Chapter 11

Export PricingChapter 11

Export Pricing

Price Dynamics• The alternatives strategies for first-time pricing are:

– Skimming - Achieve the highest possible contribution in a short initial time period, and then gradually lower the price as more segments are targeted and more products are available.

– Market pricing – Determined based on competitive prices; production and marketing is adjusted to the price.

– Penetration pricing – Offer products at a low price to generate volume sales and achieve high market share, to compensate for lower per unit return.

The Setting of Export Prices• Export pricing strategy

– The standard worldwide price may be the same regardless of the buyer or may be based on average unit costs of fixed, variable, and export-related costs.

– Dual pricing differentiates between domestic and export prices.

The Setting of Export Prices• Export pricing strategy

– The two approaches to pricing products for exports are

• Cost plus method – Fully allocates domestic and foreign costs to the product; ensures profit margins; however, the firm’s competitiveness is compromised.

• Marginal cost method - Considers the direct costs of producing and selling products for export as the floor beneath which prices cannot be set.

The Setting of Export Prices

• Market-differentiated pricing– Is based on the dynamic conditions of the

marketplace.– Prices change frequently due to changes in

competition, exchange rate, or environment.

The Setting of Export Prices• Export-related costs

– Unique export-related costs include:• Cost of modifying a product for a foreign market.• Operational costs of exporting.• Cost incurred in entering the foreign market.

• Price escalation– A combined effect of clear-cut and hidden costs.– Results in an increase in export prices over and

above the domestic prices.

Price Escalation Thru Exporting(see Exhibit 11-4 in your text)

Domestic:- Shipping and insurance- wholesaler margin- retailer margin

Exported:- higher shipping & insurance costs- Tariff- Importer, wholesaler and jobber’s margins- VAT at each value-added level

If manufacturer’s price is $6.00 then domestic customer’sprice may be $12.00 to $14.00 and foreign customer’s pricemay be anywhere from $20.00 to $45.00

The Setting of Export Prices

• Mitigating export-related costs• Reorganize the channel of distribution.

• Product adaptation.• Use new or more economical tariff or tax

classifications.• Assemble or produce overseas.

Terms of Sale• Incoterms – The internationally accepted standard definitions for

terms of sale set by the International Chamber of Commerce (ICC) since 1936.

• They are grouped into four categories:– E-terms - Seller delivers the goods to the buyer only at the

former’s own premises.– F-terms - Seller delivers the goods to a carrier appointed by the

buyer.– C-terms - Seller contracts for carriage without assuming the risk

of loss or damage to the goods.– D-terms - Seller bears all costs and risks to deliver goods to the

destination determined by the buyer.

Incoterms (First issued by ICC in 1936, revised 6 times since then)

• EXW (…named place)

• FCA FREE CARRIAGE (…named place)

• FAS (…named port of shipment)

• FOB (…named port of shipment)

• CFR OR C&F (…named port of destination)

• CIF (…named port of destination)

• CPT CARRIAGE PAID TO (…named place of destination)

• CIP CARRIAGE AND INSURANCE PAID TO (…named place of destination)

• DAF DELIVERED AT FRONTIER (…named place)

• DES DELIVERED EX SHIP (…named port of destination)

• DEQ DELIVERED EX QUAY (…named port of destination)

• DDU DELIVERED DUTY UNPAID (…named place of destination)

• DDP DELIVERED DUTY PAID (…named place of destination)

Terms of Payment

• Cash in advance– Relieves the exporter of all risks and allows

for immediate use of the money.– Used for first time transactions or situations

where the exporter doubts the importer’s solvency.

– Also used for customized, high price, high technology items, e.g., fighter jets, satellites…

Terms of Payment

• Letter of credit (lc) (Opener, Issuer, Beneficiary)

– An instrument issued by the bank at the request of the buyer.

– The bank promises to pay money on presentation of specified documents like the bill of lading, consular invoice, and description of the goods.

– Classified as irrevocable versus revocable, confirmed versus unconfirmed, and revolving versus non-revolving.

Terms of Payment• Drafts (Drawer, Drawee, Payee)

– Similar to personal check; an order by one party to pay another.

– Buyer must obtain shipping documents before obtaining possession of the goods involved in the transaction.

• Documentary collection– The seller ships the goods; shipping documents and

the draft are presented to the importer through banks acting as the seller’s agent; the importer accepts or pays the draft

– The draft , also known as the bill of exchange, may be either a sight draft, time draft or an arrival draft.

Terms of Payment

• Banker’s acceptance - A time draft drawn on and accepted by a bank; it is sold in the short-term money market.

• Discounting - Selling a draft to the bank at a discount from face value; it can be with recourse or without recourse.

• Open account - The normal manner of doing business in the domestic market; also known as open terms.

• Consignment selling – Allows the importer to defer payment until goods are actually sold.

Non-payment Risks

• Commercial risk– Refers to the insolvency of, or protracted payment

default by, an overseas buyer.– Results from deterioration of conditions in the buyer’s

market, fluctuations in demand, unanticipated competition, or technological changes.

• Political risk– Can neither be controlled by the buyer nor the seller.

Complications in Assessing the Buyer’s Creditworthiness:

– Credit reports may not be reliable.– Audited reports may not be available.– Financial reports may have been prepared according to a

different format.– Many governments require that assets be annually re-

evaluated upward, which can distort results.– Statements are in local currency.– The buyer may have the financial resources in local

currency but may be precluded from converting to dollars because of exchange controls and other government actions.

Managing Foreign Exchange Risk

• To prevent currency related risks, the exporter can:– Shift the risk through foreign currency contractual

hedging.– Modify the risk by manipulating prices and other

elements of a marketing strategy.• Forward exchange market

– The exporter gets the bank to agree to a rate at which it will buy the foreign currency the exporter receives when the importer makes payment.

– The rate is either a premium or a discount on the current spot rate.

Foreign Exchange Risk & Price Adjustments

– Pass through – If your import cost increases because of changes in currency value, you add the additional cost to what you charge your customers. The higher price charged to your customers will most likely lower your sales.

– Absorption – You (the importer) absorb the additional cost and do not raise the price you charge your customers. You may absorb some of the additional cost and pass the rest through to your customers.

– Pricing-to-market - Destination-specific adjustment of mark-ups in response to exchange-rate changes.

Sources of Export Financing• Commercial banks

– Provide assistance to only first rate credit risks.

– Provide enhanced services which help exporters monitor and expedite their international transactions.

– Marketers should assess the overseas reach of banks to avail greater market coverage.

Sources of Export Financing• Forfaiting

– Forfaiter provides the exporter with cash at the time of shipment.

– The importer uses bills of exchange or promissory notes to pay the exporter at the time of shipment.

– The exporter sells them to a third party at a discount from their face value for immediate cash.

Sources of Export Financing

• Benefits accrued by the exporter through forfaiting:

• Reduction of risk.• Simplicity of documentation. • Cent percent coverage.• Helps to avoid content or country restrictions.

• Major issues: availability and cost.

Sources of Export Financing

• Factoring houses– May purchase an exporter’s receivables for a

discounted price.– Provide the exporter with a complete financial

package that combines credit protection, accounts-receivable bookkeeping, and collection services.

Sources of Export Financing• Differences between forfaiting and factoring:

– Factors usually want a large percentage of the exporter’s business, while most forfaiters work on a one-shot basis.

– Factors usually do not have strong capabilities in the developing countries, forfaiters do.

– Forfaiters work with capital goods, factors typically with consumer goods.

– Forfaiters work with medium-term receivables, while factors work with short-term receivables.

Sources of Export Financing

– Export credit agencies (ECAs)– The Export-Import Bank of the United States and

other countries (Ex-Im Banks)– The Overseas Private Investment Corporation (OPIC)– The Agency for International Development (AID)– The U.S. Department of Agriculture’s Commodity

Credit Corporation (CCC)– The Small Business Administration (SBA)

Leasing

• Allows market penetration for the firm’s products, which is not possible through outright sale.

• Total net income from leasing is often higher than it would be if the unit was sold.

Dumping

• Selling goods overseas at a price lower than in the exporter’s home market or below the cost of production, or both.

• Types of dumping– Predatory dumping – Intentionally selling at a loss in

another country in order to increase its market share at the expense of domestic producers.

– Unintentional dumping - Result of time lags between the dates of sales transaction, shipment, and arrival.

Dumping

• Remedies for dumping– Antidumping duty - Levied on imported goods sold at

less than fair market value.– Countervailing duties - Imposed on imports which are

subsidized in the exporter’s home country.• To minimize the risk of being accused of dumping, the

marketer can focus on value-added products and increase differentiation by including services in the product offering.

Chapter 17

Global Pricing

Chapter 17

Global Pricing

Transfer Pricing

• Transfer price is the price at which one affiliate of a company sells products and services to another affiliate of the same company. If affects:– Competitiveness in the international marketplace– Reduction of taxes and tariffs– Management of cash flows– Minimization of foreign exchange risks– Avoidance of conflicts with home and host governments– Internal concerns such as goal congruence and

motivation of subsidiary managers

– The three philosophies of transfer pricing: cost-based, market-based, and arm’s-length price.

– The rationale for transferring at cost is to increase the profits of affiliates.

– Deriving transfer prices from the market is the most marketing-oriented method because it takes local conditions into account.

– Arm’s-length pricing is favored by many constituents, such as governments, to ensure proper intracompany pricing.

Transfer Pricing

• Six methods of determining an arm’s-length price:• Comparable uncontrolled price method• Resale price method• Cost-plus method• Comparable profits method• Profit split method• Any other reasonable method

Arm’s Length Transfer Pricing

Pricing Within Individual Country Markets

• Determined by:– Corporate objectives– Costs– Customer behavior and market conditions– Market structure– Environmental constraints

Corporate objectives: to undersell a major competitor.– to improve their efficiency and/or shift production bases.

Costs: Easily measured, Varying inflation rates

When prices cannot be changed, try value pricing, stripping down products, introducing innovative products at a modest premium, and getting close to customers by using new technologies.

Demand and market factors: Price elasticity, customer perception of the product

Market structure and competition

Environmental constraints: Government policies. Try non-price measures, emphasize other marketing mix elements

Pricing Within Individual Markets

The Euro and Marketing Strategy

• The potential advantages of a single-currency Europe include a more competitive market both internally and externally.

• The euro pushes national markets closer together.• The single currency has made prices completely

transparent for all buyers.• Marketers can enhance the value of product and service

offerings selectively, and thereby maintain price differentials across Europe.

Countertrade• Foreign purchases that are paid for by

other goods, services, or ideas or a combination of these with some money.

• Conditions that support countertrade are lack of money, lack of value of money, lack of acceptability of money as an exchange medium, or greater ease of transaction by using goods.

Forms of Countertrade.

- Straight barter

- Counterpurchase agreement (typically with the government; smaller deals)

- Offset (with the government, larger, longer-term deals)- Buyback (from plant output)- Triangular Compensation {A (goods) →B (goods) → C

(cash) → A}- Clearing agreements (Accounts cleared periodically)- Switch trading (one company sells to another its obligation to make a

purchase in a given country)

• Blocked currencies (Typically soft currencies)

• Merits:– Permits the covert reduction of prices and therefore

allows firms and governments to circumvent price and exchange controls.

– An excellent mechanism to gain entry into new markets.– Provides stability for long-term sales.

• Limitations:– Requires that accounts be settled on a country-by-

country or even transaction-by-transaction basis..

Countertrade

Chapter 16

Global Logistics and

Materials Management

Chapter 16 Global Logistics and Materials Management

A Definition of International Logistics

• International logistics - The design and management of a system that controls the flow of materials into, through, and out of the international corporation.

• The systems approach helps the firm explicitly recognize the linkages among the traditionally separate logistics components within and outside of the corporation.

• Interaction with outside organizations, suppliers, and customers helps build on commonality of purpose in the areas of performance, quality, and timing.

A Definition of International Logistics

• The systems approach also ensures– JIT - Just-in-time.– EDI - Electronic data interchange.– ESI - Early supplier involvement.– ECR - Efficient customer response systems.

Phases of international logistics

– Materials management - Timely movement of raw materials, parts, and supplies into and through the firm’s production facilities.

– Physical distribution - Movement of the firm’s product to its customers.

Logistics: major concepts– Systems concept - The extensive and complex

materials-flow activities within and outside the firm must be considered in the context of their interaction.

– Total-cost concept - Minimize overall logistics cost by identifying activity-based costs that impact after-tax profits.

– Trade-off concept - Recognizes the linkages within logistics systems that result from the interaction of their components.

Supply Chain Management

• Supply chain management– An integration of the three system concepts.– Encompasses the planning and management of all

activities involved in sourcing and procurement, conversion, and logistics.

– Includes coordination and collaboration with channel partners.

– Integrates supply and demand management within and across companies.

Basic differences between domestic and international logistics

– Distance – Greater for international shipments– Currency variations and exchange rate

differences.– Transportation modes - Reliability on carriers

may be different; computation of freight rates may be different.

International Transportation Issues

• International transportation is important because it determines how and when goods will be received.

• Transportation issue can be divided into three components:– Transportation infrastructure– Availability of modes– Choice of modes.

1. Air: (wide body jets)2. Truck: Truck trains 3. Rail: Gauges, technology, unit trains 4. Inland Waterways: Barges (motorized, non-motorized)5. Ocean: Container ships, Ro-Ro ships, Lighter aboard ships, Supertankers, Ore carriers, LNG carriers(Trades, Conferences, Lines, Liner/Tramp, rates, flags, Insurance: General/Particular average)6. Pipelines: Liquid, gas, domestic, transnational7. Intermodal

IK

International Shipping Transportation modes - 1

World’s Busiest Container PortsTEUs, 2007

1. Singapore, Singapore 27,9322,0002. Shanghai, People's Republic of China 26,1503,0003. Hong Kong, Hong Kong 2 3,8814,0004. Shenzhen, People's Republic of China 21,0995,0005. Busan, South Korea 13,2706,0006. Rotterdam, Netherlands 10,7917,0007. Dubai, United Arab Emirates 10,6538,0008. Kaohsiung, Taiwan10,2579,000,9. Hamburg, Germany 9,89010,00010. Qingdao, People's Republic of China 9,46211,00013. Los Angeles, United States of America 8,35514,00015. Long Beach, United States of America 7,31616,000

Choice of Transportation Modes

Choice is influenced by:– Transit time– Predictability (Air is more predictable than

ocean)– Cost – Noneconomic factors (government

involvement)

Exhibit 16.5 - Comparing Transportation Choices

Exhibit 16.6 - Documentation for an International Shipment

Packaging for Global Markets

• Packaging Adaptations– Climate– Promotional Role of Package– Distribution Handling Requirements– Customs and Traditions– Environmental (Green) Consequences of the

Package Itself

Packaging for International Shipping

• Customer Requirements

• Shipper Requirements

• Distributor Requirements

• Government Requirements

• Cost (shipping, insurance, pilferage)

• Protection of the product (acceleration, deceleration,

dropping, pitching, rolling, vibrations, etc.)

Management of International Logistics

• Contract logistics– Outsourcing logistical management by employing

outside logistical expertise.– Helps firms to achieve improved service at equal or

lower cost.– Allows marketers to take advantage of an existing

network, complete with resources and experience.– Leads to loss of the firm’s control in the supply chain.

The Supply Chain and the Internet

• Global net e-commerce revenue is expected to surpass the $1 trillion dollar mark by 2012.

• Companies enter e-commerce through hub sites (also known as virtual malls or digital intermediaries) which bring together buyers, sellers, distributors, and transaction payment processors in a marketplace.

• Companies using e-commerce need to be prepared for 24-hour order-taking and customer service.

Logistics and Security

• Strategies employed for reducing security costs:– Replace international shipments with domestic.– Eliminate the use of vulnerable international

transportation.– Redesign the logistics strategies to incorporate the

effects of substantial and long-term interruptions of supplies and operations.

Recycling and Reverse Logistics

• The firm’s ability to develop reverse logistics is a key determinant for market acceptance and profitability.

• Reverse distribution – Ensures that a firm can retrieve a product from the

market for subsequent use, recycling, or disposal.– Is a complex customer service, inventory control,

information management, cost accounting, and disposal process.

– Reverse logistics management is highly specialized.

Chapter 12

Marketing Communication

Chapter 12

Marketing Communication

Exhibit 12.1 - The Marketing Communication Process

Sender(Encodes Message)

Message

Feedback

MessageChannel

Receiver(Decodes Message)

Noise

CommunicationOutcome

International Negotiations

• The two biggest dangers faced in international negotiations:– Parochialism - The misleading perception that

the world of business is becoming ever more American and that everyone will behave accordingly.

– Stereotyping - Generalizations about any given group, both positive and negative.

International Negotiations• The process of international business

negotiations can be divided into five stages: 1. Offer

• Allows the parties to assess each others needs and commitment.

• The initiation of the process and its progress are determined by background factors of the parties and the overall atmosphere.

2. Informal meetings• To discuss the terms and get acquainted.• It may be necessary to utilize facilitators (such as consultants

or agents) to establish the contact.

International Negotiations

3. Strategy formulation• Review and assess factors to be negotiated.• Prepare actual give and take of the negotiation.

4. Negotiations• Depend on the cultural background and business traditions

prevailing in different countries.• Two approaches are used for negotiations: competitive and

collaborative.

5. Implementation• The choice of location for the negotiations and the negotiator

characteristics play a role in the outcome.

International Negotiations

• A combination of attitudes, expectations, and habitual behavior influences negotiation style.

• Approaches used for adjusting to the style of the host-country negotiators:– Team assistance– Traditions and customs– Language capability– Determination of authority limits– Patience

International Negotiations

• Approaches used for adjusting to the style of the host-country negotiators:– Negotiation ethics– Silence– Persistence– Holistic view– The meaning of agreements

Marketing Communications Strategy

• The promotional mix consists of – advertising– personal selling– Publicity– sales promotion– sponsorship.

• The choice of tools leads to either a push or a pull emphasis in marketing communications.

The Promotional Mix• Push strategies - Focuses on personal selling and

middlemen; considered more useful for marketing industrial goods which have shorter channels of distribution.

• Pull strategies - Mass communications with target customers who, in turn, demand the product from the distribution channel members.

• Integrated marketing communications - Coordinated use of a broad range of promotional tools to reach a target market.

Communications Tools

• Business and trade journals and directories– selected media should be effective in reaching

the target audience and be efficient in cost minimization.

– In deciding which publications to use, the exporter must apply the general principles of marketing communications strategy.

Communications Tools• Direct marketing

– Establishes relationship with a customer in order to initiate immediate and measurable responses.

– Accomplished through direct-response advertising, telemarketing, and direct selling.

– Direct mail can be a highly personalized tool of communication if the target audience can be identified and defined narrowly.

Communications Tools

• Direct marketing– Telemarketing (including sales, customer

service, and help-desk-related support) is flourishing due to telecommunication systems and deregulation in the industry.

– Database marketing allows the creation of an individual relationship with each customer or prospect.

Communications Tools• The Internet - Supports the exporter’s marketing

communications in the following ways:– Helps a company increase its presence in the

marketplace.– Communicate information about its marketing mix.– Allow 24-hour access to customers and prospects.– Improve customer service.– Allow the exporter to gather market information.– Provide an opportunity to close sales and communicate

with internal constituents, apart from customers.

Communications Tools

• Trade shows and missions– Trade show is an event where manufacturers,

distributors, and other vendors display their products or describe their services to current and prospective customers, suppliers, other business associates, and the press.

– Exporters may participate in general (horizontal) or specialized (vertical) trade shows.

Communications Tools

• Reasons for participation in trade fairs– Opportunity to introduce, promote, and demonstrate

new products.– Goodwill and contact cultivation.– Locate trade intermediaries and suppliers.– Meet government officials and decision makers.– Opportunity for market research and collecting

competitive intelligence.– Reach sizable sales prospects in a brief time period at

a reasonable cost per contact.

Communications Tools

• Reasons for not participating in trade fairs– High cost.– Difficulty in choosing the appropriate trade fairs for

participation.– Coordination.

• Other promotional events that the exporter can use are trade missions, seminar missions, solo exhibitions, virtual trade shows, etc.

Communications Tools

• Personal selling– Involves high costs per contact.– Provides immediate feedback on customer

reaction as well as information on markets.– Can be used for consumer selling in low-wage

markets

Chapter 13

Distribution Management

Chapter 13

Distribution Management

Channel Structure

• Channels can vary from direct (producer-to-consumer types) to elaborate (multilevel channels employing many types of intermediaries).

• Channel configurations for the same product will vary within industries, even within the same firm, because national markets quite often have unique features.

• Channel structures are designed to manage multidirectional connections for:

• Physical movement of goods and services.• Transactional title flows.• Information communications flows.

Channel Design

• Channel design – Refers to the length and width of the channel employed.

• Length - The number of levels or different types of intermediaries.

• Width - The number of institutions of each type in the channel.

– Is determined by factors that are integral to the development of new marketing channels as well as modification and management of the existing ones.

Exhibit 13.2 - Determinants of Channel Structure and Relationships

Internal– Company objectives

– Character

– Capital

– Cost

– Coverage

– Control

– Continuity

– Communication

External– Customer

characteristics

– Culture

– Competition

Channel Design – External Factors

• Customer characteristics– The demographic and psychographic

characteristics of targeted customers form the basis for channel design decisions.

– Focusing on customer needs by understanding why, when, and how they are buying commodities helps to generate a competitive advantage in the product.

Channel Design – External Factors

• Culture– The firm needs to analyze:

• The existing channel structures or the distribution culture.

• The functions performed by the various types of intermediaries.

– Foreign legislation affecting distributors and agents is an essential part of the distribution culture of a market.

Channel Design – External Factors

• Competition– Channels used by competitors may be the only

product distribution system that is accepted by both the trade and consumers.

– If distribution channels used by competitors are not satisfactory, the exporter can:

• Form jointly owned sales companies with distributors to exercise more control.

• Seek a good company fit in terms of goals and objectives.

Channel Design – Internal Factors

• Company objectives– Management considerations influence

channel designs.– The distribution channel must comply with the

overall company objectives for market share and profitability.

Channel Design – Internal Factors

• Character– The nature of the product impacts the channel design. – The channel must match the positioning of the

product in the market.– Distribution channels change to reflect changes in

overall market conditions, such as currency fluctuations.

• Capital– The financial requirements for setting up a channel

system; the marketer’s financial strength determines its ability to establish channels it either owns or controls.

Channel Design – Internal Factors

• Cost – The expenditure incurred in maintaining a

channel once it is established.– Varies according to the relative power of the

manufacturer vis-à-vis its intermediaries.– Incurred for protecting the company’s distributors

against adverse market conditions.

Channel Design – Internal Factors

• Coverage– The number of areas in which a product is

represented and the quality of that representation.– Is two-dimensional (horizontal and vertical).– The area to be covered depends on the dispersion of

demand in the market and the time elapsed since the product’s introduction in the market.

– Involves three different approaches – intensive, selective, and exclusive.

Channel Design – Internal Factors

• Control– The use of intermediaries, product type, and the

marketer’s use of power.– Correlated to the type of product or service being

marketed.– The degree of control a marketer wishes to have is

reflected in the cost incurred in securing that control.

• Continuity– Rests heavily on the marketer as foreign distributors

have a short-term view of the relationship.– Is expressed through visible market commitment.

Channel Design – Internal Factors

• Communication– Provides the exchange of information that is essential

to the functioning of the channel.– Social, cultural, technological, time, and geographical

distances create communication problems.– Assists the international marketer in conveying the

firm’s goals to the distributors, in solving conflict situations, and in marketing the product.

– Is a two-way process that does not permit the marketer to dictate to intermediaries.

Selection of Intermediaries

• Two basic decisions: – Determining the type of intermediary relationship

• Distributorship• Agency relationship

– Determining the type of exporting function• Indirect exporting• Direct exporting• Integrated distribution

Exhibit 13.8 – International Channel Intermediaries

Selection of Intermediaries

• Screening intermediaries– The potential candidates must be compared and

contrasted against an exporter’s list of determined criteria.

– Before signing a contract with a particular agent or a distributor, international marketers should satisfy themselves on certain key criteria.

– Some of these criteria can be quantified while others are qualitative and require careful interpretation and confidence in the data sources providing the information.

Selection of Intermediaries• The distributor agreement

– Some important terms to be included in the agreement are:

• Contract duration.• Geographic and customer boundaries. • Method of compensation.• Products and conditions of sale.• Means of communication between parties.• Process of dispute resolution/dissolution

Gray markets (parallel importation)

– Authentic items that are produced and purchased abroad but imported or diverted to the market by bypassing designated channels.

– Fuelled by price segmentation and exchange rate fluctuations.

– They undercut local marketing plans, erode long-term brand images, eat up costly promotion funds, and sour manufacturer–intermediary relations.

Arguments for gray markets:

– The right to “free trade.”– Consumers benefit from lower prices.– Discount distributors find a profitable market

niche.

Arguments against gray markets:

– Hurts the legitimate owners of trademarks.

– Reduces incentive among trademark owners to undertake product development.

– Take unfair advantage of the trademark owners’ marketing and promotional activities.

– Parallel imports can deceive consumers by not meeting product standards or their normal expectations of after-sale service.

Channel Management

• Solutions to the gray market problem:– A contractual relationship that ties businesses

together.– A one-price policy.– Producing different versions of products for

different markets.– Conducting educational and promotional

campaigns.

Termination of Channel Relationships

• Can be terminated due to:– Changes in the international marketer’s

distribution approach.– Dishonoring of the contract by either of the

parties.– Market expansion program undertaken by the

producer.– Structural changes in the product lines.

Chapter 14

Global Product Management and Branding

Chapter 14

Global Product Management and Branding

Global Product Development

• Stages of the product development process– Idea generation– Screening– Product and process development– Scale-up– Commercialization

Global Product Development

• Sources for idea generation:– Company– Customers– Lead users– Procurement requisitions from governments

and supranational organizations– Facilitating agents, such as advertising

agencies or market research organizations

Global Product Development

• Product ideas are screened on the basis of market, technical, and financial criteria.

• A product idea that at some stage fails to meet the specified criteria is not scrapped; data from these banks are used in the development of other products.

Global Product Development

• The use of computer aided design (CAD) allows inexpensive adaptation of the product designs for future markets.

• The product development process can be initiated by any unit of the organization, in the parent country or abroad.

Global Product Development• The time lag between product development

and introduction into the market depends on:– The product involved– Degree of newness– Customer characteristics– Geographic proximity– Firm-related variables– Degree of commitment of resources

Decentralized R&D

• Reasons for investing in R&D activities abroad:– Aids technology transfer from parent to subsidiary.– Develops new and improved products for foreign

markets.– Develops new products and processes for

simultaneous application in world markets of the firm.– Generates new technology of a long-term exploratory

nature.– Curries favor with host-country governments

Global Product Development– Multidisciplinary teams in an organization

• Maximize the payoff from R&D by streamlining decision making.

• Reduce development time of a new product.• Reduce overall material costs.• Trim manufacturing processes.

– Companies increase communication and exchange of personnel to reduce language and cultural barriers among R&D teams.

– R&D consortia have been established provide the benefits and face the challenges of any strategic alliance.

Global Product Development• Testing of new product concepts for performance

and customer acceptance– Is the final stage of product development.– Ranges from reliability tests to mini-launches.– Is undertaken to avoid high rate of product failure.

• Reasons for product failure:– Relying on instinct or hunch rather than testing and

research.– Lack of product distinctiveness.– Unexpected technical problems.– Mismatch between functions.

International Product Testing• Testing Techniques:

– Laboratory test markets - Capture consumer reactions in a controlled environment.

– Micro test-marketing - Uses a permanent panel of consumers and assesses their willingness to buy after exposure to media and purchase incentives.

– Forced distribution tests - Rely on the continuous report of consumer reactions to new products already in the market.

Global Product Development• Global product launch

– Introducing the product into countries in three or more regions within a narrow timeframe.

– Measures undertaken for successful launches:• Involvement of country managers.• Pre-launch attention to localization and translation

requirements.• Increased education and support of the sales channel.

– Benefits of a successful global launch:• Permits the company to showcase the product.• Removes old models at once.• Captures new product’s higher margins.

Management of the Product and Brand Portfolio

• Keep a balanced product and market portfolio— a proper mix of new, growing, and mature products to provide a sustainable competitive advantage.

• Product portfolio analysis– Is based on growth rates and market share positions. – Is used to analyze:

• Business entities, product lines, or individual products.

• Market, product, and business interlinkages.

Management of the Product and Brand Portfolio

• Managing the brand portfolioBrands help to:

• Shape customer decisions and create economic value.

• Influence the purchasing decisions of both consumer as well as business-to-business situations.

• Simplify everyday choices of customers, reduce the risk of complicated buying decisions, provide emotional benefits, and offer a sense of community.

Management of the Product and Brand Portfolio

– Co-branding - A strategic alliance where two or more brands are combined in an offer.

– Global marketers have three choices of branding:

• Use of the corporate name.• Use family brands for a wide product line.• Use individual brands for each item in the product

line.

Brand Strategy Decisions

Global brands are a key way of creating consistency andimpact.• While some of the global brands are completely

standardized, some elements of the product may be adapted to local conditions.

• Characteristics of global brands– Carry a strong quality signal and compete on emotion.– Cater to the need of feeling cosmopolitan.– Reflect the professional and personal status of the user.– Use their monetary and human resources to benefit

society.

Management of the Product and

Brand Portfolio• Private brand policies

– The intermediaries’ own branded products or “store brands.”

– Methods used for private branding:• Umbrella branding with the intermediary’s name.• Separate brand names for individual products or product

lines.

– Private brand goods have achieved a significant penetration in many countries due to increase in price sensitivity and decrease in brand loyalty.

MKT-421 Fall 2009

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