International Marketing After Macro Disruption (with Margit Enke)
Marketing Management, January 2016
On rare occasions, we are given the opportunity to observe how macro changes in the international marketing environment result in adjustments in marketing content, application, context, and acceptance. One can begin to understand the marketing and societal implications by tracing major geopolitical shifts in history, such as the dissolution of the Ottoman Empire and the Soviet Union, and the fusion of North and South Vietnam. In terms of forecast, one can track the present as well as the medium- and long-term futures of countries like the two Chinas, North and South Korea, Cuba, and Iran, to plan for substantial market and marketing-oriented changes that they may well undergo.
The reunification of West and East Germany provides a particularly prominent example of such a disturbance in the geopolitical equilibrium of the world. West Germany’s willingness to invest grand sums in the market-based approach resulted in a reduction in the resource constraints faced by East Germany. Many of the economic differences in the two “zones” of Germany were the result of sharp divides in market perspectives. A review of the changes that took place is particularly timely now, in the 25th year of German reunification, where an entire new generation exposed to market interactions, orientations, and rules has arisen. One can now also witness the effect of these changes on population groups—effects that appear to differ systematically based upon the earlier political orientation of the German state in key areas such as migration policy, employment programming, education planning, and their repercussions on marketing.
The responses to changes also allow us to learn about marketing’s role in the cohesion of society. Highlighting contrasts let marketing and its implications pop out in their perspective, and provide us with lessons for future plans. They also let us consider how to achieve further improvements in international marketing, linking the field with the newly emergent “curative marketing” approach. This approach advocates the fulfillment of the field’s mission as a social science: to improve life and society, and restore and develop economic and spiritual health for all. We shall offer thoughts on the marketing environment, both as an influence on consumer behavior as well as a condition influenced by consumers, advertising, and purchasing decisions.
Environment and Consumer Behavior
Local East German marketers were thinly sewn, and their products faced a Herculean task after the Berlin Wall suddenly collapsed in 1989. Companies and products that had been protected by 60 years of state planning now had to face global, particularly West German, competition within 12 months. Those companies that did not go bankrupt immediately were often taken over by Western companies. However, these new owners sometimes feared intracompany competition, and terminated their East German products, even if they were better than their Western competition. The decomposition of the ecologically friendly Foron refrigerator from East Germany provides only one example.
Often, East German products failed to be introduced in the purchasing plans of most Western supermarkets and retailers. Then there was the carving of tight budgets. Market shares of all East German products dropped after reunification, since people switched to West German products for their novelty and better quality. “Western” products also seemed to have a certain aura that was traditional of the Eastern provinces but carried the whiff of East Germany’s ancient socialist regime. It is interesting that now the East German identity is again tied much more to products, and again provides a strong emotional connection that encourages descendants of erstwhile East Germans to consume products from their home region. In the last two decades, some East German products experienced an unexpected revival. The “good old things” from a not-too-distant past are now considered fashionable or hip, and many producers are using this wave of Eastern reminiscences to relaunch and expand their brands.
Typical Macroeconomic Consumer Behavior Influences
German population statistics tell us that within 25 years, the five former East German states (excluding Berlin as a city-state) experienced a population decline of four million, with most of the young, female and educated population heading west. In 1991, every tenth citizen in the region was over 65 years old; it is now every fourth. Eastern unemployment figures improved from 18 to 12 percent, but are still considerably higher than the 6 percent of the Western provinces.
When marketing entered and penetrated the Eastern German economy, many East German companies went bankrupt. Some regions never recovered from the breakdown of the socialist system. With the exception of a few municipalities in Dresden, Leipzig, and Berlin, most consumers in Eastern Germany still have to budget with an average available income below 18,000 Euros, which reflects only 80 percent of the Western German average of 23,000 Euros. This comprises the conditions of the treaty agreed upon with Chancellor Kohl in 1990. The gap is also visible in terms of the monthly income for employed citizens. German citizens living in the Eastern provinces, regardless of their origin in the East or West, earn 25 percent less per month than their Western counterparts.
The relatively high unemployment rate and an aging population influence the consumption patterns in former East Germany by, for example, leading to a popularity of discounts. East Germans are also using a more differentiated pool of criteria when making purchasing decisions. In spite of the gap in consumption expenditure per capita, overall consumption patterns in the East and West are becoming increasingly similar. Private households in both parts of Germany spend the biggest proportion of their income on housing (East: 34.2 percent; West: 34.5 percent). The next largest expenditure is on transportation (East: 13.9 percent; West: 14.3 percent). Only the category, “food, beverages, and tobacco,” presents a slight difference, of only 1.1 percent (West: 13.6 percent; East: 14.7 percent).
There are almost no differences in the frequency with which people go shopping for consumer goods. East- and West-Germany are similar in terms of shopping day and time preferences. Differences exist in how often consumers go to supermarkets—Eastern Germans usually prefer only one big purchase a week, whereas Western Germans prefer two, in order to take advantage of the biweekly advertising cycle.
Consumption Behavior and Attitude
Advertisement and Purchasing Decision
Germans living in the former German Democratic Republic (GDR) have a different attitude toward marketing in general and advertising in particular. While most West Germans are used to the ubiquitous noise of sensational promises by product advertisement—beer makes you more attractive and smoking a cigarette turns you into a free and manly cowboy—East Germans were raised in a less glitzy environment. For them, advertisement had and still has an informative component. East Germans use it to compare and explore options before going to the supermarket and making the purchase. They were disillusioned and felt slightly betrayed when the promises of a product, for example, looking like a model after eating chocolate bars, did not materialize (Springer and Czinkota, 1999). This revelation came as a shock especially immediately after the reunification, when Western products and their advertisement flooded the former socialist state.
Promotion and Products
Household Appliances
On the product level there are still visible differences, especially in large white and brown goods. For example, only every fifth household in the Eastern provinces has a dryer (22.2 percent), while 43.8 percent have one in the West. Less dramatic but still major is the difference in terms of refrigerators. 40.9 percent have them in the East, and 53.1 percent have them in the West, the newspaper “Die Zeit” reports. For dishwashers, the numbers are 59.4 percent in the East and 69.5 percent in the West). Eastern German households have as many microwaves (71.8 percent) as their Western counterparts (72.7 percent). Eastern German households have caught up with their Western counterpart in terms of telephones (West: 99.8 percent; East: 99.8 percent), which is impressive when one takes into consideration that 20 years ago only every second household in the GDR had a phone. Today it is hard to imagine living without a telephone even in your house. At the same time, four out of five East German provinces are under the national average in terms of household Internet access. There is also a significant difference in Internet usage, where all five Eastern provinces are far below the German average.
Buyers and Brands
Today, the overall popularity of brands from Eastern Germany is increasing. However, there is only one product from the territory of the former GDR—a fine sparkling wine named “Rotkäppchen”—which made it to the Top Ten of most popular German brands in Western and Eastern Germany. Especially in the field of alcoholic beverages, Eastern products are getting stronger and more recognizable (e.g., Radeberger, Hasseröder, Köstrizer). More important, Eastern products are overcoming the old stereotypes of being of low quality and cheap. Nowadays, both Eastern and Western German consumers describe their local brands as being “trustworthy,” “iconic/hip” (Ostalgie), and “likable.”
At the same time, producers of Eastern German products can count less and less on Eastern German patriotism as a defining characteristic of customer behavior. Studies show that local patriotism is a much stronger factor for consumers older than 40 years of age than for those who are younger. Half of the over 40-year-old East German consumers would prefer Eastern German products, while this is only the case in a quarter of the 18- to 29-year age group. The producers need better marketing strategies to keep this younger generation of consumer close to their products.
Conclusion
The reunification of East and West Germany serves as an example of macro disruption. It shows how marketing environment has changed in terms of marketing content, application, context, and acceptance.
• With the dissolution of the socialistic regime, marketing contents changed. Western products and advertisements flooded the Eastern market and confused East German consumers. While advertisement in East Germany was rather informative, West German advertisement was rather glitzy and had the function of a sales strategy.
• Also adjustments in marketing application had to be made. East and West German consumers differ in their consumption patterns, which has to be considered by marketing strategies. These strategies should further aim at a better distribution of Eastern products in Western provinces.
• Since the fall of the Berlin Wall, marketing has taken place in a new context. East German products had to compete not only with West German products but also in a global context.
• Although people in Eastern Germany switched to the newer and higher quality products of West Germany, marketing acceptance was lacking because of sensational promises that were made but often did not come true.
Differences in unemployment rates, average available income, or the frequency of purchase are just a few topics international marketing has to address after a major market disruption. But there is one further topic that is of central importance—the shift in values. The reunification of East and West Germany as well as other conflicts, like the rapprochement of China and Taiwan or the Shiites and Sunnites, are examples of the slow process of value adaption. The parties concerned will be split for long time regarding social values. In this context, it is the objective of international marketing not to work on a global adaption of cultures, but to work on the acceptance or at least tolerance of foreign value systems.
Not solely the conflicts between countries or cultures have an impact on international marketing, but also the actions that occur out of them. The latest attacks in Paris are just one example of regularly terrorism that shocks the world and leads to a change of people´s views about international relations. The political instability influences not only international trade relations, but also the cohesion of society. One can speak of a general state of panic, and in this context of a global crisis of trust. Associations toward the responsible countries are transferred to the brands and products that originate from these countries. In the sense of making amends for past mistakes, the challenge of international marketing can be seen in “curative marketing.” Creating international health as well as improving overall wellbeing may be the next marketing direction. It is the objective of international marketing to eliminate political prejudices and to give back safety. International marketing serves as a chance to build economic relationships that, in the end, restore political as well as social trust.
Due to these ongoing shifts in society and the general environment caused by macro disruptions, international marketing has changed and will be changing. In this context, we can observe some principal findings of international marketing after major market disruptions:
First, there is no shortcut for change and its acceptance. Eastern and Western Germany essentially presented optimal conditions in terms of available funding, ability to transfer funds, and willingness of the population to adapt. Nonetheless, one generation later we can still observe key differences from both a geographic perspective, where the East has remained more socialist in its orientation than the West, and also from an age perspective, where different age groups vary in their desire and success of leaving politics and socialism behind.
Second, there seems to be less willingness to accept differences across former boundaries, which can lead to disagreements of a substantial nature. The current debate about migration policies may serve as an example.
Observing the often hesitating processes of realignment, we should prepare for delays and disagreements with nations such as Cuba or Persia. Even with significant good will on all sides, the adjustments are slow and tedious. If enthusiasm is somewhat less exuberant, more delays and conflicts can be expected.
It is also noteworthy, however, that the success of a market orientation and of marketing thinking does, over time, typically improves lives and society. All this is likely to occur not by government fiat but by the choices devised and implemented by the private sector. The orientation for competition, risk taking, private property, and profit has enhanced life experience and life style—supporting the belief that self-actualization by taking one’s own economic and marketing decisions can be the great reward for all.