An international marketer needs to determine what the market offering should be in the foreign market by defining the product offering. A product is a good, service or dead with tangible and intangible attributes which can offer value to consumers. It can be classified into consumer goods and industrial goods. In classifying a product whether it falls under consumer goods or industrial goods, they are several elements used such as: 0 Product Types – which determine buyer orientation in terms of effort, risk and involvement.
Product warranties – important element in terms of product value proposition. 0 Packaging – Offers protection to product as well as serves important communication functions. Labeling – Can attract attention towards a product with various information and instruction. Aesthetic – Includes perception towards color, shape or packaging. Branding on the other hand is a bundle of image and experiences in customer’s mind. A brand also a promise made by a company about their product by showing quality certification as well as serving differentiation between competing products in the market.
A total impression regarding a brand can be called as brand image. Another aspect of brand is brand equity which is a value that accrues to the product as a result from investment in the marketing of a particular brand. This is also can be said as the value creation between brand and customer over time. Brand equity can ensure loyalty, increase marketing communication effectiveness, lessen vulnerability in marketing action and crises, expand the margin and also may provide inelastic towards consumer response to price increase and elasticity towards price decrease.
If a product has achieved success in a single nation, it can be called a local product with local brand. While international products and brands are offered in several market across the region such as “Asian brand” or “Euro brand”. The other category is a global product and brands which normally meets the wants and needs of a global market. The lobar brand has the same name and portray similar image throughout the world. Some characteristic of global brand are quality signal, global myth and social responsibility.
Furthermore, combination in branding may allow company o become more reputable in line with the identity. Sometimes, co-branding strategy had been used to strengthen the product brands such as Intel Inside and Intrastate and Coca Cola. Brand extension for example can act as an umbrella for a company’s new product line such as Sony Group with it Sony Play station and Sony walkway. In achieving greater success in brand development as well as strengthen the brand reaction, brand leadership will be a useful element to be adopted. 2. Moscow Hierarchy of Needs Impact on Global Buyers In finding the needs of the customer, there is one framework to be understand (Moscow Hierarchy of Needs) in order for the marketer to decide going global or not. This hierarchy of needs highlighted that there are five (5) levels of people’s needs namely physiological needs safety needs social needs, self esteem and self actualization needs. By understanding these needs, marketers can easily decide or develop the product with different value proposition to suit the needs of people coolly or globally.
The best example is Coca Cola; this product suits the lower basic while developing a premium product to meet social respect. 2. 3 Country of Origin as Brand Element The strength of a brand also can be associated with a country of origin. This means a perception and attitude towards particular country normally often extend to products or brands originated from. For example, German made car such as Mercedes and BMW were strongly associated with German. 2. Strategic Alternative towards Global Product Planning Global marketing program involves extension where a company offering a product ritually unchanged in outside markets from home country, adaptation when some changes could be found in a product in terms of design, color, functions or packaging to suit different country needs and last but not least is creation/product invention when the new product was developed for the entire world market. In addition there are five (5) strategic alternatives that the company can pursue in international marketing.
Firstly product-communication extension which is very low cost and merely takes the same product and communication strategy into other market. An example for this is Gillette and Razor (same product and same immunization strategy across the world). Secondly is extended product – communication adaptation, the product needs some adjustment in terms of communication strategy to serve the need of other countries consumer. The third strategy is product adaptation – communication extension, this strategy focus on adapting the product to suit the market while maintaining the communication strategy.
The next one is product adaptation – communication adaptation where both elements have to adapt for the market needs. Lastly the product invention, where the development of new product for the whole world to fit exclusive market condition. 2. New Product in Global Marketing To choose a right strategy, marketers need to look into the product itself, the market conditions and adaptation or manufacturing cost. In creating a new product that offer great value globally, marketers should also look on the opportunity to create global advertising to support their brand.
New product ideas shall be generated in relation to the market needs. Cost also should be considered in terms of R. The new product continuum can be developed to address the degree of needed innovation (continuous, dynamic or discontinuous innovation). Finally, product testing also has to be executed in insuring product introduction failure in the new market. Product decisions are based on how much the company has to adjust the product on the standardization – adaptation continuum to differing market conditions.
This results in the evolution of five basic strategic alternatives – extension; extension, adaptation; adaptation, extension; adaptation and invention. Extension is the nearest to a standardized product, communications strategy and Invention at the other end of the continuum, that is, an adaptation strategy. The more adaptive the policy the more costly it will be for the company. 2. 6 Case Example The case of Thai Tuna is a good example of the fifth product strategy alternatives world consumption was stagnant, prices depressed and rising operating costs were leading to the closure of the tuna processing facilities in the US, Japan and Europe.
However, up to 1990, world tuna imports quadrupled to 437,000 tons with large scale canning operations shifting to several lower cost developing countries. No country experienced the dramatic development more than Thailand. In 1980 it did not export one single can. In 1990, Thailand exported 225,000 tons (51% of world market share) with a gross value in 1989 of US$ 537 million. The Thai industry development was rapid and interesting because it was based on imported raw materials. Tuna landings by Thai vessels rarely exceeded 30,000 tons, whilst its imports of foreign tuna (mostly skipjack) have increased past the 250,000 ton mark.
The reason for this was the shift in fishing patterns. Historically the eastern Atlantic and Pacific were the most important areas but in the asses, US vessels began to exploit the tuna shoals of the Western Pacific and European vessels the Indian Ocean. The result was the increase of landings from 1, 7 million tons in 1980 to 2, 5 million tons in 1988, but a significant drop in prices accompanied this increase. Thailand was in a position to capitalize on these new low cost suppliers and in the early to mid asses several fruit and vegetable canners and other entrepreneurs invested in large modern processing facilities especially for fish.
Their operating costs were kept low by efficient management, low cost labor, backward integration into production and the efficient use of by products from processing. This was basically an “invention” product strategy. In order to gain access to and capitalize on the expanding markets in the US ND Europe (except France which favored Francophone African suppliers) Thai canners entered into packaging arrangements with American and European firms. Latter, Thailand largest processor looks over the third largest tuna canner in the US, enabling it to take advantage of the latter’s exclusive distribution network and well- established brand names. . CHAPTER 11: PRICING DECISION 3. 1 Concept/Topic Overview (Pricing Concept) Pricing products or services in international marketing is not an easy decision. Price is, in part, a function of cost, and the foreign exchange rate is an important determinant of a company’s cost of production. The Chapter briefly explains the element of international financial system as well as examines the elements involved in the pricing of the product. Basic pricing concept has been surrounded by a terminology of law of one price which presumes all customers in the market will get the best product for the best price.
International trade helps keep prices low and in turn low prices can keep inflation in check. Global market exist for certain product such as crude oil and integrated circuits while national markets reflect cost, regulations, demands and competitions and the best product to describe this is beer. The global marketers must develop systems and policies that address the price floor (minimum price), price ceiling (maximum price) as well as optimum price (function of demand). They also should determine the unit sales, market share and return on investment.
To achieve all of these objectives, marketers shall embark on developing strategies on pricing mechanism. First strategy option would be penetration pricing where business charging a low price to quickly penetrate market. This strategy is appropriate to saturate market prior to imitation by competitor. This strategy would gain more market share. On the other hand, market skimming strategy is another option where business can charge premium price during the early stage of product life cycle. This strategy is normally used to regain investment in R quickly.
The next strategy is the companion product pricing. This strategy combines two products to become one where one of it is dependent on the primary product. For example is video game product which is dependable to the game console. Target costing approach is another approach. The first element is the cost-based pricing strategy. This approach is based solely on the cost analysis (internal and external). The next one is the rigid cost-plus pricing where business set the price without regard to the foundational pricing consideration.
Finally, there is another term which is called the flexible cost-plus pricing that ensures prices are competitive in the market. Every transaction is based on a contract of sale. The term of sales and incomers must be followed by the owner of product and some activities must be executed when products go across the border. 3. 3 Environmental Influence on Pricing Decision Certain environmental influence may impact the pricing objectives such as runners fluctuations, inflationary environment, government controls – subsidies and regulations, competitive behavior and sourcing.
All of these influences may give certain level of challenges to the marketers. Currency exchange fluctuation for instance can affect customer purchasing power where the use of strong currency may not eliminate this problem. In addition, inflationary environment will lead rapid increase in production cost. Government control such as dumping legislation, price ceiling and schedule review of price can also give impact to the price setting objectives. In addition, competitive behavior might also give some impact on pricing decision.
It will be hard to maintain competitive margin if competitor do not adjust their price in relation to increase in cost. Sourcing on the other hand could act as strategic pricing tools where marketers can move to certain country in sourcing certain component for manufacturing, For example, China is the famous country to source the component with cheaper cost. 2. 4 Three Policy Alternative on Global Pricing There are three possible global pricing policies – extension (ethnocentric), global price. A very simple method but does not respond to market sensitivity. Adaptation in contrast uses different prices in different markets.
The only control is setting transfer prices within the corporate system. It prevents problems of arbitrage when the disparities in local market prices exceed the transportation and duty costs separating markets. Innovation (geocentric) is a mix of Extension and Adaptation. This takes cognizance of any unique market factors like costs, competition, income levels and local marketing strategy. In addition it recognizes the fact that headquarters price coordination is necessary in dealing with international accounts and arbitrage ND it systematically seeks to embrace national experience. 2. Gray Market Goods, Dumping, Price Fixing and Transfer Pricing Gray market conditions are where the scenario of dilution of exclusivity occurs. Trade products are exported from one country to another where they are sold by unauthorized persons or company. This normally occurs when there is short in product supply or products are subject to substantial mark up. Gray market can damage the channel distribution relationship and may have legal causes. Dumping scenario is a sale of an imported product at a lower price than that normally charged in domestic country. It occurs when import sold in the U.
S for example are priced at either level or lower than the cost of production. Price fixing (horizontal and vertical) happens when a representative of more than one company set similar price of their product. This anticompetitive scenario was illegal due to its unethical act. Transfer pricing refers to a pricing of products, service or intangible property bought and sold by operation units or divisions of a business unit with an affiliate in another Jurisdiction. There are three (3) intra-corporate exchanges namely cost-based, market-based and negotiated transfer pricing. 6 Countertenor Countertenor occurs when payment is made in some form of non monetary element such as barter trade, counter purchase or parallel trading, off-setting, compensation trading/buy back policy as well as switch trading. This exchange can assist the countries who do not have sufficient foreign currency reserve. 2. 7 Case Example Dacca Logan one of the product-line under Renault car manufacturer is embarking on a low price car strategy. Although this car does not have the power steering and air conditioning, it has proven to be very popular amongst customer in both emerging and developed countries.
This success stories demonstrate their strategy of simple marketing idea (Price sells car). Many new drivers can afford to buy this car at the same price of owning a motorcycle. Pricing in international marketing is an extremely complex affair due to the political and economic risks involved. Yet astute handling of the elements of price can give the company an advantage in terms of currency gains, but this alone should not be the reason why company should get into foreign transactions.