International Marketing - Global Pricing Strategy PDF

International Marketing Chapter 9 : Global Pricing Strategy Pricing Pricing the only element of the marketing mix which is revenue generating. All other elements are costs Pricing in foreign market driven by a number of factors, these may be internal to the firm or may exogenous Sett...

International Marketing Chapter 9 : Global Pricing Strategy Pricing Pricing the only element of the marketing mix which is revenue generating. All other elements are costs Pricing in foreign market driven by a number of factors, these may be internal to the firm or may exogenous Setting International Prices Corporate Objectives Cost Competitive Environment Demand Conditions Government Regulations Corporate Objectives 1. Financial - targeted ROI 2. Market Related - increased and defend market share 3. Pricing Situation - nature of product - innovation/standard ○ Adjustments due to customers and competition Cost provides a floor under which prices cannot go in the long run Considerations Offshoring of certain supplies/functions may reduce cost and increase competitiveness Location of manufacturing Demand and Market Factors *Demand Sets a Ceiling on Pricing Decisions* Price Elasticity of Demand Price measures how much the quantity of a product people buy changes when its price changes - how sensitive people are to price changes for a product ○ Elastic if demand changes a lot when the price changes, (e.g., luxury items) ○ Inelastic if demand changes only a little when the price changes, (e.g., necessities like bread) people will still purchase no matter the price Consumer Perception of the Product ○ Quality? Value? ○ Dependent on culture Relationship with Intermediaries ○ How will the price changes affect retailer margins? Market Structure and Competition *Competition helps from set prices between cost and demand* Firms may compete 1. On Price - offering lower prices than their competitors to attract customers ○ may have no choice in some cases 2. On Non Price Options - focus on other things such as quality, reputation or credit terms to attract customers Environmental Factors Need to Consider: Government Pricing Fixing Regulations - rules that governments set to control prices of goods and services 1. Price Controls - max price that can be charged set by government 2. Price Floors - min price that sellers can't go below set by government Basic Pricing Strategies Market Skimming - firms establish a very high price with the launch of the product on the international market Consumers who wish to be among the first to own the product will be attracted despite the high price charged The firm in essence is able to “skim off” the less price sensitive consumers Over time the firm reduces the price to attract the more price sensitive consumers segments and fight off competitors who have entered the market Penetration Pricing the firm enters the international market with an extremely low price The objective is to capture a large share of the market To work consumers must be price sensitive and the firm must be able to achieve economies of scale Effective at discouraging competitors Market Pricing the firm launches the product on international market price that is on par with what competitors are charging Only works if the firm is able to control costs and not lose money on every unit sold Cost Plus Pricing the firm focus on its own costs (eg costs firm $1 they sell for $1.50) In setting a price the firm takes into account all of the fixed and variable costs associated with getting the product into the hands of its foreign consumers All domestic and foreign market costs are fully allocated to the product ○ May result in firm being uncompetitive thus may opt to use Marginal Cost Pricing in which only the incremental costs of producing and marketing the product in the international market are considered Demand Oriented Pricing the focus is on the relationship between price and quantity demanded Sales volumes at different price levels are estimated in order to determine the price that maximizes overall profit contribution Subsidiary Coordination In terms of pricing multinational firms differ in the degree of autonomy they grant to their overseas subsidiaries Polycentric Pricing the firm sets prices in each country market independent of the head office involvement Advantages : subsidiaries are complete free to make pricing decision based on the unique market and competitive conditions in their countries Disadvantages - arbitrage opportunities Geocentric Pricing Strategy the firm establishes a minimum floor price below which the product cannot be sold by its subsidiaries in any country Managers are allowed to add country markup to better reflect demand and competitive conditions in their national markets Advantages : picking is responsive to local market conditions Disadvantages : arbitrage is still possible Ethnocentric Pricing Strategy single worldwide price is set and country managers have no latitude to tailor these set prices to local conditions Advantages : arbitrage is not possible Disadvantages : pricing is no longer responsive to local market conditions Transfer Pricing Transfer Pricing the pricing of sales to extended of the extend corporate family (also called intra corporate pricing) Considerations: 1. Minimization of the Firms Global Tax Burden 2. Competitiveness ○ Setting a low transfer price reduces the acquisition cost for the foreign subsidiary and allows it to price more aggressively in target markets 3. Motivation of Subsidiary Managers ○ Used to artistically increase subsidiary profitability and provide justification for rewarding subsidiary managers Approaches Transfer Pricing Cost Based inputs transferred to the subsidiary at what it cost the parent Increases profit of the subsidiary but creates problems for the supplying unit which earns no profits on the transaction Cost Plus inputs transferred to the subsidiary at cost plus a percentage markup which provides a profit for the supplying unit Negotiated supplying unit and purchasing unit negotiate a price at which input is transferred If no agreement is reached then HQ steps in Arms Length inputs transferred at a price which would have been arrived at by unrelated third parties Favored by government and regulators Main Issues with Transfer Pricing Closer government scrutiny Price Escalation Price Escalation The price set by each intermediary becomes a cost for the next intermediary in the marketing channel The result is that depending on the length of the channel the price charged to the foreign consumer may be substantially higher than the price in the manufacturer's home country ○ These price increases are not uniform across markets Consumers benefit from shopping around Distributions may not benefits as business moves elsewhere Strategies to Deal with Price Escalation Manufacture products overseas Adapt the product - less expensive version for export Shorten distribution channel Payment for Exports Cash in Advance the most favorable term for the exporter because it relieves the exporter of all risk and allows for immediate use of the money It is not widely used Letter of Credit an instrument issued by a bank at the request of a buyer The bank promises to pay a specified amount of money on presentation of documents stipulated in the letter of credit usually the bill of lading, consular invoice and a description of the goods Open Account the normal manner of doing business in domestic market Export is at risk for non payment but favorable for the importer Consignment Sales allows the importer defer payment unroll the goods are actually sold The most favorable term for the importers Non Price Options Countertrade the term for transactions in which all or part of the payment is made in kind rather than cash Reason 1. Exchange controls in some developing countries 2. Debt problems 3. Inability to obtain trade financing Forms of Countertrade Barter Arrangements good are exchanged directly for other goods of approximately equal value Compensation Deal attempts to resolve the valuation problem inherent in straight barter by allowing for the exchange of some amount cash in additional to the exchange of physical products In this case the cash payment is designed to equalize the value of the good being exchanged Buyback one party agrees to supply technology or equipment that enable the other party to produce goods with which the price of the supplies products or technology is repaid Offsets with an two contracts are signed between and seller Under the firm contract the product is sold and the seller receives payment in cash Under terms of the second contract however the original seller agrees to purchase products from the original buyer up to some stated value and within a defined period of time The seller become the buyer on the section transaction Often used in procurement of military equipment International Marketing Chapter 10 : Global Advertising The Communication Process Communication Process Involves The Sender : firm seeking to communicate with foreign customers, suppliers or intermediaries The Receiver : firm/individual that receives the message The Message : what is being communicated ○ Example : availability of the firms new imported product or a price reduction The Channel : the path through which the message moves from sender to receiver ○ Example : billboards, TV, radio Encoding : process by which the sender converts an idea into a set of symbols the receiver can understand Decoding : process by which the receiver converts the symbols back into thoughts Noise : anything that interferes with the delivery of the message Feedback : information provided to the sender which indicates how well the message was understood by the receiver and the effectiveness of the communication process The Promotional Mix The tools the global marketer has available to form a total communications program for use in the target markets Advertising Publicity & PR Sales Promotion Sponsorships Advertising any form of nonpersonal presentation of ideas, goods or services by an identified sponsor Use of mass communication ( example : TV or billboards) Use of more targeted direct communication Basic Hierarchy of Effects Model ➔ Awareness ➔ Interest ➔ Evaluation ➔ Trail ➔ Adoption Advertising & Culture Advertising works differently depending on the cultural context Individualistic Cultures communication is designed to influence, persuade, change attitudes or condition the behavior of the target audience. Emphasis on persuasion, repetition and a hard sell Collectivist Societies communication is designed to build trust develop long term relationships between buyer and seller How Advertising Works in Western & Collectivist Societies Masculinity & Femininity Feminine Society : emphasize in nurturing and caring Example : Volvo positions itself as a car company passionate about safety. This reflects the nurturing and caring that is a characteristic of feminine societies Masculine Societies : focus on successes winning and being first Example : Nikes commercials Publicity any form of nonpaid, commercially significant news or editorial comment about ideas, products or institutions Public Relations (PR) charged with executing programs to earn public understanding and acceptance Sales Promotion direct inducements that provide extra product value or incentive to the sales force, intermediaries or ultimate consumers Sponsorship the practice of promotion the interest of the company by associating it with a specific event (typically sports or culture) or a cause (typically a charity or a social interest ) Advertising Approaches Global Advertising advertising that is fairly uniform across many countries Multidomestic Advertising advertising delivery adapted to particular markets and audiences in message and or creative execution Development of a Global Champaign Determine the Target Audience Audience : suppliers, intermediaries, government, the local community, bakers and creditors, media organizations, shareholders and employees  Promotional tools will differ depending on the audience Determine the Campaign Objectives Defined and measurable Improve corporate image, increase market share Determine the Promotional Budget Percentage of Sales promotional budget for a country is based on the companies historical sales in that country Fewer resources are devoted to those markets where sales are weakest Percentage of Future Sales promotional budget based on a forecast of future sales in the country Competitive Parity based on what the firm's major competitors have spent in the past Data may be difficult to collect and the performance of the forms own products not considered Objective and Task based on the specific objectives the firm seeks to achieve in the country market and the identification of the individual tasks that must be completed in order to achieve those objectives Determine the Media Strategy Availability of media in specific local markets Nature of the product ○ In sweden no ads aimed at children under age 10 ○ In greece no ads for toy guns, tanks or other military equipment Determine the Promotional Message Need to determine what motivates the consumer  Ideal is a global brand that is manufactured, packaged and positioned the same around the world Determine the Campaign Approach What type of outside service to use ○ Example : media buying companies, consulting firms etc Locus of decision making authority ○ Centralization - HO Control ○ Decentralized - Subaisay Control Measurement of Advertising Effectiveness Measures most used are sales, awareness, recall, executive judgment, intention to buy, profitability and coupon return Pretest advertising copy ; posttest recognition and recall Why use Global Advertising Cost Advantages: the creative ideas of globally uniform campaigns, once developed, can be used globally. Globalized campaigns can also be the basis for savings in media buying Global Markets : global advertising in general will be most useful when the market itself is global Global Products and Brands it is often indicated that global products and brands need global advertising Conditions for Global Advertising The image communicated can be identical across countries The symbols used carry the same meaning across counties The product features desired are the same The usage conditions are similar across markets International Marketing Chapter 11 : Global Strategy Why Global Strategic Planning? Contributes to financial performance and the achievement of non financial objectives ​ Need to match markets with the companies products ​ Need to match company competences with global market opportunities Global Strategic Planning Process 1.​ Define the Business 2.​ Formulate the Global Business Strategy 3.​ Develop the Global Marketing Strategy 4.​ Implement the Global Marketing Strategy Step 1 : Define the Business for Which the Strategy is being Developed ​ What market are we really in? ​ Who are our customers? ​ Who are our real competitors ​ Usually based on the Strategic Business Unit (SBU) Strategic Business Unit (SBU) represents groupings within organization based on, for example the type of customer to be served (government or industrial) or the products or services demanded by those customers Step 2 : Formulate the Global Business Strategy ​ Chooses a competitive strategy ○​ Porter suggest two dimensions ​ Market scope & competence Porter's Generic Strategies Cost Leadership superior technology gives from lowest cost in the industry across a broad range of market segments ​ Must have barriers to entry ​ Low cost broad market scope Differentiation firm has a broad range of products with unique features that are highly valued by consumers ​ Differentiation broad market scope Cost Focus low cost advantage but only in a narrow segment of the market ​ Low cost narrow market scope Focused Differentiation product differentiation but within a narrow segment of the market ​ Differentiation narrow market scope Step 2 : Formulate the Global Business Strategy ​ Choose a country market focus ○​ Internal company strengths ○​ External attractiveness (eg market growth rates and level of competition) NOTE : Funnel Framework is a way to describe how people move through a process, like becoming a customer or achieving a goal. It’s called a "funnel" because it starts broad with lots of people at the top and narrows down as only some people complete the steps. ​ This approach leads the firm to focus on countries that are similar ​ This presents a risk for the firm ​ Firm may opt to pursue a deliberate country diversification strategy instead Step 3 : Develop the Global Marketing Strategy Standardization View focus on key standardization vs adaptation/localization decisions Configuration & Coordination of the Firm's Value Chain Activities ​ Will after sales services be concerned in one country or in multiple countries? ​ In which countries will manufacturing take place? ​ Where will the firm's product design and development activities be located? ​ Need to consider cross national coordination Integration View focuses on how the firm completes in global markets ​ Will the firm compete in all major markets around the world or take a more limited view?  ​ How will the frim respond to competitive attacks? ​ Will the firm cross subsidize weak markets? Step 4 : Implement the Global Marketing Strategy Need to consider degree of head office coordination and control ​ Company organization - use of global account managers ​ Global commitment and corporate culture Strategies for Local Firms Depend on ​ The extent of globalization in the firms industry ​ The extent to which the firm's assets are transferable (or only locally relevant) Competitive Strategies for Local Firms Competitive ASSETS Competitive ASSETS CUSTOMIZED to HOME market TRANSFERABLE ABROAD HIGH pressures to DODGER : sells out to a global CONTENDER : upgrades globalize in the industry player or becomes part of an capabilities to match globals in alliance niches LOW pressures to DEFENDER : leverages local EXTENDER : expands into globalize in the industry assets in segments where markets similar to home base globals are weak Dodger will sell out to a larger foreign firm or become part of an international alliance ​ Dodgers have competitive assets that are customized to the home market but face high pressure to globalize Example : auto companies in Eastern Europe such as Škoda (a Czech firm) sold out to VW when communism collapsed. Defender will attempt to lever its strategic assets in areas where the global competitor is weak ​ Defenders have competitive assets that are customized to the home market but face low pressures to globalize Example : When major chocolate manufacturers such as Mars and Hershey entered the Latin American market local producers e.g. Arcor and Nacional de Chocolates responded by selling bite-sized chocolates that are affordable to low income consumers instead of the larger (and more expensive) bars sold by their foreign rivals. Contender will attempt to upgrade its capabilities and compete head to head with global competitors in certain niches ​ Contenders have competitive assets that are transferable outside their home market and face high pressures to globalize. Example : Airbus and Boeing have overlooked the niche market for jets carrying 70-100 passengers. Bombardier has moved to capitalize on growth in this segment and competes head to head with Embraer. Both Bombardier and Embraer now compete with the major players in the industry Extender will attempt to expand into foreign markets that are similar to its home market in order to maintain profitability ​ Extenders have transferable assets and face low pressure to globalize Example : Jollibee Foods Corporation in the Philippines expanded into foreign markets with sizable Filipino communities Emerging Markets Multinationals EMMNES Emerging Markets Multinationals (EMMNES) are companies organizing from emerging markets and which are engaged in outward foreign direct investment where they exercise control over assets and engage in value added activities in foreign countries ​ Example : Tata Motors purchased the Jaguar and Land Rover brands from Ford Motor Company for $2.3 billion Rise of Emerging Markets Multinationals EMMNES Many EMMNES are now major global players in a wide range of industries ​ Chinese firm Haier, for example, has become the fourth largest player in the global white goods industry. ​ Grupo Bimbo (Mexico) is a global leader in the bakery sector ​ JBS (Brazil) is one of the world’s most dominant companies in the meat and meat products industry The rise of these firms is suppring given they they originate from Third World Countries characterized by : ​ Weak institutional frameworks, suboptimal government policies and weak regulatory environments, weak judicial systems and corruption, political instability, macroeconomic challenges, infrastructure deficit Why so Successful Emerging Markets Multinationals EMMNES ​ Developed unique insights into the needs of their customers in the developing world and have demonstrated willingness to adapt their products to the needs of the market ​ Frugal Engineering or Frugal Innovation have become adept at new product development that is accomplished faster and cheaper than firms in more developed countries. ○​ They are used to operating in a low cost business environment ​ Experience operating in initially immature business environments they have learned to operate in an environment where there is corruption and frequent changes in government policies. ○​ They have also learned to adapt to constraints in the physical environment such as power outages bad road ect ​ Access to state resources in some cases EEMNES have access to significant state resources which gives them a huge competitive avagange in foreign markets