Strategies for a European Catalog

PrERRE OESMET DOMINIQUE XARDEL

Strategies for a European Catalog PIERRE DESMET is a professor al the University or Maine and at the French Graduate Schoof of Business ESSEC He is

Ihe author of S^les Promoaon From a Baker's Dozen lo Direct Marketing, and was recognized with the Bob Clark Award in J992 He is the author of two books. 5^/e5 Promof/on and D/rerf/Wc?rtefyng DOMINIQUE XARDEL is the Director of the Master's Program in Marketing at the French Graduate School of Business ESSEC He has authored a number of articles on direct marketing and direct selling and is the author of /e Marketing direct, le marketing direct en France. Strategies et marketing cJ/recf (published in France) He won tne Montreuw award in 1988 and is the author of The Direct Selling Revolution

PIERRE DESMET

DOMINIQUE XARDEL

ABSTRACT The economic atid legal integMtion of Europe and the convergence of needs for business tobusiness markets as well as for consumer goods suggest that Europe is a common market. Furthermore, for economic reasons, technological factors promote a single catalog for European markets. Conditions are met for a pan-European catalog. However, analysis of six companies' strategies leads to the conclusion that it is not always the case and that other factors, such as the activities of producers versus distributors or channel confrontation, can explain the choices. Key words in the analysis include catalog, Europe, globalization, and standardization.

© 1994 John Wiley tk Suns, tnc. and Dirca Markeiing Rt CCC t>«92-0^91/9-i/03062 12

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JOURNAL OF DIRECT MARKETING

Foilndation. Inc.

VOLUME 8 NUMBER 3 SUMMER 199-}

INTRODUCTION With frontiers disappearing for products and services, 1993 was a very special year for Europe as it became a truly common market of 370 million consumers. Direct marketing is already a significant part of this activity, and Europe is the second market (40 percent of the $110 billion world market) with an evaluation at $43 biilit)n, behind the U.S. (-49 percent) and before Japan (11 percent). The objectives of this article are to evaluate the opportunities and threats of F.uropean markets for a catalog iirm, and to analyze the strategies to implement the selection of a market and the ways to penetrate it. The remaining part of the article is organized in the following manner: tirst, we discuss the decision from a theoretical point of view, within the framework which guides international strategies applied to the catalog business; second, we describe the situation in Western Europe; and third, we analyze various case studies offirmswhich actually develop catalogs across Europe,

1. KEY FACTORS FOR INTERNATIONALIZATION A company s ability to develop an international approach will be the key factor that separates the winners from the mere survivors in the international competitive environment. The firm has to answer two questions: first, state the importance of internationalization and select a foreign market; and second, choose an organizational structure and degree of centralization. 1.1. General Framework for International Policy Transaction cost theory provides a general framework for decisions concerning international oper ations (5). Competitiveness depends upon the configuration of three elements: firm-specific advantages (FSA), countr\'-specific advantages (CSA), and internalization advantages. • Firm-specific advantages: A successful appli cation requires a strong competitive advantage which is localized but communicable, or transferable, to the foreign market. It may be a unique know-how, usually coming from the


initial country, or an ability to create economies on transactions due to coordination and control. Its fundamental characteristic is its localization: it is often not localized and can be transferred everywhere, with low transfer costs and without important adaptations. This ad vantage may come from different sources (16): (a) comparative advantage for cost or quality of a production factor; (b) scale economy in production, world experience, logistics, sales organization, buying policy; (c) product differentiation by creation of a world image; (d) in home technology when economy of scale for R&D is high; and (e) mobility of production which multiplies economies coming from in home technology. • Country-specific advantages: Each market has specific characteristics for production or demand. CSA are created by structural imperfections of the market (legal constraints) or by economies related to transaction costs, by cost reduction or local opportunities. Market situation, and especially demand level, is determinant for hierarchy of potential market, but other factors, such as leverage effect (potential contribution of the CSA to the ESA), are also important. • Internalization advantages: These advantages refer to the relative benefits associated with different entry modes when serving foreign markets. Choice will depend upon characteristics of both firm and market. There are different ways to develop business with a foreign country: (a) export, (b) license, (c) joint-venture, and (d) direct investment by purchase or creation. Characteristics of these options are level of investment (and risk) and level of control, Afirmcan decide to: (a) have strong positions on most important markets; (b) standardize main parts of the product/service offered with some degree of differentiation of superficial aspects; (c) concentrate on activities in some countries for a better utilization of specific advantages of these countries; or (d) build scale economies on marketing programs by a unique positioning and a common marketing-mix over countries. Some limits may also restrict internationalization: limits are general (structural and economic) or due

VOLUME 8 NUMBER 3 SUMMER 1994

63

to the firm. Economic limits increase the cost of global competition. In some cases, markets are protected from global competition: this is the case when a quickly evolving know-how or highly qual ified personnel are pt)ssessed, or when distribution is complex or highly sensitive to delays. Institutional limits, such as trade barriers or state preferences, are common in each market (U.S., Japan, etc.). The GATT negotiation aims to lower these barriers to allow free trade. Finally, a firm's choices for internationalization are limited by heavy dependence on financial or human resources to prospect, create, and manage business. Some strategies, such as globalization, increase complexity of choice and can create diseconomies of scale as costs for some functions increase with the size of the problem. There is not a single best way for internalization in various countries, and the choice will depend on a firm's objectives for this market, which are in turn related to the level of experience the firm has in this market and to its strategic importance: obser vation, start of a new business, expansion of a busi ness, or rationalization of decisions for several mar kets. • The Global versus Multidomestic approach: The marketing strategy for Europe is related to perceived structure of the market. If the market is multidomestic, competition will be at the country level, and the best strategy is to manage international activities as a portfolio. Each subsidiary' will have a broad autonomy to set up plans (marketing, operations, R&D) adapted to local conditions. If the market is global, the competitive advantage for one country will depend on the results obtained in other markets and the cross-allocation of resources will allow an equalization of market over time. In this case, the best strategy is to concentrate decisions to gain from scale econ omies. Marketing will design the structure of world activities, and coordinate policies (product/service, positioning, logos) among countries and with other departments (R&D and production). • The transaction cost framework: Analysis by transaction cost theory is represented in Figure ], with type offirm-specificadvantages (local ized/nonlocalized) on one axis and country specific advantages (leverage, local use, or dual


FIGURE 1 Transaction Cost Theory Framework for Internationalization Country-Spec/fic Advantage (CSA) Firm-Specific Advantage (FSA| Nonlocalized

Home Country

Host Country

Home and Host

Global Strategy (1)

Internationaf Strategy (2)

Transnational Strategy

Multinational Strategy (3)

Transnational Strategy [4)

Localized Source: Rugman ei Verbeke. 1992

use) on the other. Four types of companies are represented: 1) global, 2) international, 3) multinational, and 4) transnational. For an international firm, the home market is of primary importance and foreign markets are only satellites, with a dispersed configuration of assets and centralized coordination. A multinatiofialfirm considers the home market as one of several distinct national operations and develops strategies of na tional responsiveness. This category is characterized by a dispersed configuration of assets, but its coordination and control systems are decentralized. For a global firm, there is only a single market, with geographically defined units. This strategy builds upon the international convergence of consumers' preferences and the technical possibility of standardizing offers. Production operations are char acterized by a concentrated configuration and by centralized coordination and control. The transnational firm is able to developfirm-specificad vantages at both parent and subsidiary levels. This reciprocal interdependence requires complex coordination and control systems. 1.2. Direct Marketing In Europe

Direct marketing activity as a whole is important and per capita catalog sales are substantive but lower than in other countries over the world: 129 for Europe, 638 for the U.S., 240 for Canada, and 176 for Australia. As shown in Table 1, penetration of direct marketing (mail order and home shop ping) is still very different among European coun tries. Several typologies exist which try to order the attractiveness of European countries. Huszagh et al.


TABLE 1 Mall Order and Home Shopping 1991 [in S Billions) and % Catalog Sales Over Total Retail Sales Austria

1 249 (3. 8%)

Belgium

0.778

(1.1%)

Denmark

0.651

(3. 6%)

Finland

0 598

11.6%)

France

7.562

(2. 5%)

Germany

UK

6 504

\2 7%)

(Former FRG)

21.493

[4 7%)

Italy

1.386

(0. 5%)

The Netherlands

).I8I

(1.6%)

NoHA/ay

0.478

(1. 9%|

Spain

0.673

(0.05%)

Sweden

1.436

(2 7%)

Switzerland

1 393 (2.8%)

Source: Direct Marketing. Oaobei 1992. p 29.

(11) found a typology of three situations; high welfare countries (Denmark, Norway, Sweden); developed urban countries (Belgium, France, Luxembourg, The Netherlands, the U.K., and Germany); and less developed countries (Greece, Ireland, Italy, Spain). For Frnd (6), two characteristics are important and determine the penetration level of direct marketing (Fig. 2): level of economic activity, and size of the population. So, direct marketing first evolved in large and developed countries (U.K., Germany, France) whose sizes are sufficient for break-even, then was applied to smaller developed countries (Denmark, Belgium, The Netherlands), then to big, but less developed countries in the south (Italy,

Spain), and finally to small countries (Greece, Portugal, Ireland). Moreover, this market is not homogeneous for the level of penetration and the growth rate across countries: between 1988 and 1991, the growth rates are 133 percent for Spain, 56 percent for Germany (West), 33 percent for Belgium and Austria, and only 15 percent for France. So, we can conclude that country specific advan tages (CSA) are very important and that some de centralization should be necessary to address local market diversity. If we use the checklist proposed by Porter (16) to diagnose the structure of the European market, we have to conclude that it has a world structure: state regulation and legal con straints are banished as frontiers are disappearing; and the EFC community is searching for a better harmonization of economic and monetary' policy. 2. A PAN-EUROPEAN CATALOG In today's global environment, the development of a catalog can be an especially difficult task for those firms which operate on an international basis. This difficulty arises because firms are confronted with the decision to standardize their catalog across countries or to individualize their catalog for ever>' country. Many factors from technology and marketing suggest that, from a theoretical point of view.

Highly developed markets good inrrjstruciure Small Early AiLipiors

Large Nciheflaml.s(N.,'if

Germany (fil 0)

Belt;iuni (V.85) Denmark (5.1) Small Populaiion

Frarn-e(55.1)

Italy (57.2)

Ponusal(IO.I) Gieece (9.74)

Small tjiie Developers

Iriiu)viiU)rs

U K (5H.(>)

Large Populalion

Spain (38.7)

Ireland (3.5)

ijirgcLalc Developers Poor inlrasiruciurc

Source : Ogiivy & Maiher. quoted by ERND. 1992

FIGURE 2 Development of Direct Marketing in the EC (population size in millions). Source: Ogiivy & Mathef. quoted by ERND, 1992.


VOLUME e NUMBER i SUMMER 1994 65

the development of a catalog on European markets should be global; but in fact, global marketing taken to its extreme—that is, the same products marketed in the same way everywhere—appears illusory, and a totally standardized marketing strategy is hard to come by in reality. So the question is: how far can we go with the globalization of the catalog? 2.1. Factors for Globalization

Technological and marketing factors tend to promote a global approach to markets (20). Technological factors: Catalog design is very costly and the cost of catalog production is very sensitive to the number of catalogs printed (Fig. 3). So, it is obvious that these strong scale economies are a good reason to propose a unique catalog across Europe. However, these economies are counter balanced by lower revenues due to lower catalog efficiency. For the catalog business, many costs arefixed,so break-even points are high. Intensive investments in computers, logistics, and automated warehouses transform this activity into a capital intensive sector and generate two major consequences: centralization, and high scale economies. But a third major consequence is that computers and telecommunications increase dramatically the possibility of sharing the same expertise through world communication. Europe, like other world markets, is influenced by fundamental tendencies concerning lower cost for transportation, high development of computing, and increased speed of information over the world. A major factor of cost reduction in the catalog business is the introduction of computer use for catalog design. Image computerization is a very important factor in the cost reduction of catalog modification, as it does not re-

2.2. Key Factors for Catalog Adaptation

40,00y

g" 30.00 S 20.00 . It 10,00. 0.00- •

100

200

300

(000

catalogs)

FIGURE 3

66

quire any physical modification, and the ISDN system (Integrated Service Digital Network) allows sophisticated communications, including catalog page. So catalog adaptation costs are substantively lower than before. For the fulfillment process, robotization and new technologies create a real cost reduction for large warehouses, often larger than the cost increase. Marketing factors: For business to business activities, trends toward uniformization of needs are strong, especially for computer supplies, for example; and cultural differences are vanishing as English becomes a common language in European companies. With regards to consumer goods, some authors (e.g., ref. 14) suggest that the needs and desires of consumers around the world are becoming increasingly homogenized. Therefore, consumers may well be satisfied with similar products and similar commercial communication. If needs are different, this may no longer be true, at least for one transnational group. While significant differences still exist between countries, there is a real tendency for harmonization of needs and tastes across Europe. In the last 30 years, a growing group of people has abandoned traditional values (security, obligation, respect of authority, and conformism) to enter into the modern era with new values: hedonism, rejec tion of authority, and need for autonomy. This evolution creates a convergence of behaviors across Europe, especially consumption behavior (15). TV programs create a common cultural background for a single social group. This tendency implies that a best-.selling ];)roduct in one country has a high level of sales in other countries (it seems that it is the case for some categories, such as clothes), and consequently, assortment and product selection can be managed in a centralized manner.


The limit to globalization is that the European market still consists of different nations, each with its own customs, lifestyles, economics, and buying habits (9,19). As opposed to the U.S., Western Europe is not a homogeneous regional market but, on the contrary', a real mosaic of countries in which, within 1,250 miles, 12 languages are spoken (6). As summarized by Fishman (7), pan-European strategies are hindered by differences in the direct sales business which modify the four flows with his

VOLUME 8 NUMBER i SUMMER 1994

customer that a direct marketer has to manage: communication, merchandise, information, and fi nancial flows. COMMUNICATION FLOW. Communication management is part of the expertise of direct marketing. It includes promotion, advertising, and information concerning orders. Cultural differences: The effect of European integration is more evident in mass advertising than in direct response advertising, and in mail order one must communicate in the local language because real cultural differences still exist (1): physical characteristics, symbols, alphabets, words, and ef licient communication needs to take notice of these differences. Concerning direct marketing, mailing is often specific, not only in the address and the title, but also, and more fundamentally, in local correspondence habits. Sales chatinels: Eor catalog operations, two dif ferent systems are working in Europe: while the direct order system is working everywhere, the agent based system is still very often used in the U.K. and Germany. Media differences: Direct marketing has to man age media with a permanent search for greater reach and higher productivity: mail, telephone ordering, and electronic media- For the postal service, a harmonization and continuity agreement has been set-

TABLE 2 Estimated Total Expenditure on Direct Marketing (Millions Ecu) Direct Telemarketing/ Mailings Advertising Others Germany

3.923

France Italy

Total

2.523

871

3,459

434

1,172

5,065

2,491

1,044

82

3,617

U.K.

1,319

1.928

124

3,371

The Netherlands

1,008

238

996

2,241

Spain

441

1.084

37

1,563

Belgium

206

201

54

461

Denmark

614

161

86

661

Portugal

16

56

8

80

Greece

16

56

8

80

Ireland

10

42

6

56

7,317

Source European Advertising Tripartite. Quoted by Dateline. October 1992. Vol 7, No 4. p 2.


tied only for regular mail, and large differences still exist between countries for postal service quality (postal service in Spain is infamous) and at rates that are usually higher than in the U.S. Postal agreement and rates variability across Europe contribute to the development of practices of combination of road transport and post, or postal drop in the cheap est country. Eor telemarketing, equivalent toll-free telemarketing systetns are starting to emerge and international toll-free systems are being established. But privacy issues and archaic telephone systems (except in France) are retarding telemarketing growth. Electronic media (Minitel) are already available in Erance, but other ciiutitries, particularly Switzerland, Austria, and Spain, have also launched the iUinitel system very successfully. In the future, Minitels in all European countries will be intercon nected. Newspapers and magazines are more popular advertising media than direct mail, and TV media availability is limited, due to the small number of TV channels and to litnited commercial time availability. Differences in regitlaiion: Regulation is in gen eral more restrictive than in the U.S. and is very specific to each country, Severe restrictions on promotion characteristics or on prize value litiiit creativity for promotional and advertising activities, and a product has to meet tighter product safety approval requirements. In contrast, it is still very difficult to complain and to sue foreign firms. MERCHANDISE FLOW. Merchandise flow (storage, packaging, transportation, delivery, return) is a significant part of the costs for catalog selling. Activity levels in direct marketing differ significantly from one country' to another (Table 2). Related to tnerchandise and communication flow is the fact that packaging waste laws will start to apply to deliveries of direct mail parcels and, possibly in the future, to direct mail shots and catalogs. In a recently published draft directive, the E.C. commission indicates that at least 60 percent of all packaging sliould be recycled. Cost reductions due to centralization are high: centralized buying policy produces price reductions related to volume. Centralized storage is the best choice to reduce costs, level, and risks for inven tories. Logistics are key factors for service quality and cost efficiency, and thus for short-term and longterm success. However, country-specific buying

VOLUME 8 NUMBER 3 SUMMER 1994 6 7

practices still result in important differences in flows: one firm estimates that return rates for clothes are 9 percent in Portugal, 14 percent in France, 22 percent in Belgium, and 45 percent in Switzerland. INFORMATION FLOW. I.ists and databases are fundamental resources in direct marketing and scoring. Profiling and segmentation are key activities for profitability. Lists, and especially busincss-tobusi ness lists, are dominated by compiled and con trolled circulation rather than resource lists, and few product specialty lists exist. Use of databases has been made more difficult by tight regulation (Convention on Data Protection in 1981 by Council of Europe, European directives, national laws). Transfer of individual data to countries with less restrictive regulations is forbidden, and so restricts transfer to non-European countries, including the U.S. In France, for example, each creation of a file has to be registered with the National Commission Informatique et Liherte (CNIL), and also each modifi cation. Use of data has to be related to the activity ofthe firm and, in cases such as medical information, is strictly defined. FINANCIAL FLOW. For finance, management still needs to be country specific: actually, each country has its own currency and a firm has to take ex change risks. In the future, the E.C. should provide an important benefit with the unification of the different European currencies under the monetary union (expected 1997) using a single currency (Ecu). Nevertheless, recent monetary developments (floating pound for example) clearly show that it is an ambitious objective. Furthermore, while funds transfer is lawful, transfer costs can be high: an ex periment has been done to transfer the same amount (l60 Ecus) between countries, and the range of costs is from 14 percent to 39 percent depending upon countries. Price policy is made easier by the progressive standardization of value added taxes within the Community (whose objective is to standardize at 15 percent for 1993-1996), and tax localization allows the firm to have a single tax col lection. For direct selling, payment habits also vary significantly: in France, payment is due upon merchandise delivery, but a 15 day delay is usual in the U.K. Credit card penetration and the sophistication of payment systems differ considerably among countries.

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3. CASE STUDIES Since very little research has been published on catalog companies operating across Europe, the study is primarily descriptive, identifying not only catalog specifics for each company but also other management characteristics. We have tried to analyze, compare, and understand the reasons why some companies give priority to a global approach while others prefer maximum localization of their activities. This study was conducted in the fall of 1992 and early 1993. It tries to describe the situation of several companies operating in Europe, their actual strategies and ways of implementing them, the obstacles or constraints they are facing, their present objectives, and their plans for the future (see Exhibit 1 for interviewer's guideline). A limited number of companies, whether operating exclusively or not with direct marketing techniques, has been selected in the consumer field as well as in business to-business operations, and managers in charge of direct marketing or catalog activities interviewed. They are Bull Europe, IBM Direct, Inmac, La Redoute, Bertelsmann, and Amway Europe. Major characteristics are presented in Table 3. Among these companies, only La Redoute, a leading direct marketing firm in France and number 13 worldwide, is exclusively dedicated to catalogs and mail order. The other companies, beyond their

EXHIBIT 1 Interviewer's Guide Line In conducting interviews, seven questions were emphasized: • Who are your catalog customers, in what numbers (actual and potential) and where are they located? • What are your objectives in developing catalogues? Do you emphasize service, information or image, generating new business, deveioping customer loyalty, or any other? • What logistics do you maintain, both at global and local levels? • In which legal environment do you operate? What further development do you expect? • What activities do you keep centralized and which one are localized? Present situation and future plans. • What are product and price policies; is the decision making process at the global and the local level? • What about catalog elaboration, design, manufacturing and circulation policies?


TABLE 3 Major Characteristics of Companies Studied Business-to-Business Firm

Bull Express CorTiputcr supplies

IBM Direct Computer supplies

INMAC Computer supplies

Countries

Eight: France, UK, Germany, Italy, Spain, Denmark, Belgium, The Netherlands

Three U K., Germany, France

Five: U.K., Germany, France, Sweden, The Netherlands

Strategy

Adaptation

Adaptation

Globalization

Global/local

Global

Global

Globai • product supply • catalog design • catalog production • color printing film

Local • different products • different prices

Local different products different prices different design

Local • product selection • pricing • order processing • text translation and black printing film • local warehouse

• different design Decentralized catalog production Decentralized warehouse

Seasonality differences Maturity differences Consumers' Goods Firm

La Redoute General merchandise

Bertelsmann Books and records

Amway Household products

Countries

SIX: France, UK, Italy, Norway, Belgium, Portugal

Six. Germany. France, Austria, The Netherlands, Switzerland

Ten. U.K., Ireland. The Netherlands, Belgium, Switzerland. Italy, Spain, Austria, Germany. France

Strategy

Globalization

Adaptation

Globalization

Global/local

Global Catalog • same products • same prices • same catalog design

Giobal • club concept, bestseller buy

Global • same products • same prices • same design Central buying activities

Central buying activities

Central warehouse (The Netherlands)

Central Warehouse Local • product selection • text adaptation • order processing

Local Catalog: • design catalog • catalog printing " product choice

Local • SIX languages (local translation)

Local warehouse Experience share

catalog activities, also operate with either sales forces or retail shops, or both,

(INMAC), and the others (BULL and IBM) give complete autonomy to their subsidiaries.

3.1. Buslness-to-Business Catalog

INMAC. INMAC circulates some 250,000 catalogs each month in Europe, and is active in England, Germany, France, Sweden, and The Netherlands.

In the computer supplies market, three companies have been interviewed. One is very centralized

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The company is international, with a strong U.S. background. For the company, which is mainly a distributor, each activity that can generate scale economies is centralized; selling methods (sending one catalog from every three weeks to every other month, according to previous order amounts), design and manufacture of catalogs (color printing films), product supply, and even the customer database (a general database for Europe), and computer software (for processing lists, catalogs, and orders). Local levels manage catalog adaptation (text translation and black printing films), direct contact with customers (order processing, product delivery pricing, accounting services), product selection (products are the same for 60 percent in general catalogs, for 90 percent in network catalogs, and 50 percent in brand name catalogs), warehousing, and promotion (selling cycles, advertising or direct marketing campaigns, and list fulfillment). Local adaptation allows exploitation of market differences in seasonality or maturity. For example, July and Aiigu.st are low business cycles in the U.K., but high in France, During those months, cable sales in the U.K. account for 15 percent of turnover, while in France the figure is 23 percent, so the front page of a French catalog wiil show cables while the U.K. catalog will show other products. The U.K. is a more mature market in computer supplies than France; competition is therefore stronger. Prices in the U.K. will be, on the average, 15 percent below those of the French market. The U.K. and French markets, which are more mature than Germany, Sweden, or The Netherlands, have developed new catalogs. Beyond the catalog for general supplies, two new catalogs have been produced: one for cables and networks, one for distributing brand names like IBM, Canon, Bull, or Apple, Hewlett Packard has given exclusivity of its catalog sales to INMAC for all countries in Europe. In France each month 150,000 copies of the general catalog are printed, 80,000 are sent to the customer list, and the others to prospect H.sts. Sixty percent of orders are placed by telephone, 35 per cent by mail, 15 percent by fax (in Germany, 60 percent of orders come by mail). In each country, orders are guaranteed to be delivered in 24 hours (probably one of INMAC's key factors of success). Turnover in 1992 was $60 million in France (total turnover in Europe was $200 million). The printing

70


cost of a catalog is $1-3 U.S. per copy (according to the number of pages). The sales force includes 23 telephone .salesmen plus 12 representatives for large accounts. Product turnover is 100 percent each year (an average of 20 percent every three months), BULL EXPRESS. Bull can be classiHed as an international company with a strong French background. In 1992, their catalog accounted for about 2 percent of Bull's yearly turnover and was used in eight European countries: France, U.K,, Germany, Italy, Spain, Denmark, Belgium, and The Netherlands, Each country uses the catalog as a customer service, but Bull gives full autonomy to each country for its catalog. Until 1993, the implemented catalog strategy was to let each country decide about the number, nature, design, and printing of each catalog, as well as the range of products, the price policy, the choice of suppliers, the promotional activities, the nature of relationship wich the sales force in order processing, and compensation policy. If used as a proactive tool to generate business, this percentage could most probably be greatly increased. In a general trend toward pan-European efforts to reduce its costs and develop both the volume and profitability of its activities. Bull's management is taking steps to identify which procedures for its various catalogs now used in Europe should be common to each country, and which ones should remain localized. Bull is conducting a survey to an alyze each of four parameters: (a) products—nature and quality of products, number, and range of products; nature, location, and number of suppliers; terms of renewing supplies, role of forecasts, costs and risks of bad forecasts, measures or emergency plan to counteract bad forecasting; (b) catalogs— size and nature of catalogs; evaluation offixedcosts; location of catalog production; catalog selling price; conditions of catalog routing and distribution; (c) logistics—location of warehouse, quantities to be stocked at affiliate locations or at central warehouse; times of delivery, cost of warehousing; order processing; list availability, maintenance, updating; online transfer of information; (d) people—timelag for implementing decisions involving change of working habits; methods of communicating new strategies; information and training programs for all levels; training tools and costs of training. IBM DIRECT. IBM Direct, a .service of IBM France, prims two catalogs every six months. Yearly turnover

VOLUMfc 8 NUMBER 3 SUMMER 1994

of both catalogs accounts for five to seven percent of total IBM France's turnover. One is for business enterprises (40,000 copies of the business to busi ness catalog are sent twice a year to a list of firms), one to consumers at home (15,000). A permanent staff of 50 telephone salesmen makes the catalog a real sales tool. There is permanent interaction be tween the 50 salesmen and the traditional salesforce of 1,000 sales engineers. IBM Direct was created in 1982 in France, first to sell electrical typewriters, office supplies, and later portable PCs, software, and services. Until 1992, no global strategy was implemented across Europe for IBM catalogs, mainly because of difficulties to include catalog activities inside a moving network of salesforce and exclusive or nonexclusive agents. It al.so allowed free movement for affiliate managers to use new distribution opportunities in side catalogs from outside distributors. Each country of Europe is totally autonomous for product selection, pricing policy, service policy, nature of catalogs, and, more generally, direct marketing activities: Italy does not have IBM catalogs and relies exclusively on distributors; Germany's catalog emphasi/ês hardware, while the French version develops services (maintenance, credit financing, training) and software (more than 50 percent ofthe French catalog turnover). The U.K. IBM catalog offers not only IBM products but several other brand names (DEC, Hewlett Packard). For IBM Direct, selling costs by catalogs and telesales men are three times lower than those of regular salesforces visiting the customers. 3.2. Consumer Goods Two companies are distributors—respectively, a French firm selling general merchandise (La Re doute) and a German company selling books and recorcis (Bertelsmann). The third company is American and produces and sells household prod ucts (Amway Europe). AMWAY EUROPE. Amway is a direct Selling Company with world headquarters in Michigan. It manufactures and distributes some 450 household products plus a range of brand name products from other companies. Amway has operated in Europe since 1957 through a network of distributors. In 1993, the same Amway catalog was printed \n 2.5 million

JOURNAL OF DIRFCT MARKETING

copies in six languages and, after three years of activity, the turnover is $90 million. Three objectives were assigned to the cataiog of this U.S. company on the household product market: (a) generate business; (b) enhance the image of this multilevel marketing company; and (c) help the distributors in their sponsoring activities. The company operates in ten different European countries: U.K., Ireland, The Netherlands, Belgium, France, Switzerland, Italy, Spain, Austria, Germany, and France. The company has a global strategy for its European catalog regarding merchandise management. The same catalog is circulated in each country with the same products, design, and prices (with VAT the only difference). Once the buyers of Amway Europe had identified some 1,000 possible products, the affiliate managers of each European country selected, at the end of a two-day session, a list of 150 products to be shown in the catalog. Each manager was asked to produce sales forecasts for each product and for his own country. With 80 percent of the products being renewed each year, the biggest risk or challenge is the accuracy of forecasts, which is of course improving year after year with experience. Printing of the catalog is centralized in The Netherlands, each catalog being sold for 50 cents to the different European affiliate companies. Products are selected not only for their sales potential but al.so according to regulatory i.ssues, cultural acceptance, retail price acceptability, and supply availability. All products are sent and warehoused in Rotterdam where they are cleared by Dutch customs and shipped to each country according to orders and without bt)rder constraints. All operations are computerized with the help of complex software created at Amway World Headquarters in the U.S. BERTELSMANN. This company, specialized in comnuinications, printing books, and magazines, started its book and record catalog business in 1949 in Germany. Itfirstexported its concept in 1967 to France, and in 1993 operated in six European countries: Germany, France, Austria, Italy, The Netherlands, and Switzerland. The company operates as a transnational company. Except for the direct marketing concept (club), the company gives broad autonomy to its affiliates. Bertelsmann, being primarily dedicated to cultural products which are specific to each country, devel-

VOLUME 8 NUMBER 3 .SUMMER 1994

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ops local independence of each market. Although sales and promotion activities and results are regularly exchanged and compared between European countries, each country takes advantage of the tests and experiences of others, with regard lo the field of premiums or gifts used for sponsoring activities, which are very productive in recruiting at low costs in each European countr\'. The club concept and contract to recruit club members are global: buying one book per trimester for two years. This offer is the same in each of the six European countries, including the same price reduction as compared to bookstore prices, and positive option (book .sent automatically to club members) for a book each trimester (if the club member does not make his or her own choice from the catalog). Also, bestseller copyrights are bought at the international level. All operating activities are managed at the local level: catalog (design, printing); assortment (choice, right buying from publishers); products (warehou.se, logistics); customer (list mainte nance); and promotion (campaigns, choice of salesforce support). LA REDOUTE. La Redoute, France's largest-selling catalog house ($3.9 billion in 1991, one-third of purchases from outside France), is second in Italy with Vestro, fourth in Belgium with Redoute Cata logue Benelux, and fifth in the U.K. with Empire Stores. La Redoute is still Europe's number four catalog retailer and ranks sixth worldwide. Interna tional expansion in both selling and procurement are a major priority, with worldwide efforts that range from developing its activities in different parts of Europe, the U.S., and Canada, as well asa Chinese language catalog for Taiwan. The La Redoute catalog obtains 43 percent of its purchases outside of France, with about half of imports coming from European community members, such as Italy, Portugal, Greece, and Belgium, and half from Far-Eastern countries. In addition to global purchasing. La Redoute s cross-border involvement includes retailing operations of group subsidiaries throughout Western Europe and the preparation of custom-tailored catalogs for use around the world. A specialized task force at French headquarters assembles collections and publishes different catalogs, including 11 versions ofthe Spring/Summer and Eall/Winter general issues. Both the merchan-

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dise itseif and the way it is marketed are adapted to local tastes, customs, and shapes. Most of the French catalog s more successful pages are also popular throughout Europe. For big European markets like the U.K. or Italy, La Redoute tiiaintains independent subsidiaries, like Empire Stores in the U.K. ($405 million in 1991 and ranking fourth in the market) oi Vestro in Italy (second in the market). With global sourcing, headquarters supply list maintenance and selection of besi-selling products. For smaller markets like Belgium or Portugal, La Redoute simply exports its know-how and centralizes in France most operations—such as product selection, catalog printing, warehousing, order processing, list maintenance (with the exception of special promotion activities) and list building of prospect customers. Orders are fulfilled by online transactions with the central computer in France. For other still-very-small markets, such as Norway or Spain, all operations are conducted from France, the company being involved in Switzerland (a small market with three languages) Northern Furope, or Germany, where competition remains strong.

CONCLUSION Today in Europe, with fast growing computer technology and online communications, easier border crossing for people, investments as well as merchandi.se, and efforts to standardize in spite of cultural barriers, everything stimulates globalization. Natural tastes or modes of doing business seem to disappear when European catalog experiments show that the best-selling products in one country also sell best in other countries. Even American catalog houses (L.L. Bean, Calyx, and Corolla) tend today to penetrate European markets with a totally global approach. Eor consumer goods as well as business-to-business, the decision factors toward the degree of globalization seem to result from the answers to at least the five following questions: • How fast do we want to penetrate the market and at what costs? • What are the size and maturity of the market as well as the competition status?


• How much investment is already made and available at headquarters? • How much information do we have on the potential market and what resources can we find locally? • Wiil actual resources allow us to centrally manage product purchasing, stocks, and processing with the same costs and services as locally? Although the findings of our research show that companies behave differently in consumer goods as well as in business to business markets, it should be noted that companies (such as IBM Direct) can .sell the same products with two different catalogs, one for consumers and one for business. We also observed that some companies, for dome.stic or structural reasons, are not ready to implement a global strategy even if they know the profits or cost savings they could obtain. Priority is then deliberately given to country management against business group authority. It seems that it is a question of timing or rhythm of development that determines the degree of globalization. Companies like La Redoute or Amway generally keep a centralized approach due to the decided rhythm of development, but also the nature of the products they sell. Bertelsmann's successful development directly results from their understanding and adapting to the culture of each country where they operate, and from the cultural products they .sell (books and records). A totally local approach cannot and probably will never be appropriate. In business to business, only Inmac is implementing a really global approach with a catalog that looks the same in each European country, and with high profitability resulting from substantial cost savings in catalog design and centralized data collection. But even Inmac is forced to comply with language and legal specifics as well as different pricing pol icies to take into account the maturity of markets where it operates. If until now both IBM and Bull maintained a diversified strategy according to coun try, the main reason is an effort to preserve authority and decisionmaking to each country manager— which can be explained for motivation objectives, but also to comply with the basic culture of the company or unknown factors of each country. •


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