Webster University
Product and Brand Management
Global Pricing
MRKT 5980
Global Product Development
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The heart of the global marketing process that focuses
on building adaptability into products to achieve
worldwide appeal.
The product development process
• The main goal is to build adaptability into
products and product lines for worldwide
appeal.
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Step 1: Idea generation
Step 2: Screening
Step 3: Product/process
development
Step 4: Scale up
Step 5: Commercialization
Webster University MRKT 5980
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Global Program Management
SOURCE: Llkka A. Ronkainen, “Product Development in the Multinational Firm,” International Marketing Review I(Winter 1983):24-30.
Initiator
Managing
Unit
Initiator Becomes
Managing Unit
Affected
Units(s)
Viable Concept
Yes
Does Initiator Have
Resources?
No
New Management
Unit Assigned
Unique Requirements to be
Incorporated in Product
Goals and Specifications
Technical Development and
Design
Review of Design
Activities to Plan, Develop,
Manufacture, Introduce,
and Support Product
Integration and
Coordination of All
Multinational Program
Activities
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Activities to Plan, Develop,
Manufacture, Introduce,
and Support Product
Nonoccurrence with
Managing Unit
Webster University MRKT 5980
Guidelines for Program
Execution
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The Location of R&D Activities
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Past tendency was to keep activities centrally
located with parent corporation headquarters.
Using foreign-based resources improves ability to
compete successfully internationally.
Outsourcing shortens product
development cycle time.
Determined by the existence
of specific skills.
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Reasons for R&D Investments Abroad
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To aid technology transfer from parent to
subsidiary.
To develop new and improved products
specifically for foreign markets.
To develop new products and processes for
application in world markets of the firm.
To generate new technology.
Host governments see R&D
centers as highly desirable
investments.
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Global Product Development Organization
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Product development team that is functionally
and internationally representative.
Focus on customer input to identify universal
and market-unique product features.
R&D consortia allows companies to cooperate
in developing new products and technologies.
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The Testing of New Product Concepts
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Testing for performance and customer acceptance is the
final stage of product development.
Testing ranges from reliability tests to mini-launches.
Reasons that new international products fail:
• Relying on instinct or hunch rather than
testing and research.
• Lack of product distinctiveness.
• Unexpected technical problems.
• Mismatch between functions.
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International Product Testing Techniques
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Limited product launch in one country market.
Laboratory test markets to capture consumer
reactions in a controlled environment.
Microtest 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.
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The Global Product Launch
Introducing the product into countries in three or more
regions within a narrow timeframe.
Successful launches require:
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• Involvement of country managers
• Pre-launch attention to localization
and translation requirements
• Increased education and
support of the sales channel
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Benefits of a global launch
• Showcases the product
• Removes old models at once
• Captures new product’s higher margins
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Product and Brand Portfolio Management
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The marketer must have a balance of new,
growing, and mature products capable of
creating sustainable competitive advantage in
the firm’s efforts to expand geographically or
add to existing market operations.
Analyzing the product portfolio
• Market rates
• Market positions
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Example of a Product-Market Portfolio
40
40
B
S
F
GB
D
C
10
US
0
10
1
0
Market Growth
B
S
J
F
GB
D
10
C
US
0
10
1
0
Relative Market Share
Relative Market Share
Company A
Company B
(B=Brazil, C=Canada, D=Germany, F=France, GB=Great Britain, J=Japan, S=Spain, US=United States)
SOURCE: Adapted from Jean-Claude Larreche, “The International Product-Market Portfolio,” in 1978 AMA Educators’ Proceedings (Chicago:American Marketing
Association, 1978), 276
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Market-Product-Business Portfolio Example
Market Attractiveness
High
Canned Tea-US
Canned Tea-Asia
Ice Cream-US
Canned Tea-Europe
Frozen Main DishesEurope
Ice Cream-Asia
Ice Cream-Europe
Frozen VegetablesEurope
Frozen Vegetables-US
Low
Low
Competitive Strength
——— Market and Distribution Interconnectedness
………. Technology and Production Interconnectedness
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High
SOURCE: Adapted from Susan P. Douglas and Samuel Craig, “Global Portfolio Planning
and Market Interconnectedness,” Journal of International Marketing 4 (no.I, 1996):93-110.
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Product Portfolio Approach
ADVANTAGES
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A global view of
competitive structures.
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Global strategy based on
allocation of scarce
resources.
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Marketing objectives
based on product lines in
markets served .
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A convenient visual
communication goal.
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DISADVANTAGES
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Foreign competition does
not follow the same rules
as domestic competition.
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Relationships between
market share and
profitability may vary.
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Government regulations.
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Local content laws.
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Different production sites
impact perceptions of
risk and quality.
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Managing the Brand Portfolio
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A strong brand is a global marketing asset.
Co-branding
• A strategic alliance where two or more brands are
combined in an offer.
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Brand strategy decisions
• Use of the corporate name.
• Family brands for a wide product line.
• Individual brands for each item in the product line.
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Private (store) branding
• Umbrella branding with the intermediary’s name.
• Separate brand names.
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Nestle’s Branding Tree
Examples
7,500 Local Brands
Responsibility of local
markets
•Texicana
•Brigadeiro
•Rocky
•Soils
140 Regional Strategic
Brands
Responsibility of strategic
business unit and regional
management
•Macintosh •Herta
•Vittel
•Alpo
•Contadina •Findus
•Stouffer’s
45 Worldwide Strategic
Brands
Responsibility of general
management at strategic
business unit level
•Kit Kat
•Polo
•Cerelac
•Baci
10 Worldwide Corporate
Brands
•Nestle
•Maggi
•Carnation •Perrier
•Buitoni
•L’Oreal
•Mighty Dog
•Smarties
•After Eight
•Coffee-Mate
SOURCE: Adapted from Andrew J. Parsons,”Nestle: The Visions of Local Managers,”The McKinsey Quarterly, no 2, 1996, 5-29;see also http://www.nestle.com; http://brand/index.asp.
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Private Brand Strategy
Strategy
Rationale
Circumstance
No participation
Refusal to produce
private label
Heavily branded markets; high
distinctiveness; technological
advantage
Capacity filling
Market control
Opportunistic
High brand shares where
Influence category sales distinctiveness is less; more
switching by consumers
Competitive leverage
Stake in both markets
Chief source of business Major focus
Dedicated producer
Leading cost position
Little or no differentiation by
consumers
SOURCES:Adapted from Sabine Bonnot, Emma Carr and Michael J. Reyner, “Fighting Brawn with Brain,” The McKinsy Quarterly 40 (no 2. 2000): 85-92; and Francois
Glemet and Rafael Mira, “The Brand Leader’s Dilemma,” The Mckinsey Quarterly 33 (no 2. 1993):4.
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Global Pricing
Strategies
Objectives of Transfer Pricing
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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 over tax issues and
repatriation of profits.
Internal concerns - goal congruence or
subsidiary manager motivation.
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Influences on
Transfer Pricing Decisions
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Market conditions in target countries
Competition in target countries
Corporate taxes at home and target
countries
Economic conditions in target countries
Import restrictions
Customs duties
Price controls
Exchange controls
Reasonable profit for foreign affiliates
Webster University MRKT 5980
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Corporate Use of Transfer Prices
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Three philosophies of transfer pricing are used to
achieve corporate objectives
• Cost-based: direct or cost-plus (most used)
• Market-based: discounted “dealer” pricing
• Arm’s-length: same pricing as for unrelated
parties
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Transfer pricing and environmental influences
• Attempts to minimize tax liability of subsidiaries
in high income tax countries and
report profits in lowest tax rate
jurisdictions may coincidentally
increase other import taxes
and duties.
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Transfer Pricing Challenges
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Internal and external problems for the multinational
corporation
• Performance Measurement
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The clouding effect of manipulating intra-corporate
prices on a subsidiary’s apparent and actual profit
performance.
Difficulty in maintaining relationships with subsidiaries
that are negatively impacted by transfer pricing.
• Taxation
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Tax and regulatory jurisdictions contribute to and
compound transfer pricing problems. Pricing that is
justified and reasonable in the home country may not
be perceived as such in the host country.
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Taxation
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Section 482 of the Internal Revenue Code
recognizes four methods to determine arm’s
length pricing:
• The comparable uncontrolled price
method
• The resale price method
• The cost-plus method
• Any other reasonable method
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Arm’s Length Pricing Methods
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The comparable uncontrolled price method
• MNC member sales made to unrelated parties
• MNC member purchases from unrelated parties
• Sales between unrelated parties
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The resale method
• Pricing determined by subtracting the subsidiary’s
profit from uncontrolled selling price.
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The cost-plus method
• Pricing determined by consistently adding a profit
markup to the internal seller’s total product cost.
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Any other reasonable method
• Typically the functional analysis approach of
comparing the proportional contributions is used.
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Pricing Within
Individual Markets
Determined by:
 Corporate objectives
 Costs
 Customer behavior and market
conditions
 Market structure
 Environmental constraints
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Pricing Within
Individual Markets
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Corporate Objectives
• Profitability (ROI) and competitiveness in the market
(market share)
• Market situation pricing
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Skimming
Penetration
• Product line positioning
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Premium and mass markets
Costs
• Resource input costs are
a frequently used basis of pricing determinations
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procurement, manufacturing, logistics, marketing costs
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Pricing Within Individual Markets
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Demand and Market Factors
• The price elasticity of consumer demand
strongly affects pricing in markets.
• Customer perceptions of product offerings
and marketing communications.
• Cooperation and strength of intermediaries.
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Market Structure and Competition
• Other competitors in the market affect and
limit the strategic responses of marketers to
changing market conditions.
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Pricing Within Individual Markets
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Environmental Constraints
• Governments policy measures (taxes and tariffs) and
price controls influence prices and pricing levels
directly. Price controls require marketers to operate
as if in regulated industries.
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Arguments Against Price Controls
• The maximum price becomes the minimum price.
• In a wage-price spiral, labor turns against
restrictions as wage increases are forestalled.
• Government controls are difficult to enforce and less
tax is raised because less money is made.
• Governments may need to bail out companies to
prevent bankruptcies and unemployment.
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Pricing Coordination
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Standard worldwide pricing is influenced by:
• The need for pricing latitude by subsidiaries faced
with localized market conditions.
• The large absolute and relative size differences of
international markets.
• The effect of arbitrage practices in closely located
markets is reduced due to the physical distances
between many markets.
• Parallel imports will surface in markets where price
discrepancies exist, regardless of distances.
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The Euro and Marketing Strategy
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Launch of the Euro
• became one and only currency or 12 European
nations as of January 1, 2002.
• requires firms to reexamine business
positioning.
• will push national markets closer with single
currency and single cross-border price.
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Marketing strategy changes
• prices become transparent and require
stronger. promotions and education of products
to consumers
• aim to lower prices as slowly as possible.
• price differences reflect quality and service
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differences.
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Countertrade
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More than goods, services, or ideas are exchanged in a
sale
A type of barter arrangement
More beneficial to some countries than financial
exchange transactions alone
Mechanism for firms to gain entry into new markets
Long-term sales stability
Opens market for uncompetitive goods
E-commerce may help develop online global barter
economy to increase benefits of Countertrade
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Types of Countertrade
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Counterpurchase or parallel barter
• two separate contracts and may include cash
• allows for imbalance in value of goods exchanged
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Buypack or compensation arrangement
• supply of technology/equipment to produce goods
sold with supplies brand for repayment
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Clearing arrangements
• clearing accounts established deposit/withdraw of
countertrade activities - including switch-trading
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Offset
• coproduction, licenses production, subcontracting,
technology transfer, overseas investment
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