7.1 standardization-€¦ · web viewfor example, a manufacturer might give a retail store an...

TERM PAPEROn

Pricing effect on international market

University of Information Technology & Sciences

(UITS)

www.AssignmentPoint.com

Letter of Transmitted:

April/13/2011

Nazia NabiLecturerSchool of Business University of Information Technology and science

Subject: Request for Approving the Term Paper

Dear Madam,

With due respect, we would like to inform you that it is a great pleasure for us to submit our term paper titled “Pricing effect on international market”. We have prepared this report as a requirement of International Marketing course. With the help of your guidance, we have completed our term paper and we are grateful to you for giving us such an opportunity. We have tried our level best to fulfill the requirements of the term paper.Therefore, we hope that you would kind enough to accept our term paper and oblige thereby. We believe that our term paper will be able to satisfy your expectation and your requirements.

Sincerely,

On behalf of the group

……………………………

Abdul Qader ID# 08310052 ………………Robiul Hossain ID# 08310046 ……………………..Sharmi Alam ID# 08330130 ………………………….Sharmi Zaman ID# 08410023 ………………………….


Acknowledgement

Many people have contributed in a variety of ways in the preparation of this term paper. Without the help of them, it was impossible to finish our term paper.

At first, all praise to almighty Allah. We are thankful to our almighty Allah who gives us strength to complete this term paper.

Then, we would like to pay gratitude, and want to give especial thanks to our respected course teacher Nazia Nabi for helping us in all ways to complete our Project. We are highly pleased for giving us such an opportunity.

Finally, thanks to our group members for their co-operation.


Executive Summary

The purpose of this paper is to understand pricing policy and effect of pricing on international market. This study focused on the why we consider various pricing policy for various international market. When an organization set-up a product price for international market they consider some points such as cost of raw materials , economic condition of target market, product standard and quality, business objective(long-term or short term) and Business environment factors such as government policy and taxation .


1. Introduction:

This term paper is being conducted to know the pricing effect on the international marketing. This lesson considers the basics of pricing for international marketing. As with all of the international marketing lessons, every country and culture within it will influence price. So here we are going to look at some of the common influences upon pricing decision-making, the impact of grey markets, international approaches to pricing, and more mainstream marketing approaches to pricing that can be applied to an international context.

2. Objective:

The main objective of the study is developing the knowledge in practical level and find out the reality in the practical life.

- To understand about effective pricing policy

- To have an overview of operation of the product

- To define all character of pricing on demographical variable, brand image, position on market..

- To get a overview of advantage and disadvantage of different type of pricing strategy.

3. Scope of the report:

The operational activities are very vast for Bangladeshi marketers as well as international marketers. But this study limited to the find only pricing effect on international marketing and influences of pricing on international market.

4. Limitation of the report:

During the study of the report we have faced following problem –

- Time is not enough for such an extensive study.

- Information relating to the topic is very sensitive that is why secondary data have been in some extant.


5. Methodology:

To do all this things we need much information therefore we have collected this information form both primary & secondary sources.

(a) Primary sources:

Data collect by questionnaires those who are taken the service from different brand in the Bangladesh.

We using Microsoft word and excel to find out the result.

(b) Secondary sources:

Books, some research report . Lecture sheet

6. Benefits:

As a student we have learned the procedure of writing a report. By making this report we have gathered knowledge about the international pricing policy and so on.


7. International Marketing

International marketing involves recognizing that people all over the world have different needs. Companies like Gillette, Coca-Cola, BIC, and Cadbury Schweppes have brands that are recognized across the globe. While many of the products that these businesses sell are targeted at a global audience using a consistent marketing mix, it is also necessary to understand regional differences, hence the importance of international marketing. Organizations must accept that differences in values, customs, languages and currencies will mean that some products will only suit certain countries and that as well as there being global markets e.g. for BIC and Gillette razors, and for Coca-Cola drinks, there are important regional differences - for example advertising in China and India need to focus on local languages. Just as the marketing environment has to be assessed at home, the overseas potential of markets has to be carefully scrutinised. Finding relevant information takes longer because of the unfamiliarity of some locations. The potential market size, degree and type of competition, price, promotional differences, product differences as well as barriers to trade have to be analyzed alongside the cost-effectiveness of various types of transport. The organization then has to assess the scale of the investment and consider both short- and long-term targets for an adequate return.

Before becoming involved in exporting, an organization must find the answers to two questions:

1. Is there a market for the product?2. How far will it need to be adapted for overseas markets?

The product must possess characteristics that make it acceptable for the market - these may be features like size, shape, design, performance and even color. For example, red is a popular colour in Chinese-speaking areas. Organizations also have to consider different languages, customs and health and safety regulations.

7.1 Standardization- If a company offers a product, which is undifferentiated between any of the markets to which it is offered, then standardization is taking place. The great benefit of standardization is the ability to compete with low costs over a large output.

The diagram below illustrates the use of a standardized products and marketing mix:

In most markets, however, there are many barriers to standardization. It is not difficult to think


http://www.thetimes100.co.uk/theory/theory--corporate-organisational-culture--322.php

http://www.thetimes100.co.uk/theory/theory--nature-role-marketing--245.php

about the standard marketing mix for a product and how this might vary from one country to another. For example:

product - tastes and habits differ between markets

price - consumers have different incomes

place - systems of distribution vary widely

promotion - Consumers' media habits vary, as do language skills and levels of literacy.

With differentiated marketing, on the other hand, an organization will segment its overseas markets, and offer a marketing mix to meet the needs of each of its markets.

The great benefit of standardization is that costs are lowered, profitability is increased and the task of supplying different markets becomes substantially easier.

The diagram illustrates the process of adapting the marketing mix to meet the needs of different geographical markets:

However, it could also be argued that the success of many products in international markets has come about because marketers have successfully adapted their marketing mix to meet local needs.To a large extent the standardization/adaptation dilemma depends upon an organization's view of its overseas markets and the degree to which it is prepared to commit itself to meeting the needs of overseas customers. There are three main approaches, which can be applied:

7.1.1. Polycentrism - with this marketing approach, a business will establish subsidiaries, each with their own marketing objectives and policies, which are decentralized from the parent company. Adaptation takes place in every market using different mixes to satisfy customer requirements.

7.1.2. Ethnocentrism - overseas operations are considered to be of little importance. Plans for overseas markets are developed at home. There is little research, the marketing mix is


http://www.thetimes100.co.uk/theory/theory--the-marketing-mix--185.php

http://www.thetimes100.co.uk/theory/theory--overseas-marketing--382.php

http://www.thetimes100.co.uk/theory/theory--overseas-marketing--382.php

standardized and there is no real attention to different customer needs and requirements in each market.

7.1.3 Geocentrism - standardization takes place wherever possible and adaptation takes place where necessary. This is a pragmatic approach.

A confectionery and soft drinks manufacturer like Cadbury Schweppes typically produces a range of standard items that are sold throughout the globe using similar marketing mix. However, differences may occur in such aspects as distribution channels and pricing as well as advertising in languages that are relevant to particular cultures. In addition such a company would produce some products which cater for particular tastes, and which are relevant to particular cultures. New products might then be tested in a regional area, before consideration of which other areas of the globe to roll out that product to.

7.2 Differentiation - is the process of making products or aspects of the marketing mix different so as to appeal to different markets.


8. INTERNATIONAL MARKET WATCH

The charts below show recent movements in international benchmark prices relevant to the price of petrol and diesel in Australia. These market prices include the Singapore price of petrol (MOPS95 Petrol) and diesel (Gasoil 10ppm sulfur) and the market price for Tapis Crude Oil.


Australia's local oil refineries constantly compete with imported petroleum products from large highly efficient refineries in Asia, regardless of the cost of importing and refining crude oil. Consequently, the price of petrol at Australian refineries is based on international petrol prices. If local prices were higher than international prices, imports of petrol would displace local production.

The above charts show the market prices for unleaded petrol, diesel and crude oil. Crude oil, diesel and petrol prices are closely linked, as the price of crude oil accounts for the vast majority of the cost of producing a litre of petrol or diesel. Crude oil is purchased in US dollars, meaning that changes in the value of the Australian dollar against the US dollar have a direct impact on the relative price of crude oil in Australian dollar terms. Therefore, changes in the Australian dollar/US dollar exchange rate must be taken into account when looking at movements in crude oil prices.

General Note: AIP publishes the Platts crude oil and product quotes for the purpose of price transparency and to assist in demonstrating that the movements in product prices follow the medium term movements in crude oil prices. The Platts Tapis quote was chosen as a representative regional crude oil price marker which is quoted daily and is based on the expected price of cargoes loading 15 to 45


days in the future.

By utilising the Platts Tapis quote AIP does not intend to reflect the actual purchase prices of crude oil by individual AIP member companies. Consequently, appropriate care should be exercised when using this data to infer financial performance of individual companies.

Note 1: The Petrol, Diesel and Crude Oil prices are provided by Platts (McGraw-Hill Inc), and represent the end of day assessment for the price of Mogas 95 Octane Petrol, Gasoil and Tapis. From 1 January 2009, the diesel price marker is 10ppm sulfur diesel, consistent with changes to Australian fuel standards.

Note 2: This price data is Copyright © 2009 the McGraw-Hill companies all rights reserved. The McGraw-Hill companies make no warranties as to the accuracy of information, or results to be obtained from use. No portion of the publication may be photocopied, reproduced, retransmitted, put into a computer system or otherwise redistributed, without prior written Authorization from Platts. Platts is a trademark of the McGraw-Hill Inc.

Note 3: Exchange Rates are taken at close of business (4pm AEST) each day as published by the Reserve Bank of Australia.


9. How should we set prices for international markets?

This lesson considers the basics of pricing for international marketing. As with all of the international marketing lessons, every country and culture within it will influence price. So here we are going to look at some of the common influences upon pricing decision-making, the impact of grey markets, international approaches to pricing, and more mainstream marketing approaches to pricing that can be applied to an international context.

10.Influences on pricing for international marketing.

The cost of manufacturing, distributing and marketing your product. The physical location of production plants might influence price. For example, Toyota

have plants in their European market, in the United Kingdom and Turkey. Of course fluctuations in foreign currencies affect pricing. Many companies are

benefiting from a relatively low US Dollar price during the 2010s. This make imports to the United States expensive, but exports relatively cheap to other nations. However fluctuations make it very difficult for companies to make long-term decisions - such as building large factories in global markets i.e. costs of production are cheap today, but could be expensive in the future, impacting upon the price that your business is forced to charge.

The price that the international consumer is willing to pay for your product. Your own business objectives will influence price. For example, large international

companies such as Starbucks may operate at a loss in some locations but still need a local presence in order to maintain their economies of scale, as well as their reputation as a global player.

The price that competitors in international markets are already charging. Business environment factors such as government policy and taxation

11.International Pricing Approaches

Export Pricing - a price is set for by the home-based marketing managers for the international market. The pricing approach is based upon a whole series of factors which are driven by the influences on pricing listed above. Then mainstream approaches to pricing may be implemented - see below.

Non-cash payments - less and less popular these days, non-cash payments include counter-trade where goods are exchanged for goods between companies from different parts of the World.

Transfer Pricing - prices are set in the home market, and goods are effectively sold to the international subsidiary which then attaches its own margin based upon the best price that local managers decide that they could achieve. Then mainstream approaches to pricing may be implemented - see below.

Standardization versus adaptation - do you use a standard, common approach to pricing in each market, or do you decide to adapt the price to local conditions?


12. Factors affecting export pricing in International marketing

The important Factors affecting International Export Pricing Policy Decisions are:

Cost of Production. -Mainly refers to the Investment Cost for Production which must Usually be Planned Well in Advance using Forecasting Methods during Planning Issues before Actual Production is Started which still has Fluctuations in Values that is actually Retrieved from Actual Production when Compared to Estimated Production in Advance.Demand. -Is affected if the Market is not Studied Properly by means of Proper Marketing Research Methods and Exploration of Market Survey MethodsCompetition. - A Manufacturing Company must be Analyzed and always be Monitored at Finger tips in terms of Product, Quality, Value with respect to Core Competitors using Investigation Methods and make Comparisons in all Forms including Packaging Methods, Export Value in Global Market quoted as Price for the Product, etc and try to out beat every Competitor coming across with best Quality Product in least time with tremendous Chase to achieve Maximum Profit and reputation oriented Targets in International Levels.

12.1 Product Differentiation-If Products are Differentiated and they have built up a Brand Image themselves; Manufacturers are in a position to Charge comparatively higher Prices. BRAND is very important in every Business Market for Company recognition of its Product. But until the BRAND is established very well in International Markets, it is safe to keep the Cost of Product at a Medium level which is Acceptable and will give Profit Returns for the Firm focusing on Selling the Product with best Quality, But if Manufacturers charge Higher Prices right from the Start for BRAND of the Product in International Markets, then it's a Risk for the Exporter venturing at such Markets. Other Factors to be taken into consideration for product are Packing, Labeling, Marking, Transportation and Distribution Costs.

12.2 Exchange-Many Exporters try to Focus on the Value of what Amount will be Obtained as Profits in terms of Foreign Exchange Conversion when they see certain Currencies like POUNDSTERLING, EURO, U.S.DOLLAR, ETC and blindly try to Venture directly into these Countries which have these Native Currencies for Overseas Exports and suffer. They suffer because always Foreign Exchange factors can't be Considered as a Profit Oriented item for Business, Firstly ,Our products made must be Saleable in the International Market and for which we have to Identify the Buyers who will find our Products useful for them and try to start Negotiation and issue Quotation for Commodity Exchange for Foreign Exchange with best Quality.Market Characteristics such as Demand Trends, Consumer Income Levels and Importance of the Product to the Consumer are highly Essential for Global Markets. Demand is a very Important issue. In Marketing for the Product to be Saleable which must be always High to Generate Profits otherwise Business suffers. Also the Product of the Exporter must be r Recognized well and must Definitely be useful for the Consumer, only then he Will be Interested in Buying the Product. Apart from all these, the Consumer must have Good Revenue of Income generated from his Business so that he can Afford comfortably and Pay for the Product. It is Safe to keep an eye on the Customer and Analyze him many Times


about his . Usefulness on the Above Mentioned Factors, Otherwise Business suffers.

12.3 Trade Margins-The Belt of Import and Export must always be Monitored and Deviations must be Checked to Mark a Balance and avoid Trade Offs in International Business Transactions.Image-The Quality of the Product must be Noteworthy, Remarkable with no Complaints ensuring 100% Customer Satisfaction and must take care during Packaging with a Good Finish and Transportation without any Delay either in Sea or Air. Government Factors namely Regulation of Margins, Floor Price, Subsidies, Tax Concession must be taken into Account for Export Pricing. After Sales Service including ensuring Supply of Spare Parts and Components after warranty period.


13. Factor determinants 13.1. International experience:

A manager’s international decision-making experience is an important factor in his/her development of international strategies. For example, international experience has been found to affect global posture investment strategies in emerging economies and product and promotion strategy adaptation. It seems reasonable to expect, therefore, that international experience should also be an important influence on the development of pricing strategies. In general, the decision-making process is thought to involve an integration of rational with tacit knowledge. Rational knowledge is the reliance on objective facts and data, whereas tacit knowledge is practical knowledge acquired through (and that increases with) experience, and not through direct instruction. Tacit knowledge cannot be overtly stated or expressed. Eventually, experience becomes integrated, actions become second nature, and collected impressions guide actions that are often below the consciousness of individuals and groups. Over time, managers keep track of their experiences, which might include data relating to previous decisions, situations, processes, outcomes, and the associated heuristics used. That the acquisition and accumulation of tacit knowledge can help managers make faster and more effective decisions is explicable in terms of image theory. According to this, when a decision situation is encountered, and is recognized as having been successfully dealt with in the past, the modus operandi employed in the earlier situation is immediately activated and implemented in the new encounter. This suggests that, as decision-makers realize the consequences of their decisions and behaviors, they rely implicitly on their memory of those decisions and outcomes when making future decisions. Given that internal factors such as capacity, cost structures, and contribution rates likely comprise key roles in decision makers’ experience, they should take on greater accessibility in decision makers’ memory. As such, decision makers’ utilization of these factors in formulating pricing strategy should increase as experience in international pricing increases. This relationship forms the basis of our first hypothesis regarding the effects of various determinants on the extent to which managers utilize internal or external factors in making pricing decisions. Thus, in an international pricing situation.H1: The degree to which managers’ rely on internal organizational factors in implementing pricing decisions will be positively related to the amount of experience those decision makers have with international pricing.

13.2. Technological dimensions of products

With the current infusion of high-technology products, global competition has intensified, product markets have become more turbulent, and product life cycles are becoming shorter. Product life cycles take on particular significance because marketing decision-makers are faced with strategy changes over different stages of the life cycle. In this sense, the life cycle, with its various stages, is a determinant of marketing strategiesSimilarly, as technological breakthroughs continue, product obsolescence rates accelerate. This increase in velocity forces pricing managers to become more cognizant of, and responsive to, market trends such as changing


customer needs and competitor offerings when making strategic pricing decisions. In essence, rapid technological changes necessitate the adoption of a market orientation and its attendant attention to external factors.. The strategic implications of technology are straightforward. Both consumer and competitive analyses will have a greater impact on the formulation of strategy than they will in more static market situations. In addition, as suggests, this impact will be particularly noticeable in the case of pricing decisions which must take into consideration consumers’ willingness to tradeoff price for technological product benefits. H2: The degree to which managers rely on external factors in implementing pricing decisions will be positively related to the degree of technology inherent in the product.

13.3 Degree of internationalization

As with every decision, uncertainty makes the development of pricing strategy a risky undertaking. According to, uncertainty here refers to the unpredictability of environmental or organizational variables that across various countries to flexibly shift resources from one country to another in response to new information andor changes in relative prices. This kind of response to external forces allows managers to adjust price to a less-volatile revenue stream. Furthermore, the more experience managers have in dealing with risk across foreign markets, the more confident they will be in handling pricing problems in that environment. But, however construed, such a decision necessitates a heightened managerial attention to external conditions (along with experience) existing in relevant international marketing environments.H3: The degree to which managers rely on external factors in implementing pricing decisions will be positively related to the level of internationalization employed by the firm.

13.4 Market share

Market share plays a significant role in strategic marketing and managerial efforts within organizations. suggests market share will influence the strategic intent of an organization by affecting buyers’ and suppliers’ power, the number and strength of potential entrants, and the level of competition within an industry. From a strategic pricing perspective, larger firms must necessarily focus on external factors if they are to minimize the effects of competition. The implementation of strategies such as limit pricing is an example of managerial intent to maintain barriers to entry. At the same time, maintaining large volume sales to continue to take advantage of economies of scale are also critically important to these firms. Cost controls and factory capacity utilization require careful scrutiny. Two contrasting hypotheses follow.H4a: The degree to which managers rely on external factors to implement pricing decisions will be positively related to the existing market share held by their firm.H4b: The degree to which managers rely on external factors to implement pricingdecisions will be positively related to the existing market share held by their firm. impact corporate performance, while risk is the unpredictability in corporate outcomes.


14. Pricing Issues in International Marketing:

Price can best be defined in ratio terms, giving the equation

resources given upprice = ———————————————

goods received

This implies that there are several ways that the price can be changed:

"Sticker" price changes—the most obvious way to change the price is the price tag— you get the same thing, but for a different (usually larger) amount of money.

Change quantity. Often, consumers respond unfavorably to an increased sticker price, and changes in quantity are sometimes noticed less—e.g., in the 1970s, the wholesale cost of chocolate increased dramatically, and candy manufacturers responded by making smaller candy bars. Note that, for cash flow reasons, consumers in less affluent countries may need to buy smaller packages at any one time (e.g., forking out the money for a large tube of toothpaste is no big deal for most American families, but it introduces a greater strain on the budget of a family closer to the subsistence level).

Change quality. Another way candy manufacturers have effectively increased prices is through a reduction in quality. In a candy bar, the "gooey" stuff is much cheaper than chocolate. It is frequently tempting for foreign licensees of a major brand name to use inferior ingredients.

Change terms. In the old days, most software manufacturers provided free support for their programs—it used to be possible to call the WordPerfect Corporation on an 800 number to get free help. Nowadays, you either have to call a 900 number or have a credit card handy to get help from many software makers. Another way to change terms is to do away with favorable financing terms.

14.1 Reference Prices. Consumers often develop internal reference prices, or expectations about what something should cost, based mostly on their experience. Most drivers with long commutes develop a good feeling of what gasoline should cost, and can tell a bargain or a rip off.

Reference prices are more likely to be more precise for frequently purchased and highly visible products. Therefore, retailers very often promote soft drinks, since consumers tend to have a good idea of prices and these products are quite visible. The trick, then, is to be more expensive on products where price expectations are muddier.

Marketers often try to influence people's price perceptions through the use of external reference prices—indicators given to the consumer as to how much something should cost. Examples include:

Manufacturer's Suggested Retail Price (MSRP). This is often pure fiction. The suggested retail prices in certain categories are deliberately set so high that even full service retailers can sell at a "discount." Thus, although the consumer may contrast the offering price against the MSRP, this latter figure is quite misleading.


"SALE! Now $2.99; Regular Price $5.00." For this strategy to be used legally in most countries, the claim must be true (consistency of enforcement in some countries is, of course, another matter). However, certain products are put on sale so frequently that the "regular" price is meaningless. In the early 1990s, Sears was reported to sell some 55% of its merchandise on sale.

"WAS $10.00, now $6.99." "Sold elsewhere for $150.00; our price: $99.99."

Reference prices have significant international implications. While marketers may choose to introduce a product at a low price in order to induce trial, which is useful in a new market where the penetration of a product is low, this may have serious repercussions as consumers may develop a low reference price and may thus resist paying higher prices in the future.Selected International Pricing Issues. In some cultures, particularly where retail stores are smaller and the buyer has the opportunity to interact with the owner, bargaining may be more common, and it may thus be more difficult for the manufacturer to influence retail level pricing.

Two phenomena may occur when products are sold in disparate markets. When a product is exported, price escalation, whereby the product dramatically increases in price in the export market, is likely to take place. This usually occurs because a longer distribution chain is necessary and because smaller quantities sold through this route will usually not allow for economies of scale. "Gray" markets occur when products are diverted from one market in which they are cheaper to another one where prices are higher—e.g., Luis Vuitton bags were significantly more expensive in Japan than in France, since the profit maximizing price in Japan was higher and thus bags would be bought in France and shipped to Japan for resale. The manufacturer therefore imposed quantity limits on buyers. Since these quantity limits were circumvented by enterprising exchange students who were recruited to buy their quota on a daily basis, prices eventually had to be lowered in Japan to make the practice of diversion unattractive. Where the local government imposes price controls, a firm may find the market profitable to enter nevertheless since revenues from the new market only have to cover marginal costs. However, products may then be attractive to divert to countries without such controls.

Transfer pricing involves what one subsidiary will charge another for products or components supplied for use in another country. Firms will often try to charge high prices to subsidiaries in countries with high taxes so that the income earned there will be minimized.


Antitrust laws are relevant in pricing decisions, and anti-dumping regulations are especially noteworthy. In general, it is illegal to sell a product below your cost of production, which may make a penetration pricing entry strategy infeasible. Japan has actively lobbied the World Trade Organization (WTO) to relax its regulations, which generally require firms to price no lower than their average fully absorbed cost (which incorporates both variable and fixed costs).Alternatives to "hard" currency deals. Buyers in some countries do not have ready access to convertible currency, and governments will often try limit firms’ ability to spend money abroad. Thus, some firms have been forced into non-cash deals. In barter, the seller takes payment in some product produced in the buying country—e.g., Lockheed (back when it was an independent firm) took Spanish wine in return for aircraft, and sellers to Eastern Europe have taken their payment in ham.

Psychological issues: Most pricing research has been done on North Americans, and this raises serious problems of generalizability. Americans are used to sales, for example, while consumers in countries where goods are more scarce may attribute a sale to low quality rather than a desire to gain market share. There is some evidence that perceived price quality relationships are quite high in Britain and Japan market. Cultural differences may influence the extent of effort put into evaluating deals.

15.Pricing Strategies:

15.1 Premium Pricing Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Such high prices are charge for luxuries such as Canard Cruises, Savoy Hotel rooms, and Concorde flights.

15.2 Penetration Pricing The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV.

15.3 Economy Pricing This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.


15.4 Price Skimming Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

15.5 Psychological Pricing This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 199 taka not two hundred.

15.6 Product Line Pricing Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.

15.7 Optional Product Pricing Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

15.8 Captive Product Pricing Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

15.9 Product Bundle Pricing Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.


15.10 Promotional Pricing Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

15.11 Geographical Pricing Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

15.12 Value Pricing This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.

16. Approaches to International Pricing:

By V S Rama Rao on December 21, 2010

Whether the orientation is towards control over end prices or over net prices, company policy relates to the net price received. Cost and market considerations are important a company cannot sell goods below cost of production and remain in businesses and it sell goods at a price unacceptable in the marketplace. Firms unfamiliar with overseas marketing and firms producing industrial goods orient their pricing solely on a cost basis. Firms that employ pricing as part of the strategic mix, however, are aware of such alternatives as market segmentation from country to country or market to market competitive pricing in the marketplace and other market oriented pricing factors including cultural differences in perceptions of pricing.

16.1 Full-cost versus Variable-Cost Pricing:

Firms that orient their thinking around cost must determine whether to use variable cost or full cost in pricing the goods. In variable –cost pricing, the firm is concerned only with the marginal or incremental cost of producing goods to be sold in overseas markets. Such firms regard foreign sales and assume that any return over their variable cost makes a contribution to net profit, These firms may e able to price most competitively in foreign markets but because they are selling products abroad at lower net prices than they are selling them in the domestic market they may be subject to charge to dumping . In that case they open themselves to anti dumping tariffs penalties that take away from their competitive advantage. Nevertheless variable cost (or marginal cost) pricing is a practical approach to pricing when a company has high fixed costs and unused production capacity Any contribution to fixed cost after variable costs are covered is profits to the company.

On the hand companies following the full cost pricing philosophy insist that no unit of a similar product is different from any other unit in terms cost and that each unit must bear its full share of the total fixed and variable cost. This approach is suitable when a company has high variable costs relative to its fixed costs. In such cases prices are often set on a cost plus basis, that is, total costs plus profit margin. Both variable costs and full cost policies are followed by international markets.


16.2 Skimming versus penetration pricing:

Firms must also decide when the follow a skimming or a penetration pricing policy.Traditionally the decisions of which policy to follow depends on the level of competition the innovativeness of the product market, characteristics and company characteristics.

A company uses skimming when the objective to reach a segment of the market that is relatively price insensitive and thus willing to pay premium price for the value received. If limited supply exists, a company may follow skimming approach in order to maximize revenue and to match demand to supply. When a company is the only seller of anew or innovative product, skimming price may be used to maximize profits until competition forces a lower price. Skimming often is used in markets with only two incomes levels the wealthy and the poor . Costs prohibit setting a price that will be attractive to the lower income market, so the marketer charges a premium price and directs the product to the high income, relatively price insensitive segment Apparently this was the policy of Johnson & Johnson ‘s pricing of diapers in Brazil before the arrival of P&G. Today such opportunities are fading away as the disparity income levels is giving way to growing middle income market segments. The existence of larger markets attracts competition and as is often the case the emergence of multiple product lines, thus leading to price competition.Source: International Marketing


17. Price Adjustments

Organizations must also decide what their policies are when it comes to making price adjustments, or changing the listed prices of their products. Some common price adjustments include quantity discounts, which involves giving customers discounts for larger purchases. Discounts for paying cash for large purchases and seasonal discounts to get rid of inventory and holiday items are other examples of price adjustments.

A company’s price adjustment policies also need to outline the firm’s shipping charges. Many online merchants offer free shipping on certain products, orders over a certain amount, or purchases made in a given time frame. FOB (free on board) origin and FOB delivered are two common pricing adjustments businesses use to show when the title to a product changes along with who pays the shipping charges. FOB (free on board) origin means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges. FOB (free on board) destination means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges.

Uniform-delivered pricing, also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located. If you mail a letter across town, the postage is the same as when you mail a letter to a different state.

Recall that we discussed trade allowances in Chapter 12, Public Relations and Sales Promotions. For example, a manufacturer might give a retail store an advertising allowance to advertise the manufacturer’s products in local newspapers. Similarly, a manufacturer might offer a store a discount to restock the manufacturer’s products on store shelves rather than having its own representatives restock the items.

Reciprocal agreements are agreements in which merchants agree to promote each other to customers. Customers who patronize a particular retailer might get a discount card to use at a certain restaurant, and customers who go to a restaurant might get a discount card to use at a specific retailer. For example, when customers make a purchase at Diesel, Inc., they get a discount coupon good to use at a certain resort. When customers are at the resort, they get a discount coupon to use at Diesel. Old Navy and Great Clips implemented similar reciprocal agreements.


18. Export Pricing Considerations

The price considerations listed below will help an exporter determine the best price for the product overseas.

At what price should the firm sell its product in the foreign market? What type of market positioning (customer perception) does the company want to convey

from its pricing structure? Does the export price reflect the product's quality? Is the price competitive? Should the firm pursue market penetration or market-skimming pricing objectives

abroad? What type of discount (trade, cash, quantity) and allowances (advertising, trade-off)

should the firm offer its foreign customers? Should prices differ by market segment? What should the firm do about product line pricing? What pricing options are available if the firm's costs increase or decrease? Is the demand

in the foreign market elastic or inelastic? Are the prices going to be viewed by the foreign government as reasonable or

exploitative? Do the foreign country's antidumping laws pose a problem?

As in the domestic market, the price at which a product or service is sold directly determines a firm's revenues. It is essential that a firm's market research include an evaluation of all of the variables that may affect the price range for the product or service. If a firm's price is too high, the product or service will not sell. If the price is too low, export activities may not be sufficiently profitable or may actually create a net loss.

The traditional components of determining proper pricing are costs, market demand, and competition. Each of these must be compared with the firm's objective in entering the foreign market. An analysis of each component from an export perspective may result in export prices that are different from domestic prices.

It is also very important that the exporter take into account additional costs that are typically borne by the importer. They include tariffs, customs fees, currency fluctuation transaction costs and value-added taxes (VATs). These additional costs can add substantially to the final price paid by the importer, sometimes resulting in a total of more than double the U.S. domestic price.

18.1 Foreign Market Objectives

An important aspect of a company's pricing analysis is determining market objectives. For example, is the company attempting to penetrate a new market, looking for long-term market growth, or looking for an outlet for surplus production or outmoded products? Many firms view the foreign market as a secondary market and consequently have lower expectations regarding market share and sales volume. This naturally affects pricing decisions.


Marketing and pricing objectives may be general or tailored to particular foreign markets. For example, marketing objectives for sales to a developing nation where per capita income may be one tenth of that in the United States are necessarily different from the objectives for Europe or Japan.


19. Costs

The computation of the actual cost of producing a product and bringing it to market is the core element in determining if exporting is financially viable. Many new exporters calculate their export price by the cost-plus method. In the cost-plus method of calculation, the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges, and profit.

Marginal cost pricing is a more competitive method of pricing a product for market entry. This method considers the direct, out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss. For example, additional costs may occur due to product modification for the export market that accommodates different sizes, electrical systems, or labels. On the other hand, costs may decrease if the export products are stripped-down versions or made without increasing the fixed costs of domestic production.

Other costs should be assessed for domestic and export products according to how much benefit each product receives from such expenditures. Additional costs often associated with export sales include:

Market research and credit checks; Business travel; International postage, cable, and telephone rates; Translation costs; Commissions, training charges, and other costs involving foreign representatives; Consultants and freight forwarders; and Product modification and special packaging.

19.1 Market Demand

For most consumer goods, per capita income is a good gauge of a market'sability to pay. Some products may create such a strong demand such as popular goods like Levis, that even low per capita income will not affect their selling price. Simplifying the product to reduce its selling price may be an answer for the exporter to most lower per capita income markets. The firm must also keep in mind that currency fluctuations may alter the affordability of its goods. Thus, pricing should try to accommodate wild changes in the U.S. and/or foreign currency. The firm should anticipate the type of potential customers. If the firm's primary customers in a developing country are expatriates or belong to the upper class, a higher price might be feasible even if the average per capita income is low.

19.2 Competition In the domestic market, few companies are free to set prices without carefully evaluating their competitors' pricing policies. This situation is true in exporting, and is further complicated by the need to evaluate the competition's prices in each potential export market.

If there are many competitors within the foreign market, the exporter may have little choice but to match the market price or even underprice the product or service in order to establish a market


share. On the other hand, if the product or service is new to a particular foreign market, it may actually be possible to set a higher price than in the domestic market.

19.3Pricing Summary

In summary, here are the key points to remember when determining your product's price:

Determine the objective in the foreign market. Compute the actual cost of the export product. Compute the final consumer price. Evaluate market demand and competition. Consider modifying the product to reduce the export price. Include "nonmarket" costs, such as tariffs and customs fees. Exclude cost elements that provide no benefit to the export function, such as domestic

advertising.

20. Terms of Sale

In any sales agreement, it is important that there is a common understanding of the delivery terms since confusion over their meaning can result in a lost sale or a loss on a sale. The terms in international business transactions often sound similar to those used in domestic business, but they frequently have very different meanings. For this reason, the exporter must know the terms before preparing a quotation or a pro forma invoice.

A complete list of important terms (including many new terms and abbreviations)and their definitions is provided in Incoterms 1990. This booklet is issued by ICC Publishing Corporation, Inc., 156 Fifth Avenue, Suite 820, New York, NY 10010; telephone 212-206-1150.

The following are a few of the more frequently used terms in international trade:

CIF (cost, insurance, freight) to a named overseas port where the seller quotes a price for the goods (including insurance), all transportation, and miscellaneous charges to the point of debarkation from the vessel. (Used only for ocean shipments.)

CFR (cost and freight) to a named overseas port where the seller quotes a price for the goods that includes the cost of transportation to the named point of debarkation. The the buyer covers the cost of insurance. (Used only for ocean shipments.)

CPT (carriage paid to) and CIP (carriage and insurance paid to) a named place of destination. These terms are used in place of CFR and CIF, respectively, for all modes of transportation, including intermodal.

EXW (ex works) at a named point of origin (e.g., ex factory, ex mill, ex warehouse)where the price quoted applies only at the point of origin. The seller agrees to place the goods at the buyer's disposal at the specified place within the fixed time period. All other charges are put on the buyer's account.

FAS (free alongside ship) at a named port of export where the seller quotes a price for the goods that includes the charge for delivery of the goods alongside a vessel at the port. The seller handles the cost of wharfage, while the buyer is accountable for the costs of loading, ocean transportation, and insurance.


FCA (free carrier) at a named place. This term replaces the former "FOB named inland port" to designate the seller's responsibility for handing over the goods to a named carrier at the named shipping point. It may also be used for multimodal transport, container stations, or any mode of transport, including air.

FOB (free on board) at a named port of export where the seller quotes the buyer a price that covers all costs up to and including the loading of goods aboard a vessel.

Charter Terms: o Free In is a pricing term that indicates that the charterer of a vessel is responsible

for the cost of loading goods onto the vessel. o Free In and Out is a pricing term that indicates that the charterer of the vessel is

responsible for the cost of loading and unloading goods from the vessel. o Free Out is a pricing term that indicates that the quoted prices include the cost of

unloading goods from the vessel.

It is important to understand and use sales terms correctly. A simple misunderstanding may prevent exporters from meeting contractual obligations or make them responsible for shipping costs they sought to avoid.

When quoting a price, the exporter should make it meaningful to the prospective buyer. For example, a price for industrial machinery quoted "EXW Saginaw, Michigan, not export packed" is meaningless to most prospective foreign buyers. These buyers would find it difficult to determine the total cost and might hesitate to place an order.

The exporter should quote CIF or CIP whenever possible, as it shows the foreign buyer the cost of getting the product to or near the desired country.

If assistance is needed in figuring CIF or CIP prices, an international freight forwarder can help. The exporter should furnish the freight forwarder with a description of the product to be exported and its weight and cubic measurement when packed. The freight forwarder can compute the CIF price usually at no charge.

If at all possible, the exporter should quote the price in U.S. dollars. This will eliminate the risk of exchange rate fluctuations and problems with currency conversion.


20.International Distribution

20.1 Promotional tools. Numerous tools can be used to influence consumer purchases:

Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.

Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.

Sponsorships Point-of-purchase—the manufacturer pays for extra display space in the store or puts a

coupon right by the product Other method of getting the consumer’s attention—all the Gap stores in France may

benefit from the prominence of the new store located on the Champs-Elysees.

20.2 Promotional objectives. Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more). Some common objectives that firms may hold:

Awareness. Many French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are often afforded very little attention by consumers, potential buyers may have to be exposed to the promotional stimulus numerous times before it “registers.”

Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.

Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to believe positive things about the product—e.g., that it has a superior taste and is better than generics or store brands. This is often achieved through advertising.

Temporary sales increases. For mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales (which are likely to go away the incentives are removed). In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again (in developing countries, in contrast, trial may be a more appropriate objective in this category).


Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.

20.3 Constraints on Global Communications Strategies. Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:

Language barriers: The advertising will have to be translated, not just into the generic language category (e.g., Portuguese) but also into the specific version spoken in the region (e.g., Brazilian Portuguese). (Occasionally, foreign language ads are deliberately run to add mystique to a product, but this is the exception rather than the rule).

Cultural barriers. Subtle cultural differences may make an ad that tested well in one country unsuitable in another—e.g., an ad that featured a man walking in to join his wife in the bathroom was considered an inappropriate invasion in Japan. Symbolism often differs between cultures, and humor, which is based on the contrast to people’s experiences, tends not to travel well. Values also tend to differ between cultures—in the U.S. and Australia, excelling above the group is often desirable, while in Japan, “The nail that sticks out gets hammered down.” In the U.S., “The early bird gets the worm” while in China “The first bird in the flock gets shot down.”

Local attitudes toward advertising. People in some countries are more receptive to advertising than others. While advertising is accepted as a fact of life in the U.S., some Europeans find it too crass and commercial.

Media infrastructure. Cable TV is not well developed in some countries and regions, and not all media in all countries accept advertising. Consumer media habits also differ dramatically; newspapers appear to have a higher reach than television and radio in parts of Latin America.

Advertising regulations. Countries often have arbitrary rules on what can be advertised and what can be claimed. Comparative advertising is banned almost everywhere outside the U.S. Holland requires that a toothbrush be displayed in advertisements for sweets, and some countries require that advertising to be shown there be produced in the country.

20.4 Some cultural dimensions:

Directness vs. indirectness: U.S. advertising tends to emphasize directly why someone would benefit from buying the product. This, however, is considered too pushy for Japanese consumers, where it is felt to be arrogant of the seller to presume to know what the consumer would like.

Comparison: Comparative advertising is banned in most countries and would probably be very counterproductive, as an insulting instance of confrontation and bragging, in Asia even if it were allowed. In the U.S., comparison advertising has proven somewhat effective (although its implementation is tricky) as a way to persuade consumers what to buy.

Humor. Although humor is a relatively universal phenomenon, what is considered funny between countries differs greatly, so pre-testing is essential.


Gender roles. A study found that women in U.S. advertising tended to be shown in more traditional roles in the U.S. than in Europe or Australia. On the other hand, some countries are even more traditional—e.g., a Japanese ad that claimed a camera to be “so simple that even a woman can use it” was not found to be unusually insulting.

Explicitness. Europeans tend to allow for considerably more explicit advertisements, often with sexual overtones, than Americans.

Sophistication. Europeans, particularly the French, demand considerably more sophistication than Americans who may react more favorably to emotional appeals—e.g., an ad showing a mentally retarded young man succeeding in a job at McDonald’s was very favorably received in the U.S. but was booed at the Cannes film festival in France.

Popular vs. traditional culture. U.S. ads tend to employ contemporary, popular culture, often including current music while those in more traditional cultures tend to refer more to classical culture.

Information content vs. fluff. American ads contain a great deal of “puffery,” which was found to be very ineffective in Eastern European countries because it resembled communist propaganda too much. The Eastern European consumers instead wanted hard, cold facts.

20.5 Advertising standardization. Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization. On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others. On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult. Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.

20.6 Legal issues. Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example). Other forms of promotion may also be banned or regulated. In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.


21. PRICING IN INTERNATIONAL MARKETS21.1Price: A part of the marketing mix:

The price is what the customer pays. It includes direct and indirect costs as well as opportunity costs. Direct costs are cash outlays a customer makes in order to obtain something. An example would be admission to a national park. Direct costs are, in many cases, a relatively small part of the total cost. Indirect costs are costs associated with obtaining something. An example would be the cost of driving to a national park, food and entertainment along the way, etc. The total of the indirect costs is often more, sometimes much more, than the direct cost.The total cost is obtained by adding the direct and indirect costs. Opportunity costs are what we give up when we do something. They can have various types of value, sometimes monetary, sometimes not. Opportunity costs include other things you could be doing instead of going to a national park. Examples might include mowing the lawn or going to a baseball game (which would be non-monetary) and not working overtime on Saturday in order to go to a national park(which would be monetary), The price the park visitor pays to go to a national park is the total of all costs, including direct, indirect, and opportunity. The perceived benefits of going to a national park have to be at least as great as the total of the costs if a potential park visitor is going to make a decision to go to a park.

21.2Determining the price:

How do you set monetary prices? There are basically two ways. I call these cost-based pricing and value-based pricing. Cost-based pricing is based on the total of all costs associated with delivering a product or service to a customer. An example of cost-based pricing would be when an organization identifies all of the costs associated with producing a product or service, adds them up, adds a margin for profit (in the business sector) and arrives at the "price" the customer is to be charged. This type of pricing is the "floor" for pricing decisions in that it is as low as the price can be and still cover all of the costs associated with delivering the product or service. I'm unaware of applications of this type of pricing in the park service world, unless it might be applied by concessionaires. Value-based pricing is based on an organization's perception of the value the potential customer (park visitor) might place on the product or service. An example of value-based pricing would be when an organization believes that people would pay Rs20 for a service and decides to price it at Rs20 even though the price might be set at Rs10 based on a cost-based model. This type of pricing is the "ceiling" for pricing decisions in that it is as high as the price can be and still find a willing customer. It has no relationship to the cost of production, rather it is influenced by perception of alternatives customers face. A subset of value-based pricing is supply/demand pricing. In this type of pricing, an organization has a limited supply of the product or service and decides to price it just barely low enough to sell all of the limited supply. There is no relationship to the cost of production. Sometimes applications supply/demand pricing are labeled as gouging because the organization is perceived as taking advantage of the situation. Political factors undoubtedly influence some pricing decisions, such as utilities and essential commodities. I would interpret this as politicians using a value-based price model in order to obtain public favor. No concern is shown for the cost of production. Part of the logic of this type of decision is the reality that a park is a public resource and is, at least to some extent, a public good the value of which should be available to as many citizens as possible. In summary, pricing is quite complex. The most responsible means of pricing would


probably give some consideration to all of these pricing concepts, attempting to balance the needs and desires of the public for access with the real costs associated with delivering the product or service. Responsible pricing would recognize market segmentation concepts as expressed in differing demand levels and abilities to pay and attempt to maximize revenue through pricing accordingly. The result would be either maximizing gain or minimizing loss.

21.3 Importance of price in marketing mix:

• Price is the amount of money charged for a product or a service, or the sum of the values thatconsumers exchange for the benefits of having or using the product or service• Price is the only element in the marketing mix that produces revenue.• Price is also the most flexible element of the marketing mix.• The most common mistakes in setting prices are;– pricing that is too cost oriented– prices that are not revised enough to reflect the market changes– pricing that does not take rest of the marketing mix into account– prices that are not varied enough for different products, market segments & purchase occasions

21.4 Factors influencing international pricing:

A. Factors internal to an international firm

– strategic objectives• cost leader, differentiation, focus• gain market share, protect market share, to maintain status quo• revenue, profit or market share maximization– marketing mix policies• product, place & promotion– costs• short term vs long term cost focus• full cost, variable cost, marginal cost pricing– organizational considerations• transfer pricing• cost vs profit centerB. Factors external to an international firm

– nature of market (buyer or seller) – level of market development/sophistication – market demand and consumers’ ability to buy – competitive situation & consumer surplus – product life-cycle-stage – type of packaging, environmental issues – distribution & marketing costs – transportation costs – government policies, tariffs, taxes & other restrictions – country of origin image – after-sales service, warranties & guaranties – exchange rate fluctuation – environmental factors


C. Factors contributing the selection of final price:

• Psychological effects of price • Influence of other marketing mix elements • Company pricing policies • Costs • Impact of price on other parties – distributors or dealers – company sales force – competitorsD. Managing price escalation in foreign markets:

• Rearrange the distribution channel – length of channel / exorbitant margins • Eliminate costly features (or make them optional) – no-frills versions - sell core products • Downsize the product – offer smaller version or a lesser count • Assemble or manufacture the product in foreign markets – closer proximity to customers - lower costs • Adapt the product to escape tariffs and taxes – by shifting it to different tax classificationE. Pricing in inflationary environments:

- Modify components, ingredients, parts and/or packaging materials - Source materials from low-cost suppliers - Shorten credit terms - Include escalator clauses in long-term contracts - to hedge against inflation - Quote prices in a stable currency - Pursue rapid inventory turnovers - Draw lessons from other countries

21.5. Exporters strategies under varying currency conditions: A. When domestic currency is WEAK…

– Stress price benefits – Expand product line and add more costly features – Shift sourcing manufacturing to domestic market – Exploit export opportunities in all markets – Use a full-costing approach, but employ marginal-cost pricing to penetrate new or competitivemarkets – Speed repatriation of foreign-earned income and collections – Minimize expenditures in local or host country currency – Buy needed services (advertising, insurance, transportation, etc.) in domestic market – Bill foreign customers in their own currency


B. When domestic currency is STRONG…

- Engage in non-price competition by improving quality, delivery, and after-sale service - Improve productivity and engage in vigorous cost reduction - Shift sourcing and manufacturing overseas - Give priority to exports to countries with relatively strong currencies - Trim profit margins and use marginal-cost pricing - Keep the foreign-earned income in host country; slow down collections - Maximize expenditures in local or host country currency - Buy needed services abroad and pay for them in local currencies - Bill foreign customers in the domestic currency


22.“What is the competitive market price for a particular position?”

It’s a simple question. If you work in Compensation, this is what you do. And if you’re in the US, the survey sources you can call upon are numerous and well-stocked with participating companies and benchmark matches – the blessings of a large country. In fact, it is a common practice to segment the data (report separately) on the basis of industry, revenue size, or geographic region. In some instances you can further refine your analysis by operating budget, staff size or even years of experience.

For those accustomed to such robust analysis it can be a real wake-up call when asked to conduct a similar analysis for operations in another country. Suddenly your content-rich environment has disappeared, and in its place you find that the availability of good information can no longer be taken for granted. Now what do you do?

Your large country database is gone. Instead, you face a limited selection of survey sources and each offers only a fraction of your normal participant count – a far cry from business as usual.

Such is the key challenge when pricing international jobs – the limited number of companies included in surveys, even by the major vendors. For example, Mercer Netherlands has 81 participating companies. So it is not unusual for a market pricing analysis to include only 4 – 5 “matches” – but is that representative of common practice?

If you’re the one on the asking end of the original question, let me share the challenges your analyst is likely to encounter.

22.1. Impact of Reduced Participation

Limited industry segmentation : Reported data will likely cover multiple industries, with limited or no segmentation. If you’re in either a high or low paying industry, surveys will provide inflated or discounted information.

Hard to segment by revenue size : To the extent that larger companies pay more than smaller you lose that distinction as well. This can be especially problematic if you’re a small company.

Global responsibilities vs. strictly national : The distinction is often blurred between national, regional and global responsibilities.

Combination jobs not well represented : You will find yourself matching against jobs “close to” your own, just to gain a “feel” for pay levels. If your job content varies from benchmark descriptions, reported data might not capture such idiosyncrasies.

Poor matches and / or no data when less than 5 respondents : Surveys tend to provide an “n/a” when they do not have enough participants. When you start with limited companies it’s not unusual to find unreported jobs.


Forget Regional variations : While it is often the case that certain geographic regions have higher pay levels, the reported data is usually national. You may assume that participants are in the higher paid region, at your risk.

22.2. What to do?

Frustrating, isn’t it? You can’t very well throw your hands into the air, complain about poor survey quality and move on to something else. The limitations are there and you have to play with the cards you’ve been dealt. Management is waiting, wondering what is taking you so long.

Working with limited resources is a test. Your challenge is to balance an understanding of the subject position, the industry and the vagaries of limited data points in order to determine which figure best represents your position’s competitive value.

To succeed you must utilize subjectivity and your professional judgment to consider the available data and gauge which figures best reflect the job under review. The correct answer will no longer jump off the page at you. Compensation has become an art, not a science.

To improve your matching, consider either the 25th or the 75th percentiles instead of the median or 50th percentile to reflect your position: this can be effective with poor matches, or concerns that the reported job is either larger or smaller than your own.

You may have to add or subtract from a benchmark job to gain a more appropriate figure for your position. For example, if your job is a VP but the survey matches stop at the Director level (or converse), you may have to adjust up or down to create a better “guesstimate.” Note: in such a case don’t forget that the incentive percentages will likely differ as well.

There is no formula in making adjustments, but changes in organizational level are usually around 15% – 20%. Within-level description changes are usually around 5% – 15%.

If dealing with only a few positions you might have greater success by individually pricing jobs through a vendor’s database of multiple surveys, government sources and local surveys. Vendors like ORC, Birches Group and a few others offer this select service.

Be careful of the arithmetic exercise (averaging averages, inappropriate matches, assuming numbers, etc.) that delivers a figure you cannot validate later. Caution: a number is remembered, while often the qualifiers that follow are forgotten. Make sure that you document such concerns before providing specific data.

All this subjectivity means that your judgment might suffer from more skepticism, even criticism, as you cannot simply point to a survey page and say, “there it is.”


Does all this subjectivity ruin the value of your analysis? Not at all, as long as you inform management about how limited survey resources have impacted your analysis. They expect an answer to their question (market value?) and you need do the best that you can with the resources you have available.

23.Economic Factors that affect International Marketing

International business and the global economy need each other to thrive. According to the International trade commission the demand for goods and services in the international market of china and India can only sustain itself through consumerism. National Association for Business Economics.

The U.S. economy leads the world in innovation and creativity, so the International Trade Administration (ITA) role is to strengthen the competitiveness of U.S. industry by promoting trade and investment to ensure fair trade through the enforcement of trade laws and agreements. With only five percent of the world consumers living in the U.S. International trade helps diversify the U.S. domestic economy.

International trading helps small companies grow and become more competitive in the world market. The majority of small and medium-sized international trading make up almost ninety seven percent of U.S. exporters. The statistics show that the United States exports has increased from 224 billion to $1.1 trillion in the past twenty five years.

23.1 Economic Effects of Oil market

The ongoing oil spill in the Gulf of Mexico has catapulted a natural disaster response and relief into the top issues in the country because at 18%, disaster response now trails only the economy and unemployment as the United States' most important problem.

23.2 Economic Effects of Housing Market

Housing markets tighter credit and falling home prices top the reasons why the economy is in a recession, according to 50 economists of the National Association for Business Economics. The result affects international trade markets.

23.3 Economic Effects of Stock Market

The stock market is also an economic indicator of how well the US economy is doing. If investors are losing money on shares they will be more hesitant to spend money; this can contribute to a fall in consumer spending. Pension funds invest a significant part of their funds on the stock market. Therefore, if there is a serious fall in share prices, it reduces the value of pension funds. This means that future pension payouts will be lower.

International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history its economic, social, and


political importance has been on the rise in recent centuries causing concern because the global economy affects international trade from decline in consumer spending.

24.Country Entry: Decisions and Strategies

24.1 Segmentation, Targeting, and Positioning. Segmentation, in marketing, is usually done at the customer level. However, in international marketing, it may sometimes be useful to see countries as segments. This allows the decision maker to focus on common aspects of countries and avoid information overload. It should be noted that variations within some countries (e.g., Brazil) are very large and therefore, averages may not be meaningful. Country level segmentation may be done on levels such as geography—based on the belief that neighboring countries and countries with a particular type of climate or terrain tend to share similarities, demographics (e.g., population growth, educational attainment, population age distribution), or income. Segmenting on income is tricky since the relative prices between countries may differ significantly (based, in part, on purchasing power parity measures that greatly affect the relative cost of imported and domestically produced products).

24.2 The importance of STP.

Segmentation is the cornerstone of marketing—almost all marketing efforts in some way relate to decisions on who to serve or how to implement positioning through the different parts of the marketing mix. For example, one’s distribution strategy should consider where one’s target market is most likely to buy the product, and a promotional strategy should consider the target’s media habits and which kinds of messages will be most persuasive. Although it is often tempting, when observing large markets, to try to be "all things to all people," this is a dangerous strategy because the firm may lose its distinctive appeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be as similar as possible to each other on a relevant dimension (e.g., preference for quality vs. low price) and as different as possible from members of other segments. That is, members should respond in similar ways to various treatments (such as discounts or high service) so that common campaigns can be aimed at segment members, but in order to justify a different treatment of other segments, their members should have their own unique response behavior.

24.3. Approaches to global segmentation.

There are two main approaches to global segmentation. At the macro level, countries are seen as segments, given that country aggregate characteristics and statistics tend to differ significantly. For example, there will only be a large market for expensive pharmaceuticals in countries with certain income levels, and entry opportunities into infant clothing will be significantly greater in countries with large and growing birthrates (in countries with smaller birthrates or stable to declining birthrates, entrenched competitors will fight hard to keep the market share).

There are, however, significant differences within countries. For example, although it was thought that the Italian market would demand "no frills" inexpensive washing machines while


German consumers would insist on high quality, very reliable ones, it was found that more units of the inexpensive kind were sold in Germany than in Italy—although many German consumers fit the predicted profile, there were large segment differences within that country. At the micro level, where one looks at segments within countries. Two approaches exist, and their use often parallels the firm’s stage of international involvement. Intramarket segmentation involves segmenting each country’s markets from scratch—i.e., an American firm going into the Brazilian market would do research to segment Brazilian consumers without incorporating knowledge of U.S. buyers. In contrast, intermarket segmentation involves the detection of segments that exist across borders. Note that not all segments that exist in one country will exist in another and that the sizes of the segments may differ significantly.

Intermarket segmentation entails several benefits. The fact that products and promotional campaigns may be used across markets introduces economies of scale, and learning that has been acquired in one market may be used in another—e.g., a firm that has been serving a segment of premium quality cellular phone buyers in one country can put its experience to use in another country that features that same segment. (Even though segments may be similar across the cultures, it should be noted that it is still necessary to learn about the local market. For example, although a segment common across two countries may seek the same benefits, the cultures of each country may cause people to respond differently to the "hard sell" advertising that has been successful in one).

The international product life cycle suggests that product adoption and spread in some markets may lag significantly behind those of others. Often, then, a segment that has existed for some time in an "early adopter" country such as the U.S. or Japan will emerge after several years (or even decades) in a "late adopter" country such as Britain or most developing countries. (We will discuss this issue in more detail when we cover the product mix in the second half of the term).

24.5. Positioning across markets.

Firms often have to make a tradeoff between adapting their products to the unique demands of a country market or gaining benefits of standardization such as cost savings and the maintenance of a consistent global brand image. There are no easy answers here. On the one hand, McDonald’s has spent a great deal of resources to promote its global image; on the other hand, significant accommodations are made to local tastes and preferences—for example, while serving alcohol in U.S. restaurants would go against the family image of the restaurant carefully nurtured over several decades, McDonald’s has accommodated this demand of European patrons.


24.6 Methods of entry.

With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

Exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country.

Licensing and franchising are also low exposure methods of entry—you allow someone else to use your trademarks and accumulated expertise. Your partner puts up the money and assumes the risk. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisers often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country.

Contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. This saves investment, but again you may be training a competitor.

Direct entry strategies, where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market.

24.7 Entry Strategies

25.7.1 Methods of entry. With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

Exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of


marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country.

Licensing and franchising are also low exposure methods of entry—you allow someone else to use your trademarks and accumulated expertise. Your partner puts up the money and assumes the risk. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisers often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country.

Turnkey Projects. A firm uses knowledge and expertise it has gained in one or more markets to provide a working project—e.g., a factory, building, bridge, or other structure—to a buyer in a new country. The firm can take advantage of investments already made in technology and/or development and may be able to receive greater profits since these investments do not have to be started from scratch again. However, getting the technology to work in a new country may be challenging for a firm that does not have experience with the infrastructure, culture, and legal environment.

Management Contracts. A firm agrees to manage a facility—e.g., a factory, port, or airport—in a foreign country, using knowledge gained in other markets. Again, one thing is to be able to transfer technology—another is to be able to work in a new country with a different infrastructure, culture, and political/legal environment.

Contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. This saves investment, but again you may be training a competitor.

Direct entry strategies, where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market.


25. Market value

Is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some circumstances.

25.1 Definition

International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Market value is a concept distinct from market price, which is “the price at which one can transact”, while market value is “the true underlying value” according to theoretical standards. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail. Market value is also distinct from fair value in that fair value depends on the parties involved, while market value does not. For example, IVS currently notes fair value "requires the assessment of the price that is fair between two specific parties taking into account the respective advantages or disadvantages that each will gain from the transaction. Although market value may meet these criteria, this is not necessarily always the case. Fair value is frequently used when undertaking due diligence in corporate transactions, where particular synergies between the two parties may mean that the price that is fair between them is higher than the price that might be obtainable in the wider market. In other words "special value" may be generated. market value requires this element of "special value" to be disregarded, but it forms part of the assessment of fair value.

25.2. Relativity of market theories

Readers should realize that Market Value is not exact science, but an introduced concept from individuals and companies as a business tool. Value is subject to seller and buyer's perception and interpretation of parameters that they decide to take into consideration, while other people usually refer to their very own perceptions and interpretations of what those people think is important. Any whatever article should be explained in this context, because people pay what they want in spite of whatever advice.

Local, regional, national, international? Considering that Market Price is what people agree to pay for something at a given moment at a given place, it is important to underline the importance of the time and place range wherein sellers and buyers meet. The Local and Instant Market Value of a specific item is exactly the same as the Local Market Price. And if several people want the same thing while there is not enough for everybody that wants it, Market Value and Market Price are identical. It is wrong to state that things have any stand-alone value, because value depends upon transactions. No transaction means zero value, whatever value estimation or selling price expectation. When a lot of popular items in a place is almost sold out, sometimes people are


http://en.wikipedia.org/wiki/Fair_value

http://en.wikipedia.org/wiki/Rational_expectations

http://en.wikipedia.org/wiki/Disequilibrium

http://en.wikipedia.org/wiki/Inefficient_markets

http://en.wikipedia.org/wiki/Market_price

http://en.wikipedia.org/wiki/Arm's_length_principle

http://en.wikipedia.org/wiki/International_Valuation_Standards

http://en.wikipedia.org/wiki/Fair_value

willing to pay more than the asking price rather than spend time and effort to get it cheaper elsewhere. Is the paid price then Market Value or Market Price? Both.

25.3 Overpricing and underpricing

These two words are used to say that a price is too high or too low in regard to the expectations of an individual or a group. It is a matter or comparison to personal expectations or/and some comparison tool as a chart, table, formula that is agreed upon and set forth as a common viewpoint by those people. Overpricing and Underpricing statements are valid if related to the used comparison origin but irrational without such a basis. More often than not, these statements are purely emotional without any valid reference.


26.Economics of International Trade

26.1 Exchange rates come in two forms:

“Floating”—here, currencies are set on the open market based on the supply of and demand for each currency. For example, all other things being equal, if the U.S. imports more from Japan than it exports there, there will be less demand for U.S. dollars (they are not desired for purchasing goods) and more demand for Japanese yen—thus, the price of the yen, in dollars, will increase, so you will get fewer yen for a dollar.

“Fixed”—currencies may be “pegged” to another currency (e.g., the Argentine currency is guaranteed in terms of a dollar value), to a composite of currencies (i.e., to avoid making the currency dependent entirely on the U.S. dollar, the value might be 0.25*U.S. dollar+4*Mexican peso+50*Japanese yen+0.2*German mark+0.1*British pound), or to some other valuable such as gold. Note that it is very difficult to maintain these fixed exchange rates—governments must buy or sell currency on the open market when currencies go outside the accepted ranges. Fixed exchange rates, although they produce stability and predictability, tend to get in the way of market forces—if a currency is kept artificially low, a country will tend to export too much and import too little.

26.2 Trade balances and exchange rates.

When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.

26.3 Measuring country wealth.

There are two ways to measure the wealth of a country. The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars. Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much in Japan—food and housing are much more expensive there. Therefore, we introduce the idea of purchase parity adjusted per capita GDP, which reflects what this money can buy in the country. This is typically based on the relative costs of a weighted “basket” of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items). If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures. The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country. Traditionally, the GNP was more prevalent; today the GPD is more commonly used—in practice, the two measures fall within a few percent of each other.)


In general, the nominal per capita GPD is more useful for determining local consumers’ ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase. For example, the ability of Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful. In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market. Similarly, great regional differences exist within some countries—income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy.

26.3 Other definitions

Market value is the most commonly used definition of value in real estate appraisal in the United States because it is required for all federally regulated mortgage transactions and because the International Association of Assessing Officers (IAAO) has accepted it for use in property taxation. However, real estate appraisers use many other definitions of value in other situations.

26.4 Liquidation value

Liquidation value is the most probable price that a specified interest in real property is likely to bring under all of the following conditions:

1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.

2. The actual market conditions currently prevailing are those to which the appraise property interest is subject.

3. The buyer is acting prudently and knowledgeably. 4. The seller is under extreme compulsion to sell.


http://en.wikipedia.org/w/index.php?title=International_Association_of_Assessing_Officers&action=edit&redlink=1

5. The buyer is typically motivated. 6. The buyer is acting in what he or she considered his or her best interest. 7. A limited marketing effort and time will be allowed for the completion of the sale. 8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements

comparable thereto. 9. The price represents the normal consideration for the property sold, unaffected by special

or creative financing or sales concessions granted by anyone associated with the sale.

26.5 Orderly liquidation value

This value definition differs from the previous one in that it assumes an orderly transition, and not 'xtreme compulsion.

26.6 Federal land acquisition

For land acquisitions by or funded by U.S. federal agencies, a slightly different definition applies:

"Fair market value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value."

26.7 Going concern value

When an appraiser values the combination of a business and the real estate used for that business, the specific market value is called "going concern value". It recognizes that the combined market value may be different from the sum of the separate values: "The market value of all the tangible and intangible assets of an established operating business with an indefinite life, as if sold in aggregate."

26.8 Use value

Use value takes into account a specific use for the subject property and does not attempt to ascertain the highest and best use of the real estate. For example, the appraisal may focus on the contributory value of the real estate to a business enterprise. Some property tax jurisdictions allow agricultural use appraisals for farmland. Also, current IRS estate tax regulations allow land under an interim agricultural use to be valued according to its current use regardless of development potential.


http://en.wikipedia.org/wiki/Value-in-use

26.9 Legal Interpretation

The case of Luxmoore-May and Another v. Messenger May Baverstock [1990] 1 W.L.R. 1009 shows us the legal interpretation of market value: "The measure of damage in this case is, I conclude, the difference between what the foxhounds in fact realised consequent on the defendants' breach of contract and what was their true open market value at that time. What better guide could there be to that value than the price at which these paintings happened to be knocked down at Sotheby's so shortly afterwards? The price which the international art market was willing to pay was surely prima facie the best evidence of the foxhounds' value." Also the equilibrium of the qualibrium is hard to distinguish between.


27.Cultural influence on International Market Price:

Recent research has revealed various cultural differences in consumer behavior for example, Aaker and Williams 1998; Klein, Ettenson, and Morris 1998). Such studies suggest a need to examine the validity of applying marketing-related inferences developed in the United States to marketing efforts in other cultures, especially non- Western cultures. Since U.S.-based multinationals, such as Coca-Cola, McDonald's, IBM, and others, derive significant revenues from their international operations, the development of effective marketing strategies that are sensitive to cross-national cultural differences would seem to be of considerable importance for success in the global marketplace (Gurhan-Canli and Maheswaran 2000). One particular aspect of such cross-cultural differences is price, one of the most persistently understudied subjects of international markets (Clark, Kotabe, and Rajatratnam 1999).

The dissertation tries to fill this gap by fulfilling the following three objectives: to review and understand the underlying structures of price perception, to understand how cultural factors influence price perception, and to develop and empirically test a model of cultural difference and price perception.

Methodologically, this project gathered data in China and the US. Using the LISREL 8.52 program, a proposed model was tested and modified in order to obtain a parsimonious underlying structure explaining cultural influences on consumer's price perception.

The results of data analysis show that culture factors do have significant effects on price perception factors. Internal reference price has a consistent and negative effect on overall price perception in both goods and services purchases and durable and nondurable goods purchases. However, the significant associations between price perception factors and overall price perception were only found in the services and non-durable goods purchase but not in the durable goods purchase.

Theoretically, this study integrates the solid base of work on domestic pricing, especially Lichtenstein, Ridgway, and Netemeyer's (1993) study on price perception, with work on culture from Anthropology and Sociology, as well as International Business and International Marketing, especially Hofstede's (1980) culture theory.

Practically, this study helps international marketers understand the cross-cultural consumer behavior differences in general and the price perception differences in particular. It also provides a series of guidelines to international pricing strategy and international promotion strategy on an operational level.


28. Findings:

We discussed several stages through which a firm may go as it becomes increasingly involved across borders. A purely domestic firm focuses only on its home market, has no current ambitions of expanding abroad, and does not perceive any significant competitive threat from abroad. Such a firm may eventually get some orders from abroad, which are seen either as an irritation (for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue) or as "icing on the cake." As the firm begins to export more, it enters the export stage, where little effort is made to market the product abroad, although an increasing number of foreign orders are filled. In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries. In the multi-national stage, some efficiencies are pursued by standardizing across a region (e.g., Central America, West Africa, or Northern Europe). Finally, in the global stage, the focus centers on the entire World market, with decisions made optimize the product’s position across markets—the home country is no longer the center of the product. Note that these stages represent points on a continuum from a purely domestic orientation to a truly global one; companies may fall in between these discrete stages, and different parts of the firm may have characteristics of various stages—for example, the pickup truck division of an auto-manufacturer may be largely domestically focused, while the passenger car division is globally focused. Although a global focus is generally appropriate for most large firms, note that it may not be ideal for all companies to pursue the global stage. For example, manufacturers of ice cubes may do well as domestic, or even locally centered, firms.


29. Conclusion:

Although firmsmarketing abroad face many of the same challenges as firms marketing domestically, international environments present added uncertainties which must be accurately interpreted. Like domestic marketing, international marketing requires managers to make decisions that are within the firm's control, such as which product to market, what price it should command, the optimal promotion strategy, and the best distribution channels. Furthermore, like firms marketing domestically, firms marketing internationally must be prepared to react to factors in the home country which might affect their ability to do business. Examples include domestic politics, competition, and economic conditions.

International marketers face a host of issues that are out of their direct control, both at home and abroad. For instance, although domestic policies on foreign trade cannot be controlled by individual businesses, firms marketing abroad must be aware of how domestic policies help or hinder foreign trade activities. Firms marketing abroad must also be prepared for uncertainties presented solely by the business environment in the host country as well. Four very important issues to note in a host country are its laws, politics, economy, and competition. Other issues are the host country's geography, infrastructure, currency, distribution channels, state of technological development, and cultural differences.

The legal and political environments of the host countries are two of the most important variables faced by international marketers. First, companies operating abroad are bound by both the laws of host and home countries; moreover, legal systems around the world vary in content and interpretation. These laws can affect many elements of marketing strategies, particularly when they are in the form of product restrictions or specifications. Also, politics can be a huge concern for companies operating abroad and is, perhaps, the most volatile aspect of international marketing. Unstable political situations can expose businesses to numerous risks that they would rarely face at home. When governments change regulations, there are usually new opportunities for both profits and losses, and firms must usually make modifications to existing marketing strategies in response. For instance, the opening of Central and Eastern Europe presented both high political risks and huge potential market opportunities for companies willing to take the risks.

Economic conditions, per capita gross national product (GNP), and levels of economic development vary widely around the world. Before entering a market, firms marketing abroad must be aware of the economic situation there; the economy—not to mention individual standards of living—has a huge impact on the size and affluence of a particular target market. Furthermore, marketers must educate themselves on any trade agreements existing between countries as well as on local and regional economic conditions. Being aware of economic conditions and the likely direction that those conditions will take can help marketers better understand the profitability of potential markets. For example, many companies had to reevaluate international marketing strategies as international financial crises affected the economies of Southeast Asia, Russia, and Latin America in 1997-98.

Competition overseas can come from a variety of sources as well. Further, it has the potential to be much fiercer than competition at home. Often, if a market is ready to accept foreign goods,


http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Economic-Development.html

http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Economic-Development.html

numerous manufacturers—both indigenous and foreign based—will be willing to risk entry into that market. Making the situation more intense, the governments of many other countries may subsidize manufacturers to help them enter a particular market.

Obviously, the more foreign markets in which a firm enters, the more of these uncontrollable events the firm must consider. To make the situation more interesting, the solutions to problems occurring in one country are often inapplicable to problems occurring in a second country because of differences in the political climates, economies, and cultures. The uncertainty of different foreign business environments creates the need to closely study the environment within each new market entered.

Companies that are truly global competitors employ a long-term international marketing strategy to overcome the uncertainties associated with conducting business abroad. Their long-term strategies enable them to weather short-term economic or political crises, such as the peso devaluation in Mexico. Such companies are prepared to make increased investments during downturns, and as a result they are better prepared when economic conditions improve.


Reference:

1. www.time.com/time/magazine/article .2. Usc Marshall (University of California)3. AA. Article Alley4. Hubpages international marketing5. Smallbusiness.com6. International marketing-wikipedia the free encyclopedia7. FAO corporate document repository.8. The Times 100.9. Reference for Business, encyclopedia of Business.10. Marketing Teacher.com11. International marketing: strategy planning, market entry & implementation

- By Roger Bennett, Jim Blythe

12.Market value-wikipedia , the free encyclopedia

13. www.zainbo.com

14. Net MBA (business knowledge center)

15. International HR forum


http://www.zainbo.com/

http://www.time.com/time/magazine/article

7.1 standardization-€¦ · web viewfor example, a manufacturer might give a retail store an...

Documents