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    IMPORTANCE OF PRICING STRATEGIES IN THE

    PROCESS OF INTERNATIONALISATION: EVALUATION

    OF TESCO

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    Table of Contents

    1.0 Introduction: ......................................................................................................................... 3

    1.1 Rationale of the study .......................................................................................................... 3

    1.2 Background of the chosen organisation (Tesco) .................................................................. 4

    1.3 Research aim and objectives: ............................................................................................... 5

    1.4 Research Questions: ............................................................................................................. 5

    2.0 Introduction to literature review: ......................................................................................... 5

    2.1 Concept of internationalisation ............................................................................................ 6

    2.2 Major pricing strategies: ...................................................................................................... 6

    2.5 Internationalisation and Pricing strategy in Retail Sector: .................................................. 8

    2.6 Conclusion: .......................................................................................................................... 8

    3.0Introduction: .......................................................................................................................... 9

    3.1 Current research proposition: ............................................................................................... 9

    3.2 Research Paradigm/Philosophy: .......................................................................................... 9

    3.2.1 Reason for selection for the chosen Research Paradigm (Positivism) -- ........................ 10

    3.3 Research approach: ............................................................................................................ 10

    3.3.1 Justification for using deductive approach: .................................................................... 10

    3.4 Working data type (Primary and secondary data): ............................................................ 11

    3.5 Primary data collection strategies ...................................................................................... 11

    3.6 Feasibility for conducting mixed methods of data collection (Quantitative and

    qualitative data):....................................................................................................................... 11

    3.6.1 Quantitative data collection method -- ............................................................................ 11

    3.6.2 Qualitative data collection method.............................................................................. 12

    3.6.3 Data analysis for quantitative and qualitative data: ........................................................ 12

    3.7 Sampling procedure and sample size: ................................................................................ 13

    3.8 Ethical Issues of Research Journey: ................................................................................... 13

    3.9 Time management for the study [Gantt chart]: .................................................................. 14

    4.0 Conclusion: ........................................................................................................................ 15

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    1.0 Introduction:

    Internationalisation refers to rapid and incessant flow of goods and services, knowledge

    sharing, transfer of technology, exchange of information, ideas and cultures across global

    borders (Allport, 1979). It is a process involving extensive integration among the economies

    of different countries with the globalisation of business organisations, corporations,

    governance and the markets at large (Appudurai, 1996). In simple terms, internationalisation

    is the process that helps to identify and enter international markets through buying an existing

    company, establishing a new firm, or building strategic alliance with partners in another

    country. There are several factors impacting the process of internationalisation but

    developing effective pricing strategies is crucial for sustaining in the global markets.

    Internationalisation is also in the form of foreign direct investment (FDI) where amultinational organisation invests equity funds in another country. It will be possible for the

    investing company to control the foreign affiliates, get access to global markets, gain

    managerial and technological knowledge and get the best productivity from the available

    labour pool. Despite these factors, setting an appropriate price for the products and services to

    be sold in the international market is crucial for earning competitive advantage. Pricing

    decisions need to be developed after carefully outlining the pricing objectives, estimating

    various costs, studying the competitors stance and the consumer demand for the products

    (Allport, 1979).Commission of the European Communities (2003) adds that the decision

    regarding the establishment of low price of high price during the internationalisation process

    must depend on various factors such as product cost per unit, market price susceptibility, and

    the availability of the number of competitors. In this context, Stier (2003) argues that the type

    of marketing strategy for the product or service adopted in the global market must be the

    determinant of the price level. The major pricing strategies that a company adopts in the

    internationalisation process are penetration pricing, price skimming, perceived value pricing,

    mark up pricing etc depending on the competitive factors playing at the global level.

    1.1 Rationale of the study

    The retail sector is rapidly turning out to be international in its operational processes and

    outlook (Appudurai, 1996). The internationalisation of retail business is complex and

    challenging, as compared to manufacturing. The retailers operating in overseas country have

    to develop and implement new strategies in the field of marketing, customer segmentation,

    product innovation and pricing instead of relying on traditional exporting strategies.

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    Similarly, the pricing strategies also have to be dynamic and as per the pricing trends

    followed by the competing firms (Commission of the European Communities, 2003).

    Pricing is one of the most important elements in the marketing mix that helps to produce

    revenue in order to conduct the daily business operations and keep the stakeholders satisfied,

    both internal and external. Competitive prices attract potential consumers while retaining the

    existing customers who may have high turnover intention if the competitors offer a low price.

    Well planned pricing decisions also help the firm to increase its market share, and earn

    economies of scale (Allport, 1979). Companies operating in the international business

    environment may achieve their projected returns and maximise profit it the pricing strategies

    do not align with the market needs. The current research will evaluate the pricing strategies

    implemented in the process of internationalisation and the relative importance of each

    strategy. The findings of the study can help international business organisations to understand

    the criticality of having an effective pricing strategy to survive in the stiff global competition.

    1.2 Background of the chosen organisation (Tesco)

    Tesco was founded in the year 1919 by Jack Cohen and was established for the first time in

    Londons East End. The retail giant currently operates in almost twelve countries across the

    world and had a total employee base of 5, 30,000 employees serving millions of customersround the world (http://www.tescoplc.com, 2013). The core business purpose of Tesco

    reflects the change that the society has experienced with its business rationale to think beyond

    earning profit. The Tesco brand has been internationalised and replicates that way they work

    the values they believe and the legacy their business practices leave behind.

    The internationalisation strategy of Tesco is focused on purchasing an already retail chain, or

    change it into Tescos subsidiary. Tesco also uses marketing tactics to undercut the local

    traders and follows an aggressively a competitive pricing strategy to sustain in the

    international business environment. It has implemented competitive pricing strategies in the

    large hypermarkets for its intercontinental retail stores in countries such as Thailand, South

    Korea, Malaysia, China, and Japan and in parts of Europe such as Poland, Turkey and Ireland

    (http://www.tescoplc.com, 2013).

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    1.3 Research aim and objectives:

    The aim of the research is to analyse the significance of implementing effective pricing

    strategies in the process of internationalisation. The U.K based retail giant, Tesco Plc has

    been chosen as the organisation to carry out the case study.

    In context of the above aim, the following research objectives have been formulated

    I. To understand the major contribution of the pricing strategies for establishingbusiness in the global market place

    II. To critically appraise the compatibility of different pricing strategies in the retailsector within the competitive market scenario

    III. To carefully assess the pricing strategies used by Tesco Plc and their contribution forthe organisational growth

    1.4 Research Questions:

    The following research questions have been designed in order to conduct further research

    Q1). How many types of pricing strategies are there? What is the importance of having an

    appropriate pricing strategy to set up a business unit in the global market?

    Q2). What are the most effective pricing strategies that can be implemented to sustain in the

    internationalisation process?

    Q3). What is the compatibility of the different pricing strategies , particularly in the retail

    sector that operates in the competitive global market scenario?

    Q4).What pricing strategy has Tesco Plc formulated in its internationalisation practice? Has

    its pricing strategies been effective in the stiff international competition?

    Q5). How far have the pricing strategies adopted by Tesco Plc helped in its organisational

    growth?

    Q6). What are the loopholes in their current pricing strategies? What better pricing decisions

    can Tesco Plc take to overcome such loopholes?

    2.0 Introduction to literature review:

    Review of literature helps to identify gaps in the existing theories and research work, relevant

    to the research topic in question. The researcher carries out an in-depth study of underpinning

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    theories, research discourses, conceptual models and previous research papers that support

    the current research problems. Areas not researched so far are critically discussed and further

    research is carried out in context of the research questions, aim and objectives.

    2.1 Concept of internationalisation

    The concept of internationalisation has turned into the basic focus on the business entities in

    framing their strategic objectives. Appudurai (1996) noticed that as more and more firms are

    entering into the business sector, the market is becoming congested and the competition is

    growing intense. This has given rise to the idea of developing business strategies that can be

    operated over all over the globe (Glower et al.1998). The concept of globalisation came in to

    the business scenario and reduced the barriers of the geographical boundaries on the business

    operations. However, problems are being faced by the business firms in operating in the

    foreign countries and handling the new customer base. The internationalisation process has

    not always been implemented to its full potential resulting enormous losses in the corporate

    sector (Allport, 1979). Many technical difficulties such as identifying customer needs and

    requirements, adapting to local culture and societies are preventing the organisations from

    operating to their optimum potential. Pricing is a key issue in the process of internalisation

    (Stier, 2003). As the market place and the consumer base changes, the pricing policy of the

    business also has to be redesigned. The business firm has to consider all the internal and

    external business factors that can influence the pricing of the products and the services.

    2.2 Major pricing strategies:

    Pricing strategies have evolved along with the changes in the international market scenario.

    Developing effective pricing policies ensures that the product or service can sustain in the

    market and help the organisation gain a satiable long-term competitive advantage (Stier,

    2002). A business firm should have a clear objective or strategy for their internationalisation

    process. The key aim of the pricing strategies is to ensure that the business can draw profit of

    their activities. Generally pricing strategies are aimed at reducing cost and increasing the

    volume of sale or initialising a new strategy that will help in promoting the sale of the

    products and the services (Asabare and Huffman, 1993). This will also provide the product an

    opportunity to compete against the existing counter parts in the market. Some of the most

    commonly used pricing strategies are:

    Penetration Pricing:

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    Penetration pricing is used by companies when they want to boost the sales of a particular

    product in an existing market. In penetration pricing strategy, the business intends to set a

    price that will differentiate the product and catch the attention of the customers (Stier, 2003).

    Usually, the price set is lower than the existing market price. Penetration pricing helps the

    firm in enhancing their market share and attract new customers. Asabere et al.(1993) stated

    that penetration works only when it is being supported by high level of promotional activities.

    Stier (2003) argued that a well established brand equity and brand name can also help the

    firm in attracting the customers towards their products or services. Penetration pricing is

    conducted in a manner that wont give the other competitors time to react. Retail market is an

    apt example where penetration pricing can be observed.

    Price Skimming:

    Price skimming is the used to cover up the initial cost of product development by reducing

    the number of sales and enhancing the profit margin in the products (Asabere et al.1993). In

    price skimming, the launch price of a product is kept high and as the expenses of production

    gets covered the price is lowered for increasing the market share of the products. Price

    skimming process is mostly used in electronic goods industry (Asabare and Huffman, 1993).

    Once a new product is launched in the market and its initial expenses are covered by the firm,

    they reduce the price so that the product can be available to more customers (Stier, 2002).

    However, in the mobile sector, the skimming process is different. They try to reduce the price

    of the existing products and introduce the new products so that the new modifications on the

    product and re-launch them at a higher price. This develops a cycle of transactions with new

    and existing customers and helps the firm in maintaining their pricing process. However, as

    the process of price skimming can be implemented only for a limited period otherwise it can

    result in loss of customers.

    Premium Pricing:

    Premium pricing price is used for developing higher and improved brand perceptions among

    the buyers. In premium pricing the price of the products or service is set above the existing

    market price and the price helps the consumers in choosing the product. Premium pricing is

    mostly used in the luxury sector (Commission of the European Communities, 2003). The

    process of utilising premium pricing differs in all the organisations. Similarly, the objective

    of designing a premium price based pricing strategy also differs. Some firm may keep it to

    increase their brand equity ion the market, while can develop a premium price for ensuring

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    customer attention and engagement. Although mostly the pricing strategy is used in niche

    markets, retail industry also develops this process for introducing new products in the market

    or entering a new market with existing brand value. Glower et al.(1998) stated that premium

    pricing is used in industry where the chances of earning more profit by increasing the volume

    of production is limited or the rate of customer purchase of the products is slow. This can

    also result in creating negative brand equity if the competitor products are serving better in

    accordance to the customers perception(Stier, 2003).

    2.5 Internationalisation and Pricing strategy in Retail Sector:

    Commission of the European Communities (2003) stated that a business trying to expand its

    operational area or market share or profit margin must have a proper pricing strategy for

    supporting the business plans. The business process must ensure that the price of the products

    set is helping in achieving the target of the organisation (Asabare and Huffman, 1993).

    Internationalisation process is implemented by the firm to develop the scope of their business

    and ensure their sustainability in the competitive market scenario. Retail market is currently

    one of the most competitive segments of the corporate sector. As this industry has developed,

    it has attracted more firms to enhance the competition. This resulted in congestion in the

    market and the fight for gaining customers intensified (Stier, 2002). On the other hand, the

    process of internationalisation helped the retail firms to enhance their business in new market

    places. In order to develop a better market and a satisfactory customer base for their products

    and services, firms must ensure that the price of the products is compatible with its service

    attributes and the customer perception of the product (Asabere et al.1993).

    2.6 Conclusion:

    The aim of the study is to evaluate the connection between the pricing strategy and the

    internationalisation process. By observing the theories and pricing strategies the researcher

    has tried to evaluate their effectiveness in the process of internationalisation. The researcher

    has observed the pricing strategies that are being used in the retail sector and the adaptability

    of these strategies to the changing market scenario. Importance of proper pricing of the

    products and services reflects proper growth in customer base and market share. The study

    reflects on the strategies that are most commonly being used by the corporate firms to

    develop their business growth. In a nut shell, it can be stated that pricing strategies help the

    firms in gaining a competitive advantage and internationalisation process of a firm depends

    on proper pricing for its sustainability.

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    3.0Introduction:

    Research methodology deals with the appropriate use of research tools, strategies, methods

    and techniques in order to resolve the identified research problems and achieve the research

    outcome. Bryman (2008) explains that following relevant research paradigm, approach,

    design, data collection and analysis method is the key to maintain the quality of research in

    context of its validity and reliability.

    3.1 Current research proposition:

    The current research deals with understanding the importance of pricing strategies for

    internationalisation of a retail business, particularly Tesco. It is essential to gather evidence

    that is based on real life data highlighting the various pricing strategies adopted by Tesco for

    its various products and services in the international markets. The outlook, feedback and

    opinion of Tescos employees and managers will be interpreted by conducting primary

    research. Keeping in mind that primary as well as secondary data collection will help to

    resolve the research questions, the positivism philosophyis chosen for the study.

    The current research will also use a deductive approachby initially building a theoretical

    base of the pricing concepts and later testing the same. Descriptive research designwill help

    to gain extensive information and explain the results using visual support such as tables,

    charts and graphs. Primary datawill be collected with the use of mixed method, such as

    combining quantitative and qualitative data collection strategies. Quantitative data

    collection will be done by distributing online survey questionnaires to the business

    executives and managers of Tesco including market consultants, experts and analysts.

    Qualitative data will be collected by conducting face to face or telephonic interviews from the

    few managers of Tesco.

    3.2 Research Paradigm/Philosophy:

    The three epistemological positions, namely, positivism, realism and interpretivism is widely

    used in an academic research. Positivists believe that whatever is felt by human senses is true

    and truth already exists, it simply needs to be acted upon (Denzin and Lincoln, 2011).

    Interpretivism is an anti positivist philosophy, where it is necessary to make judgements

    based on human understanding, analysis and interpretation.

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    3.2.1 Reason for selection for the chosen Research Paradigm (Positivism) --

    In the current research application of human mind along with facts and information is highly

    essential to add better quality and authenticity to the research process. With the application

    interpretivism as chosen research paradigm will help in conducting the research process in a

    more detailed and refined process. Apart from that, interpretivism and realism is

    comparatively time-consuming process so they might not be the standardised choice as per

    nature of the study. The results of respondents or the customers have to be interpreted

    extensively instead of simply relying on scientific tests as used in natural sciences. The

    researcher has also chosen positivism to ensure that the outcome of the study is not biased

    with human interests and inputs. This will reflect the actual scenario of the subject topic and

    also generate an accurate result.

    3.3 Research approach:

    Deductive approach is a theory testing process which either confirms or modifies an existing

    theory as a research outcome (Gulati, 2009). Deductive reasoning follows a top bottom

    approach where the research process moves from a general to specific approach. The research

    process starts with a theoretical framework, development of hypothesis, data collection and

    analysis and finally theory confirmation. On the other hand, as opposed to deductive

    approach, inductive process starts with observation, formulation of tentative hypothesis, data

    collection and analysis and finally the development of a new theory (Kothari, 2008).

    Inductive approach is a bottom up approach where the process moves from specific to general

    approach.

    3.3.1 Justification for using deductive approach:

    The availability of extensive theories relating to pricing strategies prompts the researcher to

    follow the deductive approach. The current research does not provide enough scope todevelop or build a new theory as a research outcome. The researcher finds it feasible to test

    theoretical underpinnings with the help of data obtained from empirical research. The

    researcher has considered evaluating the effectiveness of the existing pricing strategies and is

    not framing any new theories of concepts. Thus, deductive approach will help the analyst in

    judging the validity of the existing theories and concepts.

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    3.4 Working data type (Primary and secondary data):

    Access to subject based data is possible with the help of both the primary and secondary data

    (Ellis and Levy, 2009).The sources for such study and evaluation are secondary in nature as

    these data are already known by others and are helping in forming the basic idea of the

    pricing strategies using in case of Internationalisation. Varied forms of secondary sources are

    broadly comprised of online and offline sources where a researcher can gain basic knowledge

    of the topic and can conduct analysis at a better rate (Denzin and Lincoln, 2011). Secondary

    data will be collected from up to date, relevant and genuine sources such as books, journals,

    articles, annual reports and performance reports of the chosen organisationTesco. Hesse-

    Biber (2010) explains that secondary sources help in detailing the need of the study by

    explaining the background and present scenario of the market or the issue.

    3.5 Primary data collection strategies

    Apart from secondary data, primary sources are also considered for collection of data. Assess

    of these data are possible with interaction process of researcher and the target respondents.

    During the primary data collection, as per requirements of the topic the parameters are listed

    for the feedback survey of the target profile. The broad forms of research methods are

    quantitative and qualitative research methods.

    3.6 Feasibility for conducting mixed methods of data collection (Quantitative and

    qualitative data):

    3.6.1 Quantitative data collection method --

    Leavy and Hesse-Biber (2010) explained that quantitative research helps in gaining statistical

    data of a market and helps in understanding the present scenario in numerical forms. On the

    other hand, qualitative data are the descriptive forms of data that describes the factor or the

    reason of incident in a subjective manner. Saunders et al. (2009) explained that data

    collection process enables an organisation in understanding the challenges that are resting in

    the strategic implementation programmes and helps in forming resolving strategies.

    Survey questionnaires distributed to the managers, business executives, market analysts and

    consultants online will be feasible to obtain numerical data. Questionnaires will include

    questions that are open ended and will be mostly based on Likert scale where options will be

    provided from a range of 1 to 5. (1= strongly agree, 2= agree, 3= neutral, 4= disagree, 5=strongly disagree). Response from Questionnaires yield numerical data that can be

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    statistically calculated and explained for having a better understanding of the pricing

    strategies used by Tesco. The design of the questions will be structured so that it is easier to

    measure the different responses given by various respondents for a particular question.

    3.6.2 Qualitative data collection method

    For understanding the importance of pricing strategies for achieving success in international

    markets, and most importantly the way Tesco has designed its international pricing strategies,

    the researcher needs to interact with the Tescos employees and managers so that better

    research analysis can be conducted. Data collection process needs to focus on a certain theme

    of set of objectives so that organisation can gain effectively with the result of the market

    survey. Sekaran and Bougie (2010) described that data analysis needs to under proper ethical

    considerations so that a researcher do not try to violate the results or process of the data

    collection. Interview involves interaction and exchange of ideas where the respondents share

    their emotions and real life experience (Cameron, 2009). The arguments put forward by

    managers during interview in favour of / or against a particular pricing strategy in the

    internationalisation context can be justified by real market situations.

    The importance of understanding the significance of different pricing strategies in the

    international business environment is a subjective concept which cannot be explainednumerically. VanderStoep and Johnson (2009) opine that qualitative data provides rich, in-

    depth and comprehensive information that also serves as an evidential support to the

    quantitative data.

    3.6.3 Data analysis for quantitative and qualitative data:

    Response from survey questionnaire includes numerical data which can be coded and

    changed in percentage form. Extensive use of MS Excel will be used to calculate data and

    explain the findings using tables, charts and graphs. Graphical representation will also help

    the readers to quickly and easily grasp the findings displayed numerically. Keeping in mind

    limited budget and time constraints the researcher does find it feasible to use complex

    statistical software tools such as SPSS.

    On the other hand, rich and empirical data obtained from qualitative data will be thoroughly

    interpreted by going through the transcripts made during the actual interview process. The

    researcher will categorically divide the similar response and conflicting response that the

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    interviewees give to particular questions. The response will be discussed in an argumentative

    manner in the form of combined response.

    3.7 Sampling procedure and sample size:Probability sampling, simple random selection will be applied to select respondents to

    participate in the survey questionnaire. Ellis and Levy (2009) opine that probability sampling

    provides equal chance to each individual in the target population to be selected for the

    research. Simple randomisation also reduces the chance of biasness where the selected

    sample is a better representative of the total target population (Leavy and Hesse-Biber, 2010).

    This method is also cost effective, easy and is widely used in case if the sample size is large

    enough spread over an extensive geographical area.

    Market is vast in size; hence recording response from entire market is not possible. The

    researcher with the help of sampling procedure can create a small representative to conduct

    market survey. Non probability sampling does not include random selection of elements and

    the chances of bias is more (Bryman, 2008). However, non probability convenience sampling

    technique is followed to select the managers of Tesco for the interview.

    Sample sizefor the questionnaire survey includes a total of 100 respondents that comprise of

    75 business executives and managers of Tesco Plc while the remaining 25 will include

    marketing experts, analysts and consultants. Sample size for the interview will include 6

    managers of Tesco Plc.

    3.8 Ethical Issues of Research Journey:

    Ethics in a research describes the moral preferences of a researcher that helps in

    differentiating the right and wrong set of behaviours (Saunders et al. 2009). Prior to take

    response from the participants, the researcher must describe the status, role and aim of the

    survey so that participants can readily and voluntarily agree for the involvement. As per

    ethical considerations, a researcher cannot exert any external influence over the respondents

    so that most reliable data collection takes place (Denzin and Lincoln, 2011). Apart from that,

    as per flexible shifts of the respondents, their participation should be seeked so that they can

    ideally devote their time in sharing their experience. The data or the facts gathered during the

    course of the data collection needs to be maintained on an integrity issues. Apart from

    business purpose, the data should not be shared outside the organisation such rival firms or

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    competitors. As per decided and decided objectives, modes of data collection needs to be

    proceeded so that any distractions or off-track of data collection is avoided. Lastly, identity of

    the respondents needs to be considered as anonymous if so desired by the participants.

    3.9 Time management for the study [Gantt chart]:

    The following table highlights the total time to be taken for completing each activity so that

    the research can be completed on time. The time horizons are highlighted in the form of a

    Gantt chart --

    Topics Week 1 Week 2 Week 3 Week 4 Week 5 Week 6

    Introduction

    Framing Aims

    and objectives

    Collecting

    secondary

    sources of

    information

    Conducting

    Literature

    Review

    Developing

    research

    Methodology

    Collecting

    primary data

    Analysing andinterpretation

    of primary data

    Concluding

    and

    Recommending

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    4.0 Conclusion:

    The inclusion of pricing strategy and internationalisation process in the business sector has

    provided a new structure for developing the customer base and enhancing the corporate

    influence. With the help of internationalisation firms can venture into new markets and

    develop their consumer base, while pricing strategies are used to sustain in existing and new

    markets. Price is one such factor that influences the customer behaviour and customer

    decision making process to a great extent. This research will help in understanding the

    connection between internationalisation and pricing strategies and their contribution in the

    growth of an organisation. This chapter aimed to describe the research process that needs to

    be conducted while undergoing the current research. The specifications of requirements under

    academic research are more and the researcher needs to apply each research tool so that better

    suitability of the nature of the topic along with organisational needs is met. The limitations

    and the ethics are mentioned in this section so that the barriers to effective business research

    can be recognised. However, the researcher tries to maintain the best possible options to

    conduct the best quality of research process, yet certain areas of restrictions cannot be

    avoided during the process of research.

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    Market,Journal of Real Estate Research. 8(1), 149-156.

    Bryman, A. (2008) Integrating quantitative and qualitative research: how is it done?

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    Cameron, R. (2009) 'A sequential mixed model research design: design, analytical and

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