Think globally act locally

Chapter-1
1.1-DEFINITION OF INTERNATIONAL MARKETING

We live in a global marketplace. McDonalds restaurants, Sony TVs, Nokia cell phones, ego
toys are found practically everywhere on the planet.
According to the American Marketing Association, International Marketing is the multi-national
process of planning and executing the conception, prices, promotion and distribution of ideal
goods and services to create exchanges that satisfy the individual and organizational objectives.

International marketing is the performance of business activities designed to plan,

price, promote, and direct the flow of companys goods & services to consumers in more than
one nation for profit.

This is because marketing practices will vary from country to country, for the
simple reason that the countries and peoples of the world are different. These differences mean
that a marketing approach that has proven successful in one country will not necessarily succeed
in another country. The customer preferences, competitors, channels of distribution, and
communication media may differ.

Cock and Coca Cola are global players and both act as locally.

Before becoming a global player a MNC have to decide their global marketing Strategy (GMS)

Standardization versus adaption

Standardization means executed the same way and adaption means executed in different ways.

Management orientations-the form and substance of a companys response to global market

opportunities depend greatly on managements assumptions or beliefs-both conscious and
unconscious-about the nature of the world. And it can be of ethnocentric, polycentric,
regiocentric or geocentric.

Ethnocentric: home Polycentric: each host

country is superior, sees country is unique, see
similarities in foreign differences in foreign
countries countries

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 Regiocentric: sees similarities Geocentric: world view
and differences in a world sees similarities and
region is ethnocentric or differences in home and
polycentric in its view of the host countries
rest of the world

Ethnocentric orientation-A person who assumes that his or her home country is superior to the
rest of the world is said to have an ethnocentric orientation. Company personnel with an
ethnocentric orientation see only similarities in markets and assume that products and practices
that succeed in the home country will be successful anywhere. Ethnocentric companies that
conduct business outside the home country can be described as international companies.

Polycentric orientation is the opposite of ethnocentrism. The term polycentric describes

managements belief or assumption that each country in which a company does business is
unique. The term multinational company is often used to describe such a structure. This point of
view leads to a localized or adaptation approach that assumes products must be adapted in
response to different market conditions.

Regiocentric and geocentric orientations-a company with a geocentric orientation view the
entire world as a potential market and strives to develop integrated world market strategies. A
company whose management has a regiocentric or geocentric orientation is sometimes known as
a global or transnational company. These company uses both types of strategies such as
adaptation and standardization.

1.2-Nature of IM-

1. Equally important 4 ps 2.-Comprehensive, 3-Customer oriented, 4-Interdisciplinary, 5-Part of

global environment, 6-Commercial activity, 7-Polycentric,

1-Dyanamic/2-Goal oriented/3-Challenging/4-need fulfilling/5-co-operation between different

governments/6-searching new markets/7-Multi-facted/8- To earn Profit

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1.3-SCOPE OF INTERNATIONAL MARKETING

International Marketing constitutes the following areas of business:-

1-Exports and Imports:
2-Contractual Agreements: Patent licensing, turnkey operations, co production,
technical and managerial know how and licensing agreements are all a part of
international marketing.

3-Licensing includes a number of contractual agreements whereby intangible assets such as

patents, trade secrets, know how, trademarks and brand names are made available to foreign
firms in return for a fee.
4-Joint Ventures:

5-Wholly owned manufacturing:

6-Contract manufacturing:

7-Management contracting: Under a management contract the supplier brings a package of

skills that will provide an integrated service to the client without incurring the risk and benefit of
ownership.
8-Third country location: When there is no commercial transactions between two countries
due to various reasons, firm which wants to enter into the market of another nation, will have to
operate from a third country base. For instance, Taiwans entry into china through bases in Hong
Kong.
9-Mergers and Acquisitions: Mergers and Acquisitions provide access to markets,
distribution network, new technology and patent rights. It also reduces the level of competition
for firms which either merge or acquires.
10-Strategic alliances:
A firm is able to improve the long term competitive advantage by forming a strategic alliance
with its competitors.

1.4-Benefits of IM
International Marketing provides new markets
Presents opportunities for growth, expansion
Income Allows for the flow of ideas, services & capital Increases the speed of innovation
Allows for better usage of human capital
Allows greater access to financing
Gives consumers more choice
Growth & Employment
Defense Needs

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 Balance of Payment
Control Inflation & Recession Growth & Profitability
Economies of Scale
Minimizing Risk
Acquiring Inputs, Resources & Technology
Uniqueness Providing Opportunities
Opportunities Arising out of PLC R&D Cost Spread

Chapter-2

Reasons and motivation underlying international trade and international

business:-
2.1-Reasons

Growth/ profitability/ achieving economies of scale/Achieving economies of scope (re-

usability)/ risk spread/ access to imported inputs/ uniqueness of product or services

marketing opportunities due to life cycle/ spreading R&D cost

2 .2- Motivation: - all these factors motivate to an entrepreneur for international trade or
international business.

-Regional economic agreements- general agreement on tariffs and trade (GATT) which was
ratified by more than 120 such as NAFTA is already expanding trade among the United States,
Canada and Maxico. The nations in 1994 have created the world trade organization to promote
and protect free trade.

-Converging market needs and wants and information revolution

-Transportation and communication improvements.

-Product development cost.

-World economic trends.

-Leverage-A global company possess the unique opportunity to develop leverage. In the context
of global marketing, leverage means some type of advantage that a company enjoys by virtue of
the fact that it has experience in more than one country. In other words, leverage enables a
company to expend less time, less effort or less money.

Four types of leverage are experience transfers, scale economies, resource utilization and global
strategy.

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-Tax rebate in that country for doing business.

-Entrepreneurship skills

-Easy rule-regulation entering in other markets

-Social environment of foreign country

-Economic environment of other country

-Political and legal environment of foreign country

-Cost of raw material and cheap labour

-infrastructure facilities

-will power of the owner

-Natural and technological climate of that country.

Chapter-3
3.1-INETRNATIONAL MARKETING PROCESS

Five steps of the international marketing process:

The international marketing process comprises of five steps which marketers have to take as part
of their integrated marketing effort;
1. Analyzing international marketing opportunities to identify unfulfilled or under fulfilled
needs that a marketer may satisfy through its products or services. This analysis can be done
through information seeking and analysis or through market research (secondary or primary data
collection and analysis).

2. To Target potential customer- Once the marketer has identified the potential opportunities in
the first step now is the time to select the groups of potential international customers (target
markets) to whom to sell the products or services. This step also involves identifying the
potential buyers, demand measurement & forecasting, market segmentation, market targeting &
market positioning.
3. Suitable marketing strategies.-Since a firm needs to offer best value to the potential
customers to makes its products and services more salable compared with competitors, firms
have to adopt appropriate business and marketing strategies.

Various researchers have studied successful

companies around the world and attempted to identify how these firms have aligned and
coordinated their activities and efforts. Porter has concluded that successful firms have adopted

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one of the three strategies, i.e., cost leadership, differentiation or focus. Other scholars have
identified that successful firms adopted strategies that were aligned with their market position,
i.e., a market leader, challenger, follower & niches strategies. Other researchers have asserted
that firms have achieved success in markets through adopting one of the three value discipline
strategies, i.e., operational excellence, customer intimacy or product leadership. Details on these
strategies may be found in strategy subject and books.
4. The fourth step in the marketing process is developing the international marketing mix-
product, place, price & promotion. Marketing mix identifies four key areas for developing a well
coordinated marketing strategy. To create a strong marketing impact a firm needs to develop
appropriate programs in these four key areas and also need to ensure that all these four aspects
of a firms marketing program are well coordinated and in conformity with each other to give a
clear image to the target market of the firms brands and its products.
5. Developing a good marketing program is not good enough for success. A firm also needs to
manage the international marketing effort properly. Quite often firms fail not because they
did not have a viable marketing program, but that they failed in properly implementing their well
designed plans. Firms also need proper analysis, planning, implementation and control of their
marketing programs.

3.2-Domestic marketing vs International marketing

Marketing is a ploy that is used to attract, satisfy and retain customers. Whether done at a local
level or at the global level, the fundamental concepts of marketing remain the same.

Domestic Marketing

The marketing strategies that are employed to attract and influence customers within the political
boundaries of a country are known as Domestic marketing.

International Marketing

When there are no boundaries for a company and it targets customers overseas or in
another country, it is said to be engaged in international marketing.

Similarities

1-Customer oriented 2-Goodwill is necessary 3-Improvement

Difference between domestic marketing and international marketing

As explained earlier, both domestic as well as international marketing refer to the same
marketing principles. However, there are glaring dissimilarities between the two.

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Scope The scope of domestic marketing is limited and will eventually dry up. On the other
end, international marketing has endless opportunities and scope.

Benefits As is obvious, the benefits in domestic marketing are less than in international
marketing. Furthermore, there is an added incentive of foreign currency that is important from
the point of view of the home country as well.

Sharing of technology Domestic marketing is limited in the use of technology whereas

international marketing allows use and sharing of latest technologies.

Political relations Domestic marketing has nothing to do with political relations whereas
international marketing leads to improvement in political relations between countries and also
increased level of cooperation as a result.

Barriers In domestic marketing there are no barriers but in international marketing there are
many barriers such as cross cultural differences, language, currency, traditions and customs.

Sovereign political entities:-each country has different legal system, monetary system such as-
custom duty, on tariff barriers, quota system foreign exchange control.

Lower mobility of factor of production-

Greater degree of risk-

Cultural dimensions-

Different procedures documentation-

3.3-Basic Mode of Entry

What are the steps taken by the executives of these firms before deciding on which market to
enter? How do they make sure they make their journey a successful one?

A mode of entry into an international market is the channel which your organization employs to
gain entry to a new international market

Exporting -The Internet

Licensing - Joint Venture

Direct Investment
: Export - Indirect and Piggybacking
- Indirect exports is the process of exporting through domestically based export
intermediaries.
-Piggybacking whereby your new product uses the existing distribution and logistics of

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 another business.
Export Management Houses (EMHs) that act as a bolt on export department for your
company. They offer a whole range of services to exporting organizations.

Providing offshore services-

Off shoring: Relocation by a company of a business processes from one country to

anothertypically an operational process, such as manufacturing, or supporting
processes, such as accounting.

Internet- The Internet is a new channel for some organizations and the sole channel for
a large number of innovative new organizations-New online retail brand e.g. Amazon,
Last minute.com, Online Auction e.g. eBay

New online manufacturer brand e.g. Dell.com

International Licensing:-Licensing essentially permits a company in the target country

to use the property of the licensor. Such property usually is intangible
the licensee pays a fee in exchange for the rights to use the intangible property and
possibly for technical assistance.
Intangible property includes patents, inventions, formulas, processes, designs, copyrights,
and trademarks

Franchising.
Examples include Dominos Pizza, Coffee Republic and McDonalds.

Turnkey Project
In a turnkey project, the contractor agrees to handle every detail of the project for a
foreign client, including the training of operating personnel
Contract manufacturing-Contract manufacturing firm is that which manufactures
components or products for another "hiring" firm. It is a form of outsourcing

.Foreign Direct Investment/ Overseas Manufacturing/ International Sales Subsidiary

Joint venture
Two or more firm join together to create a new business entity that is legally separate and distinct
from its parents.
Wholly owned subsidiary- its of two types
Greenfield investment and Acquisitions.
-Greenfield investment is the establishment of a new wholly owned subsidiary.
-Acquisition has been increasing because it is a way to achieve greater market
-International Agents and International Distributors
-Strategic Alliance
A strategic alliance is a term that describes a whole series of different relationships between
companies that market internationally

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Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain
independent and separate.
-Expropriation:
Expropriation is the ultimate threat that a government can pose toward a foreign company.
Expropriation refers to governmental action to dispossess a company investor. Generally,
compensation is provided to foreign investors.

3.3-International marketing environment: - it includes all the external & internal

factors that surround and influence decisions and actions of an international organization-

International marketing environment

Internal External
-Product - Economic
-Price -Demographic
-Promotion -Socio-cultural
-Place -Technological
-Competitive
-Natural
-Political
1-Economic environment
A) Nature of economic system
Communism/Socialism/Capitalism
B) Government Policies-
-Fiscal policy
-Monetary Policy
-Commercial Policy
C) Structural Anatomy
-Parliamentary system/ -Monarchy, Dictatorship
D) Markets
-Population/- Population growth/ -Distribution of population age wise, density
-Market potential /-competitor /-customers/-income
E) Degree of urbanization
2) Non-Economic Environment-
A) Physical environment
-Natural resource/ -Topography/-Climate
B) Education level
C) Cultural

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 3.4-Factors influencing international market selection

Economic Socio-cultural government legal Technological Demographic

Climate Income of populations Age group natural Education of

consumer customers

After diagnosing to these factors a marketer can select to an international market.

3.5-Market segmentation
dividing a market into distinct groups of buyers with different needs, characteristics, or
behavior who might require separate products or marketing strategies .it called segmentation.

Basis for segmenting consumer markets: Basis for segmenting business markets:
Geographic Demographics
nations, regions, states, counties, cities, industry, company size, location
neighborhoods, climate, population density etc. Operating variables
Demographic technology, user/non-user status, customer
age, gender, family size, family life cycle, capability
income, occupation, education, religion, race, Purchasing approaches
nationality etc. purchasing function organization
Psychographic power structure
social class, lifestyle, personality etc. nature of existing relationships
Behavioral general purchase policies
purchase occasion, benefits sought, user status, purchasing criteria
user rate, loyalty status, readiness status, attitude Situational factors
toward product etc. urgency, specific application, size of order
Personal characteristics
buyer-seller similarity, attitudes towards risk, loyalty

Segmenting International Market

Like domestic markets, international markets can also be segmented on the following criteria;
geographic location
economic factors
political & legal factors
cultural factors
inter market segmentation (segment consumers with similar profile but different countries)

Basis for country segmentation:

Country markets can be segmented on the basis of their economic status or socio-economic

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variables;
Economic Status Grouping:
Based on GNP per capita & level of industrialization / market sophistication.
- First World:
include advanced industrialized nations of Western Europe, North America, Japan & Australia,
NewZealand.

- Second World:
High income oil exporter and newly industrialized countries.
- Third World:
Group of countries that need time & technology rather than massive foreign aid to build modern
developed economics.
- Fourth World:
Centrally planned communist run nations.
- Fifth World:
Countries with few presently known resources people living in massive poverty.

Socio economic variables:

Stages of economics development
- Traditional Societies
Countries in this group are in endless quagmire of enormous poverty, low productivity
& high illiteracy
- Pre-conditions for take-off
Advances in sciences & technology enter the agriculture sectors. First steps are taken
to develop infrastructure.
- The take-off
Infrastructure is mainly in place spurring city centered industries.
- The drive to maturity
Countries at this stage are able to produce a wide variety of products. Service sector
gains prominence.
- High Mass Consumption
Sizeable middle class with significant discretionary incomes have highly developed
services sector.

Political Conditions:
- Political variables form another basis for country segmentation.
- Economic System - Free market, mixed or centrally planned.
- Political setups - Democracies, dictatorships, communist dictatorships & monarchies
- Political Risk
Cultural Variables:
- Cultural traits provide another basis to classify countries i.e., religion, language, education,
aesthetic preferences etc.

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 - Marketers can also rely on a well established measurement scales for culture-based market
segmentation.
- Hofstedes four cultural dimensions can also be used for segmenting country markets

Individualism versus collectivism Power distance

Uncertainly avoidance Masculinity - feminit
Behavior Based Segments

Life Style Attitudes Opinions Values

Benefits sought after (Product concept

Degree of brand / supplier loyalty Usage rate (per capita Product market penetration
consumption)

Geographic Grouping
Grouping on Religion
- Inter-market segmentation / Global segments
- Similar group of consumers across countries may be combined to form a viable segment.

Requirements for effective international segments:

While an international marketer may identify many possible segments in the target markets,
these need to be evaluated for viability and business potential. Chosen segments need to satisfy
the following four aspects for implementation of effective marketing strategies and profitability;
Potential in segments should be measurable
size, purchasing power, profiles of people
Segments should be accessible for marketing programs
segment can be effectively reached and served
Segments should be substantial
segments are large and profitable enough to serve
It should be possible to implement marketing action programs
effective programs can be designed for attracting & serving the segment

Chapter-4
4.1-Selection strategies of international market
Market Selection which factor are important : - Firm related factors, Market related factors and
other factors
Market Identification and Selection: -Any firm wanting to internationalize its operations may
adopt either a reactive or a proactive approach to market identification as described below:

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 Systematic Approach to Market Identification:
-However, a systematic proactive approach is generally adopted by larger companies in selecting
international markets. Since a firm has limited resources, it has to focus on a few foreign
markets. Besides, proper selection of markets avoids wastage of the firms time and resources so
that it can concentrate on a few fruitful markets. A firm has to carry out preliminary screening of
various countries before a refined analysis is carried for market selection.

Depending upon the

firms objectives and market characteristics any of these approaches can be adapt.

Selection Criteria -Four important selection considerations are:

Company capabilities and resources /Availability and capabilities of suppliers or partners

1-Company Capability and Resources: Different forms of offshore sourcing demand different
abilities on the part of enterprises and vastly different commitments of resources. Simple
offshore purchasing requires little experience or investment, whereas controlled offshore
manufacturing requires a considerable commitment of investment capital and management time.

2-Availability and Capabilities of Suppliers or Partners: Whether acceptable suppliers and/or

partners are available depends on the country, on the complexity of the production requirements,
and on the size of the proposed operation. Small operations for relatively simple products may
have a wide choice of suppliers or partners, whereas larger investments for more complex
products will be more limited in this respect. This partly explains why more controlled offshore
manufacturing exists in electronics than in the apparel industry.

3-Projected sourcing volumes and variability

4- Degree of integration of offshore sourcing with other operations.

The Selection of an International Market Entry Mode: -An SME needs to critically examine
several factors while selecting the most appropriate entry mode for international markets. The
major factors which need to be examined are as under:

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 Market size

Market growth

Regulatory framework

Structure of competition

Level of risks.

These factors should be carefully evaluated considering the willingness and strength of the
organization to commit its resources for global expansion..

4.2-Global marketing planning

Planning concepts

In order to operate any type of plan, three types of information are essential:

a) Knowledge of the market - customers, competitors and government

b) Knowledge of the product - the formal product, its technology and its core benefit
c) Knowledge of the marketing functions.

In many cases LDCs have found it difficult to make real international inroads often
because they lack the information required. "Country grouping" is an effective way
to plan. Hence countries are grouped according to a number of criteria and treated
alike. Such criteria include market size, market accessibility (market or commercial
economies), stage of market development, prospects for growth, and promise for
future growth and development. Zimbabwe may be a "promising" country for
investment, but Somalia may not be "promising". Other concepts for planning are
"competence centers". The mission of a competence centre is to formulate a global
business strategy for a new business. Competence centers are not those developed
through "leadership" ability but involve a number of factors like strategic location
and skills.

In marketing planning, ultimately, the decision on the type of plan rests entirely on
the size of the task, type of task and competence to achieve the task. In exporting
flowers, say, to Europe, Zimbabwe would be well advised, with the small quantities
involved, to leave the task to those experts in Holland and Germany whose
knowledge and competence is far superior. The downside is that some market
opportunities may be overlooked

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Planning involves where the organization would like to be and how to get
there, which involves goal setting and strategy determination. Planning
involves three main activities:

a) Situation analysis - where are we now?

b) Objectives - where do we want to be?
C) Strategy and tactics - how can we best reach our goals?

Planning gives a number of advantages:

Gives rise to systematic thinking

Helps coordinate activities
Helps prepare for exigencies
Gives activity continuity
Integrates functions and activities
Helps in a continuous review of operations.

The planning task depends on the level of involvement in a country. Exporting and
licensing give minimum country involvement but joint ventures involve more in-
country activity and give a greater degree of integration and control. Wholly owned
subsidiaries give the organization almost total control. Because of the "external
uncontrollable" international planning is rather more difficult than domestic
planning.

Planning can be standardized, decentralized or interactive.

Standardized plans

These offer a number of advantages:

- Cost savings on limited product range and economies of scale both in production
and marketing, for example fertilizers.

- Uniformity of consumer choice across the world.

There are disadvantages:

- Different market characteristics make uniform products inappropriate, for example,

fresh milk products.

Environmental obstacles disallow standardization; for example lack of refrigerated

transport in developing countries.

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Decentralized plans -Decentralized plans take into account the subtleties of local
conditions; however they are usually very costly and resource consuming.

Interactive plans -In this approach headquarters devises branch policy and a
strategic framework, and subsidiaries interpret these under local conditions, for
example Nestle. Headquarters coordinates and rationalizes advertising, pricing and
distribution. Within any of the above approaches plans can be either long or short
term. Increasingly planning is becoming fairly routine. Most companies operate
"annual operating plans" although these are often "rolled forward" to cover a few
years hence.

Domestic Planning International Planning

1. Single language and nationality 1. Multilingual/multinational/multicultural

factors

2. Relatively homogeneous market 2. Fragmented and diverse markets

3. Data available, usually accurate 3. Data collection a large task requiring

and collection easy significantly higher budgets and personnel
allocation

4. Political factors relatively 4. Political factors frequently vital

unimportant

5. Relative freedom from 5. Involvement in national economic plans;

government interference government influences business decisions

6. Individual corporation has little 6. "Gravitational" distortion by large companies

effect on environment

7. Chauvinism helps 7. Chauvinism hinders

8. Relatively stable business 8. Multiple environments, many of which are

environment highly unstable (but may be highly profitable)

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9. Uniform financial climate 9. Variety of financial climates ranging from
over-conservative to wildly inflationary

1 Single currency 10 Currencies differing in stability and real value

0 .

1 Business "rules of the game" 11 Rules diverse, changeable and unclear

1 mature and understood .

1 Management generally 12 Management frequently unautonomous and

2 accustomed to sharing . unfamiliar with budgets and controls
responsibilities and using
financial controls

.4.3-Global marketing control

Factors like distance, culture, language and practices create barriers to effective
control. Yet without control over international operations, the degree to which they
have or have not been successful cannot be judged.

Planning and control cycles-In well developed international operations

headquarters may seek to achieve control over subsidiaries by three types of
mechanism - data management mechanisms, merge mechanisms, which shift
emphasis from subsidiary to global performance, and conflict resolution
mechanisms that resolve conflicts triggered by necessary trade-offs.

The method of export control in many less developed countries takes the form of
direct organization by government. The appendix note at the end of this section
describes the types of control imposed.

Formal control methods

Planning and budgeting

Planning and budgeting are the main formal control methods. The budget spells out
the objectives and necessary expenditures to achieve these objectives. Control
consists of measuring actual sales against expenditures. If there is tolerable
variance then no action is usually taken.

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Evaluating performance

Performance is evaluated by measuring actual against planned performance. The

problem is setting a performance standard. Usually it is based on historical
performance with some kind of industry average. Problems of international
comparison inevitably occur like how does one plan in an environment where
exchange rates fluctuate quite often during the budget period.

Influences on marketing budgets

In preparing a budget or plan, the following factors are important:

a) Market potential - how large, can it be tested?

b) Competition - what is the competitive level?
c) Impact of substitute products - packaging can be substituted in many ways
d) Process - headquarters may impose an "indicative planning" method or guidance.

Other performance measures

Other measures of performance include share of market, image, position or

corporate acceptance. Often these are difficult to obtain where data or data
collection is difficult.

Informal control method

When staffs are transferred from market to market, they often take their standards
of performance with them and these can be assessed. Other methods include face-
to-face contact and evaluation.

Variables influencing control

A number of factors may influence the control methods. These include:

a) Domestic practices and values of standardization - these may not be appropriate

b) Communication systems - have a heavy influence on control mechanisms -

electronic control measures may not always be available

c) Distance - the greater the distance, the bigger the physical and psychological
differences

d) The product - the more technological the product the easier it is to implement
uniform standards

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e) Environmental differences - the greater the environmental differences the greater
the delegation of responsibility and the more limited the control process

f) Environmental stability - the greater the instability in a country the less relevance
a standardized measure of performance.

g) Subsidiary performance - the more a subsidiary does, or reports, a non variance,

the less likely is there to be headquarters interference

h) Size of international operators - the bigger and greater the specialization of

headquarters staff the more likely will extensive control be applied.

Obviously the ability to control any international operation, whether it be very

sophisticated or relatively unsophisticated, the process will break down without
adequate face-to-face and/or electronic communications.

Chapter-5
5.1-MARKETING MIX STRATEGIES AND TACTICS

Break each of the 4 Ps into Strategy and Tactical Plan elaboration. How product,
promotion, distribution, and pricing strategies evolve in international marketing is
dependent on the approach to internationalization the company takes.

Differing strategies and market tactics may be required for various target segments.
For a given target segment, alternative strategies and programs should be
formulated and evaluated as to the effectiveness of each in achieving company
objectives.

Some of the issues that might be relevant include:

Product

Make sure that product strategies support the companys overall strategy.

Modify existing product(s) - (what features and benefits will your products
provide?)
Develop new product(s)
Add or drop products from the line
Determine product positioning
Develop branding approach
Register product designs, brand name, trademarks, etc.
Tailor product packaging and labeling to the market
Initiate product registration
Price

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A number of issues are important in pricing products for overseas markets:

How will product price be determined (demand-based or cost-plus, marginal

costing or full costing)
Price level compared to competitors (premium, parity or discount)
Price variation (geographic margins, discount structure)
Margins that will be offered to local partners such as agents, distributors, etc.
Penetration pricing, market skimming etc.
Terms of sale (CIF, FOB etc.)
Terms of payment (cash in advance, letter of credit, etc.)
Place

A number of distribution options are likely to be available to your company. You will
need to assess the distribution (and production) options in accordance with the
opportunities available and the resources of the company. These may include:

Direct export of branded products

Indirect export of branded products
Joint venture with a local partner with a shared market development
responsibility, and possibly a shared manufacturing responsibility
License technology to a company already established in the market
(Manufacturing Under License, or MUL)
Establish market franchises
Purchase or establish your own means of distribution in the targeted country
You must decide whether you are going to use single or multiple channels.

Identify potential partners for the company (distributors, agents, joint venture
partners, etc.) based on the chosen production/distribution option and profile
according to important selection criteria such as:

Established company with proven track record of business success

Sales and marketing expertise and extent of geographical
distribution/network coverage
Access to funds to support and sustain market entry for the companys
products
Personal contact in each of the targeted end-user segments
High profile/integrity/good reputation, as perceived by end-users
Complementary products manufactured/distributed
Technical competence/ability to communicate to end-users
Geographical extent of market coverage
Other criteria which end-users may consider to be important
Extent of interest in locally representing the Local country company
Having decided on one or more local partners, you must decide whether to
negotiate exclusive or non-exclusive distribution arrangements with them.

Promotion

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In order to promote your products and your company you must consider a Number
of major issues:

Overall communication message that is suited to the local culture

"Pull" or "Push" approach
Type of promotion (personal selling, point-of-sale promotions, direct mail,
etc.)
Media to be used (radio, television, print, etc.)
Use of Social Media platforms such as Face book, YouTube Twitter, etc.
Branding (family versus individual)
Dealer incentives
Trade shows, conferences, etc., in which you will participate
Communication Extension vs. Adaptation
Must the specific advertising message and media strategy be changed from
region to region or country to country? What are the arguments for each?
Global Choices with respect to advertising messages:
o Prepare new copy for foreign markets in host countrys language
o Translate the original copy into target language
o Leave some or all copy elements in home country language

5.2-International Product Policy and Planning

What to Sell?

International Product Strategies

Standardization versus Customization

Timing of Foreign Entry

Managing an International Brand Portfolio

Product Packaging and Labeling

Managing International Product Lines

We have to make policies and be do deep planning regarding above written points.

5.3-International Product Mix

Product mix decisions:

Product mix (or product assortment) is the set of all product lines and items that a particular
seller offers for sale to international buyers
Width
Length

21
 Depth
Consistency

5.4-Product Life Cycle

THEORY OF INTERNATIONAL PRODUCT LIFE CYCLE (IPLC)
International Product Life Cycle
(IPLC) theory explains trade in a context of comparative advantage, describes the diffusion
process of an innovation across national boundaries.
The life cycle begins when a developed country, having a new product to satisfy consumer
needs, wants to exploit its technological breakthrough by selling abroad. Other advanced nations
soon start up their own production facilities and before long LDCs do the same. Efficiency shifts
from developed countries to developing nations. Finally, advanced nations, no longer cost-
effective, import products from their former customers. The advanced nation becomes a victim
of its own creation.

22
Stages and characteristics
there are 5 distinct stages in the IPLC stage 0 through 4. The given
below table shows the major characteristics of the IPLC stages, with the US as the developer of
the innovation in question. The next exhibit shows three life-cycle curves for the same
innovation: One for the initiating country, one for the other advanced countries and one for
LDCs. For each curve, net export results when the curve is above the horizontal line; if under the
horizontal line, net import results for that particular country. As the innovation moves through
time, directions of all three curves change. Time is relative, as the time needed for a cycle to be
completed varies from one kind of product to another.

IPLC stages and characteristics for the initiating country

1) Local Innovation None USA Few: Local Firms Initially High
(2) Overseas innovation Increasing export USA & Advanced Nations Few: Local Firms Decline
owing to economies of scale
(3) Maturity Stable export Advanced Nations & LDCs Advanced Nations Stable
(4) Worldwide imitation Decline export LDCs Advanced nations Increase owing to lower eco.
of scale.
(5) Reversal Increasing import USA Advanced nations & LDCs Increase owing to comparative
disadvantage

Stage 1 Local Innovation: Stage 1, on the left of the vertical importing / exporting axis,
represents a regular and highly familiar product life cycle in operation within its original market.
Innovations are most likely to occur in highly developed countries because consumers in such
countries are affluent and have relatively unlimited want. From the supply side, firms in
advanced nations have both the technological know-how and abundant capital to develop new
products.

Stage 2 Overseas Innovation: As soon as the new product is well developed, its original
market well cultivated, and local demands adequately supplied, the innovating firm will look to
overseas markets in order to expand its sales and profit. Thus, this stage is known as a
Pioneering or International Introduction stage. The technological gap is first noticed in other
advanced nations because of their similar needs and high-income levels..

Stage 3 Maturity: at this stage innovating firms start doing their business in other developing
countries.. The innovating firms sales and export volumes are kept stable because LDCs are now
beginning to generate a need for the product. Introduction of the product in LDCs help offset any
reduction in export sales to advanced countries.
Stage 4 Worldwide imitation: This stage means tough times for the innovating nation because
of its continuous decline in exports. There is no more new demand anywhere to cultivate. The

23
decline will certainly affect the US innovating firms economies of scale, and its production cost
thus begin to rise again.

Stage 5 Reversal: The major characteristics of this stage are product standardization and
comparative disadvantage. The innovating countrys comparative advantage has disappeared and
what is left is comparative disadvantage. This disadvantage is brought about because the product
is no more capital-intensive or technology-intensive but instead has become labor-intensive for
LDCs. LDCs now can establish sufficient productive facilities to satisfy their own domestic
needs as well as to produce for biggest market in the world. For e.g. the black and white
televisions are now no more manufactured in USA as many Asian firms can produce them much
less expensively than any US firms.

Now here one thing is important that which type of strategy you have to be use on every stage of
PLC .
1. Product strategy:
II. Pricing Policy:
Stage 1: At this stage, firm can afford to behave as a monopolist, charging a premium price for
its innovation. But this price must be adjusted downward in the second and third stage of IPLC to
discourage potential new comers and to maintain market share.
III Promotion Policy: Promotion and pricing are highly related in IPLC. In the starting, the
marketer must plan for a non-priced promotional strategy such as providing technical support, or
offering after-sales-service or giving warranty for a particular period after the product is offered.
The concentration should be towards meeting consumers demand.

IV Place: A strong dealer network can provide the innovating firm with a good defensive
strategy. Because of its monopoly situation at the beginning, the firm is in a good position to be
able to select only the most qualified agents and the network should be expanded further as the
product becomes more diffused.

5.5-Standardization of product strategies:

- Standardization means offering a uniform product on regional or worldwide base may be with
minor changes.
- Customization leverages cross-border differences in needs & wants of the firms target
customers.
- Forces that favor a globalized product strategy are:
Common customer needs & buying behavior
Economies of scale in production, R&D, marketing and cost savings
Lesser time required in introducing into new markets
Global consumers & consumer mobility
Home country image
Similar technical specs for industrial & consumer products
Operating via exports of uniform products

24
 Better marketing performance
Consistency in product design & selling techniques
Establishes a common image
Success in one market can be duplicated in other markets
Standardization may lead to substantial opportunity lost

5.6-Product Adaptation
Product Adaptation In order to meet the needs of international customers, firm
may need to adapt its product to suit individual or regional markets. The company
will also need to establish a brand that can be applied globally or tailored to fit
into local markets. A corporation has to commission studies to understand how its
products are being used in different regions of the world. From those findings, they
can begin to adapt their products to new markets.

Factors Affecting Product Adaptation-

Product Target Market Packaging Design Ingredien

ts

Instructions for Language and service Culture Religions

use Warranty

Geographic/Clim Technological Changes in Economic Regulation channel

ate Climate Marketing

Price Promotion Advertising channel Brand

name

Adaptation of product strategies:

Obligatory adaptation due to laws and regulations of foreign countries
Discretionary adaptation (on the choice of the marketer)
to better suit varying customer needs
differing use conditions
due to different market factors
companys resources / product objectives
product life-cycle stage
5.7-organization of Product warranties and services-
Product Warranty :

Should a company keep the same warranty for all markets or adapt it
country by country?

25
 Should the firm use warranty as a competitive weapon?

Product Service :

Service capability to accredit the firm with foreign suppliers

high investment in facilities, staffing, training, and distribution network

Warranty :
In contract law, a warranty has various meanings but generally means a guarantee or promise
which provides assurance by one party to the other party that specific facts or conditions are true
or will happen. This factual guarantee may be enforced regardless of materiality which allows for
a legal remedy if that promise is not true or followed.

Although a warranty is in its simplest form an element of a contract, some warranties run with a
product so that a manufacturer makes the warranty to a consumer with which the manufacturer
has no direct contractual relationship.

A warranty may be express or implied, depending on whether the warranty is explicitly provided
(typically written) and the jurisdiction. Warranties may also state that a particular fact is true at
one point in time or that the fact will be continuing into the future (a "promissory" or continuing
warranty).

Warranties provided in the sale of goods (tangible products) vary according to jurisdiction,
but commonly new goods are sold with implied warranty that the goods are as advertised. Used
products, however, may be sold "as is" with no warranties.

In the United States, various laws apply, including provisions in the Uniform Commercial Code
which provide for implied warranties.However, these implied warranties were often limited by
disclaimers. In 1975 the MagnusonMoss Warranty Act was passed to strengthen warranties on
consumer goods.Among other things, under the law implied warranties cannot be disclaimed if
an express warranty is offered, and attorney fees may be recovered. In some states statutory
warranties are required on new home construction, and "lemon laws" apply to motor vehicles.

Implied warranty
Implied warranties are unwritten promises that arise from the nature of the transaction, and the
inherent understanding by the buyer, rather than from the express representations of the seller. In
the United States, Article 2 of the Uniform Commercial Code (which has been adopted with
variations in each state) provides that the following two warranties are implied unless they are
explicitly disclaimed (such as an "as is" statement):

26
Defects in Materials and Workmanship
The most common kind of warranty on goods is a warranty that the product is free from defects
in materials and workmanship. This simply promises that the manufacturer properly constructed
the product, out of proper materials. This implies that the product will perform as well as such
products customarily do.

It is common for these to be limited warranties, limiting the time the buyer has to make a claim.
For example, a typical 90 day warranty on a television gives the buyer 90 days from the date of
purchase to claim that the television was improperly constructed. Should the television fail after
91 days of normal usage, which because televisions customarily last longer than 91 days means
there was a defect in the materials or workmanship of the television, the buyer nonetheless may
not collect on the warranty because it is too late to file a claim.

Satisfaction guarantee
In the United States, the MagnusonMoss Warranty Act of 1976 provides for enforcement of a
satisfaction guarantee warranty. In these cases, the advertiser must refund the full purchase price
regardless of the reason for dissatisfaction.

Lifetime warranty
A lifetime warranty is usually a warranty against defects in materials and workmanship that has
no time limit to make a claim, rather than a warranty that the product will perform for the
lifetime of the buyer. The actual time that product can be expected to perform is normally
determined by the custom for products of its kind used the way the buyer uses it.

Breach of warranty
Warranties are violated when the promise is broken or the goods are not as expected. The seller
may honor the warranty by making a refund or a replacement. The statute of limitations depends
on the jurisdiction and contractual agreements. In the United States, the Uniform Commercial
Code 2-725 provides for a four-year time limit, which can be limited to one year by contract,
starting from the date of delivery or if future performance is guaranteed from the date of
discovery. Refusing to honor the warranty may be an unfair business practice. In the United
States, breach of warranty lawsuits may be distinct from revocation of contract suits; in the case
of the breach of warranty, the buyer's item is repaired or replaced while breach of contract
involves returning the item to the seller.

Some warranties require that repairs be undertaken by an authorized service provider. If the
defective product causes injury, this may be a cause of action for a product liability lawsuit (tort).
Strict liability may be applied.

Extended warranty

27
In addition to standard warranties on new items, third-parties or manufacturers may sell extended
warranties (also called service contracts). These extend the warranty for a further length of time.
However, these warranties have terms and conditions which may not match the original terms
and conditions. For example, these may not cover anything other than mechanical failure from
normal usage. Exclusions may include commercial use, "acts of God", owner abuse, and
malicious destruction. They may also exclude parts that normally wear out such as tires and
lubrication on a vehicle.

Warranty data
Warranty data consists of claims data and supplementary data. Claims data are the data collected
during the servicing of claims under warranty and supplementary data are additional data such as
production and marketing data. This data can help determine product reliability and plan for
future modifications.

What is PSS?
Product Service Systems, put simply, are when a firm offers a mix of both products and services,
in comparison to the traditional focus on products.

As defined by (van Halen, te Riele, Goedkoop)- "a marketable set of products and services
capable of jointly fulfilling a user's needs".

A product-service system (PSS), also known as a function-oriented business model, is a

business model, developed in academia, that is aimed at providing sustainability of both
consumption and production.

This view of PSS is similar to other concepts commonly seen in the environmental management
literature, such as "dematerialization" and "servicizing.

"Servicizing" is a transaction through which value is provided by a combination of products and

services in which the satisfaction of customer needs is achieved either by selling the function of
the product rather than the product itself, or by increasing the service component of a product
offer.The concept is based on the idea that what customers want from products is not necessarily
ownership, but rather the function that the product provides or the service the product can
deliver.This means that the provider of "servicizing solutions" may get paid by the unit-of-
service (or product function) delivered, as opposed to the (more traditional) unit-of-products
sold.

Types of PSS -tangibles (the products) and intangibles (the services

28
 Product Oriented PSS: This is a PSS where ownership of the tangible product
is transferred to the consumer, but additional services, such as maintenance
contracts, are provided.

Use Oriented PSS: This is a PSS where ownership of the tangible product is
retained by the service provider, who sells the functions of the product, via
modified distribution and payment systems, such as sharing, pooling, and
leasing.

Result Oriented PSS: This is a PSS where products are replaced by services,
such as, for example, voicemail replacing answering machines.

Solution oriented (PB-SO) PSS: (e.g. selling a promised level of heat transfer
efficiency instead of selling radiators)

Effect oriented (PB-EO) PSS: (e.g. selling a promised temperature level in a

building instead of selling radiators)

Demand-fulfillment oriented (PB-DO) PSS: (e.g. selling a promised level of

thermal comfort for building occupants instead of selling radiators)

According to the second distinguishing feature, a PSS can be designated as segregated, semi-
integrated, and integrated, depending on to what extent the product and service elements (e.g.
maintenance service, spare parts) are combined into a single offering.

Impact of PSS
Several authors assert that product service systems will improve eco-efficiency by what is termed
"factor 4", i.e. an improvement by a factor of 4 times or more, by enabling new and radical ways
of transforming what they call the "product-service mix" that satisfy consumer demands while
also improving the effects upon the environment.

van Halen et al. state that the knowledge of PSS enables both governments to formulate policy
with respect to sustainable production and consumption patterns, and companies to discover
directions for business growth, innovation, diversification, and renewal

Chapter-6
6.1-Branding:
A brand is a sellers promise to deliver consistently a specific set of features, benefits &
services to buyers
A brand is a collection of images and ideas representing an economic producer; more

29
specifically, it refers to the concrete symbols such as a name, logo, slogan, and design
scheme.

Brand recognition and other reactions are created by the accumulation of experiences
with the specific product or service, both directly relating to its use, and through the influence of
advertising, design, and media commentary. A brand is a symbolic embodiment of all the
information connected to a company, product or service.

A brand serves to create associations and expectations among products made by a producer. A
brand often includes an explicit logo, fonts, color schemes, symbols, sound which may be
developed to represent implicit values, ideas, and even personality.

The brand, and branding and brand equity have become increasingly important components of
culture and the economy, now being described as cultural accessories and personal
philosophies.
Some marketers distinguish the psychological aspect of a brand from the experiential aspect. The
experiential aspect consists of the sum of all points of contact with the brand and is known as the
brand experience. The psychological aspect, sometimes referred to as the brand image, is a
symbolic construct created within the minds of people and consists of all the information and
expectations associated with a product or service.
Marketers engaged in branding seek to develop or
align the expectations behind the brand experience, creating the impression that a brand
associated with a product or service has certain qualities or characteristics that make it special or
unique. A brand image may be developed by attributing a personality to or associating an
image with a product or service, whereby the personality or image is branded into the
consciousness of consumers. A brand is therefore one of the most valuable elements in an
advertising theme, as it demonstrates what the brand owner is able to offer in the marketplace.

The art of creating and maintaining a brand is called brand management.

This approach works not only for consumer goods B2C (Business-to-Consumer), but also for
B2B (Business-to-Business),
A brand which is widely known in the marketplace acquires brand recognition. Where brand
recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the
marketplace, it is said to have achieved brand franchise. One goal in brand recognition is the
identification of a brand without the name of the company present. For example, Disney has
been successful at branding with their particular script font (originally created for Walt Disneys
signature logo), which it used in the logo for go.com.

Brand equity measures the total value of the brand to the brand owner, and reflects the extent of
brand franchise. The term brand name is often used interchangeably with brand, although it is
more correctly used to specifically denote written or spoken linguistic elements of a brand. In
this context abrand name constitutes a type of trademark, if the brand name exclusively
identifies the brand owner as the commercial source of products or services. A brand owner may
seek to protect proprietary rights in relation to a brand name through trademark registration.

30
Brand energy is a concept that links together the ideas that the brand is experiential, that it is not
just about the experiences of customers/potential customers but all stakeholders and the idea that
businesses are essentially more about creating value through creating meaningful experiences
than generating profit.
Summary of the importance of a brand:

International consumers view brand as an important part of a product & branding can add value
to a product.
A brand is a name, term, sign, symbol, or design, or a combination of above
A brand can deliver up to six levels of meaning

attributes values personality

benefits culture user

Brand equity:
The value of a brand, based on the extent to which it has;

high brand loyalty name awareness

perceived quality strong brand associations
channel relationships patents & trademarks

Major branding decisions an international marketer needs to take:

brand no brand
brand name selection
brand sponsor
manufacturers brand
private brand
licensed brand
co-branding
brand strategy
new brands
line extensions
brand extensions
multi-brands
brand repositioning

6.2-Labeling

Issues in labeling:
International marketers also need to design appropriate labeling for various markets, to cater for
the market differences as well as to adhere to regulations. In the following are the list of issues
marketers face in labeling in international markets;
- different languages of foreign markets

31
- information details to be provided
- instructions for use
- different price or currencies
- different promotions
- consumer preferences in various markets (color, wording style etc..)
- rules and regulations of foreign countries
Issues in warranty and service policies:
International marketers also face issues, whether to standardize or to localize warranty and
service
policies in international markets. Factors favoring standardization or localization of warranty and
service policies in international markets are listed below;

Factors favoring standardization

presence of multinational customer

goods purchased in one market but consumed elsewhere
products affecting human health and safety
standardized products

Multilingual: which languages?

Instructions: pictures, words?
What do people need to know to use the product safely?
Functional literacy
Legal requirements
Warranties and ways to contact the company

6.3-Packaging

Issues in packaging in international markets:

International marketers need to take into account the following factors for deciding appropriate
packaging in various international markets;
changes in climates across countries
lengthy & difficult transportation
lengthy periods on shelves
varying sizes of packaging
different consumer preferences in packaging
some standardization needed to make the product recognizable
growing environmental consciousness
different types of channels of distribution
different cost pressures

32
 environmental concerns

Recycling
Protection of product: Shelf life, climate, storage, transportation
Display and regulations
Size: what is usage rate?
What kind of containers are people used to?

Packaging the many purchase decisions that are made at the point-of-sale. At the same time,
many companies are also recognizing the many benefits of global packaging, which generally
involves using a single packaging system, in which text can be translated into local languages.

However, marketers also face a minefield of challenges in developing and testing effective global
packaging, given that competitors, retail environments and shoppers vary from market to market.
With these challenges in mind, Id like to offer five (5) principles to help ensure that research
studies are accurately gauging the impact of packaging systems. Later, Ill also share several
insights gathered from our studies (for effective global packaging).

Principle #1: Avoid Side-by-Side Beauty Contests

Whether you are in Boston, Barcelona or Bangkok, the ultimate objective of any packaging
system is to drive sales. Therefore, packaging studies must go beyond aesthetics (i.e. What
people like) and instead focus on communication and persuasion (i.e. What people will buy).

However, poorly designed packaging studies can quickly descend into art directing rather than
communication assessment. For this reason, the single most important principle of effective
packaging research is monadic study design, in which each person sees/reacts to only one system
and findings are compared across cells (i.e. those who saw current packaging vs. those who
saw proposed packaging). Thats because the primary objective of a packaging study should be
to simulate the introduction of a new packaging system (to see how it impacts shoppers attitudes
and behavior. In other words, the evaluation of packaging systems is not about preference it is
about influencing behavior.

Principle #2: Start on the Shelf by Gauging Visibility & Shop-Ability

Retail environments vary widely across

countries, from enormous hyper-markets to small kiosks in many developing countries.
However, if there is one global constant, it is that clutter and complexity are increasing, as
shoppers everywhere encounter more products and choices at retail.

Because packaging must live on these increasingly cluttered shelves - and work within the
limited time (often only 10-20 seconds) that shoppers typically spend making their purchase
decisions the first challenge is clearly to be seen and considered and to consistently create an
opportunity to sell. In fact, our PRS Eye-Tracking studies show that shoppers never see at least
1/3rd of the brands displayed.

33
Principle #3: Remember that the Norm is Competition

Packaging also differs from advertising, in that packaging is typically positioned directly next to
its primary competitors. In other words, packaging is rarely viewed or considered in isolation
and all communication is inherently on a relative or comparative basis (i.e. with your package in
a persons left hand and a competitive package in their right hand.). In advertising, the emphasis
is often on historical norms and absolute measures. For packaging, the most relevant norm is
nearly always competition - and it is critical to assess a packaging system relative to its primary
competitors in each market.

In Europe and North America, we increasingly find that the store brand is a primary competitor,
and therefore the interviewing sequence must uncover a packaging systems ability to
differentiate and justify a price premium. As dominant retailers continue to expand across
borders, measuring communication against store brands will inevitably become a more important
global challenge.

Generate visibility and consideration at retail

Help shoppers to select the right product/variety

Convey key information and product messages

Generate purchase interest

Therefore, marketers can and should use a consistent research methodology (which addresses
shelf visibility, communication and persuasion) in all markets. Within each country, a brands
packaging should be judged relative to its competitors. However, because people in different
cultures tend to evaluate things quite differently, mandated absolute scores (such as The
packaging must have 50% purchase interest in each country) often dont make sense. A more
appropriate approach is to use a consistent competitive objective across markets (We must be
stronger than competition in each country.) In other words, its best to measure globally, but
interprets findings locally.

Principle #4: Focus on Functionality

When thinking globally, it is particularly important to remember that packaging systems need to
function effectively within both the retail and home environments. Specifically, the size and
shape of a package must allow it to be shelved/displayed at retail, transported home and used,
stored and disposed of easily.

Because retail and home environments vary so widely across countries, finding a single global
structure is nearly impossible. Inevitably, the structures that work in large U.S. stores, SUVs
and suburbs will often be inappropriate in many other markets. Therefore, the challenge is not
necessarily to find a single solution, but instead to develop a global design system that translates
effectively across multiple sizes and structures. From a research perspective, there are several
primary implications:

34
 It is important to evaluate packaging systems across different forms/structures and retail
environments

It is valuable to speak with retail personnel, to understand the implications of alternative

packaging structures on shelving and retail presence

It is worthwhile to do conduct ethnographic research, to observe people transporting,

using and storing packaging within their homes.

Principle #5: Dont Rely on A Single Number

As marketers seek to project the returnon-investment (ROI) from packaging changes, there is
increasing pressure to provide a single number to assess each proposed packaging system and
guide final decisions. Understandably, some are turning to simulated shopping to document
changes in shopping patterns and market share (Did a new system drive more purchases?).

While simulated shopping has value, weve found that a one-time shopping exercise captures
only part of the story and that few packaging changes meet the standard of immediately driving
sales gains. Thats because packaging does not typically work in such a direct manner: The
reality is that a packaging change will rarely override years of buying patterns and lead many
competitive users to switch brands. Instead, a new look can and should lead non-buyers to look
twice at your brand and perhaps to give it a try if it is on special or perhaps their brand is out-
of-stock. A more realistic goal is to enter the consideration set as a viable alternative for non-
users.

To provide a more comprehensive projection of impact, packaging research must combine

simulated shopping with a series of exercises that document performance in areas that link to
longer term business building potential. These dimensions include shelf visibility, aesthetic
appeal, competitive differentiation and personal relevance. As importantly, using multiple
measures helps ensure that packaging research serves as more than a scoresheet (for
identifying winners and losers) -- and also provides the diagnostic guidance needed to create
more effective packaging.

Chapter-7

7.1- International pricing policies

PRICING IN INTERNATIONAL MARKETS

Price: A part of the marketing mix:

The price is what the customer pays. It includes direct and indirect costs as well as opportunity
costs.
Direct costs are cash outlays a customer makes in order to obtain something. An example would
be admission to a national park. Direct costs are, in many cases, a relatively small part of the

35
total cost.
Indirect costs are costs associated with obtaining something. An example would be the cost of
driving to a national park, food and entertainment along the way, etc. The total of the indirect
costs is often more, sometimes much more, than the direct cost.
The total cost is obtained by adding the direct and indirect costs.
Opportunity costs are what we give up when we do something. They can have various types of
value, sometimes monetary, sometimes not. Opportunity costs include other things you could be
doing instead of going to a national park. Examples might include mowing the lawn or going to a
baseball game (which would be non-monetary) and not working overtime on Saturday in order to
go to a national park(which would be monetary),
The price the park visitor pays to go to a national park is the total of all costs, including direct,
indirect, and opportunity. The perceived benefits of going to a national park have to be at least as
great as the total of the costs if a potential park visitor is going to make a decision to go to a park.

Determining the price:

How do you set monetary prices? There are basically two ways. I call these cost-
based pricing and
value-based pricing.
Cost-based pricing is based on the total of all costs associated with delivering a
product or service to a customer. An example of cost-based pricing would be when
an organization identifies all of the costs associated with producing a product or
service, adds them up, adds a margin for profit (in the business sector) and arrives
at the "price" the customer is to be charged. This type of pricing is the "floor" for
pricing decisions in that it is as low as the price can be and still cover all of the costs
associated with delivering the product or service. I'm unaware of applications of this
type of pricing in the park service world, unless it might be applied by
concessionaires.
Value-based pricing is based on an organization's perception of the value the
potential customer (park visitor) might place on the product or service. An example
of value-based pricing would be when an organization believes that people would
pay Rs20 for a service and decides to price it at Rs20 even though the price might
be set at Rs10 based on a cost-based model. This type of pricing is the "ceiling"for
pricing decisions in that it is as high as the price can be and still find a willing
customer. It has no relationship to the cost of production, rather it is influenced by
perception of alternatives customers face.
A subset of value-based pricing is supply/demand pricing. In this type of pricing, an
organization has a limited supply of the product or service and decides to price it
just barely low enough to sell all of the limited supply. There is no relationship to the
cost of production. Sometimes applications
supply/demand pricing are labeled as gouging because the organization is
perceived as taking advantage of the situation.

In summary, pricing is quite complex. The most responsible means of pricing would
probably give
some consideration to all of these pricing concepts, attempting to balance the
needs and desires of the public for access with the real costs associated with
delivering the product or service. Responsible pricing would recognize market
segmentation concepts as expressed in differing demand levels and abilities to pay

36
and attempt to maximize revenue through pricing accordingly. The result would be
either maximizing gain or minimizing loss.

Importance of price in marketing mix:

Price is the amount of money charged for a product or a service, or the sum of the
values that
consumers exchange for the benefits of having or using the product or service
Price is the only element in the marketing mix that produces revenue.
Price is also the most flexible element of the marketing mix.
The most common mistakes in setting prices are;
pricing that is too cost oriented
prices that are not revised enough to reflect the market changes
pricing that does not take rest of the marketing mix into account
prices that are not varied enough for different products, market segments &
purchase occasions

Factors influencing international pricing:

Factors internal to an international firm

strategic objectives
cost leader, differentiation, focus
gain market share, protect market share, to maintain status quo
revenue, profit or market share maximization
marketing mix policies
product, place & promotion
costs
short term vs long term cost focus
full cost, variable cost, marginal cost pricing
organizational considerations
transfer pricing
cost vs profit center
Factors external to an international firm

nature of market (buyer or seller)

level of market development/sophistication
market demand and consumers ability to buy
competitive situation & consumer surplus
product life-cycle-stage
type of packaging, environmental issues
distribution & marketing costs
transportation costs
government policies, tariffs, taxes & other restrictions
country of origin image
after-sales service, warranties & guaranties
exchange rate fluctuation
environmental factors
hidden costs

Factors contributing the selection of final price:

37
 Psychological effects of price
Influence of other marketing mix elements
Company pricing policies
Costs
Impact of price on other parties
distributors or dealers
company sales force
competitors
Managing price escalation in foreign markets:

Rearrange the distribution channel

length of channel / exorbitant margins
Eliminate costly features (or make them optional)
no-frills versions - sell core products
Downsize the product
offer smaller version or a lesser count
Assemble or manufacture the product in foreign markets
closer proximity to customers - lower costs
Adapt the product to escape tariffs and taxes
by shifting it to different tax classification

Pricing in inflationary environments:

- Modify components, ingredients, parts and/or packaging materials

- Source materials from low-cost suppliers
- Shorten credit terms
- Include escalator clauses in long-term contracts - to hedge against inflation
- Quote prices in a stable currency
- Pursue rapid inventory turnovers
- Draw lessons from other countries

Exporters strategies under varying currency conditions:

When domestic currency is WEAK
Stress price benefits
Expand product line and add more costly features
Shift sourcing manufacturing to domestic market
Exploit export opportunities in all markets
Use a full-costing approach, but employ marginal-cost pricing to penetrate new or
competitive
markets
Speed repatriation of foreign-earned income and collections
Minimize expenditures in local or host country currency
Buy needed services (advertising, insurance, transportation, etc.) in domestic
market
Bill foreign customers in their own currency

38
When domestic currency is STRONG
- Engage in non-price competition by improving quality, delivery, and after-sale
service
- Improve productivity and engage in vigorous cost reduction
- Shift sourcing and manufacturing overseas
- Give priority to exports to countries with relatively strong currencies
- Trim profit margins and use marginal-cost pricing
- Keep the foreign-earned income in host country; slow down collections
- Maximize expenditures in local or host country currency
- Buy needed services abroad and pay for them in local currencies
- Bill foreign customers in the domestic currency

7.2-The process of price setting

1st Step : Selecting the Price Objectives :

We all know the price setting is the major part of marketing policy and one of P4 of
marketing mix. So, it is the first in which you have to select the price object for
setting it. It may be

a) Survival the product in market :

Company thinks that his product is new and for creating its position in market,
company should take minimum price from its customers.

b) Maximum profit objective :

If company wants to earn maximum profit, the company can set high price under
price skimming. Company thinks that if it will fix high price, no competitor faces it.

c) High market share objective :

Company's object is to increase sale. So, it will determine low price than
competitors.

2nd Step : Determining the Demand :

Main aim of taking second step is to check whether our set price is best for
increasing demand or not. In this step, we takes following decisions

a) Create the demand curve and check the trend :

With past records of our company's product price and past sales company can
create demand curve, it shows the effect of changing price on demand of customer.

39
The company can take the help of economist which they can explain its technical
explanation. But with this, company can know whether company's price are creating
bad effect on demand or good effect on demand.

b) Demand Elasticity

With this, company can estimate about how much demand is effected with
increasing or decreasing the price.

3rd Step : Estimate the Costs :

For determination the price of product company should estimate the cost of
product.

I) Calculate variable and fixed cost :

Fixed cost = Electricity + salary bill etc

variable cost = raw material cost + labour cost + other expenses etc.

II) Calculate differential cost in differential market :

Use activity base costing system if company sells product different time period.

III) Target Costing :

This is japan's technique

at what price consumer wants the product xxxx

Less margin = xxxx

-------------------------------------------------

Estimated price = xxxx

--------------------------------------------------

Cost must be less than estimated price

IV) Also estimate competitor's price:

4th Step : Selecting a Good Price Method :

40
a) Markup pricing :

Total cost price xxxx

Add % Margin on sale xxxx

----------------------------

Sale price xxxx

----------------------------

b) Perceived value price :

it is fixed on the basis of cost of market mix and margin

( product cost + advertising cost + placement cost ) + margin = fix price

c) Value Price :

Low price of quality product than competitors.

6th Step : Select the Final Price

After analysis of above five steps, marketer selects the final price of a new product.

marketing, marketing management, price

- See more at: http://business.svtuition.org/2010/06/price-setting-

process.html#sthash.B8Ub6Ki2.dpuf

7.3-Pricing decisions
Three basic factors determine the boundaries of the pricing decision - the price floor, or
minimum price, bounded by product cost, the price ceiling or maximum price, bounded by
competition and the market and the optimum price, a function of demand and the cost of
supplying the product.

In addition, in price setting cognizance must be, taken of government tax

policies, resale prices, dumping problems, transportation costs, middlemen and so on. Whilst
many agricultural products are at the mercy of the market (price takers) others are not. These
include high value added products like ostrich, crocodile products and hardwoods, where
demand outstrips supply at present.

41
Global pricing policies
There are three possible global pricing policies - extension (ethnocentric), adaptation
(polycentric) and invention (geocentric).
Extension: The same global price. A very simple method but does not respond to market
sensitivity.
Adaptation : 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 : A mix of a) and b). This takes cognisance of any unique market factor (s) like costs,
competition, income levels and local marketing strategy. In addition it recognises the fact that
headquarters price coordination is necessary in dealing with international accounts and
arbitrage and it systematically seeks to embrace national experience.

Pricing Strategies:
Skimming Price strategy: Skimming price strategy is strategy in which the
manufacturer charges a very high price in the initial stage of the PLC from the
consumers.

Penetration Price strategy: In this type of pricing strategy, the exporter charges
a lower price in the initial stages since the main objective of the exporter is to
capture a large market share and create brand loyalty among the consumers. In the
later stages, the exporter raises the prices of the product and recovers the losses
suffered in the initial period.
Market Holding strategy: in this type of strategy, the goal is to maintain the market share. It is
used for price adjustment against competitors.

Cost plus pricing: There are basically two types under this heading, the historical accounting
cost method and the estimated future cost method.

One major feature of international pricing is the increase on the price due to the application of
duties, increase in costs of transportation and distribution margin increase, increase with the
length of distribution channel, etc.
Dumping: It is the sale of an imported good or product at a price lower than normally charged in
domestic market or country of origin than the country of sale. It is usually done by organizations
to capture the market share. There are anti dumping legislations used by the government to
protect local industries since it affects development of local economy, as it cannot be predicted.
To be convicted, both price discrimination and injury must be proved.

GENERIC STRATEGIES

if the primary determinant of a firm's profitability is the attractiveness of the industry in which it

42
operates, an important secondary determinant is its position within that industry. Even though an
industry may have below-average profitability, a firm that is optimally positioned can generate
superior returns.
A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's
strengths ultimately fall into one of two headings: cost advantage and differentiation. By
applying these strengths in either a broad or narrow scope, three generic strategies result: cost
leadership, differentiation, and focus. These strategies are applied at the business unit level. They
are called generic strategies because they are not firm or industry dependent. The following table
illustrates Porter's generic strategies:

7.4-Information for pricing decisions

7.5- Terms of payment in International transactions

NLB offers payments abroad, payments from abroad and cross-border payments. For efficient
implementation of international payment transactions and other forms of operations we maintain
correspondence relations with approximately 500 banks from 140 countries. Main advantages of
operations through NLB

longer working hours

wide-spread correspondence network

International payment transactions are effected in all currencies included in

the Exchange rate table of NLB d.d. for companies.

43
International payment transactions are conducted based on

Foreign Exchange Act,

Decision on Terms and Conditions for Performing International

Payment Transactions:
- Decision on Compulsory Reporting on International Transactions
- Instructions for Implementing the Decision on Compulsory
Reporting on International Transactions

Payment Transactions Act

Law on the Prevention of Money Laundering

Regulation (EC) No 2560/2001 of the European Parliament and of the

Council of 19 December 2001 on cross-border payments in euro

Transfer abroad

This is a simple instrument for transferring payments abroad; all you need to do is submit the
Bank a properly filled-in order for payment to a foreign partner (Order for payment abroad).

The order for payment abroad is affected through a bank with which NLB holds an account
(nostro) or which holds an account with NLB (loro). If the recipient has an account with one of
these banks, the transfer is faster. In other cases, NLB based on many years' experience, wide
correspondence network and notifications of foreign banks finds the most suitable banking
connection. It is important to know that the more banks are involved in this chain, the longer can
be the time for crediting the recipient's bank account.

An order for payment abroad which is submitted to NLB in accordance with the schedule is
affected as at that same day. This means that a foreign bank will on that same day receive a
payment order, but with the payment value date of two working days. As proof that payment has
been effected, you will receive a copy of the payment order (MT103).

On your request we can also issue a NLB nostro cheque.

Payment abroad can also be effected by foreign cash withdrawal under the conditions and in line
with the procedures laid down in the Prevention of Money Laundering Act.

Transfer from abroad

This is a simple instrument for receiving payment by a foreign partner. All orders are carried out
in line with the schedule, but the recipients are informed about all received payments already on

44
the day the order is received.

Value date can differ from the date on which the payment order is received.
In the case of orders received with the value date:

as at the same day, funds are credited to the account on the same day,

in the future days, funds are credited to the account as at the value date,

in the past days, funds are credited to the account as at the current value
date.

NLB always credits the recipient's account with the currency in which
coverage was received for payment. The recipient is informed about the
received and processed payment order by a Notice of payment transfer from
abroad (Form VP 60).

For statistical reporting the Notice of payment transfer from abroad (Form VP 60) includes also
a column for the statistics of the Bank of Slovenia, which the recipient of payment has to fill in
properly and within three working days of receiving the payment submit to NLB.

For faster receipt of payments from abroad and minimum costs the document which you submit
to a foreign partner has to include accurate and complete data (IBAN)

Methods of Payment in International Trade

New Payment Risk Diagram To Be Created by Designer

Least Secure Less Secure More Secure Most Secure

Exporter Consignment Open Documentary Letters of Cash-in-

Account Collections Credit Advance

Importer Cash-in- Letters of Documentary Open Consignment

Advance Credit Collections Account

Figure 1: Payment Risk Diagram

Key Points

45
 International trade presents a spectrum of risk, which causes uncertainty
over the timing of payments between the exporter (seller) and importer
(foreign buyer).
For exporters, any sale is a gift until payment is received.
Therefore, exporters want to receive payment as soon as possible, preferably
as soon as an order is placed or before the goods are sent to the importer.
For importers, any payment is a donation until the goods are received.
Therefore, importers want to receive the goods as soon as possible but to
delay payment as long as possible, preferably until after the goods are resold
to generate enough income to pay the exporter.
Cash-in-Advance

With cash-in-advance payment terms, an exporter can avoid credit risk because payment is
received before the ownership of the goods is transferred. For international sales, wire transfers
and credit cards are the most commonly used cash-in-advance options available to exporters.
With the advancement of the Internet, escrow services are becoming another cash-in-advance
option for small export transactions. However, requiring payment in advance is the least
attractive option for the buyer, because it creates unfavorable cash flow. Foreign buyers are also
concerned that the goods may not be sent if payment is made in advance. Thus, exporters who
insist on this payment method as their sole manner of doing business may lose to competitors
who offer more attractive payment terms.

Letters of Credit

Letters of credit (LCs) are one of the most secure instruments available to international traders.
An LC is a commitment by a bank on behalf of the buyer that payment will be made to the
exporter, provided that the terms and conditions stated in the LC have been met, as verified
through the presentation of all required documents. The buyer establishes credit and pays his or
her bank to render this service. An LC is useful when reliable credit information about a foreign
buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyers
foreign bank. An LC also protects the buyer since no payment obligation arises until the goods
have been shipped as promised.

Documentary Collections

A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of
the payment for a sale to its bank (remitting bank), which sends the documents that its buyer
needs to the importers bank (collecting bank), with instructions to release the documents to the
buyer for payment. Funds are received from the importer and remitted to the exporter through the
banks involved in the collection in exchange for those documents. D/Cs involve using a draft that
requires the importer to pay the face amount either at sight (document against payment) or on a
specified date (document against acceptance). The collection letter gives instructions that specify
the documents required for the transfer of title to the goods. Although banks do act as facilitators

46
for their clients, D/Cs offer no verification process and limited recourse in the event of non-
payment. D/Cs are generally less expensive than LCs.

Open Account

An open account transaction is a sale where the goods are shipped and delivered before payment
is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the
most advantageous options to the importer in terms of cash flow and cost, but it is consequently
one of the highest risk options for an exporter. Because of intense competition in export markets,
foreign buyers often press exporters for open account terms since the extension of credit by the
seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend
credit may lose a sale to their competitors. Exporters can offer competitive open account terms
while substantially mitigating the risk of non-payment by using one or more of the appropriate
trade finance techniques covered later in this Guide. When offering open account terms, the
exporter can seek extra protection using export credit insurance.

Consignment

Consignment in international trade is a variation of open account in which payment is sent to the
exporter only after the goods have been sold by the foreign distributor to the end customer. An
international consignment transaction is based on a contractual arrangement in which the foreign
distributor receives, manages, and sells the goods for the exporter who retains title to the goods
until they are sold. Clearly, exporting on consignment is very risky as the exporter is not
guaranteed any payment and its goods are in a foreign country in the hands of an independent
distributor or agent. Consignment helps exporters become more competitive on the basis of
better availability and faster delivery of goods. Selling on consignment can also help exporters
reduce the direct costs of storing and managing inventory. The key to success in exporting on
consignment is to partner with a reputable and trustworthy foreign distributor or a third-party
logistics provider. Appropriate insurance should be in place to cover consigned goods in transit
or in possession of a foreign distributor as well as to mitigate the risk of non-payment.

7.6- Dumping

Price discrimination in different markets called dumping

When a marketer sell same commodities in different markets at different prices

Economists have always defined dumping as transnational price discrimination where prices
vary between national markets.

Types of Dumping

47
1. Sporadic Dumping: Occasional sale of a commodity at below cost in order to unload an
unforeseen and temporary surplus of the commodity such as cheese, milk, wheat etc. in the
international market without reducing domestic prices.

2. Predatory Dumping: Temporary sale of a commodity at below its average cost or a lower
price abroad in order to derive foreign producers out of business, after which prices are raised to
take advantage of the monopoly power abroad.

3. Persistent Dumping: Continuous tendency of a domestic monopolist to maximize total profits

by selling the commodity at a higher price in the domestic market than internationally (to meet
the competition of foreign rivals).

Anti-Dumping-guide, Ministry of Commerce,

Dumping usually occurs because of the following reasons: -Producers in one country are trying
to stay competitive with producers in another country, (2) Producers in one country are trying to
eliminate the producers in another country and gain a larger share of the world market, (3)
Producers are trying to get rid of excess stuff that they can't sell in their own country, (4)
Producers can make more profit by dividing sales into domestic and The export price of goods
imported into India is the price paid or payable for the goods by the first independent buyer.

Anti-Dumping Law

Meaning of Anti Dumping

Anti-dumping can be fined as a protective device available to the states against vicissitudes
associated with the free trade. In the recent years a large number countries have become frequent
users of anti-dumping. Many of the heaviest anti-dumping users are countries who did not even
have an anti- dumping statute a decade ago.

WTO and Anti-Dumping Agreement:

Though the WTO rules normally discourage protectionist policies, they do permit and
accommodate anti-dumping measures to provide temporary relief to domestic industry against
dumping by foreign firms. Many trade economists view anti-dumping as the most pernicious
WTO-sanctioned instrument of protection available to countries currently. The best explanation
for its existence is that developed countries have chosen not to give it up. Lately, however,
developing countries have also become frequent users of this instrument.

The WTO provisions on anti-dumping are contained in GATT Article VI and the Uruguay Round
Agreement on Anti-dumping (formally, Agreement on Implementation of Article VI). The latter
builds on the Tokyo Round Anti-dumping Agreement, which had been signed by developed
countries only. The UR Agreement revises the Tokyo Agreement in some areas while adding
precision in others.

48
Anti-Dumping in India: Legal Framework

1. The principle of imposition of anti-dumping duties was propounded by the Article VI of

General Agreement on Tariffs & Trade (GATT) 1994 Uruguay Round

2. Indian legislation in this regard is contained in Section 9A and 9B (as amended in 1995) of the
Customs Tariff Act, 1975

3. Further regulations are contained in the Anti-Dumping Rules [Customs Tariff (Identification,
Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of
Injury) Rules, 1995]

4. The Designated Authority for conducting investigations pertaining to Anti-Dumping issues

and on basis thereof, for forwarding its recommendations is the Ministry of Commerce,
Government of India.

5. The responsibility for Imposition and Collection of duties as imposed /recommended by the
Adjudicating authority is imposed upon the Ministry of Finance, Government of India.

Anti-Dumping in India: Regulatory Framework17

17 Section 3(1) of -The Custom Tariff Act, 1975.

Anti-dumping, anti-subsidies & countervailing measures in India are administered by the

Directorate General of Anti-dumping and Allied Duties (DGAD) functioning in the
Department of Commerce in the Ministry of Commerce and Industry and the same is headed by
the Designated Authority. The Central Government may, by notification in the Official
Gazette, appoint a person not below the rank of a Joint Secretary to the Government of India or
such other person as that Government may think fit as the Designated Authority. In India, there is
a single authority DGAD designated to initiate necessary action for investigations and
subsequent imposition of anti-dumping duties.

The Designated Authority is a quasi-judicial authority notified under the Customs Act, 1962. A
senior level Joint Secretary and Director, four investigating officers and four costing officers
assist the DGAD. Besides, there is a section under the DGAD headed by the Section-Officer to
deal with the monitoring and coordination of die functioning of the DGAD.

The Designated Authoritys function, however, is only to conduct die anti-dumping/anti subsidy
& countervailing duty investigation and make recommendation to the Government for
imposition of anti-dumping or anti subsidy measures. Such duty is finally imposed/ levied by a
Notification of the Ministry of Finance. Thus, while the Department of Commerce recommends
the Anti-dumping duty, it is the Ministry of Finance, which levies such duty.

49
The law provides that an order of determination of existence, degree and effect of dumping is
appealable before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) a
judicial tribunal. It reviews final measures and is independent of administrative authorities

This is consistent with the WTO provision of independent tribunals for appeal against final
determination and reviews. No appeal will lie against the preliminary findings of the Authority
and the provisional duty imposed on the basis thereof. The appeal to the CEGAT should be filed
within 90 days.

Chapter-8

8.1-Countertrade
Trade carried out wholly or partially in goods rather than money.

Types of Countertrade

Barter- direct exchange of goods or services having equivalent values without

cash Transaction

Counter purchase: involves 2 simultaneous separate transactions between 2

parties with Or without cash

Buyback or compensation: involves repayment in the form of goods derived from

directly from, or produced by, the technology, plant, or equipment provided by the
seller.

Offsets: involves an arrangement whereby the seller is required to assist in or to

arrange for the marketing of products produced by the buying country or to allow
some portion of the exported product to be assembled or manufactured by
producers located in the buying country.

Switch-trading: refers to a switch in the country of destination goods

Why countertrade?

50
 Shortage of hard currency/ Lack of credit/BOP problems/ Low commodity prices -
low export income

Surplus capacity/ Arms trade/Lack of a well developed private sector/ Lack of

international trading experience/ LDCs - low share of manufactured goods in trade

Benefits of Countertrade

Allows entry into difficult markets

Increases company sales/Overcomes currency controls & exchange

problems/Increases sales volume

Overcomes credit difficulties/Allows fuller use of capacity/Allows disposal of

declining products

Provides sources of attractive inputs/ Gain competitive edge over competition

Disadvantages of Countertrade

No in house use of goods offered by Customers/Time consuming and complex

negotiations

Uncertainty/ Increase costs/Difficult to resell goods by offsets/Brokerage costs

Getting businesses in which firm may have no knowledge/Risky if commodities

are involved

Pros and Cons of Countertrade

gives firms a way to finance an export deal when other means are unavailable.

foreign governments may require it.

Helps countries that dont have sufficient foreign currency reserves.

May involve defective goods.

Must invest in in-house trading department - expensive and time consuming.

most attractive to large, diverse multinational enterprises.

-Role of countertrade in the world market

A significant chunk of international commerce, possibly as much as 25%, involves

the barter of products for other products rather than for hard currency. Countertrade
may range from a simple barter between two countries to a complex web of
exchanges that end up meeting the needs of all countries involved. [1]

51
 Noted US economist Paul Samuelson was skeptical about the viability of
countertrade as a marketing tool, claiming that "Unless a hungry tailor happens to
find an undraped farmer, who has both food and a desire for a pair of pants, neither
can make a trade". (This is called "double coincidence of wants".) But this is
arguably a too simplistic interpretation of how markets operate in the real world. In
any real economy, bartering occurs all the time, even if it is not the main means to
acquire goods and services.

The volume of countertrade is growing. In 1972, it was estimated that countertrade

was used by business and governments in 15 countries; in 1979, 27 countries; by
the start of 1990s, around 100 countries. (Vertariu 1992). A large part of
countertrade has involved sales of military equipment (weaponry, vehicles and
installations).

More than 80 countries nowadays regularly use or require countertrade exchanges.

Officials of the General Agreement on Tariffs and Trade (GATT) organization claimed
that countertrade accounts for around 5% of the world trade. The British
Department of Trade and Industry has suggested 15%, while some scholars believe
it to be closer to 30%, with east-west trade having been as high as 50% in some
trading sectors of Eastern European and Third World Countries for some years. A
consensus of expert opinions (Okaroafo, 1989) has put the percentage of the value
of world trade volumes linked to countertrade transactions at between 20% to 25%.

According to an official US statement, "The U.S. Government generally views

countertrade, including barter, as contrary to an open, free trading system and, in the
long run, not in the interest of the U.S. business community. However, as a matter of
policy the U.S. Government will not oppose U.S. companies' participation in countertrade
arrangements unless such activities.

8.2- Transfer pricing

Pricing within company, also known as intercompany pricing or transfer pricing.

When one company sell product to his other subsidiary company .at that time what
price he charge from his subsidiary this is transfer pricing.

Transfer pricing helps multinationals in managing their

Competitiveness

Tariff and tax liabilities

Profits and cash flows

52
 Foreign exchange risks

Government restrictions

Challenges to (and criticisms of) Transfer Pricing

It is the rates or prices that are used when selling goods or services between company divisions
and departments, or between a parent company and a subsidiary. The pricing that is set for the
exchange may be the original purchase price of the goods in question or a rate that is reduced due
to internal depreciation. When used properly, it can help to more efficiently manage profit and
loss ratios within the company. Generally, transfer pricing is considered to be a relatively simple
method of moving goods and services among the overall corporate family.

In situations where the transportation of goods is involved in the transaction, the rates may
include both a fixed price per unit transferred, plus additional charges to cover the cost of
shipping. This model is especially helpful when the transfer takes place between a parent
company and a subsidiary. The larger entity can arrange the shipping through a discounted
shipping plan that the smaller entity may not be able to access. The end result is that the pricing
makes it possible to move the goods with the smallest amount of expense to the company as a
whole.

Transfer pricing is arbitrary pricing of exports and imports that may be greater than or less than
the arms-length prices. It is basically the pricing of intra-corporate transactions. Different units
of an MNC operate in different countries on the basis of vertical and horizontal linkages.

Varieties of goods, especially intermediate goods, move among different units. Prices in such
cases are often arbitrary through under-invoicing and over-invoicing of transactions.

The concept of transfer pricing, which was earlier limited to foreign multinational companies, is
becoming increasingly significant for Indian companies as a result of their increasing
internationalization. Indian firms enter international markets by way of joint ventures, wholly
owned subsidiaries, etc. Companies own distribution systems in international markets, which
make transfer pricing crucial for formulating an international pricing strategy. The price of an
international transaction between related parties is called transfer price

53
Objectives of Transfer Pricing:
The objectives of transfer pricing are as follows:

1) Maximizing overall after-tax profits.

2) Reducing incident of customs duty payments

3) Circumventing the quota restrictions (in value terms) on imports.

4) Reducing exchange exposure, circumventing exchange controls and restricting profit

repatriation so that transfer firms affiliates to the parent can be maximized.

5) Transferring of funds in locations so as to suit corporate working capital policies.

6) Window dressing operations to improve the apparent (i.e., reported) financial position of an
affiliate so as to enhance its credit ratings.

Some important types of transfer pricing methods used in International Marketing are as
follows

1) Transfer at Cost:
Companies using the transfer-at-cost approach recognize that sales by international affiliates
contribute to corporate profitability by generating scale economies in domestic manufacturing
operations. This approach assumes lower costs lead to better affiliate performance, which
ultimately benefits the entire organization.

54
The transfer-at-cost method helps keep duties at a minimum. Companies using this approach
have no profit expectation on transfer sales; rather, the expectation is that the affiliate will
generate the profit by subsequent resale.

2) Cost-Plus Pricing:
Companies that follow the cost-plus pricing method are taking the position that profit must be
shown for any product or service at every stage of movement through the corporate system.
While cost-plus pricing may result in a price that is completely unrelated to competitive or
demand conditions in international markets, many exporters use this approach successfully.

3) Market-Based Transfer Price:

A market-based transfer price is derived from the price required to be competitive in the
international market. The constraint on this price is cost. However, there is a considerable degree
of variation in how costs are defined. Since costs generally decline with volume, a decision must
be made regarding whether to price on the basis of current or planned volume levels. To use
market-based transfer prices to enter a new market that is too small to support local
manufacturing, third-country sourcing may be required. This enables a company to establish its
name or franchise in the market without investing in bricks and mortar.

4) Arms-Length Transfer Pricing:

The price that would have been reached by unrelated parties in a similar transaction is referred to
as arms-length transfer pricing. This approach requires identifying an arms-length price,
which may be difficult to do except in the case of commodity-type products. The arms-length
price can be a useful target if it is viewed not as a single point but rather as a range of prices. The
important thing to remember is that pricing at arms length in differentiated products results not
in pre- determinable specific prices but in prices that fall within a pre- determinable range.

5) Tax Regulations and Transfer Prices:

Since the global corporation conducts business in a world characterized by different corporate
tax rates, there is an incentive to maximize system income in countries with the lowest tax rates
and to minimize income in high-tax countries. Governments, naturally, are well aware of this. In
recent years, many governments have tried to maximize national tax revenues by examining
company returns and mandating reallocation of income and expenses.

Basic issues underlying Transfer Pricing

Transfer prices serve to determine the income of both parties involved in the cross
border transaction. The transfer price therefore tends to shape the tax base of the
countries involved in crossborder transaction.

- In any crossborder tax scenario, the three parties involved are the multinational
group, taken as a whole, along with the tax authorities of the two countries involved

55
in the transaction. When one countrys tax authority taxes a unit of the MNE group,
it has an effect on the tax base of the other country. In other words, crossborder tax
situations involve issues related to jurisdiction, allocation and valuation.

(i) Jurisdictional issues

Which government should tax the MNEs income and what if both claim the same
right? If we consider the case where the tax base arises in more than one country,
should one of the governments give tax relief to prevent double taxation of the
MNEs income, and if so, which one? These are some of the jurisdictional issues
which arise with crossborder transactions.

An added dimension to the jurisdictional issue is the specter of transfer pricing

Manipulation as some MNEs engages in practices that seek to reduce their overall
tax bills. This may involve profit shifting through transfer pricing in order to reduce
the aggregate tax burden of a multinational group. It must be noted that the aim of
reducing taxation may be a key motive influencing an international enterprise in the
setting of transfer prices for intragroup transactions, but it is not the only factor
contributing to the transfer pricing policies and practices of an international
enterprise.

(ii) Allocation issues

MNEs are global entities which share common resources and overheads. From the

Perspective of the MNE, these resources need to be allocated with maximum

efficiency in the most optimal manner

(iii) Valuation issues

Mere allocation of income and expenses to one or more members of the MNE group
is not sufficient; the income and expenses must also be valued. This directly leads
us to a key issue of transfer pricing, the valuation of intrafirm transfers

The objective of transfer price apparently seems simple allocation of profits among
the subsidiaries and the parent company, but the differences in the taxation
patterns in various markets makes it a complex phenomenon. Transfer prices come
under the scrutiny of taxation authorities when it is different from the aims length
price to unrelated parties.

8.3- Grey (or parallel marketing)

Products are imported outside of the established distribution channel undercutting the
authorized channel pricing this is gray marketing.

Usually results from high imported prices

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57
Gray Marketing/Parallel Importing Defined
Gray marketing/parallel importing has been a widespread international practice, and one of
concern to manufacturers and retailers since the mid 1980s

. Estimates of the size of international 'gray' markets range from$US7 billion to $US10 billion
(Mathur, 1995). We are unable to locate any more recent estimates of the market size. There is
evidence of tensions between attempts to remove any restrictions on the practice and attempts by
organizations such as the European Union to protect its members from its impact

Parallel importing is not counterfeiting. However, the use of the term synonymously with'gray
marketing' suggests that there is something suspect about the practice. Duhan andSheffet
(1998:75) suggest that 'gray' may imply an "almost black market. Gray marketing involves the
selling of trademarked goods through channels of distribution that are not authorized by the
trademark holders

When gray marketing occurs across markets, such as in an international setting, the term
used most commonly is parallel importing. It provides the opportunity for companies, usually
major retailing chains, to bypass official franchise holders or agents for particular, usually high-
priced, branded goods and to source them direct from overseas suppliers. It is only illegal when
gray market goods violate either product regulations or a licensing contract for the trademark's
use in a specific country, or where the trademark owner is based in the country into which
parallel imports are intended to be shipped. A non-licensed distributor cannot use the brand
trademark in the 'official' stylized trademark form other

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4. Perceived Benefits of Gray Marketing/Parallel Importing

In the international context, parallel export channels may assist in penetrating foreign markets or
in increasing overall market share (e.g. Mitchell, 1998). Domestically,Tapsell (1998) reports the
leading New Zealand parallel importer, the discount retail chain 'The Warehouse' as being
unequivocal about the future of the practice in boosting growth prospects for the organization.
who conclude that retailers often prefer to display high equity brands in close proximity to lesser
or unknown brands in order to leverage the value of the high-equity brand across Research
Memorandum

Conversely, manufacturers who have built equity in their brands want them to be displayed with
brands of similar position and stature. Proximity to lesser or unknown brands, they believe, may
cause the consumer to question the brand Consumer may then also question the normal pricing
structure for a brand in its official retail outlets versus the often substantially lower price in
parallel importers outlets.

5. Perceived disadvantages of Gray Marketing/Parallel Importing

Consumers may purchase parallel imported trademarked goods without being aware of the
difference between these goods and those purchased through 'official' distribution channels. If
problems arise, and customers find that they do not get the expected post sale service and
warranty protection, it may be the goodwill established by the 'official'

Distributor/trademark owner which will suffer

Brands are rarely created by marketing communication activity alone, however advertising and
other related marketing communications activity help communicate and position brands.

Tan et al. (1997) and Michael (1998) claim that parallel importers gain a free ride on the market
demand and brand image of the product created by the authorized distributor, without sharing in
the marketing communications efforts and expenses which have built the demand and associated
image. Thus parallel importers are not concerned

With developing and expanding the market, but rather with acquiring a share of the market
developed by (and at the expense of) authorized channels.

6. The Internet - The Ultimate Parallel Importing Channel

The Internet allows the opportunity for a wide range of products and services to be purchased on-
line, thus competing with traditional distribution channels. The growth of virtual bookstores such
as Amazon.com has been well documented.

7. Moves to counter the Impact of Parallel Imports

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Somewhat idealistically, suggests that parallel importing can be countered by implementing
program to educate end users regarding the benefits of purchasing from authorized resellers
particularly with regard to after-sales service and warranties. This is likely to be effective only
where parallel importers offer no after-sales support, and, as previously noted, the New Zealand
experience indicates that the major parallel importer of consumer goods is offering both support
and a money back guarantee in lieu of warranties.

Michael (1998) reports that more pragmatic solutions, such as reducing export prices to
authorized distributors have commonly been used to counter parallel imports. The main Research
Memorandum

Problem encountered with this strategy appears to be that price discounts intended as a
temporary tactical measure have been perceived as a permanent strategy. Certainly, large price
increases in a previously purchased brand does much to facilitate cognitive dissonance.

Chapter-9- International Advertising

9.1-International advertising Strategy - Advertising - any paid form of non-personal
presentation and promotion of ideas, goods, or services by an identified sponsor.

International advertising environment:

- Involves complexities of cross-cultural communications

- Consumer values and behavior patterns vary from one country to another (language, level of
context needed, life styles, values, norms & customs, ethics & moral standards, taboos)
- Differences in media and their availability
- Differences in regulations and market environment (economic, cultural, demographic,
political/legal)
Advertising in developed countries:
Emphasize consumer goods, their retailing and advertising through mass media
- Heavy advertising and economic development go hand in hand
- Restrictions in some countries
Advertising in developing countries:

- Many less developed countries are sellers market

- Most product markets are geographically limited
- Media not highly developed
- Advertising plays a less significant role in marketing
- Do not have many resources to allocate for advertising

Advantages of international standardized advertising:

economies of scale in production & distribution

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 lower planning & control costs
lower advertising production costs
ability to exploit good ideas on worldwide basis
ability to introduce new products worldwide quickly
a consistent international brand / company image
simplification of coordination and control of advertising programs
targets global consumer segments

Constraints on standardizing international advertisements:

language and attitude differences

media availability and infrastructure
economic differences
local distributors
differences in tastes & attitudes
difference in cultures
difference in needs & usage patterns
difference in lifestyles
difference in perception of product
difference in degree of market maturity
difference in advertising regulations
advertising of vice products and pharmaceuticals
comparative advertisements (comparing with other brands disallowed or a must
to
substantiate)
advertising towards children -disallowed
When standardized advertising is appropriate:
- brands that can be adapted for a visual appeal that avoid the problem of trying to
translate words
- brands that are promoted with image campaign based on themes that play
universal appeal
- new high-tech products
- many luxury products targeted at rich
-Advertising Subject to Regulation
Products that may be advertised

Content or creative approach used

Media advertisers are permitted to use

The amount of advertising one may do

Use of foreign languages in ads

Use of materials from outside the country

Use of local vs. international ad agencies

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 Specific taxes levied on advertising

--Global Marketers Dilemma

-Offer the same product, marketing, and advertising everywhere?

-Adapt the product, marketing, and advertising to each society

Global Marketing & Advertising Advantages

Economies of scale in production, distribution

Lower costs with less in planning and control

Lower advertising production costs

Ability to exploit good ideas worldwide

Ability to introduce products quickly, worldwide

Consistent international brand, company image

Simplification of coordination and control

Problems with Global Advertising

-Differences in culture, market and economic

development make it difficult to use global advertising

- Consumer needs and usage

patterns often vary by country or region

- Media availability or usage may

vary by country or region

- Legal restrictions may make it

difficult to develop an effective universal appeal

Decision Areas in International Advertising

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 - Organization Style/ Agency Selection/ Advertising Research/ Creative Strategy &
Execution/ Media Strategy and Selection/ Coordination of Other IMC Tools

Centralization of International Advertising

- Budgeting- Research- Media Strategy-Agency Selection- Creative Strategy-

Campaign Development-

Decentralized International Advertising

Different advertising policy in every country.

Criteria for Selecting an Agency

1. Ability of agency to cover relevant markets.

2. Quality of agency work.

3. Market research, public relations, and other services offered by the agency.

4. Relative roles of company advertising department and strategy.

5. Level of communication and control desired by company.

6. Ability of agency to coordinate international campaign.

7. Size of companys international business.

8. Companys desire for local versus international image.

9. Company organizational structure for international business and marketing (centralized

versus decentralized).

10. Companys level of involvement with international operations

9.2-Elements of advertising strategy

1. Target audience
2. Product concept
3. Positioning of the product
4. Communication media
5. Advertising message

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The perfect blend of these elements creates a sound advertising strategy
9.3-Media strategy -

Definition: A plan of action by an advertiser for bringing advertising

messages to the attention of consumers through the use of appropriate media.

Media strategy, as used in the advertising or content delivery (online broadcasting) industries, is
concerned with how messages will be delivered to consumers or niche markets. It involves:
identifying the characteristics of the target audience or market, who should receive messages and
defining the characteristics of the media that will be used for the delivery of the messages, with
the intent being to influence the behaviour of the target audience or market pertinent to the initial
brief. Examples of such strategies today have revolved around an Integrated Marketing
Communications approach whereby multiple channels of media are used i.e. advertising, public
relations, events, direct response media, etc.

Chapter-10

10.1-International distribution management-

Place in marketing mix:

place refers to the availability of the product to the customer at the time and the location
where it is desired
Most producers do not sell their goods directly to the final users
Between producers and the final users stands a marketing channel, a host of marketing
intermediaries
performing a variety of functions and bearing a variety of names
Marketing-channel decisions are among the most critical decisions facing management
The companys chosen channels intimately affect all the other marketing decisions
The companys channel decisions involve relatively long-term commitments to other firms
There is also a powerful inertial tendency in channel arrangements
Distribution channels go beyond simple convenience they also affect the products meaning
International channel function and flows:

A marketing channel performs the work of moving goods from producers to consumers. It
overcomes the time, place, and possession gaps that separate goods and services from those who
need or want them. Members of the marketing channel perform a number of key functions-
Collection of information
Promotion of the products
Negotiation with customers
Ordering
Financing of inventories
Risk sharing
Delivery and physical transfer of the products to customers
Payment collection

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 Titletaking & transfer
The channel decision is very important. In theory at least, there is a form of trade-off: the cost of
using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer
goods manufacturers could never justify the cost of selling direct to their consumers, except by
mail order.
Channel membership----Channel motivation----Monitoring and managing channels

Channel membership-
Distribution Policy
Intensive distribution - Where the majority of resellers stock the `product'
(with convenience products, for example, and particularly the brand leaders in consumer goods
markets) price competition may be evident.
Selective distribution - This is the normal pattern (in both consumer and industrial
markets) where suitable' resellers stock the product.
Exclusive distribution - Only specially selected resellers (typically only one per
geographical area) are allowed to sell the `product'.

Channel motivation

It is difficult enough to motivate direct employees to provide the necessary sales and service
support.
Motivating the owners and employees of the independent organizations in a distribution chain
requires even greater effort. There are many devices for achieving such motivation. Perhaps the
most usual is Bribery': the supplier offers a better margin, to tempt the owners in the channel to
push the product rather than its competitors; or a competition is offered to the distributors' sales
personnel, so that they are tempted to push the product. At the other end of the spectrum is the
almost symbiotic relationship that the all too rare supplier in the computer field develops with its
agents; where the agent's personnel,
support as well as sales, are trained to almost the same standard as the supplier's own staff.
Monitoring and managing channels
In practice, of course, many organizations use a mix of different channels; in particular, they may
complement a direct sales force, calling on the larger accounts, with agents, covering the smaller
customers and prospects.

Vertical marketing
This relatively recent development integrates the channel with the original supplier - producer,
wholesalers and retailers working in one unified system. This may arise because one member of
the
chain owns the other elements (often called `corporate systems integration'); a supplier owning
its own retail outlets, this being 'forward' integration. It is perhaps more likely that a retailer will
own its own suppliers, this being 'backward' integration. (For example, MFI, the furniture
retailer, owns Hygiene which makes its kitchen and bedroom units.)
A rather less frequent example of new approaches to channels is where two or more non-
competing organizations agree on a joint venture - a joint marketing operation - because it is
beyond the capacity of each individual organization alone. In general, this is less likely to
revolve around marketing synergy

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Effectiveness of international distribution channels:

The Five Cs Framework can be used by international marketers to determine the effectiveness of
their
international distribution channels;
Coverage
Ability of channel to reach targeted customers to achieve market share and growth objectives
Character
Compatibility of channel with the firms desired product positioning
Continuity
Loyalty of the channel to the firm
Control
Ability of the firm to control total marketing program for the product or service
Cost
Investment required to establish and maintain the channel-variable associated with sales level.
Fixed costs required to manage the channel: inventories, facilities, training of sales force

Control over distribution:

Worldwide the trend is toward shorter distribution channels and closer links, if not direct
relationships, with those active participants in the channel.
Some would argue that the only way to internationalize is to move closer and closer to full
control by means of wholly owned subsidiary. This is quite erroneous.
First, we have to consider industry characteristics, the value-added of the business and what the
customer actually want. Second, it is often possible to achieve close control through a
commission
agent or a joint venture. Control should not be equated directly with ownership.

Selecting channel members

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(1) Analysis of consumer needs

(2) The aims of marketing channel

(4) Selection of intermediaries

(5) Assessment of marketing channel

(3) Identification of the main channel

Alternatives of marketing channels

10.2-International distribution channel

10.3-International distribution policy

10.4. Selecting distribution channels

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Chapter-11-Emerging issues in International marketing

11.1Global e-marketing-The death of Distance

Digital marketing or internet marketing or web marketing has reduced the distance among
countries. Marketing products internationally via internet killed the difference of distance
among exporting-importing countries. This is the main reason we consider to global e-
marketing- that it had make the death of distance.

Never has any new invention shot from obscurity to global fame in quite this way. In 1990, only a
few academics had heard of the Internet. Even In 1997, when France's President Jacques Chirac
opened his country's new national library and was shown a computer "mouse," he gazed at the
curiosity in wonder.

Yet by 2000, perhaps 385 million people around the world had acquired a new way to communicate,
and a new global source of information on a giant scale.

In addition, the Internet has also created a host of new businesses with exotic names such as,
Google; a stock market boom (and bust); and, above all, the most concentrated burst of innovation
the world has ever seen.

The Internet is thus a global laboratory, allowing individuals as well as the marketing departments of
multinationals and academics in top universities to pioneer uses for communications technology. All
sorts of experiments, carried out on the Internet, will feed through into other media, changing and
developing them. The Internet thus functions as both a prototype and a testing ground for the future
of communications. Watching its evolution, we can catch a glimpse of what lies ahead.

The Internet has benefited from the technological revolutions that have slashed the cost of delivering
telephone calls and television programs and multiplied the capacity of both types of network. Unlike
the telephone and television, however, the Internet has no established principal use. Instead, it has
many uses, including carrying telephone calls and television programs.

It offers a peek at the communications future: a world in which transmitting information costs almost
nothing, in which distance is irrelevant, and in which any amount of content is instantly accessible--
but only a peek, for the Internet is merely a prototype for something more sophisticated.

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Why the Internet Matters

The Internet is, in one sense, merely an enormously efficient way to transport digital data around the
world. In another, it is a laboratory for communications in the future.

Overview of Global E-Marketing Issues

A. Capitalizing on changes
1. Users from other countries speaking languages other than English will increasingly dominate the
Internet
2. The Webs content and language will become more diversified
3. A countrys e-readiness profile influences marketing strategy and tactics
4. E-marketers must differentiate between industrialized nations and emerging economies

B. Global Markets
1. Worldwide Internet usage more than doubled between .2000-2004
2. Middle East saw Internet use grow over 200% in four years
3. Asia has the most Internet users at over 243 million
4. American has the highest Internet penetration rate at almost 70%

C. Emerging Economies
1. High levels of economic development (developed)
a. United States
b. Canada
c. Japan
d. Australia
2. Emerging economies
a. Mexico
b. Poland
c. Hungary
d. Romania
e. Russia
f. Ukraine

D. Importance of Information Technology

1. in economic development
a. Information technology opens up new, exciting, global markets
b. The Internet can jump-start many national economies
c. Allows for instant access to a global marketplace

2. Unique challenges
a. Slow connection speeds
b. High costs of domestic phone calls
c. ISP costs
d. Privacy concerns

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 e. Censorship
f. Navigation difficulties
g. Taxes
h. Lack of content in ones own language
i. Lack of local content
j. Limited credit card use
k. Lack of secure online payment methods
l. Unexpected power failures

II. Country and Market Opportunity Analysis

An e-marketing plan guides the marketer through the process of identifying and analyzing
potential markets. Market differences and market similarities must be measured and compared to
determine strengths and weaknesses.
A. Market similarity
1. Marketers will choose foreign markets that have similar characteristics
a. Literacy rates
b. High Internet usage rates
c. Clearly defined market segments willing to shop
d. Credit card usage rate
2. Parallel target market decision
a. Citizens living abroad
b. Using alternative methods of payment.

B. Credit Card Conundrum

1. Convenience and ease of transactions on the Internet
a. Credit cards and secure online payments are seamless and easy
b. Some countries are cash based
2. Considerations and alternatives
a. Limited credit card use can severely restrict a target markets purchasing ability
b. Marketers need to know how many credit cards are in circulation
c. Marketers need to understand consumer attitudes toward credit card purchases

C. E-Commerce Payment in the Czech Republic

1. E-marketers faced the challenges of limited credit card use and consumer skepticism.
2. Customers did not think shopping online was fun
3. Customers did not trust online brands
4. Firms reassured customers concerning online security
5. Alternative payments were accepted
a. Bank transfers
b. Cash on delivery
c. Postal orders
d. e-Bank debit cards specifically created for online buying

III. Technological Readiness Influences Marketing

Solving credit card payment issues was only one of several marketing challenges in emerging economies.
The following are several other issues that must be addressed.
A. Computers and Telephones
1. Computers
a. Historically and predominately, Internet connection is with a desktop PC and dial up ISP

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b. Emerging economy countries do not have many privately owned computers
c. Ukraine only 1.8% own personal computers
d. United States 62 computers for every 100 people
e. Creates opportunities for local, small business entrepreneurs
2. Telephone Internet connection
a. Telephone land lines are not as prevalent in emerging economies
b. Telephone services can be very expensive in emerging economies
c. Many emerging economy countries have more televisions, radios, motorcycles, etc than have
telephones

B. Internet Connection Costs

1. If an emerging economy customer has a telephone, chances are the Internet connections costs are
extremely high.
2. In Morocco, 30 hours of Internet service is $70 per month
3. Many customers in emerging economies have cell phones, but not land lines
C. Connection Speeds and Web Design: Broad bands Influence
1. E-marketers must analyze the relationship between Web site design and customers connection speeds.
a. Many feel the dial-up era is quickly coming to an end
b. Online companies with a diverse customer base must keep their Web sites simple
2. E-marketers must understand how connection speeds influence downloads rates
3. E-marketers and graphic designers must differentiate between what can be done and what
should be done.

D. Electricity Problems sporadic electricity poses a specific challenge for e-marketers. Internet based
business cannot complete transaction if customers have no electricity.

IV. Wireless Internet Access

A. Countries with emerging economies are often market leaders in cellular technology
B. Cell phone technology is relatively inexpensive and effective
C. Challenges e-marketers face
1. How to modify existing Web site content for smaller screens
2. How to resolve potentially cumbersome text entry with tiny keypads
3. How to develop new content that consumers will want
4. How to price services
5. How to develop easy, secure payment methods

V. The Digital Divide -In addition to the technical challenges they must overcome, e-marketers have to
consider the social environment in which their e-business operate.
A. Least Developed Countries (LDC)
1. Those countries with the worlds poorest economies
2. Economically underdeveloped
B. Dual Economy haves and have-nots
1. All emerging economies have upper and middle income citizens
2. Two completely different economies exist side by side in an LDC
C. Digital divide
1. This phenomenon is called the digital divide
2. That between countries and between different groups of people within countries, there is a wide
division between those who have real access to information and communications technology and are
using it effectively, and those who dont.

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3. 15% of the worlds population makes us 88% of all Internet users
4. The World Wide Web is not really worldwide

VI. China: Back to the Future

Many entrepreneurs look at Chinas vast population and see huge market potential. Some experts predict
that China will soon dominate the Internet. By 2008 China will have more than half a billion mobile
phone user and will have the greatest number of Internet users in the world
A. the Chinese market is big
1. Currently 87 million Internet users
2. Had an increase in broadband users of 78.7% in 6 months
3. Over 200 million current cell phone users
4. Total broadband subscribers totaled 31.1 million

B. It will only get bigger

1. Expected to have 500 million cell phone users by 2008
2. Expected to have more Internet users than any other country within the next 5 years

Interactive Marketing refers to the evolving trend in marketing whereby marketing has moved
from a transaction-based effort to a conversation. John Deighton argued that interactive marketing features
the ability to address an individual and the ability to gather and remember the response of that individual
leading to the ability to address the individual once more in a way that takes into account his or her unique
response(Deighton 1996). Interactive marketing is not synonymous with online marketing, although
interactive marketing processes are facilitated by internet technology. The ability to remember what the
customer has said is made easier when we can collect customer information online and we can
communicate with our customer more easily using the speed of the internet. Amazon.com is an excellent
example of the use of interactive marketing, as customers record their preferences and are shown book
selections that match not only their preferences but recent purchases.

Interactive Marketing - Customer Involvement in Brand Building

Interactive Marketing allows customers and prospects to participate in the process of building a brand's
image in a certain market or target group's minds. Thanks to the consumer's ability to "interrupt" a brand's
communications and to complement or modify its messages to fit his or her perception, the process of
building the brand itself is crowd sourced among its main target group, with or without the brand manager's
intervention. According to CEO of Situation Interactive, Damian Bazadona, "Customers have
unprecedented access to information about companies. With brands becoming more defined by actions and
not simply words, social networks, search engines and mobile device growth gives our consumers even
more power, so it's important to love customers, treat employees like gold and show a passion for what the
organization does.

Interactive Vs. Monologue Marketing Communication

A brand that only communicates with its consumers via massive one-way media is having a monologue and

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may not be heard actively by its audience. Interactive Communications take place when both sides pay
attention to the other, and a dialogue exists. Basis for a good interactive dialogue is the ability to interrupt
the other party at any time.

The shift towards interactive marketing is much attributed to greater consumer response and customer
acquisition rates.

For example, in interactive property marketing, consumers are able to view and experience an entire
development as they would on an entirely dynamic and interactive interface during mere construction
stages. Consumer interaction and understanding of the prospective project is dramatically enhanced leading
to higher confidence in the buying process. At the same time, the interactive technology can capture
consumer statistics including usage information and interests in a non-obtrusive manner that can then be
used to individually target to the consumer immediately or at a later stage.

Interactive Marketing - Site Stickiness

1. Understanding the user's behaviour is important in the design of the website itself.
This is referred to as site stickiness.

2. A user constantly makes judgements about the value of continuing or abandoning a

visit to a website; these judgements are based on the value of the current page, which
informs assumptions about the value of pages not seen.

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Interactive Marketing-Interactive marketing is a rapidly growing online trend moving
from a one-sided customer interaction to a conversation. This trend is being propelled by
improved Internet technology and the costumers desire for a better online user experience.
Customers want a business to address them directly and remember what type of history they
have had together. This includes past purchases, communication preferences and product
interests. It also includes giving the customer power to provide moment-to-moment feedback on
products and the company itself.

Example of Interactive Marketing:

One of the biggest innovators in interactive marketing is Amazon.com. They collect and digest
past visitor behavior, allowing them to show meaningful information in the present. Amazon
offers suggested reading selections based off of previous book searches or purchases. This type
of online environment makes for a very comfortable and personal shopping experience, leading
to longer stays within a site (sometimes referred to as site stickiness) and more purchases (also
referred to as conversions).

Relationship marketing
Relationship Marketing - Development, growth, and maintenance of long-term,
cost-effective relationships with individual customers, suppliers, employees, and other partners
for mutual benefit

The Shift from Transaction-Based Marketing to Relationship Marketing

Shift toward relationship marketing

Views customers as equal partners in transactions

Encourages long-term relationships, repeat purchases, and multiple brand

purchases from the firm

Leads to increased sales and low marketing costs

Forms of Buyer-Seller Interactions from Conflict to Integration

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CRM-Integration, RM-Cooperation, Transactions based marketing-conflict

Relationship Marketing

Focuses on long term rather than short term

Emphasizes retaining customers over making a sale

Ranks customer service as a high priority

Encourages frequent customer contact

Fosters customer commitment with the firm

Bases customer interactions on cooperation and trust

Elements of Relationship Marketing

Firms build long-term relationships in four ways

Gather information about their customers

Analyze the data and use it to modify the marketing mix

Monitor interactions with customers

Use customers preferences and knowledge

Three Levels of Relationship Marketing

First Level: Focus on Price- Most superficial level, least likely to lead to long-term
relationships

Marketers rely on pricing to motivate customers

Competitors can easily duplicate pricing benefits

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 Second Level: Social Interactions- Customer service and communication are key
factors

Example: A wine shop holding a wine-tasting reception

Third Level: Interdependent Partnership- Relationship transformed into structural

changes that ensure partnership and interdependence between buyer and seller

Example: Canadian software marketer Corel chose a cloud-based approach

Its tech-help agents can now answer customer queries via chat, telephone, the
Web, or social media

Targeting the individual customer

Individual marketing is defined as tailoring products and marketing programs to the needs and
preferences of individual customers. In this marketing strategy, products are customized to suit
each person.

One company that has been using this strategy for over a decade now is Build-A-Bear Workshop.
When thinking about which company succeeds using individual marketing, Build-A-Bear came
to me. When I brought my 7-year-old sister to the workshop, she had a difficult time making
decisions. That's because Build-A-Bear has over a hundred furry friends to select from,
numerous possible outfits and accessories for the stuffed animals, and multiple different sounds
to place into the bear along with its stuffing. Young boys and girls get excited when going to the
workshop because these furry friends are tailored to their liking. A typical customer walks in,
selects an animal, chooses a sound to be placed in it, stuffs the animal, grooms it, then selects an
outfit (or multiple) for his/her new friend. After creating a furry friend, a customer names it and
receives a unique birth certificate. Every customer walks out with a friend that is different from
the friends of previous and future customers. Every customer customizes a friend to their
preferences, and every customer is more satisfied this way.

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