaches and slogans like “Total Freedom” or “Rendezvous with America.” They aren’t advertising foreign travel but American cigarette brands.

Every cigarette manufacturer is in the image business, and tobacco companies say their promotional slant is both reasonable and common. They point out that in the Third World a lot of people cannot understand what is written in the ads anyway, so the ads zero in on the more understandable visual image. “In most of the world, the Marlboro Man isn’t just a symbol of the Wild West; he’s a symbol of the West.” “You can’t convince people that all Americans don’t smoke.” In Africa, some of the most effective advertising includes images of affluent white Americans with recognizable landmarks, such as the New York City skyline, in the background. In much of Africa, children as young as five are used to sell single cigarettes, affordable to other children, to support their own nicotine habits. Worldwide nearly one-fourth of all teenage smokers smoked their first cigarette before they were 10 years old.

The scope of promotional activity is enormous. In Kenya, a major tobacco company is the fourth-largest advertiser. Tobacco- sponsored lotteries bolster sales in some countries by offering as prizes expensive goods that are beyond most people’s budgets. Gambia has a population of just 640,000, but a tobacco company lottery attracted 1.5 million entries (each sent in on a cigarette box top) when it raffled off a Renault car.

Evidence is strong that the strategy of tobacco companies is to target young people as a means of expanding market demand. Report after report reveals that adolescents receive cigarettes free as a means of promoting the product. For example, in Buenos Aires, a Jeep decorated with the yellow Camel logo pulls up in front of a high school. The driver, a blond woman wearing khaki safari gear, begins handing out free cigarettes to 15- and 16-year-olds on lunch recess. Teens visiting MTV’s websites in China, Germany, India, Poland, and Latin America were given the chance to click on a ban- ner ad that led them to a questionnaire about their exposure to ciga- rette ads and other marketing tools in their countries. Some 10,000 teens responded to the banner ads. “In the past week, more than 62 percent of teenagers in these countries have been exposed to tobacco advertising in some form,” the 17-year-old SWAT (Students Working against Tobacco) chairman told Reuters. “The tobacco companies learned that marketing to teens and kids worked in this country, but since they can’t do it here anymore, they’ve taken what they learned to other countries.” At a video arcade in Taipei, free American cigarettes are strewn atop each game. “As long as they’re here, I may as well try one,” says a high school girl.

In Malaysia, Gila-Gila, a comic book popular with elementary school students, carries a Lucky Strike ad. Attractive women in cowboy outfits regularly meet teenagers going to rock concerts or discos in Budapest and hand them Marlboros. Those who accept a light on the spot also receive Marlboro sunglasses.

According to the American Lung Association Tobacco Policy Trend Alert, the tobacco industry is offering candy-flavored ciga- rettes in an attempt to continue to target teens.1 Advertising and promotion of these products uses hip-hop imagery, attractive women, and other imagery to appeal to youth in similar ways that Joe Camel did a decade ago. Marketing efforts for candy-flavored cigarettes came after the Master Settlement Agreement prohibited tobacco companies from using cartoon characters to sell cigarettes.

Researchers recently released the results of several surveys that showed that 20 percent of smokers ages 17 to 19 smoked flavored cigarettes.

In Russia, a U.S. cigarette company sponsors disco parties where thousands of young people dance to booming music. Admis- sion is the purchase of one pack of cigarettes. At other cigarette- sponsored parties, attractive women give cigarettes away free.

In many countries, foreign cigarettes have a status image that also encourages smoking. A 26-year-old Chinese man says he switched from a domestic brand to Marlboro because “You feel a higher social position” when you smoke foreign cigarettes. “Smok- ing is a sign of luxury in the Czech Republic as well as in Russia and other Eastern countries,” says an executive of a Czech tobacco firm that has a joint venture with a U.S. company. “If I can smoke Marlboro, then I’m a well-to-do man.”

The global tobacco companies insist that they are not attempt- ing to recruit new smokers. They say they are only trying to encour- age smokers to switch to foreign brands. “The same number of cigarettes are consumed whether American cigarettes or not,” was the comment of one executive.

Although cigarette companies deny they sell higher tar and nicotine cigarettes in the Third World, one British tobacco com- pany does concede that some of its brands sold in developing coun- tries contain more tar and nicotine than those sold in the United States and Europe. A recent study found three major U.S. brands with filters had 17 milligrams of tar in the United States, 22.3 in Kenya, 29.7 in Malaysia, and 31.1 in South Africa. Another brand with filters had 19.1 milligrams of tar in the United States, 28.8 in South Africa, and 30.9 in the Philippines. The firm says that Third World smokers are used to smoking their own locally made prod- uct, which might have several times more tar and nicotine. Thus, the firm leaves the tar- and nicotine-level decisions to its foreign subsidiaries, who tailor their products to local tastes.

C. Everett Koop, the retired U.S. Surgeon General, was quoted in a recent news conference as saying, “Companies’ claims that sci- ence cannot say with certainty that tobacco causes cancer were flat-footed lies” and that “sending cigarettes to the Third World was the export of death, disease, and disability.” An Oxford University epidemiologist has estimated that, because of increasing tobacco consumption in Asia, the annual worldwide death toll from tobacco- related illnesses will more than triple over the next two decades.

Perhaps 100 million people died prematurely during the 20th cen- tury as a result of tobacco, making it the leading preventable cause of death and one of the top killers overall. According to the World Health Organization, each year smoking causes 4 million deaths glob- ally, and it expects the annual toll to rise to 10 million in 2030.

GOVERNMENT INVOLVEMENT Third World governments often stand to profit from tobacco sales. Brazil collects 75 percent of the retail price of cigarettes in taxes, some $100 million a month. The Bulgarian state-owned tobacco company Bulgartabac contributes almost $30 million in taxes to the government annually. Bulgartabac is a major exporter of ciga- rettes to Russia, exporting 40,000 tons of cigarettes annually.

Tobacco is Zimbabwe’s largest cash crop. One news report from a Zimbabwe newspaper reveals strong support for cigarette companies. “Western anti-tobacco lobbies demonstrate unbeliev- able hypocrisy,” notes one editorial. “It is relatively easy to sit in Washington or London and prattle on about the so-called evils of smoking, but they are far removed from the day-to-day grind of

1See “From Joe Camel to Kauai Kolada—The Marketing of Candy-Flavored Cigarettes,” http://lungusa.org.

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earning a living in the Third World.” It goes on to comment that it doesn’t dispute the fact that smoking is addictive or that it may cause diseases, but “smoking does not necessarily lead to certain death. Nor is it any more dangerous than other habits.” Unfortu- nately, tobacco smoking has attracted the attention of a particularly “sanctimonious, meddling sector of society. They would do better to keep their opinions to themselves.”

Generally, smoking is not a big concern of governments beset by debt, internal conflict, drought, or famine. It is truly tragic, but the worse famine becomes, the more people smoke—just as with war, when people who are worried want to smoke. “In any case,” says one representative of an international tobacco com- pany, “people in developing countries don’t have a long enough life expectancy to worry about smoking-related problems. You can’t turn to a guy who is going to die at age 40 and tell him that he might not live up to 2 years extra at age 70.” As for promoting cigarettes in the Third World, “If there is no ban on TV advertis- ing, then you aren’t going to be an idiot and impose restrictions on yourself,” says the representative, “and likewise, if you get an order and you know that they’ve got money, no one is going to turn down the business.”

Cigarette companies figure China’s self-interest will preserve its industry. Tobacco provides huge revenues for Beijing because all tobacco must be sold through the China National Tobacco Company monopoly. Duty on imported cigarettes is nearly 450 percent of their value. Consequently, tobacco is among the central government’s biggest source of funding, accounting for more than $30 billion in income in 2005. China is also a major exporter of tobacco.

FOCUS ON DEVELOPING MARKETS Lawsuits, stringent legislation against advertising, laws restricting where people can smoke, and other antismoking efforts on the part of governments have caused tobacco companies to intensify their efforts in those markets where restrictions are fewer and govern- ments more friendly. As part of a strategy to increase its sales in the developing world, Philip Morris International (PMI) was spun off from Philip Morris USA in 2008 to escape the threat of litigation and government regulation in the United States. The move frees the tobacco giant’s international operations of the legal and public- relations headaches in the United States that have hindered its growth. Its practices are no longer constrained by American public opinion, paving the way for broad product experimentation.

A new product, Marlboro Intense, is likely to be part of an aggressive blitz of new smoking products PMI will roll out around the globe. The Marlboro Intense cigarette has been shrunk down by about a half inch and offers smokers seven potent puffs apiece, versus the average of eight or so milder draws. The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don’t always finish a full-size cigarette. The CEO of PMI says there are “possibly 50 markets that are interested in deploying Marlboro Intense.”

Other product innovations include sweet-smelling cigarettes that contain tobacco, cloves and flavoring—with twice the tar and nicotine levels of a conventional U.S. cigarette. Marlboro Mix 9, a high-nicotine, high-tar cigarette launched in Indonesia in 2007 and a clove-infused Mix 9 will be exported to other southeast Asian markets next. Another iteration of the Marlboro brand, the Marl- boro Filter Plus, is being sold in South Korea, Russia, Kazakhstan, and Ukraine. It touts a special filter made of carbon, cellulose acetate, and a tobacco plug that the company claims lowers the tar level while giving smokers a smoother taste.

One of PMI’s immediate goals is to harness the huge potential of China’s smoking population, as well as some of that country’s own brands, which it has agreed to market worldwide. With some 350 million smokers, China has 50 million more cigarette buyers than the U.S. has people, according to Euromonitor.

While smoking rates in developed countries have slowly declined, they have shot up dramatically in some developing countries where PMI is a major player. These include Pakistan (up 42 percent since 2001), Ukraine (up 36 percent), and Argentina (up 18 percent).

ANTISMOKING PROMOTIONS Since the early 1990s, multinational tobacco companies have pro- moted “youth smoking prevention” programs as part of their “Corpo- rate Social Responsibility” campaigns. The companies have partnered with third-party allies in Latin America, most notably nonprofit educa- tional organizations and education and health ministries, to promote youth smoking prevention. Even though there is no evidence that these programs reduce smoking among youths, they have met the industry’s goal of portraying the companies as concerned corporate citizens.

In fact, a new study proves that youth smoking prevention ads created by the tobacco industry and aimed at parents actually increase the likelihood that teens will smoke. The study, “Impact of Televised Tobacco Industry Smoking Prevention Advertising on Youth Smoking-Related Beliefs, Intentions and Behavior,” pub- lished in the December 2006 issue of the American Journal of Public Health, sought to understand how the tobacco industry uses “youth smoking prevention” programs in Latin America. Tobacco industry documents, so-called social reports, media reports, and material provided by Latin American public health advocates were all ana- lyzed. The study is the first to examine the specific effect of tobacco company parent-focused advertising on youth. It found that ads that the industry claims are aimed at preventing youth from smok- ing actually provide no benefit to youth. In fact, the ads that are created for parental audiences also are seen by teens and are associ- ated with stronger intentions by teens to smoke in the future.

Brazil has the world’s strictest governmental laws against smok- ing, consisting of highly visible antismoking campaigns, severe con- trols on advertising, and very high tax rates on smoking products. It was the first Latin American country to outlaw flavored cigarettes in 2012. Despite these obstacles, the number of smokers in Brazil con- tinues to grow, although the pace of increase is slowing. In 2017, there were approximately 50 million smokers in the country (20 percent of men, 12 percent of women), up from 44 million in 2006 and 38 million in 1997. Factors driving this trend include the low price of cigarettes, which are among the lowest in the world; the easy access to tobacco products; and the actions taken by the powerful tobacco companies to slow down antismoking legislation in Brazil.

ASSESSING THE ETHICS OF STRATEGIC DECISIONS Ethical decision making is not a simplistic “right” or “wrong” deter- mination. Ethical ground rules are complex, tough to sort out and to prioritize, tough to articulate, and tough to use.

The complexity of ethical decisions is compounded in the inter- national setting, which comprises different cultures, different perspec- tives of right and wrong, different legal requirements, and different goals. Clearly, when U.S. companies conduct business in an interna- tional setting, the ground rules become further complicated by the val- ues, customs, traditions, ethics, and goals of the host countries, each of which has developed its own ground rules for conducting business.

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Cases 4 Developing Global Marketing Strategies CS4−19

Prominent American ethicists have developed a framework to view the ethical implications of strategic decisions by American firms. They identify three ethical principles that can guide American managers in assessing the ethical implications of their decisions and the degree to which these decisions reflect these ethical principles or ground rules. They suggest asking themselves if their corporate strategy is acceptable according to the ethical ground rules listed in the box on the right.

These questions can help uncover the ethical ground rules embed- ded in the tobacco consumption situation described in this case. These questions lead to an ethical analysis of the degree to which this strategy is beneficial or harmful to the parties and, ultimately, whether it is a “right” or “wrong” strategy, or whether the consequences of this strategy are ethical or socially responsible for the parties involved. These ideas are incorporated in the decision tree in Exhibit 1.

Exhibit 1 A Decision Tree for Incorporating Ethical and Social Responsibility Issues into Multinational Business Decisions

Does the decision e�ciently optimize the common good or benefits of:

Are there critical factors that justify suboptimizing these goals and satisfactions?

YES

YES

YES

YES

YES

YES

NO

NO

NO

NO

NO

NO

Are there critical factors that justify the violation of a canon of justice?

Does the decision respect the rights of individuals involved?

Does the corporate decision respect the canons of justice or fairness to all parties involved?

Are there critical factors that justify the abrogation of a right?

Reject Decision

THE BUSINESS FIRM? Stockholders Management Profits Growth Other

THE ECONOMY? Economic growth Allocation of resources Production and distribution of goods and services Other

SOCIETY? Culture Order Justice “The good life” Other

THE INDIVIDUAL? Freedom Health and welfare Self-realization Human dignity Opportunity Other

Reject Decision

Reject Decision

Accept Decision

Principles Question

Utilitarian ethics (Bentham, Smith)

Does the corporate strategy optimize the “common good” or benefits of all constituencies?

Rights of the parties (Kant, Locke)

Does the corporate strategy respect the rights of the individuals involved?

Justice or fairness (Aristotle, Rawls)

Does the corporate strategy respect the canons of justice or fairness to all parties?

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CS4−20 Part 6 Supplementary Material

Laczniak and Naor discuss the complexity of international eth- ics or, more precisely, the ethical assumptions that underlie strate- gic decisions for multinationals.2 They suggest that multinationals can develop consistency in their policies by using federal law as a baseline for appropriate behavior as well as respect for the host country’s general value structure. They conclude with four recom- mendations for multinationals:

1. Expand codes of ethics to be worldwide in scope.

2. Expressly consider ethical issues when developing world- wide corporate strategies.

3. If the firm encounters major ethical dilemmas, consider withdrawal from the problem market.

4. Develop periodic ethics-impact statements, including impacts on host parties.

See www.who.int, the World Health Organization’s website, for more details regarding the current tobacco controversy.

QUESTIONS 1. Use the model in Exhibit 1 as a guide and assess the ethical and

social responsibility implications of the situations described.

2. Can you recommend alternative strategies or solutions to the dilemmas confronting the tobacco companies? To govern- ments? What is the price of ethical behavior?

3. Should the U.S. government support U.S. tobacco company interests abroad?

4. Should a company be forced to stop marketing a product that is not illegal, such as cigarettes?

2Gene R. Laczniak and Jacob Naor, “Global Ethics: Wrestling with the Corporate Conscience,” Business, July–September 1985.

Sources: “Smoke Over the Horizon; U.S. Gains in Tobacco Control Are Being Offset Internationally,” The Washington Post, July 23, 2006; “Death and Taxes: England Has Become the Latest in a Series of Countries to Vote for Restrictions on Smoking in Public Places,” Financial Management (UK), April 1, 2006; “Trick or Treat? Tobacco Industry Preven- tion Ads Don’t Help Curb Youth Smoking,” PR Newswire, October 31, 2006; “China Exclusive: China, With One Third of World’s Smokers, Promises a ‘Non-Smoking’ Olympics,” Xinhua News Agency, May 29, 2006; “Tobacco Consumption and Motives for Use in Mexican University Students,” Adolescence, June 22, 2006; “A Change in the Air: Smoking Bans Gain Momentum Worldwide,” Environmental Health Perspectives, August 1, 2007; “Adams Won’t Kick the BAT Habit: The Head of British American Tobacco Is Stoical About the Looming Ban on Smoking in Public Spaces: BAT will Adapt,” The Sunday Telegraph London, June 10, 2007; “Heart Disease, Stroke Plague Third World,” Associated Press (Online), April 4, 2006; “Get a Detailed Picture of the Tobacco Industry in Brazil,” M2 Press Wire, December 20, 2007; Vanessa O’Connell, “Philip Morris Readies Global Tobacco Blitz; Division Spin-off Enables Aggressive Product Push; High-Tar Smokes in Asia,” The Wall Street Journal, January 29, 2008; “The Global Tobacco Threat,” The New York Times, Febru- ary 19, 2008; “How to Save a Billion Lives; Smoking,” The Economist (London,) February 9, 2008; “Whether Here or There, Cigarettes Still Kill People,” The Wall Street Journal, February 4, 2008; World Health Organization, 2018.

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