Chapter 11
Chapter 11
Export Pricing
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’s
price may be $12.00 to $14.00 and foreign customer’s price
may 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 nonrevolving.
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 reevaluated 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
Chapter 17
Global Pricing
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
Transfer Pricing
– 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.
Arm’s Length 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
Pricing Within Individual Country
Markets
• Determined by:
–
–
–
–
–
Corporate objectives
Costs
Customer behavior and market conditions
Market structure
Environmental constraints
Pricing Within Individual
Markets
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
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)
Countertrade
• 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-bycountry or even transaction-by-transaction basis..
Chapter 16 Chapter 16
Global Logistics and
Global
Logistics and
Materials Management
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.
International Shipping Transportation modes - 1
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, transnational
7. Intermodal
IK
World’s Busiest Container Ports
TEUs, 2007
1. Singapore, Singapore 27,9322,000
2. Shanghai, People's Republic of China 26,1503,000
3. Hong Kong, Hong Kong 2 3,8814,000
4. Shenzhen, People's Republic of China 21,0995,000
5. Busan, South Korea 13,2706,000
6. Rotterdam, Netherlands 10,7917,000
7. Dubai, United Arab Emirates 10,6538,000
8. Kaohsiung, Taiwan10,2579,000,
9. Hamburg, Germany 9,89010,000
10. Qingdao, People's Republic of China 9,46211,000
13. Los Angeles, United States of America 8,35514,000
15. 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
- Documentation for an
International Shipment
Exhibit 16.6
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 Chapter 12
Marketing
Communication
Marketing Communication
Exhibit 12.1 - The Marketing
Communication Process
Sender
(Encodes
Message)
Message
Channel
Message
Noise
Feedback
Communication
Outcome
Receiver
(Decodes
Message)
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 Chapter 13
Distribution
Management
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
External
– Customer
characteristics
– Culture
– Competition
Internal
–
–
–
–
–
–
–
–
Company objectives
Character
Capital
Cost
Coverage
Control
Continuity
Communication
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 longterm 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
Chapter 14
Global Product
Global Product
Management
Management and Branding
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 portfolio
Brands 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 and
impact.
• 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
End of Web Slides